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IJBS, Volume 10, Number 1, 2010 ISSN: 1553-9363

INTERNATIONAL JOURNAL OF
®
BUSINESS STRATEGY

SPONSORED BY:

www.csuci.edu

Managing Editors:

Professor Tahi J. Gnepa, Ph.D. Professor William P. Cordeiro, Ph.D.


California State University Stanislaus California State University Channel Islands

A Publication of the
International Academy of Business and Economics®
IABE.ORG
International Journal of Business Strategy®
Volume 10, Number 1, 2010 ISSN: 1553-9363

Managing Editors: Dr. Tahi J. Gnepa, California State University-Stanislaus, Turlock, California, USA
Dr. William P. Cordeiro, California State University-Channel Islands, California, USA

Editorial Board:
Dr. Cheick Wagué, Dean, South Stockholm University, Stockholm, Sweden
Dr. Bhavesh M. Patel, Pandit Deendayal Petroleum University, Gujrat, India
Dr. Sid Howard Credle, Dean, Hampton University, Hampton, Virginia, USA
Dr. Alan S. Khade, California State University-Stanislaus, Turlock, CA, USA
Dr. Zinovy Radovilsky, California State University East Bay, Hayward, California, USA
Dr. Phapruke Ussahawanitchakit, Mahasarakham University, Thailand
Dr. Khalid Alkhathlan, King Saud University- Al Kharj, Saudi Arabia
Dr. Palaniappan Thiagarajan, Jackson State University, Jackson, MS, USA
Dr. Ricarda B. Bouncken, University of Greifswald, Greifswald, Germany
Dr. C. B. Claiborne, Texas Southern University, Houston, Texas, USA
Dr. Ben-Jeng Wang, Tunghai University, Taichung, Taiwan, ROC
Dr. Marius D. Gavriletea, Babes Bolyai University, Cluj-Napoca, ROMANIA
Dr. Detelin Elenkov, Angelo State University, Texas, USA
Dr. Benoy Joseph, Cleveland State University, Cleveland, Ohio, USA
Dr. Vishnuprasad Nagadevara, Indian Institute of Management Bangalore, India
Dr. Ansgar Richter, European Business School, Oestrich-Winkel, GERMANY
Dr. David Ward, European School of Economics, Milan, ITALY
Dr. Moshe Zviran, Tel Aviv University, Tel Aviv, ISRAEL
Dr. Michael Benham, European Business School, GERMANY
Dr. Scott K. Metlen, University of Idaho, Moscow, Idaho, USA
Dr. Fred N. Silverman, Pace University, White Plains, New York, USA
Dr. Premilla D’Cruz, Indian Institute of Management, Ahmedabad, INDIA
Dr. Alain Nurbel, University of La Reunion, CERESUR, FRANCE
Dr. Anand Desai, Ohio State University, Columbus, OH, USA
Dr. Joy Bhadury, University of North Carolina, Greensboro, North Carolina, USA
Dr. Aharon Tziner, Dean, Netnaya University College, Netnaya, ISRAEL
Dr. John S. Croucher, Macquarie University, Sydney, AUSTRALIA
Dr. Eric Girard, Siena College, Loudonville, New York, USA
Dr. Ernesto Noronha, Indian Institute of Management, Ahmedabad, INDIA

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Printed and Published in Russia.

International Journal of Business Strategy, Volume 10, Number 1, 2010 ii


International Journal of Business Strategy
Volume 10, Number 1, 2010; ISSN: 1553-9363

A Welcome Note from the Managing Editors:


We proudly present to you a new issue of International Journal of Business Strategy (IJBS), Volume
10, Number 1, 2010, a publication of the International Academy of Business and Economics. In this
issue, we publish 11 papers on various topics in the business strategy and hope you will find them useful.
IJBS is sponsored by the California State University Channel Islands, California. IJBS is listed in the
Cabell’s Directories of Refereed Publications 2005-11 Edition. The Journal is also listed in the Ulrich’s
International Periodicals Directory since 2004. The IJBS has the ISSN (ISSN: 1553-9363) issued by the
Library of Congress, Washington. International Journal of Business Strategy (IJBS) is a Registered
Trademark of the International Academy of Business and Economics. IJBS is available online at EBSCO
Publishing and at the Cengage/Gale Publishing.

The academic foundations and real-world applications related to business and economics are rapidly
changing. Globalization is accelerating. Challenges for everyone are increasing daily. IJBS presents an
analytical perspective on these developments with a special focus on the strategic responses of
organizations facing such developments.

The response to this volume has been very gratifying. We wish to thank all authors who submitted such
an excellent selection of papers.

All submitted work to the Journal goes through a rigorous double blind review process of experts in the
functional area. We wish to thank the scholars who contributed their time and expertise as reviewers for
this issue. We are grateful to them and to our board members for donating their time for the cause of
academics and research that makes this Journal possible. Our reviewers are a diverse group, from many
academic areas and from many countries. We appreciate their dedication and especially for their work
under very tight deadlines.

This issue is dedicated to our contributors’ active participation in development of conceptual and applied
work for the international arena of business and economy.

We are indebted to California State University Channel-Islands for sponsoring this inaugural issue and
providing the invaluable editorial support necessary to the successful birth of the IJBS.

Our website, www.iabe.org, is completely redesigned for online paper submission, checking status of
your paper, and more. We invite you to visit our website and create your member account.

We welcome your comments and suggestions on this issue. We look forward to your paper submissions
for future issues.

Best regards,

William P. Cordeiro, Ph.D and Tahi J. Gnepa, Ph.D.


Managing Editors

International Journal of Business Strategy, Volume 10, Number 1, 2010 iii


International Journal of Business Strategy
Volume 10, Number 1, 2010; ISSN: 1553-9363

TABLE OF CONTENTS
Page
EFFECTS OF ALLIANCE EXPERIENCE, RESOURCE EXCHANGE AND TRUST ON 1
COMPETITIVE ADVANTAGE AND PERFORMANCE OF GOVERNMENT PROMOTED
INVESTMENT FIRMS IN THAILAND
Phapruke Ussahawanitchakit, Mahasarakham University, Thailand
Phaithun Intakhan, Lampang Rajabhat University, Thailand
Nantana Ooncharoen, Mahasarakham University, Thailand
COOPERATIVE TECHNOLOGY MANAGEMENT FOR CONSENSUS STANDARDIZATION: 16
DRAM STANDARDS AND IPRS
Masashi Arai, Rikkyo University, Japan
AN INTRA-ORGANIZATIONAL COMMUNICATION STRATEGY, ITS ANTECEDENTS AND 30
CONSEQUENCES: AN EMPIRICAL EXAMINATION OF COMPUTER BUSINESS IN
THAILAND
Nuanlaong Attharangsun, Mahasarakham University, Thailand
Phapruke Ussahawanitchakit, Mahasarakham University, Thailand
MEASURING THE IMPORTANCE OF ROE AND MARKET CAPITALIZATION: EVIDENCE 56
FROM THAILAND’S STOCK MARKET
PANU CHAOPRICHA, RATTANA BUNDIT UNIVERSITY, BANGKOK, THAILAND
Peng Chan, California State University-Fullerton, USA
SEEING THE INVISIBLE: USE OF COMPENSATION INFORMATION IN MARKET-BASED 63
VALUATION OF HUMAN CAPITAL
John Darcy, The University of Texas-Pan American, Edinburg, Texas, USA
STANDARDIZATION/ADAPTATION STRATEGIES OF SOUTH KOREAN FOOD PRODUCT 78
COMPANIES
Richard T. Hise, Texas A&M University-College Station, USA
Youngtae Choi, University of North Florida, Jacksonville, USA
Jongkuk Shin, Pusan National University, Geumjeong, Busan, Korea
Minsook Park, Pusan National University, Geumjeong, Busan, Korea
THE SOUTH KOREAN AUTOMOBILES AND SPARE PARTS EXPORT MARKET: AN 94
ASSESSMENT OF THE LEBANESE MARKET FOR THE KOREAN PRODUCTS AND
CONSUMER PREFERENCES
Nouri Beyrouti, Ph.D. Lebanese American University, Beirut, Lebanon
SYSTEMATIC LINKING OF ORGANIZATIONAL STRATEGY, HR STRATEGY AND TRAINING 104
STRATEGY ACROSS OLC
Hai-Ming Chen, Tamkang University, Tamsui, Taiwan
Shu-Tzu Hung, Tamkang University, Tamsui, Taiwan
THE ATTRACTION OF STUDENTS TO THE UNDERGRADUATE COURSE IN 115
MANAGEMENT: MULTICASE STUDY ON THE FACTORS ATTRACTING STUDENTS IN
JOINVILLE, SC
Emerson Wagner Mainardes –University of Beira Interior (UBI), Covilhã, Portugal
Helena Alves –University of Beira Interior (UBI), Covilhã, Portugal
Maria José Domingues – Regional Univ Regional of Blumenau (FURB), Blumenau, Brazil
COMPARATIVE STUDY OF KNOWLEDGE MANAGEMENT SUCCESS IN PUBLIC 127
ADMINISTRATION
Yong S. Choi, California State University, Bakersfield, California, USA
Seunghee Wie, California State University, Sacramento, California, USA
SURVIVAL STRATEGIES OF ASIAN EXPORTERS DURING ECONOMIC DOWNTURN: CASE 135
OF THAILAND
Lugkana Worasinchai, Bangkok University, Thailand
Dechanan Thanapob, Bangkok University, Thailand
Farhad Daneshgar, University of New South Wales, Australia

International Journal of Business Strategy, Volume 10, Number 1, 2010 iv


EFFECTS OF ALLIANCE EXPERIENCE, RESOURCE EXCHANGE AND TRUST ON COMPETITIVE
ADVANTAGE AND PERFORMANCE OF GOVERNMENT
PROMOTED INVESTMENT FIRMS IN THAILAND

Phapruke Ussahawanitchakit, Mahasarakham University, Thailand


Phaithun Intakhan, Lampang Rajabhat University, Thailand
Nantana Ooncharoen, Mahasarakham University, Thailand

ABSTRACT

This study aims at investigating the impacts of alliance experience, resource exchange and trust on
competitive advantage and performance via moderating influences of interorganizational relationship and
learning capability. Government promoted investment firms in the Thailand Board of Investment (BOI)
were chosen as the sample. The results indicate that alliance experience has a significant positive
association with both resource exchange and trust. Also, resource exchange is positively related to
competitive advantage and performance. Similarly, competitive advantage has an important effect on
performance. Surprisingly, both interorganizational relationship and learning capability are not moderators
of the aforementioned relationships. Then, alliance experience definitely affects competitive advantage
and performance via resource exchange as a moderator. Giving potential discussion with the research
results is effectively implemented in the study. Theoretical and managerial contributions are explicitly
provided. Conclusion and suggestions and directions of the future research are described.

Keywords: Government Promoted Investment Firms, Alliance Experience, Resource Exchange, Trust,
Interorganizational Relationship, Learning Capability, Competitive Advantage, Performance

1. INTRODUCTION

In the past two decades, interfirm collaboration has been an important issue which researchers and
executives have played more attention with it. Its forms most commonly pursued in practice include joint
venture, network, consortia, trade association, interlocking directorate, and alliance (Barringer and
Harrison, 2000). Alliance is one form of the interfirm collaboration. It has been an important strategy for
firms in order to operate, succeed and sustain in the competitive markets and environments and helps
them share knowledge and learning, acquire new opportunities and achieve business excellence. Also,
alliance is a competitive strategy for successively creative new product development (Takayama et al.,
2002) and a source of early-stage seed capital in new technology-based firms (Carayannis et al., 2000).
Firms can maintain originality as a core competence in ongoing new product development by utilizing a
licensed alliance product as a tool for maintaining and injecting this originality. Likewise, alliance
effectively establishes technology-based new ventures through processes of alliance formation, benefits
accruing from alliance formation, alternative market roles to forming an alliance, governance processes of
alliances, alternative sources of funding to forming alliance, and critical success and failure factors in
alliance formation. For the alliance operations, firms can learn unique competencies, valuable capabilities
and potential strategies, and gain successful knowledge from their own experiences and the experience
of others in order to survive in the future. Thus, more alliance experience tends to promote firms to
achieve competitive advantage, have superior performance, gain growth, and receive sustainability.
Hence, alliance experience becomes a main determinant of competitive advantage and performance in
the business environments.
With the alliance activities, alliance experience is the lessons learned as well as the know-how generated
through firms’ former alliances (Heimeriks and Duysters, 2007). It is an efficient way to alleviate
coordination challenges and a key factor that enhances firms’ alliance performance. Firms have exploited
alliance experience in order to improve their business practices and operations and develop their
expertises via identifying good partners, negotiation, alliance formation, interfirm control, knowledge
acquisition, and alliance modification (McCutchen et al., 2008). High alliance experience is likely to
enhance firms’ succeeding resource exchange, gaining valuable trust of alliance operations, having
unique competitive advantage, and achieving superior performance. To clearly understand firms’ alliance
experience, alliance experience is a core factor explaining alliance excellence and performance (deMan,
2005). It enhances firms to understand any partner’s behaviors, competencies, and cultures, attempt to

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 1


establish appropriate strategies and operations in doing businesses with the competitive markets, and
gain competitive advantage, good performance, and sustainability from their alliance activities. Thus,
alliance experience promotes better value creations, enhances higher competitiveness, has greater
organizational performance, and builds higher wealths of the firms. Likewise, firms with great
interorganizational relationship and high learning capability seem to explicitly succeed in their alliance
operations, practices and activities.

In this study, the relationships among alliance experience, resource exchange, trust, competitive
advantage, performance, interorganizational relationship, and learning capability are investigated. To
clearly verify the aforementioned relationships, government promoted investment firms in the Thailand
Board of Investment (BOI) are the sample of the study. These firms have achieved several supports from
Thai Government, namely, tax advantages in income taxes, material, supplies, and machines imported
taxes, and others. The owners of these firms are both foreigners and Thai people as joint venture
businesses. Then, government promoted investment firms are appropriate in this study. Alliance
experience tends to have an impact on competitive advantage and performance, and competitive
advantage is likely related to performance. Resource exchange and trust are proposed to become
mediators of the aforementioned relationships. Likewise, interorganizational relationship seems to
moderate the alliance experience-resource exchange association and the alliance experience-trust
association, and learning capability is proposed to moderate the resource exchange-performance
association and the trust-performance association.

Accordingly, alliance experience plays a significant role in explaining competitive advantage and
performance through resource exchange and trust as mediators and interorganizational relationship and
learning capability as moderators. Hence, the objective of this study is to test the effects of alliance
experience on competitive advantage and performance via mediating influences of resource exchange
and trust and moderating impacts of interorganizational relationship and learning capability of government
promoted investment firms in the Thailand Board of Investment (BOI). In this study, the key research
questions are: (1) how alliance experience has a significant effect on resource exchange and trust, (2)
how resource exchange and trust have an impact on competitive advantage and performance, (3) how
competitive advantage has a relationship with performance, (4) does interorganizational relationship
moderate the alliance experience-resource exchange associations, (5) does interorganizational
relationship moderate the alliance experience-trust associations, (6) does learning capability moderate
the resource exchange-performance associations, (7) does learning capability moderate the trust-
performance associations, and (8) are the aforementioned relationships positive.

This study is outlined as follows. The first section reviews existing significant literature in the areas and
streams of alliance experience, resource exchange, trust, interorganizational relationship, learning
capability, competitive advantage, and performance, links between the concepts of the aforementioned
variables, and develops the key research hypotheses of those relationships. The second section explicitly
describes the details of research methods, including data collection, measurements, and statistics. The
third section gives the analysis results of the current study and corresponding discussion with some of the
reasons and explanations. The final section summarizes the findings of the study and points both
theoretical and managerial contributions, and presents suggestions for further research and the
limitations of the study.

2. RELATIONSHIP MODEL AND HYPOTHESES DEVELOPMENT

Interestingly, this study aims at investigating the associations among alliance experience, resource
exchange, trust, competitive advantage, and performance of government promoted investment firms in
the Thailand Board of Investment. Also, interorganizational relationship and learning capability are
hypothesized to become moderators of the aforementioned associations. Thus, the conceptual, linkage,
and research model presents the associations among alliance experience, resource exchange, trust,
competitive advantage, performance, interorganizational relationship, and learning capability, as shown in
Figure 1 on next page.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 2


FIGURE 1
RELATIONSHIP MODEL OF ALLIANCE EXPERIENCE, COMPETITIVE ADVANTAGE AND
PERFORMANCE, AND THEIR MODERATORS AND MEDIATORS

H10

H1 Resource
Exchange
H8 H4
H3

Interorganizational Alliance Competitive H7 Learning


Relationship Experience Advantage Performance Capability

H5
H9 H6

Trust
H2

H11

2.1 Alliance Experience


Alliance experience is defined as the lessons learned as well as the know-how generated through firms’
former alliances (Heimeriks and Duysters, 2007). It can occur from their owning experiences and the
experience of others. Firms with great alliance experience have learned how to manage alliances through
transferring capabilities and repeating engagements in these hybrid organizational forms with diverse
partners (Hoang and Rothaermel, 2005). They definitely gain performance in the competitive markets.
Thus, alliance experience tends to enhance them for providing organizational routines with respect to
performing certain tasks and activities in order to have better competitive advantage and achieve superior
alliance performance. Also, alliance experience refers to the extent to which a firm acquires, analyzes,
and appropriates experiential learning throughout the organization (Emden et al., 2005). It is an efficient
way to alleviate coordination challenges and a key factor that enhances firms’ alliance performance.
Firms have exploited alliance experience in order to improve their business practices and operations and
develop their expertises via identifying good partners, negotiation, alliance formation, interfirm control,
knowledge acquisition, and alliance modification (McCutchen et al., 2008). Likewise, alliance experience
is a core factor explaining alliance excellence and performance (deMan, 2005). It enhances firms to
understand any partner’s behaviors, competencies, and cultures, attempt to establish appropriate
strategies and operations in doing businesses with the competitive markets, and gain competitive
advantage, good performance, and sustainability from their alliance activities. Hence, alliance experience
tends to promote better value creations, enhance higher competitiveness, have greater organizational
performance, and build higher wealths of the firms.

With the interest of the alliance activities, alliance experience is a critical predictor of alliance outcomes
and an important factor for creating superior organizational performance through facilitating interfirm
know-how transfer (Emden et al., 2005). In the alliance operations, firms have effectively utilized
exchanges of experiences, knowledges, capabilities, and resources within alliance partners in order to
establish valuable operational strategies and improve outstanding business excellence. They have also
exchanged financial and managerial resources. Thus, unique resource exchange becomes a significant
outcome of firms’ alliance experience. Similarly, alliance experience has potentially supported firms to
access resources of other partners for achieving overall performance (Kale et al., 2002). Firms are likely
to receive competitive advantage and gain more performance under the alliance perspectives via

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 3


implementing resource exchanges of external sources, such as technologies, production systems, and
others. While firms with alliance experience seem to succeed their resource exchange, trust is another
outcome of alliance experience that links to their competitive advantage and performance. They need to
trust other partners because they have exploited the partners’ experiences, knowledges, capabilities, and
resources, and transferred these resources to them. Then, firms with greater alliance experience tend to
encourage them for building and maintaining more trust. Hence, alliance experience has an important
influence on firms’ resource exchange and trust. Therefore, the aforementioned relationships
are hypothesized as shown below.

Hypothesis 1: Alliance experience has a positive influence on resource exchange.

Hypothesis 2: Alliance experience has a positive influence on trust.

2.2 Resource Exchange


Resource exchange is an outcome of alliance operations and activities. Firms with joining alliance
strategies need to utilize and exploit other partners’ resources and capabilities. Thus, resource exchange
becomes a significant consideration of firms in the collaborations of alliance. Resource exchange refers to
the mutual application of partners’ ideas, knowledge, technology, and other resources to promote each
other’s goals (Wong et al., 2007). It is a key driver of establishing and improving firms’ innovation success
and operational improvement via combining each other’s ideas and abilities. It supports them to achieve
unique and valuable resources, competencies, capabilities, and strategies from the alliance environments
in order to fulfill customer needs and market requirements and gain competitive advantage and business
success. Also, resource exchange between partners is important because it helps effectively allocate
appropriate resources for promoting and responding business type with each other (Hyder and Eriksson,
2005). Under the alliance formation, each firm needs to involve with other partners’ activities, practices,
and operations, and open and access to another partner’ resources, competences, and interests, such as
technology, production know-how, market knowledge, and contact with customers and manpower. Thus,
resource exchange is necessary for participating alliance activities, receiving competitiveness and good
performance in the markets and reaching sustainable business operations.

With alliance experience, alliance firms can definitely gain more success of resource exchange with the
business environments. They seem to enhance value creation through the benefits from leveraging
knowledge and discovering complementarities among technologies and partners’ activities (Hermens,
2001). Then, efficiency and effectiveness of resource exchange potentially fosters firms to perform well,
survive, and sustain in the competitive markets. Accordingly, tangible and intangible resource exchanges
are able to determine the direction and magnitude of value creation, competitive advantage,
organizational performance, and business excellence of firms with interfirm partners of alliance activities.
Hence, resource exchange with alliance operations is likely to enhance firms in order to exploit valuable
resources and capabilities, respond customer expectations well, have outstanding competitive advantage,
and achieve superior corporate performance. It effectively has a significant influence on alliance firms’
competitive advantage and organizational performance in the current and future operations. Therefore,
the aforementioned relationships are hypothesized as shown below.

Hypothesis 3: Resource exchange has a positive influence on competitive advantage.

Hypothesis 4: Resource exchange has a positive influence on performance.

2.3 Trust
Trust is a significant determinant of alliance success. It refers to the degree to which the focal firm
believes the partner firm is reliable (the belief of the partner honoring its obligations as agreed) and
possesses integrity (the belief of the partner being honest and doing what is right) (Perry et al., 2004).
Firms with great trust tend to motivate more alliance activities and operations and enhance alliance
competitiveness and performance. Likewise, trust is based in beliefs about how an alliance partner will
behave in the relationships (Cullen et al., 2000). It consists of credibility trust (the confidence of the
partner having the intent and ability to meet its obligations and make its promised contributions to the
alliance) and benevolent trust (the belief of the partner behaving with goodwill toward the alliance and the

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 4


partner). It effectively plays an important role in determining mutual adjustments of alliance partners and
promoting competitive advantage and alliance performance. Similarly, trust includes goodwill trust (the
expectation that the partner intends to fulfill its role in the relationship) and competence trust (the
expectation that the partners has the ability to fulfill its role (Lui and Ngo, 2004). Then, trust is an
important mechanism for enhancing alliance outcomes. Trust among partners is a substitute for formal
control mechanisms, reduces transaction costs, facilitate dispute resolution, and allow more flexibility in
an alliance (Bierly and Gallagher, 2007). Firms with higher trust are likely to have more confidence in
each other through the existence of social and economic governance mechanisms and promote greater
competitive advantage and better organizational performance in the alliance activities.

In the interest of trust in the alliance operations, trust is defined as the expectation of another’s reliability,
predictability and fairness (Lui et al., 2006). It definitely plays an important mediator in the relationships of
firm similarity and partner reputation with coercive strategy in the interfirm cooperations. Thus, firms have
utilized trust creation between partners in order to enhance business excellence and alliance profitability.
Moreover, trust is a key to valuable competitive advantage and successful international alliance (Parkhe,
1998). It can be generated from process-based, characteristic-based and institutional-based mechanisms
that are significant for achieving alliance success. It also has an effect on inward knowledge transfer in
intra- and inter-organizational relationships (Li, 2005). Hence, trust has a potential impact on firms’
competitive advantage and performance in the alliance practices. It is likely to promote successful
business operations, more competitiveness and superior outcomes. Therefore, the aforementioned
relationships are hypothesized as shown below.

Hypothesis 5: Trust has a positive influence on competitive advantage.

Hypothesis 6: Trust has a positive influence on performance.

2.4 Competitive Advantage


Competitive advantage is an outcome of firms’ successful strategy implementation. It can be obtained by
offering superior value to the customer through either unique benefits that offset a higher price or lower
prices than competitors for equivalent benefits (Wagner, 2006). For achieving a competitive advantage,
firms need to create positive value which equals or exceeds their competitors and outperforms other
competitors. They have taken their competitive advantages for supporting excellent business
performance. Building the competitive advantage, both low cost competition strategy and product
differentiation strategy (Tien et al., 2005). They become valuable strategies that help firms succeed in
business operations and gain better firm performance and growth. Similarly, competitive advantage is a
firm’s perceived competitive strength relative to competitors in markets (Navarro et al., 2010). It is a direct
antecedent of performance through the relative superiority of the firm’s value offered determines target
customers’ buying behaviors and the outcomes of this behavior for the performance. Accordingly, firms
can create competitive advantage by conceiving new ways to conduct activities in the value chain for
delivering superior value to customers (Weerawardena and O’Cass, 2004). Thus, competitive advantage
becomes a main driver for determining organizational performance. Hence, it is likely to enhance firms’
performance. Therefore, the aforementioned relationship is hypothesized as shown below.

Hypothesis 7: Competitive advantage has a positive influence on performance.

2.5 Interorganizational Relationship


To achieve more contributions of the relationships among alliance experience, resource exchange and
trust, interorganizational relationship is proposed as a moderator of the aforementioned relationships. It is
a key driver for moderating the alliance experience-resource exchange relationship and the alliance
experience-trust relationship. Here, interorganizational relationship refers to the combined efforts of two
or more organizations that join business activities and operations together very well. It is integral to the
operations of firms as a strategy to decrease environmental uncertainty, to gain access to much-needed
resources, and to better serve clients (Babiak, 2009). Also, interorganizational relationship effectively
helps firms create value by combining resources, sharing knowledge, increasing speed to market, and
gaining access to markets (Barringer and Harrison, 2000) and succeed in building online
interorganizational exchange (Pavlou, 2002) and implementing enterprise resource planning systems

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 5


(ERPs) (Nicolaou, 2008). They have potentially worked together well through transaction costs, resource
dependency, strategic choice, stakeholder concerns, organizational learning, and institutional
environments.

Likewise, interorganizational relationship is the power-dependence relationship which exists between the
firms via the state of cooperation and overall closeness of the relationship with a congruence of their
mutual expectations (Ritter and Gemunden, 2003). Firms with great interorganizational relationship
efficiently achieve more competencies in competitive markets. Hence, interorganizational relationship
seems to become a main determinant of promoting the alliance experience-resource exchange
relationship and the alliance experience-trust relationship. Thus, it tends to explicitly moderate the
relationships. Therefore, the aforementioned relationships are hypothesized as shown below.

Hypothesis 8: Interorganizational relationship positively moderates the alliance experience-resource


exchange associations.

Hypothesis 9: Interorganizational relationship positively moderates the alliance experience-trust


associations.

2.6 Learning Capability


Similar to the roles of interorganizational relationship as the moderating effects, learning capability is
proposed to become an important moderator of the resource exchange-performance relationship and the
trust-performance relationship. It is defined as the ability of the organization to implement the appropriate
management practices, structures and procedures that facilitate and encourage learning (Bhatnagar,
2006). It is the capacity of managers within an organization to generate and generalize ideas with impact
through learning commitment, systems thinking, knowledge transfer and integration, and openness and
experimentation. Firms with more learning capability definitely have greater competitive advantage and
enhance greater organizational performance. Likewise, learning capability refers to an organization’s
ability to absorb and transform new knowledge and apply it to new product development with competitive
advantage and high production speed (Hsu and Fang, 2009). High learning capability has a significant
positive influence on new product development performance. Accordingly, firms have utilized their
learning capabilities in order to achieve product innovation performance via experimentation, risk taking,
interaction with the external environment, and dialogue and participative decision making (Alegre and
Chiva, 2008).

Furthermore, learning capability is the ability of an organization to learn the lesson of its experience and
to pass those lessons across boundaries and time (Ingelgard et el., 2002). It enhances the capacity to
generate ideas with impact across multiple boundaries through specific management initiatives. Hence,
learning capability is the ability of organizations to promote, continuously develop and sustain abilities to
learn and create new actionable knowledge (Prieto and Revilla, 2006). It is an important antecedent of
business performance. While learning capability is a significant determinant of competitive advantage and
organizational performance, it then seems to become a valuable moderator of the relationships between
performance and other antecedents. Thus, learning capability is likely to moderate the resource
exchange-performance relationship and the trust-performance relationship. Therefore, the
aforementioned relationships are hypothesized as shown below.

Hypothesis 10: Learning capability positively moderates the resource exchange-performance


associations.

Hypothesis 11: Learning capability positively moderates the trust-performance associations.

3. RESEARCH METHODS

3.1 Sample Selection and Data Collection Procedure


Here, government promoted investment firms in the Thailand Board of Investment (BOI) are the samples
of the study. They got several supports from Thai Government, namely, tax advantages in income taxes,
material, supplies, and machines imported taxes, and others. The owners of these firms are both

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 6


foreigners and Thai people as joint venture businesses. Also, the joint ventures are one type of alliances
(deMan, 2005). Thus, the government promoted investment firms is appropriate for this study.

In this study, 1008 firms were randomly chosen from the list. A mail survey procedure via the
questionnaire was used for data collection. The key participants in this study were managing directors or
managing executives of government promoted investment firms in the BOI. With regards to the
questionnaire mailing, 129 surveys were undeliverable because some firms were no longer in business or
had moved to unknown locations. Deducting the undeliverable from the original 1008 mailed, the valid
mailing was 879 surveys, from which 316 responses were received. Of the surveys completed and
returned, only 294 were usable. The effective response rate was approximately 33.44%. According to
Aaker, Kumar and Day (2001), the response rate for a mail survey, without an appropriate follow-up
procedure, is less than 20%. Thus, the response rate of this study is considered acceptable.

To test potential and non-response bias and to detect and consider possible problems with non-response
errors, the assessment and investigation of non-response-bias was centered on two different procedures:
(1) a comparison of sample statistics and known values of the population, such as number of employees,
number of years in doing business, and amount of capital funding, and (2) a comparison of first wave and
second wave data recommended by Armstrong and Overton (1977). Neither procedure showed
significant differences.

3.2 Variables
All variables were obtained from the survey. Performance is a dependent variable and it is defined as an
outcome of business operations, practices and activities. Four scale items were developed to evaluate
firms that achieve the level and degree of non-financial performance.

Alliance experience is an independent variable of the study and it refers to the extent to which a firm
acquires, analyzes, and appropriates experiential learning throughout the organization (Emden et al.,
2005). Four scale items were developed to assess the degree to which firms acquire, analyze, and
appropriate experiential learning throughout the partners in the alliance activities.

Mediating variables include resource exchange, trust and competitive advantage. First, resource
exchange refers to the mutual application of partners’ ideas, knowledge, technology, and other resources
to promote each other’s goals (Wong et al., 2007). Four scale items were utilized to measure the degree
to which firms apply partners’ ideas, knowledge, technology, and other resources to promote each other’s
goals. Second, trust refers to the degree to which the focal firm believes the partner firm is reliable and
possesses integrity (Perry et al., 2004). Four scale items were implemented to evaluate the degree to
which firms believe the partner firm is reliable and possesses integrity. Third, competitive advantage
refers to offering superior value to the customer through either unique benefits that offset a higher price or
lower prices than competitors for equivalent benefits (Wagner, 2006). Four scale items were adapted to
assess the degree to which firms offer superior value to the customer through either unique benefits that
offset a higher price or lower prices than competitors for equivalent benefits.

For the moderating influences of the research relationships, interorganizational relationship is defined as
the combined efforts of two or more organizations that join business activities and operations together
very well. Three scale items were implemented to gauge the degree to which firms join business activities
and operations together with others. Also, learning capability is defined as the ability of the organization to
implement the appropriate management practices, structures and procedures that facilitate and
encourage learning (Bhatnagar, 2006). Three scale items were developed to assess the degree to which
firms implement the appropriate management practices, structures and procedures that facilitate and
encourage learning.

Likewise, the control variables were also likely to affect the relationships, including firm experience, firm
size, and firm capital. Firm experience (FE) may influence a firm’s technological learning capacity,
international business activities, and the profitability of foreign operations (Zahra, Ireland, and Hitt, 2000).
It was measured by the number of years a firm has been in existence. Firm size (FS) may affect the ability
to learn and diversify operations, and to survive in the markets (Arora and Fosfuri, 2000). It was

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 7


measured by the number of employees in a firm. Finally, firm capital (FC) may impact the capacity of a
firm to implement business strategies in order to achieve superior performance (Ussahawanitchakit,
2007). It was measured by the amount of money a firm has invested in doing business.

3.3 Methods
First, factor analysis was utilized to examine, measure, investigate, and assess the underlying
relationships of a large number of items and to determine whether they can be reduced to a smaller set of
factors. The factor analyses conducted were done separately on each set of the items representing a
particular scale due to limited observations. With respect to the confirmatory factor analysis, this analysis
has a high potential to inflate the component loadings. Thus, a higher rule-of-thumb, a cut-off value of
0.40, was adopted (Nunnally and Bernstein, 1994). All factor loadings are greater than the 0.40 cut-off
and are statistically significant. Second, the reliability of the measurements was evaluated by Cronbach
alpha coefficients. In the scale reliability, Cronbach alpha coefficients are greater than 0.70 (Nunnally and
Bernstein, 1994). The scales of all measures appear to produce internally consistent results; thus, these
measures are deemed appropriate for further analysis because they express an accepted validity and
reliability in this study. Table 1 presents the results for both factor loadings and Cronbach alpha for
multiple-item scales used in this study.

TABLE 1
RESULTS OF MEASURE VALIDATION

Items Factor Loadings Cronbach Alpha


Performance (PF) .76-.85 0.81
Alliance Experience (AE) .77-.86 0.84
Resource Exchange (RE) .84-.92 0.90
Trust (TR) .90-.92 0.80
Competitive Advantage (CA) .71-.83 0.79
Interorganizational Relationship (IR) .75-.89 0.96
Learning Capability (LC) .95-.97 0.79

The ordinary least squares (OLS) regression analysis is used to test and examine the hypothesized
relationships of alliance capability and its consequences, including moderating effects. Because all
dependent variable, independent variables, and control variables in this study were neither nominal data
nor categorical data, OLS is an appropriate method for examining the hypothesized relationships (Aulakh,
Kotabe and Teegen, 2000). With the need to understand the relationships in this study, the research
model of the aforementioned relationships is as follows.

Equation 1: RE = 01 + 1AE + 2IR + 3AE*IR + 4FE + 5FS + 6FC + 

Equation 2: TR = 02 + 7AE + 8IR + 9AE*IR + 10FE + 11FS + 12FC + 

Equation 3: CA = 03 + 13RE + 14TR + 15FE + 16FS + 17FC + 

Equation 4: PF = 04 + 18RE + 19TR + 20LC + 21RE*LC + 22RE*LC + 23FE + 24FS


+ 25FC + 

Equation 5: PF = 05 + 26CA + 27FE + 28FS + 29FC + 

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 8


4. RESULTS AND DISCUSSION

Table 2 shows the descriptive statistics and correlation matrix for all variables. With respect to potential
problems relating to multicollinearity, variance inflation factors (VIF) were used to provide information on
the extent to which non-orthogonality among independent variables inflates standard errors. The VIFs
range from 1.00 to 1.54, well below the cut-off value of 10 recommended by Neter, Wasserman and
Kutner (1985), meaning that the independent variables are not correlated with each other. Therefore,
there are no substantial multicollinearity problems encountered in this study.

Table 3 presents the results of OLS regression analysis of the relationships among alliance experience,
resource exchange, trust, and interorganizational relationship. In this study, alliance excellence has a
significant positive impact on resource exchange (b1a = 0.56, p < 0.01; b1b = 0.40, p < 0.01) and also has
an important positive effect on trust (b7a = 0.59, p < 0.01; b2b = 0.59, p < 0.01). According to Heimeriks
and Duysters (2007), alliance experience is the lessons learned as well as the know-how generated
through firms’ former alliances. It can occur from their owning experiences and the experience of others.
Firms with great alliance experience have learned how to manage alliances through transferring
capabilities and repeating engagements in these hybrid organizational forms with diverse partners. In the
alliance operations, firms have effectively utilized exchanges of experiences, knowledges, capabilities,
and resources within alliance partners in order to establish valuable operational strategies and improve
outstanding business excellence. Similarly, firms need to trust other partners because they have exploited
the partners’ experiences, know ledges, capabilities, and resources, and transferred these resources to
them. Then, firms with greater alliance experience tend to encourage them for building and maintaining
more trust. Thus, Hypotheses 1-2 are supported.

Surprisingly, interorganizational relationship does not moderate the alliance experience-resource


exchange (b3 = -0.07, p < 0.29) and the alliance experience-trust (b9 = -0.01, p < 0.84). With the existing
literatures, interorganizational relationship is the combined effort of two or more organizations that join
business activities and operations together very well. It is integral to the operations of firms as a strategy
to decrease environmental uncertainty, to gain access to much-needed resources, and to better serve
clients (Babiak, 2009). It effectively helps firms create value by combining resources, sharing knowledge,
increasing speed to market, and gaining access to markets and succeed in building online
interorganizational exchange, and implementing enterprise resource planning systems. They have
potentially worked together well through transaction costs, resource dependency, strategic choice,
stakeholder concerns, organizational learning, and institutional environments. Thus, interorganizational
relationship similarly has a direct influence on resource exchange (b2 = 0.40, p < 0.01) and trust (b8 =
0.43, p < 0.01). Hence, it has no impact on the alliance experience-resource exchange association and
the alliance experience-trust association. Thus, Hypotheses 8-9 are not supported.

TABLE 2
DESCRIPTIVE STATISTICS AND CORRELATION MATRIX

Variables PF AE RE TR CA IR LC FE FS FC
Mean 3.68 3.84 3.93 3.99 3.57 3.94 3.89 10.60 143.00 92.00
Standard Deviation 0.60 0.57 0.58 0.81 0.63 0.57 0.67 5.65 115.00 58.00
Performance (PF)
Alliance Experience (AE) 0.37***
Resource Exchange (RE) 0.46*** 0.57***
Trust (TR) 0.42*** 0.59*** 0.79***
Competitive Advantage (CA) 0.31*** 0.31*** 0.46*** 0.42***
Interorganizational Relationship (IR) 0.59*** 0.40*** 0.58*** 0.45*** 0.48***
Learning Capability (LC) 0.56*** 0.45*** 0.60*** 0.55*** 0.65*** 0.61***
Firm Experience (FE) 0.26*** 0.04 0.18** 0.15 0.16 0.15 0.24***
Firm Size (FS) 0.21** 0.07 0.09 0.04 0.14 0.13 0.22*** 0.46***
Firm Capital (FC) 0.20** 0.03 0.08 0.07 0.15 0.15 0.16 0.36*** 0.49***
*** p<.01, ** p<.05

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 9


TABLE 3
RESULTS OF OLS REGRESSION ANALYSISa

Independent Dependent Variable


Variables RE RE RE TR TR TR
AE 0.56*** 0.40*** 0.59*** 0.59***
(0.07) (0.07) (0.07) (0.07)
IR 0.40*** 0.43***
(0.07) (0.09)
AE*IR -0.07 -0.01
(0.05) (0.06)
FE 0.17* 0.16** 0.13* 0.17* 0.16** 0.16**
(0.08) (0.07) (0.06) (0.08) (0.07) (0.07)
FS -0.01 -0.04 -0.06 -0.06 -0.09 -0.10
(0.08) (0.06) (0.06) (0.08) (0.06) (0.06)
FC 0.02 0.03 -0.02 0.03 0.07 0.04
(0.08) (0.07) (0.06) (0.08) (0.07) (0.07)
2
Adjusted R 0.01 0.33 0.46 0.01 0.35 0.35
*p<.10, **p<.05, ***p<.01, a Beta coefficients with standard errors in parenthesis.

Table 4 shows the results of OLS regression analysis of the relationships among resource exchange,
trust, competitive advantage, performance, and learning capability. Resource exchange has a significant
positive impact on competitive advantage (b13 = 0.32, p < 0.01) and performance (b18 = 0.31, p <
0.01).Resource exchange is the mutual application of partners’ ideas, knowledge, technology, and other
resources to promote each other’s goals (Wong et al., 2007). It is a key driver of establishing and
improving firms’ innovation success and operational improvement via combining each other’s ideas and
abilities. It supports them to achieve unique and valuable resources, competencies, capabilities, and
strategies from the alliance environments in order to fulfill customer needs and market requirements and
gain competitive advantage and business success. Therefore, resource exchange is necessary for
participating alliance activities, receiving competitiveness and good performance in the markets and
reaching sustainable business operations. Accordingly, greater resource exchange is related to higher
competitive advantage and better performance. Thus, Hypotheses 3-4 are supported.

In contrast, trust has no effects on competitive advantage (b14 = 0.16, p < 0.19) and performance (b19a =
0.16, p < 0.19; b19b = 0.08, p < 0.47). In the trust literatures, trust is the degree to which the focal firm
believes the partner firm is reliable (the belief of the partner honoring its obligations as agreed) and
possesses integrity (the belief of the partner being honest and doing what is right) (Perry et al., 2004).
Firms with great trust tend to motivate more alliance activities and operations and enhance alliance
competitiveness and performance. Likewise, trust effectively plays an important role in determining
mutual adjustments of alliance partners and promoting competitive advantage and alliance performance.
It includes goodwill trust (the expectation that the partner intends to fulfill its role in the relationship) and
competence trust (the expectation that the partners has the ability to fulfill its role. Then, trust is an
important mechanism for enhancing alliance outcomes. However, trust has no relationships with
competitive advantage and performance because it is a requirement of interfirm collaboration and alliance
activities. Before a firm establishes the interfirm collaboration operations, practices, and activities, it needs
to definitely trust other partners. Thus, the interfirm collaboration is successful. Thus, Hypotheses 5-6 are
not supported.

For the competitive advantage effect, competitive advantage has an important influence on performance
(b26 = 0.65, p < 0.01). It is obtained by offering superior value to the customer through either unique
benefits that offset a higher price or lower prices than competitors for equivalent benefits (Wagner, 2006).
For achieving a competitive advantage, firms need to create positive value which equals or exceeds their
competitors and outperforms other competitors. They have taken their competitive advantages for
supporting excellent business performance and become valuable strategies that help firms succeed in
business operations and gain better firm performance and growth. Similarly, competitive advantage is a
firm’s perceived competitive strength relative to competitors in markets (Navarro et al., 2010). It is a direct

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 10


antecedent of performance through the relative superiority of the firm’s value offered determines target
customers’ buying behaviors and the outcomes of this behavior for the performance. Thus, Hypothesis 7
is supported.

With the interest of learning capability, learning capability does not moderate the resource exchange-
performance relationship (b21 = -0.07, p < 0.64) and the trust-performance relationship (b22 = -0.06, p <
0.66). It is the ability of the organization to implement the appropriate management practices, structures
and procedures that facilitate and encourage learning (Bhatnagar, 2006). It is also the capacity of
managers within an organization to generate and generalize ideas with impact through learning
commitment, systems thinking, knowledge transfer and integration, and openness and experimentation.
Firms with more learning capability definitely have greater competitive advantage and enhance greater
organizational performance. Likewise, it is an organization’s ability to absorb and transform new
knowledge and apply it to new product development with competitive advantage and high production
speed (Hsu and Fang, 2009). High learning capability has a significant positive influence on new product
development performance. Accordingly, firms have utilized their learning capabilities in order to achieve
product innovation performance via experimentation, risk taking, interaction with the external
environment, and dialogue and participative decision making (Alegre and Chiva, 2008). Thus, learning
capability has a direct impact on resource performance (b20 = 0.36, p < 0.01). Hence, it has no effects on
the resource exchange-performance association and the trust-performance association. Thus,
Hypotheses 10-11 are not supported.

TABLE 4
RESULTS OF OLS REGRESSION ANALYSISa

Independent Dependent Variable


Variables CA CA PF PF PF PF
RE 0.32*** 0.31*** 0.12
(0.12) (0.12) (0.12)
TR 0.16 0.16 0.08
(0.12) (0.12) (0.11)
CA 0.65***
(0.06)
LC 0.36***
(0.09)
RE*LC -0.07
(0.09)
TR*LC -0.06
(0.10)
FE 0.11 0.03 0.19** 0.11 0.09 0.12*
(0.08) (0.08) (0.08) (0.07) (0.07) (0.06)
FS 0.05 0.06 0.07 0.08 0.01 0.04
(0.08) (0.07) (0.08) (0.07) (0.07) (0.06)
FC 0.08 0.07 0.10 0.09 0.09 0.05
(0.08) (0.07) (0.08) (0.07) (0.07) (0.06)
2
Adjusted R 0.02 0.21 0.06 0.24 0.34 0.47
*p<.10, **p<.05, ***p<.01, a Beta coefficients with standard errors in parenthesis.

5. CONTRIBUTIONS AND FUTURE DIRECTIONS FOR RESEARCH

5.1 Theoretical Contributions and Future Directions for Research


This study is intended to provide a clearer understanding of the relationships among alliance experience,
resource exchange, trust, competitive advantage, performance, interorganizational relationship, and
learning capability. The study provides unique theoretical contributions expanding on previous knowledge
and literature of alliance experience, resource exchange, trust, competitive advantage, performance,
interorganizational relationship, and learning capability. For advancing the field theoretically, this study is
one of the first known studies to directly link alliance experience to competitive advantage and

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 11


performance via mediators of resource exchange and trust and moderators of interorganizational
relationship and learning capability of government promoted investment firms in the Thailand Board of
Investment (BOI). In addition, this study assesses the importance of alliance experience relative to
competitive advantage and performance, and competitive advantage relative to performance of
government promoted investment firms in the Thailand Board of Investment. According to the results of
this study, the need for further research is apparent. Because this study finds that trust does not influence
competitive advantage and performance, and both interorganizational relationship and learning capability
are not the moderators of the aforementioned relationships, future research is needed to conceptualize
the measurements of trust, interorganizational relationship and learning capability and find some
explanations about why trust does not affect competitive advantage and performance, and
interorganizational relationship and learning capability do not play moderating roles in the research model
while the existing literatures find the different results. Likewise, while the importance of alliance
experience still exists, this study finds that alliance experience can impact competitive advantage and
performance via mediating influence of resource exchange. Future research is needed to collect data
from other populations and/or a comparative population in order to increase the level of reliable results.

5.2 Managerial Contributions


Another implication now exists for firm owners, executives, and managers. This study helps managers
identify and justify key components that may be more critical in a rigorously competitive market.
Managers should effectively understand, manage, and utilize alliance experience to improve competitive
advantage and performance, sustain, and succeed in the present and future operations. These managers
may put more emphasis on alliance experience than on other variations. In the challenge of alliance
experience, managers can understand and exploit them within the organization, but they should also plan
to expand their other strategies to include or graduate to an advanced business operation in order to
continuously maintain and increase the levels of business excellence, competitive advantage,
organizational growth, and sustainability. To maximize the benefits of alliance experience, managers
should provide other resources to support their effectiveness and create new opportunities in the
competitive markets and environments.

6. CONCLUSION

This study examines the effects of alliance experience on competitive advantage and performance of
government promoted investment firms in the Thailand Board of Investment. Resource exchange and
trust are proposed as mediators of the relationships and interorganizational relationship and learning
capability are moderators of the relationships. With the results of the study, alliance experience has a
significant positive influence on resource exchange and trust. Resource exchange has an important
impact on competitive advantage and performance. Also, competitive advantage is positively related to
performance. However, interorganizational relationship does not moderate the alliance experience-
resource exchange association and the alliance experience-trust association. Learning capability does
not moderate the resource exchange-performance association and the trust-performance association. As
growth and sustainability necessitates an increased excellent operation, research analyzing this
methodology will contribute significantly toward understanding how government promoted investment
firms in the Thailand Board of Investment identify and build alliance experience and exploit it to potentially
gain business excellence, effectively enhance competitive advantage, distinguishably receive
performance, success and growth, and critically achieve competitiveness in the competitive markets and
environments.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 12


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AUTHOR PROFILES:

Dr. Phapruke Ussahawanitchakit earned his Ph.D. at Washington State University, USA in 2002.
Currently he is an associate professor of accounting and a dean of the Faculty of Accountancy and
Management, Mahasarakham University, Thailand.

Dr. Phaithun Intakhan earned his Ph.D. at Mahasarakham University, Thailand in 2009. Currently he is a
lecturer of accounting at Faculty of Management Science, Lampang Rajabhat University, Thailand.

Dr. Nantana Ooncharoen earned her Ph.D. at Mahasarakham University, Thailand in 2009. Currently
she is a lecturer at the Faculty of Tourism and Hotel Management, Mahasarakham University, Thailand.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 15


COOPERATIVE TECHNOLOGY MANAGEMENT FOR CONSENSUS STANDARDIZATION:
DRAM STANDARDS AND IPRS

Masashi Arai, Rikkyo University, Japan

ABSTRACT
This paper discusses the consensus standardization and technology management of companies.
Modern corporate environments embrace both competition and cooperation, and standardization is
regarded as an important competitive advantage for companies. Some high-tech industries establish
consortia and decide common standards for all companies in an industry. However, this
standardization process would not lead to competitive advantage for each company because

companies cannot take advantage of their own technologies and patents for differentiation.
Companies need to cooperate with competitors for using their IPRs (Intellectual Property Rights;
patents) to avoid patent litigation among competitors for time-to-market advantage. In the

semiconductor industry in particular, companies that acquire significant patents that become required
standards find themselves in the tragedy of the anti-commons. They choose consensus
standardization in industry consortia not only in order to speedily and reliably determine a standard but
also to manage members’ patents rights efficiently and reasonably. However, consensus
standardization impedes differentiation among competitors, even in high-tech industries. While
standardization is important for the commercialization of products, consensus standardization is a
means of cooperation.

Keywords: Consensus Standardization, Technology Management, IPRs, Competition and


Cooperation.

1. INTRODUCTION

Many scholars (Cargill, C. F., 1989; Jakobs, K., 2000) have studied standardization, but their main
interest is ‘de-facto standardization’ for competitive advantage in global competition. As a result,

standardization is considered an effective means of technology management for competitive


advantage. In fact, the importance of standardization increased for companies in the 21st century
because the ICT (Information and Communication Technology) revolution and modularity led to global

networks and request compatibilities. Recently, however, it has become difficult for a company to have
its own technologies set a global standard. Three reasons for this are as follows: first, the change in
the global business environment—shortening product life cycles and intensifying standardization

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 16


competition; second, the flattening of the world market, with developing countries’ R&D ability
increasing and catching up with that of developed countries; and, finally, excessive patents leading to
the tragedy of the anti-commons.
In recent years, we can observe a number of cases of consensus standardization, especially in global
high-tech industries. Consensus standardization is the process by which all the companies competing
in an industry agree to industry standards. This process requires that companies cooperatively discuss
a standard in consortia or similar organizations with global membership, in order to avoid
counter-productive competition among their technology candidates for a standard, infringing on others’
patents and delaying time-to-market while embroiled in standardization battles, particularly in this era
of shortening product life-cycles.
However, consensus standards have not been studied in sufficient detail. This paper reveals how

consensus standardization affects companies’ technology management.

2. LITERATURE REVIEW

The traditional multinational companies (MNCs) expand business overseas with superior technologies.
Technological advantage is an important factor in multinationalization because technologies are
critically important resources for companies (Vernon, R. [1966, 1971], Kindleberger, C.P. [1969], Caves,
R.E. [1971], Hymer, S.H. [1976], Casson, M. [2000]). The earlier studies defined competitive
advantage in terms of differentiation or cost reduction (Vernon, R. [1966, 1971], Kindleberger, C.P.
[1969], Caves, R.E. [1971], Hymer, S.H. [1976], Porter, M. E. [1983, 1986]), and in that context,
companies’ technology strategy affects product differentiation and cost reduction.

3. TWO NEW ASPECTS OF TECHNOLOGY MANAGEMENT

Two tactics of technology management lead to competitive advantage. One is the research and
development (R&D) that results in the invention and development of new technologies. The other is
patenting the technologies to protect the companies’ rights. According to prior studies, companies used
to be able to do R&D freely and control their patents independently for competitive advantage. In

recent studies, however, companies, especially those in high-tech industries, have difficulty in gaining
competitive advantage alone because of two new aspects of technology management: competition
and cooperation (Takeda, 2001, 2006, and 2008). The earlier studies did not sufficiently consider

technology cooperation between companies, although they did mention that companies might achieve
competitive advantage through independent technology management.
An environment composed of competition and cooperation is often demonstrated in high-tech

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 17


industries because they require compatibility in networks, modules and many other technologies.
Especially in high-tech industries, technologies are more complex, and products contain diverse
technologies. Nevertheless, because each company has generated many patents of their technologies
every year for the past few decades, different versions of the same technologies are dispersed among
many companies in the same industry. Thus, competitors must cooperate on standards for their
technologies if they hope to create a functioning product with a short time-to-market. In this business
model, companies compete against each other, but their technologies are partially common.
Consequently, as high-tech industries are very technology-oriented, companies are compelled to
differentiate their technologies against those of competitors on the non-standardized features of their
products.

4. THE TRAGEDY OF THE ANTI-COMMONS IN HIGH-TECH INDUSTRIES

Patents are one of the intellectual property rights that do not change in substance for a long period.

They have always been a popular resource for companies (Table 1). However, companies became
more focused on patents after 1985 because of the pro-patent policy in the United States. After that,
Japanese, European and U.S. companies as well as global MNCs applied aggressively for technology
patents. The purpose of patents is typically to protect the owner’s technologies from imitation and to
license them to other companies, but patents have increased markedly in certain technology areas.
Companies focusing on these technology areas find it difficult to develop technologies without
infringing upon others’ patent rights or encountering prohibitive development costs. This phenomenon,
the tragedy of the anti-commons (Heller and Eisenberg, 1998), has been pointed out by prior studies in
the case of chemical industries, but this phenomenon has also begun to occur of late in high-tech
industries.
Table 2 on next page shows the number of patents of companies with high numbers of patents
reported by the United States Patent and Trademark Office (USPTO) and the R&D expenditure of each
company. Companies that have the most patents in the U.S. are in the semiconductor industry, with
products such as DRAM, CPU and NAND-type flash memory. These companies include Intel, Micron,
Infineon, Texas Instruments, Renesas, AMD and Hynix; in addition, IBM, Samsung, Toshiba and other

companies have semiconductor divisions. The semiconductor patents column of Table 2 shows the
number of patents selected by keywords related to semiconductors from the USPTO database,
revealing that companies have obtained many patents related to semiconductors within one year

(2006).

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 18


TABLE 1: SEMICONDUCTOR PATENS OF U.S. COMPANIES (1952–1967)

1952 1955 1958 1961 1964 1967

Bell Lab. 34 27 51 67 41 41

RCA 14 10 57 33 41 63

GE 5 11 35 36 38 64

Westing House 2 4 21 21 23 46

Sylvania 1 1 19 7 9 12

Philco-Ford 0 1 7 13 8 9

Raytheon 0 1 10 6 3 4

Tung-Sol 0 1 3 2 2 4

Columbia Broadcasting System 0 2 1 0 0 0

IBM 1 1 15 37 47 46

Texas Instruments 0 0 9 13 16 52

Motorola 0 2 8 10 8 39

Hughes 0 3 18 9 9 16

Honeywell 0 0 5 12 15 9

Sperry Rand 0 1 5 6 11 15

GM 0 0 5 12 8 16

ITT 2 4 15 6 6 9

Clerite 0 3 3 7 17 2

Bendix 0 0 2 9 3 6

Thompson Ramo Wooldridge 0 0 3 18 2 0

Fairchild 0 0 0 4 6 11

Sprague 0 0 2 1 5 5

Others 1 0 16 12 7 10

Total 60 73 307 341 325 479

Source: Tilton, J. E. (1971), International Diffusion of Technology, p. 57


Patents are fruits of R&D, an investment from which companies expect innovation and new
technologies for which the companies can apply to the USPTO for patents. Therefore, companies incur
huge costs for patents, and this investment is higher for companies in the semiconductor industry than
those in other industries.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 19


TABLE 2: U.S. PATENTS RANKING AND R&D INVESTMENTS (2006)

Granted
Patents, Net R&D

Number Patents Related Process R&D Revenue Expenditure


of to (Class: Expenditure (millions /Net
Patents Semiconductors 438) (millions $) $) Revenue

IBM 3621 938 232 6107 91424 6.7%

SAMSUNG 2451 951 244 6152 91954 6.7%

CANON 2367 833 20 2591 34931 7.4%

MATSUSHITA 2229 765 0 4899 77188 6.3%

HEWLETT-
PACKARD 2099 437 31 3611 104286 3.5%

INTEL 1959 704 143 5873 35382 16.6%

SONY 1771 770 62 4610 70303 6.6%

HITACHI 1732 841 37 3750 86847 4.3%

TOSHIBA 1672 1029 116 3339 60308 5.5%

MICRON 1610 1231 428 805 5688 14.2%

FUJITSU 1487 538 54 2153 43222 5.0%

SEIKO EPSON 1200 496 74 365 11995 3.0%

FUJI PHOTO FILM 906 289 3 1500 23581 6.4%

INFINEON 890 537 136 1662 10903 15.2%

TEXAS
INSTRUMENTS 880 370 129 2195 14255 15.4%

NEC 728 390 13 2836 39429 7.2%

RICOH 693 228 4 974 17533 5.6%

SHARP 665 391 25 1623 26733 6.1%

BROADCOM 660 218 2 1117 3668 30.5%

RENESAS 583 536 78 - - -

SANYO 516 187 36 1079 18775 5.7%

TSMC 471 424 169 493 9739 5.1%

AMD 439 331 137 1205 5649 21.3%

HYNIX 438 357 130 35 8148 0.4%


1
Source: USPTO (2007) and Annual Report of each company (2007) .

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 20


5. CONSENSUS STANDARDIZATION

5.1 The Significance of Standards


Standards are an important factor in competition, because companies derive new technologies from
R&D activities but companies with nearly equal R&D capability have difficulty in differentiating their
own technologies and products from those of competitors (Farrell, J. and Saloner, G [1986, 1988],
Farrell, J. and Shapiro, C. [2000], Katz, M. L. and Shapiro, C. [1994], Shapiro, C. and Varian, H. R.
[1998], Bresnahan, T. F. and Greenstein, S. [1999], Shapiro, C. [2001]). Because industry standards
are not determined by de-facto standardization, no company in mature industries has recently
developed markedly superior technologies.

5.2 Consensus Standardization


The earlier studies of standardization focused mainly on de-facto standardization, which enables

companies to obtain strong competitive advantage because it creates large market share (merit of
scale) and differentiates their products from non-standard products. Although standardization does not
always lead companies to competitive advantage directly, the processes of standardization are more
important. Companies compete for a standard in the market, but in recent processes of standardization,
they avoid competing in the market; that is, they cooperate in consortia to determine a standard before
beginning market competition. This is known as consensus standardization, and it has several
benefits.
The first benefit is that companies can avoid competing against rivals to create and own the
standard—a competitive arena in which huge R&D expenditures are wasted if they lose the
standardization competition, rendering both their standard technology and all dependent products
unmarketable. Therefore, they prefer the efficiency gained from consensus standardization to de-facto
standardization. Second, companies strive to take their products and technologies to market as soon
as possible because of shortened product life cycles. Consensus standardization allows companies to
establish a standard speedily. Third, companies must examine patents to avoid infringement upon
those of other companies before using them. Consensus standardization prevents patent infringement

problems. Membership in a consortium for consensus standardization is generally free, but companies
must agree to the patent policy rules of the consortium. Patent policies set forth the rules for licensing
technologies to members, on the basis of reasonable and non-discriminatory (RAND) licensing. RAND

means that members holding essential technologies for establishing a standard declare ownership of
patented technologies related to a standard early and give them to members for a reasonable and
non-discriminatory fee—a form of collective agreement on patent management. An additional

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 21


advantage is that members do not have to examine patent technologies for possible infringements,
allowing them to take new products to the market speedily. Above all, the recent trend toward
consensus standardization reflects its value as a rational and efficient means of technology
management standardization.
However, member companies in consortia do have to compete within the standardized technologies
after establishing the consensus standard. This makes it difficult for companies to differentiate
products and technologies from those of competitors because of the common technological areas and
reduced spaces of differentiation among the technologies of products. For example, in Blu-ray DVD
standardization, the consortium members—Sony, Panasonic and Sharp—have to compete with very
similar Blu-ray standardized products, but they cannot afford to differentiate their products sufficiently
through cutting edge technologies.

6. THE DRAM INDUSTRY

6.1 DRAM Industry and Companies


Dynamic Random Access Memory (DRAM), a representative semiconductor, has a 40-year history in
the industry, so it is a suitable subject for studying industry changes over a long period. It is very
important for compatibility that semiconductor products such as DRAM are standardized; therefore,
companies cannot develop technologies for products independent of the industry standard. Because
the technology compatibility standards are so important in the industry, it is predisposed to the tragedy
of the anti-commons.
The DRAM industry has become an oligopoly, although there had previously been many companies in
the industry. Table 3 shows the market share of each company in DRAM industry in 2007: Samsung
and Hynix are Korean; Qimonda is German; Elpida is Japanese; Micron is U.S.; and PowerChip,
Nanya, ProMOS and Winbond are Taiwanese companies. The top five companies account for about
80 percent of the market.

TABLE 3: MARKET SHARE OF DRAM COMPANIES (2007)

Samsung Hynix Qimonda Elpida Micron Powerchip Nanya ProMOS Winbond other Total

Korea Korea Germany Japan U.S. Taiwan Taiwan Taiwan Taiwan — —

25.9% 22.4% 13.3% 12.1% 9.1% 5.5% 5.3% 4.1% 0.5% 1.8% 100%

Source: Nikkei Electronics (2007) 2007.11.5 p.57.

Table 4 shows amounts of sales and R&D expenditures of the top five companies, all of which, except
Samsung, specialize in the DRAM business. Each company invests heavily in R&D and holds many
patents.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 22


TABLE 4: R&D EXPENDITURE AND THE NUMBER OF PATENTS (2006)

Micron Hynix Samsung Elpida Qimonda

Sales (in millions) $5,688 $8,358 $92,345 $4,151 $5,130

R&D Expenditure (in millions) $805 $35 $6,032 $246 $570

Ratio of R&D to Sales 14.2% 0.4% 6.5% 5.9% 11.1%

Number of Patents 1610 438 2451 49 890

Patents of Semicon. Process 428 130 244 9 136


Tech.

Ratio of Patents of Semicon.


Process Tech. to All Patents 26.6% 29.7% 10.0% 18.4% 15.3%
2
Source: each company’s annual report (2007) and USPTO (2007) .

6.2 The Consortium for Standardization


Although the DRAM companies are competitors, they have formed a consortium called The JEDEC
Solid State Technology Association (JEDEC). This semiconductor standardization organization, which
is based in the U.S., includes about 300 companies from many countries. JEDEC determines the
current global DRAM industry standards, such as SDRAM, DDR and DDR2.
The members must agree to the patent policy of JEDEC when they join it. The JEDEC patent policy
defines RAND licensing and quickly discloses its own patents related to standards technologies3.
Because constructing a DRAM requires many patented technologies, companies require a standard
for the DRAM industry, which means that each company must make its products with the standardized

DRAM. As a result, although each of the companies acquires many patents every year, the patented
technologies are not used as a source of sufficient advantage of differentiation among competitors. In
other words, once a standard is established in an industry, companies cannot afford to differentiate

widely because changing the standardized technology specification individually would result in
products that deviate from the standard and are therefore useless. Particularly for technology-oriented
products such as DRAM, technologies are significant sources of differentiation for competitive
advantage. Core technology standardization, however, makes it difficult for them to add value beyond
superficial elements, such as colours, decorations and shapes. Therefore, although consensus
standardization hampers competitive advantage for each company, without consensus standardization,
they would suffer even worse consequences from the financial and time costs of competing for
standards and examining huge numbers of patents—that is, the ‘dilemma of standardization’.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 23


6.3 Patents and Consensus Standardization
Table 5 shows the number of patents related to DRAM technologies by year and the total number of
patents issued till 2006. According to this data, first, patents related to DRAM technologies began to
increase around 1985. As previous mentioned, 1985 was the year that U.S. established the pro-patent
policy and strengthened the patent law. Second, DRAM patents increased sharply each year. Third,
companies have been accumulating DRAM technology patents each year from 1985 to 2006, and
those patents have been dispersed among many companies.
Before 2000, some DRAM standards existed, and the competition was very keen because each of the
DRAM companies developed an original standard, promoted it and supported only a few standards.
For example, Direct RDRAM was promoted by Rambus and Intel; SLDRAM was promoted by the
SLDRAM consortium; VC SDRAM was supported by NEC, Siemens and Hyundai; and DDR SDRAM

was JEDEC’s standard. In that era, the SDRAM standard established by the JEDEC consortium in the
mid-1990s, its first major DRAM standard, coexisted with other standards and was supported by only a
few companies. Then, as Table 6 shows, the number of patents related to the SDRAM technologies

from 1994 to 2000 in the USPTO grew quickly, with each of the companies aggressively acquiring
many SDRAM technology patents at a growing annual rate. Thus, it appears that in that period the
DRAM companies competed to invent new technologies and become the ‘de-facto standard’ in the
market.
In the late 1990s, JEDEC set a new DRAM standard, DDR SDRAM (Figure 1) as the next generation
DRAM standard. Table 7 shows the number of patents related to DDR SDRAM technologies from 1998
to 2005 in the USPTO, illustrating the fact that some of the companies did not aggressively acquire an
increasing number of patents related to DDR SDRAM compared with SDRAM technologies (Table 6).
This means that the competition in DRAM technologies for standards declined and disbursement of
technologies among companies also decreased. In this manner, consensus standardization for
technology cooperation among the companies in an industry can avert the tragedy of the
anti-commons, and companies can engage in competition within the standardized technologies early
on.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 24


TABLE 5: DRAM PATENTS AND ACCUMULATED DRAM PATENTS

Source: Author from USPTO4

FIGURE 1: STANDARDS COMPETITION IN THE DRAM INDUSTRY

1970s 1980s 1990s 2000 Time

Early FPM EDO SDRAM DDR SDRAM DDR2

DRAM DRAM DRAM (JEDEC) (JEDEC) SDRAM

(JEDEC)

BEDO DRAM Direct RDRAM


(Micron) (Rambus, Intel)

SL DRAM
(SLDRAM
consortium)

VC SDRAM
(NEC, Siemens,
Hyundai)

Source: Author

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 25


TABLE 6: NUMBER OF PATENTS RELATED TO SDRAM TECHNOLOGIES

Source: USPTO database5.

TABLE 7: NUMBER OF PATENTS RELATED TO DDR SDRAM TECHNOLOGIES

Source: USPTO database6.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 26


7. CONCLUSIONS AND IMPLICATIONS

This paper discussed technology management in high-tech industries. Prior studies had focused on
technology management’s function of performing R&D and patenting technologies, and they thought
that companies could perform these functions freely to gain competitive advantages. However, our
study observed that current technology management environments include two new aspects:
competition and cooperation. In high-tech industries, technologies are decentralized because many
companies obtain exclusive patent rights every year. Notably, in the semiconductor industry,
companies acquire a large number of patents; at the same time, the industry standards need to be set
early in order to bring acceptable products to market. One reason for this situation is that, because
they are in the tragedy of the anti-commons, it is difficult for them to examine each other’s patents

related to a certain standard technology carefully, causing an increase in patent violations and patent
litigations in recent years. Therefore, they choose consensus standardization through industry
standardization consortia as a means for determining cooperative standards early and managing

members’ patents rights efficiently and rationally to facilitate competition. Thus, cooperative technology
management is essential in the current environment.
However, because consensus standardization makes it difficult for companies to differentiate
technologies among the standardization members, the sources of competitive advantage might shift to
cost reduction. As a result, patented technologies would not always support differentiation for
competitive advantage. Standardization is important for the commercialization of products in some
industries, but consensus standardization is the most effective means of coping with the aspect of
cooperation. Global companies must cooperate in technology management, but competitive
advantage in high-tech industries requires the companies to reduce cost and time-to-market.

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AUTHOR PROFILE:

Dr. Masashi Arai is Assistant Professor at Rikkyo University College of Economics in Japan. He
received his Ph.D in business administration from Rikkyo university in 2009. He has research interests
on the international business, strategic management, and innovation management. His recent

research topics are the global standardizations and intellectual property rights management for global
competitive and cooperative advantage in high-tech industries.

1
USPTO Patent Full-Text and Image Database [http://patft.uspto.gov/] (searched 15 June 2007). The search

formula is below. [an/"the name of company" and ISD/$/$/2006 and (aclm/semiconductor or spec/semiconductor)]
2
Source: USPTO (2007) ‘Patenting In Technology Classes, Breakout By Organization, Count of
2002–2006 Utility Patent Grants, By Calendar Year of Grant With Patent Counts Based on Primary
Patent Classification’ [http://www.uspto.gov/web/offices/ac/ido/oeip/taf/tecasg/all_tor.htm].
3
The patent policy has two key elements—early disclosure and written assurance. Let us look at each
element in turn. Early disclosure means that all participants in the standards process, including patent
owners, have an obligation to disclose the existence of known patents and patent applications that are,
or may be, relevant to the work of the formulating committee. Individual participants have no obligation
to research their companies’ patent portfolios. The obligation to disclose applies only to those patents
and patent applications of which they have actual knowledge; this knowledge triggers the duty to
disclose. The second element of the patent policy is the assurance by the patent owner to license the
patented technology without charge or, more commonly, on terms that are reasonable and
non-discriminatory. The assurance must be in writing, signed by the patent owner. It must repeat the
language of the patent policy verbatim with no substantive modifications. It should be given to the
committee chairman (Cited by JEDEC Patent Policy).
4
The search formula is as follows: ISD/$/$/1976 and ((aclm/"dynamic RAM memory" or "dynamic
random access memory" or (DRAM and memory)) or (spec/"dynamic RAM memory" or "dynamic
random access memory" or (DRAM and memory))) (accessed on 11 June 2008).
5
The search formula is as follows: [an/micron and ISD/$/$/1996 and ((aclm/"synchronous DRAM" or
"synchronous dynamic RAM memory" or "synchronous dynamic random access memory" or SDRAM)
or (spec/"synchronous DRAM" or "synchronous dynamic RAM memory" or "synchronous dynamic
random access memory" or SDRAM))] (Accessed on 13 June 2008).
6
The search formula is as follows: [an/micron and ISD/$/$/1996 and ((aclm/"double data rate
SDRAM" or "double data rate synchronous dynamic random access memory" or "DDR synchronous
dynamic random access memory" or "DDR SDRAM") or (spec/"double data rate SDRAM" or "double
data rate synchronous dynamic random access memory" or "DDR synchronous dynamic random
access memory" or "DDR SDRAM"))] (Accessed on 13 June 2008).

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 29


AN INTRA-ORGANIZATIONAL COMMUNICATION STRATEGY, ITS ANTECEDENTS AND
CONSEQUENCES: AN EMPIRICAL EXAMINATION OF COMPUTER BUSINESS IN THAILAND

Nuanlaong Attharangsun, Mahasarakham University, Thailand


Phapruke Ussahawanitchakit, Mahasarakham University, Thailand

ABSTRACT

The purpose of this research is to analyze how the intra-organizational communication strategy
(diverse communication implementation, openness communication effectiveness, flexible communication
channel and media utilization efficiency) has an effect on organizational effectiveness through success
of team relationship, excellence of working coordination, and establishment of task creativity. Also, this
research examines the moderating role of all of information technology competency and share vision
climate. Likewise, this research investigates the antecedents of intra-organizational communication
strategy. Computer business in Thailand is sample and questionnaire is used as a tool. Results reveal
that diverse communication implementation and media utilization efficiency have a positive influence
on success of team relationship and excellence of working coordination. Media utilization efficiency
only affects establishment of task creativity. Share vision climate is partial moderating relationship
between media utilization efficiency-success of team relationship and media utilization efficiency-
excellence of working coordination. In addition, establishment of task creativity has a positive effect on
organizational effectiveness. Competitive orientation has a positive association with diverse
communication implementation, while, horizontal organizational characteristics and executive
supportiveness have a positive relationship with openness communication effectiveness and flexible
communication channel. Furthermore, executive supportiveness only affects media utilization
efficiency. Information technology competency moderates the relationship between horizontal
organizational characteristics-diverse communication implementation, horizontal organizational
characteristics-flexible communication channel, horizontal organizational characteristics-media
utilization efficiency and executive supportiveness-diverse communication implementation. Theoretical
and managerial contributions are explicitly elaborated. Conclusion and suggestions and directions for
the future research are highlighted accordingly.

Keywords: Intra-organizational communication strategy, Diverse communication implementation,


Openness communication effectiveness, Flexible communication channel, Media utilization efficiency
Success of team relationship, Excellence of working coordination, Establishment of task creativity,
Organizational effectiveness, Horizontal organizational characteristics, Competitive orientation,
Executive supportiveness, Share vision climate, and Information technology competency

1. INTRODUCTION

The world economy crisis during 2008-2009 affected all businesses worldwide such as financial
institution, service business, and industry business causing many companies to go out of business, to
layoff employees so as to reduce expenses and responsibility in operation, or lay plans to reconstruct
the strategy so that the organization can survive. Like other countries, Thailand suffers the impact
tremendously especially in economy. Many companies faced with the problem of employee strikes are
out of business because companies lack communication with employees to understand the current
situation. So the executive have to negotiate and reconcile within their own organization to improve
the recession. Byrne and Lemay (2006) explained that high quality organizational communication
reduced number of employee strikes, lowered absenteeism which increased the overall quality of
services.

Organizational communications is a key element that affects the ability of organizations to achieve the
goals, organizational success and effectiveness (Byrne and LeMay, 2006). Communication is the core
process of organizing which individual activity is coordinated to devise, disseminate, and pursue
organizational goals (Gardner et al., 2001). At the same time, Byrne and Lemay (2006) explained that
organizations have a need to communicate with employees, both positively and negatively, about
major changes in business that affect the organization and/or the employees directly. Consequentrly,
communication provides a basis for understanding in the organizations; it also provides a basis for
viewing the activities of the individuals who are employed by these organizations. Furthermore,
previous study found that a manager spends nearly three-quarters of his/her time engaging in
communication. Carlson and Davis (1998) explained that communication activities account for a

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 30


significant portion of the working time of managers. Furthermore, they suggest that 75 percent of
mangers’ time was spent in communication activities. Therefore, the organizational communication is
likely to be rapid in workflow, and consequently reduces the time needed for work completion.

Previous researches suggested about the organizational communication and other variables. Penley
and Hawkins (1985) explained that female subordinates differentially perceived organizational
communication. Price and Mueller (1981) found that the influence of communication is on turnover.
Jablin (1987), Ferris (1985), and Vancouver and Schmitt (1991) describe relationships between
organizational communication and intent to turnover. While, Penley and Hawkins (1985) focus
attention on interpersonal communication between supervisor and subordinate which are both
relational and content-oriented. According to Orpen (1997) described the quality of communication in
organization as associated with employee job satisfaction and motivation. Furthermore, Rodwell,
Kienzle, and Shadur (1998) suggested that communication was a significant positive relationship to
enhancing job satisfaction and organizational commitment. Akkirman and Hariss (2005) compared the
level of communication satisfaction between virtual work place and traditional workplace employee.
Moreover, Nakra (2006) studied to take a preliminary look at the relationship between communication
and organizational identification.

Before, the organizational communications and communication strategy literature review reveal that
organizational communication variables are related to other variables. Organizational characteristic had been
examined by previous researchers that have related patterns of interaction, and coordination (Steers,
1977). According to Hage et al. (1971) organizational characteristics are assumed to determine the
communication process. These characteristics are represented by several organizational constructs
that impact the communication practices operating within a firm. Moreover, Santra and Giri (2008)
investigate about organizational characteristics found that organizational characteristics have an effect
on communication. Corresponded with Hage et al. (1971), the organizational characteristics affected
interdepartmental communication. This research assumes that horizontal organizational characteristics affect
intra-organizational communication strategy.

The executives have related organizational communication. Previous researchers describe that
communication is a core competence activity in performance management. Barnard (1938) suggested
that the first function of an executive develop and maintain a system of communication. Relationship
between firm and its members, the manager and the workers, the leader and the led, good
communication is sorely needed. Previous research about directions of communication flow found that
the communication upwards in the organizational hierarchy can help executives understand and
quantify organizational capability and performance (Harrop and Varey, 1998). Communication is an
activity that is necessary in the organization. James et al. (1986) explained that the significance of
organizational communication is considered important for two reasons. Firstly, communication makes
the planning, organizing, guiding, and controlling functions of management possible. Secondly,
communication is an important part of the administrative process on which executives spend a
significant amount of their time for coordination purposes. Furthermore, Boone and Kurtz (1978)
suggested that the significance of organizational communication requires an efficient use of
management techniques. Communication provides various departments with information to enable
them to guide, plan, organize, motivate, and control. Efficient communication is essential for the
successful running of administrative and organizational activities (Altinoz, 2008). Russ et al. (1990)
explain media selection and managerial characteristics in organizational communications. They found
that managers select the face-to-face medium for highly equivocal communication and written media
for clear, objective communication. Correspondingly, Allen and Brady (1997) suggest that manager
efforts are important in creating the internal cooperation. Moreover, managers are instructed to
support superior-subordinate relationships (Allen and Brady, 1997). In addition, the role of senior
managers used communication to develop the organization unique (Jones et al., 2004). Therefore, the
management communicates more effectively depend on executives.

In addition, this research also shows that communication leads to teamwork. Gayeski (1993) has given
reasons to communicate in organization. Communication is the primary activity of an organization, and
communication is processed to reduce uncertainty and to coordinate actions in order to achieve goals
(Varey and Mounter, 1997). Therefore, the organization has an intra-organizational communication
strategy that is assumed to bring success of team relationship and excellence of working coordination
to organizational effectiveness in the future. Information mentioned above indicates that the
organization will be effective. The organizations need use intra-organizational communications

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 31


strategy for employees at all levels to understand the obligations and operational functions so as to
achieve the goals of the organization.

Therefore, information mentioned above indicates that the literatures related to intra-organizational
communications strategy are less direct, which previous researches found that they are so according
to organizational communication and communication strategy. This research focuses on the intra-
organization communication strategy which consists of four dimensions: diverse communication
implementation, openness communication effectiveness, flexible communication channel, and media
utilized efficiency. Furthermore, this research emphasizes the relationship between antecedents (i.e.
horizontal organizational characteristics, competitive orientation, and executive supportiveness) and
consequences (success of team relationship, excellence of working coordination, establishment of
task creativity, and organizational effectiveness) of intra-organization communication strategy. In
addition, this research puts stresses on moderator variables (i.e. information technology competency
and share vision climate).

The objectives of this research are: 1) to examine the relationship among intra-organizational
communication strategies composed of diverse communication implementation, openness
communication effectiveness, flexible communication channel, and media utilization efficiency that
have an effect on success of team relationship, excellence of working coordination, and establishment
of task creativity; 2) to examine the relationship among the success of team relationship, excellence of
working coordination and establishment of task creativity that have an influence on organizational
effectiveness; 3) to investigate the antecedents of intra-organizational communication strategy
including horizontal organizational characteristics, competitive orientation, and executive
supportiveness; 4) to investigate the influence of moderating effects including: 4.1) share vision
climate that moderates the effect on the relationship among dimension of intra-organizational
communication strategy (e.g. diverse communication implementation, openness communication
effectiveness, flexible communication channel, and media utilization efficiency) and success of team
relationship, excellence of working coordination, and establishment of task creativity; and 4.2)
information technology competency that moderates the effects on the relationship among horizontal
organizational characteristics, competitive orientation, executive supportiveness, and intra-
organizational communication strategy. Furthermore, the research questions of this study are: 1) how
does the intra-organizational communication strategy affect success of team relationship, excellence
of working coordination, and establishment of task creativity? 2) how do the success of team
relationship, excellence of working coordination, and establishment of task creativity influence the
organizational effectiveness? 3) how do the horizontal organizational characteristics, competitive
orientation, and executive supportiveness affect intra-organizational communication strategy? 4) how
does the share vision climate moderate the relationship among the intra-organizational communication
strategy and success of team relationship, excellence of working coordination, and establishment of
task creativity? and 5) how does the information technology competency moderate the relationship
among the horizontal organizational characteristics, competitive orientation, executive supportiveness,
and intra-organizational communication strategy?

The remainder of this study is organized as follows. Firstly, the relevant literature and the theoretical
framework are reviewed to describe the conceptual model and develop the related hypotheses for
testing. Secondly, the research methods including sample and data collection procedure, the variable
measurements of construct, the instrumental verification, the statistics, and equations to test the
hypotheses are provided. Thirdly, the empirical results and discussion are demonstrated. Finally, the
theoretical, practical, and institutional implications, limitations and suggestions for future research, and
conclusion are provided.

2. THEORETICAL FOUNATION

This research integrates many theoretical perspectives to supporting how intra-organizational


communication strategy consists of the communication theory, the media richness theory, and
resource-based view of the firm (RBV) theory. Firstly, the communication theory explains what
happens when a communication occurs between two or more people. Berlo (1960) explains that the
basic element of communication model consists of information source, encoder, message, channel,
information receiver, decoder, and noise. Lewis and Slade (2000) explain that process models of
communication are models which identify the communication as a series, loops, of transmitted,
received, interpreted messages, to which the receiver responds, and to which the sender may then in

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 32


turn respond with feedback. Communication in organization is a process consisting of two way
communication. Therefore, the presentation of communications theory demonstrates communication
processes within the organization and will lead to various forms of communication and communication
channels that lead to understanding, working coordination, creativity and efficiency in organization.

Secondly, the media richness theory explains that the media is used to select the appropriate
communication for effective communication. Daft and Lengel (1986) defined media richness as a
medium’s capacity for cues and feedback. Managers use different communication method of
appropriate degrees of richness to deal with situations that differ in equivocality and uncertainty (Daft
and Lengel, 1986). Hence, different communication media needs to be used for different types of
organizational task (Hollingshead and Contractor, 2006). Russ et al. (1990) explained that a media
richness hierarchy which incorporates four media classifications; face-to-face, telephone, addressed
documents, and unaddressed documents. The richness of each media is based on the blend of four
criteria; the availability of instant feedback, the capacity of the medium to transmit multiple cues such
as body language, voice tone, and inflection, the use of natural language, and the personal focus of
the medium. The media richness theory explains that effective managers make rational choices
matching a particular communication medium to a specific task or objective and to the degree of
richness required by that task (Rice and Shook, 1990; Trevino et al., 1990). Using media theory to
describe the media that each media has the ability to communicate is actually different, but if users
understand the capabilities of each media type and then to use the media properly that will make
communication efficiently. So if the organizational members use the appropriate communication
method, it would allow the organization to work effectively.

Finally, the resource-based view of the firm (RBV) theory explains that the resource-based view of the
firm consists of two components: resource and capabilities that are source of competitive advantage
(Ussahawanitchakit, 2005). Firm resources are defined as anything which could be thought of as a
strength or weakness of a firm (Warnerfelt, 1984). Capabilities refer to the ability to deploy resources
and to continuously improve the effectiveness of firm operation and performance (Moingeon et al.,
1998). Firms attempt to exploit valuable, heterogeneous, rare, and inimitable in order to develop and
sustain competitive advantages through their capabilities (Ussahawanitchakit, 2005). So, resource-
based view explains that an organization has capability that effect to competitive advantage.
Therefore, the organization is driven by strategy. Organization is to provide a powerful competitive
advantage. In this research, the intra-organizational communication strategy is assumed as the
capability of firm that affects effectiveness of organization.

3. RELEVANT LITERATURE REVIEW AND RESEARCH HYPOTHESES

Figure 1
An Intra-organizational Communication Strategy, Its Antecedents and Consequences:
An Empirical Examination of Computer Business in Thailand

Information Technology Share Vision Climate


Competency

H15a-d, H16a-d, H17a-d H5a-c, H6a-c, H7a-c, H8a-c

Horizontal
H12a-d Success of H9
Organizational
Team
Characteristics
Relationship
Intra-organizational H10
Communication Strategy
Excellence of
Competitive
Working Organizational
Orientation  Diverse Communication Implementation
H13 a-d H1a-c Coordination Effectiveness
 Openness Communication Effectiveness H2a-c
 Flexible Communication Channel H3a-c
 Media Utilization Efficiency H4a-c
Executive Establishment of
Supportiveness Task Creativity H11
H14a-d

As elaborated above, this research investigates the relationship between intra-organizational


communication strategy and consequences (i.e. success of team relationship, excellence of working
coordination, and establishment of task creativity). In addition, this research explores the relationship

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 33


among success of team relationship, excellence of working coordination, and establishment of task
creativity and organizational effectiveness. Furthermore, this research examines relationship among
antecedents (horizontal organizational characteristics, competitive orientation, and executive
supportiveness) and intra-organizational communication strategy. Finally, this research investigates
relationship the both moderator as share vision climate and information technology. Below is a
description of the conceptual framework as shown in Figure 1 on previous page.

3.1 Intra-organizational Communication Strategy

In coordinating the work of departments, the organization uses communication as a tool for
understanding between members of the organization. Daft (1997) explains that intra-organizational
communication is the process by which information is exchanged and understood by two or more
people, usually with the intent to motivate or influence behavior. The literature review found that most
researches examine intra-organization communications. But research about intra-organization
communications strategy has found very little. So, this research is to learn more about the strategies
that the past researchers explain about a large number of meanings of strategy. Drucker (1954)
defined strategy as an indication of the organization’s positioning for the future. The strategy is more
important to do the right thing than to do things right. Finkelstein (2005) described that the strategy is
just as much about what organizations decide not to do, as it is what they decide to do. Furthermore,
Grunig and Repper (1992) explain strategy as an approach, design, or scheme that directs the course
of action in a specific situation it is the means to achieve the ends (Narayanan and Nath, 1993).
Moreover, strategy is one type of capabilities of firms (Das and Teng, 2000; Grant, 1991; Makadok,
2001). The strategy refers to the ability of to analyze situations and determine directions in doing
business and is a unique approach which the firms lean to gain competitive advantages
(Ussahawanitchakit, 2004). In this study, intra-organizational communication strategy refers to the
ability of to analyze situations and determine directions in communication in organization that leads to
understand among the members, motivate to operate in the same trend for an effective organization.
The intra-organizational communication strategy has four dimensions that consist of the diverse
communication implementation, openness communication effectiveness, flexible communication
channel, and media utilization efficiency.

3.1.1 Diverse Communication Implementation

Diverse communication implementation is defined as a direction variety and multichannel of


communication which can be useful from channels. Actually, the diverse communication as providing
communication in a way that’s most appropriate for the receivers (Roberts, 2008). All organizations
have the communication among personal, group, and department. Therefore, direction of
communication and channel of communication are important to send massage appropriate for
personal, group, and department. Direction of communication has including upward communication to
superiors, downward communication to subordinates, and horizontal or lateral communication among
peers or across functions. Furthermore, hierarchical or bureaucratic organizations, communication for
control appears to flow downward, while communication which supports decision making appears to
flow upward. Lateral communication appears to serve coordination and emotive functions in all types
of organizations (Culnan and Bair, 1983). Channel of communication consists of traditional
communication which includes face-to-face, telephone, written, and electronic (telex and facsimile)
and new communication channel which includes electronic messaging and computerized
conferencing. Therefore, the organization has diverse communication implementation showing that
organizations have the ability to use direction variety and multichannel of communication to build a
team relationship, coordination of work and led to the creation of organizations.

3.1.2 Openness Communication Effectiveness

Openness communication effectiveness is defined as an ability of encourages disclosing, information


exchange and the trustworthiness of communication and bringing to share perceptions. The openness
as a quality of interpersonal effectiveness include a willingness to interact openly with others, to self-
disclose as appropriate; a willingness to react honestly to incoming stimuli; and a willingness to own
your feelings and thoughts (DeVito, 2008). Furthermore, the openness is behaviors that convey
willingness to experience novelty, whether in interests, people, situations, values, or ideas, and a
sense of divergent, creative thinking (Moberg, 2001). Therefore, the organizations have openness

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communication effectiveness to show that membership in organizations has a relationship behavior,
trust in the communication between each other. Leuthesser (1997) suggests that open communication
is the disclosing behavior. Open communication between workers and management promotes shared
perceptions about the importance of safety and increases worker commitment (Clarke, 1999; Hofmann
and Morgeson, 1999). The open of communication is one where a high degree of information sharing
occurs (Troy et al., 2001). At the same time, freely sharing information within an organization can
increase the value of the information exponentially when members use it to generate new ideas
(Glazer, 1991; Quinn, 1992; Slater and Narver, 1995; Troy et al., 2001), which may result in mutual
understanding leads to cooperation in the work.

3.1.3 Flexible Communication Channel

Flexible communication channel is defined as the ability in using way the communication appropriate
to the situation and time. DeVito (2008) defined communication channel as the vehicle or medium
through which message passes. Furthermore, DeVito explained that types of channels compose of
face-to-face contact, telephones, e-mail, movies, television, and telegraph. Previous researchers, Lind
and Zmud (1991) suggest that organizational employees exchange information through a variety of
communication channels, because these channels differ in their capability to convey information, when
to choose any channel of communication is determined by type of communication channel used.

3.1.4 Media Utilization Efficiency

Media utilization efficiency is defined as an ability of media to communicate quickly in time, and is born the
accuracy in data acknowledgement. Researchers in the past research discussed the media includes
multiple ideas for example Rice et al. (1990) suggest that communication media can alter the
effectiveness and survival of organizations. Santra and Giri (2008) revealed that the effectiveness of
the medium lies in its ability to transmit the message successfully to its receiver. Hambley et al. (2007)
suggested that the media through which teams communicate has been found to significantly affect
their interaction styles. Furthermore, media differs in their potential for communicating understanding.
Media can be low or high in richness depending on the capacity to facilitate shared meaning (Daft et
al., 1987). Hollingshead et al. (1993) suggest that face-to-face communication is the most effective
medium for team interaction.

3.2 success of team relationship

Success of team relationship is defined as a relation of group of people who have been chosen to
work together to do a particular job, shared skills and ideas, cognitive ability. As mentioned earlier,
team as a distinguishable set of two or more people who interact, dynamically, interdependently, and
adaptively toward a common and valued goal/objective/mission, who have been assigned specific
roles or functions to perform, and who have a limited life-span of membership (O’neil and Drilling,
1994). Ussahawanitchakit (2004) defined team as two or more employees that are concerned with
commitment, longevity, flexibility and shared skills and ideas. While McKinney et al. (2004) defined
team as a way of life, constantly working with others to share their technical knowledge. Greenberg et
al. (2007) suggest that members of team have the opportunity to easily develop relationships, which
members can discuss each other’s work and their reactions can be conveyed communication. The
communication into the workplace has brought to the importance of teamwork in day-to-day activities.
It has also exhibited the need for increased understanding of what makes teamwork effective. One of
the key aspects of effective teamwork is the ability of individuals to share knowledge within and
between teams (Coakes et al., 2008). In the review of literature, the work team literature found that the
organizational communication has an effect on team building (Preston, 2005), at in time,
communication is essential to effective team performance (McKinney et al., 2004). Ancona and
Caldwell (1992) found that communication was positively related to team member ratings of
performance.

3.3 Excellence of working coordination

Excellence of working coordination is defined as the activities that can be integrated among members
of organization, managing resource effectively, working together to accomplish task, and to achieve
goals. As mentioned earlier, coordination as the extent to which activities, people, routines, and
assignments work together to accomplish overall objects (Sivadas and Dwyer, 2000). Sabherwal

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 35


(2003) explains coordination as integrating or linking together of different parts of an organization to
accomplish a collective set of tasks. Avadikyan et al. (2001) suggest that the aim of the coordination is
to provide compatibility and coherence to individual actions. Lai, Wong, and Cheng (2008) suggest the
coordination that leads to working together towards common goals. The coordination will result in
action to the goals of the organizations and will bring organization success (Mohr and Spekman,
1994).

3.4 Establishment of task creativity

Establishment of task creativity is defined as an ability to activate creative ideas to do things that are
new and useful in working all the time. Based on previous research evidences, creativity as the
production of novel and useful ideas, and innovation is the successful implementation of creative ideas
within an organization (Gumusluoglu and Arzu Ilsev, 2009). Findlay and Lumsden (1988) argued that
creativity refers to a group of personality and intellectual traits shown by individuals. Furthermore, the
other researchers defined creativity as a cognitive process of producing different ideas (Drazin et al.,
1999). Therefore, the creativity is the requirement for activities of working together.

Consequently, this study assumes that the influence to organizational effectiveness consists of diverse
communication implementation, openness communication effectiveness, flexible communication
channel, and media utilization efficiency has a positive influence on the success of team relationship,
excellence of working coordination and establishment of task creativity. Therefore, base on literature
above, it leads to hypotheses as follows:

Hypothesis 1a: Diverse communication implementation is likely to have a positive influence on the
success of team relationship.

Hypothesis 1b: Diverse communication implementation is likely to have a positive influence on the
excellence of working coordination.

Hypothesis 1c: Diverse communication implementation is likely to have a positive influence on the
establishment of task creativity.

Hypothesis 2a: Openness communication effectiveness is likely to have a positive influence on the
success of team relationship.

Hypothesis 2b: Openness communication effectiveness is likely to have a positive influence on the
excellence of working coordination.

Hypothesis 2c: Openness communication effectiveness is likely to have a positive influence on the
establishment of task creativity.

Hypothesis 3a: Flexible communication channel is likely to have a positive influence on success of the
team relationship.

Hypothesis 3b: Flexible communication channel is likely to have a positive influence on excellence of
the working coordination.

Hypothesis 3c: Flexible communication channel is likely to have a positive influence on the
establishment of task creativity.

Hypothesis 4a: Media utilization efficiency is likely to have a positive influence on the success of team
relationship.

Hypothesis 4b: Media utilization efficiency is likely to have a positive influence on the excellence of
working coordination.

Hypothesis 4c: Media utilization efficiency is likely to have a positive influence on the establishment of
task creativity.

3.5 Share vision climate

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Share vision climate is defined as the perception of members in organization in exchanging their
ideas, vision of organization, and to increase the level of interpersonal attraction that communicate
with others within the organization.

Based on previous research evidences, a shared vision is essential as it brings about consistency in
critical beliefs and assumptions and internal stability to the firm (Henderson and Sifonis, 1988). Tsai
and Ghoshal (1998) defined shared vision as a bonding mechanism that helps different parts of an
organization to integrate or to combine resources. In addition, the shared vision embodies the
collective goals and aspirations of the members of an organization. When organization members have
the same perceptions about how to interact with one another, they can avoid possible
misunderstandings in their communications and have more opportunities to exchange their ideas or
resources freely. The common goals or interests they share help them to see the potential value of
their resource exchange and combination. As a result, organization members who share a vision will
be more likely to become partners sharing or exchanging their resources. In general, climate is viewed
as a representation of the organizational member’s perceptions of the work environment (Mohr and
Nevin, 1990). Reichers and Schneider (1990) defined that climate as perceptions of the way things are
around here. While, Reynolds and Johnson (1982) suggested that organizational climate with a focus
on communication relationships can improve some of these conceptual difficulties, because
communication linkages describe more concretely the vehicle by which perceptions are shared among
organizational members and reflect more specifically possible impacts of the organization on the
individual.

As a result, this study assumes that share vision climate increases the relationship between dimension
of intra-organizational communication strategy and success of team relationship relationships,
excellence of working coordination relationships, and establishment of task creativity relationships.
Thus, hypotheses are proposed as follows:

Hypothesis 5: Share vision climate will positively moderate (a) the diverse communication
implementation-success of team relationship relationships, (b) the diverse communication
implementation-excellence of working coordination relationships, and (c) the diverse communication
implementation-establishment of task creativity relationships.

Hypothesis 6: Share vision climate will positively moderate (a) the openness communication
effectiveness-success of team relationship relationships, (b) the openness communication
effectiveness-excellence of working coordination relationships, and (c) the openness communication
effectiveness-establishment of task creativity relationships.

Hypothesis 7: Share vision climate will positively moderate (a) the flexible communication channel-
success of team relationship relationships, (b) the flexible communication channel-excellence of
working coordination relationships, and (c) the flexible communication channel-establishment of task
creativity relationships.

Hypothesis 8: Share vision climate will positively moderate (a) the media utilization efficiency-success
of team relationship relationships, (b) the media utilization efficiency-excellence of working
coordination relationships, and (c) the media utilization efficiency-establishment of task creativity
relationships.

3.6 Organizational effectiveness

Organizational effectiveness is defined as the degree to which an organization realizes that its goals
will bring the overall success, market share, profitability, and growth rate of the organization. Previous
study suggests that organizational effectiveness is the degree to which a firm realizes its goals (Daft,
1995). Argote and Ingram (2000) suggests that organizational effectiveness is what the organization
comes to know that explains its performance. Armistead et al. (1999) examine that the organization
improves efficiency, and part of the reorganization to include effective coordination in the organization.
Furthermore, Allen and Brady (1997) suggest that teams must be kept informed and must
communicate effectively to achieve and modify their goals, as well as continually improve
performance.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 37


Consequently, this study assumes that the success of team relationship, excellence of working
coordination and establishment of task creativity has positive influence on organizational
effectiveness. Therefore, based on literature above, it leads to hypotheses as follows:

Hypothesis 9: Success of team relationship is positively related to organizational effectiveness.

Hypothesis 10: Excellence of working coordination is positively related to organizational effectiveness.

Hypothesis 11: Establishment of task creativity is positively related to organizational effectiveness.

3.7 Horizontal organizational characteristics

Horizontal organizational characteristics is defined as the feature emphasizes to share tasks and
empowerment, a more relaxed hierarchy with fewer rules, more terms, and decentralized decision-
making. Previous study, Zheng, Yang and Mclean (2009) suggest that decentralized structure
encourages communication because in less centralized environments, free flow of lateral and vertical
communication is encouraged. Furthermore, organizational structure has influenced frequencies of
communication among organizational members.

As a result, this study assumes that horizontal organizational characteristics have a positive influence on diverse
communication implementation, openness communication effectiveness, flexible communication
channel and media utilization efficiency. Thus, hypotheses are proposed as follows:

Hypothesis 12a: Horizontal organizational characteristics are positively related to diverse communication
implementation.

Hypothesis 12b: Horizontal organizational characteristics are positively related to openness communication
effectiveness.

Hypothesis 12c: Horizontal organizational characteristics are positively related to flexible communication
channel.

Hypothesis 12d: Horizontal organizational characteristics are positively related to media utilization
efficiency.

3.8 Competitive orientation

Competitive orientation is defined as the nature of the competitive advantage sought by firm. Previous
researches investigated about competitive orientation by Porter (1980, 1985) suggest that competitive
effects play an important role in the strategy of firm and more specifically in performance. A firm’s
strategic orientation reflects the strategic directions implemented by firm to create the proper
behaviors for the continuous superior performance of the business (Narver and Slater, 1990).
Furthermore, Narver and Slater (1990) describe a competitive orientation as the ability and a
company’s will identify, analyze, and respond to competitors’ actions. Firm with competitive
orientations must continually be evaluating their positions in relation to their competitors in order to
discover areas of strength and weakness, and to identify new ways of strengthening their competitive
advantage (Aaker, 1989; Narver and Slater, 1990). Marion (1998) explained that many strategic levers
that the CEO of strategic changed have at their disposal, communication is particularly important:
setting out and conveying a strategic ‘vision’ of the firm, building a representation of the firm and
having it shared by all its members.

Therefore, this study assumes that competitive orientation has a positive influence on diverse
communication implementation, openness communication effectiveness, flexible communication
channel and media utilization efficiency. Thus, the hypotheses are proposes as follows:

Hypothesis 13a: Competitive orientation is positively related to diverse communication implementation.

Hypothesis 13b: Competitive orientation is positively related to openness communication effectiveness.

Hypothesis 13c: Competitive orientation is positively related to flexible communication channel.

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Hypothesis 13d: Competitive orientation is positively related to media utilization efficiency.

3.9 Executive supportiveness

Executive supportiveness is defined as the support that expressed for the work achieved toward goal which
consists of professional development, reasonableness, encourages autonomy, and task guidance and
assistance.

Prior research suggests that the communication is related to the management of organizational
because it is clear and taken to be the transference and understanding of meaning between
employers, workers, and supervisor when they are to carry out their tasks effectively (Robbins et al.,
1994). Varey and Mounter (1997) suggest that the US chief executive decided to spend a full 50
percent of his time communicating with his staff at all levels of the firm, creating time to listen, finding
out what they were thinking, and addressing the issues. As a direct result, he is held in high esteem by
his staff because, while they might not like what is happening, they know the reasons for the changes.
The effective communication is essential for attaining organizational goals (Gardner and Winder,
1998). Moreover, Hargie and Tourish (1996) describe managers as a key role to play to promote the
appropriate organizational climate conducive to innovation by communicated to all members.
Organizations that do not support open communication, good ideas may not be channeled
successfully to those in management who have the responsibility and power to promote and
implement employee.

Consequently, this study assumes that executive supportiveness has a positive influence on diverse
communication implementation, openness communication effectiveness, flexible communication channel and
media utilization efficiency. This research, based on these reviews, proposes hypotheses as follows:

Hypothesis 14a: Executive supportiveness is positively related to diverse communication implementation.

Hypothesis 14b: Executive supportiveness is positively related to openness communication effectiveness.

Hypothesis 14c: Executive supportiveness is positively related to flexible communication channel.

Hypothesis 14d: Executive supportiveness is positively related to media utilization efficiency.

3.10 Information technology competency

Information technology competency is defined as the capacity of IT management to organize, mobilize,


coordinate and integrate IT resources and IT competencies to create value and competitive advantage
(Foss & Christensen, 1996).

Prior Information technology literature has investigated relationship between Information technology
and organizational communication. Croteau and Raymond (2004) suggest that information
technologies that can allow organizations to achieve a competitive advantage and enhance business
performance. Furthermore, a strategic alignment perspective, these competencies are meant to
support the organization’s strategic competencies through the effective use and management of IT.
Yazici (2002) described that information technology enhance communication. The manufacturing
companies have investment 50 percent of capital budget about information technology (Kathuria et al.,
1999). In addition, results from research of Yazici (2002) indicated information technology as an
influencing factor for effective organizational communication. Furthermore, information technologies
also enable professionals to use and access electronic media at almost any time from any place and
to communicate information in almost any form (Bock and Applegate, 1995; Jarvenpaa and Ives,
1994). While Igbaria, (1990); Igbaria and Tan, (1997); Millman and Hartwick, (1987) show that
information technology increases personal effectiveness, improves the decision making process for
middle managers (Buchanan and McCalman, 1988), and enhances communication processes and the
work performed (Good and Stone, 1995).

As a result, this study assumes that information technology competency increases the relationship
between horizontal organizational characteristics, competitive orientation and executive

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 39


supportiveness and dimension of intra-organizational communication strategy. Thus, hypotheses are
proposed as follows:

Hypothesis 15: Information technology competency will positively moderate (a) the horizontal
organizational characteristics-diverse communication implementation relationships, (b) the horizontal
organizational characteristics-openness communication effectiveness relationships, and (c) the
horizontal organizational characteristics-flexible communication channel relationships, and (d) the
horizontal organizational characteristics-media utilization efficiency relationships.

Hypothesis 16: Information technology competency will positively moderate (a) the competitive
orientation-diverse communication implementation relationships, (b) the competitive orientation-
openness communication effectiveness relationships, and (c) the competitive orientation-flexible
communication channel relationships, and (d) the competitive orientation-media utilization efficiency
relationships.

Hypothesis 17: Information technology competency will positively moderate (a) the executive
supportiveness-diverse communication implementation relationships, (b) the executive
supportiveness-openness communication effectiveness relationships, and (c) the executive
supportiveness-flexible communication channel relationships, and (d) the executive supportiveness-
media utilization efficiency relationships.

4. RESEARCH METHODS

4.1 Sample and Data Collection Procedure

The sample in this research is computer business in Thailand. The computer businesses in Thailand
are chosen because computer business plays an important part in Thailand economy. From Export
Financial report of Suvarnabhumi Airport Cargo Clearance Customs Bureau data showing the
Customs Department statistics show the highest export during the year 2007-2009. Top five exports
includes computers and devices, integrated circuits and micro wireless sector UTAC, gold and gold
plated with platinum, jewelry and sections, and machinery and equipment (order of the highest export)
(http://www.customs-ccs.com/). Data October to December 2009 found that the export value reached
the amount of 101,093,388,164 Baht. Hence, the computer business is highly competitive. Therefore,
organizations should have a strategy to build competitive advantage of organizations. This research
shows an interest in learning about the computer business to use that intra-organizational
communication strategy to improve organizational effectiveness.

This study collected data from the database of website such as the department of business
development, Thai industrial standards institute, Ministry of Industry, and companies in Thailand. A
mail survey procedure via the questionnaire was used for data collection. The questionnaires were
sent to 1,181 firms in December, 2009. The key participants in this study were CEO’s computer
business in Thailand. The CEO group is considered an appropriate key respondent of this research
because he or she can provide data in overall of firm leading to confidence and reliability in data
collected. Later, 1,181 questionnaires were sent to managing director or managing partner to provide
data for this study via mail. However, 152 surveys were undeliverable because some firms were no
longer in business or had moved to unknown locations. Deducting the undeliverable from original
1,181 mailed, the valid mail was 1025 surveys, from which 175 responses were received, but 4
questionnaires found incomplete. Thus, the response rate is 17.07 %. Non-response bias was
calculated by comparison of early and late respondents (Armstrong and Overton, 1997). To examine
for non-response error, the responses from the first 50% of respondents were defined as the early
respondents and the last 50% as late respondents. Both sets were test response difference between
the two groups. This research compared the means of demographic variables, firm size, and two
groups were tested by t-test whether the means are different, but its result was not statistically
significant. Hence, non-response bias does not appear to be a problem in the study for on an overall
basis.

4.2 Questionnaire Development and Variables Measurement

4.2.1 Questionnaire Development

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 40


The questionnaires were separated into seven parts. The first part asks for demographic data of
executive information such as gender, age, marital status, and education level, working experiences,
average monthly income at present and working position at present. The second part asks about
general data about computer business such as form of business, period of time in management,
number of company employees, capital of operations, and business income of average per year. The
third parts relates to evaluating main construct consist of four dimensions as diverse communication
implementation, openness communication effectiveness, flexible communication channel, and media
utilization efficiency in the conceptual model. In addition, the fourth part includes the consequence of
intra-organizational communication strategy consisting of success of team relationship, excellence of
working coordination, and establishment of task creativity. The fifth part asks about antecedents of
intra-organizational communication strategy which consist of horizontal organizational characteristics,
competitive orientation, and executive supportiveness. In the sixth parts, information technology
competency and share vision climate are asked. Finally, an open-ended question for executive
suggestions and opinions is included in the seven part.

4.2.2 Variables Measurement

To measure each construct in the conceptual model, all variables were measured by five-point Likert-
type scale, ranging from 1 (strongly disagree) to 5 (strongly agree). Most items are derived from the
literature and face validity by two experts in the related fields in the Faculty of Accountancy and
Management. The pilot study is conducted in a 30 samples. The pilot sample responses were used to
measure and provide evidence of the validity and reliability of scale items. Therefore, the variables
measurements of main construct, consequences, antecedents, moderators, and control variables are
described as follows:

4.2.2.1 Independent Variables

Intra-organizational communications strategy is the main variables of this research that consist of
four dimensions:

1) Diverse communication implementation is measured by firm’s perception about a direction variety


and multichannel of communication which can be useful from channels. This variable is developed in a
new scale from the related literatures and its definition. Five items are used to estimate the diverse
communication implementation.
2) Openness communication effectiveness is measured by firm’s perception about an ability of
encourages disclosing, information exchange and the trustworthiness of communication and bringing
to share perceptions. This variable is developed in a new scale from the related literatures and its
definition. Five items are used to estimate the openness communication effectiveness.
3) Flexible communication channel is measured by firm’s perception about the ability in using way the
communication that is appropriate the situation and time. This variable is developed in a new scale
from the related literatures and its definition. Four items are used to estimate the flexible
communication channel.
4) Media utilization efficiency is measured by firm’s perception about an ability of media of
communicates quickly in time, and is born the accuracy in data acknowledgement. This variable is
developed in a new scale from the related literatures and its definition. Three items are used to
estimate the media utilization efficiency.

4.2.2.2 Dependent Variables

Success of team relationship is measured by firm’s perception about the relation of group of people
who have been chosen to work together to do a particular job, shared skills and ideas, cognitive
ability. This variable is developed in a new scale from the related literatures and its definition. Five
items are used to estimate the success of team relationship.

Excellence of working coordination is measured by firm’s perception about the activities that can be
integrated among members of organization, manage resource effectively, working together to
accomplish task, and to achieve goals. This variable is developed in a new scale from the related
literatures and its definition. Five items are used to estimate the excellence of working coordination.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 41


Establishment of task creativity is measured by firm’s perception about the ability to activate creative
ideas, to do things that are new and useful in working all the time. This variable is developed in a new
scale from the related literatures and its definition. Five items are used to estimate the establishment
of task creativity.

Organizational effectiveness is measured by firm’s perception about the degree to which an


organization realizes its goals bring to the overall success, market share, profitability, and growth rate
of the organization. This variable is developed in a new scale from the related literatures and its
definition. Five items are used to estimate the organizational effectiveness

4.2.2.3 Antecedent Variables

Horizontal organizational characteristics is measured by firm’s perception about the feature


emphasizes sharing tasks and empowerment, a more relaxed hierarchy with fewer rules, more terms,
and decentralized decision-making. This variable is developed in a new scale from the related
literatures and its definition. Five items are used to estimate the horizontal organizational
characteristics.

Competitive orientation is measured by firm’s perception about the nature of the competitive
advantage sought by firm. This variable is developed in a new scale from the related literatures and its
definition. Four items are used to estimate the competitive orientation.

Executive supportiveness is measured by firm’s perception about the support to express for the work
achieved toward goal which consists of professional development, reasonableness, encourages
autonomy, and task guidance and assistance. This variable is developed in a new scale from the
related literatures and its definition. Four items are used to estimate the executive supportiveness.

4.2.2.4 Moderating Variables

Share vision climate is measured by firm’s perception about the perception of members in
organization about exchange their ideas, vision of organization, and increase the level of interpersonal
attraction that communicate with others in the organization. This variable is developed in a new scale
from the related literatures and its definition. Three items are used to estimate the share vision
climate.

Information technology competency is measured by firm’s perception about its the capacity of IT
management to organize, mobilize, coordinate and integrate IT resources and IT competencies to
create value and competitive advantage. This variable is developed from Foss and Christensen
(1996). Three items are used to estimate the information technology competency.

4.2.2.5 Control Variables

Also, there are two control variables that influence the relationship between antecedent and
consequence of intra-organizational communications strategy. The control variables include firm size
and firm age. Firm size was measured by the number of employees in firm. Likewise, firm age was
measured by the number of years of a firm in business.

4.3 Reliability and Validity

In this study, all items in the questionnaire are developed from definitions of constructs and literature
reviews and use pre-test method to appropriately conducted to assert validity and reliability of
questionnaire. In this study, thirty firms are randomly chosen from a population frame that must not be
included in a sampling frame. The rational of pre-test is proving clearly and accurately understanding
of a questionnaire before using real data collection. Furthermore, the questionnaire is modified and
improved to increase an effective instrument. Validity is an instrument’s validity that includes content
and constructs validity. Content validity is the assessment of the degree of correspondence between
the items selected to constitute a summated scale and its conceptual definition. Face validity is a
survey instrument and tests used in the extent to which a psychological test appears to measure what
it is intended to measure. The face validity is a qualitative measure of validity. Construct validity is the

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 42


extent to which a set of measured items actually reflects the theoretical latent construct those items
are designed to measure. Thus, it deals with the accuracy of measurement. Evidence of construct
validity provides confidence that item measures taken from a sample represent the actual true score
that exists in the population (Hair et al., 2006). This research uses a confirmatory factor analysis
(CFA) to examine the construct validity of instrument by investigating the underlying relationships of a
large number of items and determining whether they can be reduced to a smaller set of factors. The
validity of contents in the questionnaire was checked by factor analysis (Kerlinger, 1964). Factor
analysis is employed to test the validity of contents in the questionnaire. Because multi-item constructs
measure each variable, factor analysis was employed to check unidimensionality among the items.
Table 1 shows the results for both factor loadings and Cronbach Alpha for multiple items scales used in
this study.

TABLE 1
RESULTS OF MEASURE VALIDATION

Measurement Model Range of Standardized Cronbach Alpha


Factor Loadings
Intra-organizational Communications Strategy (ICS)
Diverse Communication Implementation (DCI) .687-.837 .813
Openness Communication Effectiveness (OCE) .652-.917 .764
Flexible Communication Channel (FCC) .782-.926 .872
Media utilization Efficiency (MUE) .871-.926 .861
Success of Team Relationship (STR) .810-.899 .917
Excellence of Working Coordination (EWC) .825-.953 .934
Establishment of Task Creativity (ETC) .752-.903 .905
Organizational Effectiveness (OE) .709-.921 .894
Horizontal Organizational Characteristics (HOC) .665-.866 .835
Competitive Orientation (CO) .922-.943 .947
Executive Supportiveness (ES) .895-.942 .930
Share Vision Climate (SVC) .915-.966 .936
Information Technology Competency (ITC) .921-.962 .936

This study used confirmatory factor analysis (CFA) shown in Table 1 to examine the validity of each
construct. Factor loading of each construct presents a value higher than 0.5. All factor loadings are
.652-.966 as being greater than the 0.4 cut-off and are statistically significance level (Hair et al., 2006).
That is, factor loading of each construct should not be less than 0.4. The internal consistency reliability
was assessed by calculating Cronbach’s alpha values for all items in the questionnaire. The reliability
results of the constructs are summarized in Table 1. Cronbach’s alpha of the construct ranged from
.764 (for Openness Communication Effectiveness) to .947 (for Competitive Orientation), which were
above the acceptable threshold (0.70) (Nunnally and Bernstein, 1994). Furthermore, the internal
consistency of the measures used in this study can be considered acceptable for all constructs.

4.4 Statistic Test

The Ordinary Least Squares (OLS) was used to test the hypothesis relationships among intra-
organizational communications strategy and consequence and among antecedent of intra-
organizational communications strategy, because this research shows neither nominal data nor
categorical data. In this study, the models of the aforementioned relationships are as follows:-

Equation 1: STR = β01+β1DCI+β2OCE +β3FCC+β4MUE+β5FA+β6FS+ε


Equation 2: EWC = β02+β7DCI+β8OCE +β9FCC+β10MUE+β11FA+β12FS+ε
Equation 3: ETC = β03+β13DCI+β14OCE+β15FCC+β16MUE+β17FA+β18FS+ε
Equation 4: STR = β04+β19DCI+β20OCE+β21FCC+β22MUE+β23SVC+β24(DCIxSVC)
+β25(OCExSVC)+β26(FCCxSVC)+β27(MUExSVC)+β28FA+β29FS+ε
Equation 5: EWC = β05+ β30DCI+β31OCE+β32FCC+β33MUE+β34SVC+β35(DCIxSVC)
+β36(OCExSVC)+β37(FCCxSVC)+β38(MUExSVC)+β39FA+β40FS+ε
Equation 6: ETC = β06+ β41DCI+β42OCE+β43FCC+β44MUE+β45SVC+β46(DCIxSVC)
+β47(OCExSVC)+β48(FCCxSVC)+β49(MUExSVC)+β50FA+β51FS+ε
Equation 7: OE = β07+β52STR+β53EWC+β54ETC+β55FA+β56FS+ ε

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 43


Equation 8: DCI = β08+β57HOC+β58CO+β59ES+β60FA+β61FS+ε
Equation 9: OCE = β09+β62HOC+β63CO+β64ES+β65FA+β66FS+ε
Equation 10: FCC = β10+β67HOC+β68CO+β69ES+β70FA+β71FS+ε
Equation 11: MUE = β11+β72HOC+β73CO+β74ES+β75FA+β76FS+ ε
Equation 12: DCI = β12+β77HOC+β78CO+β79ES+β80ITC+β81(HOCxITC)+β82(COxITC)
+β83(ESxITC)+β84FA+β85FS+ε
Equation 13: OCE = β13+β86HOC+β87CO+β88ES+β89ITC+β90(HOCxITC)+β91(COxITC)
+β92(ESxITC)+β93FA+β94FS+ε
Equation 14: FCC = β16+β95HOC+β96CO+β97ES+β98ITC+β99(HOCxITC)+β100(COxITC)
+β101(ESxITC)+β102FA+β103FS+ε
Equation 15: MUE = β17+β104HOC+β105CO+β106ES+β107ITC+β108(HOCxITC)+β109(COxITC)
+β110(ESxITC)+β111FA+β112FS+ε

Where;
DCI = Diverse Communication Implementation
OCE = Openness Communication Effectiveness
FCC = Flexible Communication Channel
MUE = Media utilization Efficiency
ST R = Success of Team Relationship
EWC = Excellence of Working Coordination
ETC = Establishment of Task Creativity
OE = Organizational Effectiveness
HOC = Horizontal Organizational Characteristics
CO = Competitive Orientation
ES = Executive Supportiveness
SVC = Share Vision Climate
ITC = Information Technology Competency
FA = Firm Age
FS = Firm Size
ε = Error

4. RESULTS AND DISCUSSION

TABLE 2
DESCRIPTIVE STATISTICS AND CORRELATION MATRIX

Variables DCI OCE FCC MUE STR EWC ETC OE HOC CO ES SVC ITC
Mean 4.322 4.150 4.212 4.298 4.122 3.940 3.998 3.810 3.956 4.092 4.040 4.056 4.078
SD. 0.461 0.553 0.479 0.536 0.551 0.615 0.639 0.682 0.580 0.637 0.618 0.667 0.640

DCI 1.000
OCE .444** 1.000
FCC .535** .517** 1.000**
MUE .417** .426** .577** 1.000
STR .498** .382** .488** .484** 1.000
EWC .400** .363** .406** .409** .704** 1.000
ETC .337** .339** .369** .421** .725** .771** 1.000
OE .325** .245** .275** .339** .540** .592** .696** 1.000
HOC .386** .415** .432** .274** .595** .637** .651** .462** 1.000
CO .486** .330** .388** .371** .656** .654** .706** .641** .555** 1.000
ES .426** .377** .441** .482** .564** .579** .610** .503** .501** .697** 1.000
SVC .432** .231** .289** .250** .605** .598** .689** .580** .598** .734** .698** 1.000
ITC .308** .187** .294** .270** .351** .567** .470** .403** .447** .464** .581** .536** 1.000

** p < .01, *p < .05

This research proposes the total of 3 tables. Table 2 shows the descriptive statistics and correlations
matrix of all construct. Table 3 shows the result of effect of intra-organizational communications

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 44


strategy on consequence and the hypotheses 1-11 are estimated. Table 4 shows the results of effect
of antecedent on intra-organizational communications strategy and the hypotheses 12-17 are
estimated.

Table 2 shows the correlation matrix for all constructs. Furthermore, with respect to possible problem
relating to multicolinearity, all the correlation coefficients of independent variables are smaller than 0.8,
and all the VIF values are smaller than 10. Hair et al., (2006) suggest that the problem of
multicolinearity of independent variables in this mode is therefore not significant. Moreover, variance
inflation factor (VIF) was used to check multicolinearity problem among independent variables. In this
study, the VIF is ranged from 1.278 to 9.488, this research shows the cut-off value of 10 as
recommended by Neter et al. (1985), meaning that the independent variables are not correlated with
each other. Hence, there are no substantial multicollonearity problems encountered in this study. As
expected, control variables, firm age and firm size are not significantly correlated to each model
equation.

Figure 1 exhibits the relationship between intra-organizational communications strategy (diverse


communication implementation, openness communication effectiveness, flexible communication
channel, and media utilization efficiency) and success of team relationship, excellence of working
coordination, and establishment of task creativity base on hypotheses 1a-c, 2a-c, 3a-c, and 4a-c. This
research proposes that intra-organizational communications strategy is positively associated with
success of team relationship, excellence of working coordination, and establishment of task creativity.
These hypotheses are analyzed from the regression equation in Models 1-3. The results of OLS
regression analysis of the relationships between intra-organizational communications strategy and
success of team relationship, excellence of working coordination, and establishment of task creativity
are provided in Table 3 below.

These results show that model 1 illustrates the results of the relationships among diverse
communication implementation, openness communication effectiveness, flexible communication
channel, and media utilization efficiency on success of team relationship. The results show that the
diverse communication implementation (1 = .260, p < .01), flexible communication channel (2 = .171,
p < .05), and media utilization efficiency (4 = .253, p < .01) have significant positive effects on
success of team relationship. Corresponding with McKinney et al. (2004) suggest that communication
is essential to effective team performance. Ancona and Caldwell (1992) found that communication
was positively related to team member ratings of performance. Further, members of team have the
opportunity to easily develop relationships, which members can discuss each other’s work and their
reactions can be conveyed through communication (Greenberg et al., 2007). Moreover,
communication media based on the expectation that richer media will allow for communicating greater
verbal and non-verbal cues, and will lead to more effective team interactions (Hambley et al., 2007).
While, the openness communication effectiveness found that has insignificant. Thus, Hypotheses 1a,
3a and 4a are supported, but Hypothesis 2a is not.

Model 2 illustrates the results of the relationships among diverse communication implementation,
openness communication effectiveness, flexible communication channel, and media utilization
efficiency on excellence of working coordination. The results show that the diverse communication
implementation (7 = .191, p < .05), and media utilization efficiency (10 = .202, p < .05) have
significant positive effects on excellence of working coordination. These results are corresponding with
Altinoz (2008) who suggests that organizational communication ensures the interaction in the
organization. While, the openness communication effectiveness and flexible communication channel
found that it is insignificant. Thus, Hypotheses 3b and 4b are supported, but Hypotheses 1b and
2b are not.

TABLE 3
RESULTS OF THE INTRA-ORGANIZATIONAL COMMUNICATIONS STRATEGY EFFECTS

Independent Variables Dependent Variables


STR EWC ETC STR EWC ETC OE
(1) (2) (3) 4 (5) (6) (7)
DCI .260*** .191** .113 .100 0.0135 -.119
(.076) (.083) (.083) (.069) (.071) (.066)
OCE 0.0525 .135 .148 0.0617 .156** .155**
(.076) (.083) (.084) (.066) (.069) (.063)
FCC .171** .124 0.0965 .129 0.0468 0.0356

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 45


(.086) (.094) (.094) (.076) (.079) (.073)
MUE .253*** .202** .257*** .253*** .214*** .238***
(.077) (.085) (.085) (.069) (.072) (.066)
SVC .372*** .382*** .580***
(.066) (.069) (.064)
DCIXSVC -0.0709 -.122 -0.0844
(.060) (.062) (.057)
OCEXSVC -0.0496 -0.0915 0.0119
(.072) (.075) (.069)
FCCXSVC -0.0106 0.0796 0.0690
(.088) (.092) (.085)
MUEXSVC .150** .257** 0.0880
(.074) (.077) (.071)
STR 0.0335
(.088)
EWC .136
(.093)
ETC .556***
(.097)
FS 0.0477 -.132 -.435** 0.0613 -.100 -.390** -.159
(.196) (.215) (.216) (.172) (.179) (.165) (.177)
FA .283** 0.0918 .294 .212 0.0349 .190 .164
(.142) (.156) (.157) (.123) (.128) (.119) (.130)

Adjusted R square .362 .233 .226 .525 .488 .562 .482


a
***p < .01, **p < .05, *p < .10 Bata coefficients with standard errors in parenthesis

In addition, model 3 illustrates the results of the relationships among diverse communication
implementation, openness communication effectiveness, flexible communication channel, and media
utilization efficiency on establishment of task creativity. The results show that the media utilization
efficiency (16 = .257, p < .01) has significant positive effects on establishment of task creativity. These
results are corresponding with Ebadi and Utterback (1984) who suggest that communication helps a
research with idea generation, stimulates personal creativity, and results in improved problem solving.
Wiesenfeld et al. (1999) suggest that communication helps create shared meaning because it
provides social context cues, and creates a shared interpretive context among organization members.
Further, the communication builds creativity in the work such as products new which it is brought to
organizational effectiveness. While, the diverse communication implementation, openness
communication effectiveness and flexible communication channel found that it is insignificant. Thus,
Hypothesis 4c is supported, but Hypotheses 1c, 2c and 3c are not.

To test the moderating role of share vision climate on the relation among intra-organizational
communication strategy and success of team relationship, excellence of working coordination, and
establishment of task creativity. This research hypothesizes that share vision climate increases the
relation among intra-organizational communication strategy and success of team relationship, excellence of
working coordination, and establishment of task creativity. Based on the regression equation in
Models 4, 5, and 6, the relationship among intra-organizational communication strategy and success of
team relationship, excellence of working coordination, and establishment of task creativity is also tested
in Table 3.

This result shows that model 4 illustrates the results of the moderating role of share vision climate on
the relation among diverse communication implementation, openness communication effectiveness,
flexible communication channel, and media utilization efficiency and success of team relationship. The
results show that the interaction between share vision climate and media utilization efficiency (27 =
.150, p < .05) has a significant positive relationship with success of team relationship. Thus,
Hypothesis 8a is supported, but Hypothesis 5a, 6a and 7a are not.

Additionally, model 5 illustrates the results of the moderating role of share vision climate on the
relation among diverse communication implementation, openness communication effectiveness,
flexible communication channel, and media utilization efficiency and excellence of working
coordination. The results show that the interaction between share vision climate and media utilization
efficiency (38 = .257, p < .01) has a significant positive relationship with excellence of working
coordination. Thus, Hypothesis 8b is supported, but Hypothesis 5b, 6b and 7b are not. Therefore,
the share vision climate is partial moderator on the relation between media utilization efficiency-
success of team relationship and media utilization efficiency-excellence of working coordination.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 46


Model 6 illustrates the results of the moderating role of share vision climate on the relation among
diverse communication implementation, openness communication effectiveness, flexible
communication channel, and media utilization efficiency and establishment of task creativity. The
results show that the interaction between share vision climate and diverse communication
implementation, openness communication effectiveness, flexible communication channel, and media
utilization efficiency has an insignificant positive relationship with establishment of task creativity.
Thus, Hypotheses 5c, 6c, 7c and 8c are not supported.

Furthermore, Figure 1 exhibits the relationship between success of team relationship, excellence of
working coordination, and establishment of task creativity and organizational effectiveness base on
hypotheses 5, 6, and 7. This research proposes that success of team relationship, excellence of
working coordination, and establishment of task creativity is positively associated with organizational
effectiveness. These hypotheses are analyzed from the regression equation Model 7. The results of
OLS regression analysis of the relationships between success of team relationship, excellence of
working coordination, and establishment of task creativity and organizational effectiveness are
provided in Table 3. Model 7 illustrates the results of the relationships among success of team
relationship, excellence of working coordination, and establishment of task creativity on organizational
effectiveness. The results show that the establishment of task creativity (54 = .556, p < .01) has
significant positive effects on organizational effectiveness while the success of team relationship and
excellence of working coordination found that it is insignificant. Thus, Hypothesis 11 is supported,
but Hypotheses 9 and 10 are not.

Figure 1 exhibits the relationship between horizontal organizational characteristics, competitive


orientation, and executive supportiveness and intra-organizational communications strategy (diverse
communication implementation, openness communication effectiveness, flexible communication
channel, and media utilization efficiency) based on hypotheses 12a-d, 13a-d, and 14a-d. This
research proposes that horizontal organizational characteristics, competitive orientation, and executive
supportiveness are positively associated with intra-organizational communications strategy. These
hypotheses are analyzed from the regression equation in Models 8-11. The results of OLS regression
analysis of the relationships among horizontal organizational characteristics, competitive orientation,
and executive supportiveness are significant and positively correlated to diverse communication
implementation, openness communication effectiveness, flexible communication channel, and media
utilization efficiency is provided in Table 4 below.

This result shows that model 8 illustrates the results of the relationships among horizontal
organizational characteristics, competitive orientation, and executive supportiveness on diverse
communication implementation. The results show that the competitive orientation (58 = .309, p < .01)
has significant positive effects on diverse communication implementation. While, the horizontal
organizational characteristics and executive supportiveness found that has insignificant. Thus,
Hypothesis 13a is supported, but Hypotheses 12a and 14a are not.

Model 9 illustrates the results of the relationships among horizontal organizational characteristics,
competitive orientation, and executive supportiveness on openness communication effectiveness. The
results show that the horizontal organizational characteristics (62 = .282, p < .01), and executive
supportiveness (64 = .213, p < .05) have significant positive effects on openness communication
effectiveness while the competitive orientation found that it is insignificant. Thus, hypotheses 12b
and 14b are supported, but Hypothesis 13b is not.

TABLE 4
RESULTS OF THE EFFECTS ON INTRA-ORGANIZATIONAL COMMUNICATIONS STRATEGY

Dependent Variables
Independent Variables DCI OCE FCC MUE DCI OCE FCC MUE
(8) (9) (10) (11) (12) (13) (14) (15)
HOC .136 .282*** .257*** 0.0242 .147 .304*** .265*** 0.0179
(.082) (.084) (.082) (.084) (.084) (.087) (.083) (.084)
CO .309*** 0.0210 0.0595 0.0615 .243** 0.0299 0.0586 0.0817
(.099) (.101) (.100) (.101) (.107) (.110) (.105) (.107)
ES .138 .213** .271*** .430*** 0.0914 .238** .230** .433***
(.095) (.097) (.095) (.097) (.103) (.106) (.101) (.103)
ITC .213** 0.0170 .184 .143
(.096) (.099) (.094) (.096)

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HOC x ITC .117** .110 .179*** .122**
(.057) (.059) (.057) (.058)
CO x ITC -.218** -0.0288 -0.0463 -0.0785
(.100) (.104) (.099) (.101)
ES x ITC .221** 0.0505 0.0610 .155
(.105) (.109) (.104) (.106)
FS .170 .526** .232 0.0252 .129 .471** .191 -0.0271
(.209) (.213) (.210) (.214) (.205) (.211) (.202) (.206)
FA 0.0541 -0.0479 -.105 -0.0671 0.0650 -0.0427 -.109 -0.0507
(.155) (.158) (.156) (.159) (.151) (.156) (.149) (.152)

Adjusted R square .249 .219 .238 .213 .290 .247 .310 .288
a
***p < .01, **p < .05, *p < .10 Bata coefficients with standard errors in parenthesis

Furthermore, Model 10 illustrates the results of the relationships among horizontal organizational
characteristics, competitive orientation, and executive supportiveness on flexible communication
channel. The results show that the horizontal organizational characteristics (67 = .257, p < .01), and executive
supportiveness (69 = .271, p < .01) have significant positive effects on flexible communication channel
while the competitive orientation found that is it insignificant. Thus, Hypotheses 12c and 14c are
supported, but Hypothesis 13c is not.

And, Model 11 illustrates the results of the relationships among horizontal organizational
characteristics, competitive orientation, and executive supportiveness on media utilization efficiency.
The results show that the executive supportiveness (74 = .430, p < .01) has significant positive effects
on media utilization efficiency while the horizontal organizational characteristics and competitive
orientation found that it is insignificant. Thus, Hypothesis 14d is supported, but Hypotheses 12d
and 13d are not.

This research has tested moderating role of information technology competency on the relation among
horizontal organizational characteristics, competitive orientation and executive supportiveness and diverse
communication implementation, openness communication effectiveness, flexible communication
channel, and media utilization efficiency. This research hypothesizes that information technology
competency increases the relation among horizontal organizational characteristics, competitive
orientation and executive supportiveness and diverse communication implementation, openness
communication effectiveness, flexible communication channel, and media utilization efficiency. Based
on the regression equation in Models 12, 13, 14 and 15, the relationship among horizontal
organizational characteristics, competitive orientation and executive supportiveness and diverse
communication implementation, openness communication effectiveness, flexible communication
channel, and media utilization efficiency is also tested in Table 4.

This result shows that model 12 illustrates the results of the moderating role of information technology
competency on the relation among horizontal organizational characteristics, competitive orientation
and executive supportiveness and diverse communication implementation. The results show that the
interaction between information technology competency and horizontal organizational characteristics
(81 = .117, p < .05) has a significant positive relationship with diverse communication implementation.
Furthermore, interaction between information technology competency and executive supportiveness
(83 = .221, p < .05) has a significant positive relationship with diverse communication implementation
while interaction between information technology competency and competitive orientation has a
significant negative relationship with diverse communication implementation. However, this research
proposes a positive hypothesis. There are also reasons for that support. This research is in context of
Thailand computer business, which some businesses may not have focused on information
technology, furthermore, reasons from the respondents to the questionnaire suggest that current
technology is changing so rapidly that organizations will use technology in firm’s communications.
Firm cost must be very high, so this technology is not available in some companies. Thus,
Hypotheses 15a and 17a are supported, but Hypothesis 16a is not. Therefore, the information
technology competency is partial moderator on the relation between horizontal organizational
characteristics-diverse communication implementation and executive supportiveness-diverse
communication implementation.

Additionally, model 13 illustrates the results of the moderating role of information technology
competency on the relation among horizontal organizational characteristics, competitive orientation
and executive supportiveness and openness communication effectiveness. The results show that it
has no positive relationship. Therefore, Hypotheses 15b, 16b, and 17b are not supported.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 48


Furthermore, model 14 illustrates the results of the moderating role of information technology
competency on the relation among horizontal organizational characteristics, competitive orientation
and executive supportiveness and flexible communication channel. The results show that the
interaction between information technology competency and horizontal organizational characteristics
(99 = .179, p < .01) has a significant positive relationship with flexible communication channel. Thus,
Hypothesis 15c is supported, but Hypotheses 16c and 17c are not. Therefore, the information
technology competency is full moderator on the relation between horizontal organizational
characteristics and flexible communication channel.

Finally, Model 15 illustrates the results of the moderating role of information technology competency
on the relation among horizontal organizational characteristics, competitive orientation and executive
supportiveness and media utilization efficiency. The results show that the interaction between
information technology competency and horizontal organizational characteristics (108 = .122, p < .05)
has a significant positive relationship with media utilization efficiency. Thus, Hypothesis 15d is
supported, but Hypotheses 16d and 17d are not. Therefore, the information technology
competency is full moderator on the relation between horizontal organizational characteristics and
media utilization efficiency.

6. CONTRIBUTIONS AND FUTURE RESEARCH

6.1 Theoretical Contributions

This research shows a clear understanding of the relationship between antecedents and
consequences of intra-organizational communication strategy. In addition, this study also expands
three principal theoretical frameworks including communication theory, media richness theory and
resource-based view of the firm (RBV) on the existing knowledge and literature of intra-organizational
communication strategy. Issues of interest in this study is one of the first known investigations to
directly link intra-organizational communication strategy to organizational effectiveness via success of
team relationship, excellence of working coordination, and establishment of task creativity in the case
of computer business in Thailand and the horizontal organizational characteristics, competitive
orientation and executive supportiveness affect intra-organizational communication strategy relational
model. Furthermore, this study focuses on four dimensions of intra-organizational communication
strategy including diverse communication implementation, openness communication effectiveness,
flexible communication channel, and media utilization efficiency. While, most previous empirical
evidences examine organizational communication affect success of team relationship, excellence of
working coordination, and establishment of task creativity. Although, this research found that diverse
communication implementation, flexible communication channel, and media utilization efficiency were
positive influence to dependent variables, openness communication effectiveness found that no
relationships with all other variables. It is possible that in the context of computer business in Thailand,
openness communication effectiveness of the corporate members of the computer may also be less.
Therefore, future studies should change the sample, for example to the hospital or business services,
to compare study results that matched or different. Furthermore, the context may shift to study abroad
in order to confirm that the results are different from the context of the study in Thailand. Moreover,
this research also tests the moderating effects of share vision climate and information technology
competency found that share vision climate is a partial moderator on the relation between media
utilization efficiency and success of team relationship and excellence of working coordination, at the
same time, information technology competency is partial moderator on the relation between horizontal
organizational characteristics-diverse communication implementation and executive supportiveness-
diverse communication implementation. Furthermore, information technology competency is a full
moderator on the relation between horizontal organizational characteristics-flexible communication
channel and horizontal organizational characteristics-media utilization efficiency. Previous empirical
evidences examine information technology enhance communication, exchange of ideas, involvement
and work performed in organization (Good and Stone, 1995; Yazici, 2002).

6.2 Managerial Contributions

This study provides practical and managerial contributions to firms’ executives. This research
contributes to executives of firms understanding intra-organizational communication strategy, which is
important to appropriate selected dimension of intra-organizational communication strategy lead to

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 49


success of team relationship, excellence of working coordination, and establishment of task creativity
in the firms. In addition, firms should support the use of information technology to facilitate
communication between managers and employees work together and use technology to communicate
more easily in time and geographic location to communicate with greater accuracy in the target
(Ahearne, Hughes, and Schillewaert, 2007).

6.3 Limitations and Future Research Directions

The findings from this research have some limitations. This research relied on perceptual data
collected from only single industry of computer firms in Thailand. The response rate is lower which
may affect the power of statistics. Therefore, future research should collect data from other population
in order to increase that level of reliable result. The result of this research, share vision climate, is
partial statistically significant. As a result, the need for future research is to seek more appropriate
moderating variables to enhance the intra-organizational communication strategy and consequences.
Additionally, future research may add other factors affect intra-organizational communication strategy
as organizational culture, culture of cooperation. Future research should study a longitudinal approach
in order to provide greater confidence in these relationships. And future research should be tested by
other statistics such as Structure Equation Model (SEM). Moreover, future research increases review
literature for more reasonable contributions, and benefit advantage.

7. CONCLUSION

This research found that dimension of intra-organizational communication strategy consists of diverse
communication implementation and media utilization efficiency were positive influence to success of
team relationship and excellence of working coordination. At the same time, media utilization
efficiency is only affecting establishment of task creativity. Furthermore, this research found that share
vision climate is moderating relationship between media utilization efficiency-success of team
relationship and media utilization efficiency-excellence of working coordination. In addition,
establishment of task creativity was positively influenced by organizational effectiveness. Antecedent
of intra-organizational communication strategy in this research showed that competitive orientation
was positive influence to diverse communication implementation, while, horizontal organizational
characteristics and executive supportiveness were positively influenced by openness communication
effectiveness and flexible communication channel. Furthermore, executive supportiveness is only
affecting media utilization efficiency. Information technology competency is moderating relationship
among horizontal organizational characteristics-diverse communication implementation, horizontal
organizational characteristics-flexible communication channel, horizontal organizational characteristics-media
utilization efficiency and executive supportiveness-diverse communication implementation. Thus, this
research will provide an empirical foundation for better understanding of antecedents and
consequences of intra-organizational communication strategy.

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organizational identification in virtual organization. Oraganizational Science, 10(6), 777-790.

Yazici, H. J. 2002. The role of communication in organizational change: an empirical investigation.


Information & Management, 39, 539-552.

Zheng, W., Yang, B., & McLean, G. N. 2009. Linking organizational culture, structure, strategy, and
organizational effectiveness: Mediating role of knowledge management.
Journal of Business Research, In Press, Corrected Proof.

AUTHOR PROFILES:
Nuanlaong Atthatrangsun earned M.A. at Khonkaen University, Thailand in 2000. Currently she is a
Ph.D. (Candidate) in Management at the Faculty of Accountancy and Management, Mahasarakham
University, Thailand.
Dr. Phapruke Ussahawanitchakit earned is Ph.D. at Washington State University in 2002. Currently
he is an associate professor of accounting and a dean of the Faculty of Accounting and Management,
Mahasarakham University, Thailand.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 55


MEASURING THE IMPORTANCE OF ROE AND MARKET CAPITALIZATION:
EVIDENCE FROM THAILAND’S STOCK MARKET

Panu Chaopricha, Rattana Bundit University, Bangkok, Thailand


Peng Chan, California State University-Fullerton, USA

ABSTRACT

Current research is undertaken to demonstrate the importance of Return on Equity (ROE) and market
capitalization by analyzing the similarities and differences of the returns of SET 50 (large market
capitalization) portfolios and non SET50 (small market capitalization) portfolios. In doing so, the current
research reveals that during 2004-2006, ROE is negatively related to stock return for SET50 Index
portfolios while positively related to stock return for non SET50 equity portfolios. When ROE is set aside,
market capitalization is found to be positively related with stock return. Interaction between market
capitalization and ROE and its relationship with stock return is examined. Finally, the current research
suggests that negative relationship between ROE and stock return for SET50 Index portfolios could be
caused by market adjustment after market index surge by more than double in 2003.

Keywords: Thailand Stock Market; SET50 Index; Return on Investment; Market Capitalization; Financial
Strategies

1. INTRODUCTION

Investors have been seeking to increase wealth via stock market for decades, whether they are value
investors or speculators. Large variety of concepts and techniques has been applied to gain the most out
of stock market. Fundamental and technical analyses are perhaps the most straightforward thoughts in
this field. Fundamental analysis involves analyzing the business facts around the company ranging from
financial statements, management, competitive advantages, market, competitors and etc. All these
factors can be processed in various ways to assess company’s stock valuation. The aim is to identify
undervalue stock or growth stock. In market with no restriction on short selling, overvalue stock could also
be sought after. On the other hand, technical analysis deals with forecasting of price using historical price
behavior. It is done primarily through the use of charts. Then, buy/sell decisions are made based on the
predictive trend, assuming past repeats itself. Although being questioned for its lack of hard evidence,
technical analysis continues to be used widely by investors in various markets nowadays.

This research relies on the fundamental analysis as it aims to provide comprehensive analysis to readers
with basic knowledge in business and stock market. The main focus of this research is on the firm’s
characteristics that determine stock returns. The two major characteristics are the status of the firm as a
member of SET 50 index, and Return on Equity (ROE).

1.1 SET 50 Index


The Index Committee, appointed by Stock Exchange of Thailand, selects 50 stocks to form the index
based on the fact that they are ranked in the top 200 on the SET's main board in terms of average daily
market capitalization for the past 12 months, are actively traded and meet other certain criteria. This
research notices that SET 50 index stocks receive more attention from investors than non SET50 index
as witnessed by their higher trading volume. Besides, several funds states in their policies to invest
mainly in SET 50 index stocks. Thus, SET 50 index stocks could be considered blue chip, large market
capitalization or high volume stocks.

1.2 Return on Equity (ROE)


ROE is one of the financial ratios that frequently are considered by investors and analysts. There is a
perception that the higher return on equity, the better the performance of the company. But historically,
high ROE does not lead to high stock return. However, no empirical evidence has been available to
support either hypothesis.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 56


Based on these two main characteristics, this research screens stocks and forms portfolios using
Markowitz’s Modern Portfolio Theory. Trading data from 2001-2003 are used to compute covariances that
require weight of each stock in portfolios. Investment period covers 2004-2006. Then returns of portfolios
are compared to prove the importance of both market capitalization and ROE. An integral tool to this
research is software called QuantAnalysis developed by Fundsformation Inc., USA. The program can
form portfolios using different conditions that include buy and sell limits, screening criteria (price strength,
coefficient of variation, return, standard deviation, dividend yield, average return-risk free rate/beta, daily
volume) and optimization process (modern portfolio theory, equal weights, minimum variance and risk-
adjusted model-driven portfolio).

2. PURPOSE OF STUDY

This study aims to establish relationship between stock return and two firm’s characteristics, which are
the status as a member of SET 50 index and Return on Equity (ROE). When the relationships are proven
to exist, two main findings would add to current market knowledge. Firstly, the question on whether
SET50 portfolio (large market capitalization) or NON SET50 portfolio (small market capitalization) yields
higher return will become apparent to all investors. Secondly, ROE, as a simple and readily available
financial ratio, will have a new implication as stock return predictor.

3. THEORETICAL FRAMEWORK

Several firm’s characteristics have been established to have explanatory power for stock returns. Some of
the frequently researched characteristics include price-to-book value ratio (P/BV), price-to-sales ratio,
price/earning ratio (P/E), market capitalization and debt/equity ratio (D/E) for example. Their directions of
relationship with stock returns are provided in figure 1.

Figure 1 - Relationship of various firm’s characteristics and stock returns.

MV/BV - D/E
+
-
Price/Sales
? ROE
- Stock Returns
P/E ?
-
Size + ROE
Market
Capitalization

Market-to-book Ratio is negatively related to stock returns as proven by Aggarwal et al. (1992), Capaul,
Rowley and Sharp (1993) (as cited in Harris and Marston (1994) p. 18-19) for example. Price to Sales
ratio is negatively related to stock returns as proven by Barbee, Mukherji and Raines (1996). P/E ratio is
negatively related to stock returns as proven by Ander (1982) (as cited in Keown et al. (1987) p. 188) for
example. Size is proven to have negative relationship with stock returns as established by Banz (1981),
Basu (1977) (as cited in Maroney and Protopapadakis (2002) p.189) for example.

Notice that all variables on the left hand side have market price, which reflects how investors value each
particular stock, as a numerator (except for size which has market price as a factor). Since stock return
consists of capital gain and dividend gain, and market price is associated with capital gain, these four
variables are in effect associated with stock return. Conclusion can be drawn that the higher the relative
market price, the lower the stock return.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 57


On the top right hand side of the figure, D/E ratio is positively related to stock returns as proven by
Bhandari (1998). This relationship can be expected since shareholders earn higher operating returns
when a firm leverages more. Then, it subsequently leads to higher stock returns.

ROE, although not proven by previous researches, can be hypothesized to have positive relationship with
stock returns since both ROE and stock returns are “return on investment” ratio. Besides, based on
analysis of its components, return or company earning and stockholder’s equity, this research found that
company earning has positive relationship with stock returns as evidenced by negative relationship
between P/E ratio and stock returns. At the same time, shareholder’s equity has inverse relationship with
stock returns as observed in positive relationship between D/E ratio and stock returns. When the two
components are combined in ROE, they support the hypothesis that the higher the ROE, the greater the
stock return. However, this deduction depends on relationship between the two variables in the ratio. In
other ratios, this reasoning might not apply.

4. METHODOLOGY

This research uses Markowitz’s Modern Portfolio Theory to form 7 portfolios which are SET50 Portfolio,
SET50 High ROE Portfolio, SET50 Low ROE Portfolio, Non SET50 Portfolio, Non SET50 High ROE
Portfolio, Non SET50 Low ROE Portfolio and Market Portfolio (of which market index is used for return
calculation). Subsequently, returns of each portfolio are compared against one another and statistically
tested with t-test assuming unequal variance to measure the significance of market capitalization and
ROE.

4.1 Data Collection


Daily trading data of every stocks from 2001 – 2006 are purchased from Fundtecon Co., Ltd., a data
dealer of Stock Exchange of Thailand. The data include open, high, low, volume and price (close).
Dividend data are retrieved from http://www.siamfn.com by Adkinson Securities Co., Ltd. All dividend data
are adjusted for par change, stock split and name/symbol change. Stock dividend is assumed to be sold
out upon receipt at close price and hence treated as cash dividend. Trading data together with dividend
data will be used later on to create input file for QuantAnalysis after stocks are screened and classified
under specific stock pools.

Data for stock screening i.e. average daily trading value, ROE, classification of stocks (under specific
sector and specific quarter) and sector ROE are obtain from 3-month subscription to www.setsmart.com,
a service by SETTRADE Co., Ltd., a subsidiary of Stock Exchange of Thailand. The web site provides 5
years of information back from first login period (From January 2002 – January 2007). The lists of SET50
from 2004-2006, which is used as a cut-off for small market capitalization stocks, are available from
http://www.set.or.th/en/listed/download/list_p1.html, an official web site of Stock Exchange of Thailand.

4.2 Data Screening


First of all, this research includes every stock that ever exists during 2001 – 2006 to avoid survivorship
bias, a bias caused by excluding stocks that became defaulted during the period studied. All stocks are
screened and invested as if this research does not know whether it would survive later on. This provides
stronger degree of generalizablity for future application. Then, this research screens out any stocks that
have average daily trading value less than 10 million Baht in each of the past 4 quarters before
investment quarter. The purpose is to screen out stocks with low liquidity because if these stocks are
included and the results turn out that these low liquidity stocks yield higher return, investors might find the
result impractical because they cannot buy or sell at their desired times.

There are 12 investment quarters which are 04Q1, 04Q2, 04Q3, 04Q4, 05Q1, 05Q2, 05Q3, 05Q4, 06Q1,
06Q2, 06Q3 and 06Q4. This research experiments with different thresholds i.e. 1, 5, 10 and 15 million
Baht to see how many stocks pass the threshold in each quarter. Then, average number of stocks during
12 quarters is identified and it turns out that 10 million Baht threshold renders the average of 92 stocks
per quarter. This is the closet number to 100. Since this research studies SET50 and non SET50
portfolios, it is assumed that around half of the stocks that pass this criterion should be listed in SET50
index and the rest could be classified as non SET50 stock with enough liquidity. Therefore 10 million Baht

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 58


threshold gives balanced numbers between these groups. However, a small numbers of SET50 stocks do
not pass the criterion but they are still included in this research.

Then, quarterly ROE of each stock is compared with quarterly average ROE of the sector under which the
stock is classified. This process is done because sometimes companies can be classified under different
sectors in different quarters. Although this does not occur frequently, this research needs to take the
changes into consideration. Usually, the reclassification is done at the end of each quarter. When,
company ROE is higher than sector’s average ROE, it is labeled “high ROE” and when company ROE is
equal to or lower than sector’s average ROE, it is labeled “low ROE”. During the investment quarters,
companies classified under REHAB (rehabilitation) sector and companies that are not classified under
any specific sector are excluded.

The classification of high or low ROE groups will be used as investment criterion in the next 2 quarters.
For example, a company that has higher ROE than sector’s average in quarter 1 is classified as high
ROE stock. When, this research considers stock to form a portfolio for investment in quarter 3, the
classification in quarter 1 is used and so on. The rational behind this lag is that in real life situation, ROE
is announced after the quarter has ended. Therefore, it is impossible to invest from the beginning of
quarter 2 based on ROE performance in quarter 1. ROE of quarter 1 is announced in the first month of
quarter 2 and it will take some to for investors to digest the information. This is how this research claims
to have unbiased use of database. Furthermore, this research classifies stock into SET50 and non SET50
stocks based on SET50 index listings announced by Stock Exchange of Thailand every 6 months. Since
the listing is usually announced before it is applied, this classification is straightforward.

4.3 Data Analysis Method


As Modern Portfolio Theory is concerned with returns and variances and no other characteristics of
stocks, this research prepares pools of stocks based on characteristics of interest for QuantAnalysis to
form portfolios and generate returns according to the theory. In order to know how many pools of stocks
need to be prepared, rebalancing policy must be determined.

4.4 Rebalancing Policy


Although the ROE is announced on a quarterly basis and SET50 list is announced every 6 months, stock
returns change on a daily basis. In order to create up-to-date portfolios, rebalancing is employed to
change investment weighs of stocks according to their most recent covariance.

Rebalancing schedule has an effect on portfolio return. Frequent rebalancing such as weekly or bi-weekly
not only requires more work, but also incurs more cost such as trading commission. Longer period of
rebalancing is more convenient but there is a risk of opportunity loss. After all, the result is historical and
cannot apply with 100% confidence that it will work in different setting or timeframe. This research opts to
rebalance portfolio on a weekly basis to reflect behavior of active investors.

4.5 Numbers of stock pools required for QuantAnalysis


Lists of SET50 Index stocks are announced every six months. Therefore, during 2004-2006, there must
be 6 pools of stocks for SET50 portfolio. But to make portfolio returns comparable, these pools are further
divided into 12 pools as other pools with ROE change on quarterly basis.

For pools of SET50 High ROE stocks and SET50 Low ROE, 12 pools of stocks (4 quarters for 3 years)
are needed for each of them because of the reason provided previously.

For non SET50 portfolio, non SET50 High ROE portfolio and non SET50 Low portfolio, 12 pools of stocks
are needed for each of them, totaling 36 stock pools. For the two portfolios that are associated with ROE,
reason is the quarterly announcement of ROE. For non SET50 with no specific ROE portfolio, it is
screened using average daily trading value that is calculated based on quarterly trading value. Therefore,
all stocks passing the criterion stay in a pool for a quarter.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 59


4.51 Application of QuantAnalysis
In total, 72 stock pools are needed in this research. They are results of average daily trading value, ROE
and size screening processes as described in previous section. Once each pool is analyzed by
QuantAnalysis, its trading data and returns is used for its according period. In this stage, QuantAnalysis is
programmed to rebalance portfolio every week for all lives of stock pools. In rebalancing, only weight is
changed according to variance and covariance of stock during the last 36 months. Stocks that will be
included in January, 2004 must have existed from January 1, 2001 - December 31, 2003. To be invested
in February 2004, screened stocks must have existed from February 1, 2001 – January 31, 2004, and so
on. Consequently, even though some stocks have passed all required screening criteria, they are finally
excluded from the portfolio because of incomplete trading data.

Each of 72 stock pools is prepared in EXCEL format and has its own trading data and returns worksheet
with dates as column and screened stock names as row. Each stock pool is used by QuantAnalysis for its
according period. Then, returns of all periods are combined to make up 3 years return for that portfolio.
Finally, 3 years returns of 7 portfolios i.e. SET50, SET50 High ROE, SET50 Low ROE, non SET50, non
SET50 High ROE, non SET50 Low ROE and market portfolios are compared against one another.

4.52 Statistical Technique Used


Statistical technique to be used in this research is t-test of two samples, which can prove if population
difference of mean return of two portfolios would be significantly different from zero.

In this study, since stock market is dynamic, normal distribution cannot be assumed for mean returns. At
the same time, variance of the resulting returns from all portfolios cannot be assumed equal either.
However, during 3 years of investment, the number of weekly return for each portfolio totals 148.
Therefore, with this sample size larger than 30, the central limit theorem ensures that parametric tests
work well if the populations are not normally distributed.

5. METHODOLOGY

Mean capital gains, dividend gains, total profits, returns and standard deviations of all portfolios during
148 investment weeks are provided in Table 1. Results of 1-tailed t-test two samples assuming unequal
variances with α = 0.05 are provided in Table 2.

Table 1: Summary of returns from each portfolio

SET50 SETHI SETLO NON NONHI NONLO MKT


Capital Gain -967,113 -2,345,567 1,047,728 -3,526,632 -407,431 -7,417,194
Dividend Gain 682,101 1,070,490 653,929 388,582 1,263,186 193,562
Total Profit -285,012 -1,275,076 1,701,658 -3,138,050 855,755 -7,223,632
Returns -0.19% -0.86% 1.15% -2.12% 0.58% -4.88% 0.18%
Std Dev(%) 5.76% 6.38% 6.89% 8.62% 6.61% 9.29% 5.74%

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 60


Table 2: Results of 1-tailed t-test two samples assuming unequal variances with α = 0.05

Average Return SETLO NON HI MKT SET 50 SET HI NON NON LO


SETLO 1.15% 0.2335 0.0950 0.0351* 0.0048* 0.0002* 0.0000*
NON HI 0.58% 0.2906 0.1428 0.0288* 0.0014* 0.0000*
MKT 0.18% 0.2884 0.0704 0.0037* 0.0000*
SET 50 -0.19% 0.1724 0.0123* 0.0000*
SET HI -0.86% 0.0772 0.0000*
NON -2.12% 0.0042*
NON LO -4.88%
Note: Cells highlighted in grey are significant at α = 0.05

6. DISCUSSION AND CONCLUSION

In general, the results of this research are contrary to several researches which establish that on
average, small-size firms yield higher stock returns than large-size firms. See Banz (1981), Basu (1983)
(as cited in Maroney and Protopapadakis (2002) p.189) and Loeb (1991) for example. Besides, this
current research is contrary to previous research conducted in Thailand by Chui and Wei (1998), who
report negative relationship between size and stock returns. Their sampling period was from July 1984 –
June 1993 with commercial banks interbank lending rate as risk free rate. Chui and Wei (1998) assign
stocks to three equal sized-sorted groups (from small to large) based on market equity at the end of each
June and then form value-weighted portfolios. They disregard stocks with no trading record longer than 3
months. Apparently, the setting of this current research is different from all others. This research uses
SET 50 listing as a border between large and small market capitalization, disregards stocks that have
daily average trading value less than 10,000,000 Baht in each of the four quarters before investment
quarter, avoids survivorship bias, rebalances portfolios weekly and uses Markowitz’s Modern Portfolio
Theory to form portfolio. Additionally, sampling period is 10 years after that of Chui and Wei (1998). Once,
the major financial crisis in 1997 is taken into account, sampling period of this research can be
considered recovering period while that of Chui and Wei (1998) can be labeled pre-crisis.

On the other hand, this research is consistent with the research by Dhatt, Kim and Mukherji (1999) who
explore stock returns among small size stocks in Russell 2000 index (which is used to measure the
performance of US small size stocks) and find that large-stocks provide higher average stock returns with
less risk than small-size stocks. On risk aspect, this current research also discovers the same trend as
Dhatt, Kim and Mukherji (1999) that SET 50 portfolio has lower risk than non SET 50 portfolio, using
standard deviation of stock return as a proxy for risk (5.76% vs. 8.62%). Another aspect this current
research is similar to but different from the research by Dhatt, Kim and Mukherji (1999) at the same time
is that their work focuses on small stocks in a well established market while this research focuses on
large stocks in an emerging market. In this obvious difference, the similarities are that both researches
focus on their segment of interest in their respective market and that the market capitalization gap
between well established market and emerging market becomes smaller when one researches bottom of
the large and while the other researches the top of the small. This smaller gap might be one of the
reasons results of these two researches are similar.

Another finding is that ROE has a positive relationship with dividend. Although this finding does not come
up to prove against any of hypothesis previously set, it is worth noting here because at first this finding
might seem predictable for investors but in fact ROE is a separate issue from dividend payout. High ROE
could mean high earning per share but not necessarily high dividend payout. This finding reveals that

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 61


during 2004-2006, Thai listed companies pay out more dividends when they achieve ROE higher than
their sectors’ averages.

Another main finding of this research is the significance of ROE in predicting stock returns, which has not
been explored in any prior known research. However, results are inconsistent for SET 50 port folio and
non SET 50 portfolio. High ROE, which should lead to higher shareholder value, does not function as
expected for SET 50 portfolio but works well for non SET 50 portfolio. At the same time, low ROE results
in higher stock returns for SET 50 portfolio but lower stock returns for non SET 50 portfolio. One possible
reason is that ROE implies risk for SET 50 stocks. Low ROE means higher risk for investors, therefore,
SET 50 low ROE portfolio yields higher stock returns to compensate with the increased risk. On the other
hand, ROE implies potential for non SET 50 stocks. This leads to significantly better performance of non
SET 50 high ROE portfolio when compared with non SET 50 low ROE portfolio. The other possible
reason is that large market capitalization stocks might be in transition from overvaluation to more realistic
valuation because the market index surged by more than 100% in 2003 while our investment period
covers from 2004 to 2006.

The application of these findings is that once aiming for investment in Stock Exchange of Thailand,
investors should consider stocks listed in SET 50 index, especially the low ROE ones, as their first
alternative. If investors expect the returns of non SET 50 high ROE stocks to overtake that of non SET 50
low ROE in their investment horizon, investing in SET 50 portfolio (regardless of ROE) is still not
significantly different from investing in market portfolio, although not as high as investing solely in SET 50
low ROE portfolio. However, investing in SET 50 high ROE is not recommended since its returns are not
significantly different from non SET 50 portfolio.

Additionally, aside from SET 50 stocks, investors can invest in non SET 50 high ROE portfolio, which is
inferior only to SET 50 low ROE portfolio while having similar risk (as measured by standard deviation),
and its returns are comparable to that of SET 50 portfolio and market portfolio. Non SET 50 portfolio and
non SET 50 low ROE portfolio should be avoided since they yields negative and worst returns among all
portfolios.

REFERENCES:

Aggarwal, R., Hiraki, T., & Rao, R. P. (1992, November). Price/Book value ratios and equity returns on
the Tokyo stock exchange: Empirical evidence of an anomalous regularity. The Financial Review,
27(4), 589-604.
Banz, R. W. (1981, March). The relationship between return and market value of common stocks. Journal
of Financial Economics, 9(1), 3-18.
Barbee, W. C., Mukherji, S., & Raines, G. A. (1996, March/April). Do sales-price and debt-equity explain
stock returns better than book-market and firm size?. Financial Analysts Journal, 52(2), 56-60
Bhandari, L. C. (1988). Debt/equity ratio and expected common stock returns; empirical evidence. Journal
of Finance, 43(2), 507-528.
Chui, A. C. W., & Wei, K. C. J. (1998). Book-to-market, firm size, and the turn-of-the-year effect: Evidence
from Pacific basin emerging markets. Pacific Basin Finance Journal, 6, 275-293.
Dhatt, M. S., Kim, Y. H., & Mukherji, S. (1999, September/October). The value premium for small-
capitalization stocks. Financial Analyst Journal, 55(5), 60-68.
Harris, R. S., & Marston, F. C. (1994, September/October). Value versus growth stocks: book-to-market,
growth, and beta. Financial Analysts Journal, 50(5), 18-24.
Keown, A. J., Pinkerton, J. M., & Chen, S. N. (1987, Summer). Portfolio selection based upon P/E ratios:
Diversification, risk decomposition and implication. Journal of Business Finance and Accounting,
14(2), 187-198.
Loeb, T. F. (1991, January/February). Is there a give from small-stock investing. Financial Analyst
Journal, 47(1), 39-44
Maroney, N., & Protopapadakis, A. (2002).The book-to-market and size effects in a general asset pricing
model: Evidence from seven national markets. European Finance Review, 6(2), 189-221.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 62


SEEING THE INVISIBLE:
USE OF COMPENSATION INFORMATION IN MARKET-BASED VALUATION OF HUMAN CAPITAL

John Darcy, The University of Texas-Pan American, Edinburg, Texas, USA

ABSTRACT

This paper uses time-series and valuation tests to examine the use of compensation information in
market-based valuation of human capital in the United States, the United Kingdom, Germany and Japan.
The time series test examines the incremental contribution of the wages component of changes in income
to future changes in earnings. The valuation test examines whether changes in wages provide
incremental value relevance to market values beyond changes in earnings. Multi-country samples enable
comparisons across differing business cultures.

Keywords: Human capital, value relevance of earnings, intangible firm value, income components

1. INTRODUCTION

Stein (1989: 657) describes expenditures for intangibles as creating "invisible assets" which are not easily
identified and cannot be accurately disentangled from increased operating costs. Many researchers
believe that this invisibility biases the markets away from companies that invest in intangibles because
investors fixate on earnings (Blair 1996: 12, 1995: 327, Levine 1995: 87, Porter 1992: 44, Jacobs 1991:
36). But there is also a widely held assumption in the economics literature that even if the costs of
creating an asset are expensed for accounting purposes, in an efficient market the value of an intangible
may be expected to be included in the market value of a firm (Hirschey and Wichern 1984, Ross 1983,
Lindenberg and Ross 1981, Ben-Zion 1978, Thomadakis 1977). In accounting research, this efficient
markets assumption underlies the market-based approach to the study of the associations between
accounting measures of intangibles and firm value (e.g., Lev and Sougiannis 1996, Amir and Lev 1996,
Sougiannis 1994, Bublitz and Ettredge 1989, Hirschey and Weygandt 1985).

This paper tests use of compensation information in market-based valuation of human capital. Two tests
are used. The first examines the incremental contribution of the wages component of changes in income
to future changes in earnings (the time-series test). The second is a test of whether changes in wages
provide incremental value relevance to market values beyond changes in earnings (the valuation test).

Lipe (1986) showed that income components demonstrate greater value relevance than earnings alone
and that this value relevance is positively associated with the persistence of the components. But there is
also evidence that investors tend to fixate on earnings and do not fully use information regarding the
relative persistence of the cash flow and accrual components of income (Sloan 1996) and the domestic
and foreign components of income (Thomas 1999). It is possible that similar mispricing may occur for
wages and the other components of income.

It is increasingly accepted in the literature that a portion of the compensation to employees is in the
nature of an investment (Ballester et al. 1999), and a measurement approach toward human capital in
financial statements has long been proposed (Lev and Schwartz 1971). This provides the basis for the
hypothesis that wages have implications for future earnings that differ from the average persistence of the
other components of income. If the persistence of wages differs from that of the average levels of
persistence in the other components of earnings changes, then in an efficient market the wage
component would have incremental ability to explain current returns.

Data from U.S., U.K., German and Japanese firms are used in the tests conducted in this paper.
Because only a small percentage of U.S. firms report the compensation information necessary to be
included in the study, the sample of U.S. companies is likely to be subject to self-selection bias, and the
results from the U.S. sample may not be generalizable. To expand the number of U.S. companies in the

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 63


sample, exploratory tests are conducted using the growth rate of employees as a proxy for changes in
wages. In contrast to the U.S., virtually all large companies from the U.K., Germany, and Japan report
compensation information and are included in their country samples. Separate country tests, therefore,
should provide richer samples than would be possible if only U.S. companies were used. The multi-
country sample also enables informal comparisons of differences across the business cultures. But
cross-country significance tests are not contemplated due to the difficulties of making international
comparisons of financial information (Ballester et al. 1999: 7 n. 1).

Aoki (1988: 166) provides a basis for expecting different results across countries. In his model of the firm,
employees with strong bargaining power may cause firms to grow beyond levels consistent with share
price maximization, and this diverts value away from the shareholders in the form of excess wages.
Among the sample countries in this study, only employees in Germany have this kind of strong bargaining
power. Unlike employees of U.S., U.K., or Japanese firms, German employees have the legal right to
participate directly in decision-making on the board of directors. Wage information was, therefore,
expected to have greater positive (or less negative) associations with future earnings and with equity
value in the U.S., the U.K., and Japan than in Germany. Although Japan is more like the U.S. and U.K.
regarding the bargaining power of employees, the relationship between key investors and Japanese firms
is more similar to German firms than to firms in the U.S. or U.K. In both Germany and Japan, there are
higher levels of insider trading and informal information exchanges between key investors and the
company than in either the U.S. or U.K. (Blair 1995: 282, Porter 1992: 47-48, 70). Because of these
information flows, it is possible that fixation on earnings might be less in Japan and Germany than in the
U.S. or U.K.

2. THE EARNINGS IMPLICATIONS OF WAGES

Companies invest in human capital in order to generate future profits (capital surplus) for the
shareholders. Wages contain an investment in human capital when companies incur the cost of formal
education and training of employees (Ross 1983). Bassi et al. (2000) and Bassi and McMurrer (1998)
provide evidence that measures of human capital such as spending on training per employee and the
percentage of employees receiving training are positively associated stock market measures. Economist
Robert Topel (1991) at the University of Chicago estimates that as much as 10 to 15 percent of the total
compensation of employees of large corporations represents compensation for firm-specific skills rather
than payments for generic skills. This is similar to the results obtained by Ballester et al. (1999), who
used time-series data to estimate that about 16 percent of the compensation paid by U.S. firms which
disclose labor costs is valued by the market as investments in human capital. Ballester et al. (1999) also
find that this investment amortizes at a rate of 34% a year. Using cross-sectional data, Darcy (2006)
found a similar amortization rate (35%) for the human capital asset of U.K. companies.

Wages can also have adverse implications for future earnings power. Where non-equity stakeholders
have strong bargaining power over the disposition of firm resources, the non-equity stakeholders tend to
demand overinvestment in firm growth, including excess investment in human resources (Blair 1995: 269,
Porter 1992: 67, Kester 1992: 94). Aoki (1988: 166) demonstrates how employee stakeholders with
strong bargaining power may cause firms to grow beyond levels consistent with share price maximization.
In such cases, the incremental value relevance of wages and the intangible value of human capital may
be impacted. Two-sided tests are, therefore, appropriate in testing hypotheses regarding the time-series
characteristics and value relevance of employee compensation.

The time-series properties of changes in income and the incremental contribution of the wages
component of changes in income are represented by the following equations (WAGE is defined as a
negative amount and firm subscripts are suppressed):

NIt+1 = 0 + 1NIt + t+1 (1)


NIt+1 = 0 + 1NIt + 2WAGEt + t+1 (2)
where,
NIit = the change in net income before extraordinary items of firm i in
year t deflated by the market value of equity at the beginning of

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 64


the year,
WAGEit = the change in employee compensation expense (defined as a negative number) of firm i
in year t deflated by the market value of equity at the beginning of the year, and
t+1 = error term, assumed normally distributed with mean zero.

H10: 2 = 0.

H1A: Changes in wages have different implications for future earnings


changes than the average effect of the changes in the other
components of earnings.

H10 is tested separately for each country sample using two-tail t-tests. Separate tests are performed on
regressions of pooled samples of data from 1994 through 2000 for each country (1992 through 1997 for
Japan) and on annual regressions for each separate year for the samples from the U.K., U.S., and
Germany. (Due to data limitations, only results from the pooled regressions are reported for Japan.)
Because of the possibility that the standard errors of the regression coefficients in the annual regressions
may be biased due to cross-sectional correlation, I focus primarily on cross-temporal two-tail t-tests of the
means of the separate yearly coefficients (Fama and McBeth 1973) in evaluating the significance of the
annual regression coefficients.

Aoki's (1988) bargaining power model provides a basis for predicting differences in the time-series
characteristics of wage information across countries. Firms in the U.S. and U.K. generally use a
compensation-based system with few guarantees to employees of employment security and little
employee power over corporate governance. Japanese companies are typified by a system incorporating
incentive compensation and employment security, but little employee power over corporate governance.
In Germany, employees have extensive ownership and control rights guaranteed to them under the
postwar legal structure which established a codetermination system with workers’ participation in
management. There is greater potential in Germany for excess growth and for employees to divert future
wealth away from the shareholders. Therefore, the coefficient of changes in wages is expected to be
more positive (or less negative) relation with future earnings changes in Germany than in the low
employee bargaining power countries, the U.S., U.K. and Japan.

3. INCREMENTAL VALUE RELEVANCE OF WAGES

Incremental value relevance tests are conducted using a valuation model, equation (3), which is a
variation of a basic returns-net income model using annual data. As above, WAGE is defined as a
negative amount and firm subscripts are suppressed.

ARt = 0 + 1NIt + 2 WAGEt + t (3)


where,
ARt = the abnormal return in year t, calculated as the twelve-month buy-and-hold return for the
stock less the buy-and-hold return for a value weighted comparison portfolio, with
weightings based on beginning market value of equity. Comparison portfolios are formed
by dividing the sample into quartiles based on firm size, defined as the beginning market
value of the firm's equity. Because of the small number of observations, separate quartile
portfolios are not used in the German yearly samples.

NIt = the change in net income before extraordinary items of firm i during year t
deflated by the market value of equity at the beginning of the year, and

WAGEit = the change in employee compensation expense (defined as a negative number) of firm i in
year t deflated by the market value of equity at the beginning of the year, and

t+1 = error term, assumed normally distributed with mean zero.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 65


The regression coefficient for changes in wages (2) represents the difference between the valuation
information in the wage component versus the average effect of the other components of earnings. A
negative coefficient on the wages expense component means that the market responds less to changes
in that component than to the average effect of the other components of income (recall that WAGE is
defined as a negative amount). A negative coefficient is consistent with a portion of the wages expense
component representing an investment with future benefits (Amir and Lev 1996, Lev and Sougiannis
1996). A positive coefficient means that the market expects incremental future detriments. If the
response coefficient for changes in wages expense is not significantly different from zero, then investors
do not appear to view the item differently from the average effect of the other components of income.

H20: 2 = 0.
H2A: Changes in employee compensation are incrementally value relevant beyond changes in
net income.

Equity owners in the U.K., U.S., and Japan have greater control over wage policy than owners in
Germany. According to Aoki's (1988) bargaining power model, higher degrees of control over wage
policy enable equity owners to use wages to increase equity value, while lower degrees of owners' control
over wages provide opportunities for the benefits of wages to be diverted away from the equity holders.
In that case, the coefficient of the wage variable in equation (3) might be expected to be significantly
negative in the U.K., U.S., and Japanese samples, but less negative or positive in the German sample.
H20 is tested separately for each country using two-tail t-tests of the significance of the coefficients for
regressions of pooled samples of data from 1994 through 2000 (1992 through 1997 for Japan).
Significance tests based on two-tail t-tests employing the Fama-MacBeth procedure are used to evaluate
the significance of the mean coefficients of yearly regressions from those years for the U.K., U.S., and
Germany.

4. DATA SAMPLE AND ECONOMETRIC ISSUES

Annual firm data for the years 1992-2000 for each variable in this study are collected from the
Worldscope Global Access database in the case of firms from the U.K. and Germany and from Research
Insight (Compustat) for U.S. firms. Japanese returns and market value data is from the Worldscope
Global Access database and other Japanese data is from the Nikkei NEEDS database. Japanese data
covers the years 1992 to 1997 only. 1992 is selected as the starting point because it is the year the
Worldscope Global Access database begins to report employee compensation information for large
numbers of German and U.K. companies. Results of the tests in this paper are generally reported based
on pooled samples containing data from each sample year for each country and for separate annual
regressions for each year in the country sample. Two-tailed t-tests are used to evaluate the significance
of coefficients in the pooled regressions for the time-series and valuation tests Chi-square likelihood ratio
statistics are used to evaluate the significance of coefficients for the pooled regressions in the rational
expectations tests. The results of the annual regressions in each of the tables in this paper are evaluated
using cross-temporal t-statistics based on the mean value of the separate yearly coefficients divided by
their standard errors (Fama and McBeth 1973). The Fama-McBeth procedure provides the benefit of
controlling for cross-sectional correlations in the residuals, but is limited by small number of years for
which wage information is available in the data samples. Due to the limited number of annual samples for
Japanese companies, only results from the pooled regressions are reported for Japan.

Earnings in this study are defined as net income before extraordinary items. Wages in the U.S. samples
consist of Research Insight (Compustat) data item A 42, labor and related expense. Included in this item
are costs of wages and benefits allocated to continuing operations, including salaries and wages,
incentive compensation, other benefit plans, payroll taxes, pension costs, and profit sharing. The
comparable data item for wages and related benefits in the Worldscope Global Access database is
designated as "staff costs," and in the Nikkei NEEDS database as ningenhi-rodohi (employee and labor
expense). In each database, the wages expense item includes amounts included in cost of goods sold
expense, sales, general and administration expense, and officers salary expense.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 66


Abnormal returns are calculated as the twelve-month buy-and-hold return for the stock less the buy-and-
hold return for a value-weighted comparison portfolio, with weightings based on beginning market value
of equity. Comparison portfolios are formed by dividing the sample into quartiles based on firm size,
defined as the beginning market value of the firm's equity. Because of the small number of observations,
separate quartile portfolios are not used in the German yearly samples.

The returns models used in this paper are estimated using ordinary least squares (OLS) under the
assumptions of normally distributed, homoscedastic error variances with mean zero, and the absence of
cross-sectional correlation. In the presence of heteroscedasticity, ordinary least squares estimation is
inefficient relative to generalized least squares. Heteroscedasticity arising from variations in the scale of
variables in the models is addressed by deflating the explanatory variables by the beginning market value
of equity. The presence of heteroscedasticity in the models is tested using White’s general
heteroscedasticity test (White 1980) employing a statistic following the chi-square distribution. In the
returns regressions in this study, chi-square statistics significant at the 5% level (indicating possible
heteroscedasticity) were observed in two of the 21 sample years and in the time-series regressions in
eight of the 21 sample years. In cases where heteroscedasticity was detected at the 5% significance
level, standard errors of the regression coefficients are reported using White’s consistent estimator.

Cross-sectional dependencies among the security return residuals may cause bias in the standard errors
used for significance testing in this research, although OLS coefficients remain unbiased. Cross-sectional
correlation is mitigated where samples of firms with varying measurement dates are taken from a large
number of industries (Bernard 1987, Bowen et al. 1987). In this research, about 60% of the U.K. firms
and 21% of the German firms have non-December 31 year ends. However, Japanese firms tend to
report financial information uniformly as of March 31. Approximately 50 two-digit SIC (or equivalent)
industries are represented in each country sample, resulting in a sample which is highly diverse across
industries (Chaney and Jeter 1994). These factors should tend to mitigate bias in standard errors
attributable to cross-sectional correlation. In the annual regressions in this paper, conclusions are based
on an unbiased cross-temporal t-statistic obtained from the mean value of the separate yearly coefficients
divided by its standard error (Chaney and Jeter 1994, Ali 1994, Easton and Harris 1991, Rayburn 1986).
Collinearity among the explanatory variables can affect the ability to interpret the significance of individual
coefficients in incremental information studies (Christie et al. 1984). A table of correlations of the
explanatory variables used in the regressions is provided. The condition index procedure is used to
detect collinearity (Belsley et al. 1980) and results of the condition index tests are reported in the table of
correlations.

Both yearly and pooled regressions are estimated for the models used in this paper. Pooled regressions
may give rise to serial correlation in the residuals because multiple observations are included for each
firm. Serial correlation is tested for using the Durbin-Watson test and a table of Durbin-Watson d
statistics is provided for each of the pooled regressions based on models (2) and (3).

5. DESCRIPTIVE STATISTICS, COLLINEARITY, AND SERIAL CORRELATION

The hypotheses in this paper are concerned with differences between the persistence and value
relevance of changes in wages compared to the other components of earnings. Descriptive statistics for
the main variables in this study, abnormal returns, changes in earnings, and changes in wages, are
provided in Table 1. These descriptive statistics are based on samples for the years from 1994 through
2000 for the U.K., U.S., and Germany and the years from 1993 to 1997 for Japan.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 67


TABLE 1:
DESCRIPTIVE STATISTICS

Size of
Pooled Standard Minimum Maximum
Country / Variable Sample Mean Deviation Observation Observation

U.K. 4867
AR t
NI it -0.06292 0.408 -1.195 2.359
WAGEit 0.00464 0.163 -1.433 1.201
-0.02414 0.155 -3.467 2.022

U.S. 5800
AR t
NI it -0.09228 0.360 -1.190 1.149
WAGEit 0.00768 0.225 -2.554 6.967
-0.01940 0.184 -3.480 5.349

GERMANY 1727
AR t
NI it -0.09461 0.294 -1.052 0.957
WAGEit 0.00843 0.130 -2.002 1.117
-0.01830 0.194 -2.617 1.466

JAPAN 8988
AR t
NI it -0.04058 0.193 -0.691 0.765
WAGEit -0.00030 0.027 -0.139 0.154
-0.00084 0.023 -0.949 0.315

Descriptive statistics are based on samples for the years from 1994 through
2000 for the U.K., U.S., and Germany. For Japan, they are based on the years from
1993 to 1997.
Expenses are defined as negative numbers.

Collinearity among changes in wages and earnings could affect the ability to interpret the significance of
the individual coefficients of these variables (Christie et al. 1984). Table 2 presents the average Pearson
correlations between the earnings changes and wages changes variables for each of the country/year
samples used in this study. The average correlation across sample years is 4.8% for the U.K. samples,
8.5% for the U.S. samples, 2.1% for the German samples, and -2.4% for the Japanese samples. The
condition index procedure (Belsley et al. 1980) was used as a diagnostic for collinearity in the yearly
cross-sectional time-series and valuation model regressions in this paper. The average condition indexes
for separate year regressions of the time-series properties of changes in earnings and wages (based on
equation (2)) are 1.54 for the U.K. samples, 1.60 for the U.S. samples, 1.21 for the German samples, and
1.32 for the Japanese samples. In separate year regressions of changes in earnings and wages on
abnormal returns (based on equation (3)) the average condition indexes for the U.K., U.S., German, and
Japanese samples are 1.27, 1.32, 1.24 and 1.28 respectively. Overall, collinearity does not seem to pose
a problem.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 68


TABLE 2
CORRELATIONS BETWEEN EARNINGS AND WAGES

Average
Correlations Average Durbin-Watson

between Condition Indexes d Statistic


Time- Time-
Year n NI t, WAGEt Series Valuation Series Valuation

U.K. 4867 0.048 1.540 1.269 2.054 1.829

U.S. 5800 0.085 1.599 1.316 2.067 1.845

Germany 1727 0.021 1.208 1.239 1.923 1.808

Japan 8988 -0.024 1.316 1.278 1.926 1.782

Condition index and Durbin-Watson statistics are derived from the time-series regressions
based on equation (2) and valuation regressions based on equation (3).
A value of the Durbin-Watson d statistic of less than 1.748 indicates evidence of positive
serial correlation. A d statistic value greater than 2.252 indicates evidence of negative
serial correlation.

NI it = the change in net income before extraordinary items of firm i in year t, deflated by
the market value of equity of firm i at the beginning of year t.
WAGEit = the change in employee compensation expense of firm i in year t, deflated by
the market value of equity of firm i at the beginning of year t.

Serial correlation in the residuals was tested using the Durbin-Watson test (Durbin and Watson 1951).
For these samples, a value of the Durbin-Watson d statistic of less than 1.748 indicates evidence of
positive serial correlation, while a d statistic value greater than 2.252 indicates evidence of negative serial
correlation. Table 2 presents the Durbin-Watson d statistics for the pooled time-series and valuation
models used in this study. The values range from a low of 1.782 to a high of 2.067, indicating that the
null hypotheses of no positive or negative serial correlation are not rejected.

6. THE EARNINGS IMPLICATIONS OF WAGES

The examination into the valuation implications of wages begins by testing how changes in current wages
are associated with changes in future earnings relative to the other components of earnings. Changes in
earnings (net income before extraordinary items) and changes in wages are deflated in this study by the
market value of equity at the beginning of the year and represent accounting rates of return on equity.
Accounting rates of return are generally believed to be mean reverting (Beaver 1970). Mean reverting
coefficients of changes in earnings may be may be expected to be less than zero, but more than -1,
which is the coefficient for earnings that are purely transitory. Permanent changes in earnings are

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 69


indicative of a random walk process, in which case zero coefficients would occur. Positive coefficients
represent an association between current earnings changes and growth in future earnings changes.

To provide a context within which to interpret the time-series properties of wages and other components
of earnings, a preliminary step is to look at the time series properties of earnings from which wages have
been deducted. This is represented by model (1).
NIt+1 = 0 + 1NIt + t+1 (1)
Panel A of Table 3 presents the results for the model (1) regressions of the time-series properties of
earnings for the pooled samples. The negative coefficients on the earnings variable (1) for the U.S.,
U.K., and German samples indicates that changes in earnings demonstrates mean-reverting time-series
behavior in each of the three country samples. The positive coefficient for the earnings variable in the
Japanese sample indicates that changes in current earnings are positively associated with changes in
future earnings. The lowest level of mean-reversion occurs in the U.K. samples (1 = -.072), followed by
the U.S. (1 = -.235), with Germany showing the highest level of mean reversion (1 = -.320). Coefficients
for the earnings variable are significant in the pooled regressions at the 1% level for all four countries.
Similar results are found in the annual regressions, except that the significance of the earnings variable
drops to 8.1% in the U.K. sample.
TABLE 3 – PANELS A AND B
THE TIME-SERIES PROPERTIES OF EARNINGS

NIt+1 = 0 + 1NIt + t+1 (1)

Panel A Panel B
Pooled regressions Annual regressions
0 1 0 1

U.K. U.K.
Estimated Coefficient 0.007 -0.072 Mean 0.009 -0.093
Standard Error 0.002 0.007 Standard Error 0.006 0.043
Significance Level 0.004 0.000 Significance Level 0.184 0.081
n =4867 n =4867

U.S. U.S.
Estimated Coefficient 0.012 -0.235 Mean 0.011 -0.153
Standard Error 0.003 0.011 Standard Error 0.002 0.045
Significance Level 0.000 0.000 Significance Level 0.002 0.019
n =5800 n =5800

Germany Germany
Estimated Coefficient 0.014 -0.320 Mean 0.012 -0.334
Standard Error 0.003 0.014 Standard Error 0.004 0.063
Significance Level 0.000 0.000 Significance Level 0.038 0.003
n =1727 n =1727

Japan
Estimated Coefficient 0.000 0.034
Standard Error 0.000 0.008
Significance Level 0.278 0.000
n =8988

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 70


Expenses are defined as negative numbers.
Results are reported for sample years 1994-2000 (1993-1997 for Japan).
The pooled regressions are based on samples which combine all sample years for each
country.
The annual regressions employ the Fama-MacBeth procedure to evaluate the significance
of the mean of the yearly regression coefficients from 1994 to 2000.
Reported significance levels of coefficient estimates are based on two-tail t-tests that the
coefficient equals zero.

NI it = the change in net income before extraordinary items of firm i in year t, deflated by the
market value of equity of firm i at the beginning of year t.

The first hypothesis is that changes in wages have different implications for future earnings changes than
the average effect of the changes in the other components of earnings. This is tested using model (2).

NIt+1 = 0 + 1NIt + 2WAGEt + t+1 (2)


H10: 2 = 0.

The null hypothesis is that the associations between changes in wages and period-ahead changes in
earnings do not differ incrementally from that of the average of the other components of earnings . The
results of tests of this hypothesis are shown in panel C of Table 3 for the pooled regressions. The wage
variable coefficients (2) in panel C of Table 3 are positive and significant at the 1% level in the pooled
regressions for the U.K. (2 = .109, p = .000), U.S. ( 2 = .165, p = .000), and Japan ( 2 = .220, p = .000).
Similar are found for annual regressions, except the significance level of the wage coefficient drops to
5.4% in the U.K. sample. In these three country samples, changes in wages appear to have measurably
different implications for future earnings changes than the average effect of the changes in the other
components of earnings.1 The wage coefficient is not significant at conventional levels for the German
sample in either the pooled regression (2 = -.011, p = .402) or the annual regressions (2 = .013, p =
.705), and the null hypothesis of no incremental information content for the wage variable cannot be
rejected for the German sample.

TABLE 3 – PANEL C
THE EARNINGS IMPLICATIONS OF WAGES – POOLED REGRESSIONS

NIt+1 = 0 + 1NIt + 2WAGE t + t+1 (2)

0 1 2

U.K.
Estimated Coefficient 0.010 -0.094 0.109
Standard Error 0.002 0.007 0.012
Significance Level 0.000 0.000 0.000
n =4867

1
In separate tests, not reported in Table 3, dummy slope variables based on single-digit SIC industry
codes were employed to account for industry effects on the regression models. The results reported in
Table 3 were relatively insensitive to the use of dummy slope variables. Sensitivity tests incorporating
variables representing the interaction of the industry dummy variables and the explanatory variables
failed to show significant interactions.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 71


U.S.
Estimated Coefficient 0.018 -0.290 0.165
Standard Error 0.003 0.012 0.015
Significance Level 0.000 0.000 0.000
n =5800

Germany
Estimated Coefficient 0.014 -0.319 -0.011
Standard Error 0.003 0.014 0.013
Significance Level 0.000 0.000 0.402
n =1727

Japan
Estimated Coefficient 0.000 0.031 0.220
Standard Error 0.000 0.008 0.014
Significance Level 0.968 0.000 0.000
n =8988

Expenses are defined as negative numbers.


Results are reported for sample years 1994-2000 (1993-1997 for Japan).
The pooled regressions are based on samples which combine all sample years
for each country.

Reported significance levels of coefficient estimates are based on two-tail t-tests


that the coefficient equals zero.
NI it = the change in net income before extraordinary items of firm i in year t,
deflated by the market value of equity of firm i at the beginning of year t.
WAGEit = the change in employee compensation expense of firm i in year t,
deflated by the market value of equity of firm i at the beginning of year t.
The coefficients on the wage variable in the U.K., U.S., and Japanese regressions indicate that changes
in wages have greater persistence than the average levels of persistence in the other components of
earnings. In the U.K. pooled regression, the coefficient of changes in wages (2) is a positive .109. If
changes in wages had the same association with period ahead earnings changes as the average of the
other components, the coefficient on wages would be zero. The positive .109 coefficient indicates that an
increase (decrease) in the wage variable in the current year is associated with a greater decrease
(increase) in income changes in the following year than a current year decrease (increase) in the
earnings variable attributable to non-wage components. The full association between the wage variable
and next period earnings changes is observed by adding the coefficient of the wage variable (which
represents its incremental information content), 0.109, to the coefficient of the earnings variable, -0.094.
The result, .015, is more persistent than the coefficient applicable to the earnings variable, -.094.

For example, in the case of the U.K., 9.4% of a $1 shock in the earnings variable does not persist into the
next period, while 90.6% (1 - .094) does persist. For the wage variable 101.5% (1 + 0.109 -.094) of a $1
shock persists into the next period. Therefore, a $1 increase in wages expense is associated with a
greater decrease in next period earnings changes than a commensurate $1 reduction in the earnings
variable attributable to non-wage components. Similar relationships as those discussed for the U.K.
sample results are seen in the results for the U.S. and Japanese pooled regressions. The significant

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 72


positive coefficients for the wage variables in the U.K., U.S., and Japanese samples seem to be more
consistent with diversion of value away from the shareholders in the form of excess wages than the
creation of intangible value by employees.

The first hypothesis (H1A) is supported by the significant coefficients for the 2 coefficient in the U.K., U.S.,
and Japanese samples. It was anticipated that the greater bargaining power of employees in Germany
might cause the association between changes in wages and period-ahead earnings changes to be
reflected by a 2 coefficient that is more positive (or less negative) in Germany than in either the U.K. or
U.S. or Japan. The lack of statistically significant coefficients for the wage variable indicates that, unlike
in the U.S., U.K., and Japan, German wages do not seem to have incremental information for future
earnings.

In this paper, the dependent variable in the time-series model (equation (2)) is the change in net income
before extraordinary items and after deducting wages. It thus represents the net incremental benefit at
time t from a dollar invested in wages at time t-1. The significant positive coefficients for the wage
variables (which are expressed as negative numbers) in the U.K., U.S., and Japanese samples seem
inconsistent with the creation of intangible value by employees and are generally inconsistent with the
results of my valuation tests discussed in the next section.

7. INCREMENTAL VALUE RELEVANCE OF WAGES

The results of the time-series tests of the earnings implications of wages demonstrate that changes in
wages are more persistent than the average levels of persistence in the other components of earnings
changes for the U.K., U.S., and Japanese samples. In an efficient market, these differing associations
with earnings persistence should correspond to incremental information content in wages. The second
hypothesis examines this proposition using regressions based on model (3).

ARt = 0 + 1NIt + 2 WAGEt + t (3)


H20: 2 = 0.

The null hypothesis is that the coefficient on the wage variable (2) is equal to zero and the information
content in wages does not differ from that of the average of the other components of earnings. Table 4
presents the results of pooled regressions for each country based on model (3). In the pooled
regressions the null hypothesis can be rejected at the 1% level of significance for the U.K. (2 = -.340, p =
.000), U.S. (2 = -.195, p = .000) and Japanese samples (2 = -.469, p = .000). Similar results are found
for annual regressions (p = .004 for the U.K. sample; p = .017 for the U.S. sample). As in the time-series
tests, the coefficient on the wage variable is not significant at conventional levels for the German sample
in either the pooled (2 = -.049, p = .174) or annual (2 = -.214, p = .169) regressions.

TABLE 4
THE INCREMENTAL VALUE RELEVANCE OF WAGES- POOLED REGRESSIONS
0 1 2

U.K.
Estimated Coefficient -0.073 0.414 -0.340
Standard Error 0.006 0.035 0.037
Significance Level 0.000 0.000 0.000
n =4867

U.S.
Estimated Coefficient -0.098 0.216 -0.195

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 73


Standard Error 0.005 0.021 0.026
Significance Level 0.000 0.000 0.000
n =5800

Germany
Estimated Coefficient -0.097 0.126 -0.049
Standard Error 0.007 0.054 0.036
Significance Level 0.000 0.021 0.174
n =1727

Japan
Estimated Coefficient -0.040 1.988 -0.469
Standard Error 0.002 0.073 0.084
Significance Level 0.000 0.000 0.000
n = 8988

Expenses are defined as negative numbers.


Results are reported for sample years 1994-2000 (1993-1997 for Japan).
The pooled regressions are based on samples which combine all sample years for each
country.
Reported significance levels of coefficient estimates are based on two-tail t-tests that the
coefficient equals zero.

The significant negative coefficients for the wage variable in the U.K., U.S. and Japanese regressions
indicates that the market responds less to changes in wages than to the other components of income and
provides support for the proposition that a portion of the wages expense is valued as an investment with
future benefits. However, in the time-series tests, changes in wages were found to have greater
persistence than the average levels of persistence in the other components of earnings in each of these
three countries.

If long-lived intangible value included in wages was part of the class of "invisible assets" described by
Stein, any unique characteristics of wages should not be reflected in the valuation tests reported in panels
A and B of Table 4. Except in the case of Germany, the results of the value relevance tests suggest that
investors are able to disentangle the characteristics of changes in wages from that in other operating
costs. This provides some evidence contrary to the theories of Blair (1996, 1995), Levine (1995), Porter
(1992) and Jacobs (1991) that markets are biased against companies that invest in intangibles because
investors fixate on earnings.

8. CONCLUSION

This paper investigated the relation between employee compensation and intangible firm value from the
perspective of the observed time-series relationship between wages and earnings persistence, and the
relation between wages and value perceived by markets. Testing the consistency of these associations
provides evidence whether the contribution of wages expense toward the development of intangible
human capital is an "invisible asset" as suggested by Stein (1989: 657) and whether any such invisibility
biases the markets away from companies that invest in intangibles because investors fixate on earnings
as suggested by Blair (1996: 12, 1995: 327), Levine (1995: 87), Porter (1992: 44) and Jacobs (1991: 36).

Contrary to predictions, the results of the time-series tests indicate that wage changes are more
persistent than the average levels of persistence in the other components of earnings changes in the

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 74


U.K., U.S., and Japan. Unlike in the U.S., U.K., and Japanese samples, for the German sample
incremental information content was not observed for the wage variable in either the time-series or
valuation tests.

The results for the U.K., U.S., and Japan in the time-series tests seem to be more consistent with
diversion of value away from the shareholders in the form of excess wages than the creation of intangible
value by employees. However, the results of the valuation tests are more consistent with the creation of
intangible value by employees. The significant negative coefficients for the wage variable in the U.K.,
U.S. and Japanese valuation regressions indicates that the market responds less to changes in wages
than to the other components of income and provides support for the proposition that a portion of the
wages expense is valued as an investment with future benefits.

The argument that the value relevance of wage information and human capital is invisible to investors is
not supported by the results of testing for U.S. companies. Valuation tests indicate that the market
responds less to changes in wages than to the other components of income and provides support for the
proposition that a portion of the wages expense is valued as an investment with future benefits. The
argument that the value relevance of wage information is invisible to investors finds mixed support in the
results for the sample countries other than the U.S. Invisibility of human capital for German companies
seems to be supported by statistically insignificant coefficients for the wage variable in both the time-
series and valuation tests. Tests samples of firms from the U.K. and Japan indicate that, while markets in
those countries appear to recognize incremental value relevance of the wage variable, that information
does not seem to be used as efficiently as in the U.S.

Because the U.S. markets are using wage information efficiently in making valuation decisions, a case
can be made for changing the disclosure rules in the United States to require disclosure of employee
compensation information. Such disclosures would be useful to investors in making valuation decisions
and would enable additional research into the relationship between wages and value. Although firms in
the U.K., Germany, and Japan generally disclose information regarding employee compensation, and
some U.S. firms report this information on a voluntary basis, differences in the items included in the
disclosure detract from its usefulness in decision making and research. Even where companies are
currently disclosing employee compensation information, that disclosure could be improved through
harmonization of the disclosure of employee compensation across firms and countries.

The coefficient of the wage variable in Germany was expected to have a more positive (or less negative)
relation with future earnings changes in Germany than in the U.K., U.S. or Japan due to the greater
potential in Germany for excess growth and wealth diversion by employees. The lack of statistically
significant coefficients for the wage variables in the German tests provides only tacit support for this
concept.

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AUTHOR PROFILE:

Dr. John Darcy earned a J.D. from the University of San Francisco in 1987 and a Ph.D. in Accounting in
2002 from the University of Oklahoma. He is currently an associate professor of accounting at the
University of Texas-Pan American where he serves as the Associate Dean for Undergraduate Education.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 77


STANDARDIZATION/ADAPTATION STRATEGIES OF SOUTH KOREAN
FOOD PRODUCT COMPANIES

Richard T. Hise, Texas A&M University-College Station, USA


Youngtae Choi, University of North Florida, Jacksonville, USA
Jongkuk Shin, Pusan National University, Geumjeong, Busan, Korea
Minsook Park, Pusan National University, Geumjeong, Busan, Korea

ABSTRACT

Whether to standardize or adapt marketing operations in international markets is the major decision
companies need to make. Despite significant research on this topic, there are significant knowledge gaps
that still persist: (1) do companies operating internationally favor a standardized or adaptive strategy, (2)
is the level of standardization or adaptation consistent across the various elements of firms’ marketing
mixes and (3) what are the internal and external factors that drive companies’ standardization/adaptation
decisions?

The study is based on a mail survey from 82 Korean food companies engaged in international marketing.
The survey asks about the deployment of the firms’ marketing standardization/adaptation strategies and
the factors supposedly related to the decision for the firms marketing products internationally. Possible
explanations for findings and recommendations for future research are suggested.

Keywords: standardization, adaptation, marketing strategy, consumer goods

1. INTRODUCTION

Perhaps the most important (and usually the first) decision facing companies beginning to operate in
overseas markets is the extent to which those operations will be the same (standardization) or different
(adaptation) from their domestic ones. These decisions also must be made by firms currently plying
international waters which want to expand into additional markets, but with another dimension: will the
operations mirror those currently in play in the firm’s already existing foreign markets, or will they deviate
from them? Cavusgil and Zou (1994) state that “in international marketing, the key consideration is
whether the marketing strategy should be standardized or adapted to the conditions of the foreign
market.” Cavusgil (1995) identifies standardization vs. adaptation as one of the four “special challenges
in international marketing,” along with market/customer assessment and selection, methods for getting
close to international customers, and branding, labeling and packaging.

The literature dealing with this topic has generally taken three approaches: developing arguments for
whether standardization or adaptation, or some combination thereof, would be most appropriate; the
conditions or factors that impact the standardization/adaptation decision; and the extent to which
standardization or adaptation is, in practice, being deployed by companies in their overseas operations.

2. ARGUMENTS FOR STANDARDIZATION AND ADAPTATION

Wang (1996), in reviewing the literature, states that “the decades-long debate about standardization and
adaptation has recently reached the general consensus that the real issue is not whether to standardize
but rather to what degree of standardization….” Buzzell (1968) writers, “management should not
automatically dismiss the idea of standardizing some parts of the marketing strategy….” Several
advantages of standardization are offered by Carpano and Chrisman (1995), including economies of
scale, increased learning, and cost savings from “making a uniform product.” Walters (1986) cites cost
savings as a major benefit of uniformity (standardization). Schuh (2000) advances cost advantages due
to scale economies and product standardization. Theodosiu and Katsikeas (2001) cite several
advantages of standardization: economies of scale, consistency and reduced managerial complexity.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 78


Levitt (1983) developed the most comprehensive and compelling arguments for standardization, making
his case on the basis of improved technology, increased worldwide communications, and homogenization
of cultural preferences and tastes. According to Levitt, “the global competitor will seek constantly to
standardize his offering everywhere…He will never assume that the customer is a king who knows his
own wishes.”

Levitt’s article elicited several critical responses, most notably Douglas and Wind (1987), Boddewyn,
Soehl and Picard (1986) and Walters (1986). Douglas and Wind rejected Levitt’s premise on a number of
bases, such as, lack of homogenization in world markets, greater levels of heterogeneity within countries,
the reluctance of consumers to trade off product features for lower prices, economies of scale able to be
obtained at lower levels of output, the existence of various external obstacles to standardization
(governmental and trade restrictions, different marketing infrastructures, and competition), and such
internal factors as inability to standardize current international operations which are adaptive and
represent management’s disposition against standardized strategies. Boddewyn et al. (1986) fault Levitt
for the lack of empirical evidence to support his assertions. Walters (1986) cites the lack of expected
benefits as a reason not to embrace full-scale standardization. Chung and Wang (2006) refer to previous
studies whose results suggest that a product adaptation strategy is likely to result in better financial and
strategic performance, especially export performance (Cavusgil and Zou, 1994; Chung, 2003).

3. FACTORS AFFECTING THE STANDARDIZATION/ADAPTATION DECISION

Various factors related to the standardization/adaptation decision have been identified in the literature as
being important. These include such performance measures as percentage of international sales to total
sales (Cavusgil and Zou, 1994), the number of years of international experience and size (Yip, 1996).

Non-performance factors which have been examined include laws and regulations (Buzzell, 1968;
Theodosiou and Katsikeas, 2001; Theodosiou and Leonidou, 2003; Yorio, 1983), competition (Alashban,
Hayes, Zinkhan, and Balazs, 2002; Boddewyn et al., 1986; Chung and Wang, 2006), physical
infrastructure (Barker and Aydin, 1991), marketing infrastructure (Alashban et al., 2002; Chung and
Wang, 2006; Levitt, 1983; Theodosiou and Leoido,u 2003), culture (Alabashan et al., 2002; Dunn, 1976;
Yorio, 1983), and customer issues (Theodosiou and Katsikeas ,2001; Theodosiou and Leonidou, 2003).

Extent of Standardization/Adaptation in Companies’ Overseas Operations

Ward (1973) reported that two-thirds of Europeans firms adapted their product for the U.S. market.
However, the adaptations were mainly low-cost modifications. Kacker (1972, 1976) concluded that 45%
of U.S. companies reported significant changes in products marketed in India. Weinrauch and Rau
(1974) discovered that about half of exporters claimed that product modifications were required.
Boddewyn et al. (1986) provided a longitudinal analysis (1973, 1978, 1983, and 1988 projected) of
standardization/adaptation strategies of U.S. manufacturers of consumer nondurables, consumer
durables, and industrial products doing business in the European Community. The major findings for
1988 compared to 1973 were:
1. For consumer nondurable products (1988 projected), 42% of the respondents reported
“very substantial product standardization.” This compared to 25% for 1973.
2. For consumer durable products, 38% of the respondents reported “very substantial
product standardization” for 1988 (projected), up slightly from 33% in 1973.
3. For industrial goods, the 33% figure in 1988 was down from the 50% figure found in
1973.
Douglas and Wind (1987) believe that few companies “pursue the extreme position of complete
standardization with regard to all elements of the marketing mix…Rather, some degree of adaptation is
likely to occur relative to certain aspects of the firm’s operations or in certain geographic areas.” Several
researchers (Hult, Cavusgil, Deligonul, and Lagerstrom, 2007; Theodosiou and Leonidou, 2003) assert
that standardization/adaptation is not usually found at the extremes of the concept but, rather, companies
generally pursue a mid-point strategy, a middle-of-the road approach.

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Sorenson and Wiechmann (1975) found that three-fourths of companies employed highly standardized
national advertising. Martenson (1987) concluded that consumer products were becoming more
standardized, as did Walters (1986). Ryans and Donnelly (1969) found that 90% of the companies
surveyed made some use of uniform advertising policies, but only one-sixth did so for more than 50% of
their international advertisements, and Britt (1974) concluded that little standardization for international
advertising was occurring. Dunn (1976) reported that the percentage of companies using similar
advertisements in international markets had declined between 1964 and 1973. Schuh (2000), in
analyzing the marketing operations of eight western companies doing business in central and eastern
Europe found that six cases showed a high degree of marketing program standardization.” Hise and
Gabel (1995) concluded that 151 U.S. companies with international operations in at least five foreign
markets were using the same customer service strategies in those markets as they were employing
domestically.

Limitations

The limitations of earlier research on standardization/adaptation have been promulgated by various


authors, especially Alshban et al., (2002), Cloninger and Swaidan (2007), Hult et al., (2007), O’Donnell
and Jeong (2000), Theodosiou and Katsikeas (2001), Theodosiou and Leonidou (2003), and
Subramaniam and Hewett (2004). The most significant of these shortcomings include:
*Most of the standardization/adaptation literature involves U.S. MNCs operating in foreign
markets. Few studies deal with companies located in other regions of the world, especially Asia
and the Middle East.
*Little attention has been devoted to the pricing and distribution elements of the marketing mix.
*Most of the previous studies are concerned with only one segment of the marketing mix. Few
address the broader spectrum of the entire marketing mix.
*Most studies elicit information from headquarters personnel instead of seeking input of personnel
located at overseas, subsidiary levels.
*Almost all analyses of the standardization/issue are cross sectional, rather than longitudinal.
*Many studies involved comparisons of companies in multiple industries, instead of focusing on
firms located in the same industry.
*Relatively few independent, associative variables have been scrutinized.
*When independent, associative variables were examined, variables external to firms were
usually emphasized to the virtual exclusion of internal factors.
Because of these limitations, we lack sufficient information to fully answer the following questions:
Do companies operating internationally favor a standardized or adaptation strategy? Is the level of
standardization or adaptation consistent across the various elements of the marketing mix? If not, which
aspects exhibit a standardized strategy and which show an adaptation pattern? What are the factors that
are associated with a company’s standardization/adaptation strategy? Are some more or less important?
This article will deal with these questions by reporting the results of a study of 82 South Korean
firms doing business in international markets.

THE STUDY

Based on the standardization/adaptation literature, a three-part questionnaire was developed. The first
part requested information about the company, such as, annual sales, percentage of sales from
international operations and location of international operations. The second segment required
respondents to indicate the extent to which 33 marketing mix elements deployed in their international
markets are similar to or different those used in their domestic markets. The response alternatives were
“very different,” “somewhat different,” “somewhat similar,” and “very similar.” Part III asked the executives
to identify the extent to which 15 factors (external and internal) were considered important in determining
the similarity or differences of their international marketing mixes from their domestic ones. The response
options available were “not important,” “somewhat important,” and “very important.”

An analysis of the relevant literature prompted the formulation of 16 hypotheses which were believed to
be helpful in answering the questions posed above.
Are Companies Employing a Standardized or Adaptation Strategy?

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The type of product is a strong determinant of whether a standardized or adaptive strategy will be
in place. High tech products are more likely to be associated with a standardized strategy than an
adaptive one (Cavusgil and Zou, 1994; Duprez, Diamanto, Poulos, and Schlegelmich, 1994; Wang,
1996). Industrial products are more likely to be marketed through a standardized strategy than through
an adaptive approach according to Boddewyn et al. (1986), Quelch and Hoff (1986), and Samiee and
Roth (1992). However, Theodosiou and Leonidou (2003) and Solberg (2003) do not concur.
Consumer products will usually be marketed through an adaptive strategy (Quelch and Hoff,
1986; Samiee and Roth, 1992). Among consumer goods, non-durables are less likely to be marketed via
standardized means that are consumer durables (Boddewyn et al., 1986; Wang, 1996; Whitelock and
Pimblett, 1997). Within the consumer non-durable sector, adaptive strategies are generally believed to
be more appropriate (Chakravarthi and Perlmutter, 1985; Rau and Preble, 1987), with food offerings
particularly constrained to an adaptive strategy (Barker and Aydin, 1991; Boddewyn et al., 1986;
Martenson, 1987; Rau and Preble, 1987; Subramaniam and Hewett, 2004; Wang, 1996; Whitelock and
Pimblett,1977) because the purchase of such items is strongly driven by cultural factors, consumer tastes,
habits, and incomes (Martenson, 1987).
Therefore, because this study involves companies selling food products, the first hypothesis is:
H1: The marketing mixes of the respondent companies will exhibit a pattern of adaptation.

Is The Level of Standardization or Adaptation Consistent Across the Various Elements of the
Marketing Mix?

There is a strong consensus in the literature that there will not be homogeneity in the level of
standardization/adaptation in companies’ marketing mixes (Boddewyn et al., 1986, Douglas and Wind,
1987; Quelch and Hoff, 1986; Rau and Preble, 1987; Yip, 1996). In other words, different levels of
standardization/adaptation will exist for the various components of the marketing mix. Thus, the second
hypothesis is:
H2: Respondent companies’ standardization/adaptation strategies will not be consistent
across their marketing mixes.
A number of researchers have examined the standardization/adaptation question within the
context of specific marketing mix elements. Based on their analyses, they have identified those
marketing mix components that are likely to be standardized and which are likely to be adapted.
Advertising is likely to be adapted (Boddewyn et al., 1986; Britt, 1974; Harris, 1994; Walters, 1986). The
product dimension is considered to be the element most likely to be standardized. As far as specific
elements of a products are considered, Theodosiou and Leonidou (2003) conclude that quality, design,
features, and branding are the least likely to be adapted. Packaging was slightly more likely to be
adapted. Some level of adaption was discovered for labeling and warranties. Customer service is likely
to be standardized (Buzzell, 1968; Hise and Gabel, 1995; Theodosiou and Leonidou, 2003). Pricing
strategies are likely to be adapted (Barker and Aydin, 1991; Douglas and Wind, 1987; Martenson, 1986;
Theodosiou and Leonidou, 2003; Walters, 1986) as are channels of distribution (Barker and Aydin, 1991;
Martenson, 1987; Rau and Preble, 1987; Theodosiou and Leonidou, 2003; Walters, 1986). Theodosiou
and Leonidou (2003) concluded that physical distribution was likely to be adapted. Two major elements
of the promotion mix—sales promotion (Barker and Aydin, 1991; Kashani and Quelch, 1990; Theodosiou
and Leonidou, 2003) and personal selling (Barker and Aydin, 1991; Theodosiou and Leonidou, 2003) are
also likely to be adapted.
Based on the above findings, the following nine hypotheses were suggested:
H3: The respondent companies’ advertising mixes will exhibit an adaptive pattern.
H4: The respondent companies’ sales promotion mixes will exhibit an adaptive
pattern.
H5: The respondent companies’ personal selling mixes will exhibit an adaptive pattern.
H6: The respondent companies’ product mixes will exhibit a standardized pattern.
H7: The respondent companies’ channels of distribution will exhibit an adaptation strategy.
H8: The respondent companies’ logistics mixes will exhibit an adaptation pattern.
H9: The respondent companies’ pricing mixes will exhibit an adaptation pattern.
H10: The respondent companies’ credit policies will exhibit an adaptation pattern.
H11: The respondent companies’ after-the-sale service policies will exhibit an adaptation
pattern.

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What Factors Are Associated With Companies Standardization/Adaptation Strategies?

Several performance factors which are likely to be associated with companies’


standardization/adaptation strategies have been the concerns of various researchers and
are incorporated into Hypotheses H12 through H14:
H12: Companies with higher percentages of international sales to total sales are more likely to
be pursuing an adaptation strategy than those with lower percentages of international sales
to total sales (Cavusgil and Zou, 1994):
H13: The greater the number of years of international experience for respondent firms, the more
likely they will be pursuing an adaptation strategy (Cavusgil and Zou, 1994; Chung and
Wang, 2006).
H14: Smaller respondent companies are more likely to be pursuing a standardized strategy than
are larger ones (Yip, 1996).
A wide array of non-performance, external factors have been hypothesized as being important in
formulating standardization/adaptation strategies. These have been incorporated into hypothesis H15. (In
addition, the authors believed that physical distance of firms’ international markets from their domestic
location should also be included as one of the external factors).
H15: Laws and regulations (Buzzell, 1968; Theodosiou and Katsikeas, 2001; Theodosiou and
Leonidou, 2003; Yorio, 1983), competition (Alashban et al., 2002; Boddewyn et al,. 1986; Chung and
Wang, 2006), physical infrastructure (Barker and Aydin, 1991), marketing infrastructure (Chung and
Wang, 2006; Levitt, 1983; Theodisiou and Leonidou, 2003), culture (Dunn, 1976; Yorio, 1983), customer
issues (Theodosiou and Katsikeas, 2001; Theodosiou and Leonidou, 2003), and physical location will be
perceived by the Korean firms as being important in formulating their standardization/adaptation
strategies.
Internal, non-performance factors are captured in hypothesis H16:
H16: Economies of scale, resource availabilities, strategic goals and objectives, level and type
of training provided their sales forces, company financial condition, and availability of competent
personnel to staff international marketing positions will be perceived by the Korean firm as being
important in formulating their standardization/adaptation strategies.

Survey Procedure

The original survey questionnaire was constructed in English. The survey was translated into Korean by
one of the authors, who is bilingual, for Korean respondents. The translated Korean survey questionnaire
was checked by the other two Korean authors to ensure the correct meaning and wording of the original
survey for Korean respondents. Their comments were incorporated into the final Korean survey
questionnaire.
The food industry in Korea was chosen for the survey because the importance of the Korean food
industry has been increasing in recent years. The proportion of value added by the food industry’s agro-
food sector improved from 38.7% to 47.9% in 2005. Food exports in 2005 were slightly over $2 billion,
compared to $6.97 billion import (Hwang, 2005). The increasing level of exported food products may help
to reduce this trade disparity (Lee, 2001).
The mail survey questionnaire was sent to the 450 companies on the list of the Korean
International Trade Association and the Korean Food Industry Association. The first mailing was sent to
the person who was responsible for international marketing and sales. After the first mailing, a phone call
was made to those who did not complete the mail survey.
A total of 87 surveys were returned. However, five of the surveys were not used because of
missing information. The final number of the surveys used was 82, resulting in an 18.2% response rate.
In order to check for non-response bias, t-tests were conducted to compare the early returns (those who
responded to the first mailing) with the late returns (those who responded to the phone call) on annual
sales, percentage of sales from international operations, and years of international experience (Armstrong
and Overton 1977). The tests showed that there were no significant differences on the three variables
(p=.69, p=.26, and p=.93, respectively) between the two groups. Thus, non-response bias was not a
concern.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 82


4. RESULTS

Respondent Profiles
Table 1 provides profile information about the 82 South Korean companies that participated in the study.
Their mean annual sales were $179 million, with a median of $30 million. The mean value for the
percentage of sales accounted for by their international operations was 38.5% compared to a median of
31.0. The mean years of international experience was 8.4; 7.0 was the median figure. Four was the
median number of foreign countries in which these companies operated; the mean was 4.55.

Exporting (96.3% of the firms) was the preferred type of international operation, followed closely by
importing (90.2%). International joint ventures (58.5%) and strategic alliances (48.8%) were the next
favored options. Overseas sales and marketing offices (39.5), licensing (34.1%) and franchising (31.7%)
were employed by about one-third of the respondent firms. Less than 10% indicated the use of
manufacturing facilities.

Level of Standardization/Adaptation on the 33 Marketing Mix Variables

Table 2 presents the findings regarding the extent to which the South Korean companies were employing
a standardization or adaptation strategy for the 33 marketing mix variables, the seven marketing mix
clusters and the two stand-alone elements (credit policies and after-the-sales service). In computing the
mean scores to be subsequently discussed, a value of 1 was assigned to the “very different” response, 2
to the “somewhat different response, a 3 to the “somewhat similar” response, and a 4 to the “very similar
response.”

Advertising
On the advertising cluster, respondent companies pursued a middle-ground strategy. Advertising copy,
advertising appeal and advertising media had means only slightly above 2.50 and, for advertising as a
whole, the mean was 2.60. For each element of the advertising mix, the percentages of “very similar”
were, however, about twice those of “very different” responses.

Sales Promotion. For sales promotion, similar results to those found for advertising existed. The mean for
all sales promotion elements combined was 2.63. The highest means occurred for premiums (2.74) and
contests (2.70); the lowest means of 2.49 and 2.55 were found for sponsorships and point-of-purchase
displays, respectively. For each component of sales promotion, the percentages of “very similar”
responses exceeded those of “very different,” responses.

Personal Selling. The mean score for personal selling was 2.66. They were 2.63, 2.66 and 2.71,
respectively, for level and type of training provided the sales force, background and experience of the
sales force and compensation and support provided the sales force. For each element of personal selling
and personal selling as a whole, the percentages of “very similar” responses were about twice those
found for “very different,” responses.

Product. The combined mean score for the product cluster was 2.60. The highest mean scores for
elements of the product mix occurred for product quality (2.73), product line (2.68), and product brand
names (2.66). Product design and product warranties were the two elements of the product mix (out of
nine) for which the percentages of “very different” responses exceeded the “very similar” responses.

Channels of Distribution. The mean score for the channels of distribution cluster was 2.55. In regard to
the components of the channels of distribution mix, the mean scores were 2.62, 2.44 and 2.60 for types of
channels of distribution used, incentives provided channels to carry our product and aggressively market
them, and dealer margins, respectively. The percentage of “very similar” responses exceeded those of
“very different” responses for two of the channels of distribution mix; incentives provided channels to carry
our products and aggressively market them was the lone exception.

Logistics. A mean score of 2.55 was found for the logistics mix. Transportation mode was the only
element of the logistics mix to which the Korean executives assigned a mean score of less than 2.50

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(2.46). Whereas the percentage of “very similar” responses exceeded those of the “very different
responses (about a 2-1 ratio) for order cycle, inventory policies and warehousing strategies, the
percentage of “very different” indications for transportation modes was greater than that found for the
“very different” category (19.5% to 14.6).

Pricing. The pricing mix had one of the highest mean scores (2.68) of the marketing mix clusters
examined in this study. The mean scores for prices and pricing objectives were 2.65 and 2.71,
respectively. And their percentages of “very similar” responses, as well as that for the pricing mix as a
whole, exceeded those of “very different” responses by about a 2-1 margin.

Credit Policies. The highest mean score (2.77) for any marketing mix element existed for credit policies
and the percentage of “very similar” responses exceeded that found for “very different” responses by
more than a 2-1 ratio (19.5%-7.3%).

After-the-Sale Service. The mean score for after-the-sale service was 2.72 and the ratio of “very similar”
responses to “very different” responses was 2-1 (14.6% to 7.3%).

Given the results indicated above, it is hardly surprising that the mean (2.62) for the 33 marketing mix
variables combined demonstrated a compromise standardization/adaptation strategy. The percentage of
respondents (16.6%) revealing a “very similar” strategy exceeded the percentage (10.6%) existing for the
“very different” approach to operating in overseas markets.

Based on the above findings, it is not possible to accept Hypotheses H1 and H3-H9. This conclusion is
based on the fact that none of the mean scores was greater than 3.0 (an indication of standardization) or
lower than 2.0 (an indication of an adaptation strategy). It should be noted, however, that since all of the
mean scores for the major marketing mix areas exceeded 2.50, it could be argued that these respondent
firms are pursuing an international strategy that leaned toward standardization. This same conclusion
appears relevant for the majority of marketing mix sub-areas (29 out of 33), the exceptions being
sponsorship, product warranties, incentives provided channels to carry our products and aggressively
market them, and transportation modes.
In regard to Hypothesis H2, that the level of respondent companies’ standardization/adaptation
would not be consistent across the elements of the marketing mix, it should be pointed out that the mean
scores are different but do not appear to be meaningfully so. The means for the major clusters of the
marketing mix (advertising, 2.60; promotion, 2.62; personal selling, 2.66; product, 2.60; channels of
distribution, 2.55; logistics, 2.55; and pricing, 2.68) were tightly grouped. The same conclusion can be
applied to the components within each of the marketing mix clusters and across the 31 marketing mix
elements included in the seven marketing mix clusters, that is, little dispersion among the mean scores
occurring.
The mean scores for credit policies (2.77) and after-the sale services (2.72) were higher than
those found for the seven marketing mix clusters, but it should be pointed out that, unlike the seven
marketing mix clusters, the mean scores for these aspects of the marketing mix were based on only one
component.
In sum, Hypothesis H2 could be only partially accepted.

Independent Variables

Table 3 contains the findings involving the effect of companies’ percentage of sales attributed to their
international operations, years of international operations and annual sales (i.e., performance variables)
on their standardization/adaptation practices.

Hypothesis H12, that companies with higher percentages of international sales to total sales would be
more likely than those with lower percentages of international sales to total sales to be pursuing an
adaptation strategy was partially accepted. The mean score on the 33 marketing mix variables combined
for companies with percentages of international sales below the median was 2.67, compared to 2.59 for
those respondents with percentages of international sales to total sales above the median. However, the
2.59 mean score, although closer to an adaptation strategy than the 2.67 mean, did not achieve the 2.0 or

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lower threshold. The results for the nine major marketing mix variables showed that firms with higher
percentages of international sales to total sales were closest to implementing an adaptation strategy only
for promotion (mean=2.45). On the 33 individual marketing mix variables, respondent companies were
found to be pursing a strategy approaching standardization for 29 of the 33 marketing mix variables.

Hypothesis H13, that firms with greater number of years of international experience, would be more likely
than those with fewer years of international experience to be pursing an adaptation strategy could not be
accepted. Companies with years of international experience exceeding the median showed a mean
score on the 33 marketing variables combined of 2.64, virtually the same (mean=2.63) as those with
fewer years of international experience. Because the mean score of 2.64 exceeded 2.50, there is some
justification for concluding that there is, if anything, slight evidence that there is at least a modicum of
accommodation toward a standardization strategy. The same conclusion exists for the 33 marketing mix
variables because on only 10 of the 33 marketing mix variables was a lower mean score found for more
experienced companies as opposed to less experienced ones.

Hypothesis H14, that smaller companies (based on annual sales) would be more likely to be pursuing a
standardization strategy than larger ones, could be partially accepted. Companies with annual sales less
than the median were found to have a mean score of 2.68, compared to 2.58 for larger companies. For
all elements of the marketing mix combined, however, the 2.68 score does not exceed the threshold
mean of 3.00 or higher to qualify as a standardization strategy. Personal selling (mean=2.76) and pricing
(mean=2.74) were the two major marketing mix categories closest to the 3.00 cut-off figure. Of the 33
individual marketing mix variables, credit policies (mean=2.88), premiums (mean=2.88), and pricing
objectives (mean=2.85) were closest to the 3.00 figure.

Table 4 contains the perceptions of the 82 South Korean executives regarding non-performance factors
hypothesized to impact their standardization/adaptation decisions. If the criterion to decide whether
Hypotheses H15 and H16 can be accepted is a majority of “very important” responses, then Hypothesis H15
(dealing with external variables) can be accepted and Hypothesis H16 (internal variables) must be
rejected.

All factors external to the firm were indicated by a majority of the respondents as being “very important” in
crafting their standardization/adaptation strategies. Only one internal variable (availability of competent
personnel to staff your company’s international marketing positions at 54.9%), however, was cited by a
majority of respondents as being “very important.”

5. DISCUSSION

What would explain these Korean firms’ reluctance to pursue either a standardization or adaptation
strategy but, rather, put into play a compromise effort? One of the reasons may be that they are not able
to be assured that either extreme position would benefit them and so they have elected to pursue this
compromise strategy with the understanding that if either standardization or adaptation would eventually
emerge as more desirable than the compromise approach as they gained more experience in
international markets, they could jettison the former and institute either a standardization or adaptation
strategy.

The companies’ attitudes toward risk may be an explanatory factor. If these Korean firms are risk averse,
they might ply a middle-of-the road approach, believing that a consistent adaptation or standardization
approach might incur more risk than they are willing to accept. That risk may be an important
consideration in these companies’ standardization/adaptation decision is supported by their executives
placing a higher level of importance on external rather than internal variables. External variables involve
more risk than do internal ones because companies are forced into a reactive, rather than a proactive,
mode in coping with the magnitudes, timing and direction of events occurring outside the firm.
The authors intuitively believe that the standardization/adaptation decision may be approached
from a modeling perspective. Trade-off analysis appears to be particularly germane in helping companies
to decide which standardization/adaptation strategy to employ. This analysis should be based on the
movement of costs and revenues along the standardization/adaptation continuum, that is, costs increase

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 85


but revenues increase as a standardization strategy is forsaken in favor of an adaptation strategy, and
vice versa. The modeler would seek that point on the continuum that would maximize profit. Perhaps
these Korean firms conducted such analysis and found that the compromise strategy employed by them
is the one that maximizes their profits.
The methods of operating in international markets favored by the respondent firms may provide a
clue as to why the compromise standardization/adaptation strategy is employed. The most widely
deployed forms of operating overseas were exporting and importing. These operations are usually
employed by companies just beginning to ply international waters; one of their major downsides is that
learning and experience are stunted because these operations (especially indirect or “piggyback”
exporting) are usually performed by some outside entity which may be recommending a compromise
standardization/adaptation strategy. Export management companies and export trading companies (the
latter very prevalent in South Korea) are two such options which essentially act in a consultative capacity
for exporters and importers and offer advice across a wide spectrum of international decisions, such as ,
entry strategies, product development, advertising and promotion, selecting agents and distributors, and
providing information about foreign markets.
The next most important operating option evidenced by these firms—joint ventures and strategic
alliances—involve a partnership arrangement wherein the partners to the Korean firms may be giving
advice as to how the Korean firms should operate overseas; franchising and licensing (used by about
two-thirds of these respondent firms) often involve franchisees and licensees making recommendations
as to what strategies franchisors and licensors should institute in foreign markets.
The median number of years these South Korean firms have been marketing their products
overseas was 7.0. Given the longer-term perspective of Asian firms in operating internationally, as
compared to U.S. firms, it may very well be that they are still in the process of finalizing their
adaptation/standardization decisions.
Perhaps these Korean firms are pursuing a “glocalization” strategy which follows the mantra of
“standardize where possible, adapt where necessary.” The opportunities for standardizing their
marketing mixes may be viewed as marginally only more effective than an adaptation strategy, which
would convert into the coalescence position this research found (with a slight bent toward
standardization).
It is hardly surprising that external-to-the firm environmental factors would be perceived by
respondents as being more important for developing their standardization/adaptation strategies in
international markets than variables internal to the firm. The external variables examined in this study are
essentially beyond the control of these firms; thus, they have to be accepted “as is”. On the other hand,
since the internal factors can be manipulated, they may be viewed as being of lesser importance than the
external variables.
The authors believe that the little variation in the standardization/adaptation strategies existing for
the 33 marketing mix variables, and within and among the nine marketing mix categories, is an important
finding. Perhaps the rationale for this finding is that the Korean firms view marketing mix elements
homogeneously and believe that little would be gained by varying the standardization/adaptation strategy
across the marketing mix. Or, an unvarying strategy strategy may have resulted from companies’ failure
to investigate the impact of a differential approach on performance in international markets.

6. RECOMMENDATIONS

Given the large number and significance of the deficiencies existing in the standardization/adaptation
literature, it is certainly advisable that additional studies of this highly important dimension of companies’
international operations be forthcoming. This study addressed the issues of the paucity of studies
concerning non-U.S. firms, little attention being devoted to the pricing and distribution aspects of the
marketing mix, failure to deal with a broad spectrum of marketing mix aspects, the problems existing
when standardization/adaptation practices from companies in two or more industries are compared in the
same study, analyzing only a small number of independent variables, and focusing almost entirely on the
significance of external environmental factors to the virtual exclusion of internal-to-the-firm variables.
However, future replicative studies are certainly in order and should not only cope with the deficiencies
our paper covered, but deal also with the failure to conduct longitudinal studies and ignoring input from
expatriate personnel in favor of almost total reliance on data provided by headquarters personnel located
in domestic offices.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 86


While some studies—ours did not do/so except tangentially by dealing with the percentage of firm
revenues accounted for by their international operations—have examined the effect on performance of
the level of standardization or adaptation employed, the authors would like to see more analyses of this
type. Hard-core performance measures, such as, market shares, profits, profit margins, and returns-on-
investment should be emphasized and comparisons to domestic performance would be informative, as
well.

Most of the standardization/adaptation literature is concerned with the “what is” question, rather than the
“what should be” question. While the former is a useful and necessary first step, the emphasis of future
studies should be on answering the latter query. The ultimate objective of this orientation must be to
provide international executives with guidance as to where their firms should position themselves on the
standardization/adaptation continuum. Such recommendations cannot be merely anecdotal or descriptive
but, rather, must be based on more rigorous and sophisticated methodologies, including trade-off
modeling mentioned earlier in this paper.

Table 1
Profile Information on 82 South Korean Food and Kindred Products Companies

Factor
 Annual Sales
o x = $179 million
o Median = $30 million

 Percentage of Annual Sales from International Operations


o x = 38.5%
o Median = 31.0%

 Years of International Experience


o x = 8.4
o Median = 7.0

 Number of Foreign Countries in Which Operations Exist


o x = 4.55
o Median = 4.00

 Percentage of Firms Using a Specific Type of International Operation


o Exporting – 96.3%
o Importing – 90.2%
o International Joint Venture – 58.5%
o Strategic Alliance – 48.8%
o Licensing – 34.1%
o Franchising – 31.7%
o Overseas Sales/Marketing Office – 39.0%
o Overseas Manufacturing Facility – 9.8%

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Table 2
Level of Standardization/Adaptation
Indicated by 82 South Korean Firms on 33 Marketing Mix Dimensions
Percentage of Respondents Citing
Various Different/Similar Perceptions
Very Somewhat Somewhat Very
Marketing Dimension Different Different Similar Similar X
1.) Advertising Copy 11.1% 38.3% 29.6% 21.0% 2.57
2.) Advertising Appeal 9.8% 36.6% 32.9% 20.7% 2.65
3.) Advertising Media 8.5% 37.8% 36.6% 17.1% 2.57
Total advertising 9.8% 37.6% 33.0% 19.6% 2.60
4.) Sampling 9.8% 36.6% 34.1% 19.5% 2.63
5.) Trade Shows 12.2% 25.6% 43.9% 18.3% 2.68
6.) Point-of-Purchase Displays 14.6% 31.7% 37.8% 15.9% 2.55
7.) Contests 11.0% 28.0% 41.5% 19.5% 2.7
8.) Coupons 8.5% 37.8% 36.6% 17.0% 2.62
9.) Premiums 8.5% 28.0% 43.9% 19.5% 2.74
10.) Sponsorships 12.2% 41.5% 31.7% 14.6% 2.49
Total Sales Promotion 11.0% 32.8% 38.7% 17.8% 2.63
11.) Level and Type of Training 8.5% 34.1% 42.7% 14.6% 2.63
Provided to Sales Force
12. Background and Experience of
Sales Force 9.8% 34.1% 36.6% 19.5% 2.66
13.) Compensation and Support 9.8% 28%% 43.9% 18.3% 2.71
Provided to Sales Force
Total Personal Selling 9.4% 32.1% 41.0% 17.5% 2.66
14.) Product Quality 8.5% 31.7% 37.8% 22.0% 2.73
15.) Product Line Width 7.3% 35.4% 39.0% 18.3% 2.68
16.) Product Line Depth 7.3% 42.8% 35.3% 14.6% 2.57
17.) Product Packaging 12.2% 30.5% 43.9% 13.4% 2.56
18.) Product Brand Names 12.2% 28.0% 41.5% 18.3% 2.66
19.) Product Labels 12.2% 31.7% 42.7% 13.4% 2.57
20.) Target Market Segments for
Products 8.5% 31.7% 43.9% 15.9% 2.67
21.) Product Design 12.2% 37.8% 37.8% 12.2% 2.5
22.) Product Warranties 15.9% 35.4% 36.6% 12.2% 2.45
Total Product 10.8% 33.9% 39.6% 15.6% 2.6
23.) Types of Channels of Distribution
Used 13.4% 30.5% 36.6% 19.5% 2.62
24.) Incentives Provided Channels to 19.5% 34.1% 29.3% 17.1% 2.44
Carry Our Product and Aggressively
Market Them
25.) Dealer Margins 6.1% 34.1% 51.2% 8.5% 2.6
Total Channels 13.0% 32.9% 39.0% 15.0% 2.55
26.) Transportation Modes 19.5% 29.3% 36.6% 14.6% 2.46
27.) Order Cycle Lengths 12.2% 37.8% 30.5% 19.5% 2.57
28.) Inventory Policies 9.8% 36.6% 34.1% 19.5% 2.63
29.) Warehousing Strategies 8.5% 36.6% 37.8% 17.1% 2.63
Total Logistics 12.5% 35.1% 34.8% 17.7% 2.55
30.) Prices 7.3% 32.9% 47.6% 12.2% 2.65

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 88


31.) Pricing Objectives 7.3% 32.9% 41.5% 18.3% 2.71
Total Pricing 7.3% 32.9% 44.5% 15.3% 2.68
32.) Credit Policies 7.3% 28.0% 45.1% 19.5% 2.77
33.) After-the-sale service 7.3% 28.0% 50.0% 14.6% 2.72
Totals 10.6% 33.5% 39.3% 16.6% 2.62

Table 3
Effect of Various Independent Variables on Elements of the Marketing Mix
(Criterion Used: x's for Marketing Mix Element)
% Sales Yrs Int.
Annual Sales Int. Experience
<
# VARIABLE DESCRIPTION < 30 ≥ 30 31 ≥ 31 < 7.0 ≥ 7.0
1 Advertising copy 2.53 2.63 2.62 2.23 2.60 2.58
2 Advertising appeal 2.62 2.70 2.65 2.56 2.62 2.68
3 Advertising media 2.53 2.58 2.50 2.33 2.50 2.65
Total Advertising 2.56 2.64 2.59 2.34 2.57 2.64
4 Sampling 2.53 2.67 2.71 2.10 2.57 2.70
5 Trade shows 2.56 2.72 2.76 2.38 2.55 2.83
6 Point-of-Purchase displays 2.50 2.57 2.57 2.66 2.40 2.70
7 Contests 2.76 2.64 2.83 2.35 2.54 2.86
8 Coupons 2.76 2.49 2.57 2.72 2.57 2.68
9 Premiums 2.85 2.62 2.93 2.44 2.79 2.70
10 Sponsorships 2.59 2.72 2.62 2.83 2.62 2.35
Total Sales Promotion 2.69 2.63 2.71 2.50 2.58 2.69
11 Level and type of training provided sales force 2.76 2.49 2.57 2.85 2.65 2.62
12 Background and experience of sales personnel 2.76 2.54 2.76 2.44 2.66 2.65
Compensation and support provided sales
13 personnel 2.76 2.64 2.62 2.65 2.60 2.83
Total Personal Selling 2.76 2.56 2.65 2.65 2.04 2.70
14 Product Quality 2.76 2.71 2.71 2.77 2.57 2.90
15 Product line width 2.71 2.62 2.74 2.41 2.67 2.70
16 Product line depth 2.47 2.64 2.64 2.49 2.50 2.65
17 Product packaging 2.65 2.43 2.62 2.72 2.50 2.63
18 Product brand names 2.62 2.68 2.62 2.72 2.62 2.70
19 Product labels 2.71 2.36 2.69 2.46 2.62 2.53
20 Target market segments for product 2.65 2.67 2.67 2.67 2.62 2.72
21 Product design 2.64 2.31 2.50 2.49 2.50 2.50
22 Product Warranties 2.74 2.18 2.38 2.51 2.52 2.38
Total Product 2.66 2.53 2.62 2.58 2.67 2.63
23 Types of channels of distribution used 2.77 2.36 2.64 2.61 2.62 2.62
Incentives provided channels to carry our
24 products and aggressively market them 2.52 2.33 2.44 2.45 2.35 2.52
25 Dealer margins 2.65 2.53 2.64 2.54 2.64 2.55
Total Channels 2.65 2.40 2.58 2.53 2.54 2.57
26 Transportation modes 2.53 2.38 2.55 2.36 2.41 2.53

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27 Order cycle lengths 2.56 2.57 2.57 2.56 2.60 2.55
28 Inventory policies 2.50 2.63 2.57 2.69 2.50 2.78
29 Warehousing strategies 2.66 2.61 2.67 2.56 2.53 2.75
Total Logistics 2.56 2.55 2.59 2.54 2.56 2.65
30 Prices 2.65 2.61 2.71 2.53 2.55 2.70
31 Pricing Objectives 2.82 2.54 2.73 2.69 2.74 2.68
Total Pricing 2.74 2.58 2.72 2.61 2.65 2.69
32 Credit policies 2.88 2.62 2.79 2.73 2.86 2.68
33 After-the-sale service 2.62 2.77 2.77 2.65 2.64 2.80
Totals 2.68 2.59 2.67 2.57 2.64 2.67

Table-4
Extent to Which Various Factors Affect Companies Standardization/Adaptation
Somewhat
Factor Not Important Important Very Important
Laws and regulations in 34.6% 62.9%
2.5%
international markets
Competition in international 36.6% 61.0%
2.4%
markets
0.0%
Needs and wants of consumers in 43.9% 56.1%
international markets
Cultural dimensions of international 39.0% 59.8%
1.2%
markets
1.2%
Physical distance of international 46.3% 52.4%
markets from your company's
domestic location(s)
1.2%
Physical infrastructure (roads, 45.1% 53.7%
bridges, electrical power, etc.) in
international markets
3.7%
Marketing infrastructure (banks, 46.3% 50.0%
marketing research firms,
advertising agencies, telephone
service, etc.) in international
markets
Economic conditions in foreign 50.0% 47.6%
2.4%
markets
Your company's strategic goals 50.0% 46.3%
3.7%
and objectives
Your company's desire to obtain 51.1% 43.9%
economies of scale 4.9%

Level and type of training provided 52.4% 42.8%


4.9%
sales force
Your company's financial condition 3.7% 47.6% 48.7%
3.7%
Availability of resources in your 47.6% 48.7%
company to support its
international opportunities
0.0%
Availability of competent personnel 45.1% 54.9%
to staff your company's
international marketing positions
Tax considerations 1.2% 37.8% 61.0%

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 90


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AUTHOR PROFILES:

Dr. Richard. T. Hise earned his DBA from University of Maryland. Currently he is a professor of
marketing at Texas A&M University-College Station.

Dr. Youngtae Choi earned his Ph.D. from Texas A&M University-College Station. Currently he is an
assistant professor of marketing at the University of North Florida.

Dr. Jongkuk Shin earned his Ph.D. from Hanyang University in Korea. Currently he is a professor of
marketing at Pusan National University in Korea.

Dr. Minsook Park earned her Ph.D. from Pusan National University in Korea. Currently she is a
research professor of marketing at Pusan National University in Korea.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 93


THE SOUTH KOREAN AUTOMOBILES AND SPARE PARTS EXPORT MARKET:
AN ASSESSMENT OF THE LEBANESE MARKET FOR THE KOREAN PRODUCTS AND
CONSUMER PREFERENCES

Nouri Beyrouti, Ph.D. Lebanese American University, Beirut, Lebanon

ABSTRACT

The relationship between Lebanon and South Korea is a recent one, due to the remote
geographical location of both countries with respect to each other. Lebanese knowledge of South
Korea is limited relative to other countries in the Far East such as Japan and China; however, the
bond is becoming stronger with time due to the efforts of both governments and the recognized
booming economy of Korea. South Korea recognizes Lebanon as an experimental field for its
products to be tested before offering them in the Middle Eastern Market.
The main goods Lebanon imports from South Korea are automobiles and motor vehicles, car
parts, electronics, plastics and others. Although the market share of the South Korean products is
not that significant for the Koreans, a lot of opportunities are recognized for the future. South
Korean brand names became so popular in the Lebanese market such as Samsung, LG, Kia,
Daewoo and Hyundai. However quality is still associated with European, American and Japanese
products. The purpose of this paper is to examine the importance of the Lebanese car market
witch is characterized by its diversity, consumer preferences, and competitiveness in relation to
South Korea automobiles brands and spare parts export market.

Keywords: South Korea, Lebanon, Automobiles and Spare Parts, Imports-Exports, Korean
Products, Consumer Preferences

1. INTRODUCTION

After the civil war, Lebanon has borrowed heavily to rebuild the nation. The debt constitutes
around 170 %( 2005) of the GDP. The government has failed until today to manage its debt
through proper measures which indicate the danger of an economic crisis in the future. The
government depends basically on administrative and economical reforms through privatization
and more efficient government efforts to resolve the economical situation; however, every attempt
up-to-date was a complete failure (www.cia.gov).

Lebanese GDP is around 20 billion dollars (2005) with a yearly growth of 0.5% (12% agriculture,
21%industry, 67% services). Unemployment rate is around 18% and inflation is 2.4%
(www.cia.gov).The total debt is more than 35 billion dollars (estimates end March, 2005)
(www.Finance.gov.lb). Lebanon major industries are banking, tourism, food processing, jewelry,
cement, and textiles. The main exports partners are Syria, UAE, Turkey, Switzerland and KSA,
while the main imports partners are Italy, France, Syria, Germany, China, USA, and the UK
(www.cia.gov).

2. BACKGROUND ON SOUTH KOREA

After the armistice signed in 1953, splitting South Korea from its North, South Korea achieved
high economical growth. The government has followed all stages in liberalization of its economy.
It emphasized the import of materials and technology in favor of other consumer goods to boost
its ability to reach a stage of exporting quality approved and competitive goods. This development
was driven by high saving rates and investment on education. From 1953 to 1996, GNP
increased from 2.3 billion dollars to 480.2 billion dollars. Its legislation system was updated to
meet its economical needs and ability to be competitive and flexible (www.cia.gov)

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Korea shifted from the inward-looking (import substitution) to the outward-looking strategy (export
promotion). This started in the 1960s were South Korea promoted its light manufactured goods,
given its cheap labor cost advantage. This was accomplished with foreign capital promotion to
encourage the inflow of investment; tariff rebates on imported materials for re-export use, and
simplified customs procedures. Then South Korea promoted its heavy and chemical industries in
the 1970s followed by the rationalization and liberalization of the economy in the 1980s. South
Korea proved to be successful in its globalization in the 1990s through joining the WTO, Asia-
Pacific Economic Cooperation, and OECD (www.asianinfo.org)

South Korea GDP is around 965 billion dollars with a yearly growth of 3.9% (6.4% agriculture,
26.4% industry, 67.2% services). Unemployment rate is around 3.7% and inflation is 2.6%) The
public debt is 30.1% of GDP. Its main industries are electronics, telecommunication, automobile,
production, chemicals, shipbuilding and steel. The main exports are semiconductors, wireless
telecommunication equipment, motor vehicles, computers, steel, ships and petrochemicals. The
main exports partners are China, USA, Japan, and Hong Kong, while the main imports partners
are Japan, China, USA, and KSA (www.cia.gov). Korea ranks the thirteenth in GDP, thirty sixth in
per capital GNI and the fifth in term of foreign exchange reserves (www.kn.KoreaHerald.co.kr)

3. LEBANON AND SOUTH KOREA ECONOMIC RELATIONSHIP

Lebanon and Korea established diplomatic relations in 1981; moreover, diplomatic and economic
ties between the two countries have developed swiftly since then. The volume of trade is
increasing throughout the years, however in a unilateral way (McCrossan, 2006).
The relationship between Lebanon and the South Korea is a recent one due to the remote
geographical location of both countries with respect to each other. Lebanese knowledge of South
Korea is limited relative to other countries in the Far East such as Japan and China; however, the
bond is becoming stronger with time due to the efforts of both governments and the recognized
booming economy of Korea. South Korea recognizes Lebanon as an experimental field for its
products to be tested before offering them in the Middle Eastern Market, for example LG has
opened its regional office in Lebanon because of its importance as a market indicator for the
region (Younes, 2005).

Although the market share of the South Korean products is not that significant for the Koreans, a
lot of opportunities are recognized for the future. South Korean brand names became so popular
in the Lebanese market such as Samsung, LG, Kia, Daewoo and Hyundai. However quality is still
associated with European, American and Japanese products.

At the beginning of year 2006 an agreement was signed between the government of the Republic
of Korea and the government of Lebanon on Trade and Economic Cooperation. The agreement
contains 15 articles to “facilitate trade exchange between their respective countries according to
the laws and regulations in force in the two countries”. Some of the issues offered in the
agreement are granting each of the parties the most-favored-nation treatment in all matters
relating to trade particularly with respect to: customs duties, taxes, methods of payment for
imports and exports, rules and formalities, and other affecting legislation and treatments of
concerning trade and facilitations (Agreement, 2006).

The main goods Lebanon imports from South Korea are Motor vehicles, Car parts, electronics,
plastics and others. Table 1 mentions the first 20 categories imported and the money value of the
goods.

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$ value in
Rank Item 2005
Motor cars and other vehicles, especially the cars
1 ranging between 1500 cc and 2500 cc $22,700,000
2 Plastics & Articles Thereof $11,100,000
3 Refrigerators and freezers $5,600,000
4 Color TVs and related reception apparatus $5,000,000
5 Transmission Apparatus for Radio-Telephony $2,700,000
6 Knitted or Crocheted Fabrics $2,400,000
7 Car parts $2,300,000
8 Household or Laundry-Type Washing Machines $2,200,000
9 Polyethylene Specific Gravity < 0.94 in Primary Form $2,000,000
10 Air Conditioners Window / Wall Types, Self-Controlled $1,700,000
11 Pneumatic Tires New of Rubber for Motor Cars $1,700,000
12 Parts and Accessories of Data Processing Equipment $867,000
13 Special Woven Fabrics: Tufted Textile Fabrics $846,000
Input or Output Units, Whether or Not Containing
14 Storage Units in the Same Housing $706,000
10 Electric Instantaneous or Storage Water Heaters $275,000
8 Video Recording or Reproducing Apparatus $182,000
20 Electrical Apparatus For Line Telephony or Line $178,000
19 Electric Motors & Generators $168,000
7 Primary Cells and Batteries $59,000
13 Frames and Mountings for Spectacles, Goggles $8,000

As per the information provided by the Lebanese Customs (2005), Lebanon imports from Korea
sums up to $113,023,000, and exports are around $15,436,000. As Lebanon is concerned, Korea
rates 22nd highest import partner and 26th highest export partner. Korea resembles 1.21% of the
Lebanese imports and 0.82% of the Lebanese exports (www.customs.gov.lb).

Korean products are increasingly demanded by the Lebanese market especially when it comes to
Cars and Car spear parts. Cars have a promising future in Lebanon due to the low cost and good
quality. Korean car imports increased from $9.5 million in 2003 to $21.2 million in 2004 to $22.7
million in 2005. The demand on car spear parts I Lebanon will increase, since Korean cars have
been in the Lebanese market since 1994, therefore, more Korean cars will need spare
parts (www.customs.gov.lb).

4. THE AUTOMOBILE INDUSTRY IN SOUTH KOREA

Although the demand for cars is decreasing domestically, the automobile industry is growing due
to the exports factor (17.6% growth for 2005).This is due to the aggressive sales and marketing
strategies of the Korean car makers especially in the European and
American markets. The Korean cars have gained a good reputation in these markets; even some
were ranked as “The Best Cars” by the Car Book and the Auto Safety in March, 10. Brand images
are more enhanced and quality improvements are continuous to boost the likeness and sales of
Korean cars (Kotra, 2005).

South Korean cars have achieved the highest growth in 2005 among others, around 15.4%. USA,
Japanese, and European cars have achieved -4.9%, 3.9%, and -3.1% growths respectively,
keeping in mind that the overall growth in the automobile world market is -1.8%. In terms of
produced units, the South Korean Companies have sold 35,000 more units at 2005; special

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contribution was recognized by Kia Motor’s Picanto and Cerato. These achievements were due to
the aggressive strategies of car makers and the strengthening of the Euro
Currency (Kotra, 2005).

5. THE AUTO-PARTS INDUSTRY IN SOUTH KOREA

The exports of Auto-Parts have been increased by 5.45 billion dollars around 8.4% on
2005. This increase is justified due to the boom the Korean Companies are achieving in the
American and the European markets. Although some parts should technologically improve, most
of the produced ones are on par with the global companies. Some examples of produced parts
include: modules, engines, braking systems, and score of convenience devices for automobile
makers. Many multinational auto parts companies such as BorgWarner, TRW, Lear Corp., Du
Pont, Johnson Controls & Bosh, Delphi Corp., and others have the research and development or
procurement centers in South Korea, due to its competitive production capability (Kotra, 2005).

The auto-parts makers are taking advantage of the globalization trend by building plants abroad,
following the path of the automobile makers. They are expanding in the USA, China, Turkey and
India where the fast-growing automobile markets exist (Kotra, 2005).

6. KOREAN CARS IN THE LEBANESE MARKET

There is no local production of vehicles in Lebanon. Lebanese people are among the highest car
owners in the world, there is approximately one car for every three resident
(General Overview, 2005). That is because Lebanese customers favor “the private automobile
over the establishment of public transport systems” (Perry, 2000). “From 1974 to 1998 the total
number of vehicles in Lebanon rose from 243,584 to 1,554,340, an increase of 538 per cent.
Private cars were 88 per cent and 84 per cent of these figures, respectively” (Perry, 2000).
Around 67% of households own one or more cars (General Overview, 2005).

Lebanese car market is characterized by its diversity and competitiveness. Mainly the dealers are
the importers, wholesalers and retailers, depending on the size of their operations. Used cars
market is much wider than the new ones, because of the lower prices and the high depreciation
cost incurred by the new purchased cars.
Cars imported should be no more than eight years old. As for the Tariff rates applied in Lebanon
on used and new cars they are as follows:

Used Cars
fixed rate of LL 5 millions + 10%
up to LL 20 millions VAT
fixed rate of LL 5 millions for the
first LL 20 millions and 50% for the
over LL 20 millions remainder + 10% VAT
New Cars
up to LL 20 millions 20% of the value + 10% VAT
20% for the first LL 20 millions and
over LL 20 millions 50% for the remainder + 10% VAT
Trucks, Vans, Pickups, Buses, Minivans
All values 5% of the value + 10% VAT

Lebanese favor German, Japanese and French cars. German used cars are especially
appreciated because of their traditionally perceived high quality, especially BMW and Mercedes
brands. Japanese cars are viewed to be fuel efficient, while French ones are considered
fashionable (General Overview, 2005).

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As for Korean used vehicles, they were introduced to the Lebanese market during 1994 and
1995. They were a success especially that the Korean car dealers offered the vehicles at a low
price with an attractive payment schemes. Nowadays it is estimated that the Korean cars make
up fewer than 10% of the total cars in Lebanon (Kotra, 2005).
In 1997 and 1998 Korean minibuses invaded the Lebanese market to be used for public
transportation; their main advantage was that they were running on diesel rather than gasoline
fuel. They were sold as new and used. Hyundai H100 was the most demanded model of Korean
minibuses. In 2002, a ban of diesel-use vehicles by the Lebanese government caused a dramatic
fall in minibuses sales (Kotra, 2005).
Korean trucks are unavailable in the Lebanese market. This is mainly because of the lack of after-
sales support. However, this is a great opportunity for the Korean vehicles to increase its share in
the Lebanese market.

The main brands demanded for the new cars market are: Nissan, Peugeot, Toyota, Renault and
Kia, and Honda. As for the cars’ origins, Japanese cars are mostly demanded, followed by
French cars, German, Korean and American cars. Demand for cars was increasing up to 2004,
for the economical situation was sounding to be better; however, after the assassination of PM
Rafic Al Hariri the car market deteriorated (Kotra, 2005).

The car rental companies are the main purchasers for new cars. Car dealers at the end of 2005
launched extensive promotional campaigns to boost the sales of the year and to provide the cash
flow for receiving the new models of 2006. Figures Released by the Association of Car Importers
of Lebanon reveal that the total number of registered vehicles in 2005 amount to 16195 of which
15207 were passenger vehicles and 988 were commercial vehicles. The number of registered
vehicles fell by 20.8% in 2005 from 20455 registered vehicles in 2004 due to political and
economic uncertainties that prevailed throughout most of 2005. Nissan accounted for the highest
number of registered vehicles with a total of 1853 in 2005, accounting for 11.4% of the total
market. It was followed by Peugeot with 1770 cars (10.9%), Toyota with 1623 cars (10%), Kia
1341 cars (8.3%), and Renault 984 (6.47%). The breakdown of vehicles by dealer in 2005 reveals
that Rasamny Younes Motor Co. (RYMCO) sal, agent of Nissan, GMC and Infiniti ranked first
with 2143 units or 13.2% of total cars registered. It was followed by Bassoul Heneine sal, agent of
Alfa Romeo, BMW, Dacia, Mini and Renault, with 1970 units (12.2% of total); and Sidia sal, agent
of Peugeot and Tata brands, with 1770 units (10.9%). BUMC, agent of Toyota and Lexus, came
in fourth position with 1704 units registered in 2005 (10.5%), followed by Natco sal, agent of Kia
with 1341 units (8.3%) (Kotra-Lebanon, 2005).

Major imports from Lebanon are from Germany. Japan comes second, then USA, France, UK
and Korea. In 2005 German vehicles constituted 40% of all imports; Japan 26%, USA 14%,
France 5%, UK 5%, Korea 4%, and other countries 6% (Kotra-Lebanon, 2005).

2003 2004 2005


Thousand % Thousand % Thousand %
Country USD Total Country USD Total Country USD Total
Germany 167,216 39% Germany 207,603 34% Germany 227,692 40%
Japan 127,701 30% Japan 189,960 31% Japan 149,196 26%
USA 35,445 8% USA 72,646 12% USA 76,165 14%
France 31,167 8% France 40,211 7% France 25,979 5%
UK 24,480 5% UK 25,645 4% UK 25,410 5%
Korea 9,569 2% Korea 21,259 4% Korea 22,685 4%
Others Others Other
(30) 30,038 8% (31) 45,671 8% (28) 34,705 6%
Total 425,616 602,995 Total 561,832

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JapaNese cars have the most market share in registered vehicles in Lebanon with an average of
39.25%. (Nissan 13.59%) French cars come second at 23.73% (Peugeot 13.08%), then German
cars at 14.39% (VW 4.13%). Korean cars rank fourth at 10.74% (Kia 5.39%) (Kotra-Lebanon,
2005).

Kia made a big leap in market share in registered vehicles, since it jumped from 3.21% in 2003 to
4.67% in 2004 to 8.28% in 2005. Hyundai remained more or less close to 5% of market share in
during the past three years. Other Korean cars such as Samsung, Daewoo and Ssang Yong
remained below 0.1% (Kotra-Lebanon, 2005).

2003 2004 2005 Total Years


% Total % % Total % % Total %
Market Market Market Market Market Market Average % Market
Brand Share Share Share Share Share Share Share
Hyundai 4.20 5.70 5.09
Kia 3.21 4.67 8.28
Korea Samsung 0.32 7.83 0.28 10.73 0.20 13.66 10.74
Daewoo 0.09 0.00 0.01
Sang
Yang 0.00 0.08 0.09

As recognized the Korean car market is growing, 2% market share in 2003 as compared to 4% in
2004 and 2005. Year 2005 wasn’t successful economically because of political instability;
however 2006 is expected to be a better one. Korean cars are becoming more recognized by the
Lebanese customers and its brands images are more attractive than before. Their main
characteristics are their competitive prices and acceptable quality.

7. KOREAN AUTO-PARTS IN THE LEBANESE MARKET

As the cars market, the Auto- parts market is diverse and competitive. Dealers are mostly the
importers, wholesaler, and retailer. Manufacturing of spare parts in Lebanon is limited to radiators
and car breaks. The quality of the local manufactured auto parts is acceptable especially when it
comes to the radiators. The number of cars on the Lebanese streets relative to the population is
high and it is increasing annually. Due to the hard economical situation, residents are tending to
keep their used cars, thus demanding more auto-parts than before. This gives a good potential
for the spare parts market. Auto companies here re-export some motor parts and accessories to
countries like Nigeria, Saudi Arabia, and the UAE. Businesses in this field are relatively small to
medium. Competition between European, American and Asian brands is so fierce. Mainly spare
parts for BMW and Mercedes are the highest demanded especially that most of the Taxis in
Lebanon are of Mercedes Brand, but the trend is toward using Korean cars. Customs for auto
parts is 5% plus 10% VAT (Autoparts-Kotra, 2005).

As Korean cars market share increases the demand for their auto-parts increases. This is why
many Lebanese companies are dealing in Korean Spare Parts. Some are even trading used
spare parts. Some Korean companies have sole agents in Lebanon for their new cars as well as
auto parts. Hyundai and Kia agents for example have their service garages and import from the
manufacture directly (Autoparts-Kotra, 2005).

Lebanon’s imports of auto parts ranges from bumpers, body parts and accessories, safety belts,
brakes, brake linings, gear boxes, axles, transmissions, wheels and their accessories,

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suspension shock absorbers, radiators, exhaust pipes and silencers, clutches, steering wheels,
oil filters, car chassis, tires, and other parts (Autoparts-Kotra, 2005).

In the previous years, Lebanon imported around US$ 101 million of the above mentioned auto
part items in 2003, US$ 129 million in 2004, and US$ 121 million in 2005 (Autoparts-Kotra, 2005).

The major three imports in the past three years were those bearing HS Code number 87.08.91
(US$ 42 million in 2005, US$ 44 million in 2004 and US$ 34 million in 2003); and HS Code
number 40.11.10 [Tires] (US$ 25 million in 2005, US$ 27 million in 2004, and US$ 23 million in
2003); and HS Code number 87.08.29 (US$ 23 million in 2005, US$ 24 million in 2004, and US$
18 million in 2003) (Autoparts Industry-Kotra, 2005).

2003 2004 2005


US$ US$ US$
Country Thousand Country Thousand Country Thousand
Germany 35,342 Germany 41,594 Germany 36,739
Japan 19,687 Japan 18,445 Japan 21,029
USA 8,082 China 10,466 China 11,416
France 6,997 USA 8,901 USA 8,461
Korea 6,361 France 6,432 France 6,150
Taiwan 5,682 Taiwan 6,138 Taiwan 5,006
Italy 4,142 Korea 4,810 Korea 4,416
China 4,603 Italy 4,560 Italy 3,042
Turkey 3,239 Turkey 4,297 UK 2,981
UK 3,166 UK 2,885 Turkey 2,124

As shown in the table above Korea ranked 5th in 2003 and 7th in 2004 and 2005
(Autoparts-Kotra, 2005). Germany and Japan scored the highest because most of the cars used
in Lebanon are manufactured there. Lebanese customer preference for auto parts is for the
manufacturing country of origin of the owned car. German and Japanese brands established a
strong image because of their long existence in the market and their perceived quality. Korean
cars recently existed in the Lebanese market, since 1994. Thus the demand started from that
date. Lebanese customers are becoming more price conscious. They relate expensive spare
parts to the European and Japanese products, while cheap ones to the Far Eastern. Korean
spare parts are becoming more desirable because of their competitive prices, especially after the
bad economical situation experienced in 2005 by the Lebanese purchasers.

Dubai is playing a direct role in affecting the imports from Korea. It plays the role of the center of
re exporting Far Eastern items. Also, China is competing with the Korean products because of its
cheaper prices. The Chinese products have the same appearance and packaging.

There are several companies also that shifted from Korean to Chinese products because many
companies realized that the Korean companies are manufacturing their products in China (or
through Chinese companies); this made Lebanese companies to directly switch their imports from
Korean companies directly to the Chinese because in such cases the Lebanese companies found
out that the products will be cheaper.
For example, Est. Ray A. imported 900 thousand dollars worth of auto parts from Korea in 2004,
but dropped to 60 thousand dollars in 2005 for the above reasons.

In Lebanon, people accept the idea for Korean products to be slightly more expensive than other
far eastern products. But if the Korean products are more expensive than the Far Eastern by
30%, Lebanese traders will prefer buying European or American brands rather than Korean.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 100


On the other hand, Korean products are known to be much better than their Far Eastern
counterparts. This is why many Lebanese still import Korean auto parts. For example, the same
Lebanese traders still prefer to import the Korean shock absorbers Mando even though they are
almost 50% more expensive than other far eastern shock absorbers.
This also applies to car batteries, while contacting Lebanese auto part companies, they stated
that the Korean car batteries are more expensive that others, but their life span is longer (3 to 5
years). This shows that price quality ratio still counts.

Another problem that faces the Korean manufacturers is that the Lebanese market is very small,
so the demand for some auto parts is not high. Some Korean companies cannot ship or supply a
humble quantity of auto parts, whereas other Chinese and other companies might be able to do
so. Also, many Lebanese companies have stated that this problem occurs because Chinese
manufacturers are always full with stock, and as soon as an order is given, the supply is shipped.

When contacting Hyundai in Beirut, they stated that their market share is US$ 5.5 million which is
relatively small. This could be reflected on other Korean manufacturers. This market share is
relatively small because Korean cars started operating in Lebanon since 1994. This is why
Lebanon could from now on start demanding auto parts (demand of new and used auto parts are
directly related to the cars’ age).
According to Hyundai, imitated parts are taking 40% to 45% of the auto part market. As for
commercial vehicles, imitated parts take 70% to 75% of the market share.
The most parts demanded are parts used in service items, and the most expensive items are the
suspension parts and parts related.

Auto body parts in Lebanon are mainly being imported from China, Turkey and Thailand and are
very cheap if compared to others, this is why they are taking the market share of the genuine
parts.

In addition to new auto parts, there exists a market for used auto parts. The major market for
these products is old cars that are need too much maintenance and very costly to their owners;
and people who still prefer to buy the original parts rather then imitation but cannot afford the new
ones.

In general, many of the buyers contacted are already dealing with Korean Companies and have
traveled to Korea.

According to importers of Korean auto parts, the following points should be taken into
consideration when dealing with the Lebanese Market:
- Small Import quantities
- Prices have to be in competition to other import countries like China & Malaysia

Another issue that was raised during the discussions was that Lebanese companies prefer to
deal with a company that can provide diverse items. In the case where there is diversity they can
place one order including all the various items needed.

When discussed with buyers regarding the most consumable auto spare items they explained
that there are parts that are rarely changed and are changed only in cases of accidents and there
are parts that are constantly changed such as the spark plugs, fan belts, timing belt, brake discs,
brake pads, wind shield wipers, etc.

With respect to the prices: depends on the quality and how well known a brand is. One buyer
gave the example of the brand name Mando which is a well known Korean Brand in the
Lebanese market. He explained that the prices of Mando differ from those of other Korean Brand,
but which are not as well known.

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The main Korean auto parts brands found in Lebanon are:

 Hyundai and Kia, Samsung and Daewoo original auto parts


 Hyundai and Kia, Samsung and Daewoo imitated auto parts
 Jumbol, Concorde, Hytek, Turbo, Dong AH, Volta, Sharp, Atlas,DJ batteries
 ASA wheels
 Hankook, Beautrak, Komo, Woosung tires
 Kook Il, MF, JHF filters
 Daewoo, Korea Beral brakes
 Valeo TH disks
 KBC, Rollimpex ball and roller bearings
 Mando auto parts
 3L, Lightech, Musso lamps and bulbs
 Gaco oil seals
 Heun Ah, Beatrat inner tubes
 Hang Chag Belts
 Drew C&C (Current)

8. CONCLUSION

Korean auto parts are known for their better quality; however, they relatively more expensive than
other Far Eastern countries especially China. Korean products are trusted by importers and
customers, yet prices should be revised to gain a competitive advantage. One of the obstacles
informs of Lebanese importers is that Korean suppliers claim that the Lebanese dealers don’t
have stocks, mainly because of the small quantities demanded. Nevertheless, Korean cars are in
the country for more than 12 years, cars are getting older and parts are needed. Lebanese
customers prefer to purchase the original parts, produced by the manufacturer of his car, which
may boost the sales of Korean auto parts in the near future.

So in order for Korean auto parts to have a bigger market share in Lebanon, Korean companies
should rely on three major key points.

1. Number of Korean cars in Lebanon


2. Prices of Korean parts
3. Awareness of Lebanese towards Korea’s industry.

If the number of Korean cars increases in Lebanon, then the demand for Korean auto parts will
definitely increase.

The prices of the Korean auto parts should be lower in order for the Lebanese to demand more.
Since some Korean manufacturing companies that are outsourcing their manufactures from
China, Lebanese are more willing to buy from China than ever. This is why some might accept to
buy an imitated product from China rather than Korea.

There should be a strategy to allow Lebanese to be more aware of Korea’s industry. This
awareness should increase through more aggressive marketing and promotion (exhibitions,
brochures, TV commercials, etc.). Also, Korean products should be labeled so that no other
manufacturing company could imitate Korean products. When awareness increases, people will
know the true value of Korean products and only then they will be willing to pay more.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 102


REFERENCES:

www.finance.gov.lb
www.cia.gov/cia/publications/factbook/geos/le.html
www.cia.gov/cia/publications/factbook/geos/ks.html
www.asianinfo.org/asianinfo/korea/economy.htm
www.kn.koreaherald.co.kr/SITE/data/html_dir/2002/03/23/200203230009
Shady Younes, “Interview with the Korean Ambassador”, Annahar, December, 2005.
“Agreement between the Government of the Republic of Korea and the Government of The
Republic of Lebanon on Trade and Economic Cooperation”, 2006.
Imports Ranking provided by Kotra-Lebanon available at (www.customs.gov.lb).
“The Export Playing a Key Role in The Development of Korean Automobile Industry”, Korea
Trade, Kotra, No 362, 2005.
Mark Perry, "Car Dependency and Culture in Beirut: Effects of an American Transport Paradigm,"
Third World Planning Review (University of Liverpool), Vol. 22, No. 4 (November 2000), pp. 395-
409.
“General Overview of the Automobile Industry in Lebanon”, provided by Kotra-Lebanon, 2005.
Peter McCrossan, “Lebanon and Korea Strengthen Ties”, the Seoul Times, May, 2006.
“General Overview of the Auto Parts Industry in Lebanon”, provided by Kotra-Lebanon, 2005.

AUTHOR PROFILE:

Dr. Nouri Beyrouti, PhD. New York University. Currently an Associate Professor at the
Lebanese American University, School of Business, Beirut-Lebanon. His area of interests
includes: Marketing Management, Management Theories, Knowledge Management, E-Marketing,
E-Learning, Marketing Communications, Virtual Organizations/Communities, Digital Economies,
Digital Lifestyle, and Social Media.

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SYSTEMATIC LINKING OF ORGANIZATIONAL STRATEGY, HR STRATEGY AND TRAINING
STRATEGY ACROSS OLC

Hai-Ming Chen, Tamkang University, Tamsui, Taiwan


Shu-Tzu Hung, Tamkang University, Tamsui, Taiwan

ABSTRACT

This study introduces an OLC perspective into SHRM, and develops a framework of strategic alliances of
organizational strategy, HR strategy and training strategy across the organizational life cycle. To construct
the framework, this study first reviews the literature of its core concepts, namely SHRM, strategic hierarchy
and OLC. Then by underlying the appropriate organizational strategy in each stage for taking up the best
competitive position, the corresponding HR and training strategies are inferred from the attributes and
objective of its upper strategic tier. Finally, this study highlights the training target, training method and
desired training outcome for each proposed training strategy across the OLC. The proposed framework
suggests that linking the three tiers strategy contingently across OLC improves the efficiency,
effectiveness and competence of workers in an organization.

Keywords: Human resource strategy, organizational life cycle, organizational strategy, strategic fit,
training strategy, strategic human resource management.

1. INTRODUCTION

Training is crucial in maintaining and developing the knowledge and competence of both individuals and
the organization as a whole, as well as in contributing to the vital process of organizational change. As
organizations continuously reinvent themselves to stay competitive, continually aligning business goals
with the learning to support them is a challenge. Through a slow and incremental process, appropriate
training will result in a workforce that is socialized, integrated, committed to a firm’s culture and provide the
organization with a competitive advantage difficult to imitate by competitors. Tharenou, Saks and Moore
(2007) undertook a meta-analysis from 67 studies, and found that training appears to be most strongly
linked to organizational outcomes when it is matched with key contextual factors such as organization
capital intensity and business strategy.
Training processes can be explored from either of two perspectives, internal or external (Dolan and
Schuler, 1994). The first approach is centered on the various elements involved in the development of
training process, such as training type, for whom, when, and how; the second approach, also called the
strategic fit approach, determines the orientation given to the training function within the company, in
conjunction with its philosophy, and in particular with its strategic focus.
Many studies on strategic fit in HRM have been performed in the past two decades (Ginsberg and
Venkatraman, 1985; Milliman, Glinow, and Nathan, 1991; Wright and Snell, 1998; Zajac, Kraatz, and
Bresser, 2000). Examples of the related research include HR systems fitting with organizational strategies
(Bird and Beechler, 1995; Miles and Snow, 1984; Schuler and Jackson, 1987), linkages between
organizational strategies and a specific HR function (e.g. recruiting, selection, and retention; training;
compensation systems) (Erdener, 1993; Galosy, 1983; Migliore, 1982). Some previous studies have built
the strategic framework from various HR functional viewpoint across organizational life cycle (OLC), for
example, performance appraisal across OLC (Chen and Kuo, 2004), incentive reward across OLC (Chen
and Hsieh, 2005), salesforce incentive across OLC (Liao, 2007). However, little work on building a
framework among organizational strategy, HR strategy and training strategy from the viewpoint of strategic
fit across OLC. The purpose of this study is to examine this missing link.
The literature of the core concepts that underlie the proposed framework are first reviewed. A novel
framework of training design across OLC is then presented and analyzed from a strategic alignment
perspective. Finally, conclusions are drawn.

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2. LITERATURE REVIEW

2.1 Strategic Human Resource Management


The field of strategic human resource management (SHRM) has been widely investigated during the past
two decades (e.g. Arthur and Boyles, 2007; Colbert, 2004; Delery, 1998; Kepes and Delery, 2006; Lepak
and Snell, 1999; Ostroff and Bowen, 2000; Schuler, 1992). SHRM is defined as “the pattern of planned
human resource deployments and activities intended to enable an organization to attain its goals” (Wright
and McMahan, 1992). It implies that employees are a source of strategic value, and that their development
contributes to a firm’s performance and sustainability. (Mayson and Barrett, 2006).

Partly originated from resource-based view which regards human resource as a potential source of
sustained competitive advantage (Barney, 1991; Barney and Wright, 1998; Wright, McMahan, and
McWilliams, 1994), SHRM research focuses primarily on evaluating the linkages among organizational
strategies, HRM functions and activities and organizational effectiveness (Chadwick and Cappelli, 1999;
Wright and Boswell 2002; Wright and Sherman, 1999). SHRM represents a new focus on HR as having
value creation role, separate from its traditional cost minimizing role (Becker and Gerhart, 1996). Many
studies claimed that consistency between business strategy and HRM practices was an important
component in the success of organization (Buffa, 1984; Fine and Hax, 1985; Kotha and Orne, 1989; Miller
and Roth, 1994; Wheelwright, 1984). Some empirical studies also confirmed the contingency effect of
strategic fit and organizational performance through both direct and interactive effects( e.g. Delery and
Doty, 1996; Guest and Hoque, 1994; Smith and Reece, 1999; Wang and Shyu, 2008). Consequently, an
“integrative link” or “best-fit” is assumed among different levels of strategy, playing an integral role in a
firm’s competitive advantage (Huang, 2001; Lengnick-Hall and Lengnick-Hall, 1988; Wright et al., 1998).

2.2 Strategic hierarchy


Training strategy formation has a three-tier strategic hierarchy. Organizational strategy should be the
starting point followed by HR strategy that guides all training and development plans (Hussey, 1985).
Following the guidelines of an organization’s specific missions and objectives, the strategy sets the priority
of resource allocation, and decides the sequence of implementing action plans (Shih and Chiang, 2003).
The guiding principles for strategic choice and planning that are accepted in the main body of an
organization are also relevant and apply to the development of new training programs (Roffe, 1998) of HR
strategy.

2.2.1 Organizational strategy


Organizational strategy can be defined as the determination of the fundamental long-term goals and
objectives of an organization, and the adoption of courses of action and the allocation of resources
necessary to attain these goals (Chandler, 1962). It is designed to give a firm a competitive edge over its
rivals in the same industry.
Various typologies of organizational strategy have been proposed. Two of the most widely accepted
typology for generic competitive strategy are those of Miles & Snow and of Porter taxonomy (Douglas and
Rhee, 1989). The Miles & Snow taxonomy emphasizes organizational strategic orientation, and classifies
generic business strategies into four types, namely reactors, defenders, prospectors and analyzers (Miles
and Snow, 1984). The Porter taxonomy focuses on achieving competitive advantage, and categorizes
strategies types as overall cost leadership, differentiation and focus. The focus strategy, in which the
organization concentrates on a specific market or buyer group, is further classified into focused low cost
and focused differentiation (Porter, 1980).
Many empirical studies have applied Miles and Snow’s defender-prospector-analyzer scheme for
explaining general strategic orientation at the organizational level (e.g. Baird, Griffin, and Henderson, 2003;
Gupta and Govindarajan, 1986; Laugen, Boer and Acur, 2006; Slater and Narver, 1993; Shoham,
Evangelista and Albaum, 2001). This study also adopts their method of classification, since their typology
provides convenient labels that describe a complex phenomenon of both strategic attributes and strategic
missions.
The defender strategy emphasizes creating a secure market share through moderate and steady growth,

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and thus focuses on high quality, superior service and low prices. The prospector strategy searches for
product and market opportunities through technological innovation, and thus focuses on product and
market innovation. Finally, the analyzer strategy is a combination of these two strategies; it defends
positions in its stable product-market domain and attempts to be the “second-but-better” in its innovation
areas.

2.2.2 Human resource strategies


HR strategy can be defined as the ongoing efforts to link HR activities with organizational strategies in
order to maximize “human advantage”, namely the contribution made by HR makes towards adding value
to customers and managing cost, by accelerating operational and management processes, and by
challenging the status quo through innovation and change (Grundy, 1998).
Several classification approaches for HR strategies have been presented. For instance, Miles and Snow
(1984) developed building-acquiring-allocating HR strategies from the input point of view, i.e., to
emphasize acquiring HR, while Dowling and Schuler (1990) and Tompkins (2002) derived their
accumulating-utilizing-facilitating HR strategies from the output perspective, which first addresses the
desired behavior and abilities.
This study incorporates an OLC perspective into SHRM, and therefore takes a life process approach, and
reclassify HR strategies as: (1) sowing strategy, which stresses the acquisition of talent to emulate the
planting process of finding good seeds and disperse them to the field (i.e. organization); (2) growing
strategy, emphasizing the accumulation of intellectual capital, which is inspired by weeding and nourishing
efforts in farming, and (3) propagating strategy underscoring the diffusion of internal knowledge through
managerial practices that simulate the proliferating process of plants (i.e. “human advantage”).

2.2.3 Training strategies


Training is part of human resource management (HRM) practices. It is essential for raising the firm-specific
knowledge and competence of the workforce of an organization. The ultimate training goal is to speed the
flow of both codified and tacit knowledge into the stock of human capital (Hatch and Dyer, 2004). From the
strategic perspective, training is employed not only to improve an employee’s current skills, but also to
prepare each employee for future responsibilities. In the process of learning within an organization, human
capital becomes increasingly firm-specific and cannot readily be reproduced by its competitors. Hence,
emphasis on training is instrumental for attaining a sustainable competitive advantage by converting
short-term gains into long-term competitive advantage (Arthur, DeFillippi, and Jones, 2001; Johannessen
and Olsen, 2003).
Training strategies are also classified in terms of different viewpoints. For example, Talbot (1993) classified
them as adaptive change, adoptive change and innovative feedback strategies, based on the change
management perspective. Baird, Griffin and Henderson (2003) categorized the training and development
methods into three types that span time: (1) learning from the past; (2) learning from the present, and (3)
learning from the future.
This study considers organizations as organisms that proceed in a life cycle, and considers training to play
a fundamental role in vitalizing them across each life stage. Thus from the viewpoint of strengthening
vitality of human resources, training strategies are classified as: (1) inspiring strategy focusing on
uniqueness creation; (2) upgrading strategy accenting quality of skills, and (3) shaping strategy stressing
on normalization of behavior.

2.3 Organizational life cycle

The OLC is a model based on the proposition that firms move through a fairly predictable sequence of
developmental stages over the course of time. Based on a biological metaphor, this model regards
organizational growth as a consistent and predictable process, similar to the human life cycle of birth,
maturity, aging and death. Therefore, an organization faces different problems in different stages, and
therefore needs to have different management skills, make different decisions and have a different
structure during each stage (Adizes, 1989; Greiner, 1972; Quinn and Cameron, 1983).

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OLC is an important model because of its premise and its prescription. The model’s premise is that
requirements, opportunities and threats both inside and outside the business firm vary according to the
stage of development of the firm finds. Its prescription is that the firm's managers must adjust the goals,
strategies, and strategy implementation devices of the business to fit each new set of issues. Thus,
different stages of the company's life cycle involve changes in the firm's objectives, strategies, managerial
processes (planning, organizing, staffing, directing, controlling), technology, culture and decision-making.
Many models of organization growth stages have been proposed over the past years. Some analysts have
delineated as many as ten different stages of an organizational life cycle, while others have flattened it to
as few as three stages (Adizes, 1989; Churchill and Lewis, 1983; Dodge and Robbins, 1992; Galbraith,
1982; Greiner, 1972; Gupta and Chin, 1994; Hanks and Watson, 1993; Kazanjian, 1988; Kazanjian and
Drazin, 1989; Kimberly and Miles, 1980; Miller and Friesen, 1984; Quinn and Cameron, 1983; Smith,
Mitchell, and Summer, 1985). The life cycle model of organizational growth has considerable empirical
support (Dodge and Robbins, 1992; Hanks and Chandler, 1994; Kazanjian, 1988; Kazanjian and Drazin,
1989). Although individual approaches have different taxonomies, they all incorporate four identifiable but
overlapping stages of inception, growth, maturity and revival. Since the revival stage is the inception of
another OLC, this study only discusses the first three stages.

3. TRAINING DESIGN ACROSS ORGANIZATIONAL LIFE CYCLE

Contingency in competitive strategies does not follow a fixed pattern, but rather depends on the internal
and external circumstance facing an organization. Training strategies must be integrated with specific HR
strategies and organizational strategies if they are to generate organizational competitive advantage.
Strategic alignment has many advantages, of which three are especially significant. First, it enables the HR
decision makers to prioritize their decisions based on their perceived effect on the business. Second,
prioritizing the operational decisions also prioritizes the resources stipulated to implement these decisions.
Third, HR decision makers can affect the adoption of high-performance work practices by aligning these
with organizational objectives and current HR practices (Subramony, 2006).
The first stage of training begins when decision-makers assess of the firm’s strategic objectives obtained
from its specific mission and far-reaching vision. They then analyze of both the environmental conditions,
including competitors, consumers, society and structure, and the organizational conditions, including
market breadth, internal strength and weakness and available resources. Once the external and internal
conditions are scrutinized, decision-makers adjust the appropriate organizational strategy so that internal
resources can meet the external environment and the future organizational objectives can be attained.
They then set the HR strategy to adhere to the organizational objectives, and finally the training strategy is
determined to reach the HR objectives. Since the strategic orientations at each level are dependent on the
organizational and environmental conditions, the strategic fit needs to be periodically and continually
monitored in order to determine their suitability for their intended target. Table 1 on next page presents the
proposed training strategy design framework in OLC based on this reasoning.

3.1 Inception stage


Firms strive for existence and organizational development during the inception stage. Their main concerns
in this stage are those issues that are integral to establishing and maintaining a viable firm, such as
securing funding, establishing relationships with vendors and clients, and preparing physical locations for
business operations. Firms are looking for solutions in circumstances without reference coordinates, and
need to focus on effectiveness rather than efficiency. A firm needs to invent and development a product or
technology in a domain, and introducing them on time, thus demonstrating the characteristics of a
prospector.

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TABLE 1: A FRAMEWORK OF TRAINING STRATEGY DESIGN IN ORGANIZATIONAL LIFE CYCLE

OLC Stage Inception Growth Maturity


 Organizational
Prospector Analyzer Defender
strategy
 Properties  A developing  Second-but-better  A narrow and stable
domain in innovative area domain
 Search for novel  Secure a niche in  Defend the niche
products and stable area
markets

 Objective First-to-market Seek both flexibility Secure market share


and stability

 HR strategy Sowing Growing Propagating

 Characteristics Recruit employees Redeploy or dismiss Replicate success


and provide them with the unqualified, and through formalization
satisfactory nurture core workers and control
conditions to raise each
employee’s potential
contribution

 Objective Attract valuable Accumulate Retain core workers


knowledge workers intellectual capital and diffuse knowledge

 Training strategy Inspiring Upgrading Shaping

 Characteristics Informal, casual, Scheduled, modular, Informal on-the-job


creativity-based competency-based training for managerial
training training level, and formal,
cognition-based
training for general
workers

 Objective Generate uniqueness Good to better Fit in the frame

Organizations in the inception stage adopt this prospector strategy, emphasizing their ability to make
design changes and to introduce new products quickly, in order to be first-to-market. Start-up firms at this
stage are typically run by people who are key experts in their firms, and have to deal with shortages in both
capital and skilled employees. Accordingly, the aim of the HR strategy at this stage is to attract valuable
knowledge workers who are required to be creative and cooperative. Moreover, they need to be able to
pursue long-term objectives; pay attention to the quality and quantity of products and services provided,
take risks, and manage ambiguity and uncertainty (Huang, 2001). This HR strategy is called the sowing
strategy, since it involves recruiting talented workers and providing them with satisfactory conditions to
encourage them to join and become loyal to the start-up venture. The financially constrained nature of
firms at this stage means that they frequently attract individuals with high potential but little experience.
Those people tend to focus on seeking out an occupation in which they can hope to succeed and grow.
They take entry level positions, with only a vague idea about the necessary skills and abilities stipulated for
the job. They are precious seeds to those start-up firms.
Organizations that follow a sowing strategy seek to foster creativity among their new employees, since the
success of the first mover depends on its ability to develop new products or services effectively.
Furthermore, start-up firms need effective personnel policies, particularly because each employee

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comprises a larger percentage of the workforce in the business (Field and Gatewood, 1987). The goal of
training is to invoke strong capabilities of innovation. Therefore, the inspiring strategy best fits the HR
requirements by generating solutions through bottom-up, innovative feedback. The efforts should be set to
(1) construct a distinctive core competency for survival and market-access, and (2) cultivate a positive
working climate to gain the commitment of employees. Training within an inspiring strategy tends to be
informal, ad hoc and opportunistic. The training is mostly on-the-job, work-based and self-taught through
e-mail, meeting, observation or trial and error. The inspiring strategy begins with stimulating innovation of
novel practices that can become a dominant design through trial and error, with an ultimate goal of creating
uniqueness.

3.2 Growth stage


Firms that move into the growth stage rise significantly in both sales and number of employees, and must
establish their own distinctive competencies by creating structures and task systems beyond product
development. As sales activity steadily rises, firms must take more thoughtful steps that avert risks of
losing a niche in a stable market, while also becoming second-but-better in innovative market. Therefore a
firm is likely to adopt an analyzer strategy at this stage.
Firms that adopt an analyzer strategy seek both flexibility and stability. As the number of employees
expands in this stage, firms must endeavor to control and elevate the quality of HR, in a way that is
analogical to the process of growing plants, which involves “weeding” and “nourishing”. A “weeding”
strategy means controlling HR quality by redeploying or dismissing unqualified staff and nurturing the core
workers. The “nourishing” strategy involves continuously cultivating employees to raise their potential
contribution. The aim of a growing strategy is to accumulate internal intellectual capital. Firms strive to
construct maximum involvement and skilled execution, and concentrate on providing skill development in
an evolutionary fashion. They search for employees who are perceived to possess a large latent potential.
Once latent potential is acquired by recruitment or cultivation, the attention turns to providing extensive
training to develop potential over time (Bird and Beechler, 1995). The upgrading training strategy is
consistent this type of HR strategy, since it increases the skills of employees.
An upgrading strategy first identifies the focus of training based on current work process is, and then
provides extensive and continuous training to attain the joint professional development of employees.
Meanwhile, new demands of skills, techniques and management are likely to arise along the growth stage
and the fast-changing work environment. Therefore, training courses must be carefully scheduled and
modularized based on the existing skills level and the external competitive environment. Business owners,
are likely to consider long-term investment in employee development at this stage, because they have
sound finances. The training efforts aim to improve employee the skill levels. Training is targeted at both
fundamental and intermediate levels to link best practices and meet individual and organizational needs.
Training orientation tends to be competency-based, and trainees learn materials independently of each
other. Rapidly growth firms are likely to adopt many trainers and training methods, and to train staff and
management in a wide range of fields (Jones, 2004). Because adults typically learn best when they can
develop skills and abilities through experiential or application-type training, methods that are particularly
suitable for this state include multimedia lectures (including slides, movies or handouts), case studies, role
playing, panel discussions and programmed self-paced learning with computers.

3.3 Maturity stage


The maturity stage represents an organizational form where formalization and control through bureaucracy
are the norm (Quinn and Cameron, 1983). Job descriptions, policies and procedures and hierarchical
reporting relationships are highly formal. Such organizations have passed the survival test, growing to a
point that they may seek to protect what they have achieved rather than targeting new territory.
Organizations at this stage have steady product-market domains, and consequently rarely need to change
their technology, structure or methods of operation significantly. They are likely to frame their resource
allocation decisions in a gained domain to defend their niche. The major business aim at this stage is to
secure market share, which is a typical defender strategy.
With a defender strategy in the maturity stage, firms are primarily concerned with stability rather than

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taking risks or seeking new opportunities for innovation and growth. As the number of employees rises with
the scale of business, the HR strategy focuses on replicating successful patterns by enforcing employee
compliance with specified rules and procedures and blending into organizational culture, demonstrating
the characteristics of the propagating HR strategy. The aim of the propagating HR strategy is to retain
talented, experienced, productive, and knowledgeable employees, and to diffuse their established
knowledge via formalization and control. The HR department focuses on the managerial level, and is
responsible for managing employees to fit the work frame. Employees normally perform routine tasks
under close supervision to match specific task requirement, and are not empowered to make decisions or
take action on their own (Daft, 2001; Dowling and Schuler, 1990).
In the maturity stage, firms are expected to be operating at their most profitable level, and demand
teamwork outcome over individual performance. The purpose of training is to elevate the individual
expertise required for each role, as well as the integral performance, by intensifying the knowledge and
skills of staff to comply with specified rules and procedures. This HR strategy, called the shaping strategy,
seeks to mold the competence of employees to fit the organization’s present performance demands. A
shaping strategy involves two main training streams, one for the managerial level and the other for general
workers. The former focuses on managerial and supervisory training to link the employer and employees
in a collaborative long-term relationship (Balkin and Richebé, 2007). The increasing size of firms in the
maturity stage brings increased complexity, necessitating a professional approach towards management,
and therefore inducing training requirements at the managerial level. Considering their tense daily
schedule, appropriate training methods include informal on-the-job training such as assistance from
experienced associates and supervisors, back-to-school classes at night and in-service programs. The
other stream for general workers aims to raise employee commitment and learning ability. Organizations
should attempt to give personalized training, while much of the learning is embedded in work. Training
orientation should be cognition-based to fit each individual employee into the successful frame. Thus,
trainees not only learn the expectations and rules designed to present the established knowledge based
on past experience, but also enhance co-operation and mutual assistance through training. Appropriate
methods for this purpose include case study, role playing, in-basket exercises, work simulation at a
mock-up work site (either realistic or simulated), business games and even a connection with an expert in
the field that is the focus of a current project.

4. CONCLUSION

Despite the identified general people/HRM problems in previous research on the OLC, training and
development practices have tended to lag behind in strategy to tap the full complement of human
capabilities. Therefore, the search for strategic fit of training efforts across the OLC has become
increasingly important for organizational sustainability.
This study proposes a systematic link of organizational strategy, HR strategy and training strategy across
OLC, that employs the concept of strategic fit and follows the formation flow of training strategy,. The
following propositions can be deduced from the proposed framework:
(a) For each OLC stage, firms that achieve strategic links among organizational strategy, human
resource strategy and training strategy have superior “human advantage” to firms that do not
accomplish such linkage.
(b) Organizations in different OLC stages, tend to employ specific strategic orientations, namely a
prospector in the inception stage, an analyzer in the growth stage, and a defender in the maturity
stage.
(c) The sowing strategy, which focuses on attracting talent, is congruent with prospector strategy; a
growing strategy, which emphasizes weeding the unqualified and nourishing the core workers, is
congruent with the analyzer strategy, and the propagating strategy, which stresses replicating the
paradigm, is congruent with the defender strategy.
(d) The inspiring strategy, which emphasizes generating uniqueness, is congruent with the sowing
strategy; the upgrading strategy, which stresses promoting skill levels, is congruent with the growing
strategy, and the shaping strategy, which focuses on fitting personnel in organizational norms, is
congruent with the propagating strategy.

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Organizations in the modern business environment have to be multifaceted in their operations to pursue
their competitive advantage. The proposed strategy for each tier in different stage is not mutually exclusive,
since an organization may pursue multiple strategies in varying degrees at the same time. However, an
organization should emphasize the most appropriate strategy to obtain competitive advantage.
The proposed scheme has both practical and theoretical relevance. The first implication of this study is
that firms should not adopt an invariable training strategy to develop the human resources across OLC.
Training practices are closely linked to organizational competencies and competitiveness, and should be
tailored to the organizational strategy at each stage to search for organizational sustainability. Second, the
organizational human resources group should develop its ability to diagnose current organizational life
stage, and then take the appropriate steps to generate organizational value. Finally, the value of human
resources owned by an organization should be based on its contribution to the organizational strategic
aims, and thus need to be developed accordingly.
While conceptual model building should adhere to principles of scope, reasonable boundaries and
appropriate parsimony, it must also be testable. Therefore, future work should focus on finding support for
the effect of the strategic alignment on organization-level performance, and on examining the universality
of the proposed model. The attempt to clarify linkages of organizational, HR and training also reflects an
important field for future HR research. The proposed life cycle model is a logical one, but allows alternative
developments (for example, skipping stages). We hope that this work will provide the impetus for further
similar research to include other HR practices such as recruiting, staffing and compensation.

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AUTHOR PROFILES:

Dr. Hai-Ming Chen is a professor at Graduate Institute of Management Sciences and she also is the
Director of Personnel Office, Tamkang University. She holds a PhD degree of management sciences from
National Chiao Tung University, Taipei, Taiwan. Her research interests include strategic management,
human resource management, and management theory.

Shu-Tzu Hung is a senior executive officer at the Trainee Service Department of the National Civil Service
Institute in Taiwan. She is also currently pursuing her doctoral degree of management sciences at
Tamkang University, Taiwan. Her research interests focus on human resource management, especially
training and development strategy and practice.

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THE ATTRACTION OF STUDENTS TO THE UNDERGRADUATE COURSE IN MANAGEMENT:
MULTICASE STUDY ON THE FACTORS ATTRACTING STUDENTS IN JOINVILLE, SC

Emerson Wagner Mainardes – NECE1/University of Beira Interior (UBI), Covilhã, Portugal


Helena Alves – NECE/University of Beira Interior (UBI), Covilhã, Portugal
Maria José Domingues – Regional University Regional of Blumenau (FURB), Blumenau, Brazil

ABSTRACT

In a competitive higher education market, such as the one in Brazil, offering the kind of education that
meets the expectations of both the students and the labour market has been fundamental for
attracting and maintaining students at higher education institution (HEIs). Taking for base the
attributes of students' attraction found in the literature, this study had for objective to determine the
factors of the new students' attraction for the administration courses offered by HEIs of Joinville, SC.
A questionnaire was applied to 409 students recently entered in four HEIs. The results show that the
most important factors to choose a degree or a HEI are the potential employability of the course and
the high quality image of the institution. The results obtained in this investigation can help HEIs
managers to delineate strategic actions in order to attract future and retain current students.

Keywords: Students' attraction; Degree in Administration; Educational marketing

1. INTRODUCTION

The constant need of professionals to update their knowledge in the labor market (Melo and Borges,
2005 and Mantovani, 1995) led to an increase in the number of educational institutions in Brazil,
especially in higher education. Reinert and Reinert (2005) refer that this scenario has led to the
growth of the education sector in primary, secondary and higher education. However, it is the latter in
particular in the Brazilian education that is gaining considerable space: the growing number of private
institutions was high and rising, on average, more than one private establishment a day. Especially,
the degree in management has grown significantly.

Thus, despite the government regulation, "the education market is approaching more and more of a
market where quality service and customer satisfaction are critical to the survival of HEI" (Walter,
Tontini and Domingues, 2005: 1).

This scenario has led higher education institutions to make an effort to improve their efficiency and
effectiveness, seeking to satisfy their ever more demanding clients. Such pressure has resulted in
changes in HEIs and has led to the implementation of various strategies (Tari, 2006). However,
students are not in the same position as a common consumer. Many of those who buy a product of
any kind do so in order to satisfy an immediate need, but the needs that are to be provided by higher
education are long-term ones and will only really be known after many years. So, higher education
works in a very imperfect market, a market in which consumers have no knowledge of the prevailing
market conditions. Or, in other words, the success that can be achieved by applying the philosophy of
consumerism to higher education is a very limited one (Michael, 1997).

The current level of competition is forcing universities to find and adopt more innovative and practical
strategies. HEIs have been implementing these new strategies and tactics with the aim of defending,
and sometimes increasing, their share of the market. Thus, capturing, conquering and maintaining
clients is becoming a fairly common procedure in today’s world of higher education, with marketing
concepts being regularly used (Seaman and O'Hara, 2006).

It was precisely this context that gave rise to the present study. Applying marketing strategies in
higher education, with the aim of attracting new students, may be beneficial for all those involved:
HEIs, students, the labour market and other stakeholders. The relevance of this theme has led
various researchers to look for ways in which to use marketing to meet not only the needs of the

1
This research was supported by the Portuguese Science Foundation through NECE – Núcleo de
Investigação em Ciências Empresariais (Programa de Financiamento Plurianual das Unidades de
I&D da FCT - Fundação para a Ciência e Tecnologia, Ministério da Ciência, Tecnologia e Ensino
Superior/Portugal)

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higher education institutions themselves, but also those of the students, the labour market and the
teachers.

Thus, in view of the lack of studies in Brazil identifying the factors of attractiveness for students
seeking to enter undergraduate degree courses in administration, given the increase in supply, the
aim of this research was to identify the factors that attracted new students to undergraduate courses
in management from the private higher education institutions in Joinville, SC. In this way, the present
research seeks to contribute towards an increase in knowledge in the area of educational marketing,
by empirically testing the attributes of attractiveness of courses for undergraduate students, which
have already been identified in international research studies, together with those attributes that were
previously assessed in national studies, which still remain few in number despite the relevance of the
subject.

This research was designed to increase our knowledge about the HEIs that were investigated and the
other HEIs offering undergraduate courses in administration, for its aim is to show the attributes of the
course that attract students to this particular degree. This work also sought to increase knowledge
about the students, for it seeks to show what the undergraduate degree courses can offer to attract
them and thereby improve their teaching in a general way. Finally, this study sought to increase
knowledge about higher education as a whole, offering the factors that lead students to seek out the
degree course in question, thereby increasing knowledge of the theme studied.

2. FACTORS THAT INFLUENCE STUDENTS ATTRACTION

In the current context of the higher education market, attracting students has been instrumental in the
growth and survival of HEI. In this sense, HEI have been using different strategies to bring more and
more students for its various courses.

Dornbusch, Glasgow, and Lin (1996) identified the educational credentials as being increasingly
important for achieving professional and personal success. They referred that higher education and
even advanced degrees have become a prerequisite for many occupations in the labor market. In this
sense, one of the strategies observed in the uptake of students is directly linked to educational
credentials that higher education institutions can offer to their graduates. This variable was also
reported by Webb (1993).

Palacio, Meneses and Perez (2002) reported another attribute that influence students attraction, the
HEI image. The influence of the image in increasing sales and strengthening loyalty to the brand is
well known. The image attracts internal, external and potential audiences. Therefore, today, branding
is very important in companies that seek or not profit. Thus, those responsible for the HEI should give
more attention to these attributes in their policies as the perceived image can perpetuate the HEI.

Another concept closely associated to the image and that has also been pointed out by several
authors as a factor that influence students attraction (Murphy, 1981; Webb, 1993; Chapman, 1993;
Kallio, 1995; Soutar and Turner, 2002; Alfinito and Granemman, 2003, Seaman and O'Hara, 2006), is
the concept of academic reputation.

Still another one is the word of mouth transmitted by current students (Palácio, Meneses and Perez,
2002; Alves, 2003; Shanka, Quintal and Taylor, 2005, Seeman and O'Hara, 2006), and the quality of
the service which builds this word of mouth. The word of mouth is also influenced by customer
satisfaction, reputation, level of commitment to customer service and visibility in the market (Rowley,
2003).

The image is often built from service excellence. Hides, Davies and Jackson (2004) refer that
excellence goes also for having the best practices (teaching and administrative), a commitment to the
community, a consistent cost, satisfying customers and stakeholders, and quality of teaching (Hides,
Davies, Jackson, 2004);

Anderson (2005) adds, saying that excellence in higher education is to establish the best teaching
practices that increase student performance. This author stated that simulation activities in the
classroom can be an opportunity for the teacher to bring potential benefits to students and is an
excellent factor of attraction for the HEI.

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Another factor of student’s attraction, proposed by Mavondo, Chimhanzi and Stewart (2005), is
innovation. According to the authors, one basic requisite for an organization to move towards the
market is innovation. The authors refer that innovation is defined as the creation, acceptance and
implementation of new ideas, processes, products or services. Innovation is considered vital to
business performance. And this attribute applies to a large extent to the HEI which want to build an
excellent image in the market that attracts students.

Other researchers pointed out, as factors of attraction, aspects such as proximity to home (Webb,
1993; Kallio, 1995; Donnellan, 2002; Alfinito and Granemann, 2003; Shanka, Quintal and Taylor,
2005; Holdsworth and Nind, 2005) equipments and facilities (Lin, 1997; Alfinito and Granemann,
2003), cost (Murphy, 1981, Webb 1993; Javalgi and Coccaro, 1995; Alfinito and Granemann, 2003,
Holdsworth and Nind, 2005; Shanka, Quintal and Taylor, 2005) and courses offered (and Alfinito
Granemann, 2003; Javalgi and Coccaro, 1995; Kallio, 1995; Donnellan, 2002; Shanka, Quintal and
Taylor, 2005; Holdsworth and Nind, 2005)

Ciurana and Leal Filho (2006) state that including the subject of sustainable development into the
courses curricula can attract more students and provide a competitive differential by improving the
quality of content offered. It was observed that most universities have already developed strategic
plans and action plans that put the focus on the universities actions sustainability. The inclusion of
guidelines for sustainability in teaching and research reflects on image improvement which attracts
new students.

Other factors considered important in attracting students are those cited by Seeman and O'Hara
(2006), which considered variety of choices, performance indicators, rates of approval, the student
satisfaction with education, and the percentage of graduate students who find employment.

In short, it is apparent that there are several factors that have been studied as affecting the
attractiveness of a student to a higher education institution. These factors can be grouped into
personal factors, such as the influence of friends or relatives, proximity to home or the costs, factors
related to the institution, namely variety of courses offered, teaching quality, reputation or facilities;
factors related to the labor market and course employability and also course specific factors, such as
its innovation, simulations practices or the teachers themselves.

3. RESEARCH DESIGN

In this study, descriptive, transversal and quantitative research was used, involving the gathering of
primary data through the application of a questionnaire with predominantly closed questions (HAIR et
al, 2005).

In the research that was undertaken, all the HEIs of Joinville, SC, offering undergraduate degree
courses in administration were considered. According to the data available from INEP (2007), there
are five HEIs offering a total of twelve undergraduate degree courses in administration. These are:
University of Region of Joinville (UNIVILLE); Cenecista University of Joinville (FCJ); College of
Joinville (IESVILLE); Institute of Technology (IST) and Community College St. Anthony (INESA).

To identify the most important attributes of the undergraduate degree course at these HEIs in terms of
their attractiveness for students, it was decided to focus attention on the newly enrolled students in
the undergraduate degree course in administration (key respondents). The explanation for this choice
was that these students had only recently chosen their course and the HEI at which to study, so that
the reasons for their choice would still be fresh in their memory. For this reason, the first-year
students in administration at UNIVILLE, FCJ, IESVILLE, IST and INESA were chosen as key
respondents.

According to the information obtained from the Administrative Offices of the HEIs participating in the
study, 915 students were identified as being in the first year or semester of 2007. Using the formula
devised by Barbetta (2003, p. 60) to calculate the proportional stratified sample, this was fixed at 278
undergraduate students at the five HEIs considered for the study. Or, in other words, in order to be
valid, this research had to interview at least a minimum of 278 students (5% error). If more students
were interviewed, the sample error would be reduced. It was therefore decided to apply 450

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 117


questionnaires, possibly guaranteeing, at the very least, 278 questionnaires that had been properly
completed.

The questionnaire comprised two parts. The first part was designed to provide a characterisation of
the student who had answered the questionnaire, by means of one open question (age) and six
closed questions (gender, marital status, number of children, place of employment, job and area of
professional occupation). The second part of the questionnaire sought to identify the attributes of the
course that were considered important in attracting students to the degree course and HEI that had
been chosen. The questionnaires were constructed in accordance with the following steps:
 Step 1 – Identification of the Attributes: Bibliographical review
 Step 2 - Identification and Grouping of Attributes: It were identified 42 attributes, these attributes
together underwent an exploratory study with 192 students of an HEI, after data collection, a
factor analysis was performed grouping the 42 attributes in 4 groups: 19 attributes related to the
HEI, 10 attributes related to the labor market, 7 attributes related to personal reasons, 6 attributes
related to the course;
 Step 3 - Strategies: Once the attributes had been duly identified, work began on the development
of strategies (Table 1).

Table 1 – Data measurement strategies


DATA MEASUREMENT STRATEGIES
Strategy 1 – Individual measurement of the importance of each attribute: a semantic differential
scalogram was used for each attribute with a scale ranging from 1 to 7 (from least important to most
important);
Strategy 2 – General measurement of the importance of all the attributes together: at the end of the
group of attributes, the respondent was asked to make a general assessment of all the attributes
mentioned taken together, in the same way as in the individual measurement, or, in other words, on a
semantic differential scalogram, with a scale ranging from 1 to 7 (from least important to most
important); this question measured the overall attractiveness of the course.
Source: Own elaboration

The months of February and March 2007 were chosen for the application of the questionnaire
because this was the time when the largest number of students would be found attending classes
(beginning of the semester/year). The authors of this study were personally present in each
classroom for the application of the questionnaire. This took place at the HEIs of UNIVILLE, FCJ, IST
and INESA. The HEI of IESVILLE did not give permission for the research to be undertaken on its
premises.

450 questionnaires were distributed at the four HEIs. Of these, 428 were returned completed. After
analysis by the researchers, 409 questionnaires were validated, which was a far higher number than
the 278 required for the statistical validation of the research (5% error). The sample error was
recalculated at 3.7%.

In the process of analysing the data the multivariate analysis of multiple linear regression was used.
This multivariate analysis technique has as main purpose to find which independent variables most
influence the dependent variable (Hair et al, 2005).

In order to classify the attributes of this research, the method proposed by Garver (2003) was used.
These authors showed a way of assessing importance by using the results of both the importance
that was directly stated by the respondents and the importance calculated statistically via multiple
linear regression (using the general score as the dependent variable and the scores given to the
attributes as independent variables). Attributes that were given high scores by the two methods are
considered to be “key” attributes. Similarly, attributes given low scores by the two methods are
considered to be secondary. Those given high scores using the method of direct statement and low
scores using the statistical method are considered “basic”. And finally those given low scores using
the method of direct statement and high scores using the statistical method are considered
“amplifiers”.

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4. DATA ANALYSIS

Initially, the characteristics of those students newly enrolled in the degree course of administration at
the HEIs of Joinville, SC, were analysed. Next, an analysis was made of the importance of each
attribute of the undergraduate degree course in administration in terms of its attractiveness for new
students. The most important and least important attributes were identified and then, after this, the
attributes of the course attended by the respondents that most contributed to attracting new students.

4.1. Characterisation of Interviewed Students


In the first phase, an attempt was made to obtain the profile of the students choosing to begin the
undergraduate degree course in administration, which, in this way, represented relevant data for the
managers of the HEIs. Of the 409 students interviewed, 36% belonged to UNIVILLE, 4% to IST, 9%
to INESA and 51% to FCJ. The average age of the respondents is 20.95 years and 58% of students
are female. 75% of surveyed students work, although 49% are in operational jobs, 4% active in
supervision positions, 11% are mid-level managers, 3% worked in management positions and / or
directors, and 5% are company owners;

These results showed that the students were more mature, already at work and seeking to obtain a
degree in order to develop professionally, an attitude that had already been observed by such
researchers as Michael (1997), Alves (2003), Navarro, Iglesias and Torres (2005), Melo and Borges
(2005) and Lima (2006). It was therefore confirmed that present-day students are different from those
of the past, the vast majority of whom previously went straight to college fresh out of secondary
education

Continuing with the analyses of the collected data, an assessment was made of the results of the
attributes found in the literature. This procedure was carried out in order to find the most important
and the least important attributes in the undergraduate course that led students to choose that
particular course and HEI, followed by an identification of the course attributes that most contributed
to its attractiveness for these students.

4.2. Key Attributes in Attracting Students


In a second analysis the forty-two attributes for student’s attractiveness were analysed. In order for
their results to be included in this section, respondents had to give a score for each attribute, ranging
from 1 (which corresponded to “of very little importance for my choice of course and institution”) to 7
(which corresponded to “highly important for my choice of course and institution”). Table 2 present
this results.

Table 2 - Results from questions A1 to A42

THE RANKING
POSIITION IN
QUESTIONS

INDIVIDUAL
GROUP

SCORE

DESCRIPTION

A1 Democratic participation of students in the HEI HEI 3,92 39


A2 Administrative services rendered by the HEI employees HEI 4,22 38
A3 HEI Positive atmosphere and environment HEI 4,95 24
Course evaluation by MEC (Ministry of Education and HEI
A4 5,33 13
Culture)
A5 HEI Marketing Campaign HEI 4,73 31
A6 Commitment of the HEI with the educational service HEI 5,70 5
A7 Commitment of HEI with the community and nature HEI 4,74 30
A8 Courses offered by the HEI HEI 5,60 7
A9 New ideas, processes, products or services of the HEI HEI 5,19 18
A10 Image of the institution for current students of the HEI HEI 5,48 11
A11 Equipments and facilities of the HEI HEI 6,00 1
A12 HEI Administrative practice HEI 5,22 16
A13 Pedagogical practices of the HEI HEI 4,82 28

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A14 The HEI Concern with the students HEI 5,26 14
A15 Propensity to innovation HEI 5,25 15
A16 facilities of the HEI for use by students, staff and community HEI 5,06 22
A17 HEI Security HEI 4,78 29
A18 Quality of the educational Service HEI 5,70 6
A19 HEI monthly fees HEI 3,65 40
A20 HEI Acceptance on the labor market Job Market 5,51 9
A21 Employability of the course Job Market 5,98 2
A22 Community’s opinion about the HEI Job Market 4,89 27
A23 Participation of the HEI in current topics Job Market 5,07 21
A24 Course and HEI reputation Job Market 5,76 4
A25 Rate of students approved Job Market 4,45 36
A26 Tradition and status of the HEI Job Market 5,21 17
A27 Value of the diploma in the job market Job Market 5,57 8
A28 Overview of the HEI on sustainable development Job Market 5,19 19
A29 Visibility and recognition of the HEI within the society Job Market 5,50 10
A30 Schedule of classes Personal reasons 5,08 20
A31 HEI Image Personal reasons 5,46 12
A32 HEI location Personal reasons 4,49 35
A33 Relatives ´satisfaction with the HEI Personal reasons 4,90 26
A34 Influence of relatives in choosing the course and the HEI Personal reasons 4,30 37
A35 Affective connection with the HEI Personal reasons 3,34 41
A36 Previous experience in HEIs Personal reasons 2,99 42
A37 Activities of real life simulation Course 4,59 34
A38 Coherence and interaction between theory and practice Course 5,03 23
A39 Comments by graduated students Course 4,73 32
A40 Faculty Course 4,61 33
A41 Satisfaction of graduated students with the HEI Course 4,91 25
A42 Quality of teaching Course 5,89 3
Source: LHStat

Looking at table 2, it is possible to see that the top-ranked attributes were also the most important
attributes in their groups: A11 (equipments and facilities of the HEI) was ranked first in the individual
average, followed by the attributes A21 (course employability), A42 (respondent's perception about
the quality of the education in progress), A24 (reputation and status of the course and the HEI) and
A6 (HEI's commitment to the educational service provided by the university itself). Individually, these
five attributes were also fundamental in attracting students to a degree in management

It is also worth mentioning that of the 42 attributes tested, 23 were with average grades greater than
5, i.e., were considered very important by the respondents. This result tends to hinder any marketing
action by the HEI managers surveyed, as there are many attributes to manage. In this case it is
important to focus efforts.

Looking in more detail in Table 1, one can observe higher ratings for the attributes related to the job
market (employability of the course, reputation and status of the course and of the HEI; value of the
HEI course in the labor market, acceptance of the HEI in the labor market, visibility and recognition of
the HEI and degree to society). This result shows a tendency for students to value many attributes
related to the labor market when choosing the course and the HEI, confirming what was found by
Dornbusch, Glasgow, Lin (1996), Alves (1999), Alves (2000), Franco (2000 ), Carvalho (2001); Mund,
Tontini and Durieux (2001), Alves (2003); Alfinito and Granemann (2003), Rowley (2003); Bronemann
and Silveira (2004), Caetano and Silva (2004), Silva (2005); Holland Jr., Farias and Gomes (2006),
Seeman and O'Hara (2006).

Regarding the worsted ranked attributes, both individually and when weighted, it is possible to
observe that A1 (HEI opening to students democratic participation), A2 (Administrative service
rendered by the HEI employees), A19 (monthly fees), A34 (Relatives influence in course and HEI
choice), A35 (Affective connection to the HEI) and A36 (previous experience in HEIs) were

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 120


considered as having low influence since they scored less than the mean (4). Particularly striking is
the low scores obtained by two attributes in particular, the administrative service rendered by HEI
employees, which may somehow indicate that at the beginning the student does not require much
from service rendered or that they take it as an obvious item; and the course fees. These two items
did not influence the student's HEI choice suggesting that students prefer quality rather than prices.
The remaining items showed that other people or even past experience in HEIs have little influence
on students’ choice.

Question A43 asked students to assess all the attributes in a general score in the same manner as
the previous assessment (scores from 1 to 7). The results are presented in Table 3.

Table 3 - Results of question A43


BASIC STATISTICS
VARIABLE A43
Average 5,70416
Mode 6(173 cases)
Variance 1,08628
Standard deviation 1,04225
Score general average 5,70
Source: LHStat

An analysis of the results of Table 3 shows that overall score average was 5.70 (81.4% of the
maximum score), with value 6 meaning that the courses on the survey attract students. However, they
also show that all the attributes, in general, directly influence students’ choices. This result could
already be expected for two reasons: the high number of variables tested and the by tendency of the
surveyed respondents to consider it very important when purchasing a product or service (Garver,
2003). Considering these two issues, it is necessary to analyze the individual contribution from each
attribute within the overall context, this is, to discover what really makes a difference when an
individual chooses a degree course in management in a particular HEI.

To find these key attributes a multivariate linear regression was used. First data was validated. With
valid and reliable data (Cronbach's alpha= 0, 9473), multiple linear regression was used to find out
the individual influence each item, from A1 to A42, has on the global score (A43). The results are
shown in Table 4.

Table 4 - Multiple linear regression of the items A1 to A43


Coef. correlation R 0,6677
Coef. determination R2 0,4458
Significance Yes
Standard error 0,819191
Observations 409
Coefficients
Stan.
Var. Description Coefficient Stat. t Sign.
Deviation
Const. +2, 33467 0, 293907 +7,94357 Yes
Democratic participation of students in the Yes
A1 -0,0642557 0,0283424 -2,26712
HEI
Administrative services rendered by the No
A2 +0,0132566 0,0313316 +0,423107
HEI employees
A3 HEI Positive atmosphere and environment +0,0308378 0,0332037 +0,928744 No
A4 Course evaluation by MEC +0,0105234 0,0257046 +0,409397 No
A5 HEI Marketing Campaign +0,0518251 0,0261308 +1,9833 Yes
Commitment of the HEI with the No
A6 +0,00657734 0,0357438 +0,184013
educational service
A7 Commitment of HEI with the community +0,012244 0,0323898 +0,378019 No

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 121


and nature
A8 Courses offered by the HEI -0,025933 0,0302068 -0,858515 No
New ideas, processes, products or services No
A9 +0,071984 0,0368548 +1,95318
of the HEI
Image of the institution for current students No
A10 -0,0428401 0,0321346 -1,33314
of the HEI
A11 Equipments and facilities of the HEI -0,0614023 0,0381317 -1,61027 No
A12 HEI Administrative practice +0,0396543 0,0327593 +1,21048 No
A13 Pedagogical practices of the HEI -0,0094971 0,0344185 -0,27593 No
A14 The HEI Concern with the students +0,0382736 0,041822 +0,915155 No
A15 Propensity to innovation -0,0261727 0,0442938 -0,590889 No
facilities of the HEI for use by students, No
A16 +0,0241574 0,0386031 +0,625788
staff and community
A17 HEI Security +0,0481598 0,0335159 +1,43692 No
A18 Quality of the educational Service -0,00786183 0,0389703 -0,201739 No
A19 HEI monthly fees -0,00980841 0,0223959 -0,437955 No
A20 HEI Acceptance on the labor market -0,0138401 0,0347425 -0,398362 No
A21 Employability of the course +0,0776783 0,0381598 +2,0356 Yes
A22 Community’s opinion about the HEI -0,0510958 0,0339191 -1,5064 No
A23 Participation of the HEI in current topics +0,00589352 0,040083 +0,147033 No
A24 Course and HEI reputation +0,00731566 0,0423453 +0,172762 No
A25 Rate of students approved -0,0591025 0,0303036 -1,95034 No
A26 Tradition and status of the HEI +0,0519862 0,0365509 +1,42229 No
A27 Value of the diploma in the job market +0,011132 0,0338716 +0,328654 No
Overview of the HEI on sustainable No
A28 +0,016126 0,0434293 +0,371316
development
Visibility and recognition of the HEI within No
A29 -0,0424186 0,0438181 -0,968062
the society
A30 Schedule of classes -0,0108762 0,023744 -0,458061 No
A31 HEI Image +0,0352471 0,0334609 +1,05338 No
A32 HEI location +0,0303292 0,019691 +1,54026 No
A33 Relatives ´satisfaction with the HEI +0,0238567 0,0292033 +0,816918 No
Influence of relatives in choosing the
A34 -0,0261375 0,0275419 -0,949008 No
course and the HEI
A35 Affective connection with the HEI +0,0220344 0,0286916 +0,767974 No
A36 Previous experience in HEIs -0,00721511 0,0264824 -0,272449 No
A37 Activities of real life simulation +0,0373727 0,0312658 +1,19532 No
Coherence and interaction between theory
A38 +0,0573286 0,0351226 +1,63225 No
and practice
A39 Comments by graduated students +0,0678811 0,0294107 +2,30804 Yes
A40 Faculty +0,00902906 0,0299795 +0,301175 No
Satisfaction of graduated students with the
A41 +0,0502447 0,032819 +1,53096 No
HEI
A42 Quality of teaching +0,231482 0,0414733 +5,58146 Yes
t critic (Signific. coefficients) = 1,96647

Excluding the non-significant attributes, one builds the regression equation with only the significant
attributes:

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 122


Regression equation: A43 = 2,5036 -0,00612353 * A1 +0,0791577 * A5 +0,0813561 * A21 +0,111989
* A39 +0,311429 * A42

Residual analysis
Level of signif. = 5% Standard deviation = 0,775882
(a) OUTLIERS (residual more than +/- 3 deviations)
OBSERVATION RESIDUAL DESVIATIONS
91 -2,44042 -3,145
280 -2,36139 -3,043
(b) Randomization test: n = 409; median = 0, 010571; repetitions = 232; z = 2, 67669; z critic = -1,
64485. Accepts the hypothesis of randomness
(c) KOLMOGOROV-SMIRNOV TEST: D large = 0,030; D critic = 0,067; Accepts the hypothesis of
adherence to a normal distribution
(d) HOMOCEDASTICITY TEST: t Levene = -0,0409973; t critic = -/+1,96581; Accepts the hypothesis
of Homoscedasticity
Source: LHStat

Analyzing the results presented in Table 3, it can be seen that items A1 (HEI opening for students’
democratic participation), A5 (marketing campaign conducted by HEI), A21 (employability of the
course), A39 (comments of graduated students about the course), A42 (student perceived quality of
the course), make a significant contribution when the overall assessment is made by the interviewees
of the attributes of attractiveness of the course. In this way, the attributes can be classified according
to the model proposed by Garver (2003), adapted for the educational service:

• Key attributes (high stated importance and high importance calculated statistically) – attributes that,
if they exist or have a high performance, attract students, and, if they do not exist or have a low
performance, tend to dissuade possible students:
 A21 (employability of the course);
 A42 (student perceived quality of the course);

• Amplifying attributes (low stated importance and low importance calculated statistically) – attributes
that, if they exist or have a high performance, increase the attractiveness of the course for students,
but, if they do not exist or have a low performance, do not affect the attractiveness of the course for
students:
 A1 (HEI opening to students democratic participation);
 A5 (marketing campaign conducted by the HEI);
 A39 (comments by graduated students about the course).

By observing the classification that was made, we can see that the attraction of students for a
management course in a particular HEI is based on two factors: employability of the course and
perceived quality of the course (image). These two attributes were also fundamental for students to
choose a course and a HEI. The results show to HEI’s managers ways of attracting new students.

To increase the students’ attraction a HEI should use the amplifiers attributes, this is, the HEI should
give voice to students and show it to the community, should have a clear communication and
demonstrate to potential students what the course and the HEI can offer to them, and make use of the
comments made by graduated students about the course (satisfaction and loyalty of current students
are very important factors in attracting new students). This set of key attributes mostly amplifiers can
help the HEI managers in carrying out actions that increase the course and the HEI attractiveness.

5. CONCLUSIONS AND RECOMMENDATIONS

At the end of this study, it can be concluded that the main factors attracting students to the
undergraduate degree course in administration at the HEIs of Joinville, SC, are related to course
potential employability and its high-quality image. These can be considered key factors, and must be
monitored and managed by the HEIs managers involved in the research. As amplifiers factors it was
found stimulation of student participation, effective and transparent marketing campaigns, and the

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 123


satisfaction and loyalty of current and former students. Thus, reports on the graduates’ success in this
management courses, for example, can contribute positively to attracting new students for this degree
in the HEIs of Joinville, SC.

Other important factors were equipments and facilities, the HEI and course reputation to society, and
the HEI demonstration of commitment to educational service offered to students. They are important
factors reported by students which deserve special attention from the HEI’s management.

An important piece of information generated in this study was the profile of the newest students
enrolling in the undergraduate degree courses in administration in Joinville, SC. They are students
who are still young, mostly female, single, without children, who are already working, mainly in private
enterprise, and performing operational jobs in administrative sectors at the organisations where they
work. This is the profile of the typical student choosing to enrol for an undergraduate degree in
administration at the HEIs in the city where the research was undertaken. Such characterisation is
important in regard to several aspects: there is a growing trend towards a majority of female students
in administration courses, something that had already been discovered by Mainardes, Deschamps
and Domingues (2006); many of them are working in operational jobs and see the obtaining of a
degree as a way of ensuring their professional growth, making it possible for them to perform
leadership functions at companies operating in this market. The profile that has been described may
serve as a guideline for the marketing activities of the HEIs of Joinville, SC, helping them to direct
their communication to this particular audience.

As limitations on the research that was carried out, it is important to stress that the study only involved
one city. Its generalisation to other regions calls for some care to be taken in relation to the
characteristics of the local culture. Another limiting factor is that, of the five HEIs offering
undergraduate degree courses in administration, one HEI did not give permission for the research to
be carried out there, and this was precisely the HEI that currently has the most aggressive prices and
advertising. With the inclusion of this HEI, it is possible that some changes may need to be made in
relation to the results presented here. In this way, the contribution that this study seeks to make is
related to the identification of the attributes that lead new students to be attracted to the course in
question. The results presented may be important indicators for the managers of other HEIs, in
helping them to understand the factors that lead to the attraction of potential students. It is therefore
recommended that the same research presented here should be replicated in other regions and at
other HEIs in order to allow for a comparison of results, making it possible to chart the factors of
attractiveness for students in the different courses and HEIs.

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AUTHOR PROFILES:

Msc. Emerson Wagner Mainardes is Ph.D. student in University of Beira Interior (UBI), Covilhã,
Portugal. Currently he is invited researcher at the Research Center of Business Science (NECE/UBI),
Portugal.

Dr. Helena Alves earned her Ph.D. at the University of Beira Interior, Covilhã, Portugal, in 2003.
Currently she is a associate professor of marketing and researcher at the Research Center of
Business Science (NECE/UBI) at University of Beira Interior, Portugal.

Dr. Maria José Domingues earned her Ph.D. at the Federal University of Santa Catarina,
Florianópolis, Brazil, in 2003. Currently she is a titular professor of teaching methodology at Regional
University of Blumenau, Brazil.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 126


COMPARATIVE STUDY OF KNOWLEDGE MANAGEMENT SUCCESS IN PUBLIC ADMINISTRATION

Yong S. Choi, California State University, Bakersfield, California, USA


Seunghee Wie, California State University, Sacramento, California, USA

ABSTRACT

Knowledge management (KM) has been emerged as a significant organizational and management
challenge in public administration. KM can help a public organization's technological and organizational
innovations for a more effective operation. However, there are different views among practitioners and
researchers on how a knowledge management program for public organizations can be successfully
designed and implemented in western and eastern hemispheres. Thus, the objective of this study is
empirically examining whether KM success attributes for public organizations in USA (western
hemisphere) would be different than S. Korea (eastern hemisphere). From the results of statistical
analysis, the differences success attributes for KM in USA and S. Korea were analyzed. The greatest
differences exist in KM supportive culture and information systems capability while the least difference is
in performance measurement.

Key Word: knowledge management, innovation, KM success

1. INTRODUCTION

Knowledge is a critical asset in public administration. KM practices are important in order to leverage
knowledge to produce effective outcomes. This assumption has been the driving force behind the KM
movement in the private sector and it is also being adopted to the public sector. However, KM is a very
difficult mechanism to define as academicians and practitioners tend to perceive differently about
organizational knowledge based on their interests and disciplines. Researchers in the Management
Information Systems (MIS) discipline tend to define information technology (IT) enabled KM as a system
component that can be stored and utilized, while those in Strategy and Management disciplines view KM
as a collection of processes that can be created and managed based on individual and organizational'
core competencies such as skills and know-how.

Even though there has been a set of widely recognized criteria useful for evaluating the success of KM.
There has been very little investigation whether KM success factors in western hemisphere would be
different than eastern hemisphere. Thus, the objective of this study is to identify KM success factors for
public organizations in two different hemispheres.

2. LITERATURE REVIEW

Various KM studies have identified several key attributes for the success of KM. The findings by leading
KM researchers are major sources that can be used to identify the success variables of KM. First of all,
creating and sharing knowledge are intangible activities that cannot be forced. Only when a culture of
trust and openness is formed and felt by organizational members, KM can give birth to core
competencies. Thus, the participation, cooperation, coordination, and empowered teamwork of
employees should be supported as standard attitudes in the KM environment. Second, successful
knowledge creation and sharing activities and processes would be impossible without appropriate
education. Timely and appropriate KM education is one of the key ingredients for the KM success. Third,
knowledge should be measured because an organization's intellectual capital includes the brains of its
employees, their know-how, and the processes and customer knowledge that they create. Fourth, it is
impossible to make satisfactory progress without strong top-management leadership and commitment.
Thus, the visible leadership and commitment of top management must be sustained throughout a KM
effort so that organizational constraints for the KM success can be minimized. Fifth, the distinct difference
between organizational learning and KM is that KM utilizes information systems (IS) as an enabling tool
while organizational learning views information systems as a technical tool. To develop an effective KM
program, information systems must be reliable, user-friendly, compatible with other platforms, and

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 127


accurate. Sixth, benchmarking determines how leading organizations achieve their performance levels
and uses the information as a basis for establishing the organization's targets, strategies, and processes.
Thus, benchmarking can be one of the most effective tools for developing and improving KM and
measuring organizational KM performance. Once an organization has benchmarked best practices, it
becomes easier to apply the useful knowledge in the organization. Finally, reliable, useful, up-to-date, and
timely knowledge can be created and shared not only internally but also externally. Specifically, useful
knowledge can be captured and created by sharing knowledge with other members of work groups,
suppliers, and customers. In other words, there should be a strong knowledge sharing capability in an
organization, which includes knowledge about internal and external customers, suppliers as well as
organizational work groups in order to implement KM successfully (Alavi et al., 2006; Choi 2000; Chong
2005; Davenport & Grover, 2001; Dess & Picken, 2000; Hung et al., 2005; Moffett et al., 2003; Salleh &
Goh, 2002).

3. ANALYSIS AND RESULTS

142 responses from S. Korea and 34 responses from USA were used for the data analysis. Four
questionnaires from S. Korea were unusable due to incomplete answers. The questionnaire consisted of
three sections. The first section asked about the respondent’s overall perception of KM in general. In the
second section, widely recognized KM related items were presented to identify the key success attributes
of KM. The final section asked for respondents’ demographic and organizational information.

3.1 Overall Perception and Planning of KM

The respondents were asked to rate the degree of their agreement with six statements about KM on a
five-point Likert scale (5 = Strongly Agree, 1 = Strongly Disagree). The respondents’ perception for the
statements ranged from 2.42 to 4.38.

Perception statements about KM and means are shown in Table 1. Both countries’ respondents
indicated somewhat strong degrees of agreement to most statements while the least agreed perception
agreement from USA was “A knowledge management specialist, such as Chief Knowledge Officer (CKO)
or an external consultant, is needed for effective management of knowledge,” with mean rating of 2.59
and from S. Korea was “Knowledge management has a negative impact on job security of employees,”
with mean rating of 2.42.
a
TABLE 1. COMPARISON OF OVERALL KM PERCEPTION

USAb S. Koreac
Statement
Mean  SD Mean  SD
It would be possible, through more effective management, to leverage
4.38  0.60 4.09  0.64
the knowledge existing in my organization.
Our organization is considered to be in the “knowledge-intensive”
4.26  0.83 4.13  0.76
business.
Since organizational knowledge assets have become more important,
4.06  0.74 4.35  0.66
we will see greater emphasis on knowledge management in the future.
Knowledge management has a negative impact on job security of
3.06  0.75 2.42  0.71
employeesd.
Knowledge management will emerge primarily through pre-built
2.85  0.89 3.09  0.96
applications for specific business processes and problem areas.
A knowledge management specialist, such as Chief Knowledge Officer
(CKO) or an external consultant, is needed for effective management of 2.59  1.13 3.55  0.83
knowledge.
a
5 = Strongly Agree, 4 = Agree, 3 = Undecided, 2 = Disagree, 1 = Strongly Disagree
b
N = 34
c
N = 142
d
Original 1.94 was reverse coded to 3.06 due to a negative statement.

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Table 2 illustrates the percentage of both USA and S. Korea in terms of KM implementation plan and
technologies of KM applications. More than 50% of organizations in both countries have implemented or
are planning to implement in near future. Particularly, every respondent’s organization from S. Korea has
implemented or is going to implement KM. In terms of technology for KM, over 50% of organizations in
USA think that “Internet access,” “Document management,” and “Intranet” contribute significantly along
with “Web site content management,” “Data Warehouse,” “Decision support tools,” and “Directories of
resident experts.” However, S. Korea’s responses are very much diversified. That is, no specific
technologies would make significant contributions.

TABLE 2. IMPLEMENTATION PLAN AND TECHNOLOGY OF KM


USAa S. Koreab
Frequency % Frequency %
When is your organization most likely to make a significant investment in knowledge
management?
Have already 13 42 62 44
Within the next two years from now 5 16 16 11
2 to 4 years from now 3 10 10 7
More than 4 years from now 5 16 42 30
Never 5 16 0 0

What component technologies are most significant in contribution to knowledge management


applications?c
Internet access 21 62 4 2
Document management 18 53 4 2
Intranet 17 50 24 12
Web site content management 10 29 6 3
Data Warehouse 8 24 11 6
Decision support tools 7 21 22 11
Directories of resident experts 6 18 8 4
Groupware 5 15 36 18
Others 4 12 1 1
a
N = 34
b
N = 142
c
Total number and percent values do not equal N and 100, respectively, as multiple responses were
given.

3.2 Differences of Perceived KM Success between USA and South Korea

Table 3 illustrates the mean scores of both USA and S. Korea. The success attributes from USA held by
respondents for all attributes of KM ranged from 3.50 to 4.74. The highest rated attribute of KM was "A
spirit of cooperation and teamwork,” with a mean rating of 4.74. Other attributes that received higher
perception of importance included "Efficiency of information systems,” “Supporting team-based
approaches to problem solving,” and “Sharing knowledge with other members of a work group" with mean
ratings of 4.71, 4.59, and 4.53, respectively. The lowest rated attribute was "Sharing knowledge with
suppliers," with a mean rating of 3.50; however, this still lies between important and neutral. Other
attributes receiving lower ratings were "Encouraging knowledge creating teams such as knowledge task
force, the future group, or learning group (M = 3.72)," "Supporting utilization of a knowledge-related
measurement mechanism (M = 3.77)," and "Encouraging knowledge creating teams such as knowledge
task force, the future group, or learning group (M = 3.78)." All 38 attributes from USA scored higher than
3.50 out of a five-point Likert-type scale; that is, all attributes were perceived as important or very
important for KM.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 129


TABLE 3. COMPARISON OF KM ATTRIBUTE MEAN SCORES
USAb S. Koreac Mean
Attributesa
Mean  SD Mean  SD Differences
A spirit of cooperation and teamwork 4.74  0.57 3.91  0.69 0.83
Efficiency of information systems 4.71  0.52 3.86  0.72 0.85
User friendliness of information systems 4.65  0.69 4.00  0.70 0.65
Usability and understandability of output 4.65  0.65 3.91  0.68 0.74
Effectiveness of information systems 4.59  0.61 3.77  0.72 0.82
Supporting team-based approaches to problem
4.59  0.70 3.68  0.74
solving 0.91
Promote ongoing employee contributions 4.59  0.82 3.90  0.78 0.69
Sharing knowledge with other members of a work
4.53  0.83 4.01  0.71 0.52
group
Top management leadership and commitment toward
4.47  0.71 4.29  0.66 0.18
knowledge management
Data sharing among different applications 4.44  0.71 3.60  0.84 0.84
Promote employee ownership and workmanship 4.44  0.80 3.94  0.74 0.5
Sharing knowledge with members of other work
4.41  0.82 4.03  0.73 0.38
groups within my organization
Organizational commitment to empower people 4.41  0.93 3.17  0.84 1.24
Actively encourage employee involvement in decision
4.41  1.05 3.94  0.69 0.47
processes
Encouraging employees to participate in internal and
external new learning opportunities such as 4.38  0.78 3.85  0.71 0.53
conferences, training seminar, university courses, etc.
Top management encouragement toward
4.35  0.88 3.85  0.71 0.5
formal/informal communication
Reward and recognition for actual performance
4.35  0.85 4.11  0.68 0.24
improvement
Access to the majority of knowledge within my
4.32  0.73 3.83  0.76 0.49
organization
Current corporate hardware and operating systems
rules and standards to support future computer 4.32  0.68 3.64  0.78 0.68
platform compatibility
Gaining knowledge about customers, own
4.27  0.94 4.10  0.62 0.17
competencies and capabilities
Policies to improve the quality of work life 4.24  0.96 4.00  0.69 0.24
Organizational support to seek human values of
4.21  0.95 4.08  0.57 0.13
employees
Fairness of individual or team-based performance
4.18  1.14 3.94  0.76 0.24
measurement
Top management encouragement toward utilization of
the knowledge 4.12  0.84 3.96  0.82 0.16
management system
Adequate budgeting or funding to support knowledge
4.06  0.65 4.02  0.71
management projects 0.04
Effectiveness of performance measurement 4.03  1.08 3.99  0.68 0.04
A formal system that allows for contribution of every
4.03 0.97 3.94  0.63 0.09
employee's opinions or suggestion
a
5 = Very Important, 4 = Important, 3 = Neutral, 2 = Less Important, 1 = Not Important
b
N = 34
c
N = 142

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 130


TABLE 3. (Continued)

USAb S. Koreac Mean


Attributesa
Mean  SD Mean  SD Differences
Providing guidelines to operate a benchmarking 4.00  1.06 3.66  0.73 0.34
Knowledge management awareness training to non-
4.00  1.02 3.77  0.69
supervisory employees 0.23
Encouraging employees to benchmark other
3.97  0.92 4.00  0.72
organizations' best practices -0.03
Analysis of job performance data and information 3.94  1.03 3.87  0.78 0.07
Minimization of hierarchical and bureaucratic
3.91  1.06 3.73 0.87 0.18
procedures for effective knowledge management
Supporting utilization of a knowledge-related
3.91  1.21 3.62  0.72
measurement mechanism 0.29
Documentation of the most operating rules, policies,
and procedures for knowledge management 3.85  0.97 3.56  0.81 0.29
implementation processes
Reformulation of any rules (Le., personnel policies)
that obstruct the implementation of knowledge 3.82  0.97 3.73  0.72 0.09
management
The complexity and limitation of current applications
software to develop interactive knowledge 3.82  0.97 3.66  0.70 0.16
management applications
Encouraging knowledge creating teams such as
knowledge task force, the future group, or learning 3.82  1.11 3.41  0.82 0.41
group
Sharing knowledge with suppliers 3.50  1.34 3.74  0.82 -0.24
a
5 = Very Important, 4 = Important, 3 = Neutral, 2 = Less Important, 1 = Not Important
b
N = 34
c
N = 142

On the other hand, the success attributes from S. Korea ranged from 3.17 to 4.29. The highest rated
attribute of KM was "Top management leadership and commitment toward knowledge management," with
a mean rating of 4.29. Other attributes that received higher perception of importance included "Reward
and recognition for actual performance improvement," "Gaining knowledge about customers, own
competencies and capabilities,” and “Organizational support to seek human values of employees” with
mean ratings of 4.11, 4.10, and 4.08, respectively.

The lowest rated attribute was "Organizational commitment to empower people," with a mean rating of
3.17; again, this also lies between moderately important and important. Other attributes receiving lower
ratings were " Encouraging knowledge creating teams such as knowledge task force, the future group, or
learning group (M = 3.41)," "Documentation of the most operating rules, policies, and procedures for
knowledge management implementation processes (M = 3.56)," and "Data sharing among different
applications (M = 3.60)." All 38 attributes from S. Korea scored higher than 3.17 out of a five-point Likert-
type scale; that is, all attributes were perceived as neutral or important for KM.

Table 4 illustrates the greatest and least mean differences between USA and S. Korea. “Organizational
commitment to empower people” is the greatest difference between USA and S. Korea with a mean
difference of 1.24. The mean score of USA is 4.41 and S. Korea is 3.17. On the other hand, “Encouraging
employees to benchmark other organizations' best practices” is the least differences between USA and S.
Korea with a mean difference of 0.3. The mean scores of USA and S. Korea are 3.97 and 4.00,
respectively.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 131


TABLE 4. THE GREATEST AND LEAST MEAN DIFFERENCES BETWEEN USA AND S. KOREA

Mean
Attributes Differences

5 attributes with the greatest differences


 Organizational commitment to empower people 1.24
 Supporting team-based approaches to problem solving 0.91
 Efficiency of information systems 0.85
 Data sharing among different applications 0.84
 A spirit of cooperation and teamwork 0.83

5 attributes with the least differences


 Encouraging employees to benchmark other organizations' best practices 0.03
 Adequate budgeting or funding to support knowledge management projects 0.04
 Effectiveness of performance measurement 0.04
 Analysis of job performance data and information 0.07
 A formal system that allows for contribution of every employee's opinions or
0.09
suggestion

4. DISCUSSION AND CONCLUSION

The overall respondents’ attitudes toward KM were summarized in Table 1. The results indicated that the
respondents from both USA and S. Korea seemed to aware of the importance of KM in terms of their
organizations’ current and future performance. Most respondents from both viewed their organization’s
business as knowledge intensive. Also, most respondents from both thought of KM as a way to promote
more effective management. Unlike other innovation tools such as Business Process Reengineering
(BPR), most respondents had a positive perception about KM in terms of a job security because KM has
not been publicized as a way to eliminate jobs at all by academic journals as well as industry literature.
However, the respondents from USA did not believe that a KM specialist such as a Chief Knowledge
Officer (CKO) or an external consultant is needed for effective management of knowledge. Only a few
leading organizations had CKOs or external KM consultants to promote effective KM. It appears that
managers do not have a good understanding of the exact role and impact of CKO or external KM
consultant. On the other hand, most respondents from S. Korea believed that a KM specialist is needed
for effective management of knowledge. S. Korea became one of the leading countries in a short period
of time because of implementation of management innovations with various industrial specialists. That is,
public organizations in S. Korea might not be afraid of accepting a specialist for a management innovation.
That’s why most respondents from S. Korea seemed to think that it is necessary to have a KM specialist
for effective management of knowledge.

According to Table 2, there were not many differences between USA and S. Korea in terms of KM
implementation plan. It makes sense because both are leading countries in the world. That is, they are
aware of effectiveness of innovative management tool like KM and capability of infrastructure of their
public organizations are strong enough to support successful implementation of KM. However, in terms
of technology for KM, responses from S. Korea were very much diversified that none of technology would
make a significant contribution. This implies that respondents of S. Korea might not recognize the impact
of information systems on KM because the respondent's job is not related to information technology.

Table 3 showed perceived perception of both countries. In terms of the highest rated attribute, USA
seems to focus on “collaboration perspectives of KM” because the attribute of KM is "A spirit of
cooperation and teamwork.” Public organizations in USA have been changed. Nowadays, most public
organizations look very similar to Drucker's notion of information-based organizations: characteristics of
the new organizations are a flatter structure and an organization of specialists of all kinds (Drucker, 1988).
And the information-based organizations tend to use more and more small self-governing teams. Thus, it

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 132


is a very reasonable result. On the other hand, the lowest rated attribute was "Sharing knowledge with
suppliers.” This result is also reasonable. Whether it is private or public organization, it would be difficult
to share mission critical knowledge with suppliers. Moreover, it might be violation or even against law of
sharing knowledge with suppliers for some particular public organizations.

The highest rated attribute from S. Korea seems to focus on “organizational perspectives of KM”
because the attribute is "Top management leadership and commitment toward knowledge management."
It is still true that organizational structure and decision-making of leading Asian countries (e.g., Japan) is
not as decentralized as western counterpart. Thus, it is not a surprise result. On the other hand, the
lowest rated attribute is "Organizational commitment to empower people." Empowerment is almost
impossible without decentralization of organizational structure and decision-making. This result is
consistent with the result of the highest perceived attribute.

The differences of KM success attribute between USA and S. Korea had examined and was summarized
in Table 4. Five attributes with the greatest differences can be divided into following two categories: KM
supportive culture (“Organizational commitment to empower people,” “Supporting team-based
approaches to problem solving,” and “A spirit of cooperation and teamwork") and information systems
capability (“Efficiency of information systems” and “Data sharing among different applications”). Public
administration in USA believed that organizational support and information systems capability are
important for successful KM implementation. That means USA understands that KM cannot be developed
and implemented without KM supportive culture. That is, transformation to a knowledge-centered
organization is possible only when organizational culture becomes conducive for KM because the basic
assumptions, norms, and values that guide employees’ behavior are encompassed by the culture of an
organization. Also, USA thought information systems (IS) as an enabling tool for successful
implementation of KM. These results are consistent with previous and current research of KM that has
been conducted in western hemisphere. On the other hand, S. Korea did not strongly believe that KM
supportive culture is not important as USA believes. Considering the culture of eastern hemisphere, this
is not surprise result. In terms of successful implementation of innovation in organization, organization in
almost every Asian country has relied on top management and it is especially strong in public
administration.

Five attributes with the least differences can be categorized as measurement with organizational support
and reward. Many empirical studies about innovations like, BPR (Business Process Reengineering) and
TQM (Total Quality Management) have confirmed that appropriate measurement with organizational
support and reward might be one of the most common formulas to succeed from the initiation to
implementation. KM is another innovation, and it shares very similar success attributes with BPR and
TQM in terms of the perspectives of appropriate measurement, organizational support, and reward.

5. CONTRIBUTIONS AND LIMITATIONS

This study has implications for the body of KM in general and for practitioners. First, this study extended
the current knowledge of KM in public administration and served as an addition to build a cumulative
tradition of research on KM implementation. This study might be one of the early studies that examined
the success attributes that affect the KM systematically and statistically in public administration in two
different cultures.

Second, this study attempted to identify success attributes based on a structured questionnaire. This may
be one of the earliest studies that developed and employed a structured questionnaire to investigate KM
success attributes based on various public organizations in USA and S. Korea. Several studies have
attempted to investigate the impact of KM in public administration, and these studies focused only on one
country.

Finally, this study may provide a basic framework for the development of an instrument for KM
implementation in various cultures. Thus, the measurement scales and questions utilized in this study can
serve as the starting point to refine the instrument for future studies in KM in various cultures.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 133


There are some major limitations to this study. The possibility of a biased perception of KM
implementation should be considered. As a means of organizational performance improvement, KM has
been publicized as a major tool or technique through the mass media as well as various academic
writings, including reports by major consulting companies. As a result, KM has been viewed as a major
catalyst for performance improvement without any assessment of the actual impact of its implementation.
Consequently, this exaggeration of circumstances may affect respondents’ perception of KM principles
and the actual usage of those principles.

Second, only small numbers of responses, 34 responses, from USA were used for the data analysis and
142 responses from S. Korea were collected only from one city in S. Korea. Thus, it is limited to
generalize the result of study.

Finally, this study is a cross-sectional research. Because a cross-sectional study addresses issues at only
one point in time, it does not capture the complex interrelationships between variables that come into
effect over time. A longitudinal study is more appropriate to capture such details.

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AUTHOR PROFILES:

Dr. Yong S. Choi earned his Ph.D. at the University of Nebraska, Lincoln. Currently he is an associate
professor of Management and Marketing at California State University, Bakersfield.

Dr. Seunghee Wie earned her Ph.D. at Kansas State University. Currently she is an associate professor
of Family and Consumer Sciences at California State University, Sacramento.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 134


SURVIVAL STRATEGIES OF ASIAN EXPORTERS DURING ECONOMIC DOWNTURN:
CASE OF THAILAND

Lugkana Worasinchai, Bangkok University, Thailand


Dechanan Thanapob, Bangkok University, Thailand
Farhad Daneshgar, University of New South Wales, Australia

ABSTRACT

The recent global economic downturn has greatly affected Thai export sector in various ways. In
particular, fluctuations in exchange rates as a result of this economic downturn have forced many Thai
exporters to review both their short term as well as the long term strategies in order to survive the
crisis. The main objective of this research is to investigate the strategic adaptation by Thai exporters in
managing risks associated with exchange rate fluctuations during the recent economic downturn. A
positivistic research approach has been adopted using interviews and survey questionnaire
instruments. Data were collected from financial managers of export companies across various
industries in Thailand. Results indicate that Thai export companies have mostly emphasized on
adopting four strategies including cost-cutting, value added product development, penetration of new
markets, and expanding of domestic markets in order to combat adverse effects of exchange rate
fluctuations during economic downturn. Results also indicate that various business characteristics
affected such strategic adaptation.

Keywords: global economic crisis, exchange rate strategy, exchange rate management, exports
companies, Thai exporters.

1. INTRODUCTION

The global financial crisis, also known as the ‘Hamburger Crisis’ has affected the world economy in a
variety of ways. One major undesirable outcome of this crisis for international business community has
been sharp fluctuations in various business variables. One such fluctuation is in the value of foreign
exchange. Exchange rate fluctuations have particularly affected exporters and this study mainly
focuses on Thai export companies. Furthermore, Thailand’s economy is heavily dependent on the
export sector which constitutes 76% of country’s GDP in 2008 and an average of 73% of country’s
GDP during 2001-2008 (Bank of Thailand, 2008). The Thai export sector is composed of a variety of
industries with different business characteristics. Compared with other economies, the value of Thai
Baht has been fluctuating relatively sharper during 2007-2009. This has heavily impacted Thai
exporters both in short term and in long term in their battle for survival. During this period, the number
of registered export companies in Thailand has reduced by 20% during the period 2006 - 2008
(Department of Export Promotion, 2008).
Generally speaking, foreign exchange risk management requires appropriate financial and
management strategies and the present research aims to investigate strategic adaptation of Thai
exporters during the recent sharp exchange rate fluctuations. The results of the current study are
expected to provide benefits to the following stakeholders:
1. Government and policy makers: These are the main players in development and
implementation of policies for control of exchange rate. An understanding of strategies
adopted by individual Thai exporters who managed to survive the recent economic
downturn will assist this group to incorporate such knowledge in their future policy
development and implementation.
2. Present and future exporters: This group will benefit from the current study by learning
from best practices. This in turn will create further trust in the internal and external supply
chain partners towards Thai exporters, which in turn can potentially benefit both parties.
3. Research community: The current study also fills a vast gap in academic knowledge in the
field by providing explicit knowledge about the nature of strategies that Thai exporters
have implemented that brought them out of a very strong global crisis.
The remaining parts of the article are structured as follow: a focused review of the current literature is
presented in order to explore existing strategies that exporters in general have used in the past for
managing their risk of foreign exchange fluctuations given their various business characteristics. This
is followed by a discussion on the research methodology of the study. Next, the results are presented
and analyzed, followed concluding remarks and future work.

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2. LITERATURE REVIEW

Kedia and Chokar (1986) found that business characteristics are essential factors in conducting
successful businesses. Naidu and Rao (1993) found that essential business characteristics that can
potentially affect export promotion are: business size; period of operation; and investment
characteristics. Kaleka and Katsikeas (1995) found that export problems are related to the business
size as well as the export experience. This is similar to the findings by Crick and Chaudhry (2000) who
claim that export problems were caused by late payment, fluctuations of exchange rates, pricing to
meet competition, and the lack of government backing. Rujithamrongkul (2005) examined the impact
of potential competition on Thailand’s exporters and found that the key elements were: risk
management of foreign exchange rate, cost reduction, finding new markets, and value-added product
development. Cadogan et al (2006) showed that exporters adjust themselves in different ways
depending on their business characteristics. Mar and Spender (2004) found that the periods of
operations affected the financial hedging policy of exporters.
The current study adopts an integrated approach in the sense that it synthesizes the above factors in
order to construct an initial theoretical model to serve as foundation for the current investigation. This
synthesized model is then validated for Thailand through a pilot study and appropriate modifications
will be made and a final model is developed. This final model will then be used for designing the main
survey questionnaire for the study.

3. RESEARCH HYPOTHESES ANF METHODOLOGY

3.1 Research Questions and Hypotheses: The major research questions (RQs) for the present
study are:
RQ1: what strategies the Thai exporters adopt for managing their exchange rate fluctuations
during economic downturn?
RQ2: What are the relationships between the Thai exporters’ various business characteristics
and their strategic adaptation for managing exchange rate fluctuations?
The above research questions are answered by testing the following hypotheses:
H1: During economic downturn and subsequent sharp exchange rate fluctuations, Thai
exporters adjust their exchange rate strategies in order to survive in the business.
H2: Business characteristics of the Thai export companies affect the strategies that these
companies implement during the periods of sharp fluctuations in the exchange rates in order to avoid
the adverse effects of these fluctuations. This overarching hypothesis has been split into four sub-
hypotheses each corresponding to one of the following four business characteristics: industrial type
(H2.1), period of operation (H2.2), annual sales (H2.3), and export proportion per total sales (H2.4).

3.2 Overview of the Research Methodology: The philosophical approach adopted in the current
study is positivistic approach which assumes that the goal of knowledge is simply to describe the
phenomena that the researcher experiences, and emphasizes the creation of data through
measurement and its capture and storage (Mar and Spender, 2004). The adoption of a positivistic
approach normally mandates the use of quantitative methods and this is the method that the current
study uses for designing, measuring, and analyzing the main survey. On the other hand, due to the
novelty of the problem a qualitative pilot study in the form of in-depth interviews has been conducted
prior to administration of the main survey in order to uncover deeper factors specific to the Thai export
sector that may have been overlooked in the survey questions. Results of these interviews are used to
refine both the synthesized theoretical model as well as the related survey instrument.
To develop the theoretical model of the study a focused review of the current literature was conducted
and a set of factors were identified from the relevant studies in the field of international business in
order to derive an initial set of constructs for the study. The pilot study consisted of ten in-depth
exploratory interviews ranging from 60 to 90 minutes in duration in order to further validate the initial
set of factors for the study before their measures are defined and used in the main survey
questionnaire.
The population from which the sample for both the pilot and main studies was selected is Thailand’s
exporters who were members of the Department of Export Promotion during (Department of export
Promotion, 2009). The samples size was calculated according to the guidelines provided by Toro
Yamane with the test reliability of 95% and error less than 5%. The methods used for distribution of
the questionnaire were e-mail and face-to-face distribution. Due to the space limitation the complete
questionnaire is not presented in the present article however interested readers may approach the

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 136


authors for a copy of the questionnaire in Thai language. The questionnaire was divided into 2 parts.
In part 1 demographic data of general nature were collected. The major items in this part include
company information such as ‘period of operation’, ‘sales value per year’, ‘export proportion per total
sales’ and relevant demographic data. In part two of the questionnaire data were collected about the
specific strategy adopted and implemented by the company during the period of sharp fluctuations in
the exchange rate. Based on the current literature as well as the pilot study results, ten such strategies
were identified and were included in the survey questionnaire. Each question was presented using a
five-point Likert Scale, ranging from 1= strongly disagree, to 5 = strongly agree.

3.3 Validity and Reliability Testing: The validity and reliability of the questionnaire were assessed by
using a panel of experts consisting of five exporters who were long time members of the Department
of Export Promotion in Thailand. These experts assessed both the content validity as well as the
construct validity of the survey questionnaire. They provided specific suggestions about clarity and
suitability of both the content as well as the presentation. The reliability of the questionnaire was
tested in accordance with the Cronbach test of reliability (Cronbach, 1951). The reliability of the
questionnaire was 0.783 which is above the acceptable level of 0.7 (Nunnally, 1978).

4. ANALYSIS OF RESULTS OF THE PILOT STUDY

The ten interviews revealed unique nature of the factors that specifically affect strategic adaptation of
the Thai exporters. One major finding was that Thai exporters in general are not well-versed (or, do
not believe) in the classical financial hedging methods of managing the risk of strong exchange rate
fluctuations; and instead they opt for non-financial, managerial methods. This finding in turn motivated
the authors to mainly focus on the latter factors when designing the survey questionnaire. More
specifically, results from the interviews revealed that for Thai exporters it is important to consider the
export proportion to total sales instead of total sales. Companies which have export proportion more
than 50% are considered active exporters by both Thai government and business communities. The
export companies implement different strategies towards the exchange rate fluctuations depending on
how active they are in the export business. Second major finding was that most Thai export
companies are small and medium size firms and using financial hedging tools is not a favorable
approach to adopt by most of them; these tools are more practical among the few large exporter firms.
The majority of Thai exporters mainly use simple financial tools such as forward rate. The exporters
seek financial hedging advice from the bank. Third, Thai exporters find that the fluctuation of
exchange rate is something totally out of their control. This may explain why they do not take seriously
hedging against fluctuations through financial tools. Fourth, most Thai export firms prefer to
implement non-financial strategies to hedge against the exchange rate fluctuations because it
facilitates the process of selecting approaches that match their business practice such as pricing
strategy, differentiate products, or cost and operation controls.

5. ANALYSIS OF THE RESULTS OF THE QUESTIONNAIRE

The following statistical methods have been used for analyzing the questionnaire data:
1. Descriptive statistics including frequency distribution, percentage analysis, mean and
standard deviation.
2. Inferential statistics was used for testing the hypotheses using one way analysis of
variance. The Scheffe’s method (Maxwell and Delaney, 2004; Milliken and Johnson, 1993) was used
for pairwise comparisons.
Overall the results proves H1 as true as these results indicate that the majority of Thai exporters who
survived the recent economic crises have adjusted themselves to the fluctuation of exchange rate by
implementing a variety of strategies. A summary of the results is shown in Table 1. For obtaining these
results, respondents were asked to chose, from a list of ten strategies, the ones that they adopted
during the economic downturn in order to combat adverse effects of the exchange rate fluctuations
during the recent economic downturn. Based on the results of Table 1, the two most frequently used
strategies adopted (with mean = 3-4) are ‘reducing cost and increasing level of production efficiency
control’ and ‘Value Added’ strategies respectively. The lowest preference (with mean = 1-2) was given
to the ‘no adjustment’ strategy. The preference levels of the remaining strategies fall in between the
above two values.

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TABLE 1: STRATEGIC ADAPTATON BY THAI EXPORTERS

X Level of strategic
Adaptation Strategies preference*
(S.D.)
1. Reducing Cost and Increasing Level of 4.37 HIGH
Production Efficiency Control (0.818)
2. Value Added Strategy 4.17 HIGH
(0.813)
3. Price Adjustment 3.81 ABOVE AVERAGE
(1.046)
4. Financial Hedging 3.73 ABOVE AVERAGE
(1.078)
5. Decreasing export volume per sales value 3.62 ABOVE AVERAGE
(Sell more Domestic) (1.112)
6. Penetrate new markets which have stable 3.57 ABOVE AVERAGE
exchange rate (1.043)

7. Decreasing import volume 3.44 ABOVE AVERAGE


(1.068)
8. Shift Exchange Rate Choice 3.38 ABOVE AVERAGE
(1.078)
9. Decreasing foreign Borrowing 2.88 BELOW AVERAGE
(1.179)
10. Decreasing foreign Investment 2.81 BELOW AVERAGE
(1.123)
11. No adjustments 1.64 LOW

* Strategic preferences of the Thai exporters from LOW (=1-2) to High (=4-5)

Table 2 shows strategic adaptation of the Thai export companies by industrial type which is related to
the H2.1. It shows statistically significant strategies in descending order. From the ten candidate
strategies provided to the respondents, only six of them were considered by the respondents as
preferred strategies. Also, no significant differences were found in the firms’ adaptation strategies
based on the industrial type. There are six strategiest that firms with different industrial types consider
to adopt. Perhaps this can be explained by the fact that firms in different industrial type will most
probably adjust their price (the most preferred strategy in the Table 2) because it depends on the
intensity of the competition. In the presence of intense competition in selling similar products in the
same market, adjusting product price by increasing the price will not be an option as the firm will lose
its market share.
On the other hand, when comparing pairs of industry types, results show no significant differences in
strategic adaptation except for the ‘Decreasing Foreign Borrowing’ strategy. This suggests that in
general, differnt industrial types do not significantly change the firms’ strategies, or, such differences
do not impact the strategic choice of the firms.

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TABLE 2: RELATIVE IMPORTANCE OF ADAPTATION STRATEGIES BY INDUSTRIALTYPES

Mean
Adaptation
Strategy in Post Hoc

Residence and
F Sig. Tests**
(using Scheffe

Trade and
Electronic
furnishing
Food and

Fashion
test)

Service
Health

Fitting

Other
Price Adjustment 4.11 3.98 3.81 3.86 3.52 3.63 2.264 .048* no significant
differences
Value Added 4.07 4.35 4.23 4.43 4.02 3.87 2.829 .016* no significant
strategy differences
Decreasing Export 3.32 3.26 3.53 3.71 3.24 3.90 2.572 .027* no significant
Volume per Sale differences
Value
Decreasing 2.77 2.68 2.77 3.06 2.81 3.57 2.803 .017* Others >
Foreign Borrowing Residence and
furnishing
Decreasing 2.89 2.53 2.64 2.91 2.85 3.33 2.453 .034* no significant
Foreign differences
Investment
No Adjustment 1.64 1.60 1.49 1.46 1.98 1.47 2.770 .018* no significant
differences
* The statistically significant difference was set at .05.
** Scheffé was used to pair compare

Table 3 shows the relative differences between the adaptation strategies of Thai exporters by periods
of operation (H2.2). Again, six strategies received significant preferences from the respondents.
However in this case, there have been some differences in strategic adaptation among the firms with
different periods in business, as shown in the last column.

TABLE 3: RELATIVE IMPORTANCE OF STRATEGIC ADAPTATION BY PERIOD OF OPERATION

Mean

Adaptation Strategy F Sig. Post Hoc


More than

Tests**
Less than

15 years
11 – 15
5 years

5 – 10
years

years

Price Adjustment 3.88 3.94 4.00 3.43 4.299 .006* 11 – 15 years > 15 years
5-10 years > 15 years
Value Added strategy 4.19 4.29 4.24 3.93 2.920 .034* 5-10 years > More than 15
years
Penetrate New Markets which have 3.17 3.74 3.70 3.65 4.738 .003* 5-10 years > Less than 5
Stable Exchange Rate years
11 – 15 years > Less than
5 years
Decreasing Export Volume per Sales 3.13 3.55 3.67 3.43 3.132 .026* No significant differences
Value
(Sell More Domestic)
Decreasing Foreign Borrowing 2.75 2.67 2.89 3.28 3.872 .010* More than 15 years > 5-10
years

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 139


Financial Hedging 3.49 3.55 3.93 4.04 4.650 .003* More than 15 years > 5-10
years
More than 15 years > Less
than 5 years
* The statistically significant difference was set at .05.
** Scheffé was used to pair compare
Table 4 demonstrates relative importance of adaptation strategy by sales value, as well as the
pairwise comparative analyses for the firms with different sales value (H2.3). Results in Table 4 show
that different sales values led to adoption of different strategies.

TABLE 4: RELATIVE IMPORTANCE OF STRATEGIC ADAPTATION BY SALES VALUE

Mean

Adaptation Strategy
Less than 50 million baht

501 – 1,000 million baht

More than 1,000 million


50 – 500 million baht

Post Hoc
F Sig.
Tests**

baht

Penetrate new markets 3.32 3.66 4.00 3.81 4.997 .002* 501-1,000 million baht > Less
which have stable than 50 million baht
exchange rate
Decreasing Export 3.32 3.93 3.73 3.70 5.617 .001* 50 – 500 million baht > Less
Volume per Sales than 50 million baht
Value (Sell more
Domestic)
Decreasing Import 3.28 3.45 4.03 3.49 4.207 .006* 501 – 1,000 million baht > Less
Volume than 50 million baht
Decreasing Foreign 2.60 2.93 3.07 3.54 6.827 .000* More than 1,000 million baht >
Borrowing Less than 50 million baht
Decreasing Foreign 2.52 2.96 3.10 3.16 5.393 .001* More than 1,000 million baht >
Investment Less than 50 million baht, 50 –
500 million baht > Less than 50
million baht
Financial Hedging 3.32 3.86 4.30 4.24 13.24 .000* More than 1,000 million baht >
Less than 50 million baht, 50 –
500 million baht > Less than 50
million baht, 5501 – 1,000 million
baht > Less than 50 million baht
* The statistically significant difference was set at .05.
** Scheffé was used to pair compare

Table 5 shows relative importance of adaptation strategy by export proportion per total sales value as
well as the pairwise comparative analyses for the firms with different export proportion per total sales
(H2.4). It shows that different proportions led to adoption of different strategies.

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TABLE 5 COMPARE THE RELATIVE IMORTANCE OF ADAPTATION STRATEGIES BY EXPORT
PROPOTION PER TOTAL SALES

Mean
Adaptation Strategies


21 – 40%

41 – 60%

61 – 80%
Post Hoc

1 – 20%
F Sig.
Tests**

100%
80
Decreasing Export Volume per 3.05 3.45 3.66 4.21 3.92 9.910 .000* 61-80%>1-20%
Sales Value 81-100%>1-
20%
41-60%>1-20%
61-80%>21-
40%
Reducing Cost and Increasing 3.95 4.45 4.48 4.55 4.49 5.843 .000* 61-80%>1-20%
Level of Production Efficiency 81-100%>1-
Control 20%
41-60%>1-20%
21-40%>1-20%
No Adjustment 2.06 1.62 1.55 1.50 1.38 5.719 .000* 1-20%>41-60%
1-20%>61-80%
1-20%>81-
100%
Penetrate New Markets which 3.15 3.51 3.71 3.79 3.79 4.240 .002* 61-80%>1-20%
have Stable Exchange Rate 81-100%>1-
20%

Financial Hedging 3.51 3.57 3.62 3.98 4.03 3.012 .019* no significant
differences
Pricing Adjustment 3.48 3.94 3.79 4.12 3.87 2.917 .022* 61-80%>1-20%

* The statistically significant difference was set at .05.


** Scheffé was used to pair compare

6. CONCLUSION

The results of this study lead to some important conclusions. The exporters adjust themselves in
different ways depending on their business characteristics which is consistent with the study of
Cadogan et al (2006). However, cost reduction strategies and increasing level of production efficiency
control are the most widely used strategies among Thai exporters in order to hedge themselves
against the exchange rate fluctuations during economic downturn. The latter conclusion is also
consistent with results obtained by Rujithamrongkul (2005). And finally, results suggest that export
proportion per total sales is the most significant factor for impacting the strategic adaptation among
Thai exporters.

The companies which have shorter periods of operation tend to use pricing strategy and value added
strategy, whereas those with longer periods of operations tend to implement strategies based on new
market penetration and using formal financial methods. This is consistent with the results obtained by
Mar&Spender (2004), who found that the periods of operations affected the financial hedging policy.
The companies with high sales value per year focused more on new market penetration, increasing
sale volume in domestic market, and the use of financial tools to hedge against exchange rate risk.
These results support arguments made by Kasikorn (2008) who advises Thai entrepreneurs to
distribute their export markets to other countries, place more emphasis on the domestic market, and
make more transactions in currencies other than the dollar. Results also support Christian and

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 141


Jeronimo (2009) findings in that smaller firms benefit more from export promotion actions and
government support.
Export companies which had higher export proportion per sales value preferred to use the cost
reduction and new markets penetration strategies.

REFERENCES:

Bank of Thailand. (2008). Export Data. Retrieve on 10-07-2009 from the website http://www.bot.or.th
Christian V. M. and Jeronimo C. (2009). Beyond the average effects: The distributional impacts of
export promotion programs in developing countries. Journal of Development Economics (2009), pp.
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impeding the development of export market-oriented behavior: A Study of Hongkong Manufacturing
exporters. Industrial Marketing Management, 35, pp. 634-647
Kasikorn Bank (2008). Industrial Analysis Report. Retrived on 05-10-2009 from the website
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Kaleka, A. And C. S. Katsikeas. (1995). Exporting problems: the relevance of export development.
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Kedia, B.L. and M.R. Chokar. (1986). Factors Inhibiting Export Performance of Firms: An Empirical
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Marr, B. and Spender, J.C. (2004) Measuring knowledge assets – implications of the knowledge
economy for performance measurement, Measuring Business Excellence, 8(1), pp.18-27
Maxwell, S. E. and Delaney, H. D. (2004). Designing Experiments and Analyzing Data: A Model
Comparison. Lawrence Erlbaum Associates, pp. 217–218
Milliken, G. A. and Johnson, D. E. (1993) Analysis of Messy Data. CRC Press, pp. 35–36.
Naidu, G.M. and Rao, T.R. (1993) Public sector promotion of exports: a needs-based approach,
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AUTHOR PROFILES:

Assistant Professor Dr. Lugkana Worasinchai is currently the Director of the Institute for Research
Promotion and Innovation Development, Bangkok University, Thailand. Her expertise and area of
interests are on business strategies, exchange rate management, and knowledge management
strategy. At present she is also the Co-founder and Co-Managing Director of the Institute for
Knowledge and innovation South-East Asia (IKI-SEA)

Mr. Dechanan Thanapob earned his MBA (Finance) from Bangkok University, Thailand. He has
been working with many financial institutions. Currently, he is a post graduate candidate at Bangkok
University, Thailand. His research interests are in international finance and investment.

Dr. Farhad Daneshgar is a Senior Lecturer at the Australian School of Business, University of New
South Wales in Sydney, Australia. Farhad is a member of the editorial board in several IS/KM
Journals, and is the creator of the awareness net modeling language. His current research interests
include eLearning, KM, and e-Collaboration, and has published extensively in these areas.

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 142