focus on understanding both the direct and indirect relationships among past performance, firm's commitment to exporting, and current marketing strategy under ...
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EJM 38,9/10
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Export performance as an antecedent of export commitment and marketing strategy adaptation Evidence from small and medium-sized exporters Luis Filipe Lages Faculdade de Economia, Universidade Nova de Lisboa, Lisbon, Portugal, and Graduate School of Business, Stanford University, California, USA, and
David B. Montgomery Graduate School of Business, Stanford University, California, USA, and School of Business, Singapore Management University, Singapore Keywords Organizational performance, Marketing strategy, Exports, Standardization, Portugal Abstract This paper argues that performance should be investigated as an independent variable. Using survey data of over 400 managers responsible for the main export ventures of Portuguese SMEs (small and medium exporters), this paper shows that past performance plays a crucial role in building SMEs’ commitment to exporting and to the determination of their current marketing strategy. Findings also show that marketing strategy adaptation to the foreign market is particularly noted in firms exporting to the most developed markets, rather than in firms exporting to the most competitive environments. Future international marketing research is encouraged to focus on understanding both the direct and indirect relationships among past performance, firm’s commitment to exporting, and current marketing strategy under the influence of external forces. Such a focus has the potential to enrich the theory and generate relevant managerial and public policy implications.
Introduction Exporting activity is of extreme importance from the point of view of nations and firms. From the point of view of national governments, exporting activity is crucial because it contributes to the economic development of nations. It influences the amount of foreign exchange reserves as well as the level of imports a country can afford, while
European Journal of Marketing Vol. 38 No. 9/10, 2004 pp. 1186-1214 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560410548933
This research was funded by research grants from “NOVA EGIDE” and “Fundac¸a˜o para a Cieˆncia e Tecnologia” (Portugal/European Union) to the first author. The authors also acknowledge the support of Warwick University Business School (UK) in conducting the survey. They wish to express their thanks for comments on the original work that led to this paper, namely the anonymous reviewers of the EJM, Tim Ambler, Pedro P. Barros, Miguel P. Cunha, Sandy D. Jap, Carmen Lages and Aviv Shoham, as well as the reviewers and participants of the following conferences: European Marketing Academy, Academy of International Business, European International Business Academy, and Portuguese Society for Economics Research.
shaping public perceptions of national competitiveness. Additionally, exports enhance societal prosperity and help national industries to develop, improve productivity and create new jobs. Abroad, exports enlarge consumers’ accessibility to a diversity of goods and services, and improve the standard of living and quality of life. At the firm level, through market diversification, exporting provides an opportunity for firms to become less dependent on the domestic market. By serving new customers abroad, the firm may also explore economies of scale and achieve lower production costs while producing more efficiently. The firm may also use the international experience to become a stronger competitor at home. Additionally, by operating abroad, the firms may learn from international competition to eventually explore new foreign markets and get involved in other international activities such as licensing, franchising, joint ventures or direct investment abroad. In sum, exporting may assume an important role within the firm as a means of reducing production costs, stabilizing cyclical demand, reaching new markets and gaining experience for other forms of internationalization (Czinkota, 1994; 2002 (see www.house.gov/smbiz/hearings/107th/2002/020424/czinkota.html)). Nevertheless, while exporting is now one of the fastest growing economic activities essential for both nations and firms, there is still no strong theoretical framework for researching the export activity phenomenon (Leonidou et al., 2002). A possible explanation for this is that researchers live in a world that desires and rewards theories that look for factors to improve export performance. Consequently, they focus on the determinants of performance and tend to ignore firms’ reactive behavior (March and Sutton, 1997). In this research we suggest that performance levels can also have an immediate impact on marketing strategy decisions, similarly to what is observed in the real world (see Lages, 1999). It is not uncommon to hear in the business press of firms’ reactive behavior to past results. For example, after its 1999 commercial financial disaster, British Airways publicly announced a rethinking of its branding, communication, and relationship marketing strategies. Similarly, immediately following the disclosure of poor results, Marks & Spencer decided to redefine its strategy and appoint a new board-level marketing director (Marketing Week, August 19 1999). Many other examples may be cited to exemplify this type of short-term reactive behavior to past performance. In line with recent work (Ashmos et al., 1998), we feel that satisfaction with the most recent past performance is more salient to managers and more likely to represent financial data that would affect managers’ subsequent behavior and actions. If the exporting activities of small and medium-sized firms have not been satisfactory in the previous year, it will be extremely difficult for managers to focus on the future, as they will be under constant pressure. Export managers will have (dis)incentives according to their short-term results, and in some cases their own position may came into risk if they have not achieved a satisfactory performance (Lages and Lages, 2004). There are several objectives of this research. First, we expect to develop a better understanding of performance as an independent variable. Historically, strategy formulation is viewed as an antecedent to performance outcomes. A recent review of the top journals in strategy and organizational behavior (March and Sutton, 1997) indicates that performance appeared in 71 percent of the articles as a dependent variable only, in 12 percent as an independent variable only, and in 11 percent of the studies as both a dependent and independent variable[1]. Similarly, in the marketing field, strategy formulation is traditionally viewed as an antecedent to performance
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outcomes (Lages, 2000a). Moreover, in the specific field of international marketing, to the best of our knowledge, no empirical research has examined performance as an antecedent of managers’ behavior and marketing strategy definition. Instead, international marketing researchers prefer to regard performance as causally dependent even when the variables relate to the same period of time and it is unclear which particular variables should be treated as causally dependent. Nevertheless, some recent studies in other fields found that past performance is strongly associated with a manager’s strategic orientation (Lant and Hurley, 1999; Lant et al., 1992; Lant and Montgomery, 1987). Their findings are consistent with a central assumption of the organizational behavior literature that suggests that organizations and individuals set goals and adjust their behavior in response to favorable and unfavorable feedback (Cyert and March, 1963; March and Simon, 1958). Hence, in this paper we argue that the basis of both current commitment to exporting and current export marketing strategy lies in past accomplishments and any inability to achieve what was initially proposed. In this research, by discussing past export performance and its implications for strategy (i.e. by studying export performance as an independent variable only) we expect to contribute toward bridging the gap between historical and current export operations. It is also our aim to open a door for further international marketing research that will explore a much more complex relationship: the relationship among past performance, current export marketing strategy, and future performance (i.e. the analysis of performance as both dependent and independent variable). Furthermore, we advance earlier work by developing a model that accounts for intervening (indirect) effects among variables. Most empirical studies focus exclusively on the direct effects of different contingent forces on marketing strategy. However, as the understanding of the export-marketing phenomenon has grown in the last few years, it has become clear that we need to look for more complex predictive models that allow for the analysis and testing of complex inter-relationships (Katsikeas et al., 1998). The strategy and organizational behavior literature suggests that satisfaction with preceding performance is likely to be positively related to commitment in the next period. This occurs because when the firm performs well, internal publics (e.g. top managers, employees, union representatives) and external publics (e.g. clients/customers, suppliers, investors, and credit institutions) are more likely to react favorably (Isen and Baron, 1991) to the exporting activity. Additionally, the export marketing literature also suggests that when firms’ commitment to the exporting venture increases, more resources are allocated to the exporting activity, and consequently the firm will be able to improve its planning procedures and implement more adaptive strategies (Lages and Jap, 2002). This suggests that as past performance improves, commitment increases, and this ultimately leads to marketing mix adaptation. Hence, past performance will indirectly and positively influence marketing strategy adaptation through commitment. However, the strategy and organizational behavior literature suggests a conflicting rationale. If performance improves, there will be a decline in adaptive behavior (Greve, 1998). The firms may experience the “fat cat syndrome” (Dutton and Duncan, 1987, 290) and consequently will opt for much simpler strategies, such as a standardized approach. This approach is much simpler than an adapted approach, involving less effort and consideration of environmental and
internal forces. Based on this rationale, one might suggest that past performance will lead to a lower degree of marketing mix adaptation. This conflicting issue motivates the second purpose of this paper: to contribute to a better understanding of the direct, indirect and total effects among variables. Does past performance have a negative or positive impact on the degree of marketing mix adaptation? In another words, how does past performance directly influence management commitment to exporting, and indirectly influence the degree of marketing strategy adaptation through commitment? This paper is also influenced by the contingent approach to the standardization versus adaptation debate. Within the exporting context, the contingency perspective looks for a balance between marketing strategy adaptation and standardization of domestic strategies to the foreign markets. It asserts that no strategy is superior to the other. Adaptation or standardization is a matter of degree because marketing strategies are contingent upon internal and external forces. This is an area of growing interest for both academics and practitioners (Rosenbloom et al., 1997), widely seen as one of the most vital marketing topics for the twenty-first century (Kahn, 1998). This leads us to the final objective of our paper: to extend the understanding of the contingent forces influencing standardization/adaptation in an exporting context. Though prior studies tend to look at the various aspects of the marketing mix in isolation and focus mostly on product and promotion strategies (Jain, 1989; Lages and Jap, 2002), this research will take a more comprehensive approach to this debate by including the adaptation of product, promotion, pricing and distribution strategies in the same model. In the following section, based on a review of the literature, a set of research hypotheses are summarized in an operational model. This model is tested through a cross-sectional international survey of more than 400 Portuguese managers responsible for the exporting activity of small and medium-sized exporters (SMEs). The results and their implications for theory are then discussed. After presenting implications for export business practice and public policy making, the paper ends with limitations of this research and suggestions for further research. Theoretical perspectives A contingency approach to the adaptation versus standardization controversy The contingency approach to marketing mix adaptation/standardization traces its roots to general systems theory (Boulding, 1956; Von Bertalanffy, 1951) and the behavioral theory of the firm (Cyert and March, 1963; March and Simon, 1958; Simon, 1957). The main strength of the contingency theory when applied to the standardization controversy is based on the fact that it recognizes both advantages and disadvantages associated with each of the two extremes (adaptation and standardization). This explains why this theory is also known as the “middle of the road approach”. The first steps of the contingency approach in the international marketing context were taken in the late 1960s (Buzzell, 1968; Bartels, 1968; Britt, 1974). These early works argued that the key question should not be whether or not one should adapt or standardize; rather, it should involve an examination of the potential for adaptation or standardization, taking into consideration the influencing forces. Apparently, this question no longer exists. The most recent international marketing
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literature, particularly that which is concerned with the degree of marketing program adaptation/standardization, is based on this perspective (Shoham, 1999; Zou et al., 1997). The underlying thought of today’s approach to this debate is based on the idea of degree rather than absolute standardization or adaptation. Researchers view marketing strategy along a continuum varying from pure standardization to pure adaptation. There is no right strategy; either can be the better in a particular situation. Hence, it is more important to consider the degree of adaptation and the forces that influence it than to determine whether or not a company should adapt its marketing strategies (Cavusgil and Zou, 1994; Samiee and Roth, 1992). Most studies covering the adaptation/standardization topic tend to compare the marketing strategies used by firms across various exporting markets. However, a much richer understanding of the phenomenon may be obtained by considering the extent to which domestic marketing strategies may be transferred to a particular foreign market (Cavusgil and Kirpalani, 1993; Cavusgil and Zou, 1994). This type of approach is used in this research as it allows a more precise understanding of the antecedents of marketing strategy. Therefore, we define the adaptation of product strategy as the degree to which the product (brand name, design, labeling, variety of main exporting product line, and quality) differs between the domestic and export market. Similarly, the adaptation of promotion strategy is defined as the adjustment of the domestic promotion program (advertising idea/theme, media channels for advertising, promotion objectives, budget for promotion, public relations emphasis, and direct marketing/mailing) to the main export market. Pricing strategy adaptation refers to the degree to which the pricing strategies (determination of pricing strategy, concession of credit, price discount policy, and margins) for a product differ across national boundaries. Finally, the adaptation of distribution strategy reflects the readjustment of distribution (criteria to select the distribution system, transportation strategy, budget for distribution, and distribution network) to the export market. Satisfaction with export performance In today’s complex business world, performance is an indispensable guide for any company analyzing its level of success, in both the domestic and international arenas. Assessing export performance is quite a complex task, as export performance can be conceptualized and operationalized in many ways (Diamantopoulos and Schlegelmilch, 1994). Broadly speaking, the literature considers three aspects of export performance: financial, strategic, and that of performance satisfaction (Zou et al., 1998). In particular, one approach that is increasingly relied upon is the aggregation of satisfaction with various performance measures into a single measure of export performance (cf. Diamantopoulos and Winklhofer, 2001; Katsikeas et al., 2000). This is the approach incorporated here, whereby satisfaction is defined as a compound psychological variable (an affective state) assessing the effectiveness of a marketing program in terms of its sales revenue, sales volume, profitability, market share, and overall performance (cf. Bonoma and Clark, 1988). Satisfaction is the most studied outcome variable in the marketing literature on interorganizational relationships (see Geyskens et al., 1999 for a review). One reason for this trend is the fact that performance itself is a complex construct in the view of the
firm (Greve, 1998). It is often idiosyncratic to the firm and setting; success for one company may constitute failure for another. Furthermore, for research purposes it is often impossible to establish common definitions or fixed reference points across firms. The use of satisfaction with performance allows us to compare performance across the wide range of groups presented in our sample because managers will be able to evaluate export performance while taking into consideration their own firm’s reference groups (e.g., a firm’s particular circumstance in terms of industry, stage of export involvement, and technology intensity) (Katsikeas et al., 1996). Hence, by measuring satisfaction with performance, instead of performance per se, we are able to capture the degree to which performance has matched the aspiration levels of the firm, and compare it across a variety of exporting firms. In this manner, a boundary line is incorporated and used as a reference point for perceived success and failure.
The importance of research on SMEs This paper focuses on the study of SMEs, as they play an important role in many economies (Zou and Stan, 1998). Exporting is now the preferred mode of internationalization of these firms. As SMEs are not able to compete on price with multinationals and large firms, they have to explore their strengths in other ways. A key strength is related to their lighter structure. While larger firms often suggest that adjustments to the market are not allowed because of “corporate policy”, smaller firms use this lighter structure to export and rapidly adapt their strategies to the special needs of the foreign market. The other strength of SMEs is that once they get involved in exporting they present high corporate commitment (often with the full commitment of the owner and top management), which will be essential for building good relationships with the importer and achieving competitive advantage in relation to larger corporations (Czinkota, 2002, see www.house.gov/smbiz/hearings/107th/2002/020424/czinkota.html). Previous research on SMEs has tended to focus on the effects of marketing strategy on performance. However, exploratory interviews revealed that SMEs are particularly reactive – rather than proactive – because they have limited financial resources and are much more dependent on short-term results for survival (see Lages and Melewar, 2000). SMEs are particularly vulnerable to previous export performance results because export operations require more capital and represent a larger portion of the firm’s resources than do domestic transactions. Additionally, smaller firms have to rely heavily on their own resources because it is much harder for them to gain access to credit than it is for larger firms. As a result, it is much harder for managers of SMEs to cope with lower performance levels than it is for managers of larger corporations. SMEs also play a crucial role in the economic security of different nations, a role that becomes even more vital in times of recession and limited domestic growth. There is a particular research need to pay more attention to European SMEs, as most research has been developed with firms based outside the European Union (EU); particularly North American companies (Walters and Samiee, 1990; Winer, 1998). However, the EU is the world’s largest exporter of goods. It has maintained a stable share of around one fifth of total world exports (intra-EU trade excluded) since 1990 (European Commission, 2000). The extensive saturation of the smaller European markets, such
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as the Portuguese market, has placed added pressure on firms of those countries to start selling their products abroad. Within the European context, the Portuguese case is particularly interesting, as the external commerce has contributed significantly to the economic development of the country, representing 55 percent-70 percent of the total gross domestic product (GDP) during the last decade. The export activity was particularly important in increasing the national GDP. According to the National Statistics Institute, over the six-year period preceding our survey (1993-1998), Portuguese exports increased 60 percent, from US$15,930 million to US$24,158 million. Hence, like those of other small European countries, Portuguese SMEs are a vital ingredient in the country’s growth. Research hypotheses In this paper we propose that the adaptation of marketing strategy to the foreign market is directly affected by the firm’s prior performance, its commitment to exporting, and two foreign market forces (degree of export market competition and export market development). Moreover, it is proposed that marketing strategy adaptation is indirectly affected by preceding export performance and the same two external forces, through their influence on the firm’s commitment to exporting. An overview of the conceptual framework is presented in Figure 1. In this section we begin by developing hypotheses regarding the antecedents of marketing mix adaptation. Then, the antecedents of the firm’s commitment to exporting are discussed. Antecedents of marketing strategy adaptation The effects of prior performance on marketing strategy adaptation During the last four decades, quite a number of empirical studies have been developed concerning the impact of marketing strategy adaptation on export performance. According to a recent meta-analysis (Leonidou et al., 2002), in aggregate these studies indicate that the adaptation of product, promotion, pricing and distribution strategies have a positive impact on export performance. Surprisingly, and despite the extensive research into this topic, no single empirical study has analyzed the reverse relationship,
Figure 1. A conceptual framework of the effects of prior export performance on firm’s current commitment to exporting and marketing strategy adaptation
i.e. the impact of performance on the degree of marketing strategy adaptation (Lages and Melewar, 2000). In this research we suggest that past performance is also associated with current marketing strategy definition. The organizational and strategy literature suggests that managers of firms performing poorly are under considerable pressure (Fredrickson, 1985). They are expected to do a better job, which naturally encourages them to develop more comprehensive and rational strategic decisions than managers faced with a better performance (Mintzberg et al., 1976). Poor performance puts pressure on managers to take comprehensive, accurate and discriminating decisions (Cyert and March, 1963) and will make them much more likely to search widely for information and conduct an in-depth analysis of the surrounding environments (Audia et al., 2000). The need to implement specific and distinct strategies, marked by the need to analyze the fine distinctions between the domestic and foreign markets, will naturally lead the managers of less successful organizations to develop an adapted strategy. In contrast, the literature suggests that a good performance will promote more relaxed (Cyert and March, 1963) and effortless strategic decisions (Bourgeois, 1981; March and Simon, 1958; Litschert and Bonham, 1978). These managers will become narrowly focused and overly preoccupied with the factors that have contributed to their firms’ good performance, so that they will tend to exploit the existing opportunities without searching for information and conducting an in-depth analysis of the environment (Cyert and March, 1963). Hence, managers of firms performing better will lose their ability to react to the various contingent forces (Miller, 1993). The consequence of this behavior is that the firm may begin to allocate its resources in a simpler way, reflecting a singular focus that does not correspond adequately to the complex environment that the firm is actually facing. Hence, we expect that the firm may be more likely to use a less adapted marketing strategy in an export context when its satisfaction with past performance has been particularly strong and when managers are satisfied with it. Based on this rationale, the following is proposed: H1. The greater the performance in the prior year, the lower the adaptation of product (H1a), promotion (H1b), price (H1c) and distribution (H1d) strategies in the current year. The effects of firm’s commitment to exporting on marketing strategy adaptation There are many forces within the firm that may affect export strategy success, such as organizational culture, the firm’s capabilities and competencies, internal status of the export management, location, and product differentiation. While it would be impossible to discuss all of them here, we consider one that is particularly important: the firm’s commitment to exporting. The firm’s commitment to exporting refers to the degree to which organizational and managerial resources are allocated to exporting ventures. A firm’s commitment to exporting is offered in this paper as a construct that incorporates the amount of planning, financial and human resources that the firm allocates to the exporting activity (Cavusgil and Zou, 1994), and the extent to which the manager is attached to the organization (Morris and Sherman, 1981) and exercises considerable efforts (Porter et al., 1974) to support the firm’s exporting activity. We have selected the firm’s commitment to exporting because it is a strategic decision that guides resource allocation to export strategies. The firm’s commitment to a particular direction may enhance employees’ feelings of loyalty and duty to the
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organization (Wiener and Vardi, 1980). Because of their devotion to the organization, highly committed managers are more willing to accept the organization’s solicitations for extra work as well as more demanding activities (Etzioni, 1975; Randall, 1987). Consequently, when the firm demonstrates a strong commitment to exporting, managers may be more apt to work harder on demanding tasks such as marketing strategy adaptation. On the other hand, the less committed managers tend to be less participative (Angle and Perry, 1981), and thus prefer to implement standardized strategies which are much simpler to implement and require much less work. International marketing research suggests that the more committed firms allocate more resources to the exporting activity (Aaby and Slater, 1989; Christensen et al., 1987). These extra human and financial resources enable companies to improve the depth of planning procedures (e.g. in terms of market research and market analysis) that will allow managers to implement marketing strategies that are more adapted to the needs of different markets (Cavusgil and Zou, 1994). In sum, as increasing levels of resources are committed to the exporting venture, the firm is in better position to improve its planning procedures and to implement more adaptive strategies. By applying this rationale to our study, we propose the following: H2. The greater a firm’s commitment to exporting, the more likely will be the adaptation of product (H2a), promotion (H2b), price (H2c) and distribution (H2d) strategies to the foreign market. The effects of export market forces on marketing strategy adaptation Many export market forces might influence the degree of marketing adaptation to the foreign market. Some possibilities include local government influence, the exporting country’s image, technological and cost factors, as well as export market differences in terms of product life-cycle, culture, infrastructures, and government regulations. Among these possibilities, we focus on two aspects of particular importance (degree of export market competition and export market development) that are frequently examined by literature focused on the adaptation/standardization debate (e.g. Cavusgil and Zou, 1994; Johnson and Arunthanes, 1995; Seifert and Ford, 1989). Export market competition is the extent to which businesses must strive to outdo each other to gain the economic rents of that industry. Competition may vary along multiple dimensions, such as the number of competitors, price competitiveness, and service/delivery. Any manager who is committed to developing a suitable marketing strategy must initially identify the key competitors (Clark and Montgomery, 1999; Day and Wensley, 1988). In addition, it is necessary to make an analysis of the prices (Cavusgil and Zou, 1994) and delivery times (Czinkota et al., 1996) of competitors in the different markets. Marketing managers have to pay a good deal of attention to the impact of competition on marketing decisions (Weitz, 1985). A direct comparison with other competitors will allow managers to assess their own firm’s competitive advantage (Day, 1984; Day and Wensley, 1988) and to use a reference for developing competitive marketing strategies to the different export markets. Previous empirical research in the international marketing field has shown that the level of competition in the export market is positively associated with product and promotion adaptation (Cavusgil and Zou, 1994; Cavusgil et al., 1993). If a company opts for a standardized strategy, although it may be able to achieve lower production costs, there will always be some
competitors who are willing to offer what the consumer wants (Kotler, 1996). Consequently, as the level of competition within an export market rises, firms are pressured to adapt their strategies in order to differentiate their offerings and gain competitive advantage over local challenges (Hill and Still, 1984). Hence, as competition increases, we expect that the exporting firm tends to adapt its product, promotion, pricing, and distribution strategies to the export market. In this paper we refer to the degree of export market development as the overall standard of living in the export market, as evidenced by the level of economic development and education levels in the foreign market. As with export market competition, the literature suggests that the degree of export market development enhances marketing mix adaptation. This occurs because in the more developed markets the demands are such that adaptation of marketing has to address the cultural, economic and existing legislative rules if companies wish to operate. The more developed markets tend to be more competitive (Sriram and Manu, 1995) and firms exporting to these markets have less power over exports than do firms exporting to the less developed countries (Lages and Jap, 2002). Furthermore, in the most developed markets firms are under pressure to adapt the marketing strategy to shopping patterns, where consumers tend to be more educated and more sophisticated (Buzzell, 1968). Hence, similar to what takes place with competition, we expect that the adaptation of the marketing mix elements will be enhanced by the degree of market development. Collectively, we hypothesize that: H3. The degree of export market competition is positively related with the degree of adaptation of product (H3a), promotion (H3b), price (H3c) and distribution (H3d) strategies. H4. The degree of export market development is positively related with the degree of adaptation of product (H4a), promotion (H4b), price (H4c) and distribution (H4d) strategies. There might be, however, cases in which the opposite effect occurs. This is the case of competitive and developed markets where the question is of selling efficiently through practices that take advantage of economies of scale. In addition, if the degree of foreign market competition/development is similar to the domestic market, we may see little adaptation because the same marketing mix may be applicable in both export and domestic contexts. Nevertheless, as revealed by previous empirical research, we expect that overall the degree of foreign market competition and development is associated with marketing strategy adaptation. Antecedents of firm’s commitment to exporting The effects of prior performance on firm’s commitment to exporting Previous research in international marketing indicates that the firm’s commitment to exporting directly impacts performance because this commitment is associated with the allocation of greater resources to the task, better enabling the organization to achieve its exporting goals. In general, the more committed the firms, the more successful their performance, as they are more engaged in planning, and therefore allocate greater financial and human resources to the export activity (for extensive reviews regarding this relationship see Bilkey, 1978, Aaby and Slater, 1989; Zou and Stan, 1998).
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In this study we suggest that performance should also directly impact on the firm’s commitment to exporting. To the best of our knowledge, no study in international marketing has empirically tested this relationship. Nevertheless, as suggested by previous studies (Fenwick and Amine, 1979; Madsen, 1987; Stump et al., 1998), past performance is very likely to shape the degree of commitment to exporting and should be considered a research priority. The international marketing literature suggests that export commitment is a function of resource availability (Cavusgil and Nevin, 1981). When export operations perform well, the various internal publics and external publics are more likely to support the exporting activity within the firm. On the other hand, the reputations of the exporting operations and export managers are diminished by poor performance and, consequently, they will likely have fewer resources available. This situation becomes even more evident in SMEs having a short strategic cycle. Nevertheless, the literature suggests that overall, the perception of success on the part of the different entities interacting with the company, enhanced by the firm’s internal stability, will lead the managers to increase their motivation to exporting. This leads to the following hypothesis: H5. The better the performance in the previous year, the greater the firm’s commitment to exporting. Nevertheless, one should also note some exceptions. For example, in certain situations SMEs might be prepared to accept consistent losses in order to learn and establish market share, and during this phase commitment might increase. It is also worth noting that while in performing firms the opportunities to increase performance may be viewed as discretionary possibilities, in low performing firms managers will have to be more committed because the opportunities are seen as vital (Cyert and March, 1963). When the firm is not performing well, managers will have to be committed to implementing precise and discriminant decisions and to expending the effort to make proper choices (Fredrickson, 1985). Nonetheless, based on the hints previously discussed that emerge from the international marketing literature, we will test to see if the firm’s commitment to exporting increases when managers have achieved past performance goals.
The effects of export market forces on firm’s commitment to exporting Foreign markets present both opportunities and threats for exporters (Cavusgil and Zou, 1994). Managers of firms operating in less competitive environments tend to feel less threatened and more confident about the existing opportunities (Dutton, 1993). This situation is likely to make managers less committed because the firm operates in a closed system and loses its ability to identify and react to the various issues that may arise from the environment. On the other hand, the intensity of export market competition is likely to force managers to take strategic decisions in order to gain competitive advantage over rivals (Cavusgil et al., 1993; Jain, 1989). While managers of firms operating in low competitive environments have the luxury of taking effortless strategic decisions, managers of firms operating in highly competitive environments are under constant pressure to be committed to exporting activity. The need to constantly monitor the environment, avoid potential threats and differentiate the
offerings across markets, forces firms that export to more competitive environments to be more committed to their export operations. Similar to what occurs with the degree of export market competition, we also expect that the degree of foreign market development is associated with a higher degree of the firm’s commitment to exporting. SMEs exporting to less developed countries (LDCs) are expected to be less committed because consumers in these countries are not very demanding and frequently prefer products from developed countries to those from their own country (Bilkey and Nes, 1982). Furthermore, as suggested by a Portuguese manager during a preliminary interview, SMEs may impose more convenient decisions on some of the less developed markets because “if the markets are easy, companies tend to accommodate themselves.” While Portuguese companies have no power in the relationship with importers based in developed markets, they have considerable power over importers based in the less developed markets. In contrast, when exporting to the most developed markets, firms are under pressure to be committed and satisfy as much as possible the more educated and sophisticated consumers in those countries (Buzzell, 1968). Hence, similar to what happens with firms operating in the more competitive environments, firms operating in the most developed markets will have to be committed to the exporting activity and try to maximize satisfaction to the importers in those markets. Collectively, the above rationales can be expressed in the following hypotheses: H6. The degree of export market competition is positively related with the firm’s commitment to exporting. H7. The degree of export market development is positively related with the firm’s commitment to exporting. Method Data collection procedure A questionnaire was developed that incorporates a variety of multi-item measures and indicators of the conceptual framework. Additional indicators derived from exploratory interviews in the research context were also included. Both adaptation of product and promotion strategies were adapted from Zou et al. (1997); both adaptation of pricing and distribution strategies were adapted from Shoham (1999). With regard to the export market forces, the firm’s commitment to exporting was adapted from Cavusgil and Zou (1994) and the degree of foreign market development was specifically developed for this research. The scale for satisfaction with prior year’s export performance was influenced by Shoham’s (1996) work. In line with the OECD’s 1994 definition, we use 500 employees as the dividing line between an SME and a large firm. A sample of 2,100 small and medium-sized exporters was randomly generated from the government agency database of Icep-Portugal (available at: www.portugal.org/information/index.html) (ICEP, 1997). After analyzing the results of the preliminary interviews and pre-testing the questionnaire[2], data collection was conducted in the first quarter of 1999. Questionnaires with an international postage-paid business reply envelope were sent to the person responsible for exporting operations. This was followed by a reminder letter that included a reply envelope. Out of 2,100 questionnaires, 29 managers replied that they no longer exported and 104 questionnaires were returned by the postal service. These firms had
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either closed down or moved without leaving a forwarding address. Thus the sample size was reduced to 1,967. By the cut-off date, 459 questionnaires had been returned (413 valid), which was equivalent to a 23.3 percent return rate (21 percent net response rate). This result is quite satisfactory, considering that high-level executives are much less likely to respond than people in the general population (Hunt and Chonko, 1987). Furthermore, because of the numerous obstacles that have to be overcome, the collection of data from a foreign country is usually more difficult (Douglas and Craig, 1983), making the response rates much lower for international surveys (Zou et al., 1997). The existence of a good response rate provides some confidence that response bias is not a significant problem (Weiss and Heide, 1993). Nevertheless, non-response bias was tested by assessing the differences between the early and late respondents with regard to the means of the 36 items exhibited in the Appendix (Armstrong and Overton, 1977). No significant differences between the early and late respondents were found, suggesting that response bias was not a significant problem in the study. Data and respondents’ profile Nearly 90 percent of the respondents reported on ventures with other European Union countries, while the remainder occurred with non-EU countries. Exporters from all of the Portuguese regions participated in the survey. While 22 percent of SMEs have annual sales exceeding e5m, only a small number (8 percent) have sales revenues of total exports above that figure. Even lesser (2 percent) is the number of SMEs with sales revenues of the main export venture above the e5m limit. The average sales revenues of the main export venture ranged from e400,000-e750,000. The survey was directed to individuals who were primarily responsible for exporting operations and activities. The job title of these individuals ranged from president to marketing director, managing director, and exporting director. Of the respondents, 39.7 percent indicated that they had been responsible for the exporting operations of their firm for eight to 15 years, while 83.3 percent ranged from three to 30 years. Respondents were also asked to indicate their degree of experience in exporting on a scale where 1 ¼ none and 5 ¼ substantial. The mean response was 3.5 (SD ¼ 0.85, range 1 to 5). Collectively, this indicates that although the title of the respondents’ positions may be wide-ranging, the individuals appear to have significant knowledge in the specific exporting activities of the firm and are experienced with exporting in general. The unit of analysis In line with the most recent export marketing research (Styles, 1996, 1998; Lages, 2000b), the firm’s main export market venture (MEV) is analyzed in this study. There are problems involved in analyzing more than one export venture from the same firm because, as revealed during the exploratory study, in many firms managers develop a marketing strategy only for the MEV. Many of the secondary export ventures have no defined strategy or are just a consequence of the strategy defined for the MEV. Additionally, the MEV is used because it is believed that analyzing a single product or product line exported to a single foreign market makes it possible to associate past performance more precisely with its outcomes.
Data analysis Confirmatory factor analysis In order to assess the validity of the measures, the items are subjected to a confirmatory factor analysis (CFA), using full-information maximum likelihood (FIML) estimation procedures in LISREL 8.3 (Jo¨reskog and So¨rbom, 1993). In this model, each item is restricted to load on its pre-specified factor, with the eight factors allowed to correlate freely. Despite the significant chi-square for this model (x2 ¼ 861.48, 467df, p , 0.00), the fit indices – the comparative fit index (CFI ¼ 0.95), the Incremental fit index (IFI ¼ 0.95), and the Tucker-Lewis fit index (TLI ¼ 0.94) – are indicative of a good fit. Since fit indices can be improved by allowing more terms to be freely estimated, we also assess the root mean square error of approximation (RMSEA), which assesses fit and incorporates a penalty for lack of parsimony. A RMSEA of 0.05 or less indicates a close fit to the population, while 0.08 to 0.10 indicates a satisfactory fit, with any score over 0.10 indicating an unacceptable fit. The RMSEA of this measurement model is 0.045. The Appendix (Figure A1) provides an overview of the standardized estimates and t-values of each item on its intended construct. Convergent validity is evidenced by the large and significant standardized loadings (average loading size was 0.77). As shown in the Appendix, all eight constructs present the desirable levels of composite reliability (Bagozzi, 1980). Discriminant validity among the constructs was also stringently assessed using the Fornell and Larcker (1981) test; all possible pairs of constructs passed this test. Discriminant validity was also evidenced by the correlation estimates between any two constructs (Jo¨reskog and So¨rbom, 1993). No correlation includes a value of 1 (Anderson and Gerbing, 1988) and the highest correlation is 0.47 for promotion strategy adaptation and distribution strategy adaptation. Table I provides an overview of the construct means, standard deviations, and the correlation matrix among the constructs.
Path model parameter estimates The conceptual framework of Figure 1 is simultaneously estimated in a structural equation model using FIML estimation procedures in LISREL 8.3. Specifically, this model contains eight constructs, 33 observable indicators, measurement and latent variable errors, and inter-correlations between the latent factors. This model also has a significant chi-square of 1144.02 (df ¼ 473, p , 0.00), but again, the fit indices suggest a good fit of the model to the data (CFI ¼ 0.92, IFI ¼ 0.92, TFI ¼ 0.91, RMSEA ¼ 0.059). Table II provides the maximum likelihood estimates for all the direct, indirect and total effects associated with the structural paths. The estimates are standardized and thus may be treated as an indication of the relative importance of each variable relative to each endogenous variable (Goldberger, 1964). When testing H1a and H1b, the results suggest that the direct association of prior export performance with product and promotion adaptation is not significant. However, performance has a significant and positive indirect impact on product strategy adaptation (0.04, p , 0.05). Consistent with hypotheses H1c and H1d, the results suggest that the prior year’s export performance has a significant and negative direct impact on the degree of adaptation of both pricing (g ¼ 2 0.13, p , 0.05) and distribution (g ¼ 2 0.15, p , 0.005) strategies. Table II also shows that the significant
Export performance
1199
Table I. Means, standard deviations, and correlations among latent constructs 3.2 2.2 2.5 2.8 3.2 2.8 3.8 3.7
Y2. Current adaptation of product strategy to the foreign market
Y3. Current adaptation of promotion strategy to the foreign market
Y4. Current adaptation of pricing strategy to the foreign market
Y5. Current adaptation of distribution strategy to the foreign market
X1. Satisfaction with prior year’s export performance
X2. Export market competition
X3. Export market development
Mean
Y1. Firm’s current commitment to exporting
Construct
0.95
0.80
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
Min
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
Max
0.285
0.173
0.282
0.101
0.019
0.060
0.145
1
1
0.141
0.082
0.012
0.179
0.379
0.272
1
2
0.107
0.051
0.011
0.470
0.422
1
3
0.441
1
2 0.044
0.034
2 0.094
4
1
0.139
0.056
2 0.024
5
1200
0.79
1.21
1.05
1.16
1.09
0.89
SD
0.202
0.029
1
6
0.236
1
7
1
8
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0.16* (2.24) H2a 0.16* (2.24)
0.06 (0.88) H2b 0.06 (0.88)
0.09 (1.35) H2c
0.09 (1.35)
0.15* (2.23) H2d
0.14* (1.98) H4d
2 0.07 (2 1.12) H3d
0.17*** (2.61)
0.04* (1.96)
0.15* (2.23)
2 0.05 (2 0.76)
0.02* (1.66)
2 0.12**** (2 2.10)
Notes: Values in upper rows are completely standardized estimates. Values in lower rows are t-values. *p , 0.05; **p , 0.01; ***p , 0.005 (one-tailed test)/****p , 0.05 (two-tailed test). Because of rounding, sometimes the “total effect” is the not the same as “the direct effect plus the indirect effect”. The signs for the expected indirect and total effects were established by implication. We assume that if all the direct relationships involved in an indrect relationship are positive, the final indirect relationship is also expected to be positive. The same principle applies to the total effects. If both direct and indirect effects are expected to be positive, then the sign for the total effect is also expected to be positive
Y1 Firm’s current commitment to exporting
0.02 (1.27)
0.05 (0.72)
0.16* (2.30)
0.01 (0.87)
0.03 0.18*** (0.36) H4c (2.72)
0.12* 0.25*** (3.66) 0.25*** (1.69) H4a H7 (3.66) 0.04* (1.96)
0.16** (2.40) H4b
X3: Export market development
2 0.02 (2 0.34)
2 0.04 2 0.09 (2 0.56) 0.01 (1.19) (2 1.57) H3c
2 0.10 (2 1.69) 0.01 H3b (0.82)
0.02 (0.34)
0.00 (2 0.04) 0.02* H3a (1.67)
0.15** X2: Export market (2.49) H6 competition 0.15** (2.49)
2 0.13* 2 0.04 (2 2.26) 0.02 (1.29) (2 0.80) H1c
2 0.15*** 0.04* 2 0.11**** (2.66) H1d (1.98) (2 1.96)
Y5 Current adaptation of Y4 distribution strategy to the Current adaptation of pricing foreign market strategy to the foreign market Direct Indirect Total Direct Indirect Total
2 0.06 2 0.02 (2 1.02) 0.01 (0.86) (2 0.40) H1b
Y3 Current adaptation of promotion strategy to the foreign market Direct Indirect Total
0.24*** 2 0.06 (4.19) (2 1.02) 0.04* H1a (2.00)
Y2 Current adaptation of product strategy to the foreign market Direct Indirect Total
0.24*** (4.19) H5
X1: Satisfaction with prior year’s export performance
Effect of/on
Y1 Firm’s current commitment to exporting Direct Indirect Total
Export performance
1201
Table II. Effects of exogenous and prior endogenous constructs (aximum likelihood estimation, n ¼ 413)
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positive indirect impact of performance on the adaptation of distribution strategy leads to a weakening of the total effects, which, however, remain negatively significant. As predicted by hypotheses H2a and H2d, the results indicate that a firm’s commitment to exporting significantly influences the degree of adaptation of product (b ¼ 0.16, p , 0.05) and distribution (b ¼ 0.15, p , 0.05) strategies. The firm’s commitment to exporting is not significantly associated with adaptation of promotion (H2b) and pricing (H2c) strategies. Table II shows that although there is not a significant direct impact of export market competition on product (H3a), promotion (H3b), pricing (H3c) and distribution (H3d) strategies, there is a significant positive indirect impact of competition on the degree of adaptation of both product and distribution strategies. However, the total effects remain non-significant. In contrast, consistent with H4a, H4b and H4d, export market development has a significant positive impact on the degree of adaptation of product (g ¼ 0.12, p , 0.05), promotion (g ¼ 0.16, p , 0.01) and distribution (g ¼ 0.14, p , 0.05) strategies. The three indirect effects strengthen the total effects for all three relationships because they are also positive. Surprisingly, export market development is not significantly associated with pricing adaptation (H4c). The last three hypotheses (H5, H6 and H7) are confirmed. The results show that commitment to exporting is highly significantly influenced by the three exogenous variables: prior export performance (g ¼ 0.24, p , 0.005), export market competition (g ¼ 0.15, p , 0.01), and export market development (g ¼ 0.25, p , 0.005). In sum, ten out of the 19 predicted direct relationships are statistically significant at p , 0.05 level or better. Table II also shows that six out of the 12 possible indirect effects, and ten out of the 19 possible total effects, are statistically significant at p , 0.05 and beyond.
Relative importance of predictor variables The above discussion has focused upon the rows of Table II. The following discussion will consider the relative explanatory power of the predictor variables with respect to each of the five endogenous variables in the model, thus examining the columns of Table II. For Y1, the current year’s commitment to exporting, the first columns show that X3, export market development (0.25, p , 0.005) and X1, satisfaction with prior year’s export performance (0.24, p , 0.005), are equally important and both are more so than X2, export market competition (0.15, p , 0.01), although all three variables are significant at p , 0.01 and beyond. Thus, the three exogenous variables have the expected positive impact on export commitment, not just significantly, but of a reasonable magnitude, as well. For Y2, product strategy adaptation, only Y1 (0.16, p , 0.05), the firm’s current year commitment to exporting, and X3 (0.16, p , 0.05), export market development, have a significant and virtually equal importance. However, for Y3, promotion strategy adaptation, only X3 (0.18, p , 0.005), export market development, has a statistically significant and sizeable impact. In contrast, for Y4, price strategy adaptation, only X1 (2 0.11, p , 0.05), satisfaction with the prior year’s export performance, has any significant association and that at
the smallest magnitude of total effects among those in Table II that are statistically significant. Finally, for Y5, distribution strategy adaptation, three of the four predictor variables are significant at p , 0.05 or better and are fairly equal in impact: X3 (0.17, p , 0.005), export market development, Y1 (0.15, p , 0.05), firm’s current year export commitment, and X1 (2 0.12, p , 0.05), satisfaction with prior years’ export performance. Thus, the decision to adapt distribution strategy appears to be the most multifaceted of all four adaptation decisions. The above results suggest that the three exogenous variables (X1, X2, and X3) and Y1 have markedly different impacts on strategy adaptation across marketing’s 4Ps. This suggests that using a more aggregated variable, such as overall marketing strategy adaptation, could lead to misleading results or even mask significant relationships. It should also be noted that our results suggest that X2, export market competition, does not appear to have much impact on strategy adaptation to the foreign market, in stark contrast to export market development, which had a substantial impact on all except price adaptation. Discussion The major contribution of the study stems from the empirical findings. First, our findings support the argument that export performance is an antecedent of the firm’s commitment to exporting. Second, export performance affects the way managers define their exporting strategies. Specifically, it affects the degree of adaptation of product (significant indirect effects), pricing (significant direct and total effects) and distribution (significant direct, indirect and total effects). This leads us to conclude that international marketing researchers are overlooking a potentially significant part of the export-marketing phenomenon. We expect that the empirical findings presented in this paper will lead international marketing academics to reflect on the importance of prior performance to a firm’s commitment to exporting. By better understanding this relationship and the different forces influencing it, international marketing researchers will be able to help firms enhance their export commitment when performing poorly (suggestions are presented under “Implications for practice and public policy making”). The impact of performance on marketing strategy is particularly relevant in the context of SMEs. As suggested by the export manager of a clothing firm, “strategy is defined every day as a result of past results.” Following the view of the manager of a metal-exporting company, we might also conjecture that many SMEs are being led into a vicious circle, where they are not able to improve their performance in the long term because they are reacting too quickly in the short term, without expecting to observe the effects of their strategy in the long term. The interviewees also offered different explanations for the negative impact of performance on marketing strategy adaptation. The general manager of a stone-exporting firm suggested that SMEs tend to have limited resources and “Portuguese managers are usually reluctant to invest”. Hence, if companies achieve a good performance they will tend to relax and use more standardized strategies that require many fewer resources than do more adapted strategies. Another exporting manager suggested that, since the companies which perform better are not under pressure, they might prefer to standardize their strategies in order to “become more
Export performance
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homogeneous across markets and reduce the disorder” which normally results from having different strategies for different markets. One of the key advantages of using a path model is the possibility of estimating not only the direct effects, but also the indirect and total effects among latent variables (Bollen, 1989). Indeed, interesting insights are raised when using this type of approach to analyze our data. A surprising finding is that while performance has a negative direct impact on all the marketing strategy elements (the impact is significant for pricing and distribution), the indirect effects of performance on the four marketing strategy elements through firm’s commitment to exporting are positive (significant for product and distribution), which naturally leads to a weakening of the total effects[3] (significant for pricing and distribution). Accordingly, we conclude that although the firms that perform better tend to relax, and consequently implement simpler strategies (particularly with regard to the standardization of both pricing and distribution strategies), this situation is less likely to occur when firms are committed to exporting activity (in which case they will tend to adapt more the product and distribution strategies). When comparing the total effects of the three exogenous variables on the firm’s commitment to exporting, both prior performance and export market development are found to have a similar highly significant positive impact on that commitment. Although the impact of export market competition on a firm’s commitment to exporting is also significant, this impact is slightly lower than the impact of the other two exogenous constructs[4]. When analyzing the key antecedents of the marketing mix strategy, it is found that export market development and a firm’s commitment to exporting are the most important determinants of product strategy adaptation to the main foreign market. The degree of export market development is also found to be the most important determinant of both promotion and distribution strategies adaptation. Prior performance is the key determinant of pricing strategy adaptation. Finally, the structural model presented here also adds significantly to previous research by showing that a firm’s marketing strategy (namely the degree of adaptation of product and distribution strategies) is affected by the degree of export market competition and development, through the indirect effects of management commitment to exporting. Implications for practice and public policy making Exporting activity may be very attractive from the point of view of both managers and public policy makers. From the point of view of managers, exporting to foreign markets can be very rewarding and is sometimes the only way for SMEs to survive. Through exporting activity, SMEs may extend the life cycle of their products, reduce their overall operating costs (e.g. costs associated with marketing, production, R&D and technology) and use the foreign market to absorb their excess capacity. The model presented in this paper helps managers to systematize the complex export-marketing phenomenon and, simultaneously, might help to improve their marketing expertise and enhance their ability to protect and perform better in the domestic market. Our research findings indicate that firms with higher performance levels are more inclined to standardize their pricing and distribution strategies in the following year (except when the firms are more committed to the exporting activity; if this situation occurs there is a tendency to increase the adaptation of the product and distribution strategies). SMEs’ managers are particularly encouraged to reflect on the
fact that quite often it will not be possible to see the effects of preceding strategies in the long run because strategies are determined every year as a reaction to the previous year’s results. By better understanding how prior performance, and the degree of export market competition and development affect marketing strategy definition, SMEs’ managers should be able to improve their exporting strategies in the long term. Finally, the findings might also be of vital importance when the firm is assessing its propensity to export, because at this stage the firm may have to take into account the degree of competition and market development in making the decision. Research into SMEs is also of relevance for governments from both developed countries and LDCs. While in the more developed countries SMEs represent a growing percentage of national exporting activity (Dichtl et al., 1984), in the LDCs they have been used as a way to achieve economic growth (Jaffe and Pasternak, 1994). By better understanding exporting firms, public policy makers will be able to help these firms compete more effectively in global markets (Lages and Montgomery, 2003). In particular, our findings reveal that SMEs performing poorly will be less committed to exporting activity. Both national and international public policy makers could use part of their limited resources to help overcome this tendency[5]. The most obvious option would be to provide training assistance on export strategy to the managers of the less committed firms. Another possibility would be to play an active role in exposing these managers to potential opportunities in foreign markets (e.g. by sponsoring their participation in international trade fairs and visits to potential foreign clients). Moreover, since international market studies are extremely expensive (and are often inaccessible to SMEs), public policy makers could also grant the managers of these firms free access to the existing EU databases that contain contact details for foreign firms. Research limitations The results presented in this paper should be interpreted with caution in the light of some significant limitations. A first limitation relates to the omission of certain relevant variables. For example, future research might include other possible determinants of marketing strategy and management commitment[6]. As Pedhazur and Schmelkin (1991) explain, such an omission may lead to a degree of bias in the parameter estimates associated with the independent variables. However, it must be stressed that the goal of this research is not to present a holistic approach to the export marketing phenomenon. The focus is on the relationship among prior performance, commitment and marketing strategy under the influence of key market forces. This research has focused on SMEs operating in Portugal. Portugal is particularly interesting to study as it is an emergent EU economy that is strongly dependent on the exporting activity of its firms. Furthermore, the small size of Portugal’s domestic market leads to a strong export orientation of Portuguese firms. Nevertheless, a sample based on export ventures from only SMEs or from firms based in a single country is bound to be limited. The results cannot be automatically generalized to larger firms or firms based in other countries without further evidence. In terms of causality, two initial concerns were that the use of techniques such as LISREL could not prove the direction of causality; and due to the lack of time and financial resources, it would not be possible to develop a longitudinal research design. As suggested by Madsen (1987), in order to overcome these obstacles we introduced time lags in our survey instrument. For example, in the relationship between 1997
Export performance
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performance and 1998 pricing strategy adaptation, the direction of causality became clear. In terms of a logical progression, 1997 performance affects 1998 pricing strategy, but the opposite relationship is ruled out. Nevertheless, in the future it is recommended to replicate our research through the use of a longitudinal approach. Despite the study’s evident limitations, it is believed that a solid survey instrument has been produced both at the measurement and causality levels. All the measures presented in this study are reliable and valid, and the final structural model presents a good fit. Directions for further research Strategic decisions are motivated by reactive behaviors in which the firm responds to past results (Lindblom, 1959). Most research (including that in marketing) tends to ignore the firm’s reactive behavior, despite the fact that it may play an equal, if not greater, role as proactive behavior in the determination of current strategy. Hence, it is essential for international marketing researchers to start investigating the reactive behavior, and consequently using export performance as a variable on the right side of the equation (i.e. as an independent variable). It is believed that the two relationships proposed in this paper (i.e. “performance ¼ . firm’s commitment” and “performance ¼ . marketing strategy”) suggest potentially fruitful avenues of research. It is particularly important to investigate the conditions under which past performance affects a firm’s commitment to exporting and exporting marketing strategy. Although neglected by previous international marketing research, managers consider past performance and its effects as a top priority issue. If performance has been satisfactory, firms will be in a better position to develop long-term results. The internal and external publics are more likely to react positively and export managers will be in a better position to request from top managers and public policy makers more human and financial support for the development of exporting marketing strategy. Additionally, past performance is vital because it relates to managers’ personal interests, as a positive performance might have an immediate effect in terms of personal income (e.g. salary bonus). In this study we use the 4Ps adaptation as the dependent variables. There is a need to develop international marketing frameworks that examine the marketing mix as a whole, rather than concentrating on just one of the “Ps”. Instead of discussing whether a company should standardize its marketing strategies or not, a fruitful direction for future research is to try to understand the interaction between the existing forces and the degree of adaptation to the main foreign market (Jain, 1989). Furthermore, in this study we focus on the rate of change of marketing strategy (export versus domestic adjustments) as a consequence of previous performance. Future international marketing research is also encouraged to analyze whether a strategy has been changed from one year to the following in response to past performance, and the reasons behind this change. Most studies tend to concentrate exclusively on the analysis of the direct relationships among the elements involved in the export-marketing phenomenon. Much more empirical research is needed to focus on the analysis and understanding of the indirect relationships (Zou and Stan, 1998). The use of an advanced multivariate technique, such as SEM, is recommended to model such complex relationships (Hair et al., 1998). Our results indicate that satisfaction with prior year’s export performance
has a direct impact on a firm’s commitment to exporting, an indirect impact on product strategy adaptation, a direct impact on pricing strategy adaptation, and both a direct and indirect impact on the adaptation of distribution strategy. However, there is a non-significant impact of prior year’s export performance on promotion adaptation. It might be true that it takes longer than a single year to observe the impact of the previous year’s performance on the decision of adapting promotion strategies – particularly if a promotion campaign is a long-term, multi-year effort. Future research is needed to further examine this possibility. This particular study shows that marketing strategy is a function of the fit between preceding performance, management commitment and export market forces. Although the occurrence of these effects might be observed in SMEs, their occurrence might be unusual in larger firms. For example, since large companies have more resources to train their managers, the latter will almost certainly be more committed to exporting and in a better position to develop marketing strategies. Future research should test this possibility. In order to further test the relationships presented here, this study should be replicated with firms based in different countries. Nevertheless, generalizations to SMEs based in countries with characteristics similar to those of Portugal (i.e. small European countries, emergent economies, or export-oriented countries) must be made with caution. Two interesting possibilities would be to develop a similar survey across different European countries, or to compare firms based in developed and less developed countries. It would also be useful to test the hypotheses presented in this paper according to the level of internationalization of the firms and when comparing service industries and goods manufacturing. Finally, both the “performance ¼ . firm’s commitment to exporting” and “performance ¼ . marketing strategy” relationships proposed in this paper in an international business context should be tested at the domestic level.
Notes 1. Percentages do not add up to 100 percent because in 6 percent of the reviewed studies, performance appears in some other capacity. 2. Both the results of the preliminary interviews and an extensive list of the various steps used to pretest the questionnaire may be obtained from the first author. 3. This includes both the significant and non-significant indirect effects. 4. The standardized coefficients indicate how a typical variation in the independent variable leads to, or is associated with, a typical change or variation in the dependent variable (Goldberger, 1964). They give an indication of relative importance to the dependent variable. 5. By saying this, we do not mean that public policy support to exporting should not be provided to managers of successful firms. 6. Possibilities include the use of alternative ways of assessing export market characteristics (e.g. the extent to which the foreign market is profitable or has potential for growth) and the use of other export performance measures (e.g. export intensity). Future may also include the type and availability of existing resources (e.g. financial and human resources) as well as other strategic factors (e.g. degree to which the venture is related to other complementary export operations, and the extent of information collection about main competitors and markets).
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Shoham, A. (1996), “Marketing-mix standardization: determinants of export performance”, Journal of Global Marketing, Vol. 10 No. 2, pp. 53-73. Shoham, A. (1999), “Bounded rationality, planning, standardization of international strategy, and export performance: a structural model examination”, Journal of International Marketing, Vol. 7 No. 2, pp. 24-50. Simon, H. (1957), Administrative Behavior, Macmillan, New York, NY. Sriram, V. and Manu, F.A. (1995), “Country-of-destination and export marketing strategy: a study of US exporters”, Journal of Global Marketing, Vol. 8 No. 3/4, pp. 171-90. Stump, R.L., Athaide, G.A. and Axinn, C.N. (1998), “The contingent effect of the dimensions of export commitment on exporting financial performance: an empirical examination”, Journal of Global Marketing, Vol. 12 No. 1, pp. 7-25. Styles, C. (1996), “Determinants of export performance in small and medium sized enterprises: an empirical investigation in the UK and Australia”, unpublished PhD dissertation, London Business School, London University, London. Styles, C. (1998), “Export performance measures in Australia and the United Kingdom”, Journal of International Marketing, Vol. 6 No. 3, pp. 12-36. Von Bertalanffy, L. (1951), “General system theory: a new approach to unity of science”, Human Biology, Vol. 23, December, pp. 303-61. Walters, P.G.P. and Samiee, S. (1990), “A model for assessing performance in small US exporting firms”, Entrepreneurship Theory and Practice, Vol. 15 No. 2, pp. 33-50. Weiss, A.M. and Heide, J.B. (1993), “The nature of organizational search in high-technology markets”, Journal of Marketing Research, Vol. 30 May, pp. 220-33. Weitz, B.A. (1985), “Introduction to the special issue on competition in marketing”, Journal of Marketing Research, Vol. 22 No. 3, pp. 229-36. Wiener, Y. and Vardi, Y. (1980), “Relationships between job, organization, and career commitments and work outcomes – an integrative approach”, Organizational Behavior and Human Performance, Vol. 26, pp. 81-96. Winer, R.S. (1998), “From the Editor”, Journal of Marketing Research, Vol. 35, February, pp. iii-iiv. Zou, S. and Stan, S. (1998), “The determinants of export performance: a review of the empirical literature between 1987 and 1997”, International Marketing Review, Vol. 15 No. 5, pp. 333-56. Zou, S., Andrus, D. and Norvell, D. (1997), “Standardization of international marketing strategy by firms from a developing country”, International Marketing Review, Vol. 14 No. 2, pp. 107-23. Zou, S., Taylor, C.R. and Osland, G.E. (1998), “The EXPERF scale: a cross-national export performance measure”, Journal of International Marketing, Vol. 6 No. 3, pp. 37-58. Further reading Bourgeois, L.J. (1980), “Performance and consensus”, Strategic Management Journal, Vol. 1, pp. 227-48. OECD (1995), “Developments in individual countries: Portugal”, Economic Outlook, No. 58, p. 99. Rosa, M.N. (1993), “Portugal: EC link brings benefits”, Euromoney, January, p. 90.
Appendix
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Figure A1. Scale items, reliabilities, variance extracted, item-loadings and t-values (n ¼ 411)
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Figure A1.
