Entrepreneurship in International Marketing 9781784414474, 9781784414481

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ENTREPRENEURSHIP IN INTERNATIONAL MARKETING

ADVANCES IN INTERNATIONAL MARKETING Series Editors: Volumes 1 20 S. Tamer Cavusgil Volumes 21 25 Shaoming Zou Recent Volumes: Volume 10: Globalization, the Multinational Firm, and Emerging Economies Volume 11: Reassessing the Internationalization of the Firm Volume 12: New Directions in International Advertising Research Volume 13: Study Abroad: Perspectives and Experiences from Business Schools Volume 14: Reviving Traditions in Research on International Market Entry Volume 15: Research on International Service Marketing: A State of the Art Volume 16: Relationship between Exporters and Their Foreign Sales and Marketing Intermediaries Volume 17: International Market Research: Opportunities and Challenges in the 21st Century Volume 18: Cross-Cultural Buyer Behaviour Volume 19: Michigan State University Contributions to International Business and Innovation Volume 20: New Challenges to International Marketing Volume 21: International Marketing: Emerging Markets Volume 22: Measurement and Research Methods in International Marketing Volume 23: Interdisciplinary Approaches to Product Design, Innovation, and Branding in International Marketing Volume 24: International Marketing in Rapidly Changing Environments

ADVANCES IN INTERNATIONAL MARKETING VOLUME 25

ENTREPRENEURSHIP IN INTERNATIONAL MARKETING EDITED BY

SHAOMING ZOU University of Missouri, USA

HUI XU Nankai University, China

LINDA HUI SHI University of Victoria, Canada

United Kingdom North America India Malaysia China

Japan

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2015 Copyright r 2015 Emerald Group Publishing Limited Reprints and permissions service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78441-448-1 ISSN: 1474-7979 (Series)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

CONTENTS LIST OF CONTRIBUTORS

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PART I: ENTREPRENEURSHIP IN INTERNATIONAL MARKETING BORN GLOBAL FIRMS: EVOLUTION OF A CONTEMPORARY PHENOMENON Gary Knight THE MARKET ORIENTATION OF DOMESTIC AND INTERNATIONAL NEW VENTURES Tage Koed Madsen, Hans Eibe Sørensen and Rosalina Torres-Ortega

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THE EFFECTS OF ENTREPRENEURIAL MARKETING STRATEGIES ON THE LONG-TERM COMPETITIVE SUSTENANCE OF BORN GLOBAL FIRMS: EXAMPLES FROM THE INDIAN KNOWLEDGE-INTENSIVE SERVICES INDUSTRY Nishant Kumar and Ali Yakhlef

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THE ALLIANCE CAPABILITY OF TECHNOLOGYBASED BORN GLOBALS Liliya Altshuler Oxtorp and Ulf Elg

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CONTENTS

THE EFFECTS OF DYNAMIC CAPABILITIES ON VALUE-BASED PRICING AND EXPORT PERFORMANCE Katharina Maria Hofer, Lisa Maria Niehoff and Gerhard A. Wuehrer

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EXPORT MARKETING STRATEGY AND PERFORMANCE AMONG MICRO AND SMALL BRAZILIAN ENTERPRISES Reynaldo Dannecker Cunha and Thelma Valeria Rocha

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THE EFFECT OF SOCIAL MEDIA ADOPTION ON EXPORTING FIRMS’ PERFORMANCE Marı´a del Carmen Alarco´n, Alex Rialp and Josep Rialp

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PART II: MISCELLANEOUS INTERNATIONAL MARKETING ISSUES A LITERATURE REVIEW, CLASSIFICATION, AND SIMPLE META-ANALYSIS ON THE CONCEPTUAL DOMAIN OF INTERNATIONAL MARKETING: 1990 2012 Sudhir Rana and Somesh Kr. Sharma

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A FRAMEWORK FOR UNDERSTANDING FIRMS’ FOREIGN EXIT BEHAVIOR Qun Tan and Carlos M. P. Sousa

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INSTITUTIONAL FORCES AND FIRMS’ POSITIONING IN CHINA AND BRAZIL Ulf Elg and Pervez Ghauri

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DOES THE VALUE OF GLOBAL BRANDS APPLY TO BOTH FOREIGN AND DOMESTIC-BASED GLOBAL BRANDS? Stanford A. Westjohn, Peter Magnusson and Joyce X. Zhou

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LUXURY BRANDS IN EMERGING MARKETS: A CASE STUDY ON CHINA Annie Peng Cui, Theresa A. Wajda and Michael F. Walsh THE EFFECTS OF STABILITY, DIVERSITY, AND DENSITY ON RELATIONSHIP FLEXIBILITY IN AN INTERNATIONAL RETAIL SUPPLY NETWORK: A PROPOSED THEORY AND RESEARCH HYPOTHESES Jack Cadeaux

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LIST OF CONTRIBUTORS Marı´a del Carmen Alarco´n

Business Department, School of Economics and Business, Universitat Auto`noma de Barcelona, Barcelona, Spain

Jack Cadeaux

School of Marketing, UNSW Business School, University of New South Wales, New South Wales, Australia

Annie Peng Cui

College of Business and Economics, West Virginia University, Morgantown, WV, USA

Reynaldo Dannecker Cunha

Department of Marketing, Escola Superior de Propaganda e Marketing, Sao Paulo, Brazil

Ulf Elg

School of Economics and Management, Lund University, Lund, Sweden

Pervez Ghauri

Department of Management, King’s College London, London, UK

Katharina Maria Hofer Department of Retailing, Sales and Marketing, Johannes Kepler University Linz, Linz, Austria Gary Knight

Atkinson Graduate School of Management, Willamette University, Salem, OR, USA

Nishant Kumar

Stockholm Business School, Sweden

Tage Koed Madsen

Department of Marketing and Management, University of Southern Denmark, Denmark

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Peter Magnusson

Department of Marketing, Florida International University, Miami, FL, USA

Lisa Maria Niehoff

Department of Retailing, Sales and Marketing, Johannes Kepler University Linz, Linz, Austria

Liliya Altshuler Oxtorp Department of Marketing and Management, University of Southern Denmark, Odense, Denmark Sudhir Rana

National Institute of Technology Hamirpur, Hamirpur, India

Alex Rialp

Business Department, School of Economics and Business, Universitat Auto`noma de Barcelona, Barcelona, Spain

Josep Rialp

Business Department, School of Economics and Business, Universitat Auto`noma de Barcelona, Barcelona, Spain

Thelma Valeria Rocha

Department of Marketing, Escola Superior de Propaganda e Marketing, Sao Paulo, Brazil

Somesh Kr. Sharma

National Institute of Technology Hamirpur, Hamirpur, India

Hans Eibe Sørensen

Department of Marketing and Management, University of Southern Denmark, Denmark

Carlos M. P. Sousa

Durham University Business School, Durham University, Durham, UK

Qun Tan

Department of Marketing, School of Management, Xiamen University, Fujian, China

Rosalina Torres-Ortega Department of Business Economics and Administration, Universitat Auto`noma de Barcelona, Barcelona, Spain

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List of Contributors

Theresa A. Wajda

School of Business, Slippery Rock University, Slippery Rock, PA, USA

Michael F. Walsh

College of Business and Economics, West Virginia University, Morgantown, WV, USA

Stanford A. Westjohn

Department of Marketing and International Business, University of Toledo, Toledo, OH, USA

Gerhard A. Wuehrer

Department of Retailing, Sales and Marketing, Johannes Kepler University Linz, Linz, Austria

Ali Yakhlef

Stockholm Business School, Sweden

Joyce X. Zhou

Department of Marketing, Emporia State University, Emporia, KS, USA

ENTREPRENEURSHIP IN INTERNATIONAL MARKETING AND AIM VOLUME 25 With continued globalization of the markets, more and more firms from around the world, even small- and medium-sized firms, are venturing into the global markets to seek opportunities to grow and make profits. Given the complexity and dynamism of the global markets, it is increasingly important for firms large and small to be innovative, risk-taking, and adaptive in order to succeed in international marketing. Thus, entrepreneurship is playing a vital role in firm’s internationalization process and international marketing success. Yet, research in entrepreneurship and international marketing has run separate paths in past literature. Scholars in entrepreneurship see entrepreneurship as important drivers of economic and social progress, and entrepreneurial firms as important sources of innovation, employment and productivity growth. They have focused on examining the key characteristics of entrepreneurial firms and their effect on the firms’ growth and success, as well as conditions conducive to developing entrepreneurial characteristics. In contrast, scholars in international marketing showed a strong interest in examining cross-border business activities such as foreign direct investment (FDI), cross-border collaboration, internationalization, international marketing strategy, export marketing, international joint venture, and cross-cultural consumer behavior, among others. Only limited research attention has been paid to inter-disciplinary issues that transcend entrepreneurship and international marketing. In the context of globalization, some new entrepreneurial phenomena are emerging that call for rigorous academic research to develop theories to explain them. For example, key entrepreneurial opportunities may well exist in international business and in the global market, as evidenced by the fact that the born-global entrepreneurial firms have experienced rapid growth in the last decades. Indeed, scholars in international marketing have investigated the born-global phenomenon. What characteristics do xiii

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born-global firms possess? What role does entrepreneurship play in bornglobal firms? What type of entrepreneurial firms are most likely to be bornglobal? How can born-global firms achieve success in international markets? These are fascinating research questions that are being addressed by international marketing researchers. Despite the research on born-global firms, nevertheless, interdisciplinary research that span across the domains of entrepreneurship and international marketing is still very limited. To promote such interdisciplinary research endeavor, Advances in International Marketing Volume 25 features seven papers focused on entrepreneurship in international marketing, as well as six papers on other international marketing topics. Some of these papers were selected out of the 2013 Nankai International Conference on Entrepreneurship and the 2014 Consortium for International Marketing research (CIMaR) Conference at University of Victoria, whereas others were submitted to the AIM. All papers went through a review and revision process. Specifically, AIM Volume 25 is organized into the following two parts.

PART I: ENTREPRENEURSHIP IN INTERNATIONAL MARKETING The first paper in this part is contributed by Professor Gary Knight, one of the pioneer researchers of the born-global phenomenon. In the paper, Professor Knight traced the evolution of the born-global research in past two decades and presented a nice summary of the extant literature on born-global firms. He also addressed born-globals’ role in international entrepreneurship and its linkage to national competitive advantage. He also discussed important future research directions on born globals, especially in the context of emerging markets. Professor Knight’s paper is a valuable addition to the growing literature on born-global firms and international entrepreneurship. In the second paper, Professors Madsen, Sørensen, and Torres-Ortega focused on newly established firms and compared the market orientation of domestic and international new ventures. Based on data collected from 249 Danish manufacturing firms, they empirically examined how different types of new ventures adopt two strategic components of market orientation customer orientation and competitor orientation. They found that the most internationally oriented new firms seem to be the most market oriented in

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general, and that international new ventures are significantly more competitor-oriented than their domestic counterpart. But the strategic emphasis on customer orientation was found to be higher for new firms with domestic operations than for those with limited international operations. This study enriches the literature and demonstrate a need for more future research on international new ventures. The third paper by Professors Kumar and Yakhlef is aimed to examine how knowledge-intensive born global firms develop and maintain longterm relationships with their customers to ensure their continued growth beyond the initial stage of internationalization. The study adopted a case study approach, focusing on two Indian born-global firms operating with the knowledge-based services sector. It found that getting to know the customer intimately helps firms to retain customers over the long term, and that customer-relationship management strategy is in line with the entrepreneurial orientation of the firms under consideration. The fourth paper, contributed by Professors Altshuler Oxtorp and Elg, reported an investigation and analysis of specific organizational skills that enable born-global firms to successfully initiate, manage and finish their R&D alliances with MNEs. It discusses how specific aspects of the alliance capability can help born-globals to counteract the challenges and risks of collaborating with MNEs. Using a longitudinal study of a Danish technology born-global firm with three embedded cases of its R&D and marketing alliances with Asian MNEs, they found that the internal and external assessment skills, need detection and coupling skills, asset protection skills, project management skills, termination skills, and the learning skills constitute the born-global firms’ alliance capability. The authors also advanced a set of propositions to tie these organizational skills to alliance performance. In the fifth paper, Professors Hofer, Niehoff, and Wuehrer focused on exporting firms and investigated three components of their dynamic capabilities (i.e., adaptive capability, absorptive capability, and innovative capability) and their respective influence on exporting firms’ value-based pricing and performance. Based on data from 172 Austrian exporters, the authors found that a firm’s adaptive capability and innovative capability both positively influence its value-based pricing, and that adaptive capability has a positive influence on export performance. They discussed the implications of their findings for future research. In the sixth paper, Professors Cunha and Rocha focused on micro and small Brazilian enterprises and studied their export marketing strategies and performance. Their results obtained based on data from 173 Brazilian

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micro and small enterprises showed that the marketing strategies did influence the export performance of Brazilian micro and small enterprises. They argued that this is mainly due to exporting firm’s adapting prices to targeted markets, thereby improving product competitiveness. The study also demonstrated the importance of a firm’s international competence and entrepreneurial marketing as influencers of its export performance. This is one of few studies we have seen in the literature that featured micro and small firms in emerging markets. The seventh paper is contributed by Professors Alarco´n, Alex Rialp, and Josep Rialp. These authors examined the extent to which social media competence (SMC) of exporting firms determines their actual adoption of social media applications, which is believed to impact their export performance. Using quantitative data collected through a web-based survey of Spanish exporters, the study found that the significant influence of SMC on firm’s actual use of social media applications, and that the use of social media applications has a significant impact on performance. Another interesting finding of the paper is that the intention to use social media applications mediates the relationship between the firm’s SMC and its social media usage. In today’s digital world, this work sheds significant light on a new construct exporters’ social media capability that should spur future research on this phenomenon.

PART II: MISCELLANEOUS INTERNATIONAL MARKETING ISSUES The first paper in Part II by Drs. Rana and Sharma examines the conceptual domain of international marketing by reviewing the literature in last two decades. The authors’ objective is to investigate recent patterns and development in the literature based on an evaluation of 1816 research articles on international marketing published between 1990 and 2012. Their classification of conceptual domain has yielded 57 configurational contents under seven prime research streams. Using a simple meta-analysis, the authors created a clear depiction on the attention of contributors towards research streams, the number of contributors, and the worthy sources of literature. Based on their research, the authors discussed several directions for advancing knowledge in international marketing. This literature review piece is a fresh look at the field of international marketing and should offer valuable future research venues.

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The second paper in in Part II by Professors Tan and Sousa attempts to fill a gap in the literature a general lack of research, either conceptual or empirical, on the exit behavior of international companies. The authors developed a conceptual framework to understand firms’ foreign exit behavior. They laid a conceptual foundation for subsequent research on the topic and advanced a series of research propositions for future research. The third paper in Part II is contributed by Professors Elg and Ghauri. These authors conducted a qualitative analysis, based upon NVIVO, of three Swedish firms as they position themselves in the Chinese and Brazilian markets. They compared the institutional contexts in China and Brazil, and analyzed the extent to which firms have a proactive or a reactive approach when dealing with their institutional environment, and the extent to which firms’ actions are governed by local and corporate practices. This study shed significant light on the institutional environment in emerging markets and set a stage for future research. In the fourth paper in Part II, Professors Westjohn, Magnusson, and Zhou explored how the value of being global brands is experienced differently based upon foreign versus domestic origin of a brand. Drawing on samples from three countries, the United States, India, and China, they found that although consumer preference for global brands can be extended to foreign-based global brands, it does not extend to domesticbased global brands. Since past study seldom distinguishes among types of global brands, this paper offers a more nuanced understanding of the boundaries for the value of global brands. The fifth paper in in Part II by Professors Cui, Wajda, and Walsh is also focused on a special group of global brands the luxury brands in emerging markets. Using a case analysis on China, the authors identified several intriguing market characteristics that must be taken into account in order for luxury brands to succeed in the Chinese market. These include a good understanding of the conflicting Chinese social cultural sentiments toward luxury consumption, a balance between standardization and adaptation, an appeal to both consumers’ converging needs and their desire for local elements, and a focus on the young and economically diverse consumer base in China. The final paper in Part II by Professor Cadeaux focuses on international supply network of retailers. It develops theories of how stability and strong ties in an international supply network combine to yield a resource base to enable the development of flexible relationships with suppliers, how stability and relationship flexibility are in turn driven by the international diversity and the density of the retailer’s global supply network in a product category, and how both diversity and density of a retailer’s supply network

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may affect the likelihood of a retailer developing flexible relationships with its supplier. Given the relative paucity of studies on retailers and their international supply chains in the literature, this paper makes a valuable contribution and sets a theoretical stage for future research. Collectively, the 13 papers in Volume 25 have extended the literature on international entrepreneurship and international marketing in a number of directions. They offer valuable insight that has not been identified before in the literature. More importantly, they set a solid stage for researchers to further research into the very important areas of entrepreneurship in international marketing, as well as the domain of international marketing and other mainstream international marketing research issues. Shaoming Zou Hui Xu Linda Hui Shi Editors

PART I ENTREPRENEURSHIP IN INTERNATIONAL MARKETING

BORN GLOBAL FIRMS: EVOLUTION OF A CONTEMPORARY PHENOMENON Gary Knight ABSTRACT Born global firms undertake international business at or near their founding. In general, they are a type of highly international small and mediumsized enterprise. In the past two decades, born globals have emerged in substantial numbers worldwide, in conjunction with evolutionary trends in globalization and advanced information and communications technologies. In this paper, I summarize extant literature on born globals. I also address their role in the emergent field of international entrepreneurship and the linkage to national competitive advantage. Finally, I suggest numerous research directions on born globals, especially in the context of emerging markets. Keywords: Born global firms; international SME; international entrepreneurship; internationalization; globalization

Entrepreneurship in International Marketing Advances in International Marketing, Volume 25, 3 19 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1108/S1474-797920140000025001

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In this paper, I examine the development of scholarly research on the phenomenon of born global firms. I also make suggestions for scholars in pursuing future research. A key goal is to alert scholars in emerging markets on the importance of born global firms, and their role in international business and national economies. Born globals are companies that undertake international business at or near their founding. In the past two decades, they have emerged in huge numbers worldwide, largely due to evolutionary environmental changes, such as globalization and the emergence of sophisticated information and communications technologies (ICTs). The emergence of born globals is closely related to the internationalization of the small and medium-sized enterprise (SME). Indeed, born globals are a subset of SMEs. In this paper I define SMEs as companies with 500 or fewer employees. SMEs constitute more than 90 percent of all firms in most countries. The globalization of markets, advances in various technologies, and other facilitating factors are propelling young companies and SMEs generally to pursue international business. Today, SMEs account for about one-third of exports from Asia and about a quarter of exports from the advanced economies of Europe and North America. In selected countries, such as Italy, South Korea, and China, SMEs contribute more than 50 percent of total national exports (OECD, 1997). Consequently, such businesses play a key role in national competitiveness in the world economy. SMEs and born global firms are characterized by limited tangible and financial resources. Consequently, an interesting research question centers on how such firms succeed in international business despite limited resources. The literature suggests several clues. Compared to large multinational enterprises (MNEs), smaller firms are often more adaptable, more innovative, and have quicker response times for implementing new ideas and meeting customer needs (Crick, 2009; Knight & Cavusgil, 2004). Born globals more often serve global niche markets than large MNEs. Born global firms tend to substantially use the latest information and communication technologies, facilitating international business as never before. When it comes to conveying products to foreign customers, born globals usually minimize overhead or fixed investments (Cavusgil & Knight, 2009). They rely instead on external facilitators such as independent distributors located abroad. Smaller firms frequently thrive on private knowledge that they produce or possess. They access and mobilize resources through their crossborder knowledge networks, or their international social capital (Acedo & Jones, 2007; Aspelund, Madsen, & Moen, 2007; Cavusgil & Knight, 2009; Crick, 2009; Rialp, Rialp, & Knight, 2005).

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Globalization and ICTs are important antecedents to widespread internationalization of born global firms (Knight, 2000; Loane, 2006; OECD, 1997). However, such technologies on their own are insufficient to explain intriguing processes at work in the internal environment of such firms. It is likely that innovative culture and organizational capabilities play key roles in born global early internationalization and subsequent international performance. Having a strongly innovative nature supports these firms to develop particular types of knowledge, driving development of organizational capabilities that support early internationalization and superior performance in diverse international markets (Weerawardena, Mort, Liesch, & Knight, 2007). Innovative activities in these firms support the opening of new markets and reinventing the firm’s operations to serve those markets well (Knight & Cavusgil, 2004; Kuivalainen, Sundqvist, & Servais, 2007). The traditional view of the large multinational corporation as the dominant international form is evolving. Born globals are emerging in substantial numbers worldwide and may reflect an emergent paradigm. Born global firms hold much potential to become a leading player in the ecosystem of international trade. The phenomenon implies the emergence of a global environment in which any firm, regardless of age, experience, and tangible resources, can be an active participant in global trade and investment. The increasing role of born globals in international business implies an optimistic view. Born globals might herald a more diverse international business system in which any firm can succeed internationally. In this paper, I offer a brief literature review on born global firms. I relate the born global phenomenon to the emergent field of international entrepreneurship and the linkage to national competitive advantages. I conclude by offering directions for future research, particularly as they relate to born globals in emerging markets.

LITERATURE REVIEW We can classify research on born global firms according to numerous major topic areas, identified in Table 1. These are early, exploratory research; early internationalization; general characteristics; role of technology; and role of strategy; as well as theoretical perspectives on the resource-based view; the capabilities view; and the network view. These are the leading theoretical perspectives used to investigate born global firms (e.g., Jones, Coviello, & Tang, 2011).

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Table 1.

Classification of Research on Born Global Firms.

Topic Area Early, exploratory research efforts

Early internationalization

General characteristics

Role of technology Role of strategy

Theoretical perspectives: resourcebased and capabilities views

Theoretical perspectives: network view

Representative Articles Hedlund and Kverneland (1985), Ganitsky (1989), McDougall (1989), Rennie (1993), Oviatt and McDougall (1994), Knight and Cavusgil (1995), Knight and Cavusgil (1996) McDougall, Oviatt, and Shrader (2003), Moen and Servais (2002), Bell, McNaughton, Young, and Crick (2003), Hashai (2011), McNaughton (2003), Chetty and Campbell-Hunt (2004), Fernhaber, McDougall, and Oviatt (2007), Zhou (2007), Kudina, Yip, and Barkema (2008) Crick (2009), Knight (2000), Etemad (2004), Rialp et al. (2005), Luostarinen and Gabrielsson (2006), Servais, Zucchella, and Palamara (2006), Fan and Phan (2007), Acedo and Jones (2007), Freeman and Cavusgil (2007) Loane (2006), Servais, Madsen, and Rasmussen (2007) Knight, Madsen, and Servais (2004), Knight and Cavusgil (2005), Freeman, Edwards, and Schroder (2006), Laanti, Gabrielsson, and Gabrielsson (2007), Mudambi and Zahra (2007), Kuivalainen et al. (2007), Aspelund et al. (2007), Michailova and Wilson (2008) Yeoh (2000), Rialp and Rialp (2006), Weerawardena et al. (2007), Karra, Phillips, and Tracey (2008), Di Gregorio, Musteen, and Thomas (2008), Knight and Cavusgil (2004), De Clercq, Sapienza, Yavuz, and Zhou (2012) Sharma and Blomstermo (2003), Mort and Weerawardena (2006), Coviello and Cox (2006), Coviello (2006), Yu et al. (2011), Zhou, Wu, and Luo (2007)

Initial research on born globals commenced in the 1980s, when scholars began noticing that some companies undertake internationalization early in their existence. In what might have been the earliest study to investigate this phenomenon, Hedlund and Kverneland (1985) examined the entry of Swedish firms into Japan. They found that entry and growth strategies were shifting toward more direct and rapid entry modes. About half the study’s firms went directly from an import agent to manufacturing in Japan, without establishing a sales subsidiary (Hedlund & Kverneland, 1985). In essence, the firms undertook early and rapid internationalization.

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In an early study, McDougall (1989) defined “international entrepreneurship” as the emergence of companies that, from their founding, engage in international business. McDougall (1989) found that the strategy and industry structure profiles of born-global type firms varied substantially from those of domestic new ventures. International start-ups were relatively aggressive in pursuing opportunities abroad. McDougall’s (1989) born global firms were innovative in developing a range of strategies to succeed in numerous international markets. Rennie (1993) first proposed the term “born global” to describe companies that internationalize at or near their founding. His study investigated born globals in Australia where a large proportion of new venture firms undertake substantial international business. In addition to early internationalization, numerous studies have described other characteristics of born global firms. Knight (2000) investigated the interrelationships of entrepreneurial orientation, marketing strategy, and company performance among small international companies affected by globalization. Entrepreneurial orientation was found to correlate with the development of specific types of marketing strategies that enhance international performance. In their comprehensive review, Rialp et al. (2005) suggested the most common factors that trigger early internationalization which include: (i) new market conditions worldwide; (ii) technological developments in communication, production, and transportation; (iii) increased role of global networks and alliances; and (iv) organizational capabilities. Born globals were characterized by particular factors, including managers with substantial international experience; international managerial vision; international business commitment; superior international business networks; unique intangible assets within the firm, rooted in specific knowledge and capabilities; and offering high-value goods, such as technology products; strong market orientation and customer focus; and flexibility to adapt to evolving environmental conditions (Rialp et al., 2005). A few studies have examined the role of ICTs in the international performance of born global companies. For example, Loane (2006) investigated the Internet’s role in the internationalization of small entrepreneurial companies. Among other uses, born globals use the Internet for communication with value-chain partners, for marketing communications, and for managing customer relationships as well as sales transactions and fulfillment (Loane, 2006). Numerous studies have highlighted the specific strategies applied by born global companies. An emphasis on time and behavior allows scholars

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to view born globals through temporal and behavioral lenses, emphasizing the impact of these constructs on organizational performance (Hashai, 2011; Jones & Coviello, 2005). In a 2005 empirical study of several hundred firms, Knight and Cavusgil devised a taxonomy and found four broad clusters of born global companies. Some born globals emphasize a strong strategic and entrepreneurial focus. They especially excel in differentiation and focus strategies (Porter, 1980). Another group of born global firms were strong in focus and differentiation as well as technological leadership. A third group of firms emphasized the strategy of cost leadership. However, they tended to be less profitable (Knight & Cavusgil, 2005). The born globals in the study that performed best emphasized focus and differentiation strategies, clearly defined approaches. By contrast, the worst performing firms did not typify any particular strategic pattern (Knight & Cavusgil, 2005). Kuivalainen et al. (2007) reviewed the literature on born globals and explored the relationship between entrepreneurial orientation and born global strategy. Results of an empirical study suggested that various dimensions of entrepreneurial orientation were particularly important to company success. Results highlighted the critical role of entrepreneurial behavior in the success of born global firms (Kuivalainen et al., 2007). Recent literature has leveraged the resource-based view (e.g., Collis, 1991; Wernerfelt, 1984) and dynamic capabilities view (e.g., Dosi, 1988; Nelson & Winter, 1982; Teece, Pisano, & Shuen, 1997) to explain born global companies. Among born global firms, foreign market entry is usually characterized by deployment of various resources that may lead to the adoption of more risky and committed modes in countries of increasing psychic distance (Acedo & Jones, 2007; Crick, 2009). Rialp and Rialp (2006) analyzed the effect of various company resources, especially intangible ones, on the internationalization of born global companies. Empirical results confirmed that both human and organizational capital resources have a significant impact on born global success abroad (Rialp & Rialp, 2006). Dynamic capabilities are the routines through which the firm learns from sources in the market, the firm’s network of relationships, and the learning that is harnessed internal to the firm itself (e.g., Dosi, 1988; Nelson & Winter, 1982; Teece et al., 1997). Weerawardena et al. (2007) argued that the most critical capabilities in born global internationalization and international performance include a market-focused learning capability, internally focused learning capability, networking capability, and marketing capability. Such capabilities combined with superior qualifications of company founders (such as having an international entrepreneurial

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orientation, a general learning orientation, and prior international experience) lead born globals to develop high-value-added products that facilitate early internationalization. Learning and knowledge are generally key antecedents and outcomes of early internationalization (De Clercq, Sapienza, Yavuz, & Zhou, 2012). Several scholars have applied the network view of international business to explain born global internationalization and superior performance. For example, Sharma and Blomstermo (2003) proposed that models that emphasize knowledge and networks are particularly appropriate for theory development in this area. They showed that born globals tend to acquire international market knowledge before their first foreign market entry. Management’s choice of foreign market entry mode is typically based on its existing knowledge and knowledge supplied by network ties (Sharma & Blomstermo, 2003). Other scholars have argued that alliances and networks affect the likelihood a firm will undertake early internationalization (Yu, Gilbert, & Oviatt, 2011).

INTERNATIONAL ENTREPRENEURSHIP AND NATIONAL COMPETITIVE ADVANTAGE The born global phenomenon has given force to a new academic field: international entrepreneurship (e.g., Giamartino, McDougall, & Bird, 1993; McDougall & Oviatt, 2000; Zahra & George, 2002). International entrepreneurship is defined as a combination of innovative, proactive, and risk-seeking behavior that crosses national borders and aims to create value in organizations (McDougall & Oviatt, 2000). It implies a process of creatively discovering and exploiting opportunities that lie outside a firm’s domestic markets in the pursuit of competitive advantage (Zahra & George, 2002). Still in its infancy, the field of international entrepreneurship offers unprecedented opportunities to leverage theoretical approaches that enrich the development of theory and implications regarding born global companies (Jones et al., 2011). This new field has gained considerable momentum, as reflected by the appearance of several special issues on this field in various academic journals. Scholars have produced various multidimensional research in the new field (e.g., Giamartino et al., 1993; McDougall & Oviatt, 2000; Oviatt & McDougall, 1994, 1997; Rialp et al., 2005; Wright & Ricks, 1994). Two principle research streams can be distinguished in

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international entrepreneurship: (1) the growing international role played by born-global type ventures and (2) the international, entrepreneurial activities of more traditional, established companies (e.g., Lu & Beamish, 2001; Zahra & George, 2002). The international entrepreneurship perspective implies that international business is no longer fully dominated by large MNEs. Rather, today internationally alert entrepreneurs at young companies link resources from multiple countries to meet the demands of markets located around the world (Cavusgil & Knight, 2009). The globalization of markets has fostered a new type of competition a race among nations to reposition themselves as attractive places to invest and do business. In recent decades, governments increasingly have advanced proactive policies designed to create competitive advantage, often by developing world-class economic sectors and prosperous geographic regions (e.g., Badenhausen, 2011; Wells, 1990). An individual firm has a competitive advantage when it possesses one or more sources of distinctive competence relative to others, allowing it to perform better than its competitors (Porter, 1980). Born global firms are characterized by innovativeness, technological prowess, and entrepreneurial mindsets in international business (e.g., Cavusgil & Knight, 2009; Rialp et al., 2005). Young companies and SMEs tend to produce the largest number of net new jobs as well as innovations and leading-edge practices that benefit local and national economies. At both the firm and national levels, competitive advantage grows out of innovation (Porter, 1990). The aggregate innovative capacity of a nation is derived from the collective innovative capacity of its firms. The more innovative firms a nation has, the stronger that nation’s competitive advantage (Porter, 1990). Innovation also promotes productivity, the value of the output produced by a unit of labor or capital. The more productive a firm is, the more efficiently it uses its resources. The more productive the firms in a nation are, the more efficiently the nation uses its resources. At the national level, productivity is a key determinant of the nation’s long-run standard of living and a basic source of national per capita (per person) income growth (e.g., Feenstra & Kee, 2008; OECD, 2012). Born global firms and other innovative SMEs reveal much prowess in contributing to national innovativeness and productivity. Accordingly, numerous economically successful nations endeavor to support the development and maintenance of business sectors that encourage the emergence of innovative venture firms, such as born globals (e.g., Badenhausen, 2011; Wells, 1990).

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FUTURE RESEARCH ON BORN GLOBAL FIRMS The rise of born global firms has the potential to challenge or extend earlier views on the internationalization of the firm. Traditional models long have emphasized that internationalization is a slow, incremental process (e.g., Cavusgil, 1982; Johanson & Vahlne, 1977). The traditional slowness of company internationalization reflects the view that management is unable to acquire relevant knowledge, experience, and market information rapidly. However, born globals seem to be taking a distinctive path, suggesting that traditional views on internationalization can be enriched. Small size and limited tangible resources are no longer substantial barriers to international business and success in the global marketplace. In many respects, research on born global firms is still at an embryonic stage. Currently, relatively little is known about these companies, how and why they internationalize early, and how they succeed in international business. It is useful to explore here how enhancements might be made in future research on born global companies. Consistent with the early phases of research on new phenomena, studies on born globals have tended to emphasize exploratory approaches. Numerous studies have been descriptive, without much emphasis on the development of theory (Rialp et al., 2005). To date, only a minority of studies can be considered to be grounded in robust theoretical perspectives. Initially, future researchers might aim at unifying and improving the conceptual and operational definitions that characterize born global research. The development of standard definitions and conceptualizations would help ensure future research efforts are more understandable and comparable. Scholars should aim for better formulated and integrated theoretical frameworks that support the development of explanations, research propositions, and hypotheses, in both theoretical and empirical works. Much extant research relies exclusively on a single theoretical framework, such as the Uppsala Internationalization Model or the network theory perspective, to investigate born global companies (Rialp et al., 2005). By contrast, scholars should aim to expand the base of theoretical perspectives used to explain the born global phenomenon. For example, future research might leverage the resource-based view of the firm, transaction cost theory, and the organizational capability perspective in order to advance knowledge on born global companies. For example, the transactions cost economics view argues that volatility and environmental uncertainty should induce companies to rely on relatively flexible entry modes in

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which the risk of entry is shifted to outsiders (Williamson, 1975, 1985). Overall, transactions costs analysis suggests that, in the relatively volatile circumstances of many foreign markets, or in markets that entail considerable uncertainty owing to managerial inexperience or ignorance, entrants should opt for low-control entry modes. Such modes minimize resource commitments and allow the market entrant to change partners and other operating procedures rapidly, in light of evolving circumstances (Anderson & Gatignon, 1986). New explanations are needed which examine the strategies that enable contemporary companies to internationalize early. Future research should seek to deepen knowledge about the factors that drive early internationalization. Resultant information would be useful for advancing theory about the different strategies that born globals use to advance internationalization objectives. Integrating existing theories and frameworks would provide a more holistic understanding of the phenomenon. Integrating theoretical perspectives from various domains across programmatic research can produce synergistic findings and understanding of the characteristics, theoretical implications, antecedents, and consequences in born global companies. Subsequent work might emphasize further integration of the international business and entrepreneurship literatures. Future research also can benefit by drawing on theories and perspectives from nonbusiness disciplines. Future research will also benefit from applying both quantitative and qualitative approaches. Particularly useful are longitudinal surveys using large-scale samples of representative companies, combined with case studies of both born global and nonborn global companies. Examining nonborn globals, that is, companies that do international business using traditional, conventional approaches, provides a basis to compare and better understand born global companies. Given internationalization as a dynamic process that evolves over time, the best research designs allow for investigations that examine internationalization longitudinally. Accordingly, empirical research would aim to provide an understanding of how and when a firm’s international growth patterns reflect stages, relate to surrounding processes such as networks, or exhibit advanced entry modes, such as foreign direct investment (Coviello & McAuley, 1999). Future research should emphasize the role of the entrepreneur in the founding of early internationalizing companies. Managerial vision, international competences, and sensitivity to international growth opportunities allow entrepreneurs to aggressively pursue opportunities abroad. Future research should investigate how orientations and strategies

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employed by born global companies might be leveraged to advance internationalization and international performance in large, established companies. Older, large companies can benefit from research on born global companies by adopting the resources, capabilities, and postures that help the smaller companies succeed internationally. Knowledge development on born global firms would benefit from research on numerous other topics: • A key issue is the tension between early internationalization, international performance, and the limited resources that characterize born global firms. Thus, what accounts for early internationalization and international success in born globals, in light of resource constraints? • Numerous studies have implied that the age of the firm may drive particular advantages associated with internationalization. Thus, what is the role of the firm’s age in internationalization and superior performance among born global companies? • What specific conditions within the firm give rise to early internationalization? For example, what is the role of managerial vision and drive, innovativeness, and other such factors? • Does early internationalization also occur among companies that specialize in services? If so, how do they differ from early internationalizing firms that specialize in products? • How and under what circumstances does the behavior of born globals truly differ from larger companies? • What is the role of globalization and technological developments in born global internationalization? • What is the role of cultural and geographic distance in early internationalization and performance abroad among born global firms? • In target markets, what is the effect on born global internationalization and success of market-specific factors such as culture, the legalregulatory environment, political-institutional environment, and government intervention? • In target markets, what is the impact on born global internationalization and success of market-specific factors such as market hostility, competitive intensity, dynamism, uncertainty, and corruption? • What is the effect on born global internationalization and international performance of particular types of company resources, such as knowledge, international experience, social capital, networks and alliances, product scope and quality, high-value products, knowledge-intensive products, intermediary quality, and government assistance?

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• What is the impact on born global internationalization and international performance of particular types of organizational orientations, such as learning orientation, entrepreneurial orientation, and market orientation? • What is the effect on born global internationalization and international performance of particular types of organizational capabilities, such as managerial competence, innovativeness, technological competence, marketing competence, collaborative skills, and international business competence? • What is the impact on born global internationalization and international performance of particular strategies and tactics, such as R&D, basic strategic orientation, cost leadership, differentiation strategy, focus strategy, integration versus responsiveness, entry strategy, marketing communications, and distribution approach? • Little is known about the longer-term survival of born global firms. Given the rigors of international business, companies that internationalize early and substantially might experience higher failure rates than young companies that remain domestically focused. Thus, future research might investigate the long-term performance of born global companies. For example, what proportion of born global firms become large, successful international companies? Addressing these and numerous other research questions will further elucidate the nature of born global companies. High-quality research often combines exploratory and confirmatory approaches, combining both qualitative and quantitative research methods. A methodological strategy based on a number of case-based studies of born globals together with surveys of large-scale, representative samples of companies would prove useful. Research should aim to clarify environmental characteristics, internationalization processes, primary characteristics, and performance antecedents of these companies, as well as the characteristics of the entrepreneurs and managers who run them.

EMERGING MARKETS CONTEXT Emerging markets are the most exciting trend in global trade and investment. They are fast-growth countries in a middle stage of economic development that represent attractive international business opportunities. The most notable emerging markets are the BRIICK countries Brazil, Russia, India, Indonesia, China, and South Korea as identified by the

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World Bank (2011). Such countries together have enjoyed average annual GDP growth rates of nearly 7 percent, a remarkable feat. Their economies have been growing much faster than those of the advanced economy countries. Several emerging markets will join the group of wealthy nations in the not-too-distant future (World Bank, 2011). China and India together represent about one-third of the world’s population. China is the biggest emerging market and its role in international business is rapidly expanding. With a population of 1.3 billion people (onefifth of the world total), China is the world’s second largest economy in purchasing power parity terms. The Chinese economy continues to growing at the astonishing annual rate of nearly 10 percent. During the past decade, the number of Global 500 firms headquartered in China has risen dramatically, and will expand further. Leading exemplars include Shanghai Automotive (China’s top automaker), Sinopec (a large oil company), and Shanghai Baosteel (a steel manufacturer). Opportunities to conduct business in emerging markets are increasingly attractive. Successful entry into emerging markets appears to require new business models and approaches to product development, including a strong attentiveness to buyer needs. Firms might need to devise leapfrog technologies and business approaches for succeeding in emerging markets. Early research in this domain confirms the initial assumptions that emerging markets pose fundamentally new challenges for international business. Widening the strategic bandwidth to include emerging markets appears to have significant implications for global and emerging market strategy, as well as various theoretical perspectives.

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THE MARKET ORIENTATION OF DOMESTIC AND INTERNATIONAL NEW VENTURES Tage Koed Madsen, Hans Eibe Sørensen and Rosalina Torres-Ortega ABSTRACT Market orientation is often mentioned as a key factor for the success of domestic and international activities, but our knowledge about differences in degrees of market orientation remains limited for firms that have varying degrees of international activities. In particular, the literature is very sparse with regard to studies of newly established firms. Our study empirically explores this gap examining how different types of new ventures adopt two strategic components of market orientation customer orientation and competitor orientation. Our empirical evidence is based on responses from CEOs of 249 Danish manufacturing firms that are categorized into four groups, depending on their degree of international operations within the first three years. We demonstrate that the most internationally oriented firms seem to be the most market oriented in general. They are significantly more competitor-oriented than domestically oriented firms, but the results regarding customer orientation are more mixed. Interestingly, we find indications that the strategic emphasis

Entrepreneurship in International Marketing Advances in International Marketing, Volume 25, 21 44 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1108/S1474-797920140000025002

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on customer orientation may be higher for firms with domestic operations than for those with limited international operations. We discuss implications for research and managers. Keywords: Domestic and international new ventures; market orientation; customer orientation; competitor orientation; international entrepreneurship; manufacturing firms

INTRODUCTION This paper explores the degree of market orientation in new ventures with no, limited, or high levels of international scope. Numerous studies have explored the degree of market orientation as well as its antecedents and consequences for firms’ performance (see e.g., Ellis, 2006; Grinstein, 2008; Kirca, Jayachandran, & Bearden, 2005; Lado, Duque, & Alvarez, 2013; Rose & Shoham, 2002). The studies have focused on firm behavior on domestic markets as well as on export markets. So far, however, in the research tradition of International Entrepreneurship (IE) it still needs to be explored whether the market orientation of different types of national and international new ventures (INVs) is similar or dissimilar. The traditional export literature emphasizes that experiential learning is an important driver for international success, indicating that being market oriented and oriented toward learning from the new venture’s international activities is very important (Johanson & Vahlne, 1977, 2009). The traditional stages models also indicate that there are limits for geographical diversification of exporting firms since experiential learning takes time, and thus exporters may only have enough resources to become market oriented in a limited number of foreign markets. In addition, traditional as well as more rapidly internationalizing exporters such as the so-called INVs or Born Globals (Madsen & Servais, 1997; Oviatt & McDougall, 1994) very often choose low-commitment entry modes. This means that they rely very much on a set of distributors on foreign markets in their efforts to overcome the “liability of foreignness/outsiderness” (Johanson & Vahlne, 2009). The implication is that the local distributor contributes the local market knowledge and network, which may lower the demand for market orientation in the exporting firm. This issue is explored in the present paper that contributes by adding knowledge about market orientation in entrepreneurial firms with varying

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degrees of national or international orientations. Firms in a large survey are classified into different groups based on the criteria suggested by Oviatt and McDougall (1994), henceforth labeled the OM classification. Based on these criteria, firms are classified as Domestic New Ventures (DNVs), and three different types of INVs. The degree of market orientation of these types of firms is examined. Our findings reveal that the subject is more complex than anticipated and provide only few statistically significant associations. The results are in support of the general applicability of market orientation’s strategic components customer and competitor orientation and interesting differences in degrees of market orientation were disclosed predominantly among the DNVs and “extreme” INVs. The paper is organized such that “Theory and Hypotheses” briefly presents the theoretical background and formulates hypotheses. “Research Design” develops the methodology applied in the survey that provides the empirical evidence. “Analysis and Results” presents the results of the analyses whereas “Discussion and Implications” discusses the results and their implication for future research.

THEORY AND HYPOTHESES The study of INVs is a subset of research in IE. Some authors (e.g., Knight & Cavusgil, 1996; Oviatt & McDougall, 1994) have presented the phenomenon of INVs as a challenge calling for a new theory, whereas others (e.g., Madsen & Servais, 1997) argue that even though firms internationalize in a different manner than traditionally, they do not necessarily differ from other firms with respect to the international development processes described by the stages models (Johanson & Vahlne, 1977, 2009). Most of the research in the IE literature compares INVs and subsets of INVs with DNVs (e.g., McDougall, Oviatt, & Shrader, 2003). Literature reviews have demonstrated quite varying findings with regard to INV types of firms (Rialp, Rialp, & Knight, 2005) and their marketing strategies (Aspelund, Madsen, & Moen, 2007). Quite often the literature reports diverging findings due to the fact that the phenomenon is not clearly delineated in the literature. The operational definition of the phenomena of DNVs and INVs in the present study follows the seminal articles by Oviatt and McDougall (1994) and the classification of new ventures into groups is thus firmly grounded in the literature. The theoretical background for the classification of firms

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as well as the concept of market orientation will be explained in “IE and Market Orientation” whereas “Market Orientation in INVs” provides a brief review of the conceptualization of market orientation in the IE literature. The section “Hypotheses” concludes by formulating hypotheses to be tested.

IE and Market Orientation Over the last decade there have been several studies that have focused on INVs, that is smaller, entrepreneurial firms that adopt an international or even global focus from inception and operate in international markets from the earliest day of their establishment (see e.g., Knight & Cavusgil, 1996; Madsen & Servais, 1997; Oviatt & McDougall, 1994). The literature reveals some discrepancies with regard to the conceptualization of the phenomenon, but overall there is a rather high degree of consensus concerning how the phenomenon should be defined theoretically, and most scholars refer to Oviatt and McDougall (1994) who define an INV as “… a business organization that, from inception, seeks to derive significant advantage from the use of resources and the sale of outputs in multiple countries” (p. 49). Deriving such advantages may be pursued by numerous strategies. Zahra and George (2002) suggest focusing on the study of such firms along three dimensions that form the international development path of each single firm: (1) extent (i.e., the degree of internationalization of a firm’s sales), (2) speed (i.e., the pace between the year of foundation and first foreign sales), (3) scope (i.e., number and diversity of target countries/markets). From a theoretical point of view the research on INVs has always combined international business concepts with research in entrepreneurship, as demonstrated for example in the seminal article of Oviatt and McDougall (1994). The field of IE reflects an interest for research combining internationalization of the firm and entrepreneurship. This interest can be seen in a huge number of articles that have been reviewed by for example Rialp et al. (2005), Aspelund et al. (2007), Keupp and Gassmann (2009), and Cesinger, Fink, Madsen, and Kraus (2012). Speed of internationalization is a variable that is used in order to separate DNVs from INVs. In the literature there is, however, no agreement with regard to the operationalization of the time span in which a firm is

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considered to be new. McDougall et al. (2003) state that the entrepreneurship literature seems to adopt the convention of classifying a venture as new until it is six years old. This is in contrast to most studies in the area of international business. The convention here is to follow Knight (1997) in his limit of three years. The latter approach has been chosen in the present study since it makes most sense in the case of Danish firms which initiate international activities from a small domestic market (Denmark has 5.5 million inhabitants). Furthermore, a time horizon of three years seems most relevant in the present, very global market conditions. Consequently, a firm is classified as an INV (and not a DNV) if it carries out international activities within three years after its year of foundation. If it still has only domestic operations after three years it is classified as a DNV in the ensuing years. The Oviatt and McDougall (OM) Classification Entrepreneurial firms may exhibit very different attitudes as well as activity levels with regard to their international operations. In addition to entrepreneurial firms that are solely oriented toward the domestic market (DNVs), Oviatt and McDougall (1994) propose distinguishing between four categories of INVs: Export/import Start-Ups, Multinational Traders, Geographically Focused Start-Ups, and Global Start-Ups. The authors are, however, somewhat vague with regard to the empirical operationalization of the dimensions suggested as the basis for classification into the four categories. The first dimension suggested for classification by Oviatt and McDougall (1994) is related to the value chain activities that are coordinated by the firm across countries. They suggest two possible indicators: (a) the number of such value chain activities and (b) the type of activities (primarily logistics vs. also other types of activities such as service and production). The second dimension suggested for classification is the number of foreign countries entered by the firm, but the authors do not suggest any specific cut-off number. An important variable with regard to classification according to Oviatt and McDougall (1994) is the coordination of value chain activities. In the present study this dimension was operationalized by asking whether the firms coordinated the following value chain activities across borders within three years after inception (answers “yes” or “no”): • Sourcing activities (raw materials, components, production equipment, or processes) • Production activities

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• Sales and marketing activities • Service activities (installation, maintenance, repair, training, and so on). Regarding the number of value chain activities coordinated across countries, the present study categorizes firms as least international if they are coordinating only one or two value chain activities within three years after inception. Firms coordinating three or four activities are categorized as most international. Furthermore, the firms were asked to provide the number of countrymarkets in which they had activities within three years after inception. The number of countries in this classification was operationalized in the following manner: If it had activities in 1 3 foreign countries, the firm was categorized as least international; if a firm had activities in at least four foreign countries it was categorized as most international. This cut-off point is somewhat arbitrary, but four foreign country-markets within three years after inception is a quite high number, even for a European firm. If a firm had no value chain activities outside Denmark within the first three years after inception, it was categorized as a DNV. This resulted in the following typologies Table 1: Table 1. DNV Export/Import Start-Up Multinational Trader Geographically Focused Start-Up Global Start-Up

Typologies of New Ventures.

No value chain activities abroad within the first three years after inception 1 2 value chain activities abroad in 1 3 foreign countries within the first three years after inception 1 2 value chain activities abroad in four foreign countries within the first three years after inception 3 4 value chain activities abroad in 1 3 foreign countries within the first three years after inception 3 4 value chain activities abroad in four foreign countries within the first three years after inception

In the analyses reported below the Geographically Focused and Global Start-Ups have been grouped into one category (Geo-Global Start-Ups) because of a limited number of observations in these categories. The strength of the dimensions/criteria proposed by OM classification is that it covers a broad range of business activity (“scope” according to the framework of Zahra & George, 2002) in the effort to delineate the phenomenon in question. This definition does not, however, incorporate the extent of international activity. Also, just counting the number of foreign country markets is a limitation. In fact, a Danish manufacturer selling a small

Market Orientation of Domestic and International New Ventures

27

percentage of its products in Norway, Sweden, the United Kingdom, and Germany and sourcing components as well as installing its products in only one of these countries might be classified as a Global Start-Up according to this classification method. As it appears, the OM definition incorporates the scope, but not the extent of international activities. An often used definition of a similar kind is the Born Global definition suggested by Knight (1997) whose definition incorporates extent, but not scope. We have used the Knight criteria for an alternative classification and carried out the same data analyses as reported below. This alternative definition resulted in highly similar conclusions that support the assumed validity of findings reported in the findings section of this paper. Market Orientation The knowledge regarding the internationalization processes of entrepreneurial firms is quite extensive, but one question has received a limited interest: the degree of market orientation in such firms. Market orientation refers to an organizational culture that is manifested in the organizationwide behaviors and activities pertaining to the acquisition and dissemination of customer and competitive information and timely action taken upon this information (Homburg & Pflesser, 2000; Kohli & Jaworski, 1990; Narver & Slater, 1990). Previous research on market orientation has been conducted in domestically oriented firms as well as in exporting companies (Armario, Ruiz, & Armario, 2008; Breman & Dalgic, 2000; Cadogan & Cui, 2004; Murray, Yong, Gao, & Kotabe, 2011; Pitta & Smith, 2011). In general, marketing and management scholars stress that the implementation of market orientation boosts firm performance (Beaujanot, Lockshin, & Quester, 2006; Bhuian, Menguc, & Bell, 2005; Connor, 2007; Ellis, 2006; Gaur, Vasudevan, & Gaur, 2011; Han, Kim, & Sirvastava, 1998; Kirca et al., 2005; Narver & Slater, 1990; Selnes, Jaworski, & Kohli, 1996). Given the organization-wide nature of the market-oriented firm’s behaviors and activities it also includes export market activities. The literature on export market orientation (EMO) has demonstrated a slightly different approach to the concept (see e.g., Cadogan, Cui, & Li, 2003). Cadogan, Diamantopoulos, and de Mortanges (1999) developed an EMO scale inspired mainly by Kohli, Jaworski, and Kumar (1993), including generation, dissemination, and responsiveness with regard to knowledge about export markets. They argue that the basic nature of the construct is not changed even though the setting changes from being a domestic setting to

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an international one. But they do argue that conducting business activities in international markets does present the firm with additional challenges because the environment becomes more complex and at the same time it becomes more difficult and costly to access and understand market information due to cultural and institutional differences. Furthermore, market information may not be available, is more expensive to generate, and perhaps has a lower quality. The dependent variables for this study are the respective levels of market orientation for different groups of firms (DNVs and subsets of INVs). Corroborating the conceptual and operationalization insights on market orientation measurement from, for example, the works of Cadogan and Diamontopoulos (1995) and Cadogan et al. (1999), we adopted the strategic component measures of market orientation customer orientation and competitor orientation from the work of Sørensen and Slater (2008). Appendix provides the details of all indicators used. Since market orientation is a quite complex concept to investigate in international firms, it may be hypothesized that the variability in degrees of market orientation may be quite high in INVs. This question will be explored further below.

Market Orientation in INVs Previous studies into traditional exporting firms have examined the link between market orientation and export performance (e.g., Akyol & Akehurst, 2003; Cadogan, Kuivalainen, & Sundqvist, 2009; Chi & Sun, 2013; Chung, 2012; Ellis, 2006; Murray, Yong, Gao, Kotabe, & Zhou, 2007; Sørensen & Madsen, 2012). In this vein, much research adopted the measure of “export market orientation” (EMO), developed by previous studies (Cadogan et al., 1999; Cadogan, Diamantopoulos, & Siguaw, 2002) incorporating export market intelligence generation, dissemination, and responsiveness. Cadogan (2012) reports a huge interest in market orientation in the literature; his count is around 800 papers in the period of 1990 2011. He notes, however, that research in this area is less well developed in the international and export marketing literature. The stream of research having exporting firms’ market orientation as the unit of analysis often challenges the positive linear relationship often demonstrated between market orientation and performance. Linear relationships have been found in empirical studies, but they are also moderated by environmental

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variables (see e.g., Cadogan et al., 2003; Rose & Shoham, 2002), and even nonlinear relationships have been found (see e.g., Cadogan & Cui, 2004; Cadogan et al., 2009; Sørensen & Madsen, 2012). It therefore remains to be explored whether market orientation has the same value in the more complex environments of export activities. Empirical research has tentatively established a positive relationship between market orientation and performance in the INV context (Akyol & Akehurst, 2003; Armario et al., 2008; Blesa, Monferrer, NauWelaerts, & Ripolle´s, 2008; Brettel, Engelen, & Heinemann, 2009; Ripolle´s, Blesa, & Monferrer, 2012; Wood et al., 2011). Aligned with the general market orientation literature, the research of INV seemingly supports a positive relationship between market orientation and performance. For example, in a study on Spanish and Belgian INVs, Blesa et al. (2008) found that the link between early international commitment and the positional advantages of INVs is influenced by the development of market orientation. Brettel et al. (2009) examined how the market orientation performance relationship impacts on INVs from different cultural contexts (German and Thai) and found that despite the different geographical background, market orientation is generally positively linked to the performance of the early internationalizing firms. Armario et al. (2008) evaluated the direct and indirect effects of market orientation and strategy of internationalization (e.g., knowledge acquisition and market commitment) on the performance of international exporters and found that the positive relationship between market orientation and performance in foreign markets is moderated by knowledge acquisition and market commitment. Moreover, recent studies address the role of the market orientation as a strategic orientation that influences the success of the INV firms when combined with entrepreneurial orientation and learning orientation (Frishammar & Andersson, 2009; Ripolle´s et al., 2012; Ruokonen & Saarenketo, 2009). For instance, Ripolle´s et al. (2012) highlight the influence of INV’s international learning effort through their international market orientation, which has a positive effect on their entry mode choice. However, despite the significant impact of market orientation on a firm’s performance, the applicability of the market orientation concept in different international market conditions and types of INVs remains underresearched (e.g., Blesa et al., 2008; Hallback & Gabrielsson, 2013). As Knight and Cavusgil (2004, p. 130) point out “market orientation may be especially important in the performance of BGs,” but the levels of market orientation have not been studied in detail so far attempting to compare

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domestically oriented firms with firms that have different degrees of international orientation. Hypotheses The present study has two empirical contributions. First, we explore the possible difference between the level of market orientation of domestic firms and the level of firms with international operations. We then explore only internationally oriented firms and examine the association between firms’ level of market orientation and the scope and extent of their international operations. We are unaware of any previous studies comparing the degree of market orientation in internationally oriented firms with that in domestically oriented firms. In general the literature reports a positive relationship between market orientation and performance. We assume that domestic as well as international firms may reap benefits from being market oriented, and since we have no previous knowledge we hypothesize that: H1. There is no difference in market orientation between firms with only domestic operations and firms with (domestic and) international operations. At the next level, we explore how the degree of market orientation differs among firms with different levels of international operations. Specifically, we classify firms with different levels of international operations as mentioned above (the OM classification) and then compare the average level of market orientation among the different classes of firms. Since some form of positive relationship between market orientation and the extent and scope of internationalization may be expected, and we hypothesize that: H2. Market orientation is positively associated with the speed and scope of international operations of the firm. The next section will outline the survey providing the empirical data for testing the hypotheses.

RESEARCH DESIGN This section gives an overview of the methodological approach used to collect the empirical data. A definition of the population is followed by explaining of the purification of the multiindicator measures.

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Data Collection The empirical study was carried out in 2004/2005, the unit of analysis being the business firm. The population includes Danish firms in the industries with NACE codes 15 37 (manufacturing), 72.21 (development of software), and 73.1 (high-tech firms). Bakeries (NACE 15.81.20) and the graphic industry (NACE 22) were excluded as they have primarily very small and locally oriented business firms in Denmark. The population of business firms was identified by means of CD-Direct, listing all Danish private business firms. Business firms established in 1982 2001 were the main focus of the study. Firms established in 2002 or later are not taken into account since information about the international sales or sourcing within the first three years of a firm’s lifetime was required (see section “Measure Purification”). Only firms with a minimum of 10 employees in February 2004 were included. In order to be able to compare enterprises founded earlier, firms established before 1982 and having 50 employees or more in February 2004 were also included. On 1 February 2004 business firms were selected from CD-Direct according to the criteria mentioned above. A total of 3,048 firms in Denmark met the criteria. In total, 91 duplicates (e.g., the same firm registered at two addresses or two firms being mother and daughter registered at the same address) were identified as well as a total of 49 wrong registrations (closed firms, further duplicates, firms with wrong NACE code, etc.) which reduced the population to 2,908 firms. Each firm was contacted by telephone, and if it was not possible to reach the CEO after five phone calls, the firm was defined as unreachable and thus as not belonging to the final population (due to budget and time constraints). This was the case of a total of 381 firms which lead to the final population size of 2,527 firms. Out of the final population of 2,527 firms, 1,456 firms refused to participate in the survey. Lack of time was by far the most common reason for not participating. 1,071 firms participated in the survey. This corresponds to a response rate of 42.4%. The firms were asked to answer seven questions attached to an initial letter to the CEO (these questions aimed at classifying the firm and thus asked for relevant information about its activities during the first three years after inception see section “Measure Purification”). It was tested whether the respondents were representative for the population with respect to the founding year, number of employees, pre-tax profits, return on assets, geographical location in Denmark, and industry

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affiliation. The conclusion is that the 1,071 firms are significantly younger (average year of establishment 1982) than the 1,496 firms that did not participate (average years of establishment 1978 1979). When testing for size, industry, and geographical location no significant differences were found at the .05 level. Most of the firms answered the questions about the activities within the first three years during the telephone interview. Interviewers were instructed to assure that the responding person (the CEO) only answered the questions if (s)he had actual knowledge about the founding process of the firm. Except for that, it is not possible to check the reliability of the answers to the questions, but due to the direct contact with the respondent on the telephone, the answers should reflect the actual situation of the firms. Additional information regarding the early development of the firm as well as its degree of market orientation was obtained by a follow-up questionnaire sent to the founder of the firm, or to its present CEO. A total of 331 firms answered this questionnaire. Out of these answers 249 questionnaires contained useable information about the firms’ degree of market orientation.

Measure Purification Table 2 summarizes the descriptive statistics of the OM classifications. Because of a low number of respondents within the OM Geographically Focused Start-Up and Global Start-Up, we collapsed these two groups into “Geo-Global” Start-Up. As shown in Table 2 we generally observe higher levels of customer orientation relative to competitor orientation, but higher levels of variance in the competitor orientation. The corresponding mean plots are visualized in Fig. 1. Table 2.

Descriptive Statistics of the OM Classification. N

OM classification Domestic new venture Export/import start-up Multinational trader “Geo-global” start-up

106 94 33 16

Customer Orientation

Competitor Orientation

Mean

Std. Dev.

Mean

Std. Dev.

5.48 5.49 5.40 5.91

1.03 1.06 0.92 0.77

4.24 4.51 4.71 4.90

1.29 1.29 1.25 1.16

Market Orientation of Domestic and International New Ventures

33

6.00

Customers

5.80

5.60

Strategic orientation

5.40

Domestic Export/Import Multinational “Geo-Global” New Venture Start-Up Trader Start-Up

Competitors

6.00

5.80

5.60

5.40 Domestic Export/Import Multinational “Geo-Global” New Venture Start-Up Trader Start-Up

Fig. 1.

Mean Plots of the Level of Strategic Orientations of Types of Domestic and INVs.

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Table 3.

Descriptive Statistics and Correlation of the Dependent Variables.

Customer orientation Competitor orientation

N

Mean

Std. Dev.

Cronbach’s α

Competitor Orientation

249 249

5.50 4.45

1.02 1.28

.88 .91

.378*

*Significance at the .01 level (two way).

Purification of the Latent Constructs The multiindicator measures of customer orientation and competitor orientation were purified using Cronbach’s α for ascertaining sufficient internal consistency and reliability, but with an explicit care for a posteriori content validity (Sørensen & Slater, 2008). Three indicators were omitted from customer orientation (α = .88) and one indicator from competitor orientation (α = .91). The moderate correlation (r = .378) showed good discriminant validity between the constructs. The descriptive statistics and correlation of the multiindicator measures are presented in Table 3.

ANALYSIS AND RESULTS The association between a continuous variable (customer orientation) and a categorical variable (the OM classification) was assessed using a difference in means or ANOVA (analysis of variance) in SPSS 20. A two-factor (orientation by firm type) ANOVA was conducted on the CEO responses in the questionnaire. The two strategic orientations were a two-level withingroup factor and the INV-firm type was a four-level between-group factor. Two ANOVAs were conducted to explore the two INV classifications. Table 4 and Fig. 1 summarize our main results. By examining the mean plots in Fig. 1, we observed that the level of customer orientation and competitor orientation do seem to vary across the different INV types. We therefore explored the data further in a set of post hoc analyses. First, we examined the level of customer orientation and competitor orientation in the OM classification and showed significant differences (p = .049) in the level of customer orientation between Multinational Traders and “Geo-Global” Start-Ups as well as significant differences (p = .049) in the level of competitor orientation between DNVs and “GeoGlobal” Start-Ups. In general, we observe that the level of competitor

Market Orientation of Domestic and International New Ventures

Table 4.

Levels of Customer and Competitor Orientation. Customer Orientation

General analyses Contrast analysesa

35

Competitor Orientation

F4,244 = .993, p = .40

F4,244 = 2.190, p = .09

Multinational vs. “Geo-Global” (p = .05*)

Domestic vs. “Geo-Global” (p = .05*)

a

Unequal variance assumed. *Significance at the .05 level.

orientation is only discernible between nonexporters (domestic firms) and the INVs with the highest level of international operations. Interestingly, we also find that customer orientation is significantly different among OM’s Multinational Traders and “Geo-Globals,” but not among the domestic firms and “Geo-Global.”

DISCUSSION AND IMPLICATIONS Despite the widespread stance that market orientation is a key driver of the success of domestic and international activities, our knowledge about the level and differences of market orientation in domestically oriented firms and firms with varying degrees of international orientations remains limited. Our study empirically explores this gap and as our empirical evidence reveals, the subject is more complex than anticipated. The first general observation from our results of the present data indicates that the overall market orientation measures seem too coarse to capture differences and that its strategic component measures customer and competitor orientation provide relevant nuances to our understanding of different strategic emphases in firms with domestic or international operations. Conversely, the OM classification is perhaps not yet sufficiently developed to capture the difference in the level of customer and competitor orientation if there are any, among the firms with varying degrees of international activities. Let us look at the hypothesized relationships. Hypothesis 1 states that there is no difference in market orientation between domestically and internationally oriented firms and is partly rejected. The average level of competitor orientation is significantly lower among DNVs than among “Geo-Globals.” The comparison with the other typologies of internationally oriented firms revealed the directions expected,

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but these were not statistically significant. This means that H1 has to be rejected for competitor orientation, but we only find significant evidence for a part of the issue, as shown above. This suggests that higher levels of competitor orientation are especially critical when really pursuing international operations with accordingly high speed and scope. In contrast to the results for competitor orientation, the OM classifications reveal no significant differences in customer orientation between domestically oriented and internationally oriented firms. The alternative classification based on the works of Knight (1997), however, does indicate (but not significantly) that domestically oriented firms are more customeroriented than firms that are only to a limited extent internationally oriented. It would, however, not be surprising if domestically oriented firms seem to do better when it comes to customer orientation. Such firms probably compete on being very close to their customers, and thus build their competitive advantages around adaptation to local customer needs and wants. The most internationally oriented firms seem to be even more customer oriented, though. However, H1 cannot be rejected when analyzing for differences in customer orientation. We have tested the same associations when using a classification in which we isolated the most globally oriented firms in terms of their sales outside Europe. Since we had a low number of respondents in this group we have not reported these results, but the picture is almost exactly the same: these very globally oriented firms have the highest degree of customer orientation of all categories of firms. We can only speculate why the most globally oriented and the most locally oriented firms seem to be most customer oriented. It might be, though, that the globally oriented firms also build their competitive advantage around offering highly tailor-made solutions to their customers, perhaps with an extreme niche strategy serving only very few key customers in each country. It might be that these firms are start-ups based on a few customers that are known beforehand. If such customers are the drivers of the founding process of the firm this will imply a high degree of customer orientation. Following the results of the H1, the hypotheses investigating the difference among firms pursuing international operations with different degrees of scope are also partly rejected. Interestingly, analyses pertaining to Hypothesis 2 stating that market orientation is positively associated with the speed and scope of international operations of the firm reveal that the difference in levels of customer orientation is found to be significant only between Multinational Traders and “Geo-Globals.” Again the level of competitor orientation is indiscernible among firms with international

Market Orientation of Domestic and International New Ventures

37

operations. This suggests that while competitor orientation is equally relevant for all firms with international activities, firms with speed and scope as their main thrust are in need of relatively higher levels of customer orientation when being “Geo-Global.” Another interesting implication is that since Export/Import Start-Ups are “less” internationally active, the expansion of domestic activities into initial international activities does not seem to require a proportional increase in customer orientation. In sum, the results are in support of the general applicability of market orientation’s strategic components customer and competitor orientation although interesting nuances were disclosed predominantly among the domestic and “extreme” INVs in the OM classifications. Similar results were found for the alternative classification based on the work of Knight (1997) which is not reported here, though. Table 5 provides an overview of the study’s hypotheses and their results.

Managerial Implications Table 6 summarizes the preliminary managerial implications that our study indicates. Keep in mind that the results and their implications are based on averaged considerations on the sample of firms. In terms of pursuing market orientation it seems that domestically oriented firms put most emphasis on customer orientation, whereas they seem to be not very eager in their attempt to understand and analyze their competitors. As mentioned above this is perhaps not surprising since such firms may build their competitive advantages on close contact and adaptation to customers. The most internationally oriented firms seem to pursue customer orientation even more, Table 5. Hypothesis

Overview of Hypotheses and Results. Result

H1. There is no difference in market Partly rejected. There is no difference in orientation between firms with only customer orientation, but differences in domestic operations and firms with competitor orientation for both BG and (domestic and) international operations OM classifications H2. Market orientation is positively associated Partly rejected. Only accepted for customer with the speed and scope of international orientation between Multinational Traders operations of the firm and “Geo-Globals.” There are no significant differences in competitor orientation

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Table 6.

Strategic Emphasis based on Firms Type of Operations. Type of Operations

Strategic emphasis

Customers Competitors

Domestic

INVs

Yes No

Yes/No Yes

and in this case in combination with high levels of competitor orientation as well. They appear to be the most sophisticated firms in their total approach to being market oriented. Firms with less extent and scope of their international operations seem to place less emphasis on customer orientation and reallocate the strategic emphasis to increased competitor orientation in their effort to gain a foothold in international markets. As mentioned earlier this somewhat unclear picture may be explained by the fact that most exporters choose an entry mode in which local intermediaries play an important role. The “optimal” degree of market orientation in the exporting firms may therefore be very different, depending on the role of the intermediary.

Research Implications Despite our new knowledge about market orientation in domestic firms and INVs, the issue of market orientation in IE is certainly an underresearched area that deserves more attention. The present study has just scratched the surface by exploring the level of market orientation in different categories comparing domestically and different types of internationally oriented firms. As demonstrated no conclusive statements can be reached. In addition to examining the level of customer and competitor orientation, future research should definitely go several steps further and examine the antecedents as well as the consequences of these strategic components of market orientation in entrepreneurial and internationally oriented new ventures. Most importantly, the consequences of market orientation on performance should be explored in this context. We suggest including both operational and financial performance measures as well as more strategically or learning oriented types of performance. Another strand of research could study in depth which factors help create market orientation in this type of firm and how this strategic orientation is best implemented.

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Finally, since we know that many small and medium-sized exporters operate through intermediaries it seems that especially in this area it would be very important to follow the paths used by Grunert et al. (2005), Grunert, Trondsen, Camos, and Young (2010) and examine the market orientation of the total value chain including the exporter as well as distributors and local partners. Kohli and Jaworski (1990) note that market orientation is valuable only if benefits exceed the costs of the resources committed to the orientation. The question is, of course, whether exporting firms may benefit from letting other players in the value system bear the costs of market orientation and merely respond to their immediate orders. This would be in accordance with the work of Narver and Slater (1990) who argue that firms may focus on efficiency of operations and avoid the costs of market orientation, or they may focus on in-depth knowledge about the total value chain as their competitive advantage.

CONCLUSION This study empirically explores the level and differences of market orientation in firms that have either only domestic operations and or varying degrees of international orientations. Using two different INV classifications and the strategic component measures of market orientation customer orientation and competitor orientation the empirical evidence based on CEO responses from Danish manufacturing firms reveals that the subject is more complex than anticipated. In particular, we find that the relative strategic emphasis on customer orientation and competitor to some extent are opposite for firms with domestic operations than for those with international operations. In conclusion, we demonstrate that while this study provides new insights for scholars and practitioners, we have only scratched the surface of the strategic orientation and INV conundrum.

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APPENDIX: MEASURES AND INDICATORS Customer Orientation

We constantly monitor our level of commitment to serving customers’ needs. We measure customer satisfaction systematically.* Our top managers from every function regularly visit current and prospective customers.* We give close attention to after-sales service. We freely communicate information about our successful and unsuccessful customer experiences across all business functions.* All of our business functions (e.g., marketing/sales, operations, R&D, finance/accounting, etc.) are integrated in serving the needs of our target markets. All of our managers understand how everyone in our business can contribute to creating customer value. Our business objectives are driven primarily by customer satisfaction. Our strategy for competitive advantage is based on our understanding of customer needs. Our business strategies are driven by our beliefs about how we can create greater value for our customers. Operationalized on a 7-point Likert scale bounded by 1: “Strongly disagree” to 7: “Strongly agree”. *: excluded in the purified measure of customer orientation.

Competitor Orientation

We diagnose competitor’s goals. We track the performance of key competitors. We identify the areas where the key competitors have succeeded or failed. We attempt to identify competitors’ assumptions about themselves and our industry. Top management regularly discusses competitor’s strengths and weaknesses. Our salespeople regularly share information within our business concerning competitors’ activities. All of our managers understand how every business function can contribute to information on competitive activities. We target customers where we have an opportunity for competitive advantage. We rapidly respond to competitive actions that threaten us. We look for market opportunities that do not threaten competitors.* Operationalized on a 7-point Likert scale bounded by 1: “Strongly disagree” to 7: “Strongly agree”. *: excluded in the purified measure of competitor orientation.

THE EFFECTS OF ENTREPRENEURIAL MARKETING STRATEGIES ON THE LONG-TERM COMPETITIVE SUSTENANCE OF BORN GLOBAL FIRMS: EXAMPLES FROM THE INDIAN KNOWLEDGEINTENSIVE SERVICES INDUSTRY Nishant Kumar and Ali Yakhlef ABSTRACT The aim of this study is to examine how knowledge-intensive born global firms operating in international markets develop and maintain long-term relationships with their customers that insure their continued growth beyond the initial stage of internationalization. The study adopts a case study approach, focusing on two Indian born global firms operating with the knowledge-based services sector. The study shows that getting to know the customer intimately helps firms to retain customers over long

Entrepreneurship in International Marketing Advances in International Marketing, Volume 25, 45 72 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1108/S1474-797920140000025003

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periods of time. Customer-relationship management strategy is in line with the entrepreneurial orientation of the firms under consideration. Keywords: Entrepreneurial orientation; customer orientation; competitive sustenance of born global firms; Indian knowledge-intensive service firms

INTRODUCTION Born global firms, an emerging organizational form in the international marketplace, are receiving increasing attention from researchers and practitioners alike. These firms seek opportunities that characterize several markets, regardless of the psychological or geographical distances involved (Knight & Cavusgil, 2004; McDougall & Oviatt, 2000; Oviatt & McDougall, 1994). This type of outlook by born global firms is believed to be essential, since the global market would permit rapid growth and provide great potential for global customers (Knight & Cavusgil, 1996; Knight & Kim, 2009; Madsen & Servais, 1997; Zahra, Ireland, & Hitt, 2000). Prior research on born global firms suggests that their success in international markets is closely related to their innovative product offerings that they bring to the marketplace (Knight, 1997; Knight, Madsen, & Servais, 2004; Madsen & Servais, 1997; Moen & Servais, 2002). In order to remain innovative they tend to focus on learning about their customers (Kim, Basu, Naidu, & Cavusgil, 2011). While knowledge about customers is considered a key contributing factor to their success, it is not clear how born global firms build up the necessary skills to cater to their customers’ needs and meet their expectations. This question has not yet received sufficient attention from researchers. Research on business-to-business (B2B) relationship marketing also stresses the importance of developing and sustaining strong relationships with customers (Das & Rangan, 2004; Madill, George, & Riding, 2007; Kalwani & Narayandas, 1995), as retaining customers can be a less expensive and less time-consuming process than attracting new ones (Rosenberg & Czepiel, 1984). Furthermore, intimate relationships with customers is viewed crucial for creating customer loyalty, increasing profitability (Mattila, 2001), and gaining new knowledge. For instance, service firms can gain insights into the problems of clients, and based on that they conceptualize and design new products or ideas (Ashwin & Sharma, 2004; Hanna, Ayers, Ridnour, & Gordon, 1995). Yet, the relationship with customers is considered to be a complex process.

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Questions regarding the types and levels of relationship, the factors that determine the quality of a relationship, and the service quality and its effects on the relationships are major issues; all of which remain important for marketing researchers (de Ruyter, Moorman, & Lemmink, 2001). Building and sustaining relationship with clients can be even more challenging for born global firms as these firms have very limited resources to devote to developing intimate relationships and acquiring new knowledge about their customers. Thus, it becomes important to understand how born global firms can resolve these issues successfully. This study aims to address this question by examining, how born global firms develop intimate relationships with their customers and translate it into capabilities that enable them to meet current and future (latent) customer-service requirements, and to engage such customers into a long-term sustainable relationship. In illustrating this ability to achieve an intimate customer knowledge that is translated into a long-term relationship, this paper discusses information generated from two cases of knowledge-based born global firms from India. Such firms have largely escaped researchers’ attention (Arora, Arunachalam, Asundi, & Fernandes, 2001; Zaheer, Lamin, & Subramani, 2009). The characteristic challenges they face (such as lack of venture capital; poor infrastructure, lack of support for internationalization, etc.) set them apart from other born global firms originating from Europe, United States, or other advanced economies. Yet, against these odds, a number of Indian entrepreneurs have successfully managed to pursue international opportunities and launch a number of innovative companies on a global scale (c.f. Kumar, 2012a, 2013a). It is under this backdrop that the paper focuses on Indian firms that have successfully achieved international recognition as a fertile context for our study, our assumption being that such a context will shed further light on the phenomenon of born global firms burgeoning from emerging economies and will advance our knowledge in this field (c.f. Yamakawa, Peng, & Deeds, 2008; Zhou, Barnes, & Lu, 2010). The present study contributes to extant theories on born global firms in the following ways. It maps out the customer-relationship capabilities that born global firms develop in order to cater to customers’ present needs, and to proactively engage in and anticipate their future requirements. An intimate knowledge about their customers allows these firms to detect customers’ future strategic thrust, thus placing them in a better position to shape and serve their customers’ future needs more precisely through offering them innovative technological solutions. Such relationships are “valuable, rare, inimitable, and non-substitutable,” and a “source of competitive advantage” (see Barney, 1991). This paper advances our knowledge of

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customer relationship, by explaining how it is developed and sustained in order to gain a competitive edge in the international market. In the rest of the paper, we proceed as follows: first, a literature review on born global firms is presented. On the basis of this review, a theoretical framework is tentatively developed. Next, the methodology is presented, followed by the findings of the study. The paper concludes with a discussion of the findings, and presentation of conclusions, implications, and limitations.

THEORETICAL BACKGROUND Firms moving abroad early in their life have to face several challenges mainly due to the limited resources and capabilities that they need to commit for their internationalization venture (Knight & Cavusgil, 2004; Zahra et al., 2000). To the extent that they are new to international market, they suffer from the liability of foreignness or outsidership, and from limited knowledge to tackle the uncertainties permeating foreign markets (CuervoCazurra, Maloney, & Manrakhan, 2007; Johanson & Vahlne, 1977, 2009; Zaheer, 1995). Therefore, these firms face uphill tasks in their internationalization process which explains why many of them fail in this process (Sapienza, Autio, George, & Zahra, 2006). Yet, a number of firms substantially participate in international business, achieving global success (Gabrielsson & Kirpalani, 2004; Knight & Cavusgil, 2004; Weerawardena, Mort Gillian, Liesch Peter, & Knight, 2007). Prior studies have shown that such a risk-taking internationalization behavior is possible owing to the entrepreneurial competence and the global outlook of the founders of these firms. Such founders are driven by an international vision and commitment to searching for international opportunities (Autio, Sapienza, & Almedia, 2000; Kocak & Abimbola, 2009; Moen, 2002; Zhou, 2007), which are crucial for their inception and necessary for their growth (Zahra et al., 2000). These firms also move abroad because their services or products have limited acceptance in their home market compared to markets abroad (Knight & Cavusgil, 2004). The international entrepreneurial orientation of born global firms that forms the basis for a unique organizational culture is reflected in their overall innovativeness and proactiveness, which they employ to identify and exploit foreign market opportunities (Knight & Cavusgil, 2004). These features, once embedded in their organizational routines and processes, and once combined with other resources and capabilities, are assumed to lie at the heart of their competitive advantage in

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international markets (Jantunen, Nummela, Puumalinen, & Saarenketo, 2008; Kim et al., 2011; Kocak & Abimbola, 2009). In addition, researchers posit that a born global firm’s customer orientation serves as a driver of growth (Kim et al., 2011; Knight & Kim, 2009). Customer orientation is defined as “the extent to which a firm focuses its efforts on serving its customer’s needs, and the ability to cultivate longterm relationships” (Deshpande, Farley, & Webster, 1993; Kim et al., 2011, p. 880; Luo, Hsu, & Liu, 2008). To the extent that customer orientation, like entrepreneurial orientation, forms part of an organizational culture, it can also be a source of competitive advantage, when it is applied effectively in organization (Knight, Madsen, & Servais, 2004; Lafferty, Hult, & Thomas, 2001; Luo et al., 2008). Nonetheless, the literature is not clear on the nature of customer focus. Most often, customer orientation is considered as a way of seeking information about customers and their needs, and then satisfying those needs (Kim et al., 2011; Ripolle & Blesa, 2011). This study argues that this kind of customer orientation is nonsustainable and, thus, cannot be considered as a competitive advantage of born global firms. For example, if the customer’s requirements change in such a way that the servicing firm is no more capable of delivering the required services, then the customer will justifiably switch over to other competitor firms for obtaining its supply of services. Thus, in this paper, it is argued that the logic of customer orientation needs to be extended to include proactiveness and anticipation of a customer’s future needs (see Sharma, 1994). This is important because of the changes in environment, both in terms of technology and competition. More specifically, the present study argues that proactiveness in customer orientation is a feature of the high entrepreneurial orientation of the born global firms. B2B customer-relationship marketing literature (Jaworski & Kohli, 1993; Narver, Salter, & MacLachlan, 2004; Slater, 2001) dwells on the benefits of developing long-term partnerships, trust, commitment, and satisfaction, which are the parameters of relationship quality and longterm orientation in customer relationship (Macintosh, 2007; Skarmeas, Katsikeas, Spyropoulou, & Salehi-Sangari, 2008). Customer relationship is a key aspect of the competitive sustenance of born global, yet, this has not received much attention so far in the literature. In the literature on born global, the concern has mainly been with having on-going relationships with the customers (e.g., Kim et al., 2011). Instead, in this study, we stress the significance of anticipating their future needs, and investing in those relationships. Anticipating and shaping customer’s future needs requires intimate knowledge of the strategic thrust of customers.

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Building on these initial theoretical considerations, this paper suggests three important strategies that explain why born global firms can endure over time after their initial phase of internationalization. These are: customer-relationship quality management (Jayachandran, Sharma, Kaufman, & Raman, 2005; Kim et al., 2011; Payne & Frow, 2005); customer-relationship proactiveness (Johannessen, Olaisen, & Olsen, 1999; Sharma, 1994; Slater & Narver, 1998); and customer-focused innovativeness (Lumpkin & Dess, 1996; Zahra et al., 2000).

Customer Relationships Quality Management Customer relationships are unique, develop over time, and may serve as a resource which will be difficult for competitors to imitate or purchase (Dyer & Singh, 1998). Such resources can be a source of competitive advantage in international markets (see Barney, 1991). Building a level of cooperation, trust, and long-term relationship with the customers defines the quality of relationship (Lahiri & Kedia, 2011). In the context of B2B relationships, relationship quality has been suggested to be the binding factor between partnering firms, such that their relationship is not only transaction-based, short-term, and profit-oriented, but also includes elements of fairness, loyalty, satisfaction, upbeat word-of-mouth advertising, and long-term, win-win business relations (Kale & Singh, 2009; Wu, Yeniyurt, Kim, & Cavusgil, 2006). Although researchers differ on what constitutes relationship quality and its dimensions, there seems to be an agreement that, it is a higher-order construct, and that it is manifested in different but related constructs, such as “trust” (Uzzi, 1997), “commitment,” and “satisfaction” (Bejour, Wray, & Ingram, 1996; Lahiri & Kedia, 2011). By “trust” is meant “partners’ belief that each would act in the best interest of the other and not resort to opportunism”; “commitment” refers to “partners’ motivation to stay with the existing relationships,” and “satisfaction” signifies “partners’ perception of fulfillment based on the matching of the relationship-based outcomes with expectations” (Lahiri & Kedia, 2011, p. 13). The quality of relationship can be sensed through different indicators, one of which is the continuity of relationship between the partners (Dyer & Singh, 1998; Saparito, Chen, & Sapienza, 2004). A longer relationship may give partners an opportunity to know each other well; allowing them to develop a sense of trust between them. But sustaining long-term relationships could be very challenging in a fast-changing business environment, as it would require

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service firms to make continuous investments in understanding the changing technological and competition dynamics of its customers’ business and developing bespoke solutions for them. In terms of March’s (1991) exploration/exploitation trade-off, excessive search for new opportunities (exploration) will be at the expense of benefitting from existing advantages, thereby leading to increased risk. In the case of born global firms, the relationship with their customers can be defined as a form of B2B relationship, as the customers of these firms are mainly business firms, which makes this construct even more relevant. Research on born global firms suggests that born global firms are smaller in size and, therefore, may face a power imbalance in dealing with their relationships with their customers. Thus, given that born global firms suffer from lack of history, smallness, newness, and poor brand image, the kind of relationship quality required for the sustenance of their relationships with their customers (mostly large multinational corporations) may differ from the previous understanding (Kim et al., 2011), in which customer focus has been at the center of the relationship, being dealt with mainly in a reactive and problem-centric fashion. Hence, the level and the nature of effort required for building and maintaining such relationships may be different from other types of business firms, where the cooperation is mainly transaction-based, and where size does not have much significant impact on the quality of the relationship of the partners.

Customer-Relationship Proactiveness Another key issue in customer-relationship management is the strategic response of the firm toward its customers in terms of reactive or proactive behavior (Sharma, 1994). Customer needs can be defined as a divergence between existing solutions that are realized in the present time and the desired ones that may materialize in the future (Holt, Geschka, & Peterlongo, 1984; Ka¨rkka¨inen, 2002). Existing needs can be either articulated in some form or may not be apparent to customers, as they do not enter the conscious level of the customer before a new product or service is presented before them (Holt, 1976; Jaworski, Kohli, & Sahay, 2000). As such, these latent needs do not lead to any dissatisfaction in customers because they are still unaware of them. Service firms can adopt strategies to respond to the existing and latent needs of the customers. Sharma (1994) suggests that the marketing strategy of a professional service provider

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should be to proactively evolve into relationships with customers that assume the role of advisers and educators. In a reactive mode service firms primarily concentrate on understanding and satisfying the existing needs of its customers that are explicitly articulated and expressed by the customer (Slater & Narver, 1998). This is often accomplished through learning and developing (Slater, 2001). However, sometimes, such as in the case of the knowledge-intensive service-providing born global firms, where customers need specifications that are rather ambiguous and inexact, the born global firm may have to anticipate the type of solutions that will satisfy the customer’s needs. Thus, anticipation seems to be more relevant and particularly important in recognizing latent needs. Although knowledge-based born global firms also focus on developing new technological solutions for future needs, the needs of the customer seem to develop in a rather evolutionary manner. Therefore, customerrelationship proactiveness seems to be manifested in many ways. For instance, when the customer decides to engage the born global firm, the customer-focus approach should be more problem-centric, as the trust level at this stage is low. Proactiveness can be in the form of deployment of resources and expression of commitment. On the basis of the initial success at the early stage of the relationship, and the subsequent increase in the level of trust and intimate customer knowledge, the born global firm can adopt a more proactive approach, suggesting new solutions to the customer, thereby locking them into their systems and methods. In this context, the born global firm acts more like a business partner than an arms’ length supplier of services.

Customer-Focused Innovativeness Lumpkin and Dess (1996) conceptualize innovativeness as “a firm’s tendency to engage in and support new ideas, novelty, experimentation, and creativity processes that may result in a new product, services, or technological processes” (p. 142). Innovativeness in a firm can be viewed as the willingness of its employees to depart from existing established technologies or processes toward new technologies or methods that the firm envisions as its future (Kimberly, 1981). To remain innovative firms can act on a proactive basis (Lumpkin & Dess, 1996). Proactiveness refers to “processes aimed at anticipating and acting on future needs by seeking new opportunities, which may or may not be related to the present line of operations, such as introduction of new products and brands ahead of the competition” (Lumpkin & Dess, 1996, p. 146; Venkatraman, 1989, p. 949). Proactiveness

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puts an emphasis on initiating activities that are innovative in nature. This can lead the firm to envision and seize new opportunities that previously did not exist or capitalize on existing ones (Lumpkin & Dess, 1996). Being proactive on technological and business process innovations may be important for born global firms, as this may have an impact on retaining the customer through anticipating the future changes in the technological environment, as well as in the customers’ needs, and therefore, supplying the matching services in time. This may help the customer stay competitive in the marketplace.

RESEARCH METHOD As noted above, we have chosen a case study methodology relying on two cases henceforth KISBG-1 and KISBG-2 in order to understand the dynamics that explain the success and continued growth of born global firms. A case study method is considered to offer a potentially rich and valuable source of data (Eisenhardt, 1989) which is believed to be suitable for exploratory studies, as it allows organizational processes to be examined closely (Benbasat, Goldstein, & Mead, 1987). Because we wanted to understand the factors that lie behind born global firms’ continued thriving we have carefully selected the cases from a list of top 15 high-performing knowledge-intensive firms originating in India,1 which had gone international immediately after their inception, managed to survive for longer than 10 years, and with the majority of their revenue coming from international sales. The selection of the cases is thus theoretical (Eisenhardt, 1989). The following is a brief description of these firms (Table 1):

Case: KISBG-1 KISBG-1 is a Bengaluru-based international IT Services Company that provides knowledge-based services to more than 700 clients in 30 countries. It employs more than 125,000 skilled people who conduct various international projects as a source of revenue. Starting from a modest capital and seven founding members, KISBG-1 has evolved into a NASDAQ-listed global company with revenues in the tune of US$7 billion. The company has business operations in 28 other countries and a large number of customers of KISBG-1 have retained it for future services. Table 2 captures the main facts regarding KISBG-1.

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Table 1. Case Firms Tech.

Business

KISBG-1 IT Services KISBG-2 IT Services

Table 2.

An Overview of the Two Case Firms.

No. of No. of Years in Employees Business 2012

30 13

140,000 10,000

Revenue Million USD 2012

Net Income Million USD 2011

7,000 400

2,000 45

Percentage of No. of Sales from Interviews International Market >90 >90

8 12

Internationalization Activities of the Two Indian Born Global Firms.

Firms

Geographic Locations of Customers America

Asia and Pacific

Europe

Middle East and Africa

Average Length of Relationship with Customers

KISBG-1 Brazil, Mexico, United States, Canada

India, China, Belgium, Saudi Arabia, 8 12 years Australia, Denmark, Czech Mauritius, New Republic, United Zealand, France, Finland, Arab Hong Kong, Germany, Italy, Emirates Japan, Ireland, Singapore Norway, Sweden, Spain, Switzerland, Netherlands, United Kingdom KISBG-2 United States Australia, Belgium, France, United Arab 8 10 years China, United Emirates India, Kingdom, Japan, Germany, Singapore Sweden, Switzerland, Netherlands

Case: KISBG-2 KISBG-2 is also a Bengaluru-based international IT consulting and service implementation company that was founded in 1999 by 10 professionals.

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The firm has two business units, IT services, which includes consulting, implementation, and support for customers in manufacturing, financial services, travel and leisure industries; and R&D services, which includes design, development, and testing. About 93% of the revenues come from international markets out of which IT services contribute to two thirds and R&D services one third of the company’s revenues. The firm has established operations in 22 countries across Asia-Pacific, Europe, the United States, and Middle East. The company has grown rapidly over the last decade, and also has been able to retain its customers over a period of time ranging between 8 and 10 years.

Data Collection Method and Case Analysis The data generation involved two sets of interviews. In the first set, ten face-to-face and two mediated (over the telephone/Skype) interviews at KISBG-2, and eight face-to-face interviews at KISBG-1 were conducted. In the second set, eight customer’s viewpoints on their relationship with their clients were obtained from the “clients speak” data of the company. All interviews were conducted in the period between the middle of 2009 to the late 2011. The informants were from the various levels of the organizations (one of the co-founders of KISBG-2, Chief Operations Manager, Chief Technology Architect, Vice-President Learning and Leadership Development, Program Manager, Project Manager, Country Managers, Software developers, and the Vice-President Product Engineering Services). The interviews lasted between one and six hours, taking place in Bengaluru, Stockholm, and Brussels. The interviews were guided by a semistructured questionnaire that allowed the informants to tell their own stories regarding how they were coping with managing their relationships with their clients, such as: how they developed their relationships with their customers; how they managed these relationships with their customers; how they anticipated and projected the future needs of the customer; and how they innovated to meet the future needs of the customers. Subsequently, the information elicited was transcribed and sent back to the informants, giving them the chance to comment on the accuracy of our interpretations. Wherever there were ambiguities or significant differences, follow-up short interviews were conducted in order to resolve possible misunderstandings. Finally, a cross-case analysis was done to identify common patterns.

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Mode of Analysis First, the interview material was transcribed and read through to get a sense of the whole, and then the material obtained from interviews, company websites, annual reports and customers speak was codified based on the theoretical concepts of proactiveness, innovativeness, and relationship quality dimensions. The three concepts are meant to capture the entrepreneurial orientation and customer orientation elements of the firms. At this juncture, different semantic clusters of meaning underlying the description have gradually emerged. Hence, the analytic exercise proceeded in an iterative fashion, moving back and forth between theoretical preunderstandings and empirical evidence, with each side illuminating the other. Our intent throughout the process is to account for how the cases under consideration succeeded in maintaining their relationships over the years, given that the general assumption underlying the present study is that customer relationship plays a central in a born global firm’s expansion into international markets and its continued sustenance beyond its initial phase of internationalization.

BUILDING CUSTOMER RELATIONSHIPS IN BORN GLOBAL FIRMS Our findings reveal that when the case firms started their business operation, they did not have all the resources and capabilities in place; they lacked the deep-rooted routines and processes and leverage for international growth which established and large firms enjoyed. Nevertheless, these firms had the potential to develop capabilities and achieve success. Being born global firms with limited resources, a major challenge for them was getting the first client. KISBG-1’s Business Head described the situation as follows: Finding the first customer was always difficult in any new industry or market, because we didn’t have prior experience to prove that we are able to deliver high-standard and reliable services, but once we had acquired that, it was easy to anticipate future developments.

A very similar experience was reported by the managers of KISBG-2 which gained initial customers primarily thanks to its capability to convince customers on their potential. A large auto manufacturer in Sweden entered

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into a business relationship with KISBG-2 in 1999 regarding the supply of knowledge-based services, and this marked the beginning of a long and fruitful relationship for KISBG-2. A representative of the Swedish car maker explained the reason for choosing KISBG-2: We have chosen KISBG-2 not for what they have done, but for what they are capable of doing.

After getting the first contract, the firm started accumulating the knowledge and experience it gained from this new contact. Its first attempt was to convert this contact into a sustainable business relationship. Further investigation revealed that most of the service delivery capabilities evolved through this business. As the Program Director of KISBG-2 in Scandinavia explains: We started with what we had, and the Swedish customer also went quite slowly, they also needed to set up the structure of the collaboration in place in order to insure the smooth management of the relationship. Gradually, they asked us to do more and more critical assignments, as the relationship became more and more based on mutual trust. Since our first project nine years ago, our business relationship has been extending to new areas, bearing mutual fruit for both of us.

The result was the building of a solid common ground between these two partner firms, leading to knowing the customer intimately and involving them in their processes. Once both of them were engaged in each other’s processes and systems, the risks of exit became high. Thus, the process of establishing relationships with customers was also a process of learning for both parties. This two-way learning entailed mutual investment in each other’s practices, leading to mutual trust, commitment, and high satisfaction.

RELATIONSHIP QUALITY MANAGEMENT As mentioned earlier trust is associated with relationships, and is considered an important factor for the survival of any relationship. In the knowledge service industry, customers and vendors are constantly fighting with each other to develop a well-aligned relationship model, which is based on trust. For years, customers have been paying suppliers for efforts and inputs, and suppliers have been billing customers in dollars per hour, resulting in the fact that customer are seeking reduced hours in order to keep the costs to a minimum, leaving the suppliers to increase their

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profitability only by increasing the hours. This kind of input and effortbased pricing has created completely misaligned relationships, preventing them from using the word “partnership” to define the relationship, because it is impossible to be in partnership with customers when there are misaligned interests. The KISBG-1 marketing head explained that the solution provided to its suppliers to overcome this trust deficit was: We do our work on business outcome basis and charge our customers for their business outcome.

The outcome-based pricing approach has allowed the customer and supplier to actually make money together from the market, and not from each other. That is the first basic step in creating trust in a relationship. The other case firm, KISBG-2 has also developed service-level agreement models that improve the trust level in the relationship. Having a formalized agreement has produced a positive effect on the relationship, as confirmed by the customers of the firms under consideration. In the present scenario where a large number of IT service companies have emerged and simultaneously compete globally, differentiation is important for success and for winning customers. One way to differentiate themselves from others is by developing a good relationship with customers. The KISBG-2 Program Director reflects on this as follows: … whatever we are doing can also be done by other competitors in the market, we are not the only one who has good people and processes, so we go beyond the technical capabilities, we look at the closeness or the familiarity of the organization, if you look from a customer point of view, the first question arises, should I give the project to this vendor or to the other vendor, assume both are capable for the job, how will you differentiate; in our case, what differentiates us from others is that if things go wrong, customers have access to the CEO or chairman of KISBG-2, our relationship goes right to the top, so there is tremendous amount of attention on each and every account and we don’t need to tell them, they can see that on regular basis, and if there is any problem, we do everything and whatever it takes to correct that, this is the level of trust and support our customers get from us, that trust helps us in retaining the client, and we do so because of the strong relationship we have with our customers.

A similar customer-oriented view was prevalent in the other case firms. The two case firms considered themselves customer-sensitive and defined their relationship with existing customers as “partnership based” and “mutually beneficial.” A key term that emerged from the interviews was “long-term orientation.” The focus among these firms was on sustaining a long-term relationship with their customers, and the quality of relationship was a key defining parameter. All the case firms usually have a half-yearly or yearly customer satisfaction survey, and they use it to improve their

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service standards. Apart from the survey, they also rely upon the regular feedback from their employees collected on-site, and via other on-going discussions. Interviews with the customers of these firms revealed a corroborating viewpoint. Customers do consider these firms valuable in terms of productivity and efficiency improvement. A high satisfaction level was noticed across the client firms. The head of a hi-tech manufacturing firm commented on their relationship with KISBG-1 as follows: … the core strength of KISBG-1 is their dedication to quality and customer satisfaction. We are thrilled with their customer orientation and the access that we’ve had to senior management. We consider KISBG-1 in the category of partner than a vendor.

Another world major consumer product company manager commented as follows: We have been impressed by their commitment and collaboration, it starts with operational excellence. I would say we have full trust in their capabilities and commitment, they have, on many occasions, shown that during hard times they stood up to what they committed themselves to.

Explaining its relationship with KISBG-2, a current client commented as follows: There are intimate interactions formally and informally with the KISBG-2 team; they have become our true extension; interaction with KISBG-2 team over phone calls gives us satisfaction of an extremely happy relationship.

A major steel manufacturing company, also the client of KISBG-2, commented on its relationship with KISBG-2 as follows: Flexibility is important in sustaining relationship; we will always go through cycles in our business, so someone who is able to follow us through the cycle suits us most and KISBG-2 has shown its capabilities in this sense. When our business is on peak our partner should be able to quickly ramp up the required competencies and when we are going through bad times then they should be able to scale down the projects.

Although trust is considered important in relationships, and contractual agreements serve as the ground for building trust, “flexibility” has also emerged as a key factor in the sustainability of relationship. A customer’s business is affected by changes in the environment, and so is their relationship with their service providers. Contractual agreements cannot always predict such changes in the environment and, therefore, the service provider has to consider this fact in managing its relationships. Managing relations in changing environment requires flexibility in terms of managing such

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changes, and these firms have demonstrated over time, that they can be flexible. Flexibility also helps in building confidence in the relationship and sustaining the relationship. It is evident that high customer responsiveness, operational flexibility, and trust-based relationships are the key factors in the relationship quality management.

PROACTIVENESS IN CUSTOMER RELATIONSHIPS The change in environment not only brings new competition, but also drives firms to embrace those changes, upgrade, and develop new sets of capabilities on a continuous basis. The cases under consideration have experienced changes in technology from mainframe to mid-frame, to client server, and now to cloud computing; the industry adopted it, and so did the firms. A common feature found across these case firms is that they ensure that by the time a customer starts adopting a new technology, it should be ready with the capabilities necessary for service delivery. This is important for the success of these firms, as described by the KISBG-2 Director: Competition is there, and it keeps changing, it’s not the same in every market, it’s not the same in every account, and it is not the same all the time, it continuously changes. Few years back we did not have any expertise in financial services industry and now we have acquired this competence a fact that reflects how we embrace change.

For these firms to gain new customers and retain existing ones they have to roll out new services and technologies, and convince the customer that they have the required capabilities to serve their emerging needs. This requires investment in building infrastructure and capabilities. Such investments and acquired capabilities may not have any immediate application, but might be useful in the support function, or in development of new projects in the near future. In their efforts to acquire new capabilities and be prepared to meet their customers’ future needs, when they arise, KISBG-1 and KISBG-1 were making continuous and proactive investments in recruiting and developing human capital in the areas where the firms envisioned future business opportunities. They were also making customerspecific investments, such as developing solutions to problems that have not surfaced yet and not covered under the actual contract, but the service provider thinks that it may appear in the future or can be helpful in early accomplishment of the project.

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According to the informants, most of the time the relationships with the customers are problem-centric, but to sustain their relationships with customers and remain competitive in the market, they have to go beyond the present problems, and foresee problems not yet articulated by customers or by competitors. A key feature among these firms is their environmentscanning capability. The function of this capability is to be able to scan the customers’ upcoming requirements, and project a scenario that the firms may have to face in the near future. The CTO of KISBG-2 describes the situation as follows: Generally service firms discuss with their customer on a daily basis basically the ongoing projects and the commitments, but in our case, we also discuss the customer’s future projects and try to understand their future business focus areas.

Now in this situation, the service firm is not just a supplier producing something for the customer, but is acting as a guide to the customer, just like the relationship between a patient and his doctor. When a patient goes to a doctor, she or he is basically a “customer” for the doctor, but the doctor does not treat her or him like a customer. The doctor reviews their health, keeps a close eye on their health, makes recommendations, or warns them against potential health problems, and suggests some precautionary measures to avoid such situations. Similarly, these case firms have reached a deep level of relationship with them. It is in this way that the service firms adopt the doctor patient metaphor to frame their relationship with their customers. The Business Head of KISBG-1 explains it as follows: … we need to know the customer’s business, what are the problems of the customer, who are the competitors, where the technology is shifting, how it is going to affect the business of the customer, and provide timely advice to the customer.

This does not only strengthen the customer’s relationships with the firm, but also enables these service firms to become more actively vigilant and to explore new capabilities to stay ahead of what is going on in the environment. Making proactive investments shows the commitment of the service firms in long-term relationships, and generates a lock-in effect, increasing a customer’s willingness to trust their service provider’s suggestions more often. Most customers believed that their service partners had been proactive in their approach which has led to setting out a number of projects that otherwise would have come at a much later time; or whose importance would have remained unrecognized over a long period. Customers expressed greater satisfaction with these firms because these firms have tried

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to understand their business better, and have shown their commitment to the relationship by making client-specific investments on their own initiative. These findings suggest that proactiveness can be achieved by making customer-specific investments, and by understanding the intricacy of their customer’s business.

CUSTOMER-FOCUSED INNOVATIVENESS In investigating the link between innovativeness and the competitive survival of born global firms, we found that the cases under consideration are engaged in continuous customer-centric innovations as a response to the change in the environment and customer requirements. The case firms are in technology service businesses characterized by constant breakthroughs, and the firms have to respond to such dynamics flexibly by developing new capabilities. Firms have to continuously search for new avenues of growth, both in technology and in business. The VP of KISBG-2 highlights the significance of new innovative capability development as follows: We have a Chief Technology Officer (CTO) in each business; the CTO who is assisted by an experienced team is continuously scanning the current and future scenario, and suggesting the direction for future capability building. Following the suggestions we decide to make commitment in building those capabilities.

Innovations took place in technological as well as business process areas in these two firms, but the firms were not keen on securing patent rights. Such intellectual properties, developed in the course of project, were transferred to the customer. The innovativeness of these firms can be understood from the following example. In recent years, the biggest challenge that has emerged is cloud computing, which casts a doubt over the old idea of IT-based business. The advent of “cloud computing” has been used by these firms advantageously. Most of our interviewees believed that cloud computing is set to make most of the IT businesses irrelevant, implying serious consequences for the existence of firms such as KISBG-2, and KISBG-1. However, the firms are taking advantage of this situation, as described by the CTO of KISBG-2: Cloud computing is a challenge as well as an opportunity. The concept of cloud computing is not new, it is a necessary development.

Cloud computing, has been described as the “beginning of the next wave of innovation and change.” As it is clear from the following statement:

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We are entering into post-PC era. In this era, PC was just one of the devices to be connected to internet. (Website of KISBG-1)

To take an example, if a person wants to create a document using Microsoft Word, why should she or he buy Office software for that? She should go to the cloud, prepare a document, and pay per document. On the other hand, when everything is in the cloud, then the issue of security becomes paramount. Apart from that, a whole lot of things people have not thought about, for instance if everything is in the cloud, and everybody is out there working on it, the potential for collaboration will be huge, which probably is unexplored, and which people need to explore. So the question is: how to turn these concerns related to cloud computing into clear advantages that companies can profit from? The CTO of KISBG-2 explains KISBG-2’s approach to cloud computing: We have the technical knowledge required for this kind of work, so that has never been an issue in strategic decision making. The cloud computing group in our firm is working in one particular area and creating cloud computing solutions in that specific area. This we are doing on our own on proactive basis, once we have developed it, it will imply several benefits to customers and we will offer them new solutions.

The firm’s proactiveness in the technological innovation helps KISBG-2 keep ahead of its competitors and to maintain a long-term relationship with its customers. KISBG-1’s Vice President and Global Head Business commented on the business prospect of such innovations in these terms: We are investing significant amount of resources in building new services on this new technological platform and preparing ourselves for future demands.

Making investment in new technologies also depends on its acceptability in the market. For instance, in the early phase of the introduction of cloudbased computing, customers were sceptic about it. They were not sure how this new technology would affect their business and competition. But now they have started discussing it, trying to understand it. They want to know how to get on cloud, what risk factors are involved, or what applications can be put into the cloud, etc. Customers are increasingly opting for cloud, as they find it cost-efficient and effective as it significantly reduces the timeto-market for their products and services. There is a tremendous opportunity and we expect about 60 per cent of workload to shift to cloud computing in next 5 7 years. (Website of KISBG-1)

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KISBG-1 managers believe that what customers really want are examples of other companies using these services. So the Catch 22 situation makes it hard to get a cloud service up and running for customers, but they also think that once a customer is signed up, more will follow. The Business Head of KISBG-1 said: The moment we got a customer signed for a new platform, it immediately means that we won three more contracts.

Apart from the innovations based on emerging technologies, these firms were also involved in making other types of innovations. These innovations lead to significant growth in their revenue. For example, about 53% of KISBG-1’s revenues come from services that it did not exist seven years ago. Similarly KISBG-2 has moved into new services over that period. Not only have these firms focused on technological innovations, but they have also continuously striven to achieve process innovations. An example of process innovation was explained by the KISBG-2 project manager as follows: We are working on a major project for a global airlines ticketing and checking service providing company. We are responsible for the checking of errors and smooth functioning of the system. While working on this project we noticed that a number of issues are similar and can have a common solution so instead of solving it one by one we developed a small application and applied it many times whenever such problem occurred. It is a valuable tool for us and can be used in similar cases elsewhere.

This has certainly helped reduce the work load, and also saved much cost and time for the client firm. The client firm was happy to acknowledge this in their referral letters. Other case firms also presented a number of examples that show their innovations in business processes. The above findings show how the entrepreneurial orientation of these firms helps them manage their relationships, and gives them a competitive advantage in the market. It is also important to mention that the case firms differ in the way they manage customer relationships, for instance, one of the case firms had refused to show flexibility in pricing agreement, as they believed that low pricing would mean compromise on quality, and the firm was not ready to compromise on that. This approach led to the breaking of the relationship, and it also shows that there was misalignment in these two firms on this aspect. The case firm had shown a high degree of commitment toward making technological innovations for the customer, yet on realizing that there is misalignment in the relationship, the firm decided to quit it.

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Table 3.

Importance of Different Factors for Two Born Global Firms.

Factors Important for Sustaining Long-Term Relationship Relationship quality

Proactiveness Innovativeness

Business alignment Responsiveness Flexibility Customer-focused investment Understanding client’s business Technological innovation Business process innovation

Case Firms KISBG-1

KISBG-2

High High High to moderate High High High High

High High Moderate Moderate High Moderate Moderate

The findings are summarized in Table 3. Three parameters are used to highlight the case firm’s response toward each factor, and it is registered as “High” when it is considered highly important and the company is focused on it, “Moderate” when there is recognition of its importance and from time to time firms take up the issue, and there is on-going effort toward improvement in this area, and “Low” when there is no direct impact felt by these firms and no deliberate attempt is made in the area. As it is seems to emerge from the table, the case firms differed with regard to the different factors important for sustaining long-term relationships. For instance, KISBG-1 and KISBG-2 put a lot of emphasis on how they deal with their clients on a day-to-day basis. High responsiveness and flexibility can be attributed to the working style of the Indian professionals and the entrepreneurial characteristics of the founders. KISBG-1 expressed relatively less flexibility in terms of its approach toward pricing and size of the project. It can be inferred that the growth in the firm’s size and scale of operation has an effect on the flexibility of the firm. Furthermore, KISBG1 has established itself as a global brand while KISBG-2 is yet in this process and is getting close to what KISBG-1 has achieved. Regarding the other factors, KISBG-2 reported moderate amount of proactiveness; this can be explained by the availability of the resources and risk-taking abilities of the firms. But all the firms stressed the importance of customer-focused learning and learning from the clients business. Similarly KISBG-2 was not very keen on making radical innovations but they were highly involved in process or sequential innovations as well. KISBG-1 was more interested in making product innovations and was making investments in developing new products and services. This is related to the availability of financial and learning resources within the firm.

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CONCLUDING REMARKS The aim of this study was to examine how knowledge-intensive born global firms are able to develop and sustain their relationship with clients in international markets that form the basis for their continued growth. The findings suggest that, the two cases under consideration have deployed an innovative and proactive stance to manage their relationship with their customers. The findings put premium on the significance of fostering lasting relationships with customers in international markets that are based on collaboration (e.g., Kim et al., 2011; Knight & Cavusgil, 2004; Kumar, 2013a; Ruokonen & Saarenketo, 2009; Zhou et al., 2010). As it was found that clients of these firms play an active role in developing functioning relationships that facilitate the transfer of client-specific knowledge to service firms and help them identify the emerging needs of the clients (c.f. Knight, Madsen, & Servais, 2004; Prahalad & Ramaswamy, 2004). A collaborative relationship was found to be suitable in this case, as over the years partners have developed a very good understanding of each other would involve high cost to the parties. Parties made a very careful assessment before they logged into any long-term relationship. Therefore, the relationship normally began with small projects that do not have serious cost and risk implications. As the relationship solidifies, and as each party learns more about the other party’s systems and processes, trust between the partners increases. These firms make sure that trust is established between top managers as well as between people on an operative level, thereby making relationship-building the responsibility and concern of everybody in the company. This intimate knowledge of the customer provides ample opportunity to the born global service firms to develop the required capabilities for current and future customers. To the extent that the relationship is a long-term commitment, the cases under consideration witness how, in order to retain clients, they have to proactively anticipate their clients’ evolving needs, as well as their business thrust, as these are always changing. Furthermore, being innovative means that firms have to be continuously in search for new opportunities that are coming from technological changes and market competition. Firms can leverage their deep understanding of customers’ business and technological capabilities to identify business problems and develop solutions that are non-existent in the market. This approach from the service provider can lead to a relationship of reciprocal dependency between the parties. Combining international entrepreneurial orientation and customer orientation can influence the overall relationship with customers. That is, innovativeness and proactiveness in international

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markets enable firms to be sensitive and alert to emerging and evolving customer needs resulting from technological change and competitors’ behavior (c.f. Kumar, 2013a). In this way, their customer-focused innovativeness can give them an edge over the competitions. A major contribution of this study is the identification of three key elements, business process alignment, responsiveness, and flexibility that constitute the antecedent of relationships quality in knowledge-intensive services. More specifically, the present study has shown how Indian firms integrate these elements in their relationship with customers. In summary, earlier studies have indicated that intimate knowledge of customers and good relationship are critical to market success, but have failed to explain the kind of intimacy that is required, and how such intimacy can be developed and sustained over a period of time. The findings of this study provide additional insights into the factors underlying customer intimacy, such as customer-relationship quality, a proactive approach, and the pursuit of innovativeness. In this sense, the current study answers to the Knight and Cavusgil’s (2004) call to understand the relationship between customer focus and the success of born global firms, and how intimate customer knowledge of is translated into superior performance. Finally, the present paper goes some way to addressing the lacuna in present research into the field of internationalization of Indian born-global firms. On the basis of the above discussion, it can be said that an entrepreneurial orientation toward customers requires a judicious relationship management, relationship proactiveness, and technological innovativeness. These three factors make an impact on a born global firm’s competitive sustenance and future growth (as represented in Fig. 1).

EO

Customer relationships quality management Customer relationships proactiveness

CO

Fig. 1.

Born global firms’ Competitive Sustenance

Customer focused innovativeness

Factors Impacting Born Global Firms’ Competitive Sustenance Over Time (EO Entrepreneurial Orientation; CO Customer Orientation).

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LIMITATIONS OF THE STUDY The main limitation of this study is its research design as it is based on case study of two firms, from the same service industry with its own peculiar characteristics and thus, its generalizability to a large and more diverse population might be restricted. However, due to the care with which these firms were chosen, they may be representative cases of the Indian IT industry, as they share a number of common characteristics, such as early internationalization, global expansion, long client relationships, operating in IT-based knowledge services, a major part of the revenue generated from sales aboard and from the same clients, and so on. They also differ in terms of customer base, area of expertise, number of employees, and years of existence. Thus, the findings can be generalized to a certain degree across the Indian IT services industry. These limitations notwithstanding, it is hoped that the present study has shed some new light on the mechanisms of intimate customer-relationship management in a knowledge-intensive services industry. Above all, it has made an attempt toward uncovering the micro-foundations of customer-oriented capabilities, which affect the relationship quality with clients in international markets. It is hoped that the findings will serve as a springboard for future empirical investigation. The framework suggested in this study could further developed empirically by investigating other types of born global firms to test its viability.

NOTE 1. The list is prepared from the data published by NASSCOM.

ACKNOWLEDGMENT Authors would like to thank the editors and two anonymous reviewers of this paper for their constructive feedback. Earlier versions of the this paper was presented at AIB-SE 2011, EMFC:3I, JIBS PDW 2012, and SYSBS 2013 Symposium.

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THE ALLIANCE CAPABILITY OF TECHNOLOGY-BASED BORN GLOBALS Liliya Altshuler Oxtorp and Ulf Elg ABSTRACT While earlier research discussed networking and alliance strategies of born globals on a strategic level, this paper investigates and analyses the specific organizational skills that enable the firms to successfully initiate, manage and finish their R&D alliances with Multinational Enterprises (MNEs). It is discussed how the specific aspects of the alliance capability can help born globals to counteract the challenges and risks of collaborating with MNEs. A longitudinal process study of a Danish technology born global with three embedded cases of its R&D and marketing alliances with Asian MNEs is discussed. The organizational skills comprising the alliance capability are defined to be internal and external assessment skills, need detection and coupling skills, asset protection skills, project management skills, termination skills and the learning processes to build the alliance capability further. A set of propositions is developed to tie these organizational skills to alliance performance. Keywords: Born globals; SMEs; alliance management; R&D; organizational capabilities

Entrepreneurship in International Marketing Advances in International Marketing, Volume 25, 73 107 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1108/S1474-797920140000025004

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INTRODUCTION Born global firms are characterized as being greatly innovative and entrepreneurial. Many born globals are technology-based and achieve their competitive advantage through developing novel technologies and sustaining their technological leadership in industry niches (Gassmann & Keupp, 2007; Moen, 2002). However, the challenges, costs and risks of bringing their technologies to the market can be overbearing for the small firms characterized by limited resources, both financial and human (Gabrielsson & Kirpalani, 2004). New product development (NPD) can be out of reach for the SMEs due to the large investments it requires in knowledge-intensive industries. Furthermore, international markets are vast and many international industries have significant entry barriers, as there already are a number of established players trusted by Original Equipment Manufacturer (OEM) customers. Born globals will often lack the resources to bring their products/service offerings to the markets due to their liability of newness (Stinchcombe, 1965). Hence, born globals often enter into product development and marketing alliances with larger companies where the partner, often an Multinational Enterprise (MNE), gets access to the unique technologies and the superior innovation capabilities of the born global to complement its own R&D efforts (Alvarez & Barney, 2001; Das & He, 2006; Vapola, 2011). The born global gets a chance to develop its technologies into finished products by gaining access to the MNEs’ engineering and manufacturing resources, and to bring the finished products into new product or country markets with the help of the MNEs’ marketing channels (Freeman, Edwards, & Schroder, 2006). In spite of the mutually beneficial logic of the alliances, such collaborations are not without their complications. They carry great power imbalances between the MNEs and the born global SMEs, which for the born global means the risk that the MNE partner can take advantage of the born global’s knowledge and technology and thus take over the firms’ source of competitive advantage and reason for existence. The MNE can either press the small firm into an alliance on unfavourable terms, or the MNE can simply ‘outlearn’ the SME, meaning learning its technology quickly, incorporating it into its own R&D effort and leaving the alliance (Alvarez & Barney, 2001). Even if the collaboration is secured with a detailed contract, the costs of enforcing such contracts in international courts are hardly manageable for the born global (ibid.). Furthermore, even if the MNE partner is loyal, the high level of uncertainty inherent in any innovative product development has a very different

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effect on the born global compared to the MNE. For the MNE, it is simply one, possibly small project among many and it would not mean much financially for the MNE in the big picture if it does not succeed. For the born global, on the other hand, every NPD project means a lot financially and strategically. The amount of human and other resources invested into any collaboration is large in proportion to the total amount of its available resources. Therefore, a failure of an alliance can mean a failure to enter a whole product or service market, as well as a substantial financial loss. The consequences, especially in a born global’s early establishment years, can be critical to its survival (Das & He, 2006). The literature on managing strategic alliances is abundant (e.g. Doz & Hamel, 1998; Ireland, Hitt, & Vaidyanath, 2002), but does not reflect the specificities of born globals. Firstly, as born globals collaborate with MNEs, how do they compensate for the power imbalances (Vapola, 2011) and their limitations in terms of resources and experience? Secondly, how do born globals manage the multiple contacts that an MNE may expect (Doz & Hamel, 1998; Kale, Dyer, & Singh, 2002) with their limited number of employees? Thirdly, it is generally implied that alliances last for long periods of time and that it may take years before the goals are reached (Hamel, 1991). Technology born globals, on the other hand, are characterized by rapid industry entry and quick innovation cycles, requiring a faster return from external collaborations (Freeman, Hutchings, Lazaris, & Zyngier, 2010; Johanson & Vahlne, 2003; Laanti, Gabrielsson, & Gabrielsson, 2007). Finally, technology alliances are particularly complex, as they require close collaboration at the operational level, risks in disclosing the know-how, high level of uncertainty and interdependence between/among partners. In the case of born globals, they are often conducted across countries and continents. Studying this type of collaborations, in our view, is very important for both academics and practitioners. There is much written about how born globals apply active networking strategies to overcome their liabilities of newness, foreignness and their various resource limitations (Coviello & Munro, 1995, 1997; Freeman et al., 2006; Mort & Weerawardena, 2006), and how external network relationships generate benefits such as information and knowledge sharing, access to foreign market opportunities, increased innovation capability and referral trust and reputation (e.g. Chetty & Stangl, 2010; Laanti et al., 2007; Sharma & Blomstermo, 2003; Zhou, Wu, & Luo, 2007). However, we know much less about the specific skills and processes necessary in effectively managing individual alliances involving an R&D aspect between born globals and larger firms.

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Therefore, the purpose of this paper is to investigate the aspects of the alliance capability of technology-based born globals. Alliance capability is regarded as a set of organizational skills necessary from the decision to search for a partner for a technology collaboration, which may also involve a marketing aspect, through initiation and management of the alliance, up until its objectives are achieved, or otherwise. Hence, we focus both on the strategic aspects of establishing such alliances, as well as on the specific skills in initiation, management and closing stages of collaborations. The study is conducted from the born global’s perspective. Our focus is on the firm-level skills that constitute the alliance capability of born globals in managing individual alliances (as opposed to alliance portfolios). In this study, we specifically focus on non-equity alliances, as equity-based international joint ventures require a more formal form of financial commitment, provide more control for the partners and thus comprise a different set of challenges for the participants than non-equity alliances. As our empirical basis, we have analysed three NPD and marketing alliances of a high-technology Danish born global with four Asian MNEs. The paper is organized as follows: in the following section, we review the relevant literature on born globals and alliance management and review the specific challenges and risks that born globals face in alliances with larger organizations. The methodology is discussed next, followed by the empirical study of three alliances. The empirical part continues with an analysis and discussion of the aspects critical to a technology born global’s alliance capability, which can help the firm to counteract the various challenges and risks of alliances. We also formulate propositions based on our findings. Our discussion is summarized in a model of the alliance capability, and we conclude with contributions, suggestions for further research and implications for practice.

THEORETICAL FRAMEWORK Born Globals Born globals are young international SMEs that are typically poor in tangible resources. Instead, they develop unique, idiosyncratic intangible knowledge-based capabilities in order to rapidly internationalize and stay competitive in international markets (Knight & Cavusgil, 2004; Knight & Kim, 2009). High flexibility and a lack of deeply embedded administrative

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routines are the core features that give the firms the flexibility, the inventive capability and the speed of market responsiveness that provide them with a competitive edge over larger, established firms (Alvarez & Barney, 2001; Autio, Sapienza, & Almeida, 2000; Knight & Cavusgil, 2004; Knight, Madsen, & Servais, 2004; Vapola, 2011). Born globals are characterized by ‘building competitive advantages through the development of complex international resource configurations’ (Karra, Phillips, & Tracey, 2008, p. 441; cf. Di Gregorio, Musteen, & Thomas, 2008) that reach remote markets (Crick, 2009; Laanti et al., 2007). Several authors have studied the networking and alliance-building capabilities and their role in the born globals’ internationalization process. Mort and Weerawardena (2006) have conceptualized the dynamic networking capability of born globals, which plays a central role in their rapid internationalization, development of knowledge-intensive products and international market performance. Freeman et al. (2006) have identified three major constraints to firm internationalization: lack of economies of scale, lack of financial and knowledge resources and aversion to risk taking. They have found that born globals employ a mix of five strategies to overcome these constraints: personal network contacts, strong relationships with large foreign customers and suppliers, client followership, investment in leading-edge technology and innovative processes and multiple modes of entry, together termed the network development and alliance-building capabilities. Besides the above-mentioned studies, there exists a substantial body of knowledge on born globals and their networks (e.g. Coviello & Munro, 1995, 1997; Weerawardena, Mort, Liesch, & Knight, 2007; Zhou et al., 2007). However, the focus is mainly upon the different types of strategies born globals employ, the benefits of the network contacts and the capabilities required for developing and maintaining the network as a whole. We know much less about how born globals set up and manage individual relationships. This can be particularly challenging due to the fact that born globals have limited resources (Laanti et al., 2007; Rialp-Criado, Galva´nSa´nchez, & Ma Sua´rez-Ortega, 2010; Sharma & Blomstermo, 2003) and find themselves in resource-dependent and weaker positions in relation to their larger alliance partners (Freeman et al., 2006). Following a number of authors studying born globals (Knight & Cavusgil, 2004; Rialp, Rialp, & Knight, 2005; Sapienza, Autio, George, & Zahra, 2006; Weerawardena et al., 2007), as well as a stream in the alliance literature (Draulans, deMan, & Volberda, 2003; Dyer & Singh, 1998; Grant & Baden-Fuller, 2004; Kale et al., 2002), we apply the knowledgebased view and the organizational capability approach in this study.

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Managing Strategic Alliances An alliance can be defined as a ‘medium- to long-term contractual arrangement in which two or more independent organizations acknowledge their mutual interdependence and strive to pool their resources to jointly create an outcome that neither of the exchange parties can easily attain on its own’ (Schreiner, Kale, & Corsten, 2009, p. 1402). Alliance is a superior organizational form for accessing additional knowledge, particularly when quickly changing market conditions call for rapid product development (Grant & Baden-Fuller, 2004). They are also an efficient means for spreading risks and creating option value for limited investments into new knowledge areas where NPD is characterized by a high level of outcome uncertainty (Sivadas & Dwyer, 2000). Alliances enable MNEs to optimize their R&D efforts through collaborations with smaller focused developers and in turn, give SMEs an opportunity to bridge the great resource gap with their large competitors through gaining partial access to the MNE partners’ marketing, manufacturing and R&D resources and capabilities (Nieto & Santamarı´ a, 2010). Alliance capability has many definitions in the literature (cf. Anand & Khanna, 2000; Draulans et al., 2003; Heimeriks & Duysters, 2007; Kale et al., 2002; Schreiner et al., 2009). We consider the alliance capability as the full set of organizational skills necessary from enactment of the decision to look for complementary resources through a collaboration with another organization, through the initiation and management of an ongoing alliance, until the objectives of the alliance are achieved, or otherwise, and including the follow-up learning process. Numerous studies investigate the factors that support alliance performance. Often, however, their focus makes it difficult to apply the results directly to born globals. In the review below, we summarize the central problem and risk areas for born globals and other entrepreneurial SMEs in non-equity alliances with larger firms, which are discussed in the literature.

Strategic Challenges in Alliance Initiation and Design From the point of when a born global decides to look for an MNE partner for an NPD and/or marketing collaboration, the challenges begin. Born globals work in the conditions of the liability of newness (Stinchcombe, 1965) and foreignness (Zaheer, 1995), most MNEs have never heard of them. Hence, the first challenge for the born globals is to find an interested MNE partner and get it interested in a collaboration. How does a small

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firm, that is probably not even an ‘approved’ supplier for most MNEs yet, get interest of an MNE to invest into a common project? The next challenge is to find a suitable partner whose strategic interests coincide with those of the born global, who will be loyal and trustworthy and will not try to take advantage of the born global’s business and knowhow. This is a major issue widely discussed in the literature as being problematic for all firms, and for SMEs in particular (Alvarez & Barney, 2001; Das & He, 2006; Das & Teng, 1996). The significance of the early phase of alliance formation, of choosing the right partner and of making sure that the strategic objectives of all the partners are aligned is widely emphasized in the literature (e.g. Ireland et al., 2002). Differences in expectations and views on how partners should contribute often undermine alliances (Doz & Hamel, 1998; Das & He, 2006). A major priority for large firms is to get access to new technologies (Das & He, 2006; Vapola, 2011). Since large companies have the resources to have a number of R&D projects and alliances going on simultaneously, sometimes an MNE would enter into an alliance with an entrepreneurial venture simply to prevent a competitor from gaining access to a new promising technology (Das & He, 2006). The technology may not be a strategic priority for the MNE and the firm will not be prioritizing the alliance or investing necessary resources into it. Yet another risk for the born global is when the MNE is simply interested in gaining access to its business and can be pressing the born global to enter into an alliance on unfavourable terms. Eisenhardt and Schoonhoven (1996) find that alliances are formed if a firm is in a strategically vulnerable position within an industry that is very competitive. This is quite similar to the situation of small high-tech born globals. The limited transparency of the MNE for the born global is another issue. MNEs are large and complex organizations, often with several firms within a concern, while a born global is a small firm with a very specific purpose for the alliance and a specific technology it brings to the table. Due to the great power imbalance, a born global will often have to rely on the MNE’s name and reputation and enter an alliance in the conditions of high risk and ambiguity as for the partner’s true objectives and technical capabilities (Das & He, 2006). Challenges in the Management Stage of Alliances Successful alliance management is mostly regarded to be based upon the building of trust, coordination and communication (Kale, Singh, & Perlmutter, 2000; Kanter, 1994; Kauser & Shaw, 2004; Schreiner et al.,

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2009; Sivadas & Dwyer, 2000). However, trust is developed over time, based upon multiple interaction between the actors (Gulati & Sytch, 2008; Parkhe, 1998). This suggests that the born global may have to cope with alliances with a low or moderate level of trust due to their limited resources and the time they have to invest into the activities for building relational capital especially in the high-context cultures, that is in Asia. The literature stresses the need for building multiple ‘bridges’ between/ among the partners for smooth management of alliances: among the top management for strategic issues, contacts for project management among the middle managers and close and multiple operational contacts among the specialists (Doz & Hamel, 1998; Dyer & Singh, 1998). There are major differences in the size and availability of managerial resources that can be contributed to an alliance between a born global and an MNE. Hence, alternative methods of effective alliance management will need to be found between the partners. Collaborations carrying an R&D component always carry performance risk (Das & Teng, 1996). When it comes to maturing a new technology, NPD projects carry a high degree of ambiguity. In other words, no one can say whether the product that the alliance partners had set out to develop can actually be developed up to the specifications and within the set time frame due to the very nature of an innovative technology. Technologybased born globals are in fact often based on such technologies. Both the MNE partner and the born global carry this risk, but the consequences are much more dire for the born global and affect its overall business performance much more, than they do the MNE’s. Another risk for the born global is that the MNE may only be interested in internalizing the born global’s technology (Alvarez & Barney, 2001; Das & He, 2006). MNEs have very large R&D resources and most probably, well-developed processes comprising their absorptive capacity (Cohen & Levinthal, 1990), meaning that the MNE would be able to ‘outlearn’ the born global and internalize its technologies rather quickly. Once it happens, the larger partner becomes less interested in the alliance and may take advantage of the smaller firm in various ways, that is by not investing the resources promised, or by putting unreasonable requirements on the deliverables from the SME without paying for the extra work (Alvarez & Barney, 2001). Even if the alliance is secured by contracts, there are a lot of ‘grey’ areas in R&D collaborations where technology has to be shared, and an SME would hardly have the resources to pursue the MNE in international courts (ibid.).

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Table 1. Challenges and Risks in Technology Born Globals’ Alliances with MNEs, Discussed from the Born Global’s Perspective, Found in the Literature. Strategic Challenges in the Alliance Initiation and Design

Challenges in the Management Stage of Alliances

Difficulties in finding interested MNE partners due to born global’s lack of legitimacy and its liability of newness Possible differences in strategic objectives and priorities as for the alliance’s content between/among alliance partners

Having to enter and operate an alliance in the conditions of moderate level of trust between the partners Possible difficulties in finding an optimal management structure for the alliance due to limited managerial resources available to a born global Possible opportunistic behaviour from MNE’s The risk of the MNE partner ‘outlearning’ the side, which may be interested in born global and not committing the appropriating the born global’s resources originally agreed upon or technologies/know-how sabotaging the alliance in another way The great power imbalance and the risk that Performance risk and a high degree of an MNE may press the born global into an uncertainty as for the success of the R&D alliance under unfavourable terms project inherent to technological development, which has much more significant consequences for the born global than for the MNE Great power/resource imbalances in case of Lack of transparency for the born global as contract/commitment breach by the MNE for the intentions and technical capabilities of the MNE Source: Literature review.

Based on this literature review, we summarize in Table 1 the challenges and risks faced by technology born globals in initiation, design and management of their alliances with MNEs. Next, we discuss the methodology and will then move on to the empirical study.

METHODOLOGY The purpose of this study involves theory development, and case study design can be particularly useful for this (Ghauri, 2004; Yin, 2003). In order to explore and conceptualize the rich and multidimensional

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phenomenon of an organizational capability, we have conducted a longitudinal process study of a Danish technology born global with three embedded cases (Yin, 2003) of the firm’s R&D and marketing alliances with four Asian MNEs. For confidentiality reasons, the firm will be referred to as DanAmplifier. Strategic alliances have been an explicit part of the firm’s strategy from its establishment, resulting in at least seven alliances over its 11-year history (by the time of the study’s completion). We have chosen three alliances based on their similarity of content, as well as the different success levels in their outcomes. All the alliances involved semiconductor NPD, a manufacturing aspect and a marketing collaboration. The different success levels in outcomes have enabled us to see how different factors may support or hinder alliance development and performance in different phases. As for measuring alliance performance, there seems to be an emerging consensus in the literature that the managers’ assessment provides a relevant measure (Kale et al., 2002). Hence, we have asked the firm’s CEO to evaluate the alliance performance as compared to their objectives, on a qualitative scale. The results are presented in Table 2. The study has been a part of an industrial PhD project with the case firm by one of the authors, where she spent 20 70 of her work week (in different periods) at the firm’s facilities. This setup has enabled a unique study involving participant observations over a 3.5-year period. The study has allowed investigating the roles that different skills play in different stages of an alliance. An advantage of the case study approach is that it enables contextualizing the studied phenomena and taking into account a large variety of variables (Ghauri, 2004; Yin, 2003). Participant observation has been supported by a number of semi-structured interviews. Following the theoretical sampling logic (Eisenhardt & Graebner, 2007), we focused on actors on different organizational levels that were directly involved in the alliances. Seven in-depth interviews were conducted with the top Table 2.

Evaluation of Alliance Outcomes by the Case Firm’s CEO.

Alliance 1 Alliance 2, phase 1 Alliance 2, phase 2 Alliance 3

Technical objectives Financial objectives Technical objectives Financial objectives Technical objectives Financial objectives Technical objectives Financial objectives

Largely successful Largely unsuccessful Successful Successful Largely successful Successful Unsuccessful Unsuccessful

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managers, R&D project managers and engineers in 2009 2010, each lasting 1.5 2 hours. They covered the aspects of the cases related to key theoretical constructs, as well as following up on certain remarkable events and details that were being observed. We applied iterative reasoning, widely advised for conducting process studies (Dubois & Gadde, 2002; Langley, 1999; Pettigrew, 1990). Data was collected following an initial theoretical framework. The results were analysed alongside data collection in order to develop or add theory to our framework and inform further data collection. The study was conducted and analysed using the methods described by Ghauri (2004) and Miles and Huberman (1994). First, each embedded case was written out as a story. Then the cases were coded and findings were analysed against the theoretical framework. We built case matrixes, which were then ‘stacked’ together in order to arrive to common themes among them, and from there to the specific aspects of the alliance capability (Miles & Huberman, 1994). We then develop propositions to tie these aspects to alliance performance, defined as the degree to which both partner firms achieve their objectives in an alliance (cf. Das & Teng, 2003).

A STUDY OF ALLIANCES OF A TECHNOLOGY BORN GLOBAL The firm in this study will be called DanAmplifier a Danish technology born global that specializes in highly efficient Class D audio amplification technologies and products and holds some of the world’s leading knowhow in the field. The founder was the author of important theoretical developments in this field. Application of Class D technologies has revolutionized the audio industry, as they allow for significantly higher energy efficiency and compactness of the resulting products as compared to the traditional analogue technologies developed back in the 1930s. DanAmplifier was founded in 1999 as an independent subsidiary of a larger Danish manufacturer, with the founder as the second investor. It was managed independently of the mother firm for most of its history. DanAmplifier’s and the mother firm’s products and markets are very different: DanAmplifier’s products are aimed at industrial customers, while the mother firm’s at consumers. DanAmplifier’s first international customer was obtained within two years, and the first international R&D alliance was started during the third

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year of the firm’s operations. The born global has been financially profitable since 2005. Today, it is a specialized engineering firm with about 35 employees with headquarter in Denmark and representative offices in Japan and the United States. The products are amplification solutions for consumer, professional, automotive and mobile audio. Customers come from the United States, Western Europe and Asia. Collaborations with MNEs have been used actively by DanAmplifier to develop its technologies into products for specific application markets, where the firm did not have the internal resources, competences or equipment to complete product development, as well as to enter new product markets through partners’ marketing channels. DanAmplifier, however, is very clear about its core competences and their protection, and has always kept the core technological developments in-house.

Alliance 1: Developing the First Audio Chip for Versatile Applications with MNE1 Soon after its establishment, DanAmplifier realized the need for creating an integrated circuit chip, which would contain its core technologies. The objectives were to miniaturize a part of the amplifier module, to enable more creative end-product designs and to protect the core technologies from copying. DanAmplifier lacked the skills, resources and specific, very costly equipment to implement their technologies into a chip. MNE1 a major Japanese manufacturer of semiconductor products for a number of industries, including consumer audio, was identified as a potential partner. Based on the novelty and superiority of DanAmplifier’s technologies, the firm entered the collaboration with patents and design engineering resources. MNE1 agreed to implement the technology into two chips, one for each partner. MNE1 was a highly suitable partner: it had the chip development processes, equipment, engineering resources, as well as the manufacturing and quality assurance, distribution capacities and sales channels. It also had a large customer network and a strong reputation in the global consumer audio market. It was agreed that MNE1 would develop, manufacture and distribute both its own and DanAmplifier’s chips. DanAmplifier would receive a royalty from the sale of each chip. At this stage, the founder’s role was significant. He effectively presented DanAmplifier’s superior technologies and developed a beneficial business case for the partner. He had a similar role in the following partnerships in this study.

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Interviewees at DanAmplifier often stressed the role of a detailed contract. In this alliance, negotiations finally resulted in an extensive contract specifying resource contributions, investments and rewards from the project, target product specifications and deadlines and possible issues concerning future competition. The collaboration was conducted by frequent travelling between Europe and Japan, email, teleconferences and net meetings. The business and engineering information flows were separated between the top management and engineers respectively. The project had a clear and stable management within DanAmplifier, although the manager also had engineering responsibilities. Both partners put an effort into building a positive relationship and a trustful atmosphere. According to a participating DanAmplifier’s engineer: .

Japanese companies are almost like a family, they took us in and were very nice to us. From this perspective, it was very nice working with them. In Japan, they are also better than other Asian people at working on a project together almost better than Danish people. They have this special way of working when they all together are trying for the project to succeed. (R&D engineer at DanAmplifier, interview, 2 March 2010)

The nature of the collaboration required for DanAmplifier’s technology to be disclosed to the partner. DanAmplifier had its technologies protected with patents in all relevant markets, and this strategy has proven to be effective. No issues were encountered in this aspect. Furthermore, DanAmplifier had an initial trust towards the partner because it always entered into alliances only with well-reputed companies or with the ones where they knew the management well. The NPD part of the collaboration was successful. Both chips were developed up to the original specifications. DanAmplifier’s chip was put to use in its standard and customized products, as well as was being sold separately. The development period stretched for three years instead of two, but the products came out technologically successful and timely for the target markets. The partners did not regard the time delay as problematic. However, MNE1 experienced a disappointment in its sales of the chip: its design required a number of external components and specific engineering skills. The chip was not a Plug&Play solution, which would be easy to sell ‘off-the-shelf’. It therefore was not suitable for MNE1’s existing sales channels that offered a large number of Plug&Play chips. MNE1’s sales and consequently DanAmplifier’s royalties came out much lower than expected. Still, based on the learning from the collaboration, several years later, MNE1 developed a new independent Class D chip with a more integrated

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design and simpler implementation. DanAmplifier’s experts expected this new product to become a market success for MNE1.

Alliance 2: Developing Mobile Audio Chips in Collaboration with MNE2 Shortly after initiating the first collaboration, DanAmplifier developed a simple audio chip for mobile devices. The rather raw prototype was offered to a major Korean manufacturer of mobile phones (MNE2). It matched the firm’s strategic interest in significantly enhancing audio quality in mobile phones, and MNE2 agreed to invest in developing exclusive audio chips by DanAmplifier. This offered the born global an entry into the large and growing mass market of mobile phones. After long negotiations, a comprehensive contract was signed. DanAmplifier would participate with engineering resources and know-how. MNE2 would offer engineering resources of two companies in its group, one being a dedicated semiconductor company. DanAmplifier would receive royalty for the sale of each mobile phone carrying the chip. Once again, the collaboration’s strategic, financial and operational scope was defined clearly. DanAmplifier’s widereaching strategy of spreading its technology into mass electronics products coincided with MNE2’s needs. MNE2 was originally introduced to DanAmplifier through its mother firm, thus some trust and goodwill existed from the start. Furthermore, DanAmplifier’s founder managed to convince MNE2’s management of the validity of DanAmplifier’s technologies. The negotiations lasted about six months and as a result, a comprehensive contract was developed and signed. This alliance, too, was conducted by means of extensive travelling by DanAmplifier’s engineers and distance communication. The engineers put a lot of hours into hands-on teaching of MNE2’s engineers about working with Class D technology. The communication flows were divided: the top management took care of the business aspects, while engineers handled product development. DanAmplifier’s technologies were well protected by patents before disclosure. Development of the first-generation chip went well, according to the original specifications and timeline. The chip was successfully integrated into several models of MNE2’s mobile phones. Meanwhile, DanAmplifier developed its technologies further. 1.5 years after the start of the collaboration, MNE2 agreed to sponsor the development of a second-generation audio chip exclusive for MNE2. However, this part of the collaboration did not go as smoothly. The promise to MNE2 could not be upheld within the set time frame due to the overly optimistic

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target specifications. Furthermore, the new chip was principally different in technology and would require architectural changes in MNE2’s product platforms something that the firm was not ready for. As a result, the project was only a partial success. The chips were implemented into several mobile phone models, but neither side was happy with the result. DanAmplifier offered to either perfect the chip up to the requirements with one more year of work funded by MNE2, or to develop another chip independently and without any exclusive rights. MNE2 chose the second option, while keeping the imperfect chips. Building on the learning gained about the mobile phone market, DanAmplifier embarked on developing its own, independent audio chip still being a company of around 30 people. The lacking resources and capabilities were compensated by a sophisticated outsourced value chain that stretched across continents. The new chip was finalized 18 months later and came out as a largely technologically successful and a timely product. It was offered to MNE2 but the response was much more hesitant than expected. This was partly due to a change in top management at MNE2 and partly because the chip did not fit MNE2’s requirements precisely. Clearly, DanAmplifier had underperformed in the second phase. Also in this alliance the contract served as the standard for measuring alliance progress and performance. However, the perception of time in this project was different from that in Alliance 1. Here, keeping up with time schedules was highly important due to rapid innovation cycles in consumer electronics markets, the partner’s product development plans and competitor action. Conflict resolution in this alliance was based on the contract, but also on flexibility in relation to the actual situation. The nature of the collaboration carried a high level of uncertainty. Therefore, solutions had to be found on the spot using the guidance available in the contracts. As the CEO put it: It’s quite easy: if you promise a customer a product with these specs, and the specs are not there. What will you do? The customer says, ‘I have paid you money. I want that.’ And there is no book that can say ‘Page 1. What should I do?’ We have to evaluate this particular error, how long time it will take us to correct it.… I think, especially our contracts with alliances, they are very comprehensive. The deliverables are stated very-very clearly: what we have to do, what they have to do. Yes, if something is wrong, from a legal point of view it is regulated in the contract. But you will always try to come to terms without litigation. (DanAmplifier’s CEO, interview, 26 March 2010)

In each situation, DanAmplifier and the partners tried to find a solution that would be most beneficial and/or least harmful for both of them in line with ‘integrative conflict resolution’ (Kale et al., 2000). DanAmplifier

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did manage to leave without financial penalties after the sub-optimal end of stage two, not least due to the management’s negotiation skills.

Alliance 3: Developing an Automotive Audio Chip in Collaboration with MNE3 and MNE4 Following a market pull where manufacturers applied DanAmplifier’s products in automotive audio systems, the firm looked for a partner to develop the first four-channel audio chip for the automotive market. The partner needed to be an established audio supplier that could take part in developing the chip and help DanAmplifier to enter this highly competitive market. The firm’s search for suitable partner(s) has not been smooth. DanAmplifier’s CTO tells: At that time, many companies were interested in doing that for [DanAmplifier], because … many companies knew [DanAmplifier] up-front. I think there were at least two that we addressed. Fairchild was one of them.… But unfortunately, they thought that: ‘This small company: we will have everything, and they (referring to DanAmplifier, ed.) can just provide us the IP.’ They thought they could ‘take all the cream’. And we wouldn’t allow that. It was difficult at that point. The companies were trying to squeeze [DanAmplifier], but we would not agree to such a contract. They thought: ‘We are so big, they are so small. Just squeeze them, get the money out of them.’ We would not allow that. At that point, Fairchild wanted to get the total mobile phone business from [DanAmplifier].… And we could not allow that because we already had the collaboration with [MNE2]. And there were a lot of limitations, limiting our ability to do business with different customers. They wanted to control [DanAmplifier], and we would not accept that. (DanAmplifier’s CTO, interview, 10 March 2010)

Finally, a suitable partner was found in a well-known Japanese manufacturer of semiconductors for various applications, who also had a strong standing in the automotive market MNE3. After several months of negotiations, a three-party contract was signed. DanAmplifier entered with the technical know-how and engineering resources, MNE3 would implement the technologies into a chip. And a third party, a large Japanese automotive audio manufacturer (MNE4) entered as an investor and an exclusive customer for a limited period after the chip would be ready. The project was set up in the same way as before, but characterized by a high turnover of managers and engineers at DanAmplifier, in part due to ownership and management changes happening at the firm at the time. Furthermore, both firms paid inadequate attention to project management

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and information flows. MNE3 used a new development process for this highly sophisticated chip. It had not been tested previously and turned out to be unsuitable for this complex project. MNE3 had informed DanAmplifier about the new process, but due to the excessive reliance on MNE3’s good name and technical capabilities, and a lack of project management on DanAmplifier’s side, the process was not properly evaluated. Furthermore, DanAmplifier’s original estimate was too optimistic and the target product specifications were very difficult to reach in the planned time due to technological limitations. The firm’s Director of Product Development (later CTO) had raised this issue internally several times, but his points were not considered. This problem could be attributed to DanAmplifier’s internal misalignment, which led to a situation where not all the relevant specialists were involved in the project. While the collaboration began with high interest and dedication from all parties, DanAmplifier failed to set up a stable and proper project management team. The deadlines were not met and the management on both sides started to be concerned. DanAmplifier’s engineers tried to handle the obvious technical challenges by workarounds. Finally, a thorough project evaluation was conducted by DanAmplifier’s senior engineers and several serious imperfections were discovered and reported at a meeting with MNE3. A solution requiring more time and investment was suggested, but the product would then be obsolete by the time it would be released. As a result, DanAmplifier had to terminate both the project and the alliance. In this alliance, the contract became significant for conflict resolution. At an early meeting in Japan, MNE3 agreed to the project assessment presented by DanAmplifier, and that both parties were equally to blame. However later, MNE3 refused to accept this, probably being afraid of ‘losing face’ in front of MNE4. It took a significant effort from DanAmplifier’s senior engineers and lawyers before a legal closure was reached. It was concluded that both parties were to blame for the failure and that none of them would pay damages. On top of the lost investments and potential revenues, DanAmplifier also lost its reputation in relation to two major Japanese MNEs, of which MNE4 was also a customer. One senior manager later reflected on the development: … we learned several things from this project. You have to be good at project management. We should be better at putting questions to our partners, question their technology, question their ability to do the project. And we should not make a contract with too many partners, because we have promised [MNE4] to do it, and it was very difficult to stop. It would be much easier to stop the project if we had to deal only with [MNE3] because they had the technical problems with the project. But then we faced

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LILIYA ALTSHULER OXTORP AND ULF ELG [MNE4] they would lose the market. So we were actually forced by [MNE4] to continue. And we should, at that point, have had the guts to say ‘No, this is not ok, [MNE3]. Correct your (faults)’. (DanAmplifier’s CTO, interview, 10 March 2010)

The alliance offered a lot of learning opportunities both from the managerial and the technical perspectives. However, due to the high personnel turnover, a lot of the project-related knowledge was lost and had to be recovered later by a new team. DanAmplifier’s inability to deliver results on time was what attracted the top management’s attention and encouraged the start of an investigation. A very detailed investigation and evaluation of the alliance’s course was made. Dissolution of the alliance happened shortly after a partial ownership and management changes at DanAmplifier took place. After this alliance’s sub-optimal performance, the firm took significant steps to improve its approach and resource allocation to managing collaborative projects.

A Comparative Analysis of the Alliance Management Aspects Table 3 summarizes the alliances in regard to the different management aspects in alliance design, initiation and management. The pattern is similar in the early phase of establishing the cooperations. The parties managed well in defining the scope of the alliances. Negotiating the specific conditions and writing extensive contracts usually took time. DanAmplifier also succeeded with putting a major effort into identifying the benefits that the MNEs would gain and convincing the MNEs in entering the alliances and committing a lot of resources to them. Alliances 1 and 2 were also similar in the collaboration and communication practices: they were based upon close interaction among engineers and a separate flow of management contacts. The functioning of Alliance 3 was sub-optimal. The change in managers and engineers involved in the project caused difficulties from the project’s start and undermined the stability and coordination of the alliance. DanAmplifier generally relied less on first-hand experiences and more on the earlier reputation of the MNE partners and their status as resourceful and highly respected firms in the initiation stage of the alliances. Nevertheless, DanAmplifier made sure that its technologies were legally protected and saw this as necessary in order to fully share important knowledge. In the second phase of Alliance 2, DanAmplifier failed to live up to its promises made earlier, partly due to a lack of alignment inside the firm and the overly optimistic promises to the partner. A change in top

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Table 3.

Summary of the Management Aspects in the Studied Alliances.

Aspect of Alliance Management Setting up contributions and expectations Develop collaboration and communication Trust and commitment building

Conflict resolution

Alliance 1

Alliance 2

Alliance 3

• Scope of alliance clearly defined • Technological and long-term strategic benefits for MNE stressed by DanAmplifier • Terms set through detailed negotiations and contract • Clear and stable management teams • No continuous project • Separate contacts by top managers and management engineers • Rotating specialists • Managers with varying roles • Technological • Based on existing • Based on earlier competence, reputation; personal reputation and earlier characteristics in phase 1 competence reputation • Eroded by management • Internal misalignment • Committed changes from MNE’s side • Eroded by a failure of engineers and weak performance by MNE3 partner to use a • Protection DanAmplifier in phase 2 relevant technical through • Performance failure development process, and patents weakened DanAmplifier’s by DanAmplifier to reputation with the check it before starting partner the project. The problem resulted in weak performance • One year • Closure through • Objectives not reached, delay and negotiations and without product not developed early market penalties • Closure difficult, through failure lengthy negotiation and handled well communication, involving legal professionals from all sides. Resulted in no formal penalties • Loss of DanAmplifier’s reputation with the two MNE partners

technical management at MNE2 to the one less committed to exclusive collaborations with suppliers further weakened the cooperation. Alliance 3 further stressed the negative consequences that came out of overly optimistic promises made by the founder and the lack of consideration of the points raised by other engineers. Furthermore, the lack of dedicated and stable project management and turnover in personnel made it difficult to

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keep up trust and commitment from the MNE partners in Alliance 3. Finally, disappointing results led to termination of the alliance. All alliances failed to live up to some goals and expectations. In Alliance 1, there were some disappointments regarding the market success for MNE1 and consequently for DanAmplifier in the form of missed royalties. However, these difficulties were solved by the parties without disagreements and were attributed to novelty of the technology. In Alliance 2, the problems in phase 2 had more harmful consequences for the promising and profitable long-term collaboration with MNE2. Nevertheless, there were no disputes and claims made by MNE2 even though the born global failed to deliver a product 100 per cent up to the original specifications. Alliance 3 was more problematic and ended in conflict. The essential problem was the lack of managerial attention or managerial structures as such from both DanAmplifier and MNE3, which resulted in the use of a technological development process, which was not at all optimal for this NPD. Both MNE3 and DanAmplifier failed to see this before the project’s start. Later, the development met continuous problems and workarounds, which DanAmplifier failed to address due to the lack of committed and continuous project management and turnover of the engineers involved in the project. The collaboration did not result in a successful and timely product, and the alliance failed to reach its objectives for all the parties involved. It was only after extensive negotiations and contractual disputes that the alliance could be terminated without any further liabilities for DanAmplifier or the other parties. Based on the above empirical study, in the following section, we discuss the elements of the alliance capability from the born globals’ perspective. We relate them to the risks and challenges that born globals face in their collaborations with MNEs, which we had outlined in the theoretical framework.

ORGANIZATIONAL SKILLS AND PROCESSES COMPRISING THE ALLIANCE CAPABILITY This research supports the view of semi-structured organizational processes being major building blocks of organizational capabilities. They emerge over time through experience, organizational learning and development of managerial heuristics in building organizational expertise or organizational skills (Bingham, Eisenhardt, & Furr, 2007). The study has uncovered

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both strengths and shortcomings in DanAmplifier’s alliance interactions. Based upon our empirical insights as well as the theoretical foundations of this research, we would like to propose that a born global’s alliance capability should be regarded as the firm’s ability to successfully develop, utilize and manage alliances over time with (typically) more resourceful and powerful partner firms. We have identified five components that comprise the alliance capability. They are summarized in Table 4 and Fig. 1 and are discussed in the text below. These organizational skills have been defined either by having been demonstrated by the case company, or the necessity of which has been learnt as a result of negative experiences through a post-factum reflection. Below, we will discuss these sets of organizational skills and tie them to the challenges in alliance design, initiation and management, discussed in the theoretical framework. Furthermore, we will discuss the role of learning processes in strengthening and combining these sets of skills over time. To summarize our discussion of each set of skills, we formulate propositions, which should form the basis for future quantitative research. We discuss the effect of the various sets of skills comprising the alliance capability Table 4.

Organizational Skills Comprising a Technology Born Global’s Alliance Capability.

Internal/External Assessment

Need Detection and Coupling

Asset Protection

• Matching • Presenting • Drafting and partners’ innovative negotiating a technological technologies clear contract, expertise and and products while still own capabilities to potential allowing flexible • Identifying and partners cooperation using limited • Understanding • IP protection of internal potential born global’s resources partner’s technologies by effectively business and patents and towards shared product other effective goals portfolio safeguards • Reviewing • Coupling needs resources/ and strategic processes the directions of partner will the partner contribute with with own resources

Project Management

Termination

• Professional project management decoupled from daily R&D work • Understanding and respecting various business cultures • Prompt detection and collaborative resolution of problems

• Ability to question and terminate ongoing alliances • Controlling damages and managing conflict with powerful partners • Preserving positive relationships with former partners

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Fig. 1. The Organizational Skills Comprising the Alliance Capability of Technology-Based Born Globals in Relation to the Different Stages of Alliance Management.

on the alliance performance. We define alliance performance as the degree to which both partner firms achieve their objectives in an alliance (cf. Das & Teng, 2003). Although alliance performance has been defined in a great number of ways in the literature (see Das & Teng, 2003 for a review), this conceptualization seems most reasonable based on the empirical research we have done for this paper. It has been clear to us that born globals do not start strategic alliances with obscure and broad objectives for an unlimited amount of time. They start them for a specific purpose, often a project or product development, as discussed earlier in the paper, and they care very much for achieving their objectives. We assume that the objectives of the collaboration are also important for the partner organizations, as they commit strategically to the alliances with a view of receiving an innovative product, component or technology. Therefore, measuring alliance performance based on the degree of achieving the objectives originally set out for the alliance by each of the partners is highly reasonable.

Internal and External Assessment Skills Our study illustrates that a born global must assess both the potential partners’ technological level and expertise and its own capabilities and limitations, which corresponds to its external and internal assessment skills. The internal assessment of the technical ability to reach target product specifications within a given time frame is identified as critical. This requires managerial alignment and effective and open internal communication, so that

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opinions of all experts are considered. Using their limited intangible and tangible resources as effectively as possible and mobilizing them synergistically towards a common goal is essential for born globals. For example, it was evident that the case company did not use the full potential of all employees. Some of their unique competences were sometimes disregarded and in Alliance 3, there was a lack of continuity regarding the people involved. Furthermore, an apparent misalignment of the firm’s management led to ineffective internal communication and to ineffective management of the alliance. The external assessment skills draw upon the need to not only find partners suitable for the alliance’s strategic objectives, but also to assessing the partner’s technical ability to contribute to the requirements of the NPD project. Uncritical reliance on the partner’s good name, size, a history of successful developments and assumed technical understanding and resources can be fatal for the NPD project and the whole collaboration, as Alliance 3 has revealed. Assessing an MNE’s technical capabilities is likely to be challenging for a born global, as MNEs are likely to be highly complex and less transparent organizations. It is nevertheless necessary. This post-factum evaluation of Alliance 3 by DanAmplifier’s CTO illustrates the point: I would say that [DanAmplifier] should have done a much better job.… The biggest problem was actually the process that [MNE3] was using. The chip process you distinguish between different processes by stating the micron. The micron is the thickness of the layer within the chip. And the smaller the micron, the more compact you can make the ICs (integrated circuits, electronic chips, ed.), and the voltage that they have to run on is smaller. [MNE3] had developed a new process and we were the first to use it. I did not know that. But somehow [DanAmplifier] knew. [MNE3] had told [DanAmplifier] I knew afterwards, because I received the project when [the founder] left. We knew, and having that knowledge, we should’ve checked much-much-much more whether it was ok or not. (DanAmplifier’s CTO, interview, 10 March 2010)

A born global should invest time into gaining a common understanding with interested alliance partners, and not go forward with signing contracts before the born global’s engineers have been given an opportunity to review the technical resources/processes that the MNE is planning to use in the R&D collaboration. If the MNE partner is not willing to present detailed technical specifications, it reveals a low level of one or more of the following: (1) commitment, (2) prioritization of the project and (3) trustworthiness of this partner. In such situations, the born global should probably not enter into the collaboration. The process of getting closely acquainted and negotiating with the partner can help to overcome the lack of transparency of the MNE for

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the born global, as well as to discover possible differences in strategic objectives and priorities as for the alliance’s content between/among alliance partners, as discussed in the theoretical framework, and prevent such an alliance from happening. The process can help to build trust and overcome the challenge of the great power imbalance and the risk that an MNE may press the born global into a collaboration under unfavourable terms. The process can thus be conductive to mitigating the risk of possible opportunistic behaviour by the partner by discovering opportunistic intentions early. Furthermore, the process of discussing technical resource commitments and availability from each of the partners will help to mitigate performance risk in the R&D collaboration and reduce the uncertainty as for the success of the R&D project. Therefore, we posit the following: Proposition 1. A born global’s internal and external assessment skills will be positively related to the performance of the firm’s alliances.

Need Detection and Coupling Skills As the less established and resourceful partner, the born global has to present convincing arguments and incentives in order to obtain an MNE’s interest in a collaboration. We highlight the importance of a born global’s managers’ and engineers’ ability to effectively present innovative technologies and products (often only prototypes and technology models) to the potential partners. Our embedded cases illustrate how the born global was able to detect the needs of the larger partners and assist in fulfilling them and strengthening the MNEs’ product portfolios time after time. This requires an in-depth understanding of an MNE’s business, product portfolio and ongoing developments in the related industries. Furthermore, the born global must couple the needs and strategic directions of the partner with its own resources. Developing a convincing business case, strategically beneficial for both the born global and the MNE is critical, as the MNE may have an a priori preference for collaborating either with large companies that match their resources, or with SMEs that they have heard something positive about. Born globals may still be too young and may not have the latter qualification. This set of organizational skills requires a superior professional expertise within a given technology field, as well as excellent communication skills that enable engineers from one country to effectively communicate and

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collaborate with engineers from another on highly complex technical matters, in spite of the large cultural and geographical distances. This set of organizational skills can help the born global to overcome possible difficulties in finding interested MNE partners due to the born global’s lack of legitimacy and its liability of newness, discussed in the theoretical framework. The need detection and coupling skills can also be conductive to overcoming the difficulties of possible differences in alliance objectives among the partners, discussed previously. Therefore, we theorize that: Proposition 2. A born global’s need detection and coupling skills will be positively related to the performance of the firm’s alliances.

Asset Protection Skills Trust and shared norms are often discussed as the main inter-firm governance mechanism (Borys & Jemison, 1989; Moorman, Zaltman, & Desphande, 1992; Morgan & Hunt, 1994; Parkhe, 1998). Our study illustrates that trust that requires a long time to develop may not occur in a born global’s alliances, or not in all of them. To support any present level of trust, born globals need to develop particularly strong skills in protecting ownership of their technological assets. Contract drafting has shown to be a critical aspect of alliance management in our case studies. It involves drafting a clear and detailed contractual agreement stating target product specifications, a timeline, resource investments from all parties, future distribution of revenues and potential competition issues. All the while in alliances, contracts need to be flexible enough to show goodwill and trust towards the partner, as well as the technical capability of the born global. Our research shows that the carefully drafted contracts were used as the benchmarks and the central guiding mechanism for the alliances. They also served as a guide to resolving difficult situations and discovering faults with ongoing projects, as in the case of Alliance 3. Asset protection skills include the formal stipulation of the agreements the partners have come to through their detailed negotiation process discussed above. The contracts are one of the very few legal instruments that the smaller firms have to protect themselves with against opportunistic behaviour by partners. The contract is a legal binding document that is meant to protect each partner from opportunistic behaviour by the other partner(s), but from the born global’s perspective, it is meant to protect it from the risk of the MNE partner ‘outlearning’ the born global and not

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committing the resources originally agreed upon or sabotaging the alliance in another way, as discussed in the theoretical framework. The other aspect of the asset protection skills is IP protection of the born global’s technologies by patents and other relevant methods in all relevant geographical areas and product applications. Born globals enter R&D collaborations with their unique technologies as their contribution; hence such alliances involve full or partial technology disclosure to the partner. Therefore, patenting of technologies by the born global is necessary to protect its core capabilities and pre-empting possible opportunistic behaviour by alliance partners. The importance of this type of asset protection cannot be stressed enough. A born global needs to find a strategy and a level of patent protection it can commit to on a continuous basis, since applying for and sustaining patents is costly and requires engineers’ and patent lawyers’ time. In today’s business reality filled with international competition and weak IP protections laws in some countries, IP protection is simply a must and a minimum for firms to try to preserve their proprietary knowledge (Gassmann & Keupp, 2007; Kitching & Blackburn, 1998). Consequently, we suggest that: Proposition 3. A born global’s asset protection skills will be positively related to the performance of the firm’s alliances.

Project Management Skills As previously discussed, the literature stresses the importance of effective alliance management (Ireland et al., 2002) and of institutional support for the cooperation (Dyer & Singh, 1998). Most born globals will not have the resources to organize a certain institutionalized alliance function that can be responsible for the overall alliance management (Kale & Singh, 2007). Nevertheless, this study clearly illustrates the need for alliance management, but in the form of project management rather than a permanent, institutionalized function. It suggests a need for professional and dedicated project management of technology alliances in order to ensure their desired outcomes and performance levels. In a small firm, finding a dedicated project manager for each collaboration is not always easy due to resource constraints. Often, it will be development engineers who also carry project management responsibilities. In our cases, one of the development engineers was also managerially responsible in each of the alliances. However in several of our embedded cases, this turned out to be sub-optimal and led

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to an unfortunate end of Alliance 3 and a less than optimal performance of the second phase of Alliance 2. The following quote is highly illustrative: [The R&D development in Alliance 3] was delayed, and delayed, and delayed due to our deliveries and lack of project management, a lack of project management from [MNE3’s] side, and also due to the fact that the [MNE3’s R&D development] process was not that good. For a long time, somebody here at [DanAmplifier], and also at [MNE3] knew that there were some problems with this process, and they tried to make work-arounds.… It’s a sad story. (DanAmplifier’s CTO, interview, 10 March 2010)

Development engineers are deeply involved in R&D work and may not have a full project overview or the time to step back and make necessary decisions in critical situations. This research shows that a project manager responsible for operational and financial aspects, and one not directly involved in R&D work is preferable. Considering resource limitations of born globals, one manager could be appointed to oversee more than one project, depending on the scope. Among other things, project management involves an understanding of various business cultures, which affect project development and operational work. Besides, prompt detection and collaborative resolution of problems is a critical aspect of alliance management. Several of the problems in the studied alliances occurred due to the lack of will or ability to identify them at an early stage. Honest and prompt sharing of information and addressing the issues in a direct and collaborative manner would pre-empt problem build-up and conflict. Hence, we posit the following: Proposition 4. A born global’s project management skills will be positively related to the performance of the firm’s alliances.

Termination Skills Through our study, we have uncovered the need and importance for a born global to critically analyse and decide when to terminate an alliance. Earlier research has often assumed that termination is a sign of failure (Lunnan & Haugland, 2007). However, large firms may have the resources to keep alliances going for many years (Gulati & Sytch, 2008; Parkhe, 1998), while a small firm has to make sure that its very limited resources are not used on low performing or dead-end projects. In Alliance 3, the born global’s management was not critical enough in the alliance’s different stages mostly due to the lack of proper project management in the alliance. Besides the important role of contracts in resolving conflict

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situations, we emphasize negotiation skills of managers in enabling the born global to leave a collaboration with a minor damage to the firm. It must be remembered that the power imbalance between a born global and an MNE is enormous. It is therefore important for the born global to be able to identify ineffective collaborations and terminate them in good time and without major losses in terms of money and credibility. Furthermore, termination concerns the firms’ general reputation. Earlier studies stress that reputation and support from earlier network partners is of major importance for born globals (Freeman et al., 2010; Zhou et al., 2007). It is therefore important to make every effort to preserve a positive relationship with partner(s) even if the collaboration has been problematic. A born global is likely to have a limited network of relationships and to be dependent on the opinions spread by the partners. The following statement from an interview done while the Alliance 3 was still in its closing phase, by DanAmplifier’s CTO who was in charge of closing the project, illustrates what prolonging underperforming alliances mean for a smaller firm: … it [Alliance 3] was very expensive from [DanAmplifier’s] side. We did not pay for the chip development, but we had four-five engineers [working for] several years, and A LOT of traveling to Japan. Considering that, we could have used our engineering resources for something better. And also the fact that we had to tell our customer [MNE4] that we were not able to do the chip it’s a really bad thing.… We cannot ask [MNE4] to do such a project (another R&D collaboration).… Maybe they will consider [DanAmplifier’s] technology, but they will do it themselves. And they will not commit to anything or make a contract with [DanAmplifier] in the next 10 years, I think. (DanAmplifier’s CTO, interview, 10 March 2010)

In the model in Fig. 1, it can be seen that project management skills continue all the way into the closing stage of alliances. They support the termination skills as a decision about the need for a project/alliance termination needs to be based on analysis and judgement of the dedicated project manager.

Learning Processes To complete the discussion, we must take into account the learning aspect of alliance management. Even though activities aimed at learning from previous alliances in our case studies have only been observed in the formal evaluation of the failed Alliance 3, we cannot ignore the abundant

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literature on alliance management that persuasively proves the importance of learning-oriented activities in developing a firm’s alliance capability (Doz, 1996; Kale et al., 2002; Kale & Singh, 2007). Furthermore, a firm’s learning capability supports a firm’s overall internationalization strategy and international growth (Bartlett & Ghoshal, 2000; Fletcher, 2001; Weerawardena et al., 2007), whereas alliances are a key means for international expansion for born globals (Freeman et al., 2006). In our case firm, the alliance management expertise was centralized with a few key executives, who have built it over time through having negotiated and participated in managing several of the firm’s alliances. This, however, is not optimal for preserving alliance management knowledge and skills, specific for the venture and its industries, within the firm, in case the key officials leave the organization. Ongoing processes for evaluating collaborations and subsequent sharing of the learning with all relevant organizational members contribute to developing a firm’s alliance capability (ibid.; Sharma & Blomstermo, 2003). Evaluating each collaboration, not only the unsuccessful ones, is important in distilling key insights, sharing them with the rest of the firm, and reflecting upon possible ways of improving the current processes. Encoding this information into manuals and other documents ensures preservation of this knowledge. Finally, when new managers get involved in alliance management, helping them to internalize this knowledge and use it in their work would substantially improve the alliance management processes, help avoiding known mistakes, and eventually lead to better managed and better performing alliances (Heimeriks & Duysters, 2007; Kale & Singh, 2007). Rather than a specific set of alliance skills, however, learning should be regarded as a set of ongoing organizational processes within a firm. We summarize the organizational skills comprising the alliance capability of technology-based born globals in Fig. 1.

CONTRIBUTIONS AND AVENUES FOR FURTHER RESEARCH Earlier studies discuss specific advantages that born globals can gain from cooperating with larger and more powerful partners (Knight & Cavusgil, 2004; Gabrielsson & Kirpalani, 2004; Vapola, 2011). Until now, research on collaborations of born globals has focused mostly on networking strategies, and not on the specific management activities in the firms’ alliances in

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different contexts. The contribution of our research is in the detailed analysis of a born global’s alliance capability as a set of specific organizational skills that enable the firm to successfully initiate, manage and finish its collaborations involving R&D, and possibly also a marketing aspect. Our research is particularly valuable in it being based on an in-depth process study of a European technology born global and the actual challenges and experiences that this firm has faced in managing its collaborations with overseas MNEs. We had first discussed the various challenges and risks of SME collaboration with MNEs specifically for collaborations involving R&D that are found in the literature. Then, based on our empirical study, we have defined and discussed the specific sets of organizational skills that comprise the alliance capability of technology-based born globals, and have discussed how each of these sets of skills can help born globals to counteract the challenges and risks of collaborating with MNEs. The aspects of the alliance capability that we have defined are internal and external assessment skills, need detection and coupling skills, asset protection skills, project management skills, termination skills and the learning processes to build the alliance capability further. We have also developed a set of propositions to tie the organizational skills to alliance performance. We believe that further research on this topic using similar qualitative, in-depth methodologies would be very beneficial for both academics and practitioners. It is only through close-up investigations that one can uncover the intricacies and the practical complications that arise in interfirm collaborations, and how they can be solved. Further in-depth case studies would be beneficial for defining other possible aspects of the alliance capability. Furthermore, we have developed a set of propositions for follow-up quantitative studies, which would be important for corroborating our findings for a larger population of technology-based born globals and actually measuring the effect of each set of organizational skills on alliance performance.

VALUE FOR PRACTITIONERS We believe the findings to be very useful for practitioners, as our discussion is based on experiences of an actual high-tech born globals, which is successful in the long run, but as observed, has seen both ups and downs in its alliance experiences. In order not to fill the paper with repetitions, here we would like to refer to our detailed discussion of each aspect of the alliance

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capability in the section ‘Organizational Skills and Processes Comprising the Alliance Capability’ above. These are hands-on recommendations that, we believe, should be very beneficial to born global managers in initiating, designing, managing and closing their collaborations with larger partners and improving performance of their alliances.

ACKNOWLEDGEMENT We are very grateful to the management and employees of ‘DanAmplifier’ for their great and continuous collaboration in this research.

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THE EFFECTS OF DYNAMIC CAPABILITIES ON VALUE-BASED PRICING AND EXPORT PERFORMANCE Katharina Maria Hofer, Lisa Maria Niehoff and Gerhard A. Wuehrer ABSTRACT In this study, we examine the influence of different components of dynamic capabilities on value-based pricing and export performance. We develop a research model investigating the three component factors of dynamic capabilities, that is, adaptive capability, absorptive capability, and innovative capability, and their respective influence on value-based pricing and export performance. Furthermore, we hypothesize a relationship between value-based pricing and export performance. Building upon a sample of 172 Austrian CEOs and marketing managers, we test our hypotheses through structural equation modeling using partial least squares. The results reveal that a firm’s adaptive capability and innovative capability both positively influence value-based pricing. Furthermore, our results show that adaptive capability has a positive influence on export performance. The relationship between value-based pricing and export

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performance could not be supported. Hence, we conclude that a firm’s adaptive capability plays a central role in international pricing and leads to enhanced export performance. Keywords: Dynamic capabilities; value-based pricing; export performance; international marketing

INTRODUCTION International pricing is a central issue discussed among international marketing scholars (e.g., Myers & Cavusgil, 1996; Theodosiou & Katsikeas, 2001). Despite the considerable number of studies in recent years, the findings regarding the determinants and consequences of export pricing can still be described as fragmented and inconsistent (Tan & Sousa, 2011). Strategic export pricing represents one of several options through which a firm can increase its competitiveness (Dolgui & Proth, 2010). This approach requires the consideration of diverse antecedents that influence the pricing method. To account for the demanding nature of international business, we identify dynamic capabilities as an important factor having an influence on pricing and performance. As a result of complex and fast-changing environments, firms need to develop distinctive capabilities to make optimal use of resources (Prange & Verdier, 2011). Teece (2014, p. 8) states that “dynamic capabilities coupled with good strategy are seen as necessary to sustain superior enterprise performance, especially in fast-moving global environments.” Out of the numerous methods of pricing, we include the value-based pricing approach in our study. Explanations for this choice are manifold, but most importantly, this method appears to best match the dynamics of global markets and customers. This method takes into account customers’ willingness to pay across segments, ways to address differences in willingness to pay, deviating value perceptions, and the resulting alignment of prices (Shapiro & Jackson, 1978). As already described, the dynamic capabilities perspective reflects the goal of creating valuable resources. From our point of view, this goal includes strategically balancing internal and external circumstances. Previous research suggests that all types of companies, including small and medium-sized enterprises and firms in commodity industries, are able to improve profitability through the use of value-based pricing (Liozu & Hinterhuber, 2013). Therefore, value-based pricing is the most suitable approach for inclusion in our model.

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In addition, we are interested in the effect of dynamic capabilities on export performance as well as the influence of the pricing approach on export performance. So far, only a few studies have taken into account actual outcomes or effects of different pricing strategies on measurable figures (Homburg, Jensen, & Hahn, 2012). Our analysis is conducted at the export function level, which concentrates on the overall export performance of an entity (Aulakh, Kotabe, & Teegen, 2000). Because we adopt the conceptualization provided by Katsikeas, Leonidou, and Morgan (2000), our measures of export performance can be divided into three categories: sales-related, profit-related, and market share-related figures. Based on the literature on dynamic capabilities, international pricing, and export performance, we propose a research model and test our hypotheses. To the best of our knowledge, this study represents the first attempt to combine the specific determinants of pricing, the pricing approach, and export performance in one study. In particular, the integration of dynamic capabilities is an innovative issue in the field of international strategic pricing.

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT Conceptual Model Our research model shown in Fig. 1 displays the supposed causal relationships between adaptive capability, absorptive capability, innovative capability, value-based pricing, and export performance.

Dynamic Capabilities Following the resource-based view (Barney, 1991), Dutta, Zbaracki, and Bergen (2003) suggest that companies are able to generate rent through the use of superior resources and capabilities. Generally, the resource-based approach claims that resource bundles and capabilities can vary across firms. If a firm wants to establish a competitive advantage, it should accumulate resources and capabilities that differentiate it from other firms. Implementing a value-creation strategy can lead to a sustained competitive advantage (Barney, 1991). Additionally, to generate economic rent, a company must also set appropriate prices. The process of setting and changing

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Adaptive capability H4 H1 Absorptive capability H2 Innovative capability

Export performance

H5 H6

H3

H7

Value-based pricing

Fig. 1.

Conceptual Model.

prices can be observed as a capability that enables a firm to achieve a competitive advantage. Therefore, a company should base its capabilities on a combination of routines, coordination mechanisms, systems, skills, and other complementary resources that are difficult to imitate (Dutta et al., 2003). As already mentioned, companies that operate internationally find themselves in a complex and dynamic environment (Phatak, 1998). Therefore, resource advantages may not be enough, and the firm needs to develop distinctive capabilities to make better use of its resources (Prange & Verdier, 2011). It is possible that firms compete based on their ability to learn and apply knowledge to foreign markets, that is, on the basis of their dynamic capabilities (Chang & Rosenzweig, 2001). Such capabilities play an important role because they enable firms to cope with fastmoving environments, fierce global competition, or rapid technological change (Teece, 2007). The dynamic capabilities perspective builds on the resource-based view and focuses on the creation of resources that are valuable, rare, difficult to imitate, and imperfectly substitutable. Furthermore, resources may be refreshed in changing environments (Teece, 2014). Ambrosini and Bowman (2009) argue that this perspective is an extension of the resource-based view. To succeed in the global marketplace, firms need to demonstrate timely responsiveness, rapid and flexible product innovation, and management capability to effectively coordinate and redeploy internal and external competences. In other words, companies must have the ability to achieve new forms of competitive advantage, that is, dynamic capabilities. Under

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“dynamic,” one can recognize the capacity to renew and complement competences in accordance with the changing business environment. Capabilities refer to the key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competences to meet the requirements of a changing environment (Teece, Pisano, & Shuen, 1997). In general, dynamic capabilities are capabilities of a higher order that must be built, are difficult to imitate, and cannot be bought (Teece, 2014). To cope with changing environments, management must operate strategically, adopting, integrating, and reconfiguring organizational skills, resources, and competences. If firms are able to successfully operate strategically, we refer to their dynamic capabilities (Teece et al., 1997). Wang and Ahmed (2007) identified adaptive capability, absorptive capability, and innovative capability as the three primary components of dynamic capabilities. Adaptive capability describes a firms’ ability to identify and capitalize on emerging market opportunities (Chakravarthy, 1982). Adaptive capability is represented through strategic flexibility with the available resources and their application (Sanchez, 1995). In addition, this flexibility is applied to the organizational form and the constantly shifting strategic needs (Rindova & Kotha, 2001). Firms with a high level of adaptive capability are able to adapt to environmental changes and to align internal resources with external demand (Teece et al., 1997; Wang & Ahmed, 2007). There are multidimensional measures of adaptive capability, for example, a firm’s ability to adapt the product-market scope to respond to external opportunities, to scan the market, to monitor customers and competitors, and to allocate resources to marketing activities (Oktemgil & Greenley, 1997). Cohen and Levinthal (1990, p. 128) define absorptive capability as “the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends.” Firms with a high level of absorptive capability are better able to learn from partners or to integrate external information and transform it into firm-embedded knowledge (Wang & Ahmed, 2007). Zahra and George (2002) suggest that absorptive capability is multidimensional and that it comprises the four factors of knowledge: acquisition, assimilation, transformation, and exploitation. Firms characterized by innovative capability are in a position to develop new products and/or markets as a result of the alignment between strategic innovative orientation, innovative behaviors, and processes (Wang & Ahmed, 2004). Miller and Friesen (1983) suggest four dimensions of innovative capability: that is, new product or service innovation, methods of production or rendering of services, risk taking by key executives,

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and seeking unusual and novel solutions. Capon, Farley, Hulbert, and Lehmann (1992) concentrate on three components, namely market innovativeness, strategic tendency to pioneer, and technological sophistication. In this study, we adopt the categorization of dynamic capabilities provided by Wang and Ahmed (2007). This decision implies that we differentiate between adaptive, absorptive, and innovative capabilities. Dynamic capabilities as discussed in the mainstream management literature are considered to be a concept embedded in a series of organizational processes that enable a firm to successfully meet the challenges of fast-changing environments (Teece, 2007). We refer here to “components” of dynamic capabilities, as we do not intend to measure the process as a phenomenon. Whenever we speak about a single component of dynamic capabilities, we must consider its three-fold character.

Value-Based Pricing Various global developments and corresponding new challenges make it inevitable that firms set and implement their prices strategically (Lancioni, Schau, & Smith, 2005). Pricing decisions have tremendous effects on performance and bring strong reactions from customers and competitors (Diller, 2008). Concerning pricing strategies, three basic methods can be distinguished (e.g., Helsen, 2009; Homburg & Totzek, 2011). First of all, the cost-based approach offers a strong internal orientation in which prices are based on costs. Second, prices can be adapted to those set by competitors (Schuppar, 2006). Finally, the company can focus on the customers’ willingness to pay. Therefore, to follow a customer value-based approach, the firm needs to know what value the customers place on the product. Following the latter approach includes understanding and increasing customers’ willingness to pay across market segments, communicating customer value, aligning prices with differences in value perceptions across segments, understanding and influencing customer price elasticity, and identifying ways to profitably address differences in customer willingness to pay (Shapiro & Jackson, 1978). Liozu and Hinterhuber (2013) investigated the relationship between pricing methods and firm performance and found a positive link between value-based pricing and firm performance, whereas competition-based pricing did not have an impact. According to their research, pricing procedures that focus on customers have a beneficial impact on profitability. In value-based pricing, two main value definitions can be identified: customer perceived value and differentiation value

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(Johansson, 2013). Here, value is understood to be differentiation value, and conceptual considerations and measurement follow that understanding. Firms follow a value-based approach by considering the value that customers place on products in their pricing processes. This process includes the segmentation of customers according to their value perceptions and willingness to pay (Shapiro & Jackson, 1978). Prior to this, firms must know the sources of value for customers (Hinterhuber, 2008). In addition, value-based pricing means that firms need to tailor (internal) marketing decisions to meet customer preferences and perceptions (Hallberg, 2008; Shapiro & Jackson, 1978). This tailoring includes not only the design of products and services but also of pricing policies (Hinterhuber, 2008). As already explained, the dynamic capabilities perspective has the goal of creating valuable resources that can cope with changing and dynamic environments. This ability includes the strategic balancing of internal resources and external circumstances. We suggest that those capabilities are also central in the context of international pricing, and therefore we hypothesize the following: H1. There is a positive relationship between adaptive capability and value-based pricing. H2. There is a positive relationship between absorptive capability and value-based pricing. H3. There is a positive relationship between innovative capability and value-based pricing. Although cost-based pricing and competitor-based pricing are still common in many industries, there is empirical evidence that value-based pricing leads to increased firm performance (e.g., Liozu & Hinterhuber, 2013). As we are interested in the international operations of companies, the question is whether this relationship can also be confirmed for export performance.

Export Performance The vast majority of research concentrates on different factors that influence the pricing process in a firm (e.g., Myers, Cavusgil, & Diamantopoulos, 2002; Sousa & Bradley, 2009). In our study, we propose that dynamic capabilities are antecedents of pricing. As Homburg et al.

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(2012) have recognized, only a few studies take into account the actual outcomes or effects on measurable figures if such strategies are pursued. Similarly, Roll (2009) stresses the limited knowledge about the impact of pricing on profitability. Liozu and Hinterhuber (2013) examine the relationship between the pricing approach and firm performance. Homburg et al. (2012) primarily concentrate on the delegation and dispersion of pricing authority and the resulting effect on the return on assets. The goal of our research is to expand these ideas and investigate the effect of capabilities and value-based pricing on export performance. Global competition is growing continuously and firms must find opportunities to achieve their international marketing goals (Leonidou, Katsikeas, & Samiee, 2002). There are two ways of analyzing export performance: either at the export function level or at the export venture level. The first concentrates on the overall export performance of an exporting entity (e.g., Aulakh et al., 2000) and explains variations in levels of export performance across businesses. Analyzing at the export function level enables the identification of factors that improve export performance, particularly the environmental or firm level factors that shape export operations (Oliveira, Cadogan, & Souchon, 2012). Studies on the venture level focus on the performance of an export venture within a firm. In this context, the venture is a single product or product line exported to a specific market abroad (e.g., Morgan, Kaleka, & Katsikeas, 2004). The focus on the single venture level is difficult to apply practically because it ignores that every export venture is nested within a company and part of the overall export success. An analysis at the export function level is highly useful for management practice as it can help to stimulate the overall export performance of firms (Oliveira et al., 2012). It can also be argued that an inspection on the functional level is more appropriate vis-a`-vis dynamic capabilities, allowing better recognition of the pricing process (Johansson, 2013) and the process character of dynamic capabilities. That approach demands other research and a qualitative, longitudinal design could be the starting point. The aim of our study is an analysis at the export function level. Although we ask respondents to refer to their primary export market when answering the questionnaire, we are interested in the entire exporting activity within the specific market. Regarding the conceptualization of export performance, Katsikeas et al. (2000) propose multiple methods. One possibility is to distinguish between noneconomic and economic outcomes. The first category can again be divided into sales-related (e.g., export sales ratio, export sales growth), profit-related (e.g., export profitability, export profit margin), and market share-related (e.g., export market share, export

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market share growth) measures. The second category includes productrelated (e.g., new products exported), market-related (e.g., export market penetration), and miscellaneous (e.g., years of exporting) measures. Although economic measures are often the center of interest, noneconomic measures also play an important role because they may shape economic outcomes. In addition to these two categories, Katsikeas et al. (2000) suggest including generic measures. These figures comprise, for example, export success or satisfaction with export performance. In a similar vein as Liozu and Hinterhuber (2013), we aim to test the effect of a particular pricing approach on performance. However, we leave general firm performance aside and concentrate in particular on export performance. To the best of our knowledge regarding the relevant literature, this paper represents the first attempt to study this particular relationship. Previous studies have shown that there is a positive and significant relationship between value-based pricing and firm performance in general (e.g., Liozu & Hinterhuber, 2013). Based on this knowledge, our focus is whether a similar relationship for export performance can be confirmed. Thus, the following hypotheses refer to the relationship between dynamic capabilities and export performance: H4. There is a positive relationship between adaptive capability and export performance. H5. There is a positive relationship between absorptive capability and export performance. H6. There is a positive relationship between innovative capability and export performance. Our final hypothesis refers to the effect of the pricing strategy, that is, value-based pricing, on export performance. Leonidou et al. (2002) identified groups of variables that have been conceptualized with export performance. Included are, amongst others, variables belonging to the firm’s export marketing strategy (i.e., elements of the marketing mix, including pricing). In a similar vein, Myers et al. (2002) argue that the export pricing strategy affects export performance. Recent research has shown a positive relationship between value-based pricing and firm performance. A positive connection between value-based pricing and profitability regardless of company size, industry, or nationality was found by Liozu and Hinterhuber (2013). On the contrary, other studies revealed that the use of cost-based pricing strategies leads to substandard firm performance (Myers et al.,

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2002). Hence, we are interested in whether the positive relationship between value-based pricing and export performance can also be supported in an international context: H7. There is a positive relationship between value-based pricing and export performance.

METHODOLOGY Construct Measurement In terms of construct measurement, we relied on scales that had been previously validated in the literature. All items were measured on 7-point Likert scales anchored by “no importance” and “very high importance.” Regarding the respective items of the three forms of dynamic capabilities, we adopted the scales by Oktemgil and Greenley (1997) for adaptive capability; the scale by Zahra and George (2002) for absorptive capability; and the scales by Miller and Friesen (1983) together with Capon et al. (1992) for innovative capability. For value-based pricing, we adopted scales provided by Ingenbleek, Debruyne, Frambach, and Verhallen (2003). Export performance was measured according to a scale adapted from Katsikeas et al. (2000) using a 7-point Likert scale anchored by “much worse” and “much better.” Respondents were asked to evaluate their firm’s performance in comparison to the performance of their primary competitor. All constructs were regarded as reflective. A full list of items for construct measurement is provided in the Appendix.

Data Collection and Sample Description The data collection took place between September and November 2013 through an online survey using the EFS survey tool supplied by QuestBack Unipark, which provides tools for academic research (QuestBack Unipark, 2013). We drew upon the CMD marketing database, which provides premium information as well as contact details for Austrian firms (CMD, 2013). E-mails including the link to the survey were sent to Austrian managers, that is, the CEO or the marketing manager of each firm. Two reminders were sent out at intervals of two weeks. The survey yielded a total response of 172 usable questionnaires. The export markets identified by the

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respondents included Germany, Switzerland, China, Italy, USA, Russia, and France. The responding firms represent a broad range of industries, and more than 90% report exporting experience of more than 10 years.

FINDINGS To test our hypotheses, we employed structural equation modeling, specifically partial least squares (PLS) path modeling using the software SmartPLS 2.0 (Ringle, Wende, & Will, 2005). In comparison to LISREL (linear structural relations), PLS path modeling is able to address small sample sizes. Furthermore, it can estimate very complex models that include a large number of variables, and it is less strict regarding distributional assumptions (Henseler, Ringle, & Sinkovics, 2009). An alternative approach could be multiple regression analysis; in that case, the justification for using it should be theoretically justified. So far, we do not have any indication that supports using multiple regression analysis. As PLS does not provide a global goodness-of-fit criterion, the analysis includes a two-step process, that is, the evaluation of the measurement model and the evaluation of the structural model (Henseler et al., 2009).

Evaluation of the Measurement Model The measurement model is evaluated in terms of composite reliability, indicator reliability, average variance extracted (AVE), and the FornellLarcker criterion (Henseler et al., 2009). Composite reliability shows internal consistency, and the values should be higher than 0.6. The analysis indicates that this criterion is fully met. To assess convergent validity, the AVE is considered. It is suggested that AVE values should exceed 0.5 (Henseler et al., 2009). Our measurement model meets this criterion except for the adaptive capability variable (0.46). Table 1 displays the composite reliability and AVE values of the model. Regarding indicator reliability, the absolute standardized outer loadings must not be lower than 0.7. This criterion is fully met regarding the variables of absorptive capability and value-based pricing. This criterion is largely met by the variables of adaptive capability, innovative capability, and export performance, with the lowest outer loading value being 0.54. Indicators should only be removed from the measurement model if their

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Table 1.

Composite Reliability and AVE.

Construct Adaptive capability Absorptive capability Innovative capability Value-based pricing Export performance

Table 2. Construct Adaptive capability Absorptive capability Innovative capability Value-based pricing Export performance

Composite Reliability

AVE

0.77 0.90 0.89 0.90 0.94

0.46 0.70 0.53 0.66 0.50

Indicator Reliability. Indicator Reliability

Outer Loadings

0.75, 0.61, 0.79, 0.54 0.86, 0.88, 0.86, 0.75 0.72, 0.65, 0.60, 0.77, 0.87, 0.73, 0.74 0.82, 0.80, 0.82, 0.78, 0.83 0.71, 0.74, 0.70, 0.79, 0.73, 0.73, 0.71, 0.67, 0.66, 0.57, 0.59, 0.62, 0.83, 0.75, 0.64

standardized outer loadings are below 0.4. Due to the PLS characteristic of consistency at large, the recommendation is to take care when eliminating indicators from the model (Henseler et al., 2009). We thus left all indicators in the model. Table 2 displays the outer loadings. Finally, the Fornell Larcker criterion offers a check for discriminant validity. The Fornell Larcker criterion suggests that a latent variable better explains the variance of its assigned indicators than the variance of any other latent variable of the model. Therefore, the AVE from each latent variable should be higher than the squared correlations between the latent variable and all other latent variables of the model (Henseler et al., 2009). Table 3 shows the latent variable correlations and discriminant validity of our model.

Evaluation of the Structural Model After the evaluation of the measurement model, the structural model is assessed in terms of path coefficients and R2 (Henseler et al., 2009). The R2 values of our structural model are 0.42 for value-based pricing and 0.13 for export performance. The path coefficients as well as the bootstrapping technique using 5,000 bootstrap samples reveal the significance of our

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Table 3.

Discriminant Validity and Latent Variable Correlations. Absorptive Capability

Absorptive capability Adaptive capability Export performance Innovative capability Value-based pricing

Table 4.

Adaptive Capability

Export Performance

Innovative Capability

0.39 0.02 0.41

0.46 0.10 0.32

0.50 0.07

0.53

0.22

0.30

0.06

0.35

Value-Based Pricing

0.70

0.66

Hypotheses, Path Coefficients, and Empirical t-Values.

Hypotheses H1: Adaptive capability => value-based pricing H2: Absorptive capability => value-based pricing H3: Innovative capability => value-based pricing H4: Adaptive capability => export performance H5: Absorptive capability => export performance H6: Innovative capability => export performance H7: Value-based pricing => export performance

Path Coefficients

Empirical t-Values

0.32* 0.02 0.39* 0.31* −0.22 0.18 0.07

2.18 0.17 5.20 2.87 1.73 1.54 0.58

*p < 0.05.

hypotheses. The threshold for the empirical t-value is 1.965 at p < 0.05 (Henseler et al., 2009). Table 4 summarizes the hypotheses. The evaluation of the structural model shows that adaptive capability has a significant influence on both value-based pricing and export performance, supporting H1 and H4. The path coefficient between absorptive capability and export performance displays a negative value, which would imply that increasing a firm’s absorptive capability would decrease export performance. However, the relationship between absorptive capability and export performance is not significant and fails to support H5. Furthermore, absorptive capability does not have a significant influence on value-based pricing, thereby failing to support H2. Innovative capability has a positive, significant impact on value-based pricing, supporting H3; however, the relationship between innovative capability and export performance is nonsignificant, leading to a failure to support H6. Finally, we could not support the relationship between value-based pricing and export performance in our model. Thus, we fail to support H7.

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DISCUSSION AND CONCLUSION Our analysis reveals that both adaptive capability and innovative capability have a positive and significant influence on value-based pricing, whereas a firm’s absorptive capability does not have an impact on value-based pricing. Adaptive capability refers to a firm’s ability to respond to external opportunities, to scan the market, and to monitor customers (Oktemgil & Greenley, 1997). This perspective strongly incorporates the market and customer perspective. Innovative capability includes market aspects, for example, market innovativeness and a tendency to pioneer (Capon et al., 1992). Innovative capability includes the four factors of knowledge, that is, acquisition, assimilation, transformation, and exploitation (Zahra & George, 2002), and tends to focus on handling knowledge from a more internal perspective. Thus, we conclude that the more market-focused aspects of dynamic capabilities play a major role in value-based pricing. Firms that pursue a value-based pricing strategy are therefore encouraged to strengthen both their adaptive and their innovative capabilities. Furthermore, our analysis shows that in terms of the three components of dynamic capabilities, only a firm’s adaptive capability has a positive influence on export performance, which is not the case with absorptive capability and innovative capability. According to our understanding, adaptive capability is the aspect of dynamic capabilities that is most market-focused. In international marketing and pricing, with its constantly and often rapidly changing market conditions and firm environments, a strong focus on market characteristics positively influences a firm’s export performance, as our research has shown. We thus conclude that internationally operating firms should highlight their adaptive capability to enhance their export performance. This conclusion is consistent with recent literature suggesting that dynamic capabilities contribute to superior firm performance in global environments (Teece, 2014). Finally, we could not confirm the relationship between value-based pricing and export performance. Although this relationship was supported in previous research in a more general and not specifically international setting (Liozu & Hinterhuber, 2013), our study suggests that the impact of value-based pricing on firm performance does not hold in an international context. Thus, we conclude that dynamic capabilities provide a better explanation of a firm’s export performance than pricing strategies, specifically value-based pricing. However, our study may only serve as the starting point for future studies on the topics of pricing and export performance. Furthermore, our study has several limitations that should be kept in mind. First, we focused on Austrian

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firms exporting to numerous international markets; therefore, the generalizability of our results should be viewed with caution. Future studies could be based in other countries, representing either advanced or emerging markets, to see if our results hold true in other research settings. Second, we conducted a cross-sectional study; in future research, it would be interesting to conduct a longitudinal study. Third, we measured export performance based on the subjective perceptions of CEOs and marketing managers. While the literature suggests that subjective performance measurement is acceptable under certain circumstances (Dess & Robinson, 1984; Richard, Devinney, Yip, & Johnson, 2009), follow-up studies should also incorporate objective performance measures. Fourth, the success of pricing practices may be contingent on certain conditions (Ingenbleek et al., 2003). Future research could thus include specific contingency variables to investigate their influence on the effectiveness of different pricing strategies. Fifth, the study focuses on firmlevel and not venture-level analysis. Future research should focus on a sole venture as the unit of analysis and measure the success of that export business. Finally, as “few studies have focused on the practices through which organizations arrive at price settings” (Ingenbleek et al., 2003, p. 289), a more process-oriented perspective on price setting could be at the center of analysis in future studies. This perspective includes the embeddedness characteristic of dynamic capabilities and may require a longitudinal-type research approach. The discussion should be open to case-study-based methods or could cover just a small set of export ventures and aim at detecting typical configurations of necessary and sufficient conditions in the process of dynamic capabilities and export performance. This type of research would require qualitative comparative analysis as already applied in questions of marketing instruments and performance (Vassinen, 2012). This approach could enrich future research on the process of value-based pricing and the influence of dynamic capability components in addition to other marketing capabilities (Morgan, Katsikeas, & Vorhies, 2012).

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APPENDIX Items for Construct Measurement Adaptive capability (Oktemgil & Greenley, 1997): Ability to adapt the product-market scope to respond to external opportunities Scan the market Monitor customers and main competitor Allocate resources to marketing activities Absorptive capability (Zahra & George, 2002): Acquisition of knowledge Assimilation of knowledge Transformation of knowledge Exploitation of knowledge Innovative capability (Capon et al., 1992; Miller & Friesen, 1983): New product or service innovation Methods of production or rendering of services Risk taking by key executives Seeking unusual and novel solutions Market innovativeness Strategic tendency to pioneer Technological sophistication Value-based pricing (Ingenbleek et al., 2003): Advantages of the product compared to main competitors’ products/services Customer perceived value of the products/services Customer willingness to pay for the unique benefits of the products/services Balance between advantages of products/services and price Differentiated value drivers of products/services compared to substitutes of the main competitor Export performance (Katsikeas et al., 2000): Export sales ratio Export sales growth Export sales volume Export sales ratio growth Export profitability Export profitability growth Contribution of exporting to profits Export market share New products exported Export country/market number Export market penetration New market(s) exports Perceived export success Achievement of export objectives Satisfaction with export performance

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EXPORT MARKETING STRATEGY AND PERFORMANCE AMONG MICRO AND SMALL BRAZILIAN ENTERPRISES Reynaldo Dannecker Cunha and Thelma Valeria Rocha ABSTRACT This study examines the influence of marketing strategies on export ventures undertaken by micro and small enterprises (MSEs) established in emerging countries and in Brazil specifically. We aim to determine whether a direct relationship exists between marketing strategies and internationalization performance results and to evaluate the influence of entrepreneurial marketing (EM) on export marketing strategy (EMS) and performance. A conceptual model based on the work of Cavusgil and Zou (1994) is developed and used to analyze MSE characteristics (firm and products), EMS, EM, and export marketing performance. An empirical survey was conducted on 173 Brazilian MSEs across various sectors, and data analysis was performed using structural equation modeling. The results highlight the importance of marketing activities in shaping MSE export performance, mainly by adapting prices to targeted

Entrepreneurship in International Marketing Advances in International Marketing, Volume 25, 129 159 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1108/S1474-797920140000025006

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markets, thereby improving product competitiveness. The study also emphasizes the importance of company international competence (expertise) and EM as influencers of export performance. The study contributes to the field through its application of the EM construct, by adapting the conceptual MSE model and by filling empirical gaps knowledge. The results will guide MSE management strategies that will be critical to the Brazilian economy and to other emerging countries. Keywords: Entrepreneurial marketing; export marketing performance; export marketing strategy; micro and small enterprises

INTRODUCTION In 2013, approximately 19,000 Brazilian companies were involved in export ventures, and 67.8% of these ventures were headed by micro and small enterprises (MSEs). The total value traded through these ventures (over $242.2 billion) positioned Brazil among the 22 Main World Exporter Countries (MDIC, 2013), though MSEs accounted for less than 9% of this value (SEBRAE,1 2013). Developing a stronger understanding of these processes and reasons behind unsuccessful results is critical not only for researchers, but also for managers that run such companies. Participation in global markets is complicated given the numerous several variables that must be considered, and thus skilled marketers must better understand these processes in order to develop value deals globally (Freedman, 2003; Jain, 1989; Keegan & Green, 2008; Piercy, 1981). Resource constraints limit the capacities of MSEs to hire marketing professionals with international training, which may negatively affect their export performance. Cavusgil and Zou (1994) developed an analytical framework for explaining the influence of export marketing strategy (EMS) undertaken by large U.S. companies on export performance (PERF) and found a positive correlation between these variables. The authors highlight that company and product characteristics influence certain marketing activities. Additional studies focusing on this issue have also attempted to analyze this subject, as noted by Zou and Stan (1998). There is thus a lack of studies that focus on micro companies in the Brazilian market and in emerging countries overall. In examining this particular group of MSEs, we use Cavusgil and Zou’s (1994) framework as a

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reference model while also considering the direct influence of entrepreneurs on EMS and on PERF. Because MSEs directly rely on entrepreneur (company founders) profiles, the entrepreneurial marketing (EM) construct (Hills & Hultman, 2011) is included. Therefore, the purpose of this paper is: (1) to determine whether a direct relationship exists between the use of marketing strategy and performance results achieved in the process of MSE internationalization from an emerging country; (2) to evaluate the influence of EM on EMS and performance.

THEORETICAL FRAMEWORK AND HYPOTHESES We focus our literature review on the Brazilian MSE context, MSE characteristics (FIRM), MSE products (PROD), and on concepts of export performance (PERF), EMS, and EM.

The MSE Context The Brazilian market exhibits a number of particular characteristics with respect to company size. The most recent official data (IBGE, 2013) for 2011 identifies 4.5 million companies that have generated 39.3 million jobs. The majority of these companies (99%) are micro-2 and small-3sized enterprises (MSEs) and account for 90% of existing formal jobs. These enterprises have also played a considerable role in GDP generation (20%). With respect to internationalization processes, numerous companies led by large Brazilian transnational corporations have identified opportunities in recent years, and especially through exportation. In 2011, more than 18,000 enterprises participated in this type of operation, generating over $255 billion in trade. In 2013, despite company growth, this value decreased nearly 5% in Free on Board (FOB) dollars (MDIC, 2013). SEBRAE studies have observed that MSEs have also identified opportunities, and 12,690 were engaged in exporting activities, totaling $22.2 billion (8.7% of the total value exported) (SEBRAE, 2012). Despite the potential of MSEs, results have been disappointing. The situation has been aggravated by an unfavorable economic environment and by Brazilian bureaucracy and infrastructure inefficiencies (SEBRAE, 2012). Hence, the reasons

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behind why these companies have failed to be competitive in international ventures must be comprehensively explored.

MSE Characteristics (FIRM) As noted in the introduction, despite the presence of several enterprises, MSEs face several limitations with respect to internationalization. These issues are related to firm size (Carson, 1990; Cavusgil & Zou, 1994; MDIC, 2010; Reid, 1987; SEBRAE, 2013), years of internationalization experience (Douglas & Craig, 1989; Moini, 1995), and available resources (GomezMejia, 1988; MDIC, 2010; SEBRAE, 2012; Terpstra, 1987). Limited staff and financial resources associated with entrepreneurial skills may also influence the results. However, despite these limitations, companies also possess inherent characteristics that have led to a certain degree of success in their internationalization pursuits. Based on the reference model (Cavusgil & Zou, 1994), we adopted the following key factors to describe construct FIRM: (1) a company’s commitment to internationalization denoted by an entrepreneur’s involvement in export ventures through the use of careful internationalization planning strategies and by investing sufficient resources for supporting intermediaries; (2) international competence acquired through appropriate market selection and profitability obtained abroad; and (3) the intensity of international business (IB), which directly relies on international experience, dedicated operational staff, and resources invested in exportation. In sum, the construct was defined based on the analytical reference model and then compared to the theory and adapted to the MSE context. These factors were then grouped through exploratory factor analysis (EFA) and adjusted through the application of theoretical frameworks.

MSE Products (PROD) In addition to limitations in company characteristics, products offered by MSEs also present limitations. While Cavusgil and Zou (1994) considered product features and cultural specificity as explanatory features of this construct, our model focuses on two additional product features that are more relevant to EFA: (1) product technical complexity determined by the strength of the patent, by the product’s ability to increase international competitiveness (De Luz, 1993; Koh, 1991; Lages & Melewar, 1999), and

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by the need for sales force training (Cooper & Kleinschmidt, 1985); and (2) firm product experience determined through the product’s lifetime in the company, the degree of differentiation, and by the need for service and maintenance (Day & Wensley, 1988; Katsikeas, Piercy, & Ioannidis, 1996). For the constructed FIRM, factors based on the analytical reference model were compared to the theory and then adapted to the MSE context. The EFA provided a collection of indicators, which were adjusted based on theoretical frameworks.

Export Performance (PERF) Due to the limited scope of economic theories that provide explanations for export process success, a number of studies have developed a stronger understanding of export performance (Cavusgil & Zou, 1994). These studies have covered a variety of dimensions with a particular focus on export propensities, dichotomies between exporters and nonexporters, export barriers, and frequency patterns. Zou and Stan (1998) extended Aaby and Slater’s (1989) study to cover the period of 1987 to 1997 to direct future research on export marketing. This review differed from previous studies as it included both external and internal environments as determinants of export performance. The assessment identified three different perspectives: economic, strategic, and approach. To develop a model that could better assess export performance and in seeking agreement between previous results, Cavusgil and Zou (1994) conducted a study on this issue. In their analysis, the authors identified the following weaknesses in previous research efforts: the level of analysis, with rare exceptions, was always directed at the firm and thus sought alignment with theories of internalization (Buckley & Casson, 1985); studies presented limited approaches for examining export performance and strategy; studies failed to incorporate a strategic vision on export, treating it simply as a means through which companies achieve economic objectives; and multiple means of assessing and measuring several variables resulted in simplistic approaches (Cavusgil & Zou, 1994). From these conclusions, the authors developed a model for assessing export performance that accounts for three key characteristics: (1) whether the company is a product-market level enterprise; (2) whether it incorporates economic and strategic dimensions; and (3) whether it includes objective and subjective measurements. This theoretical model was used as a reference for this study. We understand that in developing such an assessment, we must recognize that we are examining standardizing and adapting marketing

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strategies. In adjusting the model to the MSE context, the EM variable was included due to its direct influence on companies of this size.

Export Marketing Strategy We apply Cavusgil and Zou’s (1994) EMS definition to make our study more compatible with the former based on the reference analytical model. For the authors, EMS can be understood as a response to the external environment that involves standardization or adaption to a market offer. All elements of marketing mix are considered (Ford & Leonidou, 1991; Miesenbo¨ck, 1986), including products, promotion, pricing, and distribution, and represented by market planning and implementation, when decisions on whether marketing strategies should be standardized or adapted are made. According to Douglas and Craig (1989), the main decision involved in international marketing involves determining whether to apply standardized or adapted marketing strategies to the external environment. Hence, we must respect macro environment, industry, market, company, and product characteristics. However, the most effective option is still debated in the field (Aaby & Slater, 1989; Axinn & Sashittal, 1991; Keegan & Green, 2008; Zou & Cavusgil, 2002). Given the advantages and disadvantages of both strategies, and because this study does not intend to advocate for any particular strategy, we instead examine standardization and adaptation approaches to the marketing mix according to micro and macro organizational environments and outcomes. Axinn and Sashittal (1991) found that research on the role of export marketing mix has received little attention. Certain studies have examined its influence on sales results and export profitability (Christensen, Da Rocha, & Gertner, 1987; Shoham & Albaum, 1994). Others address the importance of communication in export success (Pae, Samiee, & Tai, 2002; Schlegelmilch, 1986; Sousa & Lengler, 2009); evaluate different distribution practices across countries (Axinn & Trach, 1990; Dow, 2006; Shoham, 1996); examine product influences on export results (Chung, 2009; Hultman, Robson, & Katsikeas, 2009; Sousa & Lengler, 2009); and study pricing approaches (Cunha & Moraes, 2011; Piercy, 1981; Sto¨ttinger, 2000). Despite this theoretical discussion, the question “What factors apply to cases of MSE exporting?” remains unanswered. Observations of international operational performance suggest that standardization has been the most frequently adopted strategy and that is has not been applied as an option, but rather as a result of inherent limitations. We find companies that develop adaptation strategies to present greater chances of success.

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Developing an understanding of how to effectively evaluate export operational results is important not only for economic reasons, but also to understand how goals have been reached and their resultant effects on companies. Thus, export performance constitutes a valid approach for evaluating international ventures. Considering the critical role played by entrepreneurs in MSEs, it is essential to carefully analyze this phenomenon and how it affects marketing via EM.

Entrepreneurial Marketing (EM) Though several definitions of EM exist, Hills, Hultman, Kraus, and Schulte’s (2010) definition best complements our study. Hence, we consider EM as “… a spirit, an orientation as well as a process of passionately pursuing opportunities and launching and growing ventures that create perceived customer value through relationships by employing innovativeness, creativity, selling, market immersion, networking and flexibility” (Hills et al., 2010, p. 6). Though we use this definition, it is important to review the trajectory of recent definitions. EM arises from two knowledge areas that explain firmand individual-scale phenomena. The strategy includes marketing activities that are developed and performed by entrepreneurs, and it consequently possesses entrepreneurial characteristics (Hills & Hultman, 2011). Due to processes of consolidation, there is no consensus on a single definition accepted in the research community. However, EM can be generally defined as an activity, business area, or field of study that aims to create, explore, and develop new products, services, markets, production processes, or raw materials and new adaptations of existing technologies (Shane & Venkataraman, 2000). EM accounts for risk and returns (Hisrich, Peters, & Shepherd, 2009) and also accounts for the macro level, which is responsible for analyzing and responding to external variables (Baron & Shane, 2007). Through this convergence of two knowledge areas, several definitions of EM have been developed. The American Marketing Association included a discussion on marketing and entrepreneurship at its annual conference in 1982 (Hills & Hultman, 2011). This discussion has since attracted many researchers to the topic. In early iterations of EM, traditional marketing approaches (Kotler, 2000) were applied to small businesses without major adjustments made to organizations, as in the work of Carson (1990). However, a number of authors have identified differences between EM and traditional marketing (Collinson, 2002; Hills, Hultman, & Miles, 2008; Omura, Calantone, &

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Schmidt, 1994), and especially with respect to external environment dynamics, nonlinear changes, and highly competitive, entrepreneurial decision-making that is driven by vision and which is unplanned, informal, and motivated by personal goals (Hills & Hultman, 2011). For MSEs, EM involves adapting marketing activities to contingencies. Stokes (2000), moreover, highlights that EM is related to entrepreneur profiles. Thus, EM involves adapting marketing strategies to meet MSE requirements and recognizing the important role of entrepreneurs in all activities. Lima and Zosche (2008) argue that EM strategies applied in the context of MSEs follow an opposite pattern from traditional marketing models. Rather, innovation is initiated first through a process referred to by Sarasvathy (2001) as effectuation, and this assumes that the entrepreneur leverages available resources to create opportunities. In describing marketing activities carried out by small businesses, Stokes (2000) discussed bottom-up strategies, in which the STP (segmentation target positioning) strategy is enacted through the intuitive identification of opportunities for future expansion based on the needs of a small customer base and in which decisions are always driven by available resources. The author then formulated a model based on four traditional marketing approaches and compared this model with principles of EM. In examining how entrepreneurs perceive their success in export performance, we identified two cognitive styles: intuitive (Dornelas, 2008; Filion, 2000; Kickul, Gundry, Barbosa, & Whitcanak, 2009; Nassif, Andreassi, & Simo˜es, 2011) and analytics4 (Dornelas, 2008; La Pira, 2011; Mitchell, Friga, & Mitchell, 2005; Nassif et al., 2011). The cognitive style involves the application of individual preferences and approaches while organizing, representing, and processing information (Streufert & Nogami, 1989). For Mitchell et al. (2005), entrepreneurial cognition is defined as “… knowledge structures that people use to make assessments, judgments, or decisions involving evaluation, venture creation, and growth” (Mitchell et al., 2005, p. 2). Thus, intuition can be understood as an individual’s ability to access stored knowledge and/or experiences from their subconscious mind (La Pira, 2011) and as the capacity to capture, recognize, and use abstract and frequently changing information (Markman & Baron, 2003). Planning is defined as the ability to define situations and to carefully plan, implement, and evaluate activities (Filion, 2000). Analytical entrepreneurs also have the capacity to foresee future company trends (Dornelas, 2008). Given the existence of several differing and occasionally conflicting approaches, Hills and Hultman (2011) developed a general approach to EM research. Through a theoretical review of data collected over the past 30 years and through evaluations of issues considered central to the study

Export Marketing Strategy and Performance

Table 1.

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Research Questions.

1. Is marketing strategy success in new ventures typically contingency (or situation) based? 2. Do entrepreneurs avoid marketing research due to their blind faith in their idea/product? 3. Do entrepreneurs make intuitively versus scientifically based marketing decisions (and rely less on a corporate-type planning process)? 4. Are innovative new products faced with great uncertainty, due in part to the absence of market information? 5. What role does luck play in market opportunity identification and market strategy success? 6. Is a made-to-order or custom versus a commodity strategy better for small/new firms? 7. To reach cash break even, do firms use a combination of marketing strategies to shorten the process? 8. Is there an inverse relationship in ventures between technology sophistication and marketing sophistication? 9. Is there less professional marketing infrastructure for entrepreneurs (vs. accounting, legal) and if so, why?

of EM, the authors identified 14 questions to guide future research efforts. In investigating the influence of marketing entrepreneurs on EM strategies, this study analyzes nine of the proposed research questions that are most relevant to MSE management in Brazil (Table 1).

HYPOTHESES Based on our review of the literature, we test a number of hypotheses and develop an analytical model to guide the investigative process. To better understand and interpret the conceptual framework, we divide the following constructs into their respective representative features: EM, firm characteristics (FIRM), product characteristics (PROD), and EMS. Export marketing performance (PERF) is thus composed of a construct that is generated from four observed variables.

Entrepreneurial Marketing (EM) Assuming that entrepreneur actions directly impact firms (particularly in the case of MSEs) while leading decision-making processes regarding internationalization, it is important to categorize each type and to identify the type that most heavily influences company activities, and especially with respect to marketing (Kraus, Harms, & Fink, 2009). Marketing executives (in this case, MSE owners) that offer a broader range of skills will tend to

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lead more intense activities related to EMS. On the other hand, the intuitive profile tends to underestimate planning while favoring luck and personal perception. Entrepreneurs that offer stronger planning capabilities through the use of analytical cognitive approaches will not only realize strategic decisions but may also improve international market offerings (Morgan, Katsikeas, & Vorhies, 2012). These considerations give way to the following hypotheses: H1a. EM driven by planning increases product adaptation; H1b. EM driven by planning increases communication adaptation; H1c. EM driven by planning increases price competitiveness. Given that SME managers have recently become involved in international ventures, we found from the literature that intuitive entrepreneurs are more confident in identifying opportunities, but less confident in their capacities to asses, evaluate, plan, and mobilize resources (Kickul et al., 2009). Rather, while intuitive managers tend to access subconscious knowledge and/or experiences (La Pira, 2011), this capacity is not sufficient for comprehending market needs. Also, their capacities to capture, recognize, and apply abstract, implied, and frequently changing information (Markman & Baron, 2003) tend to incompletely reflect and respond to adaptation activities. Consequently, we tested the following hypothesis: H2. EM driven by intuition decreases product adaptation. In MSEs, owners (entrepreneurs) are largely responsible for major decisions and results evaluation tasks. While intuitive marketing entrepreneurs rely on luck while making decisions, those with the capacity to plan will pay more attention to each stage of implementation involved (Hills & Hultman, 2011). Rather, entrepreneurs who possess stronger planning skills and who thus rely on the analytic cognitive style influence individual choices and thereby aid understandings of strategic organizational decisions (Kickul et al., 2009). Thus, each profile also shapes company outcomes and the ways entrepreneurs perceive results. These two assumptions give way to the following hypotheses: H3a. EM driven by planning positively influences export marketing performance; H3b. EM driven by intuition positively influences export marketing performance.

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Firm Characteristics (FIRM) The MSE case forces one to reflect on the importance of EMS that, if well articulated, can significantly affect international enterprise performance and success. A company’s commitment to exports is primarily related to its relationship with intermediaries (Rosson & Ford, 1982; Terpstra, 1987). The intermediary acts as the main link to the external market and provides information that influences local strategies and improves product competitiveness (Christensen et al., 1987; Solberg, Sto¨ttinger, & Yaprak, 2006). International competence (experience) recognizes the benefits of adapting products, communication strategies, and prices to local markets (Cavusgil, Zou, & Naidu, 1993; Douglas & Craig, 1989). Finally, the intensity of IB, denoted by the share of sales and profitability, stimulates support for intermediaries in order to maintain and increase future business returns. These considerations give way to the following hypotheses: H4. MSE commitment to international ventures increases support for the intermediary; H5a. Firm international competence increases product adaptation; H5b. Firm international competence increases communication adaptation; H5c. Firm international competence increases price competitiveness; H6. International business intensity increases intermediary support. In addition to influencing EMS, firm characteristics directly affect export performance, resulting in the following hypotheses: H7a. Export marketing performance is positively affected by competence; H7b. Export marketing performance is positively affected by international business intensity. Product Characteristics (PROD) The majority of MSE exporters work in the commercial sector and industrial sector to a lesser degree, which is reflected in the types of products that are sold (Altoe´ & Duarte, 2010). Product exports have historically included primarily manufactured goods. We examined product characteristics and found that EMS is influenced by product characteristics and

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attributes (Day & Wensley, 1988) as well as by specific features, degrees of technical complexity, unit values, and a company’s level of experience with a given product (Cavusgil et al., 1993). These variables in turn shape EMS (Cavusgil & Zou, 1994), which function over an adaptation standardization continuum: (1) technical complexity reinforces the need to employ communication strategies that enhance features and answer questions about the product while encouraging competitive advantage and establishing a pricing strategy; (2) experience working with the product increases the entrepreneur’s ability to identify necessary offer adjustments. These assumptions lead to the following hypotheses: H8. Product experience increases product adaptation; H9a. Product technical complexity increases communication adaptation; H9b. Product technical complexity increases price competitiveness.

Export Marketing Strategy (EMS) As noted by Cavusgil and Zou (1994), EMS is shaped by internal and external variables. As this study focuses on MSEs, we find that these organizations do not always exhibit major competitive advantages and instead often act as niche market providers or as followers of the international market. For this model, we consider only internal factors related to a company’s degree of dependence on adaptation standardization strategies for their marketing activities. However, this focus does not suggest that internal factors are more important than others. Rather, this decision was motivated by our methodological interest in evaluating intrinsic MSE characteristics. Additionally, when leading export ventures, companies must first set goals, either economic or strategic (Cavusgil & Zou, 1994). These reflections lead to the hypotheses: H10a. EMS increases product adaptation; H10b. EMS increases communication adaptation; H10c. EMS increases support for the intermediary; H10d. EMS increases price competitiveness. The conceptual model that reflects the hypotheses is shown in Fig. 1.

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Entrepreneurial Marketing - EM

Export Marketing Strategy - EMS

PLAN

INTUI

+

+ + + –

+ ADAPP

Product Characteristics - PROD

Firm Characteristics - FIRM

+ COMMIT

+ + +

COMPET

INTENS

ADAPC

+

+ +

+

SUPINT

PERF

+ +

EXPER

+

COMPPR

+

+ COMPLEX

+

Fig. 1.

Conceptual Model and Hypotheses.

METHODOLOGY A quantitative research approach was applied (Cooper & Schindler, 2003; Creswell, 2007). Our study involved the following two tasks: an assessment of available theories on the subject and an analysis of collected data through a survey conducted with MSE executives, who were selected based on SEBRAE and Serasa Experian5 mailing lists. The instrument of data collection was developed after a review of the model presented by Cavusgil and Zou (1994), which was translated into Portuguese and then back into English to ensure proper interpretation of the model (performed by marketing professors fluent in English). The instrument was pretested and validated by experts in the field of company internationalization (PhDs and SEBRAE) to verify that the language and types of information raised in the survey were relevant to Brazilian MSE entrepreneurs. The questionnaire

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was hosted on an online survey website between August 22, 2011, and December 28, 2011. We used a nonprobabilistic convenience procedure as the sampling method. By the end of the data collection period, we collected 173 valid questionnaires. Structural Equation Modeling (SEM) was used as the method of statistical analysis, and Maximum Likelihood (MLE), supported by Hair, Black, Babin, Anderson, and Tatham (2009), was used as the estimation approach due to its capacity to generate consistent analyses with only 150 respondents. The majority of the surveyed companies were micro (56%) and small (44%). The companies represented the commerce (52%), industrial (29%), and services sectors (19%). With respect to subsectors, the textile (27.7%), leather and shoes (20.2%), food (13.3%), trading (10%), consulting and advising (5.2%), furniture (5.2%), and other (18.5%) fields were represented in the sample. Market destinations included the following: Germany (17.9%), United States (16.4%), Argentina (11.3%), England (8.4%), Venezuela (6.7%), France (5.7%), Mexico (5.3%), and others (33.3%).

DATA ANALYSIS AND RESULTS We analyzed the data using descriptive and multivariate statistics. Descriptive Analysis of Independent Variables Entrepreneurial Marketing (EM) The survey responses indicate that 86% of MSEs agree that EM is relevant, denoting a high degree of concern surrounding this issue. While some respondents favor planning, others recognize intuition as a key skill necessary for performing EM activities. The results show that respondents engage in EM activities daily in a prominent and relevant manner (85.6%). Firm Characteristics (FIRM) We note that the majority of the MSEs surveyed (33.5%) exported to three countries, followed by those that exported to only one country (22.2%). The firms had been involved in IB for an arithmetic mean of 12.7 years. A large number of responses emphasized concerns over export planning (91.3%), management (90.8%), and resource commitment to activities and experience with international development (85.5%). The majority of

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respondents (72%) viewed the export sales profitability relationship as of high importance. Product Characteristics (PROD) The average exported product unit value was $136.80. Other important factors relate to the purchasing country, its bargaining power, and the need to purchase. Several respondents agreed with statements related to the existence of product patents (81.5%), experience with a product (85.5%), and product complexity and uniqueness (87.4%). Respondents most heavily agreed with statements related to sales force training when complex products are involved and in cases of differentiation and cultural difference to a lesser degree (86.7%).

Descriptive Analysis of Dependent Variables Export Marketing Strategy (EMS) The overall results show that, on average, 82% of MSEs recognize the importance of marketing mix adaptation. Areas of greatest concern were related to product strategies (83.8%), intermediary support (84.4%), and prices (84.4%) these last two variables were considered critical to success in the destination country. We found that initial product adaptation was more common than export continuation. However, over 13% of respondents offered no support to intermediaries in the form of salesperson training or communication and technical support. Export Marketing Performance (PERF) The majority of objectives emphasized by the respondents were related to increasing profitability (20.8%) and market shares (20.1%), followed by goals related to company/product awareness and competitive pressure responsiveness (14.3% and 13.4%, respectively). These responses reinforce the view that internationalization can improve competitiveness by generating possible gains across several sectors. Overall, 56.6% of the goals were achieved. In each of the three years evaluated, export rates grew by over 20%. For the first year examined, there was a higher relative incidence of negative and null answers. However, 86.5% of the respondents noted the existence of profitability from the first year. We identified a positive learning curve in relation to internationalization activities for the group of

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MSEs surveyed. The majority (78.6%) reported that internationalization efforts had been highly successful.

Multivariate Analysis To further analyze the research data, we employed multivariate statistical analysis techniques through the application of SEM using the following software: Microsoft® Office® 2010 (including the plug-in statistiXL), IBM® SPSS® Statistics 20, and AmosTM 20. Prior to the development of the analysis, data preparation was necessary to meet the assumptions of SEM: (1) an absence of outliers and missing values (D2/df: nine variables between 3 and 4, and 164 below 3), normality (Skewness > |3| and Kurtosis < |8|); linearity (all variables within the range of −1 and +1); multicollinearity (no values higher than 0.9). All assumptions were met in accordance with the works of Kline (2005) and Hair et al. (2009).

Structural Equation Modeling Model Specification Following data collection, we performed an EFA to determine the measurement and structural models (shown in Table 2). EFA was conducted for each of the constructs related to EM (planning and intuition); firm characteristics (commitment, competence, and intensity); product characteristics (experience, complexity, and features); EMS (product adaptation, communication adaptation, intermediary support, and price competitiveness); and export performance (sales, profitability, objectives, and success). This method acted as the principal component based on a correlation matrix with Varimax rotation and factor extraction of eigenvalues based on Kaiser’s criterion and scree testing. The most important criterion was the requirement to support our decisions with theory. We then calculated explained variance and reliability values (Cronbach’s alpha). As shown in Table 3, the results were higher than recommended (all factor loading results are higher than 0.70), confirming the study’s reliability (Hair et al., 2009). Based on these results, we use the valid factors for a confirmatory factor analysis (CFA).

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Table 2.

Exploratory Factor Analysis (EFA) and Model Reliability.

Entrepreneurial Marketing (EM) Factor Label

PLAN

INTUI

Eigenvalue Percentage of variance

6.663 74.03

.709 7.87

.876 .848 .836 .369 .489 .536

−.355 −.410 −.439 −.841 −.718 −.680

Variables Technology versus strategy Marketing structure smaller than accountings Adapted products are better Intuitive marketing decisions Innovative products/results/information Avoid research due to blind faith Firm Characteristics (FIRM) Factor Label Eigenvalue Percentage of variance Variables There was management commitment Careful entry planning Resource commitment Percent of profit from IB Percent of sales from IB Number of foreign markets operated Annual sales volume of firm Number of full-time employees Amount of firm’s international experience Resources for export development

COMMIT

COMPET

INTENS

4.712 42.84

1.625 14.77

1.283 11.66

.930 .918 .907 .265 .278 .144 .001 −.086 .429 .490

.152 .230 .229 .906 .885 .689 .605 −.176 .271 .252

−.071 −.114 −.142 .018 .037 −.052 −.404 −.727 −.707 −.704

Product’s Characteristics (PROD) Factor Label Eigenvalue Percentage of variance Variables Age of product Degree of product uniqueness Service/maintenance requirement Strength of product patent Training needs of sales force

EXPER

COMPLEX

5.186 74.09

.346 4.94

.879 .856 .708 .464 .590

−.368 −.471 −.591 −.862 −.755

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Table 2.

(Continued )

Export Marketing Strategy (EMS) Factor Label Eigenvalue Percentage of variance Variables Degree of target market specification Number of export customers Adaptation of promotional approach Sales goal of the venture Training of sales force Promotional support to intermediary Overall support to intermediary Subsequent product adaptation Labeling in local language Adaptation of packaging Adaptation of product positioning Initial product adaptation Price adaptation Price competitiveness

ADAPC

SUPINT

COMPPR

ADAPP

8.582 57.21

2.665 17.77

.729 4.86

.517 3.44

.843 .843 .704 .588 .125 .092 .139 .016 .364 .358 .328 .382 .438 .441

.058 .118 .134 .197 .972 .968 .956 .776 .193 .164 .234 .217 .245 .183

.350 .434 .387 .543 .098 .150 .129 .379 .827 .828 .825 .815 .371 .447

.212 .100 .368 .291 .077 .036 .079 .287 .152 .181 .273 .199 .731 .678

Export Marketing Performance (PERF) Factor Label

PERF

Eigenvalue Percentage of variance

2.852 71.29

Variables Sales growth (in 3 years) Perceived success of international venture Profitability (in 3 years) Initial strategic objectives

.910 .900 .809 .747

Notes: Items with consistent meaning were grouped for measuring each factor. Number in italic represent each group of variables.

Confirmatory Factor Analysis Fig. 2 shows the path diagram. To clearly visualize the model, errors and observed variables were omitted. To comply with SEM conditions, we used the MLE method to estimate the results. Goodness of fit (GFI) was obtained using the following criteria: (1) absolute fit, which was found to be 1,097.6; the ratio between this value and degrees of freedom was 2.36,

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Table 3.

Confirmatory Factor Analysis (CFA).

Factors Included/Items

Cronbach’s Alpha

Entrepreneurial Marketing Technology versus strategy Marketing structure smaller than accountings Adapted products are better Intuitive marketing decisions Innovative products/results/information Avoid research due to blind faith

.90

Firm Characteristics There was management commitment Careful entry planning Resource commitment Percent of profit from IB Percent of sales from IB Number of foreign markets operated Annual sales volume of firm Number of full-time employees Amount of firm’s international experience Resources for export development

.86

Product’s Characteristics Age of product Degree of product uniqueness Service/maintenance requirement Strength of product patent Training needs of sales force

.93

Export Marketing Strategy Degree of target market specification Number of export customers Adaptation of promotional approach Sales goal of the venture Training of sales force Promotional support to intermediary Overall support to intermediary Subsequent product adaptation Labeling in local language Adaptation of packaging Adaptation of product positioning Initial product adaptation Price adaptation Price competitiveness

.92

Export Marketing Performance Sales growth (in 3 years) Perceived success of international venture Profitability (in 3 years) Initial strategic objectives

.83

Item Factor Correlation .92 .95 .89 .89 .83 .86 .27 .95 .93 .99 .94 .52 .91 .97 .89 .27 .99 .94 .52 .91 .97 .92 .89 .82 .99 .98 .97 .85 .97 .91 .89 .91 .94 .92 .89 .93 .66 .83 .70

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Fig. 2.

Path Diagram.

which falls below the expected maximum, thus denoted a well-adjusted model (Arbuckle, 2011; Schumacker & Lomax, 2010), (2) goodness of fit (GFI = 0.78), (3) comparative fit (CFI = 0.93), (4) root mean square error of approximation (RMSEA = 0.08). While GFI takes into account different degrees of model complexity, it tends to penalize more complex factors (Hair et al., 2009). This phenomenon is indeed a characteristic of the model analyzed in the study and may partly explain why the desired level of acceptance was not obtained. The goal of SEM is to test a theory and to not obtain strong adjustments. Based on this and our other results, we believe that the model is valid. We then ran the model estimation by testing the structure and existing causal relationships. Results are shown in Tables 3 and 4. In validating the hypotheses based on a significance level of p < 0.05, some relationships were not supported (Table 4). We also performed a CR test (in order to check loadings significance), which requires that values are greater than |1.96| when p < 0.05 or |2.58| when p < 0.01. All estimates supported were considered to be significant when p < 0.05. Seven hypotheses were not supported, and the others were valid.

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Table 4. Code

Assessment of Research Hypotheses. Factor

Hypothesis

Coefficient

Assessment

PERF PLAN INTUI COMPET INTENS ADAPP ADAPC SUPINT COMPPR

Export Marketing Performance EM planning EM intuition International competence IB intensity Product adaptation Communication adaptation Support to intermediary Price competitiveness

H3a H3b H7a H7b H10a H10b H10c H10d

−.230 −.026 −.306 .728 .017 −.163 .031 .820

R R S S R R R S

EMS ADAPP PLAN INTUI COMPET EXPER

Export Marketing Strategy Product Adaptation EM planning EM intuition International competence Product’s experience

H1a H2 H5a H8

−.053 .300 .618 .139

R S S n.s.

ADAPC PLAN COMPET COMPLEX SUPINT COMMIT INTENS

Communication Adaptation EM planning International competence Product complexity Support to Intermediary Company’s commitment IB intensity

H1b H5b H9a

.237 .797 −.081

S S R

H4 H6

.623 .271

S S

COMPPR PLAN COMPET COMPLEX

Price Competitiveness EM planning International competence Product complexity

H1c H5c H9b

.246 .746 .104

S S n.s.

Overall model fit: χ2 CMIN/df GFI CFI RMSEA

1,097.6 2.36 −.78 −.93 −.08

Notation: S = supported; n.s. = not significant; R = refuted.

FINDINGS AND DISCUSSION To assess the importance of the coefficients, we adopted the same criteria used by Cavusgil and Zou (1994) based on the work of Hunter, Gerbing, and Boster (1982). The results associated with EMS are discussed through

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our analysis of each marketing mix variable and are shown in Tables 3 and 4. Product adaptation is strongly and positively influenced by international competence (Cavusgil et al., 1993; Douglas & Craig, 1989) and reflects years of company involvement with IB and resources for export development. Firms learn market competition rules, highlight points of parity and differentiation, and understand that legal, commercial, and cultural barriers can be minimized through adaptation. The amount that is invested corresponds with concerns for matching the offer that is, a stronger understanding of the market correlates with the greater degrees of product adaptation (e.g., companies that make small changes will increase their chances of success; this procedure has been adopted by MSE manufacturers of “cachac¸a” (Brazilian rum) that translate their labels into foreign languages (Cunha, 2008) and in the textile industry, in which companies adapt swimsuits and bikini models to the American consumer biotype). The role of the entrepreneur must also be considered; those driven by intuition showed a stronger positive relationship with product adaptation, differing from the result expected in H2. The negative relationship expected may have been based on a misinterpretation of the fact that while intuition involves decisions that are less dependent on facts, procedures, and analysis, it does not diminish the entrepreneur’s ability to identify the need to adapt to other markets. A company’s experience with certain products moderately and positively influences product adaptation (Cavusgil & Zou, 1994). This phenomenon may be attributable to product learning, testing, feedback received from markets, and constant improvements through the release of other versions. H1a was not supported. Given that indicators associated with planning measured the importance of sales strategies, the technical complexity of a product and commitments to marketing activities, effects that differ from those expected can generate conflicting results. Communication adaptation is strongly and positively influenced by international competence, reinforcing the fact that involvement and time dedicated to such activities benefits entrepreneurs when recognizing and valuing the need for adaptation in the interest of goals achievement (e.g., international exposure can enhance entrepreneur abilities in recognizing the importance of small features). Planning entrepreneurs also show a moderate and positive relationship in this direction. These risks can be minimized by developing a checklist for evaluating various points when adapting to new country markets. In a systematic way, the entrepreneur must gather secondary data on foreign markets, preparing analyses and identifying the most attractive destinations for their products. H9a was not

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supported. Rather, the expectation that a patent exists and that the intermediary’s sales force need for training reflects the intrinsic complexity of the product, thereby promoting communication that is best suited to each market, was not confirmed. Support for the intermediary is strongly and positively correlated with commitment and intensity. H4 recognizes intermediary relationships and support as vital to international success (Rosson & Ford, 1982; Terpstra, 1987) and corroborates the theory on intermediary importance as a focal point between MSE and external markets (Christensen et al., 1987; Solberg et al., 2006). This effect is supported by the Theory of Networks (Andersson, Forsgren, & Holm, 2002; Johanson & Vahlne, 1990) (e.g., the successful entrance of Brazilian gourmet coffee producers into European markets is attributed to the role of key intermediaries, who thoroughly understood the market and supported entrepreneurs in their demands to strengthen international profiles). The results associated with IB intensity were derived from observed variables on the number of markets attended to and export participation rates among MSEs (sales and profitability). Higher importance placed on internationalization was found to be directly correlated with a greater willingness to support intermediaries (H6). Price competitiveness is strongly and positively influenced by international competence (H5c), complementing the results of Douglas and Craig (1989) and Cavusgil et al. (1993). This reinforces the notion that IB involvement and experience affect decision-making (e.g., MSEs involved in the Brazilian textile sector recognized the value of national fashion as creative and sexy and adjusted their price positioning strategies consistently with the value added to the product). Price competitiveness is moderately and positively influenced by planner entrepreneurs that is, stronger planning abilities are correlated with more competitive prices. This expected effect (H1c) complements the results of Terpstra (1987), who found that a company’s performance in relation to meeting deadlines and service goals directly affects price competitiveness. The results support H9b, identifying a weak positive relationship that complements the results of Harrigan (1987) and Ohmae (1989). Rather, when MSEs recognize a priori that they do not play leading roles in the market, and especially overseas, these companies adopt pricing strategies as followers in the global market (Cunha & Moraes, 2011; Solberg et al., 2006; Sto¨ttinger, 2000). Export performance was found to be directly influenced by MSE characteristics; however, the two sets of independent variables generated opposite effects. Competence is strongly and negatively associated. We did not anticipate this effect as this variable’s indirect influence, mediated by EMS,

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denotes an apparent positive relationship, as was predicted in H7a. As PERF was measured in terms of objectives related to export activities, perceptions of success, sales growth, and profitability over the next three years, entrepreneurs may overtime learn to reassess the return on investment and to conclude that the operation did not achieve the desired results. We also accounted for the fact that experience and commitment per se do not necessarily result in increased managerial capacity and appropriate export decisions. Rather, among the respondents, 71% either hold a business administration degree or possess knowledge in this area. While this provides the respondents with business management skills, it does not necessarily enable them to properly analyze and understand markets, and lower performance may result. However, carrying a presence in multiple markets, complementing effects of export participation on sales and profitability, has a strong and positive influence on IB export performance (H7b). As the main objective of this study was to identify the role of EMS and its relationship to PERF, these results are both revealing and surprising because hypotheses H10a, H10b, and H10c were not supported. Such empirical evidence demonstrates that the only marketing mix variable that has strong and positive influence is price competitiveness, as identified through our testing of hypothesis H10d. This result highlights the importance of financial constraints given that 56% of the surveyed enterprises are classified as micro enterprises, generating annual revenues of up to $131,000 (Brazil, 2011). This result also demonstrates the low competitive advantage presented by products; although the vast majority of the respondents recognized the importance of investing in differentiation and some referred to product patents, in terms of market requirements, this may be insufficient. This may also be attributable to an insufficient use of communication tools due to poor available resources or lack of knowledge, resulting in investment in local media (e.g., newspaper and phone book) or printed materials (e.g., posters and folders), which are not always available on the foreign market. However, these findings reinforce the fact that price is a global key success factor and that organizations that recognize competitive rules, identify global price leader strategy, and adapt to international strategies in light of these external variables (such as global price following) have greater chances of success.

CONCLUSIONS AND IMPLICATIONS Our conclusions are driven by our established research objectives. We empirically show that marketing strategies undertaken by MSEs affect

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successful export performance. Entrepreneurs play an important role, and especially those who are EM-oriented; that is, those who possess planning skills and who intuitively support marketing activities, by seeking ways to adapt to or standardize international offers and thus directly influencing performance. While product and firm characteristics also influence EMS, international competence was found to have a major effect. However, with respect to the EMS studied and to each component involved, the only causal relationship that impacts export performance is price competitiveness, acting as a necessary requirement for success in foreign markets among the studied MSEs. Regarding the use of activities related to marketing mix during exporting efforts, the variables are primarily influenced as follows: (1) encouraging product adaptation (according to an entrepreneur’s intuition, international competence and experience); (2) increasing the degree of communication adaptation, which tends to increase as a function of the entrepreneur’s planning skills and international competence; (3) encouraging distribution adaptation, represented by increased support to the main MSE connected to the end market; the support is directly influenced by commitment and results (summarized by the IB intensity factor); (4) adapting the price variable, which is reflected by market competitiveness; product complexity leads to price standardization, but entrepreneur planning capacities and competence encourage adaptation. The sample revealed that when more goals are achieved, a greater share of international sales and profits result. This enhances a company’s chances of success by broadening a company’s horizons while making it less vulnerable to internal market instabilities.

Managerial Implications This study illustrates the importance of international expertise in strengthening the decision-making capacities of entrepreneurs, enabling entrepreneurs to recognize differences and similarities between local and international markets. This recognition can result in adaptation or marketing mix variable standardization. Second, it is important to recognize the role of intuition in business. MSEs should employ EM to inform decisionmaking and organizational processes without ignoring the role of intuition. Although marketing activities influence the performance of various modes of export, our results show that price is a major factor that influences export results. This study also highlights the importance of international competence in strengthening the decision-making abilities of entrepreneurs, enabling them

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to recognize differences and similarities between local and international markets, which can consequently result in either adaptation or marketing mix variable standardization. EM can be used to better inform and organize MSE decisions without disregarding the role of intuition in business. Thus, although various marketing activities influence export performance, our results show that price is the major factor that affects export marketing performance.

Directions for Further Research This study provides an important contribution to the model through its inclusion of the EM construct. Furthermore, the study addresses a theoretical gap in the model through its examination of MSEs. The study also addresses a gap related to scholarship on emerging markets and validates Cavusgil and Zou’s (1994) model. The study’s application of SEM as a method of analysis was instrumental to examining complex relationships, and the method met academic requirements with methodological rigor (Cavusgil, Deligonul, & Yaprak, 2005). Researchers who utilize the results of this study should be aware that the sample used could have been larger. A larger sample size would have minimized sensitivity to variations detected by SEM. We suggest that studies of specific sectors or regions be conducted to identify whether our conclusions remain valid under conditions of homogeneity and regional variation. Longitudinal studies over periods of analysis longer than three years may also minimize seasonal changes in the economy that are reflected both in Brazil and in foreign markets.

NOTES 1. SEBRAE: Sociedade Brasileira de Apoio a`s Micro e Pequenas Empresas the official institution responsible for developing and supporting micro- and small-sized companies. 2. Company size classification is based on the number of employees by sector and on revenues. Micro enterprises include either up to 19 employees (industry sector) or up to 9 employees (commerce and service). Company revenues must not exceed US$160.3 thousand per year. 3. Small enterprises include from 20 to 99 employees (industry sector) or from 10 to 49 employees (commerce and service). Company revenues vary from more than $160.3 thousand to US$1.6 million per year. 4. We adopted planning rather than analytics due to its comprehensive definition.

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5. Experian is a global information services company that provides data and analytical tools to clients worldwide.

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THE EFFECT OF SOCIAL MEDIA ADOPTION ON EXPORTING FIRMS’ PERFORMANCE Marı´ a del Carmen Alarco´n, Alex Rialp and Josep Rialp ABSTRACT This paper aims to examine the extent to which social media competence (SMC) determines exporting companies’ actual adoption of social media applications, which eventually might impact these firms’ performance. Quantitative study where data were collected through a web-based survey addressed to Spanish exporters. SEM is employed for testing the hypotheses. SMC has an influence on the firm’s actual use of these social media applications, which in turn has an impact on the firm’s performance. However, the intention to use social media applications mediates the relationship between the firm’s SMC and its social media usage. Keywords: Social media competence; adoption process; performance; exporting companies

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INTRODUCTION Over the last decade, social media have emerged as a revolutionary Internet-related technology (Kaplan & Haenlein, 2010) and, for many users, have become a primary source of information for customers about products. Because social media represent such a completely new way to interact (even on a global scale) with current and potential customers and suppliers, they are becoming a phenomenon that is increasingly relevant to many businesses. As a result, online marketing management claims an ever-increasing portion of marketers’ attention and corporate budgets. Some recent studies have already investigated how social media usage contributes to improving customer relationship management (Trainor, Andzulis, Rapp, & Agnihotri, 2013) and organizational performance (Alarco´n-del-Amo, Lorenzo-Romero, & Constantinides, 2013; Carmichael, Palacios-Marques, & Gil-Pechuan, 2011). Many authors agree that information technologies (ITs), primarily the Internet, have become one of the most important tools for conducting international business (IB) and marketing activities (Sinkovics, Sinkovics, & Jean, 2013). In particular, IT-based capabilities have been found particularly crucial in promoting the emergence of international new ventures/ born-global firms and/or facilitating small and medium-sized enterprise (SME) internationalization (Gabrielsson & Gabrielsson, 2011; Loane, 2006; Mathews & Healy, 2007; Mostafa, Wheeler, & Jones, 2006; Pezderka, Sinkovics, & Jean, 2012; Zhand & Tansuhaj, 2007; Zhang, Sarker, & Sarker, 2013). In addition, many companies rely on ITs and the Internet to improve international supply-chain coordination, relationship learning, customer service management, and firm performance (Jean & Sinkovics, 2010; Jean, Sinkovics, & Kim, 2008; Liang, You, & Liu, 2010; Liu, Ke, Wei, & Hua, 2013; Ray, Muhanna, & Barney, 2005; Trainor et al., 2013). Some authors also highlight the potential influence of the firm’s social media usage on IB and export marketing strategies (Berthon, Pitt, Plangger, & Shapiro, 2012; Maltby, 2012; Okazaki & Taylor, 2013) because these applications may help break down barriers of time and distance between the supply and demand sides (Constantinides, Lorenzo, & Go´mez, 2008). However, despite social media’s great potential, especially for export-oriented companies, to date very limited attention has been paid to the relationship between social media adoption and performance among exporting firms. Therefore, this study attempts to fill this gap by investigating the extent to which social media competence (SMC) and actual usage impact exporting firms’ performance. In particular, the primary objective

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of this research is to investigate whether SMC influences the usage of these applications by exporting firms, which in turn may improve their performance. In addition, this research examines whether the intention to use these applications has a mediating effect between a firm’s SMC and its actual use of social media. The rest of the paper is organized as follows. The following conceptual section first addresses social media and the customer company interaction, followed by the theoretical framework of the study, the research model, and the hypotheses to be tested. “Methodology” describes the methodology, the measurement of constructs and data collection. “Results” presents the results of our analysis, followed by the discussion, limitations, and implications in “Discussion and Conclusions.”

THEORETICAL FOUNDATIONS Social Media and Foreign Customer Company Interaction According to Mathews and Healy (2007), the Internet provides companies with new ways to develop IB through faster access to market and competitor information. Using the Internet, companies can considerably reduce IB costs, thus increasing their ability to respond flexibly to new international market opportunities. The Internet also offers companies the ability to provide information targeted at specific stakeholders and to obtain feedback from those stakeholders (Biloslavo & Trnavcevic, 2009; Lim, Zegarra Saldan˜a, & Zegarra Saldan˜a, 2011). In addition to these advantages, the Internet also serves other purposes, such as social bonding (Chen & Chiu, 2009), online service quality (Barrutia, Charterina, & Gilsanz, 2009), external information acquisition for strategic decision-making, customer relationship management, market research, online word-of-mouth, and business intelligence. Undoubtedly, one of the Internet’s most profound effects on marketing practice has been the migration of market power from the corporation to the customer (Constantinides et al., 2008). This customer empowerment has even increased in the new Internet era, the so-called Web 2.0. The evolution of the Internet to the Web 2.0 occurred with the arrival of a new generation of interactive technologies and online applications (social networking sites, blogs, customer forums, etc.), allowing not only for easier publication, editing, and dissemination of content but also for the creation of personal

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online networks and communities. These developments resulted in new forms of one-to-one communication and one-to-many broadcasting of usergenerated content (Alarco´n-del-Amo et al., 2013; Berthon et al., 2012). The term “social media” is defined by Kaplan and Haenlein (2010, p. 61) as “a group of Internet-based applications that build on the ideological and technological foundations of Web 2.0, and that allow for the creation and exchange of user-generated content.” This concept has been conceived as a philosophy, an attitude, and a new way of doing things that has arisen due to the evolution of technology that has allowed Internet users transform themselves from simple consumers into producers and creators (Alarco´n-del-Amo et al., 2013). Although some researchers tend to use the terms Web 2.0 and social media interchangeably, there is actually a difference between the two. Constantinides and Fountain (2008) define Web 2.0 as an online interactive platform consisting of three components: application types, social effects, and enabling technologies (see Fig. 1). Application types, or “social media” applications, are the categories of interactive and user-generated content platforms used by customers for communication and for the creation, editing, and dissemination of content. Social effects include customer empowerment, the democratization of technology and social networking, among others, all of which are important factors in shaping consumers. Enabling technologies include the equipment and software necessary to create interactive social media and to realize the connectivity, creation, editing, and dissemination of user-generated content.

Web 2.0 Dimensions

Application Types/ Social Media

Social Effects

Blogs Social Networks (Content) Communities Forums/Bulletin Boards Content Aggregators

Empowerment Participation Openness Networking Conversation Community Democratization/ User Control

Fig. 1.

Enabling Technologies

Open Source RSS Wikis Widgets Mashups AJAX RIA

The Three Dimensions of Web 2.0 (Constantinides & Fountain, 2008).

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Therefore, enabling the seamless generation of information (and easy access to it) is the key characteristic of Web 2.0, which also presents clear advantages for improving the business process. Web 2.0 facilitates the exchange of collective knowledge and the accumulation of social capital, generated when social networking, trust, reciprocity, standards, and values are shared, thus encouraging people and businesses to collaborate (Rheingold, 2005). In this context, the importance and popularity of social media as marketing tools and communication channels have been steadily growing over the past 10 years, and research suggests that they have an important influence on consumer behavior (Constantinides & Fountain, 2008). Social media comprise both the conduits and the content disseminated through interactions between individuals and organizations (Kietzman, Hermkens, McCarthy, & Silvestre, 2011). These technologies have the potential to provide greater access to customer information through customer customer interactions or through company customer interactions (Agnihotri, Kothandaraman, Kashyap, & Singh, 2012). It is worth noting that customers have adopted social media to connect with others and expect at least the same level of interactivity with companies (Berthon et al., 2012; Hanna, Rohm, & Crittenden, 2011; Rainie, Purcell, & Smith, 2011; Trainor et al., 2013). This shift in expectations challenges businesses to facilitate more customer company interaction by deploying new technologies and capabilities (Andzulis, Panagopoulos, & Rapp, 2012; Trainor, 2012). In this sense, the last several years have seen an explosion in the number of social media applications adopted by businesses. Some of the methods proposed in the literature include obtaining real-time feedback on existing products or new-product ideas/concepts, building “community” among consumers around goods, services, or brands, leveraging customer self-service, and seeking consumer collaboration in developing future product strategies (Constantinides & Fountain, 2008; Parise & Guinan, 2008).

Theoretical Framework, Research Model, and Hypotheses The resource-based view (RBV) has become an influential perspective in IB and export performance research (Dhanaraj & Beamish, 2003). It has been applied, for example, to investigating how a powerful resource base enables SMEs to export more successfully (Knight & Cavusgil, 2004; Zahra, Matherne, & Carleton, 2003; Zucchella, Palamara, & Denicolai, 2007).

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In fact, many studies assert that exporters can derive competitive advantage in foreign markets if they transfer the value generated by existing resources and capabilities to a new geographic market(s) (Rialp & Rialp, 2007; Stoian, Rialp, & Rialp, 2011, 2012). The RBV focuses on the manner in which firms adopt strategies based on their strategic resources and capabilities to achieve superior firm performance and a sustainable competitive advantage (Barney, 1991). In this sense, technological resources, and IT capabilities in particular, can serve as a source of sustainable competitive advantage both domestically and internationally (Filipescu, Prashantham, Rialp, & Rialp, 2013; Filipescu, Rialp, & Rialp, 2009; Pla & Alegre, 2007). IT capability can be defined as “a firm’s ability to acquire, deploy and leverage its IT-related resources in combination with other resources and capabilities to achieve business objectives” (Bharadwaj, Sambamurthy, & Zmud, 1999, p. 379). Therefore, IT capability is composed of technical skills and ITs within the firm, along with other managerial resources (Bharadwaj, 2000; Bharadwaj et al., 1999; Bhatt & Grover, 2005). Several researchers have demonstrated that a company’s success in foreign markets depends heavily on its capacity to adapt to new developments such as ITs and Internet-related capabilities (Arenius, Sasi, & Gabrielsson, 2006; Loane, 2006; Morgan-Thomas & Bridgeater, 2004; Mostafa et al., 2006; Sinkovics et al., 2013). The explosive growth and low cost of ITs and the Internet (Loane, 2006) have enabled companies, often new ventures and SMEs, to connect with locations all over the world. ITs and the Internet have strengthened IB relations by increasing the efficiency of market transactions and promoting easy, faster access to information (Gabrielsson & Gabrielsson, 2011; Jean et al., 2008; Mathews & Healy, 2007; Ruzzier, Hisrich, & Antoncic, 2006; Zhand & Tansuhaj, 2007; Zhang et al., 2013). Moreover, various authors suggest that IT capability affects a firm’s financial and/or strategic performance (Bharadwaj, 2000; Jean & Sinkovics, 2010; Liang et al., 2010; Liu et al., 2013; Ray et al., 2005; Wade & Hulland, 2004). In particular, by investigating the potential success of the adoption and use of information systems and IT in manufacturing SMEs, Caldeira and Ward (2003) observe that a firm’s competences enable its effective adoption and successful exploitation of technology. Within the broader notion of IT capability, SMC identifies the potential of social media applications to perform communication tasks or activities and to effectively manage information about markets and customers. Accordingly, this competence can be seen as an integrated set of technological resources that can create sound competitive advantages and superior firm performance based upon a more

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effective information management system (Carmichael et al., 2011; Trainor et al., 2013). The potential associated with SMC might help firms reinforce their IB operations by improving not only international communication but also the efficiency of market transactions, the satisfaction and loyalty of foreign customers, and the development of international network relationships. Therefore, SMC is potentially important for conducting international activities because social media tools may improve communication with foreign customers, reducing or even eliminating geographical distances. Thus, SMC can be expected to have a direct impact on a firm’s social media usage, particularly in the case of export-oriented SMEs that regularly work with foreign markets and customers. In other words, an exporting firm’s level of SMC can predict its actual adoption of social media applications. Then, we propose the following hypothesis: H1. Exporting firms’ SMC has a positive effect on their actual adoption of social media. However, although the actual adoption of social media by an exporting firm could potentially increase due to its SMC, the expected benefits to be derived from this competence must first be fully realized by companies willing to adopt social media technology in their international activity. Therefore, a firm’s intention to use social media applications can play a very important role in the actual adoption of those applications because intention reveals the firm’s perception of the potential of SMC in the conduct of IB. In particular, the more positive an exporting firm’s perceptions about its SMC, the greater the intention to use social media. An export firm’s positive beliefs in its SMC will lead it to have a higher intention to use, or eventually to continue using, social media applications, which also influences the actual adoption of those applications. Therefore, we propose that an exporting firm’s intention to use social media may exert a mediating effect in the direct relationship between SMC and social media usage. Consequently, intention to use becomes a mediator variable (Baron & Kenny, 1986; Peyrot, 1996). Thus, the following hypothesis can be posited: H2. The relationship between an exporting firm’s SMC and social media adoption is mediated by its intention to use these tools. To observe such an intermediation effect, a mediating variable must intervene in the relationship between an independent variable, SMC in this case, and a dependent variable, actual adoption of social media. That is, an exporter’s actual adoption of social media applications can be predicted

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from its intention to use them and such an intention can be predicted from its more favorable perceptions of SMC. It is worth noting that the causal relationship between intention to use and actual adoption has been demonstrated in several studies (Davis, Bagozzi, & Warshaw, 1989; Sumak, Hericko, Pusnik, & Polancic, 2011; Wu & Wang, 2005). Therefore, we propose these two intermediate subhypotheses: H2a. An exporting firm’s SMC has a positive effect on its intention to use social media. H2b. An exporting firm’s intention to use social media has a positive effect on the actual adoption of social media applications. Numerous studies have been conducted to evaluate firm performance with respect to the use of IT systems and capabilities (Bharadwaj, 2000; Liang et al., 2010; Liu et al., 2013), some of which specifically focus on export-oriented companies and born-global exporters (Pezderka et al., 2012; Zhand & Tansuhaj, 2007; Zhang et al., 2013). In particular, in such firms many communication processes with foreign distributors and customers occur electronically, and thus they tend to be influenced by the technological system used. IT capability can potentially lead to high performance in exporting companies due to (1) the pursuit of high, value-added IT applications to maintain a competitive edge; (2) the reduction in the costs of communicating with foreign customers/suppliers and of gathering information about foreign competitors; and (3) the support/enhancement of distinctive competencies and skills in other business functions (Zhang et al., 2013). Broadly referring to IT capabilities, Pezderka et al. (2012, p. 9) assert that “those companies that develop superior capabilities in terms of communication with customers, relationship-building, reaching potential customers, bypassing costly physical presence in foreign markets, market research, being a front-runner in employing advanced export management technology, and cost reduction through Internet deployment, will experience enhanced export performance.” Therefore, along with the emergence, further development and deployment of IT capabilities in general and in social media technologies in particular, companies now have a greater ability than ever to take advantage of domestic and (primarily) international market-growth opportunities (Mathews, Healy, & Wickramasekera, 2012) and therefore, their adoption and current use of those capabilities and technologies may have unique implications for improving international marketers’ strategy and performance (Berthon et al., 2012; Okazaki & Taylor, 2013). Accordingly, it can be expected that more proactive social media

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Intention to Use H2a

SMC

H2b

H1

Fig. 2.

Adoption

H3

Performance

Structural Model.

technology usage by exporting firms will positively affect their performance. Thus, we propose the following hypothesis: H3. The actual adoption of social media has a positive effect on the exporting company’s performance. Therefore, considering all of the suggested hypotheses, we establish a logical causal chain according to which an exporting firm’s SMC for dealing with foreign markets and customers can generate a direct positive effect on its social media usage, although this relationship is mediated by the firm’s intention to use social media applications. In addition, exporting firms’ actual adoption of social media technology is expected to have a positive effect on performance (Fig. 2).

METHODOLOGY From March to May 2013, a Web-based survey was distributed by e-mail to a sample of Spanish exporting firms listed in the ICEX (Spanish Institute for Foreign Trade) database. Three thousand and sixty exporting ventures were identified and contacted. After a second recall wave, the final valid number of companies in the study is 152, which represents a valid response rate of 5%. Descriptive information of the firms in the sample is presented in Table 1 (size in number of employees, firm age, percentage of exports over total sales in 2012, years exporting, and number of export zones). The information is provided for all of the firms in the sample and distinguishes between firms that do and do not use social media.

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Table 1.

Descriptive Analysis of Sampled Firms. Social Media Usage No Mean

Std. dev.

Yes N

Mean

Std. dev.

Size (number of employees) 117.0 101.3 101 254.0 1,025.2 Firm age 33.65 26.09 98 35.16 27.05 Percentage of exports over 24.9 34.4 100 42.6 30.9 total sales in 2012* Years exporting 18.52 11.12 46 21.46 18.77 Number of export zones* 1.16 1.45 101 2.45 1.25

Total N

Mean

Std. dev.

N

51 163.0 599.2 152 50 34.16 26.33 148 51 30.9 34.2 151 50 51

20.05 1.59

15.57 96 1.51 152

*Significance < 0.05.

Interestingly, there are significant differences in the average percentage of exports over total sales and in the average number of export zones between those sampled firms that use social media and those that do not: The average percentage of exports over total sales for firms that use social media is 42.6%, whereas for firms that do not, it is 24.9%. Additionally, the average number of export zones is 2.45 for firms that use social media versus 1.16 for firms that do not. Similarly, according to Table 2, there is a significant relationship between social media usage (or lack thereof) and the industry in which the firm performs. In particular, construction, wholesale and retail trade, and service firms use more social media than do firms in other industries. Finally, the Web 2.0 tools that are mostly used by the exporting companies in the sample are LinkedIn, Skype chats, Facebook, online hard drives, YouTube and other video sharing applications, and Twitter (Table 3).

Measurement of Variables The SMC construct identifies the potential of social media tools to perform communication tasks or activities and to effectively manage information about customers in foreign markets. The SMC scale was developed based on previous work by Pezderka et al. (2012), who have developed a broader scale to generally measure IT capability. To enable the application of that scale, we simplified the measuring instrument by selecting and adapting to the social media context attributes more directly related to competences for

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Table 2.

Social Media Usage by Sectors. Social Media Usage

Total (%)

No (%)

Yes (%)

Agriculture, forestry, and fishing Construction Manufacturing Wholesale and retail trade Services

61.5 28.6 65.3 45.5 26.7

38.5 71.4 34.7 54.5 73.3

13 7 49 11 15

13.7 7.4 51.6 11.6 15.8

Total

53.7

46.3

95*

100.0

Note: Chi squared 9.46; df. 4; sig. 0.051 (2 cells 20.0% have an expected count less than 5. The minimum expected count is 3.24). *Only 62.5% (95 out of 152) of the sampling firms provided information about their sector activity.

Table 3.

Types of Social Media Used by Exporting Firms.

Social Media

N

%

Facebook LinkedIn Twitter Consumer evaluations YouTube YouTube and other video services Online hard drives (Dropbox, Google Drive) Online Word Processors (Google Docs) Labeling (tags) (e.g., Del.icio.us, Digg, StumbleUpon) Registration of opinions Questions and answers Forums Suggestions RSS, FriendFeed Wikis Podcasts Product reviews and evaluations P2P networks Mash-ups Skype chats Customization of products Pinterest

33 36 23 5 14 29 30 10 5 11 15 17 14 10 6 2 6 6 2 34 6 4

64.71 70.59 45.10 9.80 27.45 56.86 58.82 19.61 9.80 21.57 29.41 33.33 27.45 19.61 11.76 3.92 11.76 11.76 3.92 66.67 11.76 7.84

Total

51

100.00

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Table 4. Variable

Final Items Included in the Model (Content Validity). Items

Adapted From

SMC

SMC1: Social media improves firm ability to generate foreign sales. SMC2: Social media helps us to reach more foreign potential customers. SMC3: Using social media to target foreign markets gives our company a competitive edge over rivals. SMC4: Using social media, we can interact with foreign customers much more quickly. SMC5: Social media allow us to effortlessly communicate a positive business image to foreign customers. SMC6: Social media improves our ability to create relationships with customers in our target foreign markets. SMC7: Social media improves foreign customer satisfaction.

Pezderka et al. (2012)

Intention to Use

IU1: It is probable that our company uses or will continue to use social media. IU2: Our company intends to begin or to continue using social media. IU3: Our company will frequently use social media in the future. IU4: Our company will recommend that others use social media.

Moon and Kim (2001), Chan and Lu (2004)

Adoption

ADO1: In general, could you describe your company’s level of social media use? ADO2: How often does your company use social media? ADO3: On average, how many hours per week does your company use social media?

Davis et al. (1989), Moon and Kim (2001), Teo, Lim, and Lai (1999)

Performance (perceptual)

PER1: Profit margins compared to competitors. PER2: Return on investment (ROI) compared to competitors. PER3: Return on assets (ROA) compared to competitors.

Madsen et al. (2012)

Note: Items were measured using five-point Likert-type scales.

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improving international communication, the efficiency of market transactions abroad, the satisfaction and loyalty of foreign customers, and the development of international network relationships. From this refinement process, we obtained a seven-item SMC scale. The constructs used in our study to measure a firm’s intention to use and actual adoption of social media were also conveniently adapted to this particular technology from previous studies related to the more general adoption of IT. Finally, we chose to measure the firm performance construct using perceived financial indicators (ROI, ROA, and margins), compared to main competitors (see Table 4). Following the approach of many other researchers (e.g., Joshi & Sharma, 2004), Harman’s one-factor test was performed on the items to assess whether a common-method bias posed a threat to our data. If there is a substantial amount of common-method variance, then either a single factor will emerge from the factor analysis, or one general factor will account for the majority of the covariance among the variables (Podsakoff & Organ, 1986). In our case, common-method bias was not a concern. The factor analysis considering all firms in the sample resulted in three factors with an eigenvalue greater than 1 (accounting for 76.273% of the total variance); the first factor accounted for 47.31% of the variance, and the second factor accounted for 16.9%.

RESULTS To test the proposed hypotheses, a covariance-based structural equation model (SEM) was used. SEM is usually analyzed and interpreted in two stages: (1) assessment of the reliability and validity of the measurement model and (2) assessment of the structural model (Jo¨reskog, 1978; Jo¨reskog & So¨rbom, 1993). Measurement Model The first analysis carried out was an analysis of the validity and reliability of the scales employed in our model. The scales’ development was based on our review of the relevant literature, thus assuring the content validity of the measurement instruments. To analyze the reliability of the constructs, we first conducted an exploratory factor analysis (EFA). The consideration of multiple items for

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each construct increases construct reliability (Terblanche & Boshoff, 2008). Using EFA, and considering the different items for each construct, we found that only one dimension appeared for all constructs. Therefore, EFA confirmed the unidimensionality of the five constructs considered in the model. The item-total correlation, which measures the correlation of each item with the sum of the remaining items that constitute the scale, was above the minimum of 0.3 recommended by Nurosis (1993) for all constructs in the sample. Cronbach’s alpha (α) exceeded the recommendation of 0.70 suggested by Nunnally and Bernstein (1994). Next, a confirmatory factor analysis (CFA) was conducted jointly for all of the constructs in the measurement model using the AMOS 20 statistics package. The first issue to consider was the normality of the available data. The normality test performed on the available items indicated that we could not accept the assumption of normality either in the total sample or in both subsamples defined according to social media usage. Indeed, for various items, the critical values exceeded +2.00 or 2.00, which indicates statistically significant degrees of non-normality. AMOS also reports the joint multivariate kurtosis value and its associated critical ratio. Small multivariate kurtosis values (e.g., less than 1.00) are considered negligible, whereas values ranging from one to ten often indicate moderate nonnormality. Values that exceed 10 indicate severe non-normality. In our case, this value indicated severe non-normality. One method of correcting for non-normality is to use the Bollen Stine p-value, not the usual maximum likelihood-based p-value, to assess overall model fit. In our sample, the Bollen Stine bootstrap enabled us to accept the measurement model (p-value was 0.267). The scale refinement process followed, applying the three criteria proposed by Jo¨reskog and So¨rbom (1993): (1) weak convergence required the elimination of indicators that did not have a significant factorial regression coefficient for Student’s t distribution > 2.58 (p = 0.01); (2) strong convergence forced the elimination of those indicators that were not substantial, that is, those with a standardized coefficient (λ) of less than 0.5; and (3) indicators that least contributed to the explanation of the model, given the cut-off point of R2 < 0.3, were selectively eliminated. The results of the final CFA are reported in Table 5. Composite reliability (CR) represents the shared variance among a set of observed variables that measure an underlying construct (Fornell & Larcker, 1981). Generally, a CR of at least 0.60 is considered desirable (Bagozzi & Yi, 1988). This requirement was fulfilled for every factor in this model. The average variance extracted (AVE) was also calculated for each construct; the resulting

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AVE values were greater than 0.50 (Fornell & Larcker, 1981). Therefore, the five constructs demonstrated acceptable levels of reliability. Convergent validity was verified by analyzing the factor loadings and their significance. The scores obtained for the coefficients (see Table 5) indicated that all factor loadings were significant (p < 0.001). Furthermore, the size of all of the standardized loadings was higher than 0.50 (Steenkamp & Geyskens, 2006). These findings provide evidence supporting the convergent validity of the indicators (Anderson & Gerbing, 1988). Finally, discriminant validity of the measures was achieved (Table 6) because the shared variance between pairs of constructs was always less Table 5.

Internal Consistency and Convergent Validity.

Variable

Indicator

Intention to use

IU1 IU2 IU3 IU4 ADO1 ADO2 ADO3 SMC1 SMC2 SMC3 SMC4 SMC5 SMC6 SMC7 PER1 PER2 PER3

Adoption

SMC

Performance

Factor Loading

Cronbach’s α

CR

AVE

0.910 0.950 0.888 0.815 0.969 0.963 0.888 0.813 0.831 0.715 0.787 0.826 0.866 0.724 0.894 0.986 0.931

0.941

0.939

0.795

0.955

0.958

0.884

0.921

0.923

0.634

0.955

0.956

0.879

Note: Goodness of fit indices: χ2 (113 df) = 314.277; χ2/df = 2.781; NFI = 0.888; CFI = 0.925; RMSEA = 0.10.

Table 6. SMC ADOPTION PERF INTENTION

Discriminant Validity of the Theoretical Construct Measures. SMC

ADOPTION

PERF

INTENTION

0.634 0.196 0.001 0.562

0.885 0.022 0.377

0.879 0.001

0.795

Note: The diagonal represents the AVE, whereas below the diagonal, the shared variance (squared correlation) is represented.

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than the corresponding AVE (Fornell & Larcker, 1981). Based on all of these criteria, it was concluded that the measures in the study provided sufficient evidence of reliability and validity.

Structural Model First, we tested the model excluding the intention to use construct; this test was performed to analyze the mediating effect of this variable in the relationship between SMC and social media usage by the exporting firms in the sample. In this first structural model, the goodness of fit indices were adequate: (χ2 (df = 63) = 164.228 (p = 0.00); χ2/df = 2.607; NFI = 0.915; CFI = 0.946; RMSEA = 0.10). The value of RMSEA was somewhat high for the current standards. However, as Hooper, Coughlan, and Mullen (2008) point out, an RMSEA in the range of 0.05 to 0.10 can be considered an indication of fair fit. Fig. 3 shows a synthesis of the results obtained for the causal hypothesis testing performed without considering the mediated effect of intention to use social media. In the overall model, the results obtained allow us to state that the logical causal chain theoretically suggested can be observed in the available sample of Spanish exporting firms. Therefore, the firm’s SMC for dealing with foreign customers has a positive and significant influence on within-firm social media usage (H1). In addition, social media usage, measured in terms of frequency of use by the exporting firm, has a significant positive effect on the firm’s perceived financial performance (H3). Next, we tested the structural model again, this time including the firm’s intention to use social media, to confirm the expected mediating effect of this construct in the relationship between SMC, and the actual adoption of social media applications. For this second structural model, the goodness of fit indices were also good: (χ2 (df = 115) = 319.122 (p = 0.00); χ2/df = 2.775; NFI = 0.886; CFI = 0.923; RMSEA = 0.108). The value of

SMC

0.982**

Adoption

0.058**

Performance

**p < 0.01; *p < 0.1 Goodness of fit indices: (χ2 (g.l. = 63) = 164.228 (p = 0.00); χ2/g.1 = 2.607; NFI = 0.915; CFI = 0.946; RMSEA = 0.10).

Fig. 3.

Structural Model without Mediating Effect of Intention to Use.

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RMSEA was also a little bit high for current standards. However, as mentioned above, an RMSEA in the range of 0.05 to 0.10 can be considered an indication of fair fit, according to Hooper et al. (2008). To analyze the possible mediating effect of intention to use, we followed the procedure suggested by Baron and Kenny (1986). Step 1: Show that the causal variable is correlated with the outcome (i.e., that SMC is correlated with the firm’s social media adoption) to establish the presence of an effect that may be mediated. Step 2: Show that the causal variable is correlated with the mediator (i.e., SMC is correlated with intention to use), thus treating the mediator as if it were an outcome variable. Step 3: Show that the mediator affects the outcome variable (i.e., intention to use affects actual adoption of social media). Step 4: To establish that intention to use completely mediates the SMC adoption relationship because the effect of SMC on actual adoption of social media once controlling for intention to use them was zero. We calculated this using the Sobel mediation test statistic (Sobel test = 4.84, p = 0.000) indicating that the indirect effect of SMC on actual adoption through intention to use was significantly different from zero. Therefore, as hypothesized earlier, the association between SMC and actual adoption of social media was significantly reduced by the inclusion in the model of intention to use as a mediating construct. Because all of the above-mentioned four steps were fulfilled, our data were generally consistent with H2, which states that intention to use social media applications mediates the exporting firm’s SMC social media usage relationship. Because SMC no longer affects actual adoption of social media once intention to use is controlled for, there actually is a full mediation effect; thus, the path between SMC and actual adoption of social media is zero, but SMC strongly influences the firm’s intention to use social media applications, with a net mediated effect of firm SMC on actual social media usage of 1.093 (0.935 × 1.170). Thus, the results obtained show that intention to use acts as a full mediator in the relationship between exporters’ SMC and social media usage: that is, SMC positively influences the intention to use social media tools (β = 0.935; p < 0.01; H2a), and such an intention positively influences the actual adoption of social media (β = 1.170; p < 0.01; H2b). Therefore, the connection between SMC and social media adoption becomes, as expected in H2, mediated by the firm’s intention to use. Consequently, although the direct influence of SMC on the actual adoption of social media is not significant (β = −0.113; p > 0.1; H1), it does activate the other key construct, intention to use, which directly and significantly influences the firm’s social media usage. Additionally, the results show that the firm’s perceived financial performance is positively and

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Intention to Use 1.170**

0.935**

SMC

–0.113

Adoption

0.057*

Performance

**p < 0.01; *p < 0.1 Goodness of fit indices: χ2 (g.l.=115) = 319.122 (p = 0.00); χ2/g.l = 2.775; NFO = 0.886; CFI = 0.923; RMSEA = 0.108.

Fig. 4.

Structural Model Including Mediating Effect of Intention to Use.

significantly influenced by its actual adoption of social media, as measured by frequency of use (β = 0.057; p < 0.1; H3). Accordingly, those exporters that more frequently use social media tools to interact with foreign customers proactively also perceive higher performance compared to their competitors. Fig. 4 shows a synthesis of the results obtained for this second causal hypothesis testing based on our sample of Spanish exporting firms.

DISCUSSION AND CONCLUSIONS It is widely acknowledged that the Internet provides companies with new ways to develop IB through faster access not only to foreign markets but also to consumer and competitor information (Mathews & Healy, 2007). By using the Internet, many companies can considerably reduce IB costs and increase their ability to respond flexibly to new international market opportunities and foreign customers’ needs. The Internet also offers the possibility of providing information targeted at specific customers and other stakeholders and to obtain feedback from those customers and stakeholders (Biloslavo & Trnavcevic, 2009). In this context, so-called social media contribute profoundly to a radical transformation of marketing practices, customer behaviors, and e-business. Social media applications such as blogs, social networking sites, discussion forums, and user-created communities have been transformed from completely customer-specific to customer-centric tools that allow organizations to participate in network members’ interactions (Trainor, 2012; Trainor

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et al., 2013). As Deighton and Kornfeld (2009) argue, because social media enable a substantial increase in customer power, using a marketing strategy that engages social media is a logical business choice. There are indications that the impact of the social web is very significant in several business areas, particularly in marketing communications and product innovation (Kim & Bae, 2008; Piller & Walcher, 2006). In the export-related literature, many authors agree that IT capability and the Internet are the most important to international new ventures and internationalizing SMEs, particularly firms that have fewer physical and financial resources, to perform earlier and/or more successfully abroad (Gabrielsson & Gabrielsson, 2011; Loane, 2006; Mathews & Healy, 2007; Mostafa et al., 2006; Pezderka et al., 2012; Sinkovics et al., 2013; Zhand & Tansuhaj, 2007; Zhang et al., 2013). However, Web 2.0 and in particular, social media technology, have been rather excluded from this discussion despite their expected potential to improve IB and marketing communication activities. In particular, social media can have a substantial impact on the online marketing strategies of export-oriented companies in foreign markets because social media applications provide better communication with foreign customers, reducing or even eliminating physical distances. Subsequently, with the emergence and development of social media, exporting companies now have a greater ability than ever to take advantage of international market-growth opportunities (Mathews et al., 2012). Thus, these tools may have unique implications for international marketers (Berthon et al., 2012; Okazaki & Taylor, 2013). This research has developed and empirically tested an RBV-based model of social media adoption by Spanish exporting ventures to examine the performance consequences of social media. In particular, by linking SMC with two different use dimensions at the export-firm level, this research has assessed the extent to which exporting firms’ SMC affects both intention to use and actual adoption of social media tools. The latter shows a positive and significant impact on perceived financial performance. However, it has also been found that in the case of social media adoption by Spanish exporters, the intention to use construct has an intermediating effect on the relationship between SMC and frequency of social media usage. Accordingly, those Spanish exporters that are more willing to perceive the potential of SMC to conduct IB activities through a higher intention to use social media more frequently use these tools as a key communication channel to better capture foreign customer information. In addition, they also tend to perceive higher financial performance, compared to those who do not.

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Indeed, firms’ IT capabilities are usually considered as key factors explaining their performance (Bharadwaj, 2000; Liang et al., 2010; Liu et al., 2013). This research offers further insight, specifically for the Spanish case, into the ways in which exporting companies attempt to adopt social media and their performance consequences. As has been shown, exporting firms’ SMC influences perceived financial performance. However, intention to use fully mediates the relationship between SMC and the actual adoption of social media technology. Thus, it is important to be aware of the influence that SMC can exert not only on exporting ventures’ social media adoption process but also on their performance.

Implications and Contributions From an academic standpoint, the primary contribution of this research is to apply the SMC construct to measure the potential of social media applications to better serve foreign customers. In particular, we highlight how exporters’ SMC positively impacts perceived performance through the successful adoption of social media applications. In our opinion, this research generates a promising area of inquiry into the Internet and export marketing interface that focuses on the impact of Web 2.0 and social media and can open up lines for further research. From a practitioner’s point of view, managers of exporting firms should be aware that their firms’ performance could be improved by developing capabilities and/or competences related to social media and by having a strong intention to use these tools. In our opinion, social media raises the questions not only of having a given technological competence “available” within the firm but also of having a positive willingness to use that competence. Thus, an exporting firm’s SMC may constitute a source of a sustainable competitive advantage and consequently, a determinant of superior firm performance if there is also a strong willingness to use or to continue using social media applications because the firm perceives their usefulness and therefore makes proper use of them. Nevertheless, most companies still have much to learn about how to correctly implement and fully exploit social media. Companies can easily have a Facebook or Twitter account however, the number of those companies that are obtaining long-term profits from using these applications is still unknown. Moreover, some consequences related to the firm’s internal organization and human resources management should be considered. The establishment of a specialized department in charge of Web 2.0 implementation within

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the firm would perhaps constitute an interesting investment by exportoriented companies. However, as usually happens with resource constraints for successful IT implementation in small ventures (Thong, 2001), if a company is very small and lacks internal expertise, training by external technical experts on how to adopt social media is highly recommended to assure implementation success. From a policy-makers’ point of view, we also believe that public support programs (i.e., technological infrastructure, training, consultancy) should be aimed at promoting the adoption and adequate implementation of social media in societies, communities, and businesses.

Limitations and Future Research Obviously, this research is not free of limitations. Although a great effort was made to obtain a larger sample size of Spanish exporting companies, the final group used in this study is quite limited. We also cannot omit the risk of obtaining results that are overly specific to one particular context (in this case, Spain). In this vein, comparative studies drawing on larger multiple-country samples are crucial in internationalization research (Dhanaraj & Beamish, 2003). In addition, a larger sample of exporting firms would help to perform multigroup analysis comparing users and nonusers of social media, which could likely overcome the relatively low level of significance of the use of social media and perceived financial performance relationship found in this research. This would also allow researchers to more deeply examine the specific role of the type of business sector in this relationship because it is likely that an IT outsourcing supplier or an online intermediary, for example, might have greater IT capability in general compared to an export-oriented manufacturer (Du, Ai, Abbott, & Zheng, 2011; Zhang et al., 2013). As another limitation, in this research the final dependent variable used is the perceived (subjective) financial performance of the exporting firms in the sample. However, firm performance as a multidimensional construct can include financial and strategic performance (Zhang et al., 2013), which can be measured using both objective and subjective (perceptual) measures. In addition, international performance or export performance measurements could have been used to better capture firm performance abroad (Madsen, Moen, & Hammervold, 2012; Sinkovics et al., 2013; Zhang et al., 2013).

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ACKNOWLEDGMENTS The authors wish to acknowledge the financial support received to conduct this research from the Spanish Ministry of Science and Technology (Project ECO2010-21242-C03-01).

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PART II MISCELLANEOUS INTERNATIONAL MARKETING ISSUES

A LITERATURE REVIEW, CLASSIFICATION, AND SIMPLE META-ANALYSIS ON THE CONCEPTUAL DOMAIN OF INTERNATIONAL MARKETING: 1990 2012 Sudhir Rana and Somesh Kr. Sharma ABSTRACT This study examines the conceptual domain of international marketing following substantial growth in its development. With the objective to investigate recent patterns and development in the literature this study evaluates 1,816 research articles on international marketing published between 1990 and 2012. The classification of conceptual domain has yielded 57 configurational contents under seven prime research streams. Simple meta-analysis on international marketing literature created a clear depiction of attention of contributors toward research streams and the number of contributors, and worthy sources of literature. Several

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directions for advancement of knowledge in international marketing, identified fields, and their implications for future research are discussed. Keywords: International marketing; conceptual domain; literature review; simple meta-analysis

INTRODUCTION International marketing has a long and wide history in both international trade (Lewer & Van den Berg, 2009) and international business (Homburg, Cannon, Krohmer, & Kiedaisch, 2009). Moreover, with the publications of several research articles and reviews on foreign market analysis (Mullen, 2009), it is not wise to assume that the issues of international marketing have been fully explored. Major journals in the field easily produced 1,816 research articles, exploring various aspects of international marketing. This paper attempts to explore the conceptual domain in international marketing literature, identify key research streams during the recent past decades, and explore the evolution of literature. The objective of this paper is to update the current status of research in the international marketing area. Therefore, an exhaustive literature review has been performed from which various facets of international marketing have evolved. This literature review presents a progressive picture of research held in international marketing. It is quite evident in literature that industries preferred to cross the national borders when the opportunities in domestic market were seized (Iyer & Hill, 1996; Oviatt & McDougall, 2005). But “seized domestic market opportunity” is not the only element forcing firms to enter into the international market. Literature advocates that players prefer to go global because of wide market opportunities and high profit margins (Cavusgil, Yeniyurt, & Townsend, 2004). It is also observed that, researchers are investing efforts not only in exploring the conceptual and methodological issues of domestic and international marketing, but also on finding ways to bridge these research continents. Therefore, this piece of research work attempts to perform an in-depth literature review, classification, and simple meta-analysis on the conceptual domain of international marketing. International marketing is the most important business activity that is essential for the survival and growth of companies in a global scenario. With the growth of internationalization of businesses, firms prefer to invest in a low-risk and high-return marketplace. So, increasing attention in international business has been paid to examining issues relating to

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international marketing. The international marketing decision can no longer be effectively examined in isolation. It needs to be considered in the broader context of the overall development of international marketing activities. The focus of attention has shifted from initial decision to specific decisions. This changing focus suggests a need for greater concern with all facets of international marketing under one umbrella which helps to utilize information, ideas, and resources. Researchers have undertaken a variety of issues in international marketing and analyzed the impact and role of these issues in international marketing activities. Environmental factors have played an imperative role to encourage business orientation to involve with international activities. Therefore, a number of significant forces materialized such as: firm characteristics (Keegan, 1972), globalization (Modelski, 1972; Muller, 1975; Tan & Lui, 2002), international market selection (Davidson, 1983), global strategies standardization (Jain, 1989; Samiee & Roth, 1992), global competition (Arora & Gambardella, 1997; Terpstra, 1987), global branding (Roth, 1992), marketing strategy performance and export market ventures (Cavusgil & Zou, 1994), liberalization policies (Gillespie & Teegen, 1995), pricing for global markets (Cavusgil, 1996), international direct marketing (Mehta, Grewal, & Sivadas, 1996), competitive positioning (Durvasula, Lysonski, & Mehta, 2007; Hooley, Broderick, & Mo¨ller, 1998), market characteristics (Simmonds, 1999), international marketing behavior (Rundh, 2001), international market selection (Papadopoulos, Chen, & Thomans, 2002; Papadopoulos & Denis, 1988), customer and supplier relationship (Cavusgil, Deligonul, & Yaprak, 2005), local environment, firm performance, and global strategies (Grewal, Chandrashekaran, & Dwyer, 2008; Zou & Cavusgil, 2002), international consumer (Wilkinson, Anna, & Widmier, 2007), role of multinational corporation’s network (Lee, 2010); technical environment and international marketing (Chirapanda, 2012) have also emerged as potential streams in international marketing literature. Much of the literature on international marketing has ignored the basic phase of development from generalization to specialization of the subject. It would be rational to explore and highlight a set of configurational contents for the conceptual domain of international marketing. For the delineated conceptual domain of international marketing, few gaps are noticed in the literature. Most reviews on international marketing have not linked up and evolved configuration of international marketing in a sequential manner. Research streams are not allied with theoretical foundations. Number of research streams and their governing variables vary for different researchers. Streams identified by different authors are: Albaum and Peterson (1984) 7, Aulakh and Kotabe (1993) 6, Li and Cavusgil

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(1995) 8, Cavusgil (1998, 2003a, 2003b) 10, and Nakata and Huang (2005) 9. Most of the reviews are presented based on a combined view of both theoretical and methodological aspects of international marketing. International marketing domain is delineated keeping both theoretical and methodological portions in mind by the authors (Albaum & Peterson, 1984; Aulakh & Kotabe, 1993; Bradley, 1987; Li & Cavusgil, 1995; Nakata & Huang, 2005). In this paper, an attempt is made to explore conceptual evolution of international marketing and to perform simple meta-analysis on research articles published between 1990 and 2012. We have comparatively evaluated both earlier and recent developments. The inclusion of 22-year period is deliberate to investigate and compare significant changes in the conceptual domain of international marketing. More specifically, many questions are worth exploring: How has the conceptual domain of international marketing evolved over the period of time? What are the configurational changes occurring during recent past decades in the conceptual domain of international marketing? Therefore, the objectives of this review are: 1. Evolution and identification of configurational changes in the conceptual domain of international marketing, 2. Classification of research streams and exploration of contribution of authors and publication outlets for the period 1990 2012, 3. Evolution of configurational contents and research streams of international marketing as prospective research areas for the future. The remainder of this paper is organized as follows. In “Conceptual Domain of International Marketing,” conceptual domain of international marketing is discussed. In “Method of Review,” a brief overview of methodology followed for this synthesis is provided. In “Results of Literature Review” results on literature of international marketing subject are given. In “Simple Meta-Analysis” a simple meta-analysis on the review is presented. Finally, “Conclusion and Future Directions” presents the conclusion and future scope of this piece of research.

CONCEPTUAL DOMAIN OF INTERNATIONAL MARKETING Traditionally international marketing is perceived all over the world on the basis of the definition “International Marketing is the multinational

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process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchange that satisfy individual and organizational objectives” rightly defined by the American Marketing Association. Definition has thrown light over basic constituents, objectives, and methodological issues of international marketing. Now the question arises: Is this concept of international marketing carrying the same gravity and flexibility which it was carrying at its initial stage of development, or it needs reshaping with the passage of time? International marketing has gained substantial attention in academics, publication outlets, and internationalizing business firms. To trace the evolution and contribution of international marketing, we have analyzed the nature and content of international marketing since it emerged in literature and illustrate some generalization with respect to its thought and ideas. International marketing is generally thought of as being concerned with exploitation of international production and service opportunities. These opportunities take the advantage of environmental factors and comparative marketing factors that helps to understand and classify foreign markets. Tracing the evolution of international marketing at its origin, we have noted that, international marketing concepts and thoughts are as old as interregional trade. International marketing thoughts seem to have evolved with two perspectives and bodies of international business, that is, international trade and finance (economic thought) and marketing discipline. Both have contributed toward the growth of international marketing. The history of international marketing reveals that, there are other concepts derived from other disciplines such as behavioral science, economics, political science, finance, international relations, geography, statistics, etc. (Eroglu & Eroglu, 1993) which have contributed to the strengthening and widespread of international marketing. Therefore, a convincing understanding of international marketing could only be developed by incorporating the vital role of international trade and allied streams. The first book on international marketing appeared and was entitled “World Marketing” by Collins (1935). Before 1960, international marketing literature was at an undeveloped stage, most of the articles were related to the field of international trade. Collins (1935) invested efforts to explain the requirements for successful business abroad. A very similar pattern is observed in the international marketing dealing with international economic-currency plans 1943, international comparison by Paige and Adler (1955), measurement of international marketing by Krieger (1957), and three key areas of effective international marketing were explored and presented by Kramer (1959). Furthermore, the literature

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from 1960 onward represents how the conceptualization of international marketing has evolved.

1960 1970: Decade of International Marketing Knowledge Development Knowledge development and experience are the important issues which always generate the maximum interest. Various entrepreneurs, academicians, and researchers have been devoting their knowledge and experience to evolve the configurational domain of international marketing and this was the practice during the decade of 1960 1970. Abbott (1961) evolved the knowledge of information resource of international marketing, Dowd (1960) invested his best efforts to evolve the latest features of marketing management, and Christian (1961) attempted to link the international marketing process with global challenges. At that time international marketing was recognized as an independent subject in academics and practices in business houses and efforts were invested to develop a more contentful and focused international marketing course (Gordon, 1965). Content and procedural aspects required in international marketing knowledge were discussed (Furuhashi & Evarts, 1967) to understand clearly the difference between domestic and international marketing (Bartels, 1968), emphasis on international marketing policies (Lipson & Lamont, 1969), and knowledge of international marketing and policies (Holton, 1970). With the contribution and attention of many more such academicians, researchers, and international marketing practitioners, international marketing concepts were developed and recognized as they were evolved and integrated into various business activities toward growth and expansion of business houses from their domestic boundaries to a worldwide presence.

1970 1980: Decade of International Marketing Planning and Management This decade identifies and contributes to international marketing planning, practice, and management. In this decade practitioners/researchers added more objectives to international marketing and formulated plans for achieving them. Researchers were more conscious toward cause and effects of the international marketing discipline in this particular time frame and tried to answer hidden facts such as exploring problems related with insecurity of entrepreneurs because of multinational corporation concept (Stevens, 1971), focusing on national protection in the form of tariff and

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nontariff barriers to international market access (Walter & Chung, 1972), and a multinational enterprise’s act to counter each other’s investment in new foreign operations (Knickerbocker, 1973). There are many ways by which a firm can participate in business activities outside the home country; efforts are invested to have a profound understanding and empathy for business practices and procedures in foreign markets (Weinraueh & Rao, 1974). Research on the issues like how to integrate the process of multinational process activities (Wiechmann, 1974), focusing on marketing decision of subsidiaries in multinational corporations (Johanson & Vahlne, 1977; Johanson & Weidershiem Jaul, 1975), laid the foundation for understanding the internationalization of firms. Brandt and Hulbert (1977) discussed how to segment world market and rank the countries (Weber, 1974), international promotional management (Dunn, 1976), and how to integrate cultural factors with international consumer response patterns (Douglas & Dubois, 1977) was also addressed during this decade which explored the need for international marketing planning. Thereby, these issues acted as pillars to tailor international planning strategies (as evolved by Douglas & Dubois, 1977) which contributed to aspire host and home governments and societies (Keegan, 1977). The studies carried out during this decade have not only evolved problems, but also addressed them by offering key decisions while introducing new products overseas (Davidson & Harrigan, 1977), by presenting a conceptual framework for determining information required for multinational intelligence system, and by offering marketing plans and solutions for subsidiaries in the host countries (Hulbert, Brandt, & Richers, 1980; Jaffe, 1979).

After 1980: Conceptualization/Reconceptualization of International Marketing Moving towards the new millennium, apart from the academic resources, economic reforms and technical development create a milieu where expectations of worldwide populations are progressing in multiple choices. Standard of living and new trends diffused international marketing to every profit and nonprofit organizations. The expansion of international marketing from export to wholesale and retail, manufacturing and service industries, defense and civil sectors has facilitated customer tastes and emphasized on the application of international marketing. These expansions construct and change the fundamentals of international marketing.

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The magnitude of change is reflective in the development of research streams in international marketing. International marketing has been interpreted in various ways by researchers: Seely and Lglarsh (1981) defined “International Marketing” as a combination of firm’s capability and marketing of mixed elements; Albaum and Peterson (1984) considered distinction in consumer behavior, location, and market structure between domestic and overseas markets; Li and Cavusgil (1995) sighted the vital role of environmental factors and managerial policies; Paun (1997) considered mode of operation and competition as important factors in international marketing; Seth and Parvatiyar (2001) valued policies, economic indicators, and technology advancement in international marketing; Zaribaf (2008) interpreted international marketing as a combination of marketing, government policies, and customers; Sharma and Srinivasan (2008) defined it as consolidation of international market selection, market entry mode selection, and competitive positioning; and according to Douglas and Craig (2011) international marketing is an interpretation of contextual factors of macro level factors, meso level factors, micro level factors, and situational factors. After assessment of these different interpretations, it is understood that international marketing is not limited to marketing mix alone, it takes a broader sense today. It is a combination of marketing mix with planning, implementation, and control of the whole marketing plan within the selected market by involvement of promotional strategies for customer satisfaction and future growth. International marketing involves identification of opportunities in overseas market, selecting the right market/customer segment, entry into the target market, preparing an effective market plan, and delivering the product/service successfully to the buyer. To investigate the current state of literature on this issue we have analyzed the prior studies that fall under the umbrella of international marketing.

METHOD OF REVIEW Planning Researchers have performed reviews on international marketing literature from time to time; that is, for the time frame 1976 1982, Albaum and Peterson (1984) have examined empirical studies published during 1976 1982, Aulakh and Kotabe (1993) have reviewed the research articles

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for the period 1980 1990, Samiee and Jeong (1994) have undertaken advertising studies published between 1980 and 1992, Li and Cavusgil (1995) have classified the literature published on international marketing between 1982 and 1990, Javalgi, Cutler, Rao, and White (1997) have investigated topics and trends in international marketing literature published between 1987 and 1993, Zou and Stan (1998) reviewed export performance literature between 1987 and 1997, and Nakata and Huang (2005) reviewed literature published between 1990 and 2000. Therefore, this is the time to produce an updated review on literature and the progress of international marketing in the recent past. To identify the latest trend and progress of the subject, we have considered the time span 1990 2012. This paper attempts to compare current literature with that of the previous decade. This review is based on the research articles published in journals with the belief that academicians and practitioners like to publish articles most often and contribute a high level of research in journals. All the highly reputed journals suggested and considered in previous reviews are taken into consideration. The intention of this review is to identify, evaluate, and synthesize all relevant facets belonging to the conceptual domain of international marketing. Results of the meta-analysis are constructed on research articles published in journals during 1990 2012.

Identification of Dimensions International marketing literature has explored a variety of facets where, it is observed that, some dimensions are split or merged with the others. Therefore, significant revision of variables and clustering them under their governing streams is the basic process being followed to update literature from time to time. In this journey different facets and dimensions are developed and added in the international marketing theory by researchers and decision makers. The motive to identify research streams is to recognize the constitutional domain which is believed in shaping up international marketing. Various dimensions have evolved in this exercise which took support of literature reviews and research stream arrangements performed by Albaum and Peterson (1984), Samiee and Walters (2003), and Bradley (1987). After exploring the dimensions, each study is categorized under certain clusters (research streams) to which they are relevant. The most reflective focus of this approach is based on the reviews and classification of research streams performed by Aulakh and Kotabe (1993), Cavusgil (1998, 2003a, 2003b), Li and Cavusgil (1995), and Nakata and Huang (2005).

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Simple Meta-Analysis Literature review generated a large number of studies which represent various time spans, concepts, and methodological aspects. To yield conclusive results from the literature, simple meta-analysis is carried out under the following subjects: A. Time Frame: The study aimed to perform simple meta-analysis on the research articles of the different time spans published between 1990 and 2012. B. Domain Focus: The study believes in carrying out simple meta-analysis on the conceptual domain that comprises various dimensions of international marketing. C. Authors and Articles: Contribution of different author’s and research articles contributed are analyzed on the basis of equal time spans of last two decades, that is, 1990 2010, and two years of the present decade 2011 2012. D. Publication Outlets: Furthermore, contribution of publication outlets is analyzed on the basis of their contribution against each research stream and total number of articles contributed by them in international marketing under the time span considered for this study. The purpose of this paper is being descriptive and inductive in nature. The first step in conducting a content development analysis is to identify the domain because international marketing is often interpreted differently by researchers. This content development analysis allowed measurement of strength and occurrence of international marketing streams. This step led to the next step to yield classification of international marketing streams. A simple meta-analysis has been used to understand the trend and attention to identify the research areas in international marketing for future research.

RESULTS OF LITERATURE REVIEW This is an effort to delineate the conceptual domain of international marketing which classifies dimensions under the research streams that represent the integrated view of international marketing. It is observed in the literature that facets of international marketing covered a wide range. To explore this observation, simple meta-analysis is performed to rearrange and organize the published articles. In this paper, all the possible dimensions are

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identified and updated with their current status which brought a clear view of research trend and publication volume. Contribution of researchers and publication outlets, which aims to identify dimensions that configure the conceptual domain of international marketing, is the true target of this paper.

Exploring Configuration of International Marketing The research articles that influence international marketing literature explored a variety of configurational contents (dimensions). The evolution of configurational contents on or before 1990 and their development chart of 1990 2012 evolved earlier by researchers (Rana & Sharma, 2012) are presented in Table 1. To explore the latest changes, authors have segmented the journey of configurational contents into different time spans. This process helps us to observe that, which of the configurational content came in sight in which particular time span. To avoid the repetition, earlier authors who identified or brought the configurational content to surface are only considered. It is made sure that none of the configurational changes are repeated and must belong to the particular time span in which they are represented in the Table 1. This section focuses on the concept development in the journey of international marketing. Table 1. Time Span On or before 1990 1994

Evolution of Configurational Domain of International Marketing. a

Studies Performed (References)

1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31

(A) Liesch (1994), Abur (1993), Laughlin and Ahsan (1994), Daly and Goodland (1994), Storper (1992), Dandurand (1993), Armstrong (1992), Armstrong and Sweeney (1994), Gene R. Lacaczniak (1993), Armstrong et al. (1990), Vanasco (1994), Kotabe and Okoroafo (1990), Seringhaus (1993), Kwon and Konopa (1993), Fraser and Hite (1990), Wilson and Preszler (1992), Buckley and Smith (1994), Fulop (1991), Dawson (1994), Mahajan et al. (1994), Ozsomer et al. (1992), Chonko et al. (1991), Nielsen and Sahay (1993), Tessitore (1994), Raaij and Verhallen (1994), Crouch (1992), Borkowski (1997), Harris (1994), Roth (1992), Klein and Roth (1993), Din (1990), Szymanski et al. (1993), Gray (1994), Lim et al. (1993), Melin (1992), McDonald (1994), Melin (1992), Israeloff

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Table 1. a

Time Span

(Continued ) Studies Performed (References)

(1993), Clark (1990), Klein et al. (1990), Aulakh and Kotabe (1993), Shoemaker (1994), Antoine (1994), Green and Kohli (1993), Rynning and Andersen (1994), Swamidass (1993), McCorriston and Sheldon (1994), Stiegert and Azzam (1990), Abur et al. (1993), Pons (1990), Lawrence (1991), Maxfield and Nolt (1990), Yang and Koo (1994), Richetto and Moitra (1990), Guisinger (1991), Auster (1992), Alburo et al. (1992), Dunning (1992), Jeon (1992), Tang (1993), Morre (1993), Hennart and Park (1994), Kent (1991), Light and Somasundram (1994), Spiller and Campbell (1994), Pritchett and Chamberlain (1993), Farrell and Wood (1994), Capon and Palij (1994), Lefebvre and Lefebvre (1993), Dugal and Roy (1994), Erramilli (1991), Agarwal and Ramaswami (1992), Mascarenhas (1992), Erramilli and Rao (1993) 1995 2000

32, 33, 36, 37, 40, 41, 44, 45, 48, 49

34, 38, 42, 46,

35, 39, 43, 47,

(A) Armstrong (1996), Batra (1997), Ades and Chua (1997), Bergh et al. (1998), Lavelle (1999), Dharwadkar et al. (2000), Nelson (1997), Sidaway and Pryket (2000), Jones et al. (2000), Wong et al. (1999), Palakurthi and Parks (2000), Mottner and Johnson (2000), Czinkota (2000), Bettis and Hitt (1995), Arora et al. (1997), Einhorn (1998), Burgers et al. (1998), Calori et al. (2000), Akimova (2000), Hughes et al. (1999), Wijnholds (2000), Janardhan (1997), Knight (1998), Park and Kim (1999), Clark and Lund (2000), Yach and Bettcher (2000), Venturino (2000), Chang (1997), Nancarrow et al. (1997), Chae and Hill (2000), Judd and Tims (2000), LeClair (2000), Liefeld et al. (1996), Chetty et al. (1999), Agbonifoh and Elimimian (1999), Ahmed and Astous (1996), Crotts et al. (1998), Bowman et al. (2000), Nilsson and Solgaard (1995), Grunert et al. (1995), Leeflang and Raaij (1995), Kouremenos and Avlonitis (1995), Varaldo and Marbach (1995), Ruyter et al. (1998), Degeratu et al. (2000), Coviello and Munro (1995), Rinehart and Zizzo (1995), Williams (1996), Loebbecke et al. (1996), Duke (1998), Petersen and Welch (2000), Morganosky and Cude (2000), Leonidou (1995), Levy and Yoon (1995), Wood and Robertson (2000), Martinez and Redondo (1998), Golder (2000), Moenaert et al. (2000), Zietlow (1995), Lindquist (1996), Contractor and Kundu (1998), Alon and McKee (1999), Peterson and Welch (2000), Alon and Banai (2000), Birkinshaw et al. (1998), Vachani (1999), Cecil et al. (1996), Cassers (1997), Samli and Donaldson (1997), Dranove et al. (1998), Duysters and Hagedoorn (1998), Andersson and Nyberg (1998), Rocha and Arkader (1998), Simonin

The Conceptual Domain of International Marketing: 1990 2012

Table 1. a

Time Span

201

(Continued ) Studies Performed (References)

(1999), Ryoo and Thanopoulou (1999), Lu and Marlow (1999), O’Farrell and Wood (1999), Mo (1999), Das and Teng (2000), Dussauge et al. (2000), Telfer (2000) 2001 2005

50, 51, 52, 53, 54, 55

(A) Dockery (2001), Rundh (2001), Swanson and Lin (2003), Chintagunta and Desiraju (2005), Gopalan and Thomson (2003), Hodkinson and Kiel (2003), Lueg et al. (2003), Peterson and Merino (2003), Spink (2004), Lee et al. (2003), Kim and Yoon (2004), Kapferer (2005), Juhl et al. (2002), Johnson et al. (2002), Homburg et al. (2002), Kim et al. (2004), Su (2004), Pan (2004), Siskos et al. (2001), Malhotra and Bartels (2002), Herk et al. (2005), Sinkovics (2005), Perks and Wong (2003)

2006 2012

56, 57

(A) Anselmsson et al. (2008), Dimfote et al. (2008), Dimfote et al. (2010), Laforet and Chen (2010), Ahman et al. (2011), Kumar et al. (2011), Oberecker and Diantopoulos (2011), Akram et al. (2011), Chen and Su (2011), Demir and Tansuhaj (2011), Magnusson et al. (2011), Coyle (2012), Hung et al. (2012), Kang et al. (2012), Laforet and Chen (2012), Mai and Smith (2012), Mukherjee et al. (2012), Rahee and Johnson (2012), Riefler (2012), Ye et al. (2012), Keh and Sun (2008), Lodh and Nandy (2008), Lwata and Shi Wu (2009), Lee and Shih (2009), Liu (2009), Tuu and Olsen (2012), Alessandro et al. (2012), Bianchi and Andrews (2012), Kesharwani and Bisht (2012), Beneke et al. (2012) Tam (2012)

Note: Listing the evolution of dimensions over the period of time where numbers indicate identification of dimensions. 1990 1994: 1 International Political and Legal Environment, 2 International Social Aspects, 3 International Commerce, 4 Technical Developments, 5 International Marketing Ethics, 6 Comparative Assessment, 7 Competitive Positioning, 8 Characteristics of International Markets, 9 International Marketing Performance and Engineering, 10 International Marketing Structure, 11 International Marketing Operations, 12 International Marketing System, 13 International Marketing Segmentation, 14 International Marketing Selection, 15 International Marketing Mix, 16 International Advertising and Communication, 17 International Brand Management, 18 International Marketing Channels, 19 International Marketing Strategy, 20 Family Decision Making, 21 Internationalization Orientation, 22 International Positioning, 23 Domestic versus International Marketing, 24 Measurement and Comparable Scale, 25 Methodological Aspects, 26 Research Trends in International Marketing, 27 Exporting, 28 Importing, 29 Foreign Direct Investment, 30 International Joint Venture, 31 International Direct Marketing.

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1995 2000: 32 International Culture, 33 International Economic Environment, 34 International Demographics, 35 International Marketing Policies, 36 International Competitiveness, 37 Globalization, 38 Assessment of Market Capabilities, 39 International Marketing Planning, 40 Country of Origin, 41 International Buyer and Seller Relationship, 42 Consumer Knowledge, Choice, and Attitude, 43 International Entrepreneurship, 44 International Retailing, 45 Evaluation, Investigation, and Assessment, 46 International Innovation and Diffusion, 47 International Franchising, 48 International Subsidiaries, 49 International Strategic Alliance. 2001 2005: 50 International Marketing Behavior, 51 Information Search Behavior, 52 International Customer Loyalty, 53 International Customer Satisfaction, 54 International Marketing Data Analysis Techniques, 55 International Product/ Service Development. 2006 2012: 56 International Brand Preferences, 57 Perceived Risk. a Dimensions of International Marketing are mentioned as numbers at the end of this table.

As indicated in Table 1 it is noted that, the phase of concept development in international marketing from 1990 onward brings new configurational concepts into the limelight. It is identified from the study that different variables are evolved in different time spans which shows the growth of concept over the period of time. Therefore, it is observed that configurational contents are developed as: on or before 1990 1994 (31), 1995 2000 (18), 2001 2005 (6), and 2006 2012 (2). In conclusion, 57 configurational contents were explored within the considered time frame. These configurational contents are carried forward for further scales of the study.

Classification Scheme: Based on the Conceptual Domain of International Marketing Based on the literature review carried out and the nature of international marketing observed, we have introduced a classification scheme to systematically organize the published articles. The classification scheme is based on the conceptual domain of international marketing. The conceptual domain of international marketing can be delineated to seven major streams in literature. To evolve these research streams international marketing is classified into the rational domain and sectional domain as portrayed in Fig. 1. The rational domain section represents the international marketing

Rational Domain

Developmental Focus

International Marketing Environment

Congenital Focus

Comparative Studies of Marketing Systems

Fig. 1.

International Marketing Management

Sectional Domain

Buyer Focus

International Consumer and Buyer Behavior

Firm Focus

Market Focus

Internationalization Process

International Marketing Research

Interaction Approaches

The Conceptual Domain of International Marketing: 1990 2012

Conceptual Domain

Classification of International Marketing: Conceptual Domain.

203

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existence in fundamental nature as an independent domain. It has been identified from literature that international marketing has gained acceptance in and after 1960 as a distinct field of study and after that researchers are continuously investing their efforts to explore dimensions and methodology of international marketing. Rational domain refers to those contented facets that shape or reshape international marketing at its origin and development. Under the rational domain, developmental focus and congenital focus are segmented. Under the sectional domain, benefits and consequences associated with international marketing practices that yield the relationship between customers, suppliers, channels of distribution, middleman, market structure, and environment were considered as essential key elements for the success of international marketing. Researchers have explored that firms are more profit conscious and want to achieve and sustain a competitive advantage. To achieve this objective they need to cope with the changing scenario and its complexities. In the domain enquiry of the rational domain, the developmental focus area aims to advocate and promote market-based solutions for development and environmental challenges and congenital focus refers to the existence and essence of the field at the time of its birth. Whereas, in segments of sectional domain evolve that: buyer focus considered behavior and perceptions of international consumers towards international firms. In the market focus segment, the changing global marketing environment is taken into consideration and firm focus segment refers to distinct capabilities of business firms. It can be concluded that “International Marketing Subject” has been updating and nourishing itself with new content addition but never discarded any content by declaring it as outdated. Procedurally, the rational domain of international marketing tries to explain earlier developments of international marketing, whereas the sectional domain is an effort to identify recent developments in the international marketing discipline (Cavusgil, Deligonul, & Yaprak, 2005).

SIMPLE META-ANALYSIS Usually, the nature of data available in the studies reviewed determines the type of meta-analytic method to be implemented. In this piece of work we have summarized the variables that represent facets of international marketing literature. This simple meta-analysis provides only a descriptive information. The outcome of this work is expected to gain understanding

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of the evolution and development of the international marketing concept to identify prospective research streams for future research in the subject. Through classifying the conceptual domain of international marketing, a total of 1,816 research articles published during 1990 2012 were identified under the conceptual domain of international marketing out of which 29 articles are review papers that solely focus on international marketing rather than on a single or multiple content and taken under the miscellaneous category. Rest of the research articles published between 1990 and 2012 focused on the following issues: (1) development of configurational contents, (2) segmentation of the conceptual domain, (3) review of configurational contents, (4) review of attention to the evolved research streams, (5) contribution of author’s and number of studies, and (6) contribution of leading journals to each research stream and to international marketing.

Distribution of Research Articles to the Conceptual Domain of International Marketing The classification of configuration contents leads to the development and representation of different derived clusters of research streams (narrated by Li & Cavusgil, 1995). But Li and Cavusgil (1995) have considered 757 research articles focusing on major research streams, but in this paper results are interpreted in the context of individual contents which finally led to represent the research stream. To the least of our knowledge, meager research is available which considered the volume of contents as this research did. With other reviews (Albaum & Peterson, 1984; Aulakh & Kotabe, 1993; Javalgi et al., 1997; Li & Cavusgil, 1995; Nakata & Huang, 2005), this study contains evaluation and categorization of a high volume of research articles that are categorized under individual configurational contents listed in Table 2. Aulakh and Kotabe (1993) presented the review till 1990 with the contents that emerged till 1990. This research expands further attempts to update the international marketing subject with latest contents till 2012. This study categorizes configurational contents into main research streams of international marketing which are summed up as follows: nine contents are categorized under International Marketing Environment, eleven contents are categorized under Comparative Studies of Marketing Systems, eight contents were summed up under International Marketing Management, nine were summed up under International Consumer and Buyer Behavior, seven were summed up under International Marketing Research, and eight contents were summed up under Interaction

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Table 2.

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Development and Categorizing the International Marketing Configurational Contents.

Configured Contents (1990 2012) International Culture International Economic Environment International Demographics International Political and Legal Environment International Social Aspects International Marketing Policies International Commerce Technical Developments International Marketing Ethics International Marketing Environment (Basic) Comparative Assessment Competitive Positioning International Competitiveness Globalization Assessment of Market Capabilities Characteristics of International Markets International Marketing Performance and Engineering International Marketing Structure International Marketing Behavior International Marketing Operations International Marketing System International Marketing Segmentation International Market Selection International Marketing Mix International Advertising and Communication International Brand Management International Marketing Channels International Marketing Strategy International Marketing Planning Country of Origin International Buyer and Supplier Relationship Consumer Choice, Knowledge, and Attitude International Brand Preferences Family Decision Making Information Search Behavior International Customer Loyalty International Customer Satisfaction Perceived Risk Internationalization Orientation and Communication

Derived Clusters

International Marketing Environment

Comparative Studies of Marketing Systems

No. of Studies 25 23 19 29 13 13 7 22 58 3 24 18 36 45 21 10 14 12 6 13 11

International Marketing Management

Consumer and Buyer Behavior

48 39 61 47 40 12 45 8 42 27 31 20 9 12 16 23 12 103

The Conceptual Domain of International Marketing: 1990 2012

Table 2.

207

(Continued )

Configured Contents (1990 2012) International Entrepreneurship International Positioning International Retailing Domestic versus International Marketing Evaluation, Investigation, and Assessment Measurement and Comparable Scales Methodological Aspects Data Analysis International Product/Service Development International Innovation and Diffusion Research Trends in International Marketing International Marketing Research (Basic) Exporting Importing Foreign Direct Investment International Joint Venture International Direct Marketing International Franchising International Subsidiaries International Strategic Alliance Market Entry Mode (Miscellaneous) International Marketing Miscellaneous (Basic)

Derived Clusters

Internationalization Process

International Marketing Research

Interaction Approaches

No. of Studies 49 18 31 23 13 22 8 11 5 32 20 10 122 49 113 49 5 24 30 59 95 29

Approaches. As interpreted based on Table 2 international marketing from 1990 to 2012 is governed by 57 configurational contents that are consolidated into seven major research streams. The publishing space occupied by these research streams differs streamwise and mentioned against each research stream: International Marketing Environment 212, Comparative Studies of Marketing Systems 192, International Marketing Management 300, International Consumer and Buyer Behavior 192, International Marketing Research 121, Internationalization Process 224, and Interaction Approaches 546, whereas, research on International Marketing Research is at meager stage 121. It simply concludes that maximum attention of researchers is being captured by interactional approaches (546 research articles), whereas, research on international marketing research is at comparatively meager stage (121 research articles). Adding to these findings, very limited articles are available that focus on basics and reviews of international marketing.

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Distribution of Research Articles by Classification Scheme Based on Conceptual Domain This section of simple meta-analysis provides the information about the categorization of configurational contents under the conceptual domain. This section leads to explore the recent configurational contents of the conceptual domain of international marketing. Table 3 represents which configurational content belongs to the rational and sectional domain of each research stream. As this study considered articles from 1990 to 2012, therefore, to delineate the earlier developments of international marketing under the rational domain the articles were considered from 1990 to 2000. To explain recent developments in international marketing, sectional domain considered articles from 2001 to 2012. Table 3.

Configuration Contents of Conceptual Domain.

Configurational Clusters International Marketing Environment

Rational Domain (1990 2000) International Culture International Economic Environment International Demographics International Political and Legal Environment International Social Aspects International Marketing Policies International Commerce Technical Developments International Marketing Ethics

Sectional Domain (2001 2012)

No content reported

Comparative Studies in Marketing Systems

Comparative Assessment International Marketing Competitive Positioning Behavior International Competitiveness Globalization Assessment of Market Capabilities Characteristics of International Markets International Markets Performance and Engineering International Market Structure International Marketing Operations International Marketing System

International Marketing Management

International Marketing Segmentation

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The Conceptual Domain of International Marketing: 1990 2012

Table 3. Configurational Clusters

(Continued )

Rational Domain (1990 2000) International Market Selection International Marketing Mix International Advertising and Communication International Brand Management International Marketing Channels International Marketing Strategy International Marketing Planning

International Consumer and Buyer Behavior

Country of Origin International Buyer and Seller Relationship Consumer Choice, Knowledge, and Attitude Family Decision Making

Sectional Domain (2001 2012)

No content reported

International Brand Preferences Information Search Behavior International Customer Loyalty International Customer Satisfaction Perceived Risk

Internationalization Process

Internationalization Orientation and Commitment International Entrepreneurship and Born Global International Positioning International Retailing No content reported Domestic verses International Marketing

International Marketing Research

Evaluation, Investigation, and Assessment Measurement and Comparable Scales Methodological Aspects International Innovation and Diffusion Research Trends in International Marketing

Interaction Approaches

Exporting Importing Foreign Direct Investment International Joint Venture International Direct Marketing International Franchising International Subsidiaries International Strategic Alliance

Data Analysis International Product/ Service Development

No content reported

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It is identified from Table 3 that 57 configurational contents represented in the conceptual domain are governed by 49 configurational contents that belong to the rational domain and only 8 configurational contents belonging to the sectional domain of international marketing. We can easily conclude from these findings that, the development of new research areas is at the infancy stage and only eight new areas have been added in the subject after the year 2000. This development occurred only in three research streams, that is, Comparative Studies of Marketing Systems, International Consumer and Buyer Behavior, and International Marketing Research. Remaining four research streams left the scope for invention of new concepts and ideas. Many researchers (Albaum & Peterson, 1984; Aulakh & Kotabe, 1993; Li & Cavusgil, 1995) classified the conceptual domain of international marketing into many ways. However, essentially all the classifications fall under the groups: rational domain and sectional domain. More deeply, for these two classification schemes, there were varieties of focuses considered by researchers: developmental focus, congenital focus, market focus, buyer focus, and firm focus (Cavusgil et al., 2005). It should be emphasized that the categories are not meant to be mutually exclusive. The drawback of the rational domain and sectional domain exists in terms of customization of time span, the study considers for early developments and recent developments. However, the advantage is that these approaches along with the variety of focuses are definitely expected to provide all the time a better solution and planning to international marketing research problems. Table 4 indicates that there is no literature reported on the sectional domain of international marketing considering (1) international marketing Table 4. Nature of Conceptual Domain Rational Domain

Review of Conceptual Domain.

Configurational Cluster of International Marketing International Marketing Environment Internationalization Process Interaction Approaches Comparative Studies of Marketing Systems International Consumer and Buyer Behavior International Marketing Management

Nature of Focus (DF, CF, BF, MF, FF)

No. of Articles

No. of Articles in %

DF

212

12.64

DF DF CF

224 546 180

13.36 32.57 10.73

CF

109

6.50

CF

300

17.89

211

The Conceptual Domain of International Marketing: 1990 2012

Table 4. Nature of Conceptual Domain

Sectional Domain

(Continued )

Configurational Cluster of International Marketing

Nature of Focus (DF, CF, BF, MF, FF)

No. of Articles

No. of Articles in %

105

6.26

No reported study No reported study MF

12

10.81

BF

83

74.77

16

14.41

International Marketing Research

CF

International Marketing Environment Internationalization Process Interaction Approaches Comparative Studies of Marketing Systems International Consumer and Buyer Behavior International Marketing Management International Marketing Research

No reported study

No reported study FF

environment, (2) internationalization process, (3) interaction approaches, and (4) international marketing management. These could be possible new and challenging research problems in the area of international marketing research. The frequency distribution of articles according to the proposed classification scheme mentioned in Fig. 1 is shown in Table 4 where it is observed that the conceptual domain of international marketing in its sectional domain and rational domain has a significant difference in capturing attention (1,676 articles vs. 111 articles). However, the research attention in the rational domain in its developmental focus is relatively high in comparison with the congenital focus (58.57% vs. 41.38%). The research attention in the sectional domain in its market focus (10.81%) and firm focus (14.41%) is very low in comparison with buyer focus (74.77%).

Distribution of Research Articles Based on Research Streams Under this section of simple meta-analysis, all the configuration contents are consolidated under research streams to which they belong. The prime objective of this section is to identify publication space covered by each research stream in publication outlets and review up to which extent

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individual research stream is preferred by international marketing researchers. Table 5.

Contribution of Research Articles against Research Streams.

Configurational Clusters International Marketing Environment Comparative Studies of Marketing Systems International Marketing Management Consumer and Buyer Behavior Internationalization Process International Marketing Research Interaction Approaches Total no. of studies

No. of Studies 212 192 300 192 224 121 546 1,787

Percentage of Studies 11.86 10.74 16.78 10.74 12.53 6.77 30.55 100

It can be observed from Table 5 that all the research streams cover almost equal space in publication outlets except Interaction Approaches that cover the highest space with 546 research articles 30.55% of the total space, and International Marketing Research that covers the lowest space with only 121 research articles and only 6.77% of the total publishing space. It concludes that articles published under the Interaction Approaches theme is most preferred by the researchers and captured the highest volume of articles, whereas International Marketing Research has captured minimum attention and captured the least volume (121 6.77%), and all other areas such as International Marketing Environment (212 11.86%), Comparative Studies in Marketing Systems (192 10.74%), International Marketing Management (300 16.78%), Consumer and Buyer Behavior (192 10.74%), and Internationalization Process (224 12.53%) are the other growing areas of research in international marketing that leave the scope for serious attention from researchers.

Distribution of Articles by Number of Authors Contributed and Number of Articles Published The distribution of number of articles published with the clear interval of three years is shown in Table 6 from 1990 to 2012. The clear interval of 3 years is selected because a review article generally takes one and half

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years to two and half years to get published from its initial stage. Table 6 shows the results of number of author’s contributed and number of research articles published under each set of three years. Table 6. Statistics on Number of Research and Number of Authors. Years 1990 1993 1996 1999 2002 2005 2008 2011

1992 1995 1998 2001 2004 2007 2010 2012

No. of Articles

No. of Authors Contributed

34 76 140 186 242 265 338 535

48 137 213 204 331 374 298 869

As specified in Table 6 the number of research studies and number of authors contributed has been increasing since 1990. During 1990 1992 the numbers of research studies were only 34 and numbers of authors were only 48, compared to other time spans it has continuously raised and in the span 2010 2012 the numbers of research studies were raised to 535 and authors contributed were 869. It can be simply concluded from this table that international marketing is continuously capturing the attention of researchers and publication outlets successfully.

Distribution of International Marketing Articles Based on Journals (Publication Outlets) In the time frame 1990 2012 a total number of 1,816 research articles were published in around 450 academic and research journals. It is observed that today international marketing articles are not only preferred by international marketing core journals even other journals also prefer to publish research work on international marketing. Here, we have considered only high-impact factor international reputed journals, which have contributed the maximum number of research studies to any particular research stream or maximum number of studies in total to each research stream. The numbers of research studies contributed by each journal against international marketing streams are given in Table 7.

Journal Name

IME 1 1 3 2 2 9 35 4

6 12 3 1 2 1 1 1 1 1

CSMS

IMM

IC&BB

3 3 2 7 6 3 5

2 4 30 3 4 15 11 11

1 14 4

12 2 7 2

4

7

1 1

14 2 4 1 1 2 3 1 3 2

13 1 2

3 8 14 7

5 2 3 1 10 2 4

6 2 4 5 2 1

7 4 9 10

9 4 4 2

2

IP

7 9 1 23 4

1 1 1 1 8 4 1 2 9

IMR 1 2 4 10 5 6 10 1 6 2 3 10 2 1 3 1

Int. App.

IMB

Total

4

9 24 55 17 33 86 29 60 37 46 20 39 50 19 87 14 18 10 13 19 24 29 11 38 22

3 3 2 29

1

6 1 8 15 26 27 4 14 2 4 2 1 2 6 18

5

2

1

7 2 1 1 2

1 31 10

Abbreviations: IME International Marketing Environment, CSMS Comparative Studies of Marketing Systems, IMM Marketing Management, IC&BB International Consumer & Buyer Behavior, IP Internationalization Process, IMR Marketing Research, Int. App. Interactional Approaches, and IMB International Marketing Basics.

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SUDHIR RANA AND SOMESH KR. SHARMA

Advances in International Marketing Asia Pacific Journal of Marketing and Logistics European Journal of Marketing European Management Journal Industrial Marketing Management International Business Review International Journal of Research in Marketing International Marketing Review Journal of Business Ethics Journal of Business Research Journal of Euromarketing Journal of Global Marketing Journal of International Business Studies Journal of International Entrepreneurship Journal of International Marketing Journal of Marketing Journal of Marketing Management Journal of Marketing Research Journal of Retailing and Consumer Services Journal of the Academy of Marketing Science Journal of World Business Management International Review Marketing Intelligence and Planning Strategic Management Journal The Service Industries Journal

Contribution of Publication Outlets.

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Table 7.

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As Table 7 points out that journals mentioned have contributed in almost all research streams of international marketing, but in a nutshell, the maximum contribution was from Journal of International Marketing (87) and International Business Review (86) respectively. Moreover, European Journal of Marketing (55), Industrial Marketing Management (33), International Marketing Review (60), Journal of Business Research (46), Journal of International Business Studies (50), and Journal of Marketing Management (18) could be recognized as core journals for the international marketing subject. These journals have contributed research studies in each stream of international marketing.

CONCLUSION AND FUTURE DIRECTIONS It is known that the history of international marketing is short compared with the domestic marketing management. To the best of our knowledge, so far, attempts have been made to classify and analyze the literature dealing with international marketing research with special references to all configurational clusters evolving the conceptual domain. Thus, in this paper, we have attempted to review and classify the conceptual domain of international marketing. Accordingly, an extensive literature review has been attempted to review international marketing from previous journals which are possible outlets for research. This resulted in identification of 1,816 articles related to international marketing, published during 1990 2012. From the matching of published articles according to our proposed classification scheme and according to a performance metric, it seems that there are a lot of untouched research problems possible in the area of international marketing. It is observed that number of published articles in the time span 1990 1992 is meager (34 articles) when compared to the publication volume (535 articles) in the period 2011 2012. With this, it is possible to comment that an increased research trend on the international marketing subject is observed in the period 1990 2012. This is due to the fact that continuously new researchers are commencing their research activities in international marketing. This shows clearly that the international marketing subject is a current research area among many research groups across the world. Our review is not definitive nor is it intended to be. Rather, authors attempt to summarize, synthesize, and interpret research in international marketing over the 1990 2012 time frame. We have reviewed 1,816

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research articles. Out of these 1,787 articles contributed to evolve 57 configurational contents of the conceptual domain and 29 articles belong to the review aspects of international marketing. This analysis finally evolves into seven major research streams of international marketing. The aim behind this piece of research work is to review and evolve the conceptual domain that constructs a repository of extent thought and its development. By discussing the literature within the context of domain areas and its more delicately gained themes, authors have attempted to draw attention to key developments and findings. The review of recent literature on international marketing indicates that the field is making headway on several fronts. Equally important is the identification of numerous areas of research in international marketing which has been the parallel focus of this review. While evolving the conceptual domain of international marketing, literature synthesis concludes how the conceptual domain has progressed, and what is the current position and scope of research. It is witnessed in several articles that international marketing has made tremendous improvements from 1960 onward and has gained credibility as an independent discipline. This review brought these international marketing theories, advancements, and progress of research in different fields to the surface. Referring to the conceptual evolution of international marketing (Cavusgil et al., 2005) we have compared early developments and recent developments of the international marketing conceptual domain. It is identified that by comparing both the segments of international marketing conceptual domain rational domain and sectional domain recent developments are at a meager stage and only eight configurational contents have been added after the year 2000. These eight configurational contents belong to three research streams; no recent configurational content has taken place in rest of the four streams as mentioned in Table 3. Taking previous reviews into consideration, we have identified that, previous review articles have focused on topics such as the contribution of leading journals (Leonidou, Barnes, Spyropoulou, & Katsikeas, 2010; Luke & Reed Doke, 1987), theoretical and methodological changes in international marketing (Aulakh & Kotabe, 1993; Cavusgil & Das, 1997), and development in international marketing (Cavusgil, 1998; Nakata & Huang, 2005). All these reviews provide a direction to the conceptual domain of international marketing and also identify which publication outlet is the best source of international marketing literature, but, in the same reviews attention is not given to conceptual segmentation of international marketing. This review bridges the identified gap with segmentation of the

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conceptual domain with a comparative synthesis. In earlier reviews of international marketing and prospective research areas, Albaum and Peterson (1984) examined only empirical studies. They have pointed lack of conceptual foundations which was adapted by Aulakh and Kotabe (1993). Javalgi et al. (1997) have analyzed an article published in specific journals of general business, general marketing, international business and international marketing and reviewed topics, trends and contributors in international marketing. Even in the most recent reviews, a state of methodological practice in international marketing research (Taylor, Bowen, & Bang, 2011), guidelines for cross-national research in marketing have been summarized. In the reflections on international marketing (Cavusgil & Cavusgil, 2012), authors have drawn attention to major disruptions impacting international marketers. Bibliometric analysis on knowledge structure in international marketing (Samiee & Chabowski, 2012) has been undertaken using three bibliometric methods to examine the underlying forces that shape the international marketing field. All the reviews are performed by taking conceptual and methodological views of international marketing together. These reviews have left the scope to represent the concept development of international marketing. Therefore, this review has brought the conceptual domain with micro level segment to the surface. Simple meta-analysis has been performed by the authors which contributed toward comparative synthesis of conceptual domain segments, simplifying examination and presented the development and attention of number of authors and mainstream publication outlets against all the research streams of international marketing during 1990 2012. Overall, the review shows that international marketing has made tremendous improvement as witnessed in several research articles. This review represents the progressive picture of international marketing from the view of conceptual developments and shows that traditional research areas will no longer dominate the international marketing literature. Few areas of research, such as international marketing behavior, international brand preferences, information search behavior, international customer loyalty, international customer satisfaction, perceived risk by customers, data analysis techniques in international marketing and international product or service development, will have to be addressed in literature. Within the various research streams some important areas of international marketing have to be given due attention, for example, international marketing research, comparative studies of marketing systems, international consumer and buyer behavior, which have been identified as the least addressed research areas in international marketing. Twenty-five

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journals are recommended as a major resource of international marketing literature. Despite the limitations, we expect this review on conceptual domain of international marketing would be reasonably rich, diverse, and illuminating. Finally, we acknowledge that this review cannot be claimed to be fully exhaustive, but it does provide quite a reasonable insight into the state-ofart international marketing research. Thus it is hoped that this review will provide a source of reference for other researchers/readers interested in international marketing research and help stimulate further interest.

ACKNOWLEDGMENT The authors gratefully acknowledge the support of Prof. Shaoming Zou and AIM anonymous reviewers for their constructive comments and support.

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A FRAMEWORK FOR UNDERSTANDING FIRMS’ FOREIGN EXIT BEHAVIOR Qun Tan and Carlos M. P. Sousa ABSTRACT Although research on foreign market entry and expansion behavior has attracted significant interest in the literature, there is a general lack of research (either conceptual or empirical) on the exit behavior of international companies. To address this issue, the authors develop a conceptual framework to understand firms’ foreign exit behavior. The objective is to lay the conceptual foundation for subsequent empirical research in this area. A series of research propositions have been advanced that can guide hypothesis generation for future research. Keywords: Exit behavior; performance; international company; conceptual framework

INTRODUCTION International trade is an open and dynamic business cycle, as every year numerous firms initiate their business in foreign markets and a large

Entrepreneurship in International Marketing Advances in International Marketing, Volume 25, 223 238 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1108/S1474-797920140000025010

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proportion of firms exit their foreign markets, with new firms stepping in. Firms’ entry, expansion, and exit are the three basic activities in the cycle (Campbell, 1998). Clearly, these behaviors are not independent of each other because firms’ entry, dynamic development, and exit activities are in a long-run equilibrium (Hopenhayn, 1992). Therefore, firms’ exit rate is usually positively related to the entry rate within an industry (Alvarez & Lo´pez, 2008). Exit refers to a long-run decision to leave the market (Mankiw, 2011), and other terms such as “divestment,” “divestiture,” and “disinvestment” have also been used interchangeably in previous research on exit (Brauer, 2006). At the micro level, accompanying the rapid economic globalization during the past half century, the increasingly furious worldwide competition frequently pushes many firms to the verge of exiting from the foreign market. Commonly, numerous firms experience tough decisions on exiting from a market. This implies that exit decisions have never become as important as now (McDermott, 2010), but despite the paramount role of such decisions, most managers have no idea of how to handle these efficiently and confidently (Burgelman, 1996), nor do they conduct detailed analyses before and after these decisions are made (Boddewyn, 1983). This may be partly explained by the fact that present research on international exit behavior is scant (McDermott, 2010) and, therefore, unable to provide insightful instructions for firms’ operations. In the literature, severe asymmetry exists in the research on entry, expansion, and exit behavior. Specifically, there is a plethora of research on firms’ entry and expansion behavior (Griffith, Cavusgil, & Xu, 2008), but a general lack of research (either conceptual or empirical) on firms’ exit behavior (Fetscherin, Voss, & Gugler, 2010). Although research on entry and expansion behavior may help managers to understand the important factors for success, research on exit behavior informs managers about factors that inhibit success. Learning from unsuccessful strategies may be more valuable than learning from success, as managers will become more aware of success inhibitors based on painful lessons, which may increase the probability of subsequent success (Madsen & Desai, 2010). Therefore, firms’ exit behavior should be as important, if not more so, than their entry and expansion behavior. The purpose of this study is to address the under-researched topic of firms’ foreign exit behavior, by developing a new conceptual framework. Hence, the contributions are the following: Firstly, in the international marketing field we are among the few to expand the extant research on the entry- and expansion-focused behavior to exit behavior, thereby

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contributing to the understanding of a complete picture of the issues involved in the international business cycle. Secondly, we develop a conceptual framework for understanding firms’ foreign exit behavior. We consider unsatisfactory performance of a firms’ foreign operation as the most important trigger of an exit decision. In addition, several moderators were also included in our conceptual framework to understand when or under what circumstances this trigger will eventually lead to an exit/nonexit decision. This allows us to better explain/predict firms’ exit behavior and, therefore, also helps firms to enhance the quality of their strategic decisions. In the following section, we develop a literature review on foreign exit research. We then present the theoretical bases for developing our conceptual framework. Next, the conceptual framework for understanding firms’ exit behavior and corresponding research proposals is developed. The paper concludes with the theoretical and managerial implications, limitations of the study, and future research directions.

RESEARCH ON FIRMS’ FOREIGN EXIT BEHAVIOR Academic research on firms’ exit behavior may be traced back to the work on foreign divestment by Boddewyn and Torneden (1973), and Gilmour (1973), among others. Although several pioneer works on foreign divestment were published by Boddewyn and his colleagues between 1973 and 1985, subsequent researchers show inadequate attention to their work (McDermott, 2010). Similar to research on domestic exit behavior, studies on foreign divestment cover antecedents/incentives/drivers, outcomes, and the decisionmaking process. Previous studies show that firms’ exiting from a foreign market may be caused by forced drivers (such as governmental takeover, expropriation, and political risk) and/or voluntary drivers (such as poor financial performance, absence of strategic synergy, different entry strategies, and poor relationship between headquarters and subsidiaries) (e.g., Boddewyn, 1979; Li, 1995). Some researchers also show interest in the decision-making process of foreign divestment (e.g., Gilmour, 1973; Nees, 1978). In general, interviews and case studies are used to collect data in previous research (e.g., Matthyssens & Pauwels, 2000). No generally accepted framework has been developed to guide subsequent research, and only one theory proposed by Boddewyn (1985) has been specifically developed for foreign divestment.

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Among all the antecedents/drivers of a foreign exit, poor/unsatisfactory performance has generally been singled out as the most important antecedent (Berry, 2010b). This is understandable considering that the majority of the firms are for-profit organizations and firms initiate strategic changes such as a foreign exit mainly when the performance is unsatisfactory (Shimizu & Hitt, 2005). However, among the very few empirical studies that have examined the performance foreign exit relationship, the relationship is found to be inconsistent (e.g., Berry, 2010b; Engel, Procher, & Schmidt, 2013). This indicates that we need to go a step further to understand why the empirical performance exit relationship is inconsistent. In this case, it is necessary to determine the moderators influencing the performance exit relationship, rather than simply assuming a direct relationship exists (Berry, 2013). Therefore, to advance our understanding of firms’ exit behavior, we propose to examine the possible impact of several moderators on the performance exit decision relationship.

THEORETICAL BASES The conceptual framework in this study mainly draws on the notion of the behavioral theory of the firm to explain the performance exit decision relationship, while the real options theory, resource advantage theory, and agency theory are used to explain the three sets of moderators.

Behavioral Theory of the Firm Building on the assumptions of bounded rationality and uncertainty avoidance, the behavioral theory of the firm predicts how firms will change their behaviors given the level of performance compared with managerial aspiration levels (Argote & Greve, 2007; Shimizu, 2007). The behavioral theory of the firm argues that firms continually adjust their behavior in reaction to how satisfied they are with their performance (Lant & Shapira, 2008). Therefore, when performances remain above their aspiration levels, firms are satisfied and tend not to initiate behavioral changes. Only when the performances fall below the aspiration levels, are organizational changes more likely to occur (Argote & Greve, 2007; Cyert & March, 1963). Based on this notion, exit decisions are contingent upon whether the performance of a foreign market is above or below its threshold performance

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(i.e., aspiration level) (Gimeno, Folta, Cooper, & Woo, 1997). Foreign operations with satisfactory performance (i.e., performance is above their threshold performance) tend to stay in the foreign market, whereas foreign operations with unsatisfactory performance are more likely to initiate strategic changes such as exiting from the foreign market, regardless of the absolute level of the economic performance. In this case, the behavioral theory of the firm explains the main path of our conceptual model.

Real Options Theory The first set of moderators influencing the performance exit relationship derives from the real options theory. Given unsatisfactory performance in a foreign market, firms are faced with a decision as to whether to remain in or exit from the foreign market, but this is a difficult decision surrounded by great uncertainty (Shimizu, 2007). In the context of uncertainty, real options reasoning has gained increasing attention in explaining/predicting decisions (Belderbos & Zou, 2009). Challenging the two common assumptions concerning inertia and sunk costs, the real options theory argues that sunk costs and environmental uncertainty are key factors in understanding firms’ exit behavior (O’Brien & Folta, 2009). Sunk costs refer to costs that have been incurred and cannot be reversed (Sutton, 1991), while environmental uncertainty is defined as decision makers’ perceived unpredictability of the environment (Buchko, 1994). Under the real options theory, when making exit decisions, rational firms should consider the important role of sunk costs and stay in the market for some time, as long as the exit option still exists in the future (O’Brien & Folta, 2009). The reason is that if firms exit immediately after a negative benefit arrives, and if conditions dramatically improve in the near future, reentering the market will re-incur previously paid high sunk costs (Berry, 2010a). In addition, the uncertainty about the environment means that managers are unable to predict the foreign markets, government regulation/ intervention, actions of competitors and suppliers, and/or general conditions facing the organization (DeSarbo, Di Benedetto, Michael, & Sinha, 2005), as well as future performance and the relationship between strategy and performance (Harrison & Kelly, 2010). In this case, maintaining the investment position of a foreign operation provides option value. Thus, it is important to examine environmental uncertainty when making strategic decisions such as whether to exit a foreign market (O’Brien & Folta, 2009). Consequently, as the key constructs of real options theory,

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sunk costs and environmental uncertainty are both included as moderators in firms’ exit decision-making.

Resource Advantage Theory The second set of moderators influencing the performance exit relationship derives from the resource advantage theory. Similar to the resource-based view, resource advantage theory perceives firms as aggregators of valuable, rare, inimitable, and nonsubstitutable resources and capabilities (Griffith & Yalcinkaya, 2010). Instead of competition per se, the resource advantage theory highlights the translation from comparative advantage in resources into a position of competitive advantage in the marketplace (Hunt & Morgan, 1995). Therefore, all the allocation and exploration of resources and capabilities in a larger societal system should be directed to favorable competitive advantage, which in turn leads to superior performance. In this study, we argue that competitive resources may moderate the relationship between firms’ performance in a foreign market and the final exit decision. Two constructs derived from resource advantage theory are included as moderators: slack resources, which indicate the munificence of competitive resources; and their relatedness with other SBUs (Strategic Business Units), which represents the complementarily competitive resources.

Agency Theory In addition to the aforementioned two sets of moderators, another important moderator, managerial self-interest, is also at work during the decision-making process. In this model, we use agency theory to explain the rationale behind managers’ pursuit of managerial self-interests in making an exit decision. Agency theory holds that there are goal conflicts between managers and the organization, since managers are always self-interested (Eisenhardt, 1989). This reveals that managerial self-interest plays an important role in organizational thinking (Perrow, 1986), and outcome uncertainty offers a platform for managers’ self-interest seeking behavior (Eisenhardt, 1989). Based on this, our theoretical framework posits that managers tend to be more self-interested when making exit decisions, because the goal conflict and difference in risk preference between managers and firms become intensified and explicit in such a decision context (Amihud & Lev, 1981). In this

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case, the extent to which managers pursue their self-interests will influence their choice between an exit and nonexit decision. Therefore, in this study, managerial self-interest is included in the framework. In summary, based on the behavioral theory of the firm, real options theory, resource advantage theory, and agency theory, we propose that unsatisfactory performance is an important antecedent of firms’ exit decision, and that its impact is moderated by three sets of factors. Specifically, perceived environmental uncertainty and sunk costs are introduced based on the real options theory, while slack resources and relatedness with other SBUs are also included on the basis of resource advantage theory. Moreover, managerial self-interest is introduced as suggested by agency theory (see Fig. 1). These relationships are discussed in more detail in the next section.

RESEARCH PROPOSITIONS Our conceptual framework in Fig. 1 aims to explain the link between firms’ performance in a foreign market and the exit decision. Specifically, we propose that if the performance of a foreign operation is unsatisfactory, an exit decision is more likely to be made. In addition, the performance exit relationship is contingent upon three sets of moderators. The following sections discuss the research propositions underlying this framework in more detail. Resource Advantage Theory

Real OptionsTheory

Slack resources Relatedness with other SBUs

Environmental uncertainty Sunk costs

P4 & P5

P2 & P3 Firm’s Performance in a Foreign Market

Exit from a Foreign Market

P1 P6 Managerial self-interest Agency Theory

Fig. 1.

A Framework for Understanding Firms’ Foreign Exit Behavior.

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International Performance and Exit Behavior Many researchers postulate that poor or unsatisfactory performance is the most important predictor of the exit decision (Boddewyn, 1979; Duhaime & Grant, 1984; Sachdev, 1976; Shimizu, 2007). Performance is usually considered as feedback on firms’ previous business operations (Moliterno & Wiersema, 2007) and as an indicator of expected future performance (Duhaime & Grant, 1984). As such, unsatisfactory performance indicates that the prior strategy choice (including strategy formulation and implementation) of a foreign operation has failed to meet the local demand and/or that the foreign operation competes unfavorably against its counterparts in the target market. More importantly, unsatisfactory performance implies that future performance will also be unsatisfactory or even worse if no changes are made. Therefore, unsatisfactory performance is likely to trigger strategic changes (Day & Wensley, 1988). Further, because unsatisfactory performance also signals that the existing strategy has proven to be unsuccessful in the current market (Berry, 2013; Hoskisson & Turk, 1990), it is very likely that many managers make an exit decision unless they are certain about the success of alternative strategies in improving future performance in a short time. Some empirical research also suggests that unsatisfactory performance is positively related to the likelihood of foreign exit (e.g., Gimeno et al., 1997; Shimizu & Hitt, 2005). Thus, the following proposition is developed: Proposition 1. A firm’s performance in a foreign market has a negative impact on the firm’s decision to exit from the foreign market.

Moderators Based on the three theoretical bases aforementioned, three sets of moderators tend to influence the relationship between satisfaction with performance and exit decision. Environmental uncertainty refers to the extent to which future states of the environment cannot be precisely predicted (Tushman & Anderson, 1986). Environmental uncertainty usually prevents managers from precisely analyzing present causal links between past strategies and present performances, and predicting the possible cause effect relationships between certain strategies and their future performances (O’Brien & Folta, 2009). Therefore, when the performance of a foreign operation is unsatisfactory and the environment is very uncertain,

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managers tend not to make big strategic decisions such as to exit from a foreign market (Berry, 2010a). Instead, they prefer to wait for more information which allows them to better predict the relative chances of a business turnaround to that of a business failure (Bragger, Bragger, Hantula, & Kirnan, 1998), in the belief that the additional information will enable a better exit/nonexit decision to be made. Therefore, in the case of poor performance, the more uncertain the environment is, the more likely managers will choose to stay in the market. Empirical studies also suggest that the greater the environmental uncertainty of a foreign operation, the more likely firms will keep switching options open, and the less likely it is that an exit decision will be made (Berry, 2013; Bragger et al., 1998; Downey, Don, & Slocum, 1975). Proposition 2. The negative relationship between a firm’s performance in a foreign market and the firm’s exit decision becomes less negative as the environmental uncertainty increases. Sunk costs refer to costs that have been incurred and cannot be reversed (O’Brien & Folta, 2009). In international markets, sunk costs include costs of information about demand conditions and competitive structures overseas, establishing networks with distributors, and costs to break down entry barriers, and emotional attachment, among others (Chi & Liu, 2001; Day, 1997). The sunk cost effect means that sunk costs tend to influence managers’ decisions in such a way that they are more risk-seeking than they would be had no sunk costs been incurred (Zeelenberg & van Dijk, 1997). Specifically, when facing a foreign exit/nonexit decision, due to the large sunk costs, managers tend to choose to remain in the market. The reason is that if a firm were to reenter the same market in the future, a similar amount of sunken costs would be re-incurred. Therefore, when firms experience poor performance, the large sunk costs associated with foreign establishment create a high exit barrier that delays or prevents managers’ exit decisions (Harrigan, 1985; Porter, 1976). In this case, the larger the sunk costs are, the less likely it is that an exit decision will be made. Therefore, Proposition 3. The negative relationship between a firm’s performance in a foreign market and the firm’s exit decision becomes less negative as the sunk costs increase. Slack resources refer to potentially utilizable resources that can be diverted or redeployed to achieve organizational goals (George, 2005). They have a positive relationship with managers’ risk-taking when making

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decisions (Singh, 1986). Accordingly, the availability of slack resources encourages firms to be more risk-taking. Namely, they will continue to invest in unsatisfactory business ventures expecting an upturn (Shimizu, 2007). In addition, the presence of slack resources indicates that the competition for resources among all the business operations of international firms is not intensive (Cheng & Kesner, 1997). Firms can afford to, and are more willing, to continue to invest in the unsatisfactory foreign operations, because the slack resources will not create any value for firms without being put in the market. In this case, managers tend to protect the unsatisfactory operations from exiting from the foreign market when slack resources are available. Proposition 4. The negative relationship between a firm’s performance in a foreign market and the firm’s exit decision becomes less negative as the firm’s slack resources increase. Relatedness with other SBUs refers to the extent to which a certain SBU supports or complements other units’ activities (Davis, Robinson, Pearce, & Park, 1992). If a firm’s foreign operations is highly related with other SBUs of the international firm (regarding the marketing, production, distribution network, etc.), even in the presence of unsatisfactory performance, it will be less likely to exit from a foreign market considering the potential joint losses from other related SBUs (Bergh, 1995; Berry, 2010a). Empirical studies also indicate that if a foreign operation is highly related with other SBUs, it will be less likely to exit from the foreign market (Cheng & Kesner, 1997; Shaver & Flyer, 2000). Proposition 5. The negative relationship between a firm’s performance in a foreign market and the firm’s exit decision becomes less negative as the relatedness with other SBUs increases. Self-interest can be defined as the extent to which individuals devote their attention to the pursuit of personal benefits (Cropanzano, Goldman, & Folger, 2005). People usually pay insufficient attention to the conditions under which self-interested behavior occurs (Perrow, 1986). Managers are self-interested if their behavior is intended to achieve their own benefits instead of organizational benefits. When facing a decision on whether to exit an unsatisfactory foreign operation, the more self-interested managers are, the less likely they will choose to exit the foreign market. The main reason is that, in this decision context, the divergence between managerial self-interests and organizational interests becomes explicit and intensified, and priorities are usually given to managers’ own self-interests

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(Eisenhardt, 1989; Guth & MacMillan, 1986). To managers, exiting an unsatisfactory foreign operation may signal their own inability and personal failure, which will harm their personal benefits such as promotion, reputation, self-esteem, and/or self-justification (Staw, 1976). As a result, to protect their self-interests, managers are more likely to filter information about negative feedback (Duhaime & Schwenk, 1985), commit more resources to keep the foreign operation, and prevent the top management team from reaching a quick agreement on exit during the discussion (Staw & Ross, 1987), with the hope of an upturn. Thus, we postulate: Proposition 6. The negative relationship between a firm’s performance in a foreign market and the firm’s exit decision becomes less negative as managerial self-interests increase.

CONCLUSIONS AND IMPLICATIONS Firms’ foreign exit behavior is an increasingly important research topic and more attention should be paid to exploring the moderators of the performance exit relationship. The conceptual framework in this study uses different theories to enrich our understanding of firms’ exit behavior. Specifically, drawing from notions of the behavioral theory of the firm, real options theory, resource advantage theory, and agency theory, this study examines the most important trigger of exit behavior and the potential moderators during the course of exit decisions.

Theoretical Implications Several theoretical implications can be drawn from our conceptual framework. Firms’ exit behavior cannot be explained by a single theoretical basis, because the exit phenomenon per se is so pervasive and comprehensive in practice that it goes beyond disciplinary boundaries. Therefore, it is essential to link different theoretical perspectives together, because each theory offers a plausible, but only a partial, explanation of the whole phenomenon. Using the behavioral theory of the firm, we explain the link between unsatisfactory performance and exit decision. In addition, based on three different theories, we propose three different sets of moderators for the performance exit relationship. Specifically, drawing on the notions from the real options theory, resource advantage theory, and agency

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theory, we highlight the factors that are likely to influence a firm’s foreign exit decision in the presence of unsatisfactory performance. In this way, we capture a clearer picture of firms’ exit behavior, including the most important determinant/trigger, and the moderators which influence the relationship between the trigger and the final exit/nonexit decision, thereby providing a better understanding for researchers and managers.

Limitations and Further Research The conceptual framework developed in this study focuses on the three sets of moderators which influence the relationship between a firm’s performance in a foreign market and an exit/nonexit decision. It may be criticized for neglecting other possible moderators which may also be important. However, our intention is to emphasize the importance of some key moderators which could influence managers’ exit decisions, and not to exhaust all possible moderators. Therefore, other variables than those proposed in this study can be considered in future research. This framework tries to contribute to a better understanding of exit behavior. It does not aim to include exhaustive theoretical bases. Therefore, there might be other perspectives (e.g., viewpoints from prospect theory) that are not included in our framework and warrant future investigation. Additionally, our choice to treat unsatisfactory performance as the most important trigger of firms’ exit behavior is mainly based on normative research and early empirical studies, either on domestic or foreign exit behavior; but it is likely that nowadays some other triggers are as important as performance, because the worldwide competitive environments are constantly changing. Furthermore, it is also possible that the relative importance of potential triggers will vary in different contexts/cases. In addition, for future research, empirical study is urgently needed because the majority of previous studies on foreign exit behavior have been normative, while statistical analysis based on empirical cases (especially a large scale of cases) is scarce. Particularly, the empirical research on foreign exit behavior has largely fallen behind the development of normative research. Finally, future research may be interested in separately considering some cases of exit decisions as exogenously triggered issues (e.g., triggered by an attractive purchase offer). Although there may be some cases in which exogenous factors initiate the consideration of a firm’s exit, we believe that some endogenous determinants must simultaneously lie behind the exit

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behavior. However, it is still meaningful to consider these special cases for a better understanding of the entirety of exit decisions. Given the great relevance and importance of exit behavior in mutually informing firms’ entry and expansion behavior in international marketing practices, it is regretful that research on exit behavior has been largely ignored. Therefore, we hope our study contributes to attempt to close this void in the literature and stimulate others to pursue this research stream.

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INSTITUTIONAL FORCES AND FIRMS’ POSITIONING IN CHINA AND BRAZIL Ulf Elg and Pervez Ghauri ABSTRACT Lately, a number of authors have applied institutional theory when discussing global marketing and emerging market specificities. It has also been argued that the institutional forces influencing a firm will differ between markets and that firms can approach them in different ways. In this paper we conduct a qualitative analysis, based upon NVIVO, of three Swedish firms as they position themselves on the Chinese and Brazilian markets. We compare the institutional context as perceived by the firms in China and Brazil and we also analyse to what extent they have a proactive or a reactive approach when managing their institutional environment, and to what extent their actions are governed by local practices and corporate practices. As a result we present a country institutional profile including a set of issue-specific factors that concern firms’ positioning on emerging markets. Keywords: Institutional theory; MNEs; emerging markets; China; Brazil; country institutional profile

Entrepreneurship in International Marketing Advances in International Marketing, Volume 25, 239 266 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1108/S1474-797920140000025011

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INTRODUCTION It is often claimed that MNEs need to become competitive and increase their market shares in emerging markets in order to survive (Cavusgil, Ghauri, & Akcal, 2013). At the same time, cultural differences and contextual factors are often stressed as major challenges for foreign firms (Bartlett & Ghoshal, 2000; Elg, Ghauri, & Tarnovskaya, 2008; Zaheer, 1995). While this is widely recognized in the literature, we do not know much about how firms actually perceive different challenges when they develop a market position in emerging markets. What challenges are the most critical ones from a firm perspective? Is there heterogeneity in institutional forces in major emerging markets? How are they approached, and how do firms balance local practices with corporate strategies and values? In this paper we investigate the questions above using an institutional perspective. Lately, a number of authors have applied institutional theory when discussing global marketing and emerging market specificities (Andersen, Christensen, & Damgaard, 2009; Dacin, Goodstein, & Scott, 2002; Tan & Wang, 2011). The approach is especially relevant for analysing the local environment in which the firm is embedded and to identify the major elements and pressures that firms have to relate to in order to build a stable and legitimate market position (Busenitz, Gomez, & Spencer, 2000; Deligonul, Elg, Cavusgil, & Ghauri, 2013; Peng, 2012). Kostova (1999) introduced the idea that a certain market can be described in terms of its country institutional profile (CIP). The main idea was that each country has a certain institutional profile that will influence firms. Furthermore, this profile is argued to be issue-specific rather than general. Issue-specific CIPs have previously been developed with regard to, for example entrepreneurship (Busenitz et al., 2000) and quality management (Kostova & Roth, 2002). In this paper we will investigate the CIP that firms have to deal with when developing a market position in emerging markets. This includes factors such as building the brand, developing relationships with major partners and external stakeholders and adapting products and market strategies. The idea of CIP also implies that different countries will have different profiles and specificities with regard to the prevailing institutional factors. In other words, firms will have to consider the local institutional specificities for each country. Nevertheless, emerging markets are often discussed as if it was one, consistent, phenomenon and as if firms can approach all these markets using a similar strategy and similar market activities. For example, the BRIC-markets are often discussed as if they were one entity,

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while they are situated in different parts of the world and based upon different cultures, values, economic and political structures. Recent research shows that MNEs have to consider many specific challenges related to social, political and business actors, when building a position on a certain emerging market (Hadjikhani, Elg, & Ghauri, 2012). In this study, we have investigated and compared how local managers perceive the institutional context in Brazil versus China. We argue that the ancient Chinese culture may stress institutional forces and values that are quite different from Brazil, with its colonial, Portuguese inheritance. Another aspect is how firms approach the different institutional forces. In theory, organizations are often assumed to adapt to and comply with different institutional arrangements in order to achieve legitimacy (DiMaggio & Powell, 1983; Ranson, Hinings, & Greenwood, 1980). However, many authors studying international firms have argued that they have strategic choices and may be able to influence institutional arrangements in foreign markets (Boddewyn & Brewer, 1994; Child & Tsai, 2005). Furthermore, a main theme in the literature is to what extent corporate practices will be adopted by subsidiaries in culturally different markets (Kostova & Roth, 2002). Both dimensions are especially interesting to investigate for the emerging market. Since these markets are in a rapid development phase, it is likely that firms may be more able to be proactive there when compared to more stable Western markets. Furthermore, due to cultural differences one may assume that local practices will diverge more from corporate culture and practices than is the case for different Western markets. The main purpose of this paper is thus to increase our understanding of how the institutional environment is perceived by MNEs as they build a market position in emerging markets. Our main research questions are: What are the most significant institutional forces from the perspective of a foreign MNE when building a market position in an emerging market? To what extent do firms comply with and try to influence institutional constraints? To what extent do they consider local versus corporate practices when managing the institutional environment? Are there differences between emerging markets with regard to the issues above? We investigate managers in the local markets and how they perceive their external environment. We have studied the activities of three Swedish

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MNEs in China and Brazil. During interviews we have discussed different aspects related to their market positioning, how they interact with different external stakeholders, the factors that influence customer behaviour and attitudes, why they have taken certain strategic decisions and how they try to deal with different market challenges. Based upon this material we will develop a preliminary, issue-specific, CIP. We will also compare the two markets and discuss the role of corporate versus local practices and to what extent managers stress proactive versus reactive approaches.

THEORETICAL BACKGROUND According to institutional theory a firm’s actions not only are determined by strategic and economic considerations, but are also guided by cultural rules and expectations that have to be recognized in order to achieve legitimacy (Meyer & Rowan, 1977). These rules and expectations are further suggested to be institutionalized by coercive, mimetic and normative forces leading to isomorphism a similar behaviour among organizations (DiMaggio & Powell, 1983; Yeniyurt, Townsend, Cavusgil, & Ghauri, 2009). Groups of organizations that belong to the same environment, such as an industry, and are shaped by certain institutional forces that govern their actions, are described as organizational fields (DiMaggio & Powell, 1983; Meyer & Scott, 1983). Ranson et al. (1980) further discuss how institutions shape organizational behaviour through cognitive maps and interpretive schema. This neo-institutional approach was further developed and modified by, for example, Powell and DiMaggio (1991) and Greenwood and Hinings (1996). The relevance of putting such an emphasis on stability and compliance to institutional norms and expectations for research on MNEs has, however, been questioned by a number of studies (Kostova, Roth, & Dacin, 2008). For this study, it should be especially stressed that MNEs act on a number of markets that are more or less different in terms of their institutional environment. It is thus not possible to regard MNEs as belonging to one particular organizational field. The question rather becomes one of whether the firm will be able to conform and cope with a multiplicity of local conditions (Peng, 2012; Roth & Kostova, 2003; Tan & Wang, 2011). Furthermore, an MNE is governed by institutionalized, internal organizational norms and rules and a more or less homogeneous organizational culture (Hill, 2006; Kostova & Zaheer, 1999). The nature and strategies of

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the individual organization can thus also be expected to play a role (Hirsch & Lounsbury, 1997) and the firm has to manage tensions between national institutional structures and corporate ones (Boddewyn & Doh, 2011). Several authors have also investigated how MNEs use their power and political position in order to influence their institutional environments and change them in favour of corporate interests (Blumentritt & Rehbein, 2008; Child & Tsai, 2005; Djelic, Nooteboom, & Whitley, 2005). Kostova (1999) stressed the importance of the transfer of practices between markets for an MNE and the notion that the institutional environment will differ between markets. Accordingly, she suggested the use of CIPs in order to map and compare national markets. Her original framework further incorporated a social, organizational and relational level in order to understand the transfer of practices. It should also be stressed that a certain CIP is not generic, but rather issue-specific and it may thus vary depending on the object of study (Kostova & Roth, 2002). This approach has been followed up by other authors. Busenitz et al. (2000) discuss institutional profiles for entrepreneurship, Parboteeah, Hoegl, and Cullen (2008) discuss gender roles from an institutional perspective while Andersen et al. (2009) and Deligonul et al. (2013) discuss buyer seller relationships. The CIP construct is based upon the three institutional pillars introduced by Scott (2013) and the suggestion that the social environment of a certain country can be described by a regulative, a normative and a cognitive dimension that have different influences on the implementation and internalization of practice in a subsidiary (Kostova & Roth, 2002). Our study uses these three dimensions when investigating the institutional environment in China and Brazil and how it is approached by our case companies. In this paper we will regard the specific components of the CIP of market positioning as an empirical question. However, the original view of the three pillars presented by Scott (2013) and the issue-specific conceptualization developed by other authors provide a theoretical basis. According to Scott, the regulative pillar is based on the order of formalized rules and regulation, with coercion based upon laws and sanctions as the control mechanism. However, the regulative dimension also considers the enforcement of laws and legal contracts and whether a government may intervene by subsidizing or otherwise manipulating a certain economic area, or whether actors can influence or avoid regulations through corruption or other means (Oh & Oetzel, 2011; Roth & Kostova, 2003; Yang & Rivers, 2009). The normative pillar encompasses values and norms that specify what is desirable and how things should be done. It is thus based upon the binding expectations within a society, what is considered to be legitimate behaviour,

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appropriate and in accordance with moral standards (Scott, 2013). Furthermore, actors will have different roles that are linked to different types of expected behaviour and aspired goals. This is exemplified by the different positions that exist in organizations and the different types of roles and expectations associated with them. Another relevant example is the different roles and tasks existing within an industry, such as long-term expectations regarding behaviour, support, quality and dependability that have been developed in inter-firm relationships (Andersen et al., 2009). Such standards can be shaped by firm interactions or developed by, for example trade associations. Scott (2013) calls the third pillar cultural-cognitive because it emphasizes the taken-for-granted views and understandings shared by a certain population, and the importance of shared cultural frameworks. The culturalcognitive pillar is reinforced by mimetic behaviour and different types of symbols that have a shared meaning, and broadly considers how reality is constructed by actors in a society. One example is the phenomenon liability of foreignness (Zaheer, 1995) and the shared belief that domestic firms may be more reliable. On the other hand, some groups in emerging markets may perceive foreign brands as more fashionable and as a symbol of modern life. Earlier studies have also identified the educational level and the general knowledge in the society as an important part of this pillar. Parboteeah et al. (2008) discuss how an educational system that embraces modern world values may support gender equality, while Busenitz et al. (2000) discuss how knowledge about the business world and how to start a new business may influence beliefs regarding entrepreneurship. A central theme in the literature is thus whether these institutional pillars will govern MNEs as they establish operations in new markets, or if the institutional environment can be manipulated and changed. To a large extent, an institutional perspective thus stresses the need for firms to adapt to and comply with established norms and practices in a society in order to gain legitimacy (Boddewyn & Doh, 2011; North, 1990; Ranson et al., 1980). However, to an increasing degree, authors also discuss the change of institutions. For example, Greenwood and Hinings (1996) discussed the existence of convergence as well as change. They suggest that in the early development of an organizational field, technical performance requirements are more important while institutional pressures become more salient in later stages. In a way emerging markets can be regarded to be in an early stage of business developments, and therefore firms may be more likely to influence institutional factors. At the same time several emerging markets, such as China, are based on ancient cultural values and traditions.

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Other authors have continued to develop the view that MNEs can indeed influence institutional structures. For example, it has been argued that firms may proactively influence local institutional conditions using their power base and the unique knowledge and resources that they may bring to the table (Bondy, Moon, & Matten, 2012; Child & Tsai, 2005). Djelic et al. (2005) present a similar view of organizations as active constructors of their institutional environments. Institutional aspects can be discussed at the state level and involving political relationships (Boddewyn & Brewer, 1994). Firms can use different ways of interacting with political actors, based on different degrees of compliance versus trying to influence and change conditions. For example, Boddewyn and Doh (2011) discuss different non-market strategies that can be used to manage local institutional challenges, involving collaboration with government actors and NGOs. Kostova et al. (2008) also discuss how multinationals can influence institutional conditions and become regarded as legitimate through negotiations and interactions with significant, prominent local actors rather than by confirming to the institutional environment. Dacin, Oliver, and Roy (2007) further discuss how firms can achieve legitimacy by using strategic alliances as a means of confirming to local values as well as to influence them, while Lucea (2010) discusses how relationships to well-established non-market actors may reduce the demand for local compliance. Kostova (1999) define organizational practices as ‘… particular ways of conducting organizational functions that have evolved over time under the influence of an organization’s history, people, interests, and actions and that have become institutionalized in the organization’ (p. 309). They concern normative, cognitive and regulative elements and should signify the whole firm and thus need to be transferred to new markets and institutionalized within the local subsidiary. On the other hand, the CIP may to a varying degree be in line with the internal organizational practice of the corporation. There are local pressures on the different host markets, which will influence a firm’s behaviour within that particular setting (Kostova et al., 2008). According to Yang and Rivers (2009) an MNE is more likely to find it necessary to consider local practices in a country with greater institutional differences. It can be critical for MNEs to be able to transfer certain properties and practices of the firm to a new market (Kostova, 1999). Consistency with regard to market strategy, use of internal capabilities, brand image, etc. is of strategic importance. At the same time, local managers may experience that they are forced to follow practices that are not effective on that particular market and that they have too little freedom to adapt to local conditions.

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Theoretically, our study will thus be based upon the three institutional pillars introduced by Scott (2013). We will further investigate what the critical components are for each of these pillars. Furthermore, we will consider to what extent firms’ strive to proactively change institutional conditions versus complying with the institutional forces in the market. Finally, we will consider to what extent the firms base their actions and perceptions on local practices and to what extent they refer to corporate practices.

RESEARCH METHOD This study is a part of a larger research project where we investigate the positioning strategies, networking and market activities of Swedish MNEs in the four BRIC-markets (Brazil, Russia, India and China). We study their interactions with business partners, social and political actors as well as their other marketing activities they perform to strengthen the firms’ brands and competitive positions. Considering the exploratory nature of our study, we use an inductive qualitative approach as suggested by several scholars for this type of studies (Ghauri & Grønhaug, 2010; Yin, 2003). We decided to use the case study approach with in-depth interviews with the managers who deal with these challenges (Eisenhardt & Graebner, 2007). The firms have been studied at the headquarter level as well as through field studies in the four markets where we have interviewed managers on different levels as well as gathered various types of secondary material. In this paper we thus apply an institutional perspective on the Brazilian and Chinese markets. The empirical analysis is based upon the interviews that we have done with managers in China and Brazil. The sample includes respondents from the three Swedish firms as well as with their business partners. All in all 48 respondents were interviewed in the local markets. In addition, 14 interviews with managers at the headquarters in Sweden helped us to get a deeper understanding of the corporate values and practices that we were aiming to trace in the local markets in China and Brazil. The study is also based upon substantial secondary data such as strategic documents, brand manuals and other types of corporate material that is distributed to local subsidiaries in order to guide and support their activities. NVIVO10 has been used for coding and analyses of the empirical material, in order to make our qualitative analysis more transparent and systematic (Sinkovics, Penz, & Ghauri, 2008). All interviews were first coded in order to identify statements referring to one of the three

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institutional pillars. As a second step, when possible, all these quotes were coded based upon whether they expressed a proactive or reactive view and whether respondents explained and justified their opinions based upon corporate or local practices. Statements referring to laws, rules and regulations, government interference through different types of support or obstacles were coded as regulative. A certain statement was coded as normative when it discussed norms, rules and expectations that governed the firm’s market relationships, as well as issues related to quality and dependability in different business relationships and what different stakeholders expected from the firm’s general behaviour. When respondents stressed aspects related to general perceptions and assumptions in the society, concerning, for example national identity, values and norms related to a certain brand, knowledge about products or technology, the views and opinions of certain groups in the society, the statement was coded as cognitive (Ghauri, 2004; Sinkovics, Penz, & Ghauri, 2005). In addition, statements were coded as proactive when the respondents expressed an intention to question and influence an institutional force, while statements regarding how to adapt to certain institutional forces and statements treating institutional factors as a fact were coded as reactive. The local/corporate dimension focused upon how respondents accounted for their different views and for how the firm approached a certain environmental force. When respondents mainly referred to local factors when explaining their perceptions or the actions taken by the company it was regarded as based on local practices. On the other hand, when someone justified beliefs and actions using corporate rules, brand values or referring to directives from headquarter management we considered it to be based on corporate practices. Below, we will first discuss the relative frequencies of statements referring to the three different institutional pillars, and also to what degrees respondents linked these statements to proactive/reactive approaches and to local versus corporate practices. As a next step, we will then make comparisons between Brazil and China with regard to these matters.

THE CASE COMPANIES While not being among the biggest in the world, all the studied firms can be considered to be market leaders and technological pioneers within their

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business areas. Axis Communications has its head office in Lund and offers network video solutions for professional installations. It was founded in 1984 and is today the global market leader in network video cameras. It has been driving the ongoing shift from analogue to digital video surveillance and it was the first company in the world to launch a network camera in 1996. The products and solutions are especially made to be suitable for security surveillance and remote monitoring. They are based on innovative, open technology platforms largely developed within the firm. Axis is present in more than 30 countries, and operates through collaborations with partners in about 180 countries. The firm has been very successful in driving the demand for network cameras and the firms’ sales have increased by an average of 26% annually during the last five years. Tetra Pak was founded in 1951 by Ruben Rausing. He developed the first aseptic packaging technology that could retain the colour, texture, natural taste and nutritional value of liquid food for up to 12 months, without the need for preservatives or refrigeration. Today, the company is part of the Tetra Laval Group, headquartered in Switzerland. The company employs more than 22,000 people worldwide, operating in more than 170 countries with 39 marketing companies and 79 sales offices. Dairy products are the central category to Tetra Pak’s business and through their expertise in both the packaging and processing of milk the company can offer its customers a complete solution from the cow to the filled pack. Apart from the dairy category, juices, nectars, spirits and soft drinks are also important categories. Moreover, Tetra Pak offers chilled packages, for example pasteurized milk or yoghurts and introduced the first carton-based food package in which food, which is traditionally packed in cans, glass or pouches, stays fresh for up to 24 months. Tetra Pak has defined the category of aseptic packaging and in many countries Tetra Pak is a synonym for carton food packages. Thule Group was founded in 1942 but started to focus on products for sports and utility transportation in the early sixties. It is the world leader within the area of sports and utility transportation. The firm develops, manufactures and markets load carriers’ accessories, tow bar systems, trailers, etc., for consumers as well as business customers. Lately it has also broadened the scope and focused on, for example, bags and laptop cases. The firm has approximately 3,400 employees and more than 50 production and sales locations worldwide. Net sales for 2012 amounted to 5.8 Billion SEK (0.6 Billion euro) in 2012. The firm focuses mostly on Thule as the premium brand but also controls brands such as Case logic and Ko¨nig.

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EMPIRICAL ANALYSIS First it should be noticed that the results concern the respondents perceptions, to what extent they refer to different institutional aspects, how they describe and explain their views when they discuss different market characteristics. The results do not measure the actual impact that, for example, the different institutional pillars may have on organizational behaviour or the performance of the firms. However, it can be assumed that the respondents’ experiences expressed in the interviews will reflect upon these issues as well. Furthermore, their views and assumptions are likely to guide their behaviour and thus activities and strategies developed by their firms on the two markets. We can also mention that the differences between the three firms with regard to their emphasis on the three institutional pillars were very marginal. Therefore, they will not be compared any further below.

The General Impact of the Institutional Forces Firstly, we will discuss the general trends that were found based upon the complete study of both the markets. Table 1 offers a summary. The first row shows the total distribution of statements coded as cognitive, normative or regulative. The second and third row shows the distribution between proactive and reactive approaches when referring to the three institutional pillars. For example, the table shows that of the statements referring to the cognitive pillars that could be coded based upon the proactive/reactive dimension, 77% were proactive while 23% were considered to be reactive. The fourth and fifth rows illustrate the distribution between statements referring to corporate versus local practices for the three institutional pillars. Table 1.

Total Sample: Quotes Referring to the Institutional Pillars.

Total Proactive Reactive Corporate Local Note: Relative frequencies 1,096 for corporate/local.

Cognitive

Normative

Regulative

41% 77% 23% 29% 71%

46% 59% 41% 31% 69%

12% 45% 55% 9% 91%

1,200 references coded for institution; 812 for proactive/reactive;

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Overall, it is clear that respondents mostly refer to either normative or cognitive aspects when discussing the market, different constraints and expectations, and how they perceive the views of customers and business partners. Regulative issues are brought up much less frequently. This may, however, not only be due to the fact that they are considered less important or influential. Another interpretation is that they are viewed as a matter of fact that cannot be influenced very much. Therefore respondents do not find it so relevant to discuss strategies for how to approach them or to elaborate upon how they influence the market environment. This view is also supported by the fact that regulative institutional aspects are more often related to reactive statements and attitudes than to proactive ones. One manager can exemplify the frustration often expressed in Brazil: Brazil today has the most complex tax system, I believe worldwide. In the World Bank, there is 8500 hours spent on capturing the taxes in Brazil. In the rest of Latin America, it is 500 hours. We have more than 9 times more than the average of Latin America. There is a rank of the World Bank on the ‘easy to do business’ base. European countries are in 4th, 5th or 6th place, Brazil is 127 out of 182. You combine all these things, the complexity, the red tapes, the inexistent infrastructure for import and so on, having to have a warehouse is much more complex than having to focus 100% of the time on creating demand, generating deals and closing deals.

Another example is that managers often argued that local business and domestic interests were favoured by political actors. This, also, appears to be something that is regarded as something that foreign firms have to live with and adapt to strategically. Otherwise, respondents more often express a proactive view than a reactive one when discussing institutional forces. This is especially noticeable for cognitive aspects. One central theme when discussing how to influence cognitive forces was how these firms provided expertise to solve general issues related to their industry. For example: Sometimes [trade associations] alert us about important things that are in the market and … they call us and say, come on we have this problem in the market you need to help us. We work a lot with them. For example in the past we had some quality issues with milk, with some customers, some players, and they asked us for help on this, how we could help to control the quality of the milk to improve the UHT milk in the market. Then we built with them some tools, they implement the tools but we have the technology and expertise to help them to structure these tools. This is a real example from some years ago and it is working very well. At the event last week they shared how positive this tool was and how it helped the market.

This will most likely also raise the firm’s general status and credibility in the society as a legitimate actor. A number of other examples concerned

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increasing the technological competencies and status and assisting in developing infrastructure as well as distribution of essential daily products. Furthermore, respondents stressed that they often tried to push the Swedish and Scandinavian origin because of the positive associations. Another main issue partly related to this was the firms’ strive to educate partners and stakeholders about their main mission and the technological and social values that their solutions could offer. This would then also lead to a proactive support from business partners as well as other actors. At the beginning we had a lot of meetings with the government and key opinion leaders in the industry and we found this kind of need. They said that we provide a good example because we provide a lot of training for our customers like in the Sino-Swedish Centre and we bring teachers from other countries to China and we even sent those students abroad. Every year it will be 20 or 30 people from top management of different companies who we sent abroad. And they said: ‘can you share the experience with us and initiate things?’ At the beginning we said that we cannot deal with this huge market. But then they sent the county masters, those officials who are responsible for the agriculture in the country and they joined the training. They found it very useful and brought the material back to show to other government officials and we gave them a lot of copies to spread in their villages and cities. And now they are organizing huge meeting with the organization of the dairy industry, for example more than 2000 people gathering in Beijing and exchanging knowledge in these workshops. It is good for the China market because people can get knowledge in a systematic way and at the same time they get familiar with [our] brand. And of course when it comes to the point where they think about buying new machines [our product] is likely to be their top choice. It is a win-win situation for government and companies.

This quote also stresses that government actors are involved not only in regulative matters but also in the cognitive and normative dimensions. Our data thus suggests that respondents regard cognitive institutional components to be the ones most likely to be influenced proactively, but a majority of the statements regarding the normative pillar were also proactive. One major theme concerned how to demonstrate the advantages of products to partners in the value chain and to the customers, and to show the quality advantages that could be expected. This was especially important when considering that all the three firms offer products in the high price range. Agreeing upon how things should be done in the value chain, who is to take on different responsibilities was a central theme. Overall, the three firms have a similar approach in that they have clear strategies for the design of all the steps in the value chain. For example, as expressed by one manager, it was considered vital to be able to explain the product values in the stores and to convince partners of these values as well, and drive them to communicate product qualities to final

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customers. This could sometimes be a challenge and call for several types of incentives: We are trying to look into this for next year, to do some kind of exhibition kit. The problem is, the retailers might want to have it, but when it comes they also need to work with it and that is normally not the case. They want the tools but they are not always prepared to invest the human resource time which would be necessary. This is why we have the partner program. We are giving them a lot of things but we can also pressure them a bit to actually use it. It is a mix of carrot and whip. We give them attention on the internet, we give them exhibition, campaigns, tools and on the other hand, they actually have to do it and invest. But it is not always the reality.

However, local marketing channels also have specificities and local norms were considered essential to follow. Several respondents, regardless of market and firm, stressed that a foreign MNE will not survive without the will to listen to and acknowledge domestic norms and practices. Many respondents had previously worked for other firms whom they considered to be less flexible in this sense. As one manager put it when discussing channel design: In China we have a lot of special things. The national guys are all over the country but the regional only sell in specific regions. We have 3 national distributors and 4 regional, for each region. When you have too many distributors in the same region in China it will cause a lot of conflict and competition. We want to try and have some kind of rules to avoid this. Competition will bring the pricing down and the margin will be lower.

All in all, respondents thus appear to think that they are quite likely to be able to influence cognitive and also normative institutional forces, while their firms may have to comply with regulative forces to a large extent. When analysing the respondents’ propensity to refer to local versus corporate practices we find that respondents are far more inclined to justify their views and explain their actions by referring to local practices and conditions than to corporate practices. This pattern is clear regardless of the institutional dimension brought up. The respondents’ view often implied that while corporate practices should indeed be respected, the particular conditions on their specific markets required special strategic measures. For example: … In some local regions they have local standards and they release a local standard and require all manufacturers to meet this. But we don’t know this before, only when it was released. This standard is used in a huge city, huge market and now they just have a new standard. We spent a lot of time with a local partner to meet this standard. I believe that there will be some new coming out because China’s export is not good and they want to protect their local manufacturers. So I believe there will be more, new standards coming out. This is a risk for us. This is why we started setting up an R&D

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centre here. We just got the space, next to our office and we hired a local R&D guy here.

Again, this does not necessarily mean that corporate practices are ignored, but rather that our respondents in general prefer to present accounts supporting their views by referring to local factors and values. It also implies that while corporate values and perspectives are likely to be recognized and respected by local employees, they do not necessarily have a great impact on the actors mind set and their way of interpreting challenges and events within the local environment. However, and as implied above, the respondents often argued that MNEs that put too little respect in the local norms and values will face problems with credibility and legitimacy. As argued by one respondent, corporate codes of conduct may apply when there are no local laws or informal norms to consider. Local aspects are also brought to the fore when discussing how to drive the value chain, including environmental aspects at the end of the chain and the role of government. One Brazilian respondent said: Our strategy for the carton collection is to increase the UBC value to support the collectors and expand the collection. And we also try to coordinate the recyclers with the government by saying to the government that those companies help to decrease the amount that goes to the land field so they should get some benefits for it. They should not only get money from the paper mill but they should get some extra money from the government because they contribute to the whole environment and society. We also will cooperate with collectors to run some campaign and make consumers aware of it. In this case the consumer in the house could already separate the waste and contribute.

The emphasis on local practices is, however, very strong throughout all of the material. It thus appears that corporate practices may very well be more marginal in the local everyday context than HQ managers often assume. It is, for example, remarkable that while corporate brand values were regarded as a central internal cognitive pillar by general managers, they were brought up much less in our interviews with local managers.

Differences and Similarities between the Chinese and the Brazilian Markets Our data suggests that there may indeed be differences between markets with regard to the impact of the different institutional pillars and how they are approached by local company actors. The figures are presented in more detail in the Appendix. When comparing the patterns for China and Brazil we found that there are no noticeable differences with regard to how the

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regulative pillar is perceived. It is emphasized on both markets to a much lesser degree that the other two. However, while the normative dimension was stressed considerably more in China, the respondents in Brazil put more emphasis on cognitive forces. One theme was that the firms wanted to influence the general perceptions and knowledge about the companies, and their reputation, through mapping and approaching different stakeholders and opinion leaders. For example, one respondent described how the firm prepared for different scenarios and proactively gathered information: We just prepare the statements that we should deliver for each one of the stakeholders. So I have for each one of the stakeholders the information who I should talk to if it happened. For example the government and if I talk to the government, whom in the government I should talk to and what kind of message should I give to them. We have all these statements prepared and if for instance there is something related to a piece of equipment, I should tell them about our reputation and that we have been producing this piece of equipment forever and we are in more than 170 countries.

As illustrated above, our analysis also suggests that Brazilian managers approach institutional forces with a more proactive attitude and belief that they can influence the institutional context. At the same time, it should be noted that respondents from both countries mainly stress proactive aspects in relation to cognitive institutional aspects. However, the trend is considerably stronger for Brazil. The respondents from there also emphasize a proactive view when discussing normative institutional forces while this is not the case for Chinese actors. On the one hand, the stronger emphasis on normative forces in China may be slightly surprising when considering the ancient Chinese cultural values that exist. At the same time, practices such as Guanxi often stressed as critical for doing business (Quer, Claver, & Rienda, 2010) to a large extent emphasize normative expectations regarding how an actor is supposed to behave and what will be expected, and that a position is built slowly. Here, respondents often implied that foreign MNEs are impatient and do not respect the established norms enough: I think foreign companies … should be patient in the Chinese market because they want to step into the market, take 3 years, have a lot of growth at once and I don’t think this is good. I do think that you can get progress step by step so that you can be stable and strong in the base. If the plan is short term I don’t think it is good. Many foreign companies are not patient enough. You have to build the brand and reputation and relationships, that is the way.

On both markets respondents put a much stronger emphasis on local practices than corporate ones when discussing institutional forces, explaining

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their activities and accounting for the logic behind this. The main difference is that Chinese respondents put an even stronger emphasis on local practices than the Brazilians. When discussing normative institutional aspects involving, for example, division of tasks in the supply chain and expectations that the firms have upon their business partners, Brazilian respondents emphasize corporate practices in almost 40% of the cases. Here it was more common to refer to business models and brands when discussing how to approach normative forces. As put by one respondent: This is the most important point in our business model because we respect this relationship all the time. We never go directly to the end-user. And when they understand that and in the moment they understood this in the past, they open their house to us to support them and this is the most important aspect in our business relationship. Bosch, Pelco or Sony, they are not so tier 2 oriented. Sometimes they will sell directly. So the system integrators don’t understand their business model very well, but in our case this is very, very clear. For me, in terms of business relationship, this is the most important point. In good times and bad times we are always together.

Overall, this study suggests that normative institutional forces are relatively more dominant in China whereas the cognitive dimension has a strong impact on local managers in Brazil. The Brazilian managers also have a very proactive attitude when discussing the different cognitive and normative forces and put a more explicit emphasis on corporate practices than is the case for China. Here, respondents to a larger extent stress local practices and also put more emphasis on reactive responses to institutional forces.

DISCUSSION Overall, the study supports the relevance in applying institutional theory and the regulative, cognitive and normative dimensions in order to understand firms’ behaviour on emerging markets. Our analysis has also led to the identification of a set of issue-specific components for each dimension that appear to be central when firms positioning themselves and try to manage market forces on emerging markets. Some of these have been illustrated by the empirical discussion above. However, there is not enough space to discuss all of them in detail empirically. Below, we present the significant components that were identified as relevant on both markets for each institutional dimension. It should be stressed once more that while the institutional dimensions and their different components were found to be

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generalizable, the firms’ way of approaching them differed between the markets. That will be further discussed in the final section.

The Regulative Dimension While the firms in our study stressed this dimension less than the other two, it was still apparent that formal regulations as well as government’s relation to the business world are of great importance. One matter often stressed was the complexity of laws, regulations and taxes. This includes, for example, the number of layers and levels that can influence regulatory forces. Especially in China, the complexity here and the opportunities for local political actors to add different restrictions was considered a main issue for market activities. In Brazil, the general complexity of the legal system and the tax structures was also stressed. In addition, the nature of government’s involvement in the business world was highlighted throughout the empirical material. One example was the propensity of political actors to favour and support certain businesses. In most cases, respondents claimed that local business was favoured through subsidies or by how rules and regulations were actually enforced. Another example is how government deals with applications and permission for doing different market-related activities. Respondents in China often stressed that this could be very difficult if you do not have the proper government relationships or if the firm is not at least partly run by someone who is close to the government. Another aspect was the existence of shared interests in the society with regard to preserving versus influencing regulative structures. In Brazil, actors more often stressed that they were able to unite with other organizations or get the support from trade associations in order to try to influence regulations and political decision makers. In China, respondents appeared to find this to be more difficult. Instead, the importance of respecting existing rules and regulation and the risk in questioning established regulative structures was stressed.

The Normative Dimension This thus concerns values and norms that specify what is desirable and how things should be done. Discussions about these aspects often dealt with business partners and what can and should be expected from different

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market relationships. One overall factor often brought up was the existence of an established distribution network based on shared norms and routines. Quite often the studied MNEs could not rely on such existing normative structures. Instead they had to deal with the challenge of identifying the relevant business partners, establishing relationships to them and driving their behaviour in a direction that corresponded with the desired norms and routines for executing different tasks in the channel. However, regardless of existing network structures, the business world will be based on certain views upon how to do business. As illustrated by the empirical material, they may be more or less based upon a long- or a shortterm perspective on business relationships, the need to develop personal ties, keep time margin and quality standards, practices concerning to what extent relationships should be based on honesty and to what degree it is acceptable to behave opportunistically. Respondents in both markets stressed that many Western MNEs do not respect local norms regarding how to do business and that this can create problems. A third component concerns the different beliefs and views about what the market needs, wants and expects from firms. One reoccurring theme in the interviews was the need to explain to customers the advantages of reliable, high-quality products. This may concern final consumers but also partners in the value chain. One obstacle to market success may very well be that it can be hard to convince business partners that the final customers appreciate the values offered by the MNEs products. Several interviews with partners stressed this aspect and that it would be advisable for our focal companies to develop low-price/low-quality alternatives because this would be more appreciated by the market. To some extent, local managers in the firms also shared this view and questioned corporate strategy and the values that their brands were built upon. Finding a bridge between corporate strategy and local beliefs regarding this aspect still appears to be a major challenge.

The Cultural-Cognitive Dimension This dimension includes taken-for-granted views and understandings that are socially constructed within a population, and emphasizes how shared cultural frameworks influence beliefs and behaviour. As discussed earlier, the educational level and the knowledge about a certain phenomenon should be considered here (Busenitz et al., 2000; Parboteeah et al., 2008). Concerning the issue of how to develop a market position on an

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emerging market the knowledge and understanding of the technological advantages included in the MNE’s marketing offer appeared as a central aspect. Respondents from both markets and all companies stressed the importance of educating the market about this, and that the initial level of understanding was a problem. Earlier we have described how the firms arranged workshops for partners, educated farmers and government officials and developed incentives and support for retailers. It is likely that this challenge is much more emphasized on emerging markets than when an MNE positions the brand and the products in Western markets. On a more general term, prevailing views upon the role and importance of local business versus the advantages and threats represented by foreign MNEs was discussed by a large number of respondents. Arguments revealed scepticism against Western MNEs and stressed their lack of respect for local values and rules. At the same time the value of supporting local business actors was often stressed. This was brought to the fore more in China than in Brazil, however. In the latter context, the country of origin and the values and beliefs related to that country was brought to the fore. For examples, managers often liked to stress the Swedish origins of the firms when discussing with partners, customers and even government. At the same time, America was often regarded as having the image as the most desirable country to resemble and refer to. Therefore it was, for example, a major strength if a firm could show that the products had been established in America, supported by American retailers, etc. In China, on the other hand, a number of respondents argued that it was a strength if their products could somehow be associated with New Zeeland because it was connected with healthy and high-quality values. In addition, the importance of brand values and the broader rationales behind consumption was a central theme. Regardless of the country of origin, a certain brand may have a positive or negative connotation. In both markets, respondents referred to how consumers as well as industrial buyers tended to believe more in certain brands than in others, and that sometimes business partners considered whether it was positive for them to associate their brands to those of our focal firms. All in all, we have also observed that in the two markets respondents have discussed different types of rationales and beliefs that will govern customers. They may be more or less obvious but firms have to relate to them when deciding how to communicate and build a position. This also brings us to the role and structure of the communication channels on the markets. This will have a major influence on the prevailing

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cognitive-cultural profile of a country. Different channels, such as TV, newspapers, electronic media, etc., were stressed on both markets but in different ways. In Brazil, communication through media, relationships to reporters, and the ability to gain support from established, trusted communication channels was a major theme. Here, respondents also described the role of media in a different way than was the case in China. The obvious explanation may be that they have different political systems and different tolerance for free media.

Research Propositions Bearing in mind that this is a limited, in-depth qualitative study that does not allow any statistical generalizations, we nevertheless think that it is relevant do introduce a set of research propositions that may found a basis for future studies aiming at developing the theoretical field further. These empirically based propositions also provide preliminary answers to the research questions presented in the introduction of the paper. We could observe a remarkable correspondence between the two markets in the sense that on both of them the actors stressed normative and cognitive forcers more than the regulative ones. It can also be added that this pattern could be found for all the three studied companies. Consequently: P1. MNEs will put more emphasis on the normative and culturalcognitive pillars when developing market positioning strategies for emerging markets. Furthermore, the study made a distinction between compliance with institutional forces and an attempt to influence institutional constraints. On both markets, a proactive view dominated when managers discussed cognitive and normative forces, while compliance seemed to be more common in relation to the regulative dimension. This distinction was also useful when analysing firm activities in China and Brazil. The study showed that Brazilian managers had a considerably more proactive approach than Chinese managers. The difference was especially noticeable for the normative factors. Here, a proactive approach aiming at changing the institutional setting through educational programs and offering expert advice was discussed far more, even though it was also observed in the Chinese interviews. To sum up, and based upon our empirical data we thus suggest that:

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P2. A proactive approach on emerging markets will be more common when addressing cognitive and regulative forces while firms will behave more reactively when dealing with regulative aspects. Another interesting insight was that managers on both markets and in all of the MNEs studies usually referred more to local than to corporate practices when explaining their strategic approach and the activities that were conducted on the market. Local practices were stressed even more in China than was the case in Brazil. This result can be related to the findings of Kostova and Roth (2002) that corporate practices will be stressed more when there is a smaller distance between corporate and local practices. One may assume that the distance between Swedish corporate practices and local practices in China and Brazil is considerable, and probably much larger than between, for example, Sweden and Germany. However, those authors studied mainly the transfer of corporate practices per se, and not the rationale used by managers to account for and explain market positioning activities. In any case, the study leads to the following: P3. MNEs will put more emphasis on local practices than corporate practices when developing market positioning strategies for emerging markets. In the introduction we argued that there may be differences between the emerging market with regard to the emphasis put on the three institutional pillars, as well as how firms may manage their institutional constraints. The results indicate that patterns were similar in the sense that actors on both markets referred much more to local practises than to corporate ones. However, there were some notable differences concerning the weight put on the cognitive versus the normative pillar, and when it comes to compliance versus influence. Therefore: P4. The national market context will lead to differences with regard to the emphasis put on the three institutional pillars and the use of a proactive versus a reactive approach. Finally, our study reveals that the two markets reported here, China and Brazil, are very different in respect to institutional settings, particularly in the regulatory and cognitive pillars. While China is still rather centrally planned at federal and regional levels, Brazil has been following different forms of free market economy for a longer period. This reflects particularly

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in the political and economic system in both countries. Both countries seem to have strong institutions but the practice of regulations and their implementation is quite different. China seems to work on a very long-term central planning based on Confucianism and Taoism where respect for the hierarchy and seniority is rooted into the system. In Brazil, on the other hand, regulations are based more on short-term planning and regional social values. Chinese culture is rather homogeneous based on the above philosophical thinking, while Brazilian culture is rather heterogeneous within the country based on the background of different regions and social classes. Both regulatory and cognitive pillars are also influenced by the different levels of economic development in these countries. Our understanding is that due to the central planning and long-term perspective, China has been able to have a sustained economic development and poverty alleviation that encourages people to be somewhat more receptive to institutional supremacy. This leads us to our final proposition: P5. There is heterogeneity in regulatory and cognitive institutional forces in different emerging markets, that lead to the fact that each market should be treated differently and that MNEs need to handle each market in context of a particular institutional setting.

CONCLUSIONS Overall, this study shows how an institutional perspective can develop our understanding of how challenges of a certain emerging market are perceived by MNE managers there. While existing literature gives a number of illustrations of country-specific issues on emerging markets related to legal factors as well as normative and cultural forces (Hadjikhani et al., 2012), this study is one of the first to make a systematic comparative study of two BRIC countries. We have stressed that firms can interact with a broad set of actors, including government officials as well as NGOs and local opinion leaders in order to develop a legitimate position. We have also identified a set of components that are especially significant for the CIP when addressing the issue of a firm’s market positioning on an emerging market. These components were further elaborated upon in the discussion section. In line with other studies (Busenitz et al., 2000; Kostova & Roth, 2002) we have also found that there are differences

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between markets with regard to the emphasis the actors put on different dimensions. When comparing managers in China and Brazil, however, the differences mainly concerned the weight put on the normative and the cognitive dimensions. Both markets put a rather limited attention on the regulative dimension when discussing market positioning aspects. In addition, this paper offers an understanding of how MNEs may choose to approach and relate to the different institutional forces. The study shows that it is relevant to make a distinction between a proactive and a reactive strategy, and between actions driven by local versus corporate practices. One aspect that may deserve special consideration is the fact that except for two persons, all our respondents were locals. It is quite possible that a subsidiary managed by Swedish expats would have presented a different view upon CIP and on the relative weight of local versus corporate practices. All in all, the study supports the view that MNEs will be embedded in different social and organizational contexts on emerging markets (cf. Greenwood & Hinings, 1996) and that this will lead to different types of actions and different motives for acting in a certain way. By uncovering and recognizing the institutional specificities of the market we will also be able to better explain MNEs relation to the market context on emerging markets. The study is of a qualitative nature and limited to three Swedish MNEs of a rather moderate size. It is quite possible that different MNEs will have different management styles with regard to the freedom that the subsidiary has to consider local practices and that Sweden may differ here when compared to, for example, the United Kingdom, France or the United States. Furthermore, the three companies were all based upon an innovative culture and on offering new solutions to the market. This may also mean that they have to be more proactive than, for example, an MNE within the FMCG area working mainly with well-established and mature products. It may also be fruitful to compare emerging markets with established markets regarding the impact of the three institutional pillars as well as the approach used by firms. For example, it is possible that the less stable and more uncertain external environment of emerging markets makes it more feasible for firm to have a proactive approach there. All in all, further research is required, including a larger sample of MNEs from different industries and different home countries. This can make it possible to further verify the components of the CIP for positioning on emerging markets presented here, and the role of the proactive/reactive approaches as well as local/corporate practices.

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ACKNOWLEDGMENT This research was made possible by financial support from the Ragnar So¨derberg Research Foundation.

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APPENDIX Distribution of quotes referring to the institutional pillars in China versus Brazil.

China Brazil

Cognitive

Normative

Regulative

37% 47.51%

50% 41.08%

13% 11.42%

China: Quotes referring to the institutional pillars and distribution for proactive/reactive approach, and corporate/local practices.

Proactive Reactive Corporate Local

Cognitive

Normative

Regulative

72% 28% 26% 74%

49% 51% 26% 74%

45% 55% 7% 93%

Brazil: Quotes referring to the institutional pillars and distribution for proactive/reactive approach, and corporate/local practices.

Proactive Reactive Corporate Local

Cognitive

Normative

Regulative

82% 18% 32% 68%

71% 29% 38% 62%

45% 55% 12% 88%

DOES THE VALUE OF GLOBAL BRANDS APPLY TO BOTH FOREIGN AND DOMESTIC-BASED GLOBAL BRANDS? Stanford A. Westjohn, Peter Magnusson and Joyce X. Zhou ABSTRACT The purpose of this study is to explore how the value of being global brands is experienced differently based upon foreign versus domestic origin of a brand. The conceptual framework is tested on samples from three countries United States, India, and China. The data are analyzed using partial least squares structural equation modeling. The belief that global brands are of higher quality, more socially responsible, and deliver a sense of belongingness to a global community led to an orientation toward globally available consumption alternatives, or global consumption orientation (GCO). High GCO has been associated with preferences for global brands; however, we find that while this preference indeed extends to global brands based in foreign countries, it does not extend to global brands based in the home country. The study of global brands seldom distinguishes among types of global brands. This research

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examines global brands based on their foreign versus domestic origin; thus it offers a more nuanced understanding of the boundaries for the value of global brands. Keywords: Global brands; global consumption orientation; PLS-SEM; India; China; USA

INTRODUCTION Developing global brands, that is, offering the same brand in many countries, has been increasingly emphasized as a strategy for growth (e.g., Chabowski, Samiee, & Hult, 2013). For example, General Motors has shed smaller, regional brands (e.g., Oldsmobile, Opel, and SAAB) in recent years, increased focus on turning Chevrolet into a global brand, and consolidated its advertising account to increase global efficiencies (Bruell, 2012). This suggests that global branding can benefit firms through economies of scale and simplification of management. In addition, there is also evidence that consumers may perceive global brands as superior to local brands, that is, brands offered only in the home country (O¨zsomer, 2012; Steenkamp, Batra, & Alden, 2003). Thus, the value of global brands to firms derives from consumer, economic, marketing, and organizational sources (Steenkamp, 2014). The consumer source of value is based largely on the perception of global brands as offering higher quality than local brands, a sense of belongingness and identity with the global world, and that global brands are more socially responsible than local brands (Holt, Quelch, & Taylor, 2004; Steenkamp et al., 2003). Extant research has found that the appeal of global brands is particularly strong among consumers with a high global consumption orientation (GCO), which was conceptualized and empirically validated by Alden, Steenkamp, and Batra (2006) and it considers consumers preference for globally available consumption alternatives. Empirical evidence suggests a strong positive relationship between GCO and global brand attitude among South Korean (Alden et al., 2006), Chinese, and Indian consumers (Guo, 2013). However, these studies focus only on global brands of foreign origin while ignoring domestic brands that are global. In contrast with foreign-based global brands, domestic global brands are often forced to balance global and local appeals. For example, global brands are often associated with higher quality and

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prestige (Steenkamp et al., 2003), whereas local brands are considered more trustworthy and healthy compared to global brands (Schuiling & Kapferer, 2004). Global brands have appeal because they can be used to signal a belongingness to the global community (Holt et al., 2004), while local brands can emphasize their local iconness through their strong connection with the local culture and heritage (O¨zsomer, 2012). It is along this dimension of foreign versus domestic global brands that we investigate differences. Thus, the first contribution of this study is the comparison of the relationship between GCO and domestic versus foreign global brands. Past research has found strong evidence that consumers perceive local versus nonlocal brands differently (Batra, Ramaswamy, Alden, Steenkamp, & Ramachander, 2000; Sichtman & Diamantopoulos, 2013; Zhou, Yang, & Hui, 2010; Zhuang, Wang, Zhou, & Zhou, 2008). Thus, it appears important to ask whether the benefits of being a global brand flow through to global brands regardless of their foreign or domestic origin. Specifically, are there differences between foreign global brands and domestic global brands with respect to consumer evaluations? Our second contribution focuses on the antecedents to GCO. Alden et al. (2006) focused largely on the consumer’s exposure to the global world through media and travel as predictors of GCO. Steenkamp and de Jong (2010) expanded the nomological net and examined consumer values, national cultural values, and demographics, and domain-specific values as drivers of GCO. In this study, we examine Holt et al.’s (2004) threedimensional framework of how global brands create value. They suggest that global brands are valuable through (1) perceived quality, (2) global myth, and (3) social responsibility. We examine how perceptions of each of these three dimensions contribute to GCO. Our third contribution is methodological in nature. Past research on GCO and global brands has often focused on one or two countries. In contrast, our research provides more robust insights into the nature, antecedents, and consequences of GCO as the conceptual framework is tested on samples from United States, China, and India. These three countries represent close to 50% of the world population and they are the three largest economies in the world based on purchasing-power parity. Further, they represent vastly different cultural, institutional, and economic environment, which makes this a robust test of the conceptual framework and adds to its external validity. This study also has significant implications for marketing managers. First and foremost, by distinguishing between domestic and foreign global

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brands and examining how GCO affect each construct differently, we elucidate an important distinction and bring better clarity to the global branding literature. The current study illustrates the differential effects for domestic versus foreign global brands, which provides guidance for managers as they strive to develop effective international marketing strategies. We proceed by reviewing the literature on global branding and GCO. Then, we present the theoretical base for this study and formulate research hypotheses. This is followed by a description of the research methods and presentation of the findings. We conclude by discussing the findings and their implications for international marketing managers and researchers, note some limitations, and consider directions for future research.

CONCEPTUAL BACKGROUND AND HYPOTHESES What Are Global Brands? The literature on global brands has suffered from the lack of a generally accepted definition of global brands. However, there appears to be some convergence on the definition of global brands, and that it encapsulates the firm’s strategy in terms of global coordination, it includes consumers’ perception of the brand’s availability across multiple markets, and it includes a minimum threshold of sales across multiple markets (O¨zsomer, Batra, Chattopadhyay, & ter Hofstede, 2012). Accordingly, we adopt Steenkamp’s (2014, p. 7) recently advanced definition and define global brands as “a brand that uses the same name and logo, has awareness, availability, and acceptance in multiple regions of the world, derives at least 5 percent; of its sales from outside the home region, and is managed in an internationally coordinated manner.” Further, consistent with the work of Steenkamp (2014, p. 7), we agree with the omission of similar positioning or image. As he notes, “many global brands, especially ones that have been around for a long time, a similar positioning is not realistic, if only because its image in the home market may be very different than its image in other countries. For example, the positioning of Heineken in its home market (the Netherlands) is that of a middle-of-the-road quintessentially Dutch beer while in most other markets it has a premium positioning as a global brand.” We would also like to add that global brands do not necessarily sell the same products. McDonald’s is often exemplified as a global brand, yet it is well known that its menu

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lineup varies significantly across markets to appeal to cultural differences and local tastes. Similarly, most people would consider Starbucks a global brand, yet it recently announced that after 14 years of trying to persuade the Chinese to buy into its foreign coffee culture experience, Starbucks will now try a more locally tailored approach (Burkitt, 2010).

Global Consumption Orientation GCO is an attitude set toward the preference for globalized, localized, or hybridized alternatives across a variety of consumption domains (Alden et al., 2006). Another alternative preference is simply the lack of interest in global or local products. GCO is positively influenced by materialism, mass media exposure, and mass migration exposure; and negatively influenced by susceptibility to normative influence (Alden et al., 2006). The concept of GCO has been supported and validated by other research. For example, Steenkamp and de Jong (2010) affirmed the existence of generalized attitudes toward global and local products. They identified both individual-level, for example materialism, and national-cultural values, for example self-expression, as an important underlying motivational structure. Guo (2013) investigated the influence of GCO on emerging market consumer perceptions of global brands from emerging versus developed markets, finding a tendency for high-GCO consumers in emerging markets to evaluate global brands from developed countries more favorably. An important consequence of GCO is a more favorable attitude toward global brands (Alden et al., 2006; Guo, 2013), and according to O¨zsomer and Altaras (2008, p. 7) “GCO seems to be a focal mediator through which previously identified consumer characteristics … operate to influence brand attitudes.”

GCO Predictors Holt et al. (2004) were among the first to investigate the consumer sources of value for global brands. In their survey of 1,800 consumers across 12 countries, they derived three primary dimensions from which global brands draw their value, that is, quality signal, global myth, and social responsibility. The dimensions are consistent with Steenkamp et al.’s (2003) research on how perceived brand globalness leads to perceived quality and prestige, and ultimately purchase likelihood, and are further supported by

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Dimofte, Johannson, and Ronkainen (2008) who found a similar structure of dimensions. They define a five-factor global brand construct by (1) reach, (2) aspiration, (3) low-risk, (4) ethics, and (5) nonlocal. The first and fifth factors seem to define, in part, what a global brand is, that is sold in many countries (reach) and with a standardized name and logo (nonlocal). The remaining three factors correspond directly to Holt et al.’s (2004) dimensions. Aspiration relates closely to the notion of global myth, low-risk based on inferred quality of the brand relates to quality signal, and ethics relates to the perception that global brands demonstrate greater social responsibility (Dimofte et al., 2008). According to Holt et al. (2004), global brands are perceived to be of higher quality as a result of their global success and widespread adoption. For example, a consumer may infer that the brand must have high quality, otherwise, it would not be so successful on a global scale. In terms of the global myth, the consumption of global brands make consumers feel part of a global culture, one that global brands encourage and perpetuate. Finally, the consumer perception that global brands demonstrate greater social responsibility is because of the scrutiny applied to large multinational corporations by governments, media, and special interest groups. In sum, consumer expectations and beliefs about global brands in part form the value of a global brand. Next, we examine each dimension of the global brand, its relationship to GCO, followed by the differentiating effects of GCO on domestic versus foreign global brands. We expect positive beliefs about global brands, that is quality, global myth, and social responsibility, to give rise to a preference for globally available consumption alternatives, or GCO, which in turn would be reflected in their attitudes toward global brands. Attitude formation theory suggests that attitudes toward objects are derived from beliefs about those objects, or in this case, beliefs about brands lead to brand attitudes (Fishbein, 1963; Lutz, 1981). The conceptual framework is illustrated in Fig. 1. Quality and GCO When consumers perceive a brand to be global, they tend to assign a high level of quality to it (Holt et al., 2004; Steenkamp et al., 2003). Consumers tend to logically assume that if a brand is successful enough to be available in many countries, then it must be of high quality. Thus, superior quality has often been linked to global brands. Holt et al. (2004) found that global brands signal quality to consumers, and that consumers perceive global brands as offering better guarantees and more innovative than local brands.

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Beliefs about Global Brands

Quality (+) (–) (+) Global Myth

Global Consumption Orientation

(+) Foreign Global Brand Attitude

(+) Social Responsibility

Fig. 1.

Domestic Global Brand Attitude

Conceptual Framework.

There is one notable exception to the linking of quality perceptions with a brand’s globalness. Dimofte et al. (2008) found that the association of quality with global brands may not be due to their globalness; instead, they suggest the quality association is driven by the brand equity. Despite this exception, the majority of research suggests that quality is associated with global brands. Thus, the belief that global brands offer higher quality than local brands should be positively related to a preference for globally available products or GCO. H1. Belief that global brands are of higher quality than local brands is positively related to GCO. Global Myth and GCO Some consumers view global brands as symbols of mythical cultural ideals (Steenkamp, 2014) that evoke an “imagined global identity that they [consumers] share with like-minded people” (Holt et al., 2004, p. 71). The association of the global brand with a global community or lifestyle, whether real or imagined, gives an attractive aura to the brand itself (Steenkamp, 2014). Thus, the consumption of global brands offers individuals the opportunity to participate in an aspirational global consumer culture

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(Alden, Steenkamp, & Batra, 1999). Prior research supports the notion that cultural meaning transfers from the culturally constituted world to consumer goods, then to the individual consumer (McCracken, 1986). A similar concept was referred to by Steenkamp et al. (2003) as the belongingness pathway. They suggested that individuals consume global brands to demonstrate their belongingness in a global consumer culture (Alden et al., 1999). This notion is also supported by Strizhakova, Coulter, and Price (2008) who suggest that consumers use global brands as their passport to global citizenship. Given that cultural meaning is transferred through consumption of brands, the belief that consuming global brands creates a sense of belongingness to an aspirational global community, that is, global myth, should be positively related to GCO. H2. Belief that global brands more than local brands represent a mythic cultural ideal is positively related to GCO. Social Responsibility and GCO Global brands are highly visible and exert a substantial influence on society. They can shape public attitudes for better or worse. Consequently, consumers hold global brands to high standards with respect to public health, worker rights, and the environment, while they do not expect the same level of behavior from local brands (Holt et al., 2004). O¨zsomer and Altaras (2008) suggest that the belief that global brands act in a socially responsible manner may derive in part from its credibility, that is, the extent to which the brand promise is kept. Global brands are continuously under the scrutiny of media and consumer advocate groups. When that oversight is combined with the ubiquity and immediacy of information and news about brands, global brand managers have a strong incentive to be socially responsible. The negative impact of a global brand violating this public trust can not only damage attitudes toward the transgressing brand, but also spillover the damage to related brands (Magnusson, Krishnan, Westjohn, & Zdravkovic, 2014). Dimofte et al. (2008) found that consumers from the United States believe that global brands have greater social responsibilities than other brands and that ethical behavior is an important part of a global brand’s image. Because global brands are held to higher standards with respect to social responsibility and because of the scrutiny global brands are subjected to, consumers should have confidence that global brands, more so than local brands, will demonstrate good social responsibility.

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H3. Belief that global brands are more socially responsible than local brands is positively related to GCO.

GCO’s Differentiating Effect on Foreign versus Domestic Global Brands Consumers with high GCO evaluate global brands more favorably than consumers with low GCO (Alden et al., 2006). Guo (2013) confirmed this finding and added that in emerging markets high-GCO consumers tend to evaluate global brands from developed countries more favorably than global brands from emerging markets. The logic is that developed countries represent global culture and the globalization process more so than emerging markets; thus high-GCO consumers would be more likely to prefer global brands from developed versus emerging markets. It appears that the perceived association of developed markets with global culture is the underlying mechanism. Similarly, Batra et al. (2000) found that emerging market consumers had more favorable attitudes toward brands of nonlocal origin, specifically those from developed markets. We suggest that attitudes toward global brands will vary based upon the foreign or domestic origin. Much like developed country global brands were associated with global culture, foreign global brands should also be perceived as greater carriers of global culture as opposed to domestic global brands. Earlier research on the relationship between GCO and attitude toward global brands tested only foreign global brands, or otherwise ignored the domestic origin of global brands, thus the effect was imperceptible (e.g., Alden et al., 2006; Guo, 2013). We suggest that domestic global brands are more likely to be associated with the home country, that is, perceived primarily as domestic, rather than global. Indeed, some consumers may even be unaware of a domestic brand’s global presence, while a foreign brand’s mere presence in the consumer’s own country alone implies globalness. So, while consumers from countries outside the United States may associate Nike with global culture, Americans should be more likely to associate it with being American rather than global. Similarly, Americans may associate the global retailer H & M with global culture, Swedes should be more likely to associate it with being Swedish rather than global. Therefore, we expect that the consumer sourced value of being a global brand does not flow equally to both domestic and foreign global brands. Rather, we expect that while consumers high on GCO will attribute foreign global brands the benefits of being global. However, domestic global

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brands will be viewed more as local icons and not have the same level of appeal for consumers high on GCO. H4. GCO is (a) positively related to attitude toward foreign global brands, but (b) negatively related to attitude toward domestic global brands.

METHOD Sample Samples from three different countries were collected to study the proposed framework. We collected samples from the United States, China, and India. Potential respondents for the US sample were identified and contacted with the assistance of upper-level undergraduate business students trained in recruitment and data-collection procedures. Students were instructed to identify nonstudent participants, including family, friends, and coworkers over 21 years of age. Potential respondents were then directed to the online survey. After the elimination of incomplete surveys, the sample yielded 376 responses. The Chinese sample was collected in a similar fashion by students in southeast China. However, instead of an online survey, a paper and pencil method was deployed to accommodate lower Internet penetration. The Chinese version of the survey was translated from English to Chinese by a native Chinese speaker, and subsequently back-translated from Chinese to English by another native Chinese speaker, both individuals are business professors at US universities. Minor differences were resolved through discussion and the back-translation suggested that the Chinese language survey was comparable to the English language survey, and the resulting nonstudent sample was 326. The Indian sample was collected by using a consumer research panel, where respondents are compensated for completing online surveys. Because of widespread proficiency of English-speaking capabilities, the survey was delivered in English. The resulting sample was 216.

Measures The constructs of interest were measured by scales adapted from existing scales or based closely on extant literature. The beliefs about global brands,

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that is, quality, myth, and social responsibility, were developed based on their description provided in the work of Holt et al. (2004). To measure the dimensions of global brands and brand attitude constructs, respondents evaluated statements using seven-point Likert scales anchored by strongly disagree to strongly agree. The GCO measure was based on the scale developed by Alden et al. (2006). We measured GCO using a seven-point Likert scale anchored by “traditional to my country” and “popular around the world” to discover the relative local versus GCO of the respondent. Similar to extant research, GCO was measured across several consumption domains including clothing, food, furniture, lifestyle, brands, and entertainment (Steenkamp & de Jong, 2010). Given that some consumers may have poorly developed attitudes toward globalization (Alden et al., 2006), an alternative to indicate their lack of interest in a particular consumption domain was offered. Respondents indicating a lack of interest in any domain were removed from subsequent analysis. To measure attitude toward global brands, domestic and foreign, we selected three foreign global and three domestic global representative brands (four in the Indian sample). This is consistent with methods used in prior research (e.g., Alden et al., 2006) with the only difference that we distinguish between domestic and foreign global brands. Respondents evaluated their attitude toward each brand with a seven-point Likert item. In addition, respondents were asked to identify if the brand tested was domestic or foreign. The results indicate that the origins of the brands were correctly perceived (see Table 2).

Validity and Reliability We assessed the validity and reliability of the latent constructs by examining factor loadings, composite reliability (CR), and average variance extracted (AVE) (see Table 1). Factor loadings are generally expected to exceed .70 to indicate that the variance between the construct and its indicators is greater than the error (Carmines & Zeller, 1979). With a few exceptions, the items used to measure the reflective constructs exceed the criteria. Reliability was evident in that CR exceeded recommended thresholds (Fornell & Larcker, 1981). The variance extracted estimates also exceeded recommended thresholds for all but GCO (Anderson & Gerbing, 1988). AVE for GCO is just below .50, however, research suggests that lower variance extracted estimates are acceptable for newer scales (e.g., Netemeyer, Brashear-Alejandro, & Boles, 2003).

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Table 1.

Measurement Scales with Item Loadings, CR, and AVE.

Quality AVE/CR 1. Global brands have higher quality than brands sold only in my local area. 2. Global brands offer better guarantees than brands sold only in my local area. 3. Global brands offer better value than brands sold only in my local area. 4. Global brands are more innovative than brands sold only in my local area. Global myth AVE/CR 1. Buying global brands is more exciting than buying brands sold only in my local area. 2. A global brand is more prestigious than brands sold only in my local area. 3. Global brands have more status than brands sold only in my local area. 4. Buying global brands makes me feel like a part of the bigger world, not just my local community. 5. Buying global brands makes me feel “cosmopolitan.” Social responsibility AVE/CR 1. Global brands act more ethically than brands sold only in my local area. 2. Global brands are particularly concerned about the environment. 3. Global brands support social causes, like cancer awareness and research, more so than brands sold only in my local area. 4. Global brands support worker rights more so than brands sold only in my local area. Global consumption orientation AVE/CR 1. It’s important to have a lifestyle (traditional to my country popular around the world) 2. I enjoy entertainment that is: 3. I prefer clothing that is: 4. I prefer to decorate my home with furnishings that are: 5. I prefer food that is: 6. I prefer to buy brands that are:

United States

China

India

.66/.89 .89

.63/.87 .82

.78/.93 .90

.84

.96

.88

.82

.77

.89

.72

.58

.85

.59/.88 .74

.51/.83 .86

.79/.95 .89

.68

.70

.93

.63

.75

.87

.87

.76

.88

.90

.42

.88

.67/.89 .78

.59/.85 .67

.75/.92 .81

.84

.87

.87

.78

.60

.89

.88

.90

.89

.47/.84 .76

.49/.85 .67

.49/.85 .62

.73 .72 .74

.78 .77 .69

.66 .81 .72

.63 .53

.64 .64

.66 .72

Note: Sample sizes: United States = 376, China = 326, India = 216.

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Global brand attitude is measured as a formative construct since attitudes toward each brand cannot be assumed to covary (Diamantopoulos & Winklhofer, 2001; Jarvis, Mackenzie, Podsakoff, Mick, & Bearden, 2003). A problem with formative indicators is the possible existence of collinearity. We examined whether this was a problem through a linear regression analysis to see whether the variance inflation factors (VIFs) were elevated. All VIFs were below 2 (see Table 2), well below the recommended threshold of 5 (Belsley, 1990), suggesting that collinearity is not a problem

Table 2.

Formative Construct: Collinearity Test and Brand Origin Check.

Domestic and Foreign Brand Attitude I think is a good brand Foreign brands US sample Corona Heineken Ikea Domestic brands US sample Nike McDonald’s Coke Foreign brands China sample Nike McDonald’s Coke Domestic brands China sample Faw Haier Tsing Tao Foreign brands India sample Nike McDonald’s Coke Reebok Domestic brands India sample Bajaj Tata Motors Karbonn

VIFs

% correctly identifying brand as foreign or domestic

1.71 1.76 1.03

88 96 88

1.14 1.24 1.33

90 98 99

1.29 1.78 1.93

98 100 98

1.34 1.31 1.42

89 94 87

1.40 1.15 1.16 1.48

92 96 91 94

1.42 1.43 1.12

90 89 62

Note: The brand origin check was not included in the original sample from China. The percentages presented above are from a small (n = 48) follow-up sample. The brand “Red Tape” was in the original sample from India, but due to low recognition as a domestic brand (16%), it was removed from subsequent analysis.

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for our formative constructs. In sum, following the assessment of validity and reliability criteria, we conclude the data are appropriate for further structural analysis. Construct correlations are presented in Table 3.

ANALYSIS AND RESULTS We analyzed the data using partial least squares structural equation modeling (PLS-SEM) with Smart PLS 2.0 (Ringle, Wende, & Will, 2005). We selected PLS because of its ability to simultaneously model multiple structural paths, and the fact that it effectively handles both formative and reflective constructs. The results of the analysis are presented in Table 4. The first three hypotheses test the relationship between the dimensions of global brands and GCO. The structural model reveals that contrary to the expectations of H1, quality is not related to GCO in any of the three samples. However, global myth (H2) is significantly related to GCO in all three countries (US: β = .19, p < .01; CN: β = .18, p < .05; IN: β = .44, p < .001). The third dimension, social responsibility (H3), is significantly related to GCO in the Indian sample (IN: β = .23, p < .01), but not in the United States or China. Thus, the hypothesis for quality is not supported, while the social responsibility is supported in India, and myth is supported in all three countries. The final two hypotheses test the relationship between GCO and attitude toward foreign or domestic global brands. GCO is significantly related to foreign global brand attitude in all three countries (US: β = .17, p < .05; CN: β = .23, p < .001; IN: β = .30, p < .001). GCO is negatively related to domestic global brands in the United States and India (US: β = .26, p < .001; IN: β = −.16, p > .05), but it is not significantly related to domestic global brands in China (CN: β = .12, p > .05). Thus, H4a is fully supported and H4b is supported in the United States and India, but not in China. As control variables, age, education, and income were included in the structural model and regressed onto GCO, domestic global brand attitude, and foreign global brand attitude. In the United States income is positively related to domestic global brand attitude and negatively related to GCO (US: β = .11, t = 1.97). In China, income is also positively related to domestic global brand attitude (CN: β = .13, t = 2.78), while education is positively related to foreign global brand attitude (CN: β = .17, t = 2.33). Furthermore, age in China is positively related to domestic global brand attitude (CN: β = .18, t = 2.47) and negatively related to GCO

Construct Correlations and Discriminant Validity.

Mean

SD

1

2

3

4

5

6

7

8

3.70 3.45 3.06 3.12 5.00 4.17 46.92 2.89 3.79

1.17 1.22 1.18 1.14 1.16 1.25 11.82 .87 1.30

.816 .614** .545** .102* .116* .207** .127* .002 −.046

.773 .576** .156** .117* .140** .140** .028 −.032

.819 .123* .186** .156** .170** −.075 −.091

.689 −.241** .156** .093 .058 −.103*

.238** −.005 −.042 .113*

−.061 .108* .117*

−.162** −.384**

.237**

China (n = 326) 1 Quality 2 Global myth 3 Social responsibility 4 GCO 5 Domestic global brand attitude 6 Foreign global brand attitude 7 Age 8 Education 9 Income India (n = 216)

4.67 4.39 5.44 3.22 5.23 4.61 39.51 11.13 6.53

1.50 1.50 1.40 1.51 1.21 1.41 13.97 28.54 5.62

.793 .601** .318** .075 .132* .202** .069 −.107 .078

.712 .323** .136* .061 .249** .005 −.071 −.037

.771 .021 .252** .282** −.063 −.041 −.024

.701 −.166** .206** −.354** −.128* .070

.368** .192** .102 .101

−.065 .149** .095

.156** −.122*

.155**

1 Quality 2 Global myth 3 Social responsibility 4 GCO 5 Domestic global brand attitude 6 Foreign global brand attitude 7 Age 8 Education 9 Income

4.90 4.71 4.51 4.40 5.27 5.48 34.56 3.14 3.59

1.45 1.57 1.45 1.41 .99 .90 10.03 .72 1.88

.882 .724** .694** .257** −.141* .157* .187** .050 −.092

.891 .650** .412** −.118 .191** .119 −.042 −.040

.867 .359** −.080 .155* .176** .026 −.117

.700 −.169* .160* .124 .057 .079

.170* .056

.290**

United States (n = 376) 1 Quality 2 Global myth 3 Social responsibility 4 GCO 5 Domestic global brand attitude 6 Foreign global brand attitude 7 Age 8 Education 9 Income

−.091 −.039 .074

281

Note: The square root of AVE values is shown on the diagonal in italics (reflective constructs only). ** Correlation is significant at the 0.01 level (two-tailed). * Correlation is significant at the 0.05 level (two-tailed).

.317** .164* −.068 .003

9

Foreign and Domestic-Based Global Brands

Table 3.

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Table 4. PLS-SEM Results: Attitude toward Global Brands versus Foreign. Hypothesized relationship

H1: Quality → GCO H2: Global myth → GCO H3: Social responsibility → GCO H4a: GCO → Foreign global brand attitude H4b: GCO → Domestic global brand attitude

United States

Domestic

China

India

β

t-value

β

t-value

β

t-value

−.03 .19 .04 .17

−0.49 2.95** 0.54 2.44*

.02 .18 −.03 .23

0.19 2.39* −0.29 3.94***

−.21 .44 .23 .30

−1.93 4.39*** 2.13* 3.60***

−.26

−4.67***

−.12

−1.68

−.16

−2.00*

*p < 0.05; **p < 0.01; ***p < 0.001.

(CN: β = .35, t = 6.72). Finally, in India age is positively related to foreign global brand attitude (IN: β = .19, t = 2.02).

DISCUSSION Global branding is an increasingly popular international marketing strategy. The value of global brands is derived in part from the perceptions that consumers hold about global brands (Steenkamp, 2014). Prior research has found that consumers broadly perceive global brands as offering (1) higher quality than local brands, (2) a sense of belongingness and identity with global culture, and (3) greater social responsibility than local brands (Holt et al., 2004; Steenkamp et al., 2003). Using samples from three different countries, we have tested these dimensions of global brands, their relationship to GCO, and the consequences on attitude toward global brands of both domestic and foreign origin. The results offer some support for the three dimensions of global brands, and strong support for a differentiating effect on attitude toward global brands based on their domestic or foreign origin. Global brand research often considers global brands as either global or local without distinguishing between domestic or foreign origin of global brands. A recent exception includes the distinction between global brands from developed versus developing markets (Guo, 2013). We think distinguishing between types of global brands is relevant, and indeed the evidence from our findings supports that position. Consumers from both developed

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and developing markets tend to perceive domestic global brands differently from foreign global brands. This may be because consumers are unaware of the global reach of domestic brands, or domestic brands may have a stronger association with being domestic as opposed to being global, making the global characteristic less relevant. Indeed, domestic global brands likely evolved from marketing mixes based exclusively on the domestic culture. The retention of these elements in the domestic global brand, therefore, obfuscates its global nature in the eyes of domestic consumers. Correspondingly, foreign global brands simply by their foreign origin indicate that they are global. Thus, high-GCO consumers tend to have more positive attitudes toward foreign, rather than domestic, global brands. The theoretical implication is that the foreign or domestic origin distinguishes a global brand in such a way that domestic global brands should be viewed differently from foreign global brands. Future research should take this into account as outcomes other than brand attitude are also likely affected. The global myth dimension of global brands is strongly supported in all three countries, while social responsibility is supported only in India, and quality in none of the three countries. Thus, it appears that the sense of belongingness and identity with global culture is the dimension of global brands that is the strongest driver of GCO. The nonsignificant finding regarding quality runs contrary to much of the literature on global brands; however, there are exceptions. For example, Dimofte et al. (2008) attribute the perception of quality of global brands to specific brand equity associations that are independent of being global. Similarly, with respect to social responsibility, they conclude that greater social responsibility of global brands is more of an afterthought than top-of-mind awareness (Dimofte et al., 2008). Thus, the weak evidence for the social responsibility dimension is also not without precedent. This investigation involved samples from a diverse group of cultures, the United States, China, and India, which represent developed and developing economies, as well as western and eastern cultures. Interestingly, the findings for global myth and the differential effects on domestic versus foreign global brands are consistent across all three cultural contexts and offer some evidence of generalizability. This is somewhat of a surprising finding; however, upon closer review the strength of the relationships vary, which may suggest differences in how consumers from developed versus developing markets view global brands. Indeed this would be consistent with findings from past research (e.g., Batra et al., 2000; Bilkey & Nes, 1982). The implication is that consumers from both developed and developing countries view the aspiration global culture as being something attained by

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the consumption of foreign global brands as opposed to domestic global brands; however, the degree to which they hold this view may be moderated by the development of the market in which they reside.

Managerial Implications Global brands can actively create and perpetuate the global myth ideal. The evidence from our investigation confirms that there is value in this strategy. Global myth was the strongest and most consistent belief across all three cultures, and one that ultimately resulted in more positive attitudes toward foreign-based global brands. Therefore, managers are encouraged to position and promote the global characteristic of their brands as a means to enhance their brand. However managers must also understand that for the domestic market, the global myth may not prove as useful. Domestic global brands do not seem to benefit from the beliefs about global brands, likely because some domestic global brands are perceived primarily as domestic rather than global. Thus, managers must balance the global characteristic of their brand’s image with its domestic origin.

FUTURE RESEARCH AND LIMITATIONS We investigated the influence of GCO on domestic versus foreign global brands; however, the investigation of the value of global brands should extend into more types of global brands. Potential distinctions might be found among global brands along dimensions of product category, durables versus consumables, hedonic versus utilitarian, and conspicuous versus private consumption. In addition, further investigation into differences among the attitudes between developed versus developing markets would be worthwhile. Although the findings in this research revealed consistent results in terms of valence, the strength of attitudes seemed to vary. Some caution must be taken in generalizing the results of this study. While samples from three different countries were taken, they were not subjected to cross-national invariance testing; although, we make no direct comparisons between countries. In sum, the present study offers evidence that the sense of belongingness and identity with global culture plays a particularly important role in the development of GCO and attitude toward foreign versus domestic global

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brands. More importantly, the benefits of being a global brand do not flow equally to both domestic and foreign global brands. Domestic global brands must rely on other sources of value to gain favor with their domestic consumers.

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LUXURY BRANDS IN EMERGING MARKETS: A CASE STUDY ON CHINA Annie Peng Cui, Theresa A. Wajda and Michael F. Walsh ABSTRACT The luxury brands sales in emerging markets will see rapid growth. When entering the emerging markets, luxury fashion brands always find it challenging to balance adaption with local consumer culture and standardization to maintain their global brand image. The present study attempts to examine this intriguing issue of adaptation and standardization and many other challenges for luxury brands in the emerging market by focusing on China’s luxury market. A case study on China is conducted, which consisted of reviewing academic literature and consulting trade reports, examining over 50 luxury brands’ Chinese websites, reading newspaper articles, conducting field trips to luxury retail outlets, and studying luxury brands’ advertisements in major Chinese fashion magazines. We identified five intriguing market characteristics that must be taken into account in order to succeed in this market. Specifically, we found that to perform well in China’s luxury market, luxury brands should have a good understanding of the conflicting Chinese social cultural sentiments toward

Entrepreneurship in International Marketing Advances in International Marketing, Volume 25, 287 305 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1108/S1474-797920140000025013

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luxury consumption. Luxury brands should seek a balance between standardization and adaptation and appeal to both consumers’ converging needs and their desire for products that embrace local elements. Further, given the unique consumer characteristics, luxury brands should better serve the young and economically diverse consumer base in China. Keywords: Luxury brands; emerging market; case study

INTRODUCTION According to Euromonitor International’s report on luxury brands (Roberts, 2011), the recent global economic downturn has triggered a longterm global shift in luxury sales. It is forecasted that the growth of luxury sales in developed markets will continue to slow down, while emerging markets will see rapid growth ranging anywhere from 10.5 percent to 42 percent annually. Despite this economic slump, there is a steady rise in the number of wealthy consumers in emerging markets who continue to spend on personal luxury. According to a May 2011 Global Times Report, the global luxury goods market has recovered much faster than anticipated bolstered by China, growth in both Russia and India, as well as a return of global confidence (Global Times, May 24, 2011b). Between 2005 and 2010, total spending on luxury goods increased by nearly 43 percent in these emerging markets, thus, solidifying a $30 billion market (Roberts, 2011). Specifically, this rapid growth was propelled by fashion-related categories such as accessories, jewelry, and timepieces. Many luxury fashion brands are expanding aggressively into emerging markets. For example, Louis Vuitton opened 37 boutique stores in 29 cities in China, and Cartier has more than 60 endorsed retailers in Russia (www.louisvuitton.com and www.cartier.com). With this booming growth rate, the joint revenues of luxury sales in emerging markets such as China, Russia, India, the Middle East, Brazil, and Mexico will surpass those of more developed markets in Europe, North America, and Japan in the next decade (Okonkwo, 2009). Like any international brands, when entering the emerging markets, luxury fashion brands always find it challenging to balance adaption to local consumer culture and standardization to maintain their global brand image. The present study attempts to examine this intriguing issue of adaptation and standardization and many other challenges for luxury brands in the emerging market by focusing on China’s luxury market.

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Among above-mentioned emerging markets, luxury consumption in China has experienced exceptional and rapid growth. In 2010, total luxury consumption in mainland China reached $10.7 billion, making the country the world’s second largest market of luxury goods next to Japan (China Retail News, 2011; Chow, 2011). It is estimated that by 2015, China will become the single largest luxury market accounting for nearly 20 percent of the world’s luxury consumption (Atsmon, Dixit, Leibowitz, & Wu, 2010). Since the early 1990s, over 80 percent of the world’s luxury brands have opened retail outlets in China. Between 2005 and 2010, luxury spending in China grew steadily at an annual rate of 15 20 percent. According to Sebastian Suhl, chief operating officer at the Prada Group, Prada’s 2010 sales in China grew by over 80 percent (Evans, 2011). Additionally, Bain raised its 2011 growth forecast for luxury sales in China to 25 percent (Global Times, May 25, 2011c). With this seemingly unstoppable momentum, it is predicted that China will be a driving force in leading the global luxury market out of the current recession. Given the important role that China plays in the global luxury market, it is the purpose of this paper to investigate the characteristics of this intriguing market and explore the success factors of luxury fashion brands in China. In the process of conducting a literature review, it was discovered that academic research on this topic is rather scant (e.g., Gao, Norton, Zhang, & To, 2009; Li, Li, & Kambele, 2012; Little, 2011; Zhan & He, 2012). Consequently, to achieve a better understanding of China’s current luxury market, a case study approach was initiated. This consisted of reviewing academic literature and consulting trade reports (e.g., McKinsey’s “Understanding China’s Growing Love for Luxury,” BCG’s “China’s Luxury Market in a PostLand-Rush Era,” and KPMG’s “Luxury Brands in China”). Additionally, research was undertaken by examining over 50 luxury brands’ Chinese websites, reading newspaper articles, conducting field trips to luxury retail outlets, and studying luxury brands’ advertisements in major Chinese fashion magazines. The layout of this paper will include a review of literature, an overview of China’s luxury market, followed by a discussion of five unique market characteristics, and potential topics for future research. A discussion of our findings will conclude this investigation.

LUXURY BRANDS IN EMERGING MARKETS Just like William Shakespeare said, there are a thousand Hamlets in a thousand people’s eyes; there are a thousand interpretations of the term “luxury”

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in a thousand consumers’ minds. According to Wiedmann, Hennigs, and Siebels (2009), though being used extensively in marketing, the luxury concept does not elicit clear understandings and takes different forms for different consumers depending on their mood and experience and different situational factors. What one consumer perceives to be a luxury product may be viewed as a common routine purchase by others. Perhaps the concept of luxury can be best understood as the opposite of necessities, which are “utilitarian objects that relieve an unpleasant state of discomfort” (Wiedmann et al., 2009, p. 626). Thus, a luxury item provides additional value to consumers above and beyond the mere necessities by symbolizing social status, premium price, exceptional quality, aesthetics, craftsmanship, and rarity (Bian & Forsythe, 2012; Nueno & Quelch, 1998; Wilcox, Kim, & Sen, 2009). Consumers purchase products to satisfy their different needs. While utilitarian products satisfy the functional needs of consumers, luxury items primarily appeal to consumers’ psychological needs (Nia & Zaichkowsky, 2000). Arguably, it is the psychological benefits provided by luxury products that distinguish luxury from utilitarian products (Nia & Zaichkowsky, 2000). Wiedmann et al. (2009) further categorized the psychological benefits of luxury consumption into individual value (i.e., self-identity value, hedonic value, materialistic value) and social value (i.e., conspicuousness value and prestige value). Therefore, luxury brands can be used as a way of selfexpression and/or as a social classification symbol that signals class and group affiliations (Bian & Forsythe, 2012). The self-expression value and social classification value of luxury brands are particularly appealing to consumers in emerging market; only in the past few decades were consumers in these countries exposed to and capable of purchasing luxury brands (Roberts, 2011). Consumers in the emerging markets, now having more disposable income than ever before, are willing to spend on luxury brands to express their uniqueness and declare their newly gained social status (Phau & Prendergast, 2000; Roberts, 2011). De Barnier, Rodina, and Valette-Florence (2006) found that Russian luxury consumers are mostly attracted to luxury brands because of the uniqueness dimension of luxury value, which allow the owners to stand out from others and to create a sophisticated self-image. Young Korean consumers, however, purchase luxury fashion brands for their symbolic meaning of social recognition and conformity (Park, Rabolt, & Jeon, 2008). Likewise, Chinese consumers are found to be more motivated by the social than by the functional benefits of luxury products (Zhan & He, 2012). Consuming luxury brands helps the middle-class Chinese

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consumers conform to the norms and values of their reference groups (Zhan & He, 2012). Emerging markets provide luxury brands tremendous growth opportunities. However, due to the unique national cultures, economic development status, and ever-changing consumer tastes and needs, many luxury brands find the route of entry into emerging markets rather rocky (Roberts, 2011). To achieve a better understanding of China’s current luxury market, we conducted a case study and propose research propositions.

CHINA’S LUXURY MARKET: A CASE STUDY China’s Luxury Market: An Overview Chinese consumers have gained increasing exposure to global luxury brands since the early 1990s when leading luxury brands such as Hermes, Louis Vuitton, and Gucci opened their first stores in mainland China. Though China ranks 106th globally in terms of Gross Domestic Product (GDP) per capita, the country is currently home to 960,000 millionaires (in USD), including 4,000 billionaires (in USD) (Qian, 2011). It was estimated that in 2010, there were about 2.7 million wealthy households with annual incomes between $45,000 and 150,000 constituting a reliable consumer base for luxury products. Furthermore, the number of wealthy Chinese households is expected to double by 2015 (Atsmon et al., 2010). More interestingly, about a third of Chinese luxury goods consumption was contributed by households that belong to the middle and upper-middle classes (i.e., households with annual incomes between $10,000 and $45,000 USD (Atsmon et al., 2010)). According to a recent Money Week Report, the urban population in China has more than doubled from 251 million to nearly 562 million. This, coupled with a steadily growing GDP, has driven the emergence of a new and wealthier middle class that is eager to show how far it has come (Gleeson, 2007). By 2020, it is estimated that 27.5 percent of the Chinese population will be categorized as middle class (Global Times, May 16, 2011a). It can be argued, therefore, that the sizable luxury market in China is derived from households with diverse income levels. According to a 2010 Bain & Company report, about 70 percent of China’s $10.7 billion luxury consumption was spent on fashion-related products (Bain, 2010). Luxury fashion goods normally include apparel, accessories, handbags, shoes, watches, and jewelry for which the brand name

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brings social status and symbolic meaning to its owners (Vigneron & Johnson, 2004). According to a BCG report, the top 10 luxury fashion brands that Chinese consumers indicate a preference for include Louis Vuitton, Gucci, Chanel, Armani, Prada, Dior, Ferragamo, Burberry, Hugo Boss, and Max Mara (Anestis et al., 2009). This has also been confirmed by a 2010 Bain and Company survey, in which slightly over 1,400 Chinese luxury consumers reported that the top three brands they desire most are Louis Vuitton (46 percent of respondents), Chanel (36 percent of respondents), and Gucci (22 percent of respondents) respectively. This study also reported brand preference by category. For women’s wear, the top three brands likely to be purchased are Chanel, Burberry, and Giorgio Armani. The top three brands for menswear include Giorgio Armani, Ermenegildo Zegna, and Versace. For suitcases and handbags, the top three choices are Louis Vuitton, Gucci, and Chanel. The top three brands in shoes include Ferragamo, Prada, and Chanel; while Rolex, Omega, and Cartier comprise the top three brands in the watch category. Over the past 20 years, almost all major fashion houses have opened stores in China. However, the last five years have seen explosive expansion from three of the leading fashion brands including Louis Vuitton, Prada, and Hermes (Socha, 2009). Since Hermes opened its first store in Beijing in 1996, the brand has branched into 12 other cities with 20 retail stores in total. Hermes not only established a solid presence in mega markets such as Beijing and Shanghai (three stores in each city), but also expanded into tier 2 and lesser known cities such as Nanjing, Qingdao, and Wuxi. To aid our understanding of the business scope of leading luxury fashion brands in China, we chose to investigate the websites of 30 luxury clothing and accessory brands (see Table 1). In terms of high-end apparel, we found that Hugo Boss dominates in terms of number of cities where they have a presence (84 stores in 47 cities), followed to a considerably lesser extent by Ermenegildo Zegna (47 stores in 29 cities), and Louis Vuitton (37 stores in 29 cities). It appears that other brands are more cautious and selective in terms of the locations they choose to enter. For example, Chanel, Giorgio Armani, Missoni, Lanvin, and Miu Miu have stores in only three major metropolitan cities including Beijing, Shanghai, and Guangzhou. In addition to high-end apparel, store information was gathered for 16 luxury jewelry and watch brands (see Table 2). Compared to jewelry brands, it appears that watch brands are more aggressive in their distribution strategy, selling through both certified retailers as well as specialty boutiques. For example, the Omega watch brand has a presence in 77 cities with 205 point-of-sale locations. Tiffany, in contrast, claims only 15 stores in 11

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Table 1.

Luxury Clothing and Accessories Brands in China. Brand

Top threea cities

Donna Karan Jil Sander Emilio Pucci Christian Louboutin Tory Burch Jean Paul Gaultier Marc Jacobs Ralph Lauren Jimmy Choo Chanel Giorgio Armani Lanvin Missoni Miu Miu Top three cities plus Yves Saint Laurent tier 1 cities Balenciaga Anna Sui Versace Valentino Dolce & Gabbana Chloe´ Prada Loewe Givenchy Dior Hermes Fendi Bottega Veneta Top three cities plus Tod’s tier 1, 2, & 3 cities Gucci Salvatore Ferragamo Burberry Louis Vuitton Ermenegildo Zegna Hugo Boss

Citiesb Point-of-Sale Locations Year of Entry 1 1 1 1 1 2 2 2 2 3 3 3 3 3 4 5 5 5 5 6 8 11 11 12 12 13 14 15 18 23 27 27 29 29 47

1 1 1 1 1 2 3 2 2 6 4 5 3 4 4 7 6 7 7 6 10 15 11 16 14 20 16 21 23 31 46 58 37 47 84

2008 2006 2008 2011 2011 2004 2004 2010 2007 1994 1998 2010 2003 2009 2007 2009 2006 1994 2005 2005 2006 1995 2001 2007 1997 1996 2000 2007 2004 1996 1994 1993 1992 1991 1995

a

Top three cities include Beijing, Shanghai, and Guangzhou. Tier 1 cities include Chongqing, Tianjing, and 10 largest provincial capital cities. Tier 2 cities include 17 provincial capital cities and 14 prefecture-level cities. Tier 3 cities include over 200 smaller cities. b Information gathered from brands’ official website as of August 2011.

cities. This difference in distribution strategies amongst luxury brands marks one of the many interesting characteristics of China’s luxury market. Through this case study analysis, we discovered five distinct characteristics of this market. These will be delineated in the paragraphs that follow.

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Table 2.

Top three citiesa

Top three cities plus tier 1 cities

Top three cities plus tier 1, 2, & 3 cities

Luxury Jewelry and Watches Brands in China. Brand

Citiesb

Point-of-Sale Locations

Year of Entry

Buccellati Harry Winston Patek Philippe Graff Van Cleef & Arpels Rolex Mikimoto Vacheron Constantin Tag Heuer Piaget Chopard Tiffany Bvlgari Cartier Omega

1 1 2 2 3 3 4 6 8 8 7 11 14 21 31

1 1 2 2 4 3 4 9 14 13 10 15 21 33 93

2010 2007 2005 2010 2006 1992 2004 2000 2006 2002 2003 2001 2003 1990 c

a

Top three cities include Beijing, Shanghai, and Guangzhou. Tier 1 cities include Chongqing, Tianjing, and 10 largest provincial capital cities. Tier 2 cities include 17 provincial capital cities and 14 prefecture-level cities. Tier 3 cities include over 200 smaller cities. b Information gathered from brands’ official website as of August 2011. c Data not available.

Standardization versus Adaptation Standardization versus adaptation of international marketing strategies has long been debated by researchers and practitioners (Jain, 1989; Ryans, Griffith, & White, 2003). The argument centers primarily on the perception of consumer homogeneity. Supporters for the standardization strategy argue that, globally, consumers’ needs and wants are becoming more and more homogeneous, and thus, a standardization strategy is more effective due to the economies of scale that can be achieved (Jain, 1989; Ryans et al., 2003). On the contrary, others who view consumers’ needs and wants as heterogeneous support the adaptation strategy, as it strives to make product offerings and marketing communications more relevant to individual consumers (Harvey, 1993; Ryans et al., 2003). Luxury fashion brands face the same dilemma. On the one hand, fashion consumers around the world tend to follow similar global fashion trends set by leading fashion houses, suggesting a standardization strategy should be effective across nations. On the other hand, it also appears that the

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cultural heritage of individual consumers affects their perceptions of aesthetics as well as their attire choices; consequently, warranting an adaptation strategy. Thus, when luxury brands enter China, it appears that awareness of the deep-seated cultural roots of the country encourages them to expend a significant amount of time and money in promoting how this compares with the rich heritage and craftsmanship associated with their respective brand. In an effort to keep their brand image consistent worldwide, these brands sell the same designs and products in China as found in various western markets. Standardization alone, however, may not work well in China. According to a BCG study, one-third of luxury consumers in China said that they prefer to buy products that are designed specifically for their country as well as those that incorporate Chinese imagery (Anestis et al., 2009). Consequently, many luxury brands find that by folding Chinese elements into their designs, it earns them respect and loyalty with Chinese consumers. For example, Chanel debuted its Pre-Fall 2010 Paris Shanghai line in Shanghai with a fashion show that was held on a boat on the Huangpu River with the Pudong night skyline as the backdrop. Additionally, Hermes designed a special edition silk scarf with an ancient Chinese horse cart pattern on it, while Louis Vuitton created limited-edition Chinese lantern key chains and charms. Similarly, Gucci created a handbag decorated with the traditional Chinese dragon and phoenix pattern solely for its Chinese customer base. Seemingly, to succeed in the Chinese luxury market, brands have to strike a subtle balance and walk the fine line between both standardization and adaptation marketing strategies. Luxury brands that adapt to local aesthetics and tastes may appeal to Chinese consumers’ national pride and enhance the perceived brand relevance. However, excessive adaptation may hurt the brands’ distinctive global brand image, and accordingly lead to negative attitude toward the brands, decreased purchase intentions, and lower level of willingness to pay. Thus, we propose: P1. There is a curvy linear relationship between a luxury brand’s adaptation to local aesthetics and culture and Chinese consumers’ (a) attitude, (b) purchase intentions, and (c) willingness to pay of the brand.

Cultural Clash Luxury goods are fraught with mixed sentiments in the Chinese culture. “Shechi,” the Chinese translation for luxury, carries negative meanings, as

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both “she” and “chi” mean extravagant and wasteful (Little, 2011). Furthermore, the Chinese culture is deeply rooted in Confucianism, Taoism, and Buddhism which promote that people should live a simple and frugal life and avoid flaunting their possessions. The older generation, especially those who have lived through poverty and recession, are reluctant to spend money on luxury goods even if they can now afford them. In addition, the Chinese culture is marked by forward-thinking and, thus, has a high tendency to avoid and/or seek to diminish any uncertainty about the future (Hofstede, 1984). In fact, China has the world’s highest household saving rate at about 38 percent, compared to 3.9 percent for the United States and 2.8 percent for Japan (Power, 2010). Accordingly, both the traditional social doctrines and the strong compulsion to save money for future unexpectedness play against Chinese consumers’ luxury consumption (Wong & Ahuvia, 1998). Interestingly, the dichotomy lies in the fact that other Chinese cultural norms favor luxury consumption and conspicuous display of personal wealth. The consumption of luxury products in China dates back to thousands of years ago when possession of luxury goods was strictly regulated according to one’s social class (Little, 2011). Owning and displaying luxury products convey social status and honor (Mandel, Petrova, & Cialdini, 2006). Moreover, immersed in a collectivist culture, Chinese consumers are consistently concerned about their social image and how successful they appear in the eyes of their peers (Zhan & He, 2012). Thus, carrying a monogrammed Louis Vuitton bag or wearing a Rolex watch may earn a person respect and admiration from others. Especially for the nouveau riche who do not necessarily possess significant social power, the buying of luxury products that are typically beyond the reach of the average consumer is both empowering and rewarding. Thus, in a country where cultural norms “for” and “against” luxury consumption coexist, luxury brands face both unique challenges and opportunities. First, it is imperative that a luxury brand understand the complex sentiments held by Chinese consumers toward luxury fashion brands and seek to emphasize in its marketing communications the brand’s rich heritage as well as the social value it possesses. Secondly, it should be noted that, according to Anestis et al. (2009), brands marketed as both status symbols and fashion icons (e.g., Louis Vuitton and Gucci) are more preferred than brands that are only promoted as fashionable (e.g., Balenciaga and Missoni). Thus, we propose: P2. The traditional social doctrines of frugalness are negatively related to Chinese consumers’ purchase intention of luxury brands.

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P3. Luxury brands’ social value is positively related to Chinese consumers’ purchase intention of luxury brands.

Unique Market Segments Compared to their Western counterparts, China’s luxury consumers are younger and come from more diverse social classes. Research has found that 73 percent of China’s luxury consumers are under the age of 45, compared to just slightly over 50 percent in the United States. In addition, 45 percent of the country’s luxury consumers are under 35, compared with 28 percent in Western Europe (He & Jing, 2011). This has largely been attributed to the one-child policy that China established in the 1970s. According to Gleeson (2007), this policy has led to a “bulging class of young, aspiring spenders” who over the next several decades will become the country’s largest population group. Additionally, not having experienced the Mao Cultural Revolution, this younger demographic is apt to spend more lavishly because they do not share the same anxieties and concerns of their parents about “stability and the weakness of the country’s social safety net” (Gleeson, 2007). In addition, it appears that younger consumers, as compared to older generations, follow global fashion trends more closely and are more exposed to luxury brands due to their diverse and voracious media consumption appetites (e.g., fashion magazines, the Internet, social networking sites, etc.). It is also likely that younger consumers are much more myopic when it comes to thinking about their future and, therefore, are more willing to spend a significant proportion of their disposable incomes on luxury brands. According to a 2007 KPMG report, empowered Chinese women also warrant a watchful eye by the luxury goods industry. Until fairly recently, men dictated the majority of the country’s luxury spending. However, this appears to be shifting as women are garnering greater social and economic independence. According to this 2007 report, young Chinese women are surpassing businessmen over the age of 35 as the primary purchasers of luxury items (Debnam & Svinos, 2007). This statistic is supported by trends identified by the Luxury Institute. According to the Institute, the buying power of Chinese women will continue to escalate as more and more women experience the freedom to pursue academic achievement, career progression, and entrepreneurial ventures (Debnam & Svinos, 2007). Similarly, Little (2011) also profiled another type of young Chinese consumer who obtains “dream value” from luxury purchases. The author

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mentioned that an individual may save several months’ worth of salary to purchase a Rolex watch just as a promise to himself/herself of what he/she will accomplish in the future (Little, 2011). This segment belongs to the majority of the country’s luxury consumers, the middle and upper-middle class. Chow (2011) reported that 70 percent of China’s luxury consumers are white-collar workers whose annual incomes range from hundreds of thousands RMB to as low as dozens of thousands RMB. A large segment of this group often has to stretch their budgets in order to buy a luxury product. As a result, they will cut other living expenses and live frugally for an extended period of time. According to Paul French, a consultant from Access Asia, some young Chinese secretaries have lived on instant noodles for six months in order to pay for their Louis Vuitton handbags as a way of making the statement that they have “made it!” (Branigan, 2011). The motivations behind luxury spending set China’s luxury consumers apart from their Western counterparts as well. Luxury consumption in China mainly focuses on products that can be publicly displayed on the person such as clothing, accessories, jewelry, and watches. Conversely, in Western markets, items such as luxury cars, houses, and vacations constitute a more significant portion of their luxury spending (China Decoded, 2010; Wiedmann et al., 2009). In essence, for many Chinese consumers, luxury consumption is motivated by gaining social status and approval versus enjoying a certain type of luxury lifestyle (Ernst & Young, 2005). We propose: P4. Chinese luxury consumers are younger than their counterparts in Western countries. P5. Chinese luxury consumers have a lower relative household income level compared to their Western counterparts. P6. Chinese consumers are more likely to purchase luxury brands that can be publicly displayed on the person than Western consumers.

Brand Extension Brand extension is defined as the use of established brand names to launch new products or new sub-brands (Aaker & Keller, 1990; Vo¨lckner & Sattler, 2006). Brand extension has been widely used in marketing as new products and extended brands seek to leverage on the equity, image, relationships,

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communication, and personality of the established parent brand. Prior research has demonstrated that the fit between the parent brand and the extended brand is an important success factor for brand extension (Bottomley & Holden, 2001, Vo¨lckner & Sattler, 2006). This is especially the case for luxury brands. Consumers may perceive it logical for Hermes to extend from its women’s silk scarf line to men’s neckties. However, when Bvlgari opened a restaurant in Japan and Roberto Cavalli launched its nightclub, these appeared to be riskier strategies as the connection between fashion brands and restaurants and clubs is comparatively more intangible and vague. Luxury brands’ extension strategies in China have taken both conventional and more unconventional routes. On the conservative side, Louis Vuitton introduced Chinese lantern key chains and charms to its China market. Hermes, on the other hand, took a bolder approach in broadening its Chinese base by developing a Chinese sub-brand called Shang Xia. The new brand, meaning “up and down,” sells traditional Chinese cultureinspired clothing, accessories, and furniture at a lesser price level than its parent brand (International Marketer Blog, 2010). “It is a Chinese brand, developed in China with the Chinese team, based on Chinese craftsmanship and broadly made in China,” according to Florian Craen, Hermes managing director in north Asia (Lau, 2010). Because the flagship store for Shang Xia opened in late 2010, it is still too early to predict whether this all-Chinese luxury brand will perform well. Critics argue that there is a body of research that suggests that some Chinese consumers are sensitive to country of origin and may therefore, perceive products made in China to be less luxurious (Gao et al., 2009). Consequently, it is a legitimate concern that Hermes may jeopardize its brand value by introducing its allChinese Shang Xia brand. Therefore, we propose: P7. Luxury brand extension that is completely localized negatively affects Chinese consumers’ attitude toward the brand.

Penetration versus Concentration Luxury brands’ expansion into the Chinese market has been more expansive in recent years. A BCG report has shown that between 2005 and 2008, point-of-sale locations for luxury brands more than doubled in China (Anestis et al., 2009). As mentioned above, the Louis Vuitton Moe¨t Hennessy (LVMH) group with its leading luxury brands such as Louis

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Vuitton and Tag Heuer is pursuing an aggressive expansion strategy. Tag Heuer opened its first China store in 2006, and within just five years, the brand has expanded into 40 cities with 95 point-of-sale locations. These cities include not only mega markets such as Beijing and Shanghai, but also tier 1, tier 2, and lower-tier cities such as Yantai and Xuzhou. Recently, other brands have followed a similar strategy. For example, in a 2009 BCG report, Bottega Venata was listed as a brand that focused on the top three cities (i.e., Beijing, Shanghai, and Guangzhou). Two years later, however, the brand expanded into 15 cities bringing its total store count to 21. Conversely, other brands have adhered to a more focused and concentrated distribution strategy. For example, as of August 2011, Harry Winston chose the city of Beijing to house its only store in China. Additionally, Patek Philippe limits its store sites to Beijing and Shanghai while Chanel lays claim to only six stores in three Chinese cities. Seemingly, brands such as Chanel and Patek Philippe deliberately chose a more concentrated distribution strategy to enhance their image as an exclusive brand (Chow, 2011). For others, (e.g., Christian Louboutin and Tory Burch; both of these brands entered China earlier this year) it appears to be more a matter of later entry into the Chinese market. To visualize brand differences in distribution strategy, we categorized 50 luxury fashion brands in terms of their store sites as well as their point-of-sale locations. Table 1 clearly shows the diverse distribution strategies of luxury brands in China. It can be argued that the penetration strategies may hurt the exclusivity and rarity of luxury brand image, and thus lead to decreased luxurious perceptions. Thus, we propose: P8. Luxury brands that take a penetration distribution strategy are viewed as less luxury by Chinese consumers than brands that take a concentration distribution strategy. P9. Chinese luxury consumers have a higher purchase intention toward brands that take a concentration distribution strategy than those that take a penetration distribution strategy.

FINDINGS AND FUTURE RESEARCH DIRECTIONS Findings Academic research on luxury brands in emerging markets is rather scant (e.g., Gao et al., 2009; Little, 2011; Vickers & Renand, 2003). Through a

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case analysis of China’s luxury market, we identified five intriguing market characteristics that must be taken into account in order to succeed in this market. Specifically, we found that to perform well in China’s luxury market, luxury brands should have a good understanding of the conflicting Chinese social cultural sentiments toward luxury consumption. Luxury brands should emphasize the desirable social image that is associated with their brands in marketing communications and avoid being viewed as symbols for the nouveau riche to boldly flaunt their money. Secondly, luxury brands should seek a balance between standardization and adaptation and appeal to both consumers’ converging needs and their desire for products that embrace local elements. Further, given the unique consumer characteristics, luxury brands should better serve the young and economically diverse consumer base in China. Lastly, executing their brand extension and distribution strategies wisely is vital to luxury brands’ success. In addition to above-mentioned managerial implications, this study also has theoretical contributions. The dynamic economic factors and consumer characteristics of emerging markets prompt interesting research questions as they relate to luxury consumption. Based on this analysis of China’s luxury market, the following future research directions are proposed.

Future Research Directions Marketing Strategies Drawing from the insights gleaned about China’s luxury market, it can be argued that choosing the appropriate marketing strategy is extremely important to a luxury brand’s performance in an emerging market. The dynamic economic environment, coupled with a unique consumer culture, make the study of this market quite intriguing. It is meaningful, therefore, to consider whether a luxury brand should adopt a standardization strategy to maintain its brand identity or engage in an adaptation strategy according to income level, consumer esthetics, and country culture of an emerging market. Furthermore, additional research could focus on examining what brand extension strategies a luxury brand should adopt in emerging markets. For example, will developing a less expensive sub-brand that is both designed for and manufactured in an emerging market dilute the brand value of the parent brand (e.g., Hermes’s Chinese sub-brand, Shang Xia)? As an additional consideration, a 2008 Nielsen Global Luxury Brands Survey indicated that there exists untapped potential for luxury fashion brands to expand their apparel and accessory business into other

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products such as smartphones, laptops, flat screen television sets, etc. Data garnered from the survey suggests that a significant number of consumers in emerging markets indicated receptiveness to the idea of co-branded luxury products. Thus, in addition to the strategies identified above, future research could also explore the viability of a co-branded marketing strategy. Lastly, future research might investigate what distribution strategies are optimal in emerging markets. Expanding too aggressively may tarnish the brand’s exclusive image. Conversely, if a brand chooses to concentrate its offerings in only a few large cities, it may miss a golden opportunity for growth in other booming, yet smaller cities. Consumer Culture and Segments As the effects of improved economic status ripple through a country, consumers in emerging markets experience more significant cultural clashes when it comes to luxury consumption. As previously mentioned, mixed sentiments toward luxury brands coexist in these markets. Future research could seek to uncover the social forces and other motivators of luxury consumption in these markets. Furthermore, the profile of a luxury consumer in an emerging market appears different than that of its counterpart in a developed country. Specifically, disparities exist in age, income level, lifestyle, occupation, motivation, and brand preference. At this juncture, research aimed at examining the stability of these segments, updating consumer profiles, and comparing/contrasting cultural differences could prove to be fruitful.

CONCLUSION Hermes’ financial report (second quarter 2011) states that the company’s global growth was largely driven by China. Similarly, company sales in Asian emerging markets reported a 30.2 percent growth rate. It has been stated that emerging markets may be the solution to boosting global luxury consumption, with luxury sales growing by 43 percent in these markets over the last six years (Roberts, 2011). Accordingly, many luxury fashion brands have turned their attention to the BRIC markets (i.e., Brazil, Russia, India, and China) by employing aggressive distribution strategies in an attempt to capture market share from their competition. With these opportunities, however, are certain inherent risks. The unique social and cultural structure, dynamic economic environment, and

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diverse consumer population paint a complex picture for luxury brands operating in emerging markets. Through this case analysis of China’s luxury market, we identified five intriguing market characteristics that must be taken into account in order to succeed in this market. The combination of these unique market characteristics provides interesting fodder for research that stands to benefit academics as well as practitioners.

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THE EFFECTS OF STABILITY, DIVERSITY, AND DENSITY ON RELATIONSHIP FLEXIBILITY IN AN INTERNATIONAL RETAIL SUPPLY NETWORK: A PROPOSED THEORY AND RESEARCH HYPOTHESES Jack Cadeaux ABSTRACT In the context of a retailer with an international supply network, this paper develops theories of (a) how both stability and strong ties in an international supply network combine to yield a resource base that enables the development of flexible relationships with suppliers, (b) how stability and relationship flexibility in the international supply network of a retail reseller may in turn be driven both by the international diversity and by the density of the retailer’s supply network in a product category, and (c) how both the international diversity and the density

Entrepreneurship in International Marketing Advances in International Marketing, Volume 25, 307 320 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1108/S1474-797920140000025014

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of a retailer’s supply network may directly affect the likelihood of a retailer developing flexible relationships with its supplier. In doing so, this paper develops and presents six hypotheses and discusses some approaches to measurement of the underlying constructs and testing the hypothesized effects. Keywords: Retail supply network; network stability; network diversity; network density; relationship flexibility

INTRODUCTION Retailers increasingly source products for resale from suppliers located outside their home country and frequently from more than one source country (e.g., Coe & Hess, 2005). Global turbulence makes international retail supply chains difficult to manage from the standpoints of reliability and relationship effectiveness. Thus, the supply network that a retailer uses to source products for a given product category can include a network of supplier firms that may change considerably over time. In the absence of turbulence and/or by effective implementation of a formal policy, such a network can remain relatively more stable. When the membership of a supply network remains stable, a retailer has the opportunity to develop and manage long-term relationships. It can try to develop strong ties with such suppliers if it wishes to do so. It can also try to manage relationships in such ties in either a relatively rigid and formalized manner or it can try to develop relatively flexible policies and procedures for supplier relationship management. In downstream marketing channels, flexible relationship management can potentially offer a number of performance benefits including, for example, better export performance (Bello & Gilliland, 1997) as well as greater relationship satisfaction and a positive long-term relationship orientation (Yu, Cadeaux, & Song, 2013). It is equally plausible that analogous benefits could arise in an upstream supply network for a retailer. In contrast, relationship development and management, including the development of both strong ties and flexibility, are far less relevant in a highly unstable supply network. Furthermore, flexible relationships are much less likely to be formed when ties are weak than when they are strong. In order to make these claims this paper develops theories of (a) how both stability and strong ties in an international supply network combine to yield a resource base that enables the development of flexible relationships with suppliers,

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(b) how stability and relationship flexibility in the international supply network of a retail reseller may in turn be driven both by the international diversity and by the density of the retailer’s supply network in a product category, and (c) how both the international diversity and the density of a retailer’s supply network may directly affect the likelihood of a retailer developing flexible relationships with its suppliers.

RETAIL SUPPLY NETWORKS For a given product category, a retailer makes a number of decisions about what products and brands to stock and whether to buy products directly from manufacturers and other producers or indirectly from wholesale distributors. Suppliers of these products can be located in the retailer’s home country or, as is increasingly the case for many categories, located outside the retailer’s home country. The structure of a network of suppliers can be a fairly simple set of direct ties or it can be more complex and involve both direct ties and indirect ties via agents and wholesalers. While structural supply network complexity can arise when aggregating across categories to the whole retail firm level (e.g., such as for IKEA Ghauri, Tarnovskaya, & Elg, 2008; complex supply network structures can also arise within as well as across categories. However, most discussions of international retail supply networks operate at very aggregated firm and storewide levels of analysis. Such has been the approach in studying the international sourcing policies of powerful European and Asian supermarkets and hypermarkets (Coe & Hess, 2005) or for prominent cases such as the storewide range of a pure private label designer/retailer such as IKEA (Ghauri et al., 2008). But, for many retailers, supply networks can be highly category-specific and relationships between suppliers and a retail buyer are often developed and managed within particular categories. One basic reason for this view is that outside of integrated or quasi-franchised or cooperative retail chains (e.g., ACE Hardware), retailer product and branding decisions are largely autonomous and in turn set boundaries and scope for supplier selection. The other basic reason is that some suppliers in an industry tend to specialize in manufacturing particular classes of goods more so than do others. For example, although all lie in the broader consumer electronics industry, Canon makes printers but not laptops; ASUS makes laptops but not printers, while HP makes both. Importantly, instability in a category-specific supply network can arise from many sources, including listing and delisting

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decisions by retailers, category entry and exit decisions by suppliers, and channel design changes made by either party (e.g., shifts to and from exclusive distribution by suppliers and shifts to and from exclusive dealing arrangements by retailers).

RELATIONSHIP FLEXIBILITY Relationship flexibility is an important factor that can influence relationship quality and relationship performance. Although other factors may also matter and other aspects of flexibility can affect relationship performance (e.g., logistics flexibility; Yu et al., 2013), relationship flexibility is constrained and limited by the network context in which it is managed. In a marketing channel, the construct usually concerns a social norm regarding mutual expectations to be flexible in a relationship, generally construed as one dimension of a so-called “relational norm” (e.g., Heide & John, 1992). As such, its scope concerns expectations that arise concerning behavior in single dyads rather than across a network of relationships. Nevertheless, networks can and do vary in terms of the degree to which they are dominated by relatively flexible rather than relatively inflexible relationship norms. In the marketing literature, relationship flexibility involves three aspects: bilateral expectations regarding adaptive behavior; a willingness to make modifications to achieve better bilateral coordination, and a general effort to adapt to changing circumstances (Heide & John, 1992). Relationship flexibility is important for a number of reasons. It has been associated with export channel performance in a downstream context (Bello & Gilliland, 1997). It constitutes an implicit expression of good faith and good intentions in a relationship (Johnson, 1999). It increases a buyer’s confidence in a supplier’s willingness and ability to work together (Roath & Sinkovics, 2006). In a downstream distribution network, it is associated with relatively higher levels of relationship satisfaction and a relatively stronger orientation toward maintaining long-term relationships (Yu et al., 2013). To the extent that it is a type of coordinative modification of interactions between partners based on relationship norms, to measure relationship flexibility, researchers often have used three items designed by Heide and John (1992). These items capture how flexibility in response to requests for changes characterizes a relationship; how dyad members expect to be able to make adjustments in the ongoing relationship to cope with

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changing circumstances; and how dyad members deal with unexpected events or situations. Clearly, the present study requires a trans-dyadic network level construct that reflects the degree to which a retailer’s supply network for a product category is, on the whole, dominated by flexible relationship norms. Appendix proposes a scale that reflects this intermediate network level of analysis.

EFFECTS OF SUPPLY NETWORK STABILITY Unlike constructs such as trust, network stability is not a latent construct subject to abstract definition. It is a concrete and essentially objective aspect of a network. A very basic way to conceptualize stability in a supply network is to construe it as the proportion of a buyer’s suppliers that have been lost or gained in a particular time period (e.g., a year) from the perspective of the buyer (e.g., following an approach proposed by Gadde & Mattsson, 1987). Very broadly speaking, stability (a concrete construct) in a social or business network is a core structural dimension of social capital, which is a much more abstract construct (Inkpen & Tsang, 2005), much like income (a concrete construct) is a dimension (or index element) of the more abstract construct of social class status. Social capital is a private or public good that allows members to implement relatively innovative and complex strategies and policies. In a general sense, a policy of relationship flexibility is relatively more complex and innovative than is a policy or relationship rigidity. In particular, a stable channel network provides a resource base that allows members to learn how to work together and adapt to the requirements of channel counterparts. Adaptation in an exchange relationship requires an expectation of stable participation in trade. Thus, the first claim this study makes is as follows: H1. The greater the stability of a retailer’s international supply network within a category, the greater the flexibility that prevails in the retailer’s relationships with members of that network. However, while network stability is a core facet of social capital, network instability, by definition, simply destroys ties: Network stability is defined as change of membership in a network. A highly unstable network may limit opportunities for the creation of social capital, because when an actor leaves the network, ties disappear. (Inkpen & Tsang, 2005, p. 153)

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If network instability causes ties to disappear, then network stability should conversely allow ties to develop, mature, and become stronger. In a stable network, parties are more likely to expect ties to be maintained than in one undergoing frequent changes in membership. Thus, it is fairly straightforward to make the following claim: H2. The greater the stability of a retailer’s international supply network within a category, the stronger will be the ties the retailer has with the suppliers in that network.

EFFECT OF TIE STRENGTH Tie strength captures the degree and intensity of interaction between two actors in a network. These interactions can arise across a broad range of domains, from the purely social to the more formal aspects of business dealing. This study takes the latter perspective. In general, though, strong ties yield trustworthy and timely information (Granovetter, 2005; Uzzi, 1997). Such information facilitates adaptation within relationships allowing partners to make mutual adjustments which in turn can increase the level of relationship flexibility (Yu et al., 2013). Thus, it is reasonable to make the following claim: H3. The stronger the ties that a retailer has with the members of an international supply network for a product category, the greater the flexibility that prevails in its relationships with members of that network.

EFFECTS OF SUPPLY NETWORK DIVERSITY Environmental diversity is a general structural dimension of an environment such as the environment of a marketing channel dyad. It captures the degree to which elements of an environment differ from each other. It is a particularly important factor in international marketing channels from both a demand and a supply perspective. Klein, Frazier, and Roth (1990) note that “… the diversity of the environment is expected to lead to a desire for flexibility in channel structure …” (p. 200). Since Klein et al. (1990) focus on downstream channel structure, they naturally conceptualize environmental diversity in terms of customer diversity. The present study’s focus on supply network structure calls instead for a construct of supplier rather than

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customer diversity. Such a construct simply would capture the degree to which members of the supply network differ from each other. There are probably an infinite number of dimensions along which such differences might arise, but one obvious candidate for such a variable in an international context is simply the number of countries from which a retailer’s suppliers for a given category are drawn (not including the retailer’s home country). This study will refer to that construct simply as “supply network diversity.” Following the logic of Klein et al. (1990), diversity should have a direct positive effect on flexibility which, in the context of this study, manifests itself as relationship flexibility. This reasoning yields the following hypothesis: H4. The greater the diversity within a retailer’s international supply network in a given category, the greater the flexibility that prevails in the retailer’s relationships with members of that network. When members of a supply network are located in the same country, it is relatively easier for a retail buyer to maintain communication and transaction ties with them than when they are scattered across diverse countries. In the latter case, there may be a greater need to search for and replace suppliers more so than when they are concentrated in relatively few countries or in only one country. Thus, in addition to the direct effect on relationship flexibility claimed in H4, supply network diversity should have a very simple negative effect as follows: H5. The greater the diversity within a retailer’s international supply network in a given category, the lower the stability in the retailer’s international supply network. Clearly, H5, when combined with H1, H2, and H3, yields a net negative indirect effect of supply network diversity on relationship flexibility. Such an effect constitutes a tradeoff against the positive effect of network diversity proposed in H4.

EFFECTS OF SUPPLY NETWORK DENSITY Network density is a core structural feature of well-bounded social and inter-organizational networks. It simply captures the degree to which a network is saturated with relationships or ties between members. It is also not an abstract construct. Its conceptual definition is implicit in the concreteness

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of its measurement. Usually measured simply as the ratio of the number of actual ties to the number of potential ties, it is a construct that has been used in contexts ranging from studies in social anthropology and kinship systems (Boissevain, 1974) to studies of the product assortment function in marketing channels (Cadeaux, 1997) to studies of innovation in business networks (Schilling & Phelps, 2007). Fig. 1 depicts some very simple retail supply network scenarios and their implied network densities.

Manufacturer A

Manufacturer B

Wholesaler

Retailer Density = 2Na/Np(Np–1) = 2 × 3/4(4–1) = 6/12 = .50 Manufacturer A

Manufacturer B

Wholesaler

Retailer Density = 2Na/Np(Np–1) = 2 × 4/12 = 8/12 = .67

Manufacturer A

Manufacturer B

Wholesaler

Retailer Density = 2Na/Np(Np–1) = 2 × 5/12 = 10/12 = .83

Fig. 1.

Simple Illustrations of Retail Supply Networks of Varying Densities.

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In the context of a category-specific supply network for a retailer, greater network density has the potential to reduce network stability simply because the probability of deleting members (i.e., suppliers) in a saturated retail supply network is greater than it is in a sparse one. The reason for this view is that in a dense retail supply network, backstream intermediaries such as agents and wholesalers are potentially involved in what amount to dual distribution arrangements. Such arrangements are inherently unstable because they have the well-known potential to precipitate conflict that could jeopardize relationship survival. In addition, such dual distribution supply channels are often used as temporary fill-in arrangements to deal with unreliable supplies from either direct sellers or from distributorsuppliers. For example, local distributor-suppliers may offer more accessible stocks than more distant overseas manufacturer-suppliers. While retailers may generally expect lower prices from local distributors, overseas distributors may sometimes offer better terms and even better prices and margins and thus may be sometimes favored in a noncontractual channel. Alternatively, a retail buyer who usually buys a particular product from a distributor may, because of it having been delisted by the wholesale intermediary, find the product available from the overseas manufacturer and source it from that supplier who necessarily sells the full product line. These arguments lead to the following claim: H6. The greater the density of a retailer’s international supply network in a given category, the lower the stability in the retailer’s international supply network. Clearly, H6 combined with H1, H2, and H3 yields a net negative indirect effect of supply network density on relationship flexibility. Relationship flexibility requires each party to exchange counterpartspecific information. In a dense network, nonspecific information is easily shared and can, in effect, crowd out relationship-specific information. From a power perspective, in a supply network with a large number of suppliers yet few (or at least a random number of) rivals to the retail buyer, the dependence of suppliers on the retailer could potentially be much higher than the dependence of the retailer on the suppliers. Such dependence is (potentially) asymmetric. As argued by Heide (1994), asymmetric or even unilateral dependence increases the potential for opportunism which in turn makes relationship flexibility less likely to prevail. The reason is that a visible potential for opportunism attracts formal, rigid, or even quasicontractual rules rather than flexible relational norms. In contrast, the

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symmetric dependence more characteristic of a less dense network limits alternatives and encourages flexible relationships (following, e.g., Yu et al., 2013). Conversely, a sparse retail supply network dominated by symmetrically dependent relationships demands a relatively higher modal level of flexibility than would a supply network of greater density. This reasoning leads to the following claim: H7. The greater the density of a retailer’s international supply network in a given category, the greater the flexibility that prevails in the retailer’s relationships with members of that network.

Structural antecedents Supply network diversity

Stability and strength

Flexibility

H4 (+) H5 (–)

Supply network stability

H2 (+)

H1 (+) Relationship flexibility

H6 (–) Strength of ties with suppliers

H3 (+)

H7 (–) Supply network density

Fig. 2. Theoretical Model and Measures of Constructs. Measures: Directly measurable structural indices except for tie strength and relationship flexibility. Supply network diversity = simple count of number of different supplier home countries (in contrast to the multiple indicator customer diversity scale of Klein et al., 1990). Supplier network density = number of actual ties divided by number of potential ties = 2Na/Np(Np 1) (following, e.g., Boissevain, 1974, Cadeaux, 1997, and Schilling & Phelps, 2007 but measured in a category supply network including the retailer). Supplier network stability = number of retained suppliers from previous year divided by the total number of suppliers in current year (loosely following an approach suggested by Gadde & Mattsson, 1987). Tie strength = tie strength in supply network measured by reflective scale (broadly adapted from Friedkin, 1980; McEvily & Marcus, 2005; Tiwana, 2008; see the appendix). Relationship flexibility = reflective scale (partially adapted from Heide & John, 1992, and others; see the appendix).

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Thus, in contrast to the countervailing and ambiguous total effects of supply network diversity on relationship flexibility depicted in H4 and H5, a dense retail supply network would arguably reduce the potential for relationship flexibility both directly as a consequence of both asymmetric dependence and nonspecific communication effects as well as indirectly as a consequence of its inherent instability and the resulting effects of instability on both tie strength and on relationship flexibility itself. Fig. 2 depicts the overall model of the hypothesized effects.

UNITS OF ANALYSIS The units of analysis most appropriate for this study would be single product categories of retailers who source products from suppliers outside their home country. Many product categories for many retailers fit that description although, as with all product category-based research, category definition and boundaries can be problematic. For the purposes of this research, a retail product category would have to contain ranges of potentially substitute goods for a given set of uses and customers. For example, for a retailer of consumer electronics such category levels of analysis could include notebook computers, tablets, multifunction printers, and external hard drives. Examples of poorly bounded categories for this purpose would be computer equipment (too broad with too many independent supply networks) and Canon multifunction printers (too narrow, essentially a single supplier). Retail buyers with category-level responsibilities would be ideal informants for all of the variables used in this study. Since the variables and the analysis all operate at the category rather than the dyad level, supplier informants and dyadic data would offer little added value.

IMPLICATIONS Retailers increasingly source products for resale from a global marketplace of suppliers. In the aggregate, the structure of the international supply network for many retailers can be descriptively highly complex at the industry and firm level of analysis. However, from a marketing management perspective, those levels of planning are less relevant than is a category level of analysis. A retailer plans its assortment of products within categories and selects suppliers for those products based on a large number of factors that

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lie beyond the scope of this study, but which have attracted extensive research. As an outcome of such planning and over time, retailer supply networks for product categories can vary significantly in terms of their stability, their international diversity, and their structural density. As argued in this study, whether as outcomes of (unobserved) prior product planning processes or as consciously controllable inputs in themselves, international supply network diversity and density can systematically affect network stability and strength and both directly and indirectly affect the nature of supplier relationship management, in particular, relationship flexibility. Given the visibly growing importance of international supply networks in retailing and the documented importance of relationship flexibility (albeit in downstream channels), this study hopes to offer greater insight into an important mid-range aspect of international marketing management.

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APPENDIX: PROPOSED TIE STRENGTH AND RELATIONSHIP FLEXIBILITY ITEMS The items for these reflective scales are administered to retail buyer respondents and would be aggregated to the entire supply network within each sampled product category bought and sold by each retailer (e.g., tablet computers, display monitors, multifunction inkjet printers, etc.) Tie Strength The tie strength items are influenced by Friedkin (1980), McEvily and Marcus (2005), and Tiwana (2008), but particularly adapted from Yu et al. (2013) to suit an upstream supply network context. (TS1) “There is high reciprocity between us and our suppliers in this category.” (TS2) “We communicate with our suppliers in this category regularly.” (TS3) “In this category there are joint problem-solving arrangements between us and our suppliers.” (TS4) “We share important marketing information with our suppliers in this category.” Relationship Flexibility These items are influenced by Heide and John (1992), Bello and Gilliland (1997), Zhang, Cavusgil, and Roath (2003), and Wathne and Heide (2004) and more specifically adapted from Wang and Wei (2007), and Yu et al. (2013). (RF1) “In this category, relationships between our suppliers and us are generally able to respond quickly to requests.” (RF2) “In this category, our suppliers and us are generally able to make adjustments in our ongoing relationships.” (RF3) “In this category, when disagreements arise in transactions, our suppliers and us revalue the ongoing situation to achieve a mutually satisfactory solution.” (RF4) “In this category, when unexpected situations arise, our suppliers and us generally modify our working agreements rather than hold each other to original terms.”