Future of Global Business

The Future of Global Business

The Future of Global Business A Reader

Michael R. Czinkota McDonough School of Business, Georgetown University and the University of Birmingham, U.K. Masaaki Kotabe Institute of Global Management, Temple University, Philadelphia, P.A. Ilkka A. Ronkainen McDonough School of Business, Georgetown University, Washington, D.C.

First published 2011 by Routledge 711 Third Avenue, New York, NY 10017 Simultaneously published in the UK by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Routledge is an imprint of the Taylor & Francis Group, an informa business

This edition published in the Taylor & Francis e-Library, 2011. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. © 2011 Taylor & Francis The right of the editors to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging in Publication Data The future of global business: a reader / [edited by] Michael R Czinkota, Ilkka A Ronkainen, Masaaki Kotabe. p. cm. 1. Export marketing. 2. International business enterprises. 3. International trade. I. Czinkota, Michael R. II. Ronkainen, Ilkka A. III. Kotabe, Masaaki. HF1416.F88 2011 338.8'8—dc22 2010022288

ISBN 0-203-87813-2 Master e-book ISBN

ISBN13: 978-0-415-80093-8 (hbk) ISBN13: 978-0-203-87813-2 (ebk)

To Ilona and Margaret. MRC To my children in pursuit of their dreams. MK To Sirkka and Alpo Ronkainen. IAR

Table of Contents

About the Editors 1. Role of Research in International Marketing 1.1 Czinkota, Michael R. and Ilkka A. Ronkainen, “An International Marketing Manifesto,” Journal of International Marketing 11,1, 2003, 13–27.

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1.2 Czinkota, Michael R. and A. Coskun Samli, “The Remarkable Performance of International Marketing in the Second Half of the 20th Century,” European Business Review, 19, 4, 2007, 316–331.

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1.3 Czinkota, Michael R., “Freedom and International Marketing: Janis Joplin’s Candidacy as Patron of the Field,” Thunderbird International Business Review, January–February 2005, 1–13.

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1.4 Czinkota, Michael R., “Academic Freedom for All in Higher Education: The Role of the General Agreement on Trade in Services,” Journal of World Business, 41, 2, 2006, 149–160.

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1.5 Czinkota, Michael R., “International Information CrossFertilization in Marketing: An Empirical Assessment,” European Journal of Marketing, 34, 15, 2000, 1305–1314. Winner, Article of the Year Award.

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1.6 Czinkota, Michael R. and Ilkka A. Ronkainen, “Trends and Indications in International Business: Topics for Future Research,” Management International Review, April 2009. 1.7 Kotabe, Masaaki and Crystal X. Jiang, “Contemporary Research Trends in International Marketing: The 2000s,” in Alan Rugman, ed., Oxford Handbook of International Business, 2nd ed., Oxford: Oxford University Press, 2008, 447–501.

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2. Competition from Emerging Markets 193 2.1 Malik, Omar R. and Masaaki Kotabe, “Dynamic Capabilities, Government Policies, and Performance in Firms from Emerging Economies: Evidence from India and Pakistan,” Journal of Management Studies, 2009. 195 2.2 Gao, Gerald Y., Janet Y. Murray, Masaaki Kotabe, and Jiangyong Lu, “A ‘Strategy Tripod’ Perspective on Export Behaviors: Evidence from Domestic and Foreign Firms Based in an Emerging Economy,” Journal of International Business Studies, 39, 2009.

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2.3 Aulakh, Preet S., Masaaki Kotabe, and Hildy Teegen, “Export Strategies and Performance of Firms from Emerging Economies: Evidence from Brazil, Chile, and Mexico,” Academy of Management Journal, 43 (3), 2000, 342–361.

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2.4 Aulakh, Preet S. and Masaaki Kotabe, “Institutional Changes and Organizational Transformation in Developing Economies,” Journal of International Management, 14 (September), 2008, 209–216.

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3. Marketing Mix 3.1 Dimofte, Claudiu V., Johny K. Johansson, and Ilkka A. Ronkainen, “Cognitive and Affective Reactions of U.S. Consumers to Global Brands,” Journal of International Marketing, 16, 4, December 2008.

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3.2 Czinkota, Michael R. and Masaaki Kotabe, “Entering the Japanese Market: A Reassessment of Foreign Firms’ Entry and Distribution Strategies,” Industrial Marketing Management, 29, November 2000, 483–491.

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3.3 Swan, K. Scott, Masaaki Kotabe, and Brent B. Allred, “Exploring Robust Design Capabilities, Their Role in Creating Global Products, and Their Relationship to Firm Performance,” Journal of Product Innovation Management, 22, 2, March 2005, 144–164.

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3.4 Clark, Terry, Masaaki Kotabe, and Dan Rajaratnam, “Exchange Rate Pass-Through and International Pricing Strategy: A Conceptual Framework and Research Propositions,” Journal of International Business Studies, 30, Second Quarter, 1999, 249–268.

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3.5 Gençtürk, Esra F. and Masaaki Kotabe, “The Effect of Export Assistance Program Usage on Export Performance: A Contingency Explanation,” Journal of International Marketing, 9, 2, 2001, 51–72. 459 4. Global Sourcing and Supply Chain Management 4.1 Czinkota, Michael R., “An Analysis of the Global Position of U.S. Manufacturing,” Thunderbird International Business Review, October 2003: 505–519.

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4.2 Kotabe, Masaaki, Michael J. Mol, and Sonia Ketkar, “An Evolutionary Stage Model of Outsourcing and Competence Destruction: A Triad Comparison of the Consumer Electronics Industry,” Management International Review, 48, 1, 2008, 65–93.

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4.3 Kotabe, Masaaki, Michael J. Mol, and Janet Y. Murray, “Outsourcing, Performance, and the Role of E-Commerce: A Dynamic Perspective,” Industrial Marketing Management, 37, 1, 2008, 37–45.

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4.4 Murray, Janet Y., Masaaki Kotabe, and Joe Nan Zhou, “Strategic Alliance-Based Sourcing and Market Performance:

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Evidence from Foreign Firms Operating in China,” Journal of International Business Studies, 36, 2, March 2005, 187–208.

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5. Emerging Issues 5.1 Czinkota, Michael R., Gary A. Knight, Peter W. Liesch, and John Steen, “Positioning Terrorism in Management and Marketing: Research Propositions” Journal of International Management, 11, 2005, 581–604.

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5.2 Czinkota, Michael R., David A. Grossman, Rajshekhar G. Javalgi, and Nicholas Nugent, “Foreign Market Entry Mode of Service Firms: The Case of U.S. MBA Programs,” Journal of World Business, forthcoming.

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5.3 Czinkota, Michael R., “How Government Can Help Increase U.S. Export Performance: Testimony Before the House Committee on Small Business.”

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5.4 Kotabe, Masaaki and Crystal X. Jiang, “Three Dimensional: The Markets of Japan, Korea, and China are Far from Homogeneous,” Marketing Management, 15, 2, 2006, 39–43.

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5.5 Kotabe, Masaaki, Srini S. Srinivasan, and Preet S. Aulakh, “Multinationality and Firm Performance: The Moderating Role of R&D and Marketing Capabilities,” Journal of International Business Studies, 33, 1, 2002, 79–97.

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Index

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The Future of Global Business: A Reader Edited by Michael R. Czinkota and Ilkka A. Ronkainen Global Business: Positioning Ventures Ahead Michael R. Czinkota and Ilkka A. Ronkainen This list matches the chapters in Global Business: Positioning Ventures Ahead with the readings found in this book.

Chapter 1: The Global Imperative 1.1 Czinkota, Michael R. and Ilkka K. Ronkainen, “An International Marketing Manifesto” 1.2 Czinkota, Michael R. and J. Samli “The Remarkable Performance of International Marketing in the Second Half of the 20th Century” Chapter 2: Establishing the Context 2.1 Malik, Omar R. and Masaaki Kotabe, “Dynamic Capabilities, Government Policies, and Performance in Firms from Emerging Economies: Evidence from India and Pakistan” 2.3 Aulakh, Preet S., Masaaki Kotabe, and Hildy Teegen, “Export Strategies and Performance of Firms from Emerging Economies: Evidence from Brazil, Chile, and Mexico” 2.4 Aulakh, Preet S. and Masaaki Kotabe, “Institutional Changes and Organizational Transformation in Developing Economies” 3.5 Gençtürk, Esra F. and Masaaki Kotabe, “The Effect of Export Assistance Program Usage on Export Performance: A Contingency Explanation” Chapter 3: Doing Your Homework on Global Markets 1.5 Czinkota, Michael R., “International Information Cross-Fertilization in Marketing: An Empirical Assessment”

1.7 Kotabe, Masaaki and Crystal Jiang, “Contemporary Research Trends in International Marketing: The 2000s” 5.3 Czinkota, Michael R., “How Government Can Help Increase U.S. Export Performance; Testimony Before the House Committee on Small Business” Chapter 4: Getting There with Customers and Suppliers 3.2 Czinkota, Michael R. and Masaaki Kotabe, “Entering the Japanese Market: A Reassessment of Foreign Firms’ Entry and Distribution Strategies” 3.3 Swan, K. Scott, Masaaki Kotabe, and Brent Allred, “Exploring Robust Design Capabilities, Their Role in Creating Global Products, and Their Relationship to Firm Performance” 4.3 Kotabe, Masaaki, Michael J. Mol, and Janet Y. Murray, “Outsourcing, Performance, and the Role of E-Commerce: A Dynamic Perspective” Chapter 5: Creating a Global Presence 2.2 Gao, Gerald Y., Janet Y. Murray, Masaaki Kotabe, and Jiangyong Lu, “A ‘Strategy Tripod’ Perspective on Export Behaviors: Evidence from Domestic and Foreign Firms Based in an Emerging Economy” 4.1 Czinkota, Michael R., “An Analysis of the Global Position of U.S. Manufacturing” 4.4 Murray, Janet Y., Masaaki Kotabe, Joe Nan Zhou, “Strategic Alliance-Based Sourcing and Market Performance: Evidence from Foreign Firms Operating in China” 5.2 Czinkota, Michael R., David A. Grossman, Rajshekhar (Raj) G. Javalgi, Nicholas Nugent, “Foreign Market Entry Mode of Service Firms: The Case of U.S. MBA Programs” Chapter 6: Making Communication Happen 1.3 Czinkota, Michael R., “Freedom and International Marketing: Janis Joplin’s Candidacy as Patron of the Field”

Chapter 7: Negotiating Cultural Chasms 5.1 Czinkota, Michael R., Gary A. Knight, Peter W. Liesch, and John Steen, “Positioning Terrorism in Management and Marketing: Research Propositions” Chapter 8: Positioning the Product and Brand 1.4 Czinkota, Michael R., “Academic Freedom For All in Higher Education: The Role of the General Agreement on Trade in Services” 3.1 Dimofte, Claudiu V., Johny K. Johansson, and Ilkka A. Ronkainen, “Cognitive and Affective Reactions of U.S. Consumers to Global Brands” 5.4 Kotabe, Masaaki and Crystal X. Jiang, “Three Dimensional: The Markets of Japan, Korea, and China are Far from Homogeneous” 5.5 Kotabe, Masaaki, Srini S. Srinivasan, and Preet S. Aulakh, “Multinationality and Firm Performance: The Moderating Role of R&D and Marketing Capabilities” Chapter 9: Making Money 3.4 Clark, Terry, Masaaki Kotabe, and Dan Rajaratnam, “Exchange Rate Pass-Through and International Pricing Strategy: A Conceptual Framework and Research Propositions” 4.2 Kotabe, Masaaki, Michael J. Mol, and Sonia Ketkar, “An Evolutionary Stage Model of Outsourcing and Competence Destruction: A Triad Comparison of the Consumer Electronics Industry” Chapter 10: Discovering and Using Trends in International Business 1.6 Czinkota, Michael R. and Ilkka A. Ronkainen, “Trends and Indications in International Business: Topics for Future Research”

About the Editors

Michael R. Czinkota Michael R. Czinkota presents international business and marketing issues at the Graduate School and the Robert Emmett McDonough School of Business at Georgetown University and the Birmingham Business School in the United Kingdom. He has held professorial appointments at universities in Asia, Australia, Europe, and the Americas. Dr. Czinkota served in the U.S. government as Deputy Assistant Secretary of Commerce. He also served as head of the U.S. Delegation to the OECD Industry Committee in Pars and as senior advisor for Export Controls. His background includes ten years of private-sector business experience as a partner in a fur trading firm and in an advertising agency. His research has been supported by the U.S. government, the National Science Foundation, the Organization of American States, and the American Management Association. He was listed as one of the three most published contributors to international business research in the world by the Journal of International Business Studies and has written a number of books. Dr. Czinkota was born and raised in Germany and educated in Austria, Scotland, Spain, and the United States. He studied law and business administration at the University of Erlangen-Nürnberg and was awarded a two-year Fulbright Scholarship. He holds an MBA in international business and a Ph.D. in logistics from the Ohio State University.

About the Editors

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Masaaki Kotabe Masaaki Kotabe holds the Washburn Chair Professorship in International Business and Marketing, and is Director of Research at the Institute of Global Management Studies at the Fox School of Business at Temple University. Prior to joining Temple University in 1998, he was Ambassador Edward Clark Centennial Endowed Fellow and Professor of Marketing and International Business at the University of Texas at Austin. Dr. Kotabe also served as the Vice President of the Academy of International Business in the 1997–1998 term. He received his Ph.D. in Marketing and International Business at Michigan State University. Dr. Kotabe teaches international marketing, global sourcing strategy (R&D, manufacturing, and marketing interfaces), and Asian business practices at the undergraduate and MBA levels and theories of international business at the Ph.D. level. He has lectured widely at various business schools around the world, including Austria, Germany, Finland, Norway, Sweden, Brazil, Colombia, Mexico, China, Japan, Korea, Indonesia, and Turkey. For his research, he has worked closely with leading companies such as AT&T, Kohler, NEC, Nissan, Philips, Sony, and Ito-Yokado (parent of 7-Eleven stores), and served as advisor to the United Nations’ and World Trade Organization’s Executive Forum on National Export Strategies. Dr. Kotabe has written many scholarly publications. He serves as the Editor of the Journal of International Management, and also has served on the editorial boards of the Journal of Marketing, the Journal of International Business Studies, the Journal of International Marketing, the Journal of World Business, the Journal of the Academy of Marketing Science, Advances in International Management, the Journal of Business Research, and the Thunderbird International Business Review, among others. He also serves as an Advisor to the Institute of Industrial Policy Studies (IPS) National Competitiveness Report Ilkka A. Ronkainen Ilkka A. Ronkainen is a member of the faculty of marketing and international business at the School of Business at Georgetown University. He has received the undergraduate teaching and research awards twice, and in 2001 and 2008, the International Executive MBA program at Georgetown recognized him as the Outstanding Professor of

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the Year. He is the founder and director of the MSB’s summer Hong Kong program. He has been a member of the Georgetown University Faculty Senate since 1992. Dr. Ronkainen serves as docent of international marketing at the Helsinki School of Economics. He was visiting professor at HSE during the 1988–1997 and 1991–1992 academic years and continues to teach in its Executive MBA, International MBA, and International BBA programs. He is co-author of two key college texts, International Marketing, 9th edition (Cengage) and International Business, 8th edition, Wiley. Dr. Ronkainen holds a Ph.D. and a Master’s degree from the University of South Carolina as well as an M.S. (Economics) degree from the Helsinki School of Economics.

Section 1

Role of Research in International Marketing

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Chapter 1.1

An International Marketing Manifesto Michael R. Czinkota and Ilkka A. Ronkainen

INTERNATIONAL MARKETING WORKS Today might be called the triumph of international marketing. There seems finally to be proof that planned economies are less efficient than market economies. Governments all over the world are encouraging market-based activities. The abolishment of state monopolies, the privatization of state-owned companies, the opening of national economies toward the world market, and the ongoing introduction and enforcement of rules and laws to ensure competitive market conditions are being witnessed. As a change agent, international marketing has brought important benefits to nation-states, firms and their employees, and customers. During the past 30 years, the value of global trade has risen from $200 billion to more than $7.6 trillion (World Trade Organization 2002). The growth rate of marketing between countries has consistently exceeded average domestic growth rates (International Monetary Fund 2000). The fastest globalizing nations have enjoyed rates of economic growth up to 50% higher than those that have integrated into the world economy more slowly (Global Business Policy Council 2000). Linked to this growth, these same countries have also achieved relatively greater gains of political freedom, greater increases in life expectancy, higher literacy rates, and better overall standards of living.

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Michael R. Czinkota and Ilkka A. Ronkainen

Firms have benefited substantially from global marketing expansion. With wider market reach and many more customers, firms in the international market produce more and do so more efficiently than their domestic-only counterparts. As a result, international firms simultaneously achieve lower costs and higher profits both at home and abroad. Market diversification and the stability arising from firms’ lack of dependence on any particular market are other positive effects. Firms also learn from their competitors, which often makes their managers more sensitive and responsive to differing environments, thus preparing them for change. In addition, their recruiting can expressly seek out and develop the best talent from all nationalities (Theuerkauf, Ernst, and Mahini 1996). The cumulative effect of these dimensions is major. Research has shown that firms of all sizes and in all industries that engage in international marketing outperform their strictly domestic counterparts. They grow more than twice as fast in sales and earn significantly higher returns on equity and assets (Taylor and Henisz 1994). Workers also benefit from international marketing activities. International firms of all sizes pay significantly higher wages than domestic-only firms (Business America 1996). Because of their greater profitability and longevity, workplace security is also substantially greater for employees who work in plants of international marketers than for those who work in local firms (Richardson and Rindal 1996). Compelled by global media scrutiny, international firms have become greater practitioners of social responsibility—much to the benefit of their employees around the world. Never before have workers benefited to such a degree from benevolent rules implemented by corporations headquartered far away from their locale. For example, the global working conditions set by Nike, for its subcontractors, or by Kmart, for its suppliers, are unique in the annals of global commerce. Consumers are the greatest beneficiaries of all. They are offered an unprecedented degree of product availability and choice. Furthermore, as a result of international competition, the prices of these products are usually low and offer a better quality of life to a broad spectrum of individuals. Rising incomes have ensured leaps in purchasing power. For the first time in history, international goods and service availability has gone beyond the luxury of the elite and has become, especially in emerging markets, the reasonable expectation of the masses.

An International Marketing Manifesto

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Advocates and activists have had their causes benefit substantially from the spread of international marketing. In 1999, business, labor, and government representatives from 173 countries affirmed core labor standards as fundamental human rights, including freedom of association and the right to organize and bargain collectively. Included was also a call to eliminate child labor, forced labor, and employment-related discrimination (Mazur 2000). International marketing linkages have also resulted in the emergence of pressure points for activists, which has led to the introduction and implementation of new concepts. The acceptance of “fair trade” and “living wage” requirements has achieved substantial increases in the incomes of the poorer participants in international trade flows (The Economist 2001).

THE FIELD STAGNATES In spite of these achievements, the academic field of international marketing bears up unsteadily under the weight of these laurels. Some researchers doubt whether the insights they gain from studying and working with other marketing systems broaden their own horizons and increase their abilities to explain marketing phenomena (Douglas 2001). Many practitioners ignore the academic pronouncement of globalization and still refuse to participate in the global market—judging either the market to be too dangerous or themselves too unprepared. This even applies to the most technologically advanced firms. For example, in the United States, most e-tailers do not accept orders from outside their home market, and more than 55% of U.S. web-merchants do not even ship to Canada (Putzger 2000). International marketing academics are not deluged by great attention from policymakers. Few marketers are offered chairs at the table in international negotiations, and the writings of international marketers are not often sufficiently part of any great readings package for policymakers (Czinkota 2000a). Most visible is the discontent of consumers. The “Battle of Seattle” and the subsequent confrontations in Washington, D.C.; Davos and Geneva, Switzerland; Quebec, Canada; and Genoa, Italy have alerted the world to the displeasure vocalized by a variety of groups (Kobrin 2001). Simplistic populist messages have turned globalization into a derogatory term and

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are swaying the sentiments of the general public. For example, after the Seattle summit, a survey found that 52% of the respondents were sympathetic toward the protestors even though they may have been hard-pressed to explain the goals of the protest (BusinessWeek Online 1999). Within the United States, many people have come to believe that international marketing undermines U.S. labor and living standards. Outside of the United States, international marketing and its agents, the marketers, are derided as exploiters, destroyers, and Americanizers (see, e.g., Barnet and Cavanagh 1994; Klein 2000). Papers by experts are derided as planning for economic rape and pillage; their speeches and meetings are disrupted. International meetings are being shortened and held at inaccessible locations, giving the public impression of a gathering of fiends in the dark. Proponents of international marketing talk about retreat and introspection even though opponents do not offer any coherent alternative economic or social approaches. Is this an example of the classic Sun Tzu strategy in which the victorious general only attacks already defeated armies? Has international marketing already begun its demise? We think not. We believe that the best is yet to come for international marketing. However, it will take new thinking and new actions by researchers to propel the field forward again. International marketing academics need to be the guardians who separate fact from fiction in policy, practitioner, and consumer discussions. Qualified not by weight of office but by expertise, thoughtfulness, and knowledge (rather than emotions), international marketing researchers must be the guarantors and guides toward free and open markets. Antiglobalization activists deride international marketing but seem to have difficulties articulating what they are really for. At the same time, government and business arguments in favor of globalization are often vague and based on an abstract long-term vision. No wonder ordinary citizens are left confused, skeptical, and ill-informed, which may lead them to make poor decisions. Given that the public in general does not have a great deal of interest toward international and trade matters, the need is great for outspoken comment on the transformational and uplifting capabilities of market forces. This is a task for marketing scholars. Two examples can highlight this imperative. Antiglobalizers have argued (1) that globalization equals Americanization and (2) that globalization leads to global brands’ hegemony and, therefore, global


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uniformity. In practice, it is evident that cultural imperialism does not sell. In nearly every television market of the world, local production has grown at the expense of imports (The Economist 2002). More significantly, with the increased facilitation of global production companies, local producers and products have penetrated markets beyond their domestic ones. Although global brands may have gained worldwide prominence in terms of headlines, they constitute only a small percentage of a global marketer’s sales in any given market.

. . . THE DEEPER THEY FALL The ongoing growth and success of international marketing cannot be taken for granted. As the events of September 11, 2001, show, the international landscape can change with the impact of tectonic-plate adjustment. Even the very essence of international exchange may be called into question. History demonstrates that international marketing has not always persisted in spite of its proven benefits. For example, in 1896, the Empress Dowager Tz’u-hsi, to finance the renovation of her summer palace, impounded government funds that had been designated for China’s shipping and its Navy. As a result, China’s participation in world trade came almost to a halt. In the subsequent decades, deprived of its means to market internationally, China operated in virtual isolation, without transfer of knowledge from the outside, without major inflows of goods, and without the innovation and productivity increases that result from exposure to international trade. During the 1930s, the turning away from international marketing came through the Smoot-Hawley Act, which raised U.S. duties to reduce the volume of imports into the United States in the hopes that this would restore domestic employment. However, the result was an increase of duties and other barriers to imports by most other trading nations as well. These measures were key contributing factors in the subsequent worldwide depression and the collapse of the world financial system, which in turn set the scene for World War II (Czinkota and Ronkainen 2002). As global marketing advances to emerging markets, new challenges emerge and old ones may be magnified. For example, international

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expansion typically results in a more widespread use of intellectual property (Czinkota and Ronkainen 1997). More customers should then lead to an increase in the value of such property. However, resource constraints combined with popular demands and political power have delivered different scenarios. Entry into some markets may actually lead to value destruction. The government-induced price revisions of AIDS drugs in Latin America and South Africa and of Cipro, the anthrax antidote, have revealed new problems, which may yet fan local flames into global conflagrations. The present-day worst-case scenario is frightening. Some people view globalization as a force of oppression, exploitation, and injustice. Might not then extreme actions, such as anarchism and terrorism, be justifiable to correct for its impacts? Successful international marketing scholarship can perhaps become a bulwark against terrorism. Such work does not need to be perceived as apologetic for business interests in promoting international trade. International marketing may well become a key remedy for the world’s poor, because scholars should help devise creative strategies for the poor to access the world marketplace.

SEVEN PROPOSITIONS Given the precarious experiences by the international marketing field in spite of the substantial global improvements due to international marketing activities, steps undertaken by international marketers in academia must be considered to ensure the further progress of and ongoing contribution by the field. Such progress is not viewed narrowly to benefit the academic high priests of international marketing and their acolytes, but rather it is considered imperative in order to have input and guidance for further improvements in the global economy and in the lives of people. Here, we present propositions for the strengthening of the future role of international marketing. We hope that they will lead to introspection as well as to an open and frank exchange of ideas with a subsequent renaissance of international marketing.


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1 Remember the Roots and Purpose of the Field International marketing is a practical field. It is based on the premise that international marketing transactions can be carried out more effectively, that there are many needs that have been left unsatisfied worldwide, and that the field of international marketing can improve the quality of life of individuals. The field requires that its proponents visit with people, institutions, and companies to observe, talk, and understand their activities. The central role of people in international marketing subjects the field to all the vagaries inherent in social sciences. Research gains are not only what researchers can learn about other systems but also what they are forced to learn about their own system in order to understand what happens elsewhere (Cox 1965). With this approach, junior researchers do not need to compromise the requirements placed on them for detailed research at the expense of seeing the bigger picture. Rediscovery of this truth may force some international marketing researchers to shed their “lab coat” syndrome. For some, complexity has become fashionable and esoteric, and analytical tools have become the drivers of research content. On occasion, researchers talk more about models than about people, substitute tools for insight, and examine printouts instead of market participants. Although some international marketers may have chosen the academic profession in a repressed desire to become hard scientists such as physicists or chemists, it is unlikely that a squirt of one compound, a dash of another liquid, or an increase in pressure will precisely manifest itself in international marketing outcomes. It is critical to develop ways for international marketing to become more accepted by the academic community for its past efforts and the contributions it can make in the future. The field of finance achieved such acceptance through its association with economics; international marketing may want to expand its roots by extending its association with international trade. Perhaps, in the future, international marketing work may then make a scholar eligible for the Nobel Prize. At the same time, senior scholars have the responsibility not only to develop knowledge but also to help grow journals in terms of acceptance and respect. By placing their best work in the internationally oriented outlets, scholars can perform an important service to the profession.

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2 Resist the Temptations of Overspecialization In an academic era of publish or perish, publishing in North America mainly refers to academic journals of the highest order. To avoid becoming academic equivalents of day laborers, international marketing researchers often feel the need to rapidly produce as many top-tier “hits” in as short a time as possible. Top-tier journals, however, together with their editors and reviewers, often tend to adhere to traditional research orthodoxies. Such orthodoxies may involve specific research methodologies, the citation of domestic (e.g., U.S.) literature, and the analysis of problems, which are considered locally important. We do not believe that such local-content requirements (Maruyama 1991) are perversely or conspiratorially designed by the gatekeepers to publications, but we recognize how easy it is to fall into that trap. The problem of publishing is made even more acute by the challenges of conducting research in an international setting, due to data compatibility, definitional equivalence, timing, or funding difficulties. International research typically introduces more noise into data sets. Editors and reviewers need to appreciate and accept a responsible adaptation of evaluative criteria if there is to be more knowledge development and dissemination in the international marketing field. The expectations set by journals and their evaluators have forced many international marketing academics to become highly specialized special specialists. They often investigate narrower and narrower aspects of problems with tools that are ever increasing in their quantitative sophistication, but in which many unrealistic conditions must be met for the model to work. Many times the results are uninspiring for practitioners or policymakers. The end results are insights that are decreasingly useful for the discipline or for its social structure. Work in the field must again become more broad-based and be linked to the practice of international marketing. It is important that a discipline have a communication venue in which new approaches, concepts, frameworks, and ideas can be published without the constraints imposed by rigid establishment journals. Thinkers must be allowed to speculate, tease, bully, or simply visualize and then be able to disseminate their thoughts.


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3 A New Paradigm and New Methods There is the emergence of a new approach to furthering the advance of international marketing. Historically, the “case” period can be called an early important approach to international marketing research. Researchers analyzed the activities of one particular firm in great detail and then attempted to generalize the findings to other firms, the industry, or the discipline. This case era was supplemented, and some would even say replaced, by the “numeric” era. Now the goal became the accumulation of quantitative data, which were subjected to rigorous analysis. The goal was to use statistical significances to build stepping-stones for the advancement of knowledge. Taken in conjunction with other tools of analysis and insight, the goal was quite praiseworthy. However, for some, the actual insights obtained were of little concern. Rather, the use and application of new tools became the only issue that mattered— with the motto, “Have tool, will apply!” Although useful in bringing a scientific perspective to international marketing research, in today’s complex times, the singular focus on such an approach has become too limiting. In our view, today’s new paradigm is “boundary-spanning eclecticism.” Interdependence requires the recognition of linkages. Progress in international marketing makes it increasingly important to bring together various perspectives from a variety of disciplines to truly understand interactions and consequences. Such an eclectic approach in the international marketing field needs to cover different areas such as jurisprudence and cultural anthropology. In addition, the new eclecticism needs to cover a wide variety of fields and include, for example, history, anthropology, or political science that reflects both qualitative and quantitative insights. Given the newness of some of these linkages and the need to understand and interpret them, this boundary-spanning eclecticism may be today’s version of what Bartels (1988) labeled the “period of discovery” by early marketing scholars in 1900–10 during the formative years of marketing. Perhaps the celebration of a centennial reflection of marketing will lead to old paths not lately traveled. The new eclecticism needs to use and define time lines and differentiate between the short-term and long-term outcomes. It also must simultaneously address the issues from the perspective of the key

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constituencies—business, consumers, and governments—and do so over a growing variety of countries. In addition, the different subcomponents of the business discipline itself need to become reappreciated in their interrelationships so that for example, the analyst fully understands the repercussions that changing exchange or interest rates have on the international marketing domain. The proof in the pudding? International marketing academics should (again) become comfortable in teaching a broadly focused “Introduction to Global Business” course. International marketing scholars should join forces periodically with colleagues in other disciplines beyond the conventional ones. Areas such as genetics, health care, history, and linguistics should be considered. By definition, this would also mean becoming familiar with the literature and attending appropriate annual meetings in these disciplines. True cross-fertilization may then result in the application of medical theories of pandemics and resistance to the development of theory for the global diffusion of goods or the application of sociolinguistics to international negotiations. Becoming more interdisciplinary will also be the raison d’être for outlets such as the Journal of International Business Studies.

4 Look to the World In the international marketing field, the world is our oyster. Editors, recruiting committees, and grant-giving organizations should look at the world rather than their comfortable confines as their suppliers of talent and knowledge. Journals need to look for content not just among their traditional constituents but also among the great minds abroad. It must be understood that English, albeit the language of many international marketing transactions, is not the only storehouse of knowledge. It pays to heed the historic lesson that power waxes and wanes depending on the support, input, and actions of allies. When walking the dusty roads of Baghdad, the congested streets of Rome, or the grassy plains of Carthage, one remembers that these locations were once the economic and political leaders of the world. Although the cradle of marketing may indeed be in the United States, significant contributions to the practice and theory of international


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marketing have been made throughout the world as the discipline has matured. An examination of the origins of today’s academic contributors to the international marketing discipline shows that many of them hail from the Nordic Countries, Central Europe, Turkey, China, India, and Japan. For example, many of the innovations and new thinking in retailing have European roots. The emergent U.S. empire should joyfully acknowledge its magnetism for contributions from around the globe. It should also proudly highlight its emphasis on the protection of all players and its reliance on market forces rather than on the rapaciousness typical of earlier superpowers. Today, if there is a demand by the superpower, there is true exchange rather than simple taking. If the practices of centuries past are considered, one current example of comparative advantage would be the burial of U.S. nuclear waste in Africa rather than the western United States. Academics in the United States in particular should build and maintain contacts with colleagues in other countries, learn other languages, and scrutinize nondomestic literature. After all, it was not long ago when every chemist was expected to know German and every painter had to have been to Italy. Academics dealing with international marketing should also be encouraged to be truly international in their outlook. Listening to the world will make the field better, and doing so in their own tongues will make the sounds so much more understandable. In this context, it should be remembered that the search engines, which have become so instrumental to academic research, tend to pick up only a small portion of actual work carried out and are still heavily biased toward English language publications. Just as multinational corporations should have substantial international board membership, academic journals should include more members from abroad on their review boards. Such membership tends to have an effect on the scope of activities. For example, the European Journal of Marketing, which carries articles from the broadest national array of authors, boasts 57% of its review board members from outside of the United Kingdom. The non-U.S. share for the Journal of Marketing is a mere 4% (Czinkota 2000b). International marketing would also benefit from a regularly published volume (or a special issue) of articles not originally published in English from language areas such as Germany, Northern Europe, and Japan.

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5 Maintain the Dialogue International marketing is principally a dialogue between marketers and their international constituents. Key constituents are consumers, the business community, and policymakers. The international marketing researcher must reach out to them not only to describe phenomena but also to prescribe meaningful action. All three of these constituencies are unlikely to actively search for pearls of academic wisdom, the existence of which is not necessarily plain to them. Therefore, academics should not shy away from making available an explanation, condensation, and simplification of their research findings. For example, it may be useful to consider distributing summaries of research implications through editorials or electronic means. It also must be clearly indicated what portions of findings are relevant to which community. Subtle hints or slight intonations will not bring out the hidden gem and will only deprive international marketing researchers of the opportunity to contribute through their work to a more prosperous, safe, and responsive international marketplace. Businesses, consumers, and policymakers all need research insights, just as international marketers need them. However, they may be willing to access such insights only through media particular to them. We know that knowledge not communicated rapidly loses its value. Either it finds no application or it may be lost all together. Let us disseminate knowledge! On the policy side, the importance of communications with constituents and of framing the terminology can be highlighted by the fate of the “fast-track” trade authority sought by President Clinton. Presidents of the United States for decades have had such trade negotiation authority that permits the negotiation of international trade agreements, which Congress could then approve or reject but not change. Lately, however, public misperceptions stirred on by trade foes interpreted the term to mean a railroading of consumers and workers rather than the key to long-term economic benefits. As a result, the request for such authority was denied three times by the U.S. Congress. The Bush administration was forced to change the term to “trade promotion” authority for Congress to even consider and approve it. It is also imperative to communicate much more with the field’s critics (Williams 1984). These opponents are a constituency that


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must be brought into the tent. Not only are they a source of ideas for research, but they are also a key target group to work with in explaining the benefits of market forces. It is hard to improve the world by pulling on both ends of the rope. Either the rope breaks, or one side (temporarily) eats dirt. Pulling together is far more efficient than a tugof-war. Thoughtful critics have already acknowledged the worth of trade versus aid and are shying away from the McDonald’s-trashing approach (The Washington Post 2002).

6 Work Also with Those Who Place or Show There is an innate human tendency to focus on and celebrate winners. Nonetheless, not everyone touched by international marketing will come out a winner. International marketing relies heavily on market forces, which in turn implies a competitive race for limited resources. In any competition, some will arrive first, while others will only place or show. Working with the ones that benefit from increased resources is usually more fun than standing at the side of the ones who, once again, have missed out. However, to maintain its acceptance by the world community at large, the international marketing field must increase its focus on those who are less likely to emerge victorious from the battle of competition. These firms can eventually become global contenders or out-localize their big-name competitors (Ger 1999). These consumers and workers can become major targets of opportunity be it only because of their sheer numbers. There is a future in working with the unserved majority (Prahalad and Hart 2002). Such a focus needs to help, learn, guide, and suggest and is perhaps best accompanied by a good dosage of “tough love.” Those who clamor that the rising tide is expected to lift all boats must understand that they are, at least in part, responsible for their own boats. Have they checked their vessel for leakage, for crew training, and for a working sail? Help should also include the identification of trade-offs between current needs and new sources of comparative advantage. For example, developing nations may not, for reasons of pandemic infection and lack of resources, be able to honor and pay for intellectual property rights inherent in pharmaceuticals. There may be reasons and special conditions for using

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an escape clause, but if countries expect to receive ongoing intellectual property improvements, they need to consider nontraditional forms of compensation rather than simplistic expropriations. This way, perhaps AIDS drugs will someday be paid for with the protection of the rainforest. Positive solutions must also be found to directly assist the battleweakened participants in global competition. It should be part and parcel of an international marketer’s academic work to consider linkages between policy actions and their effect on disenfranchised communities. For example, should the dumping penalties paid be absorbed by the black hole of a general treasury, or should these funds be used to assist those dislocated by dumped merchandise? Should fees paid for preferred treatment in the work visa granting process be used to strengthen the budget of an agency, or should these moneys help create more domestic workers in that desirable employment category? Should AIDS prevention and treatment campaigns not highlight that AIDS is bad for business and thus encourage businesses to extend health care to their workers (Fréchette 2002)? If more such linkages can be built, the benefits of international marketing not only will be better understood but also will become more acceptable to those who have been exposed to the two-faced, Janus-like effects of the field. Despite inherently more challenging circumstances, international marketing scholars should be the ones to initiate projects dealing with emerging and developing markets and try to work with colleagues in these countries. This way, they can offer an inside perspective rather than an outside view on the issues. Ultimately, the goal for international marketers is not only to apply existing frameworks to new situations but also to develop new frameworks from the insight that they garner from working in different and diverse environments. These frameworks can then be used to develop new general theories of business.

7 Profess Expertise Professors are the ones who have chosen to profess, which means to make an open or public declaration of their views, to make protestations, or to affirm and avow their perspectives (Simon and Schuster 1972). All


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too often, there is an unwillingness of today’s academics to publicly step up and separate right from wrong in their field. It often appears as if international marketing academics assume that everyone is keenly aware of the benefits of free trade and exchange. However, not all people are concerned or have had thorough academic training in international marketing. Ignorance and apathy remain key enemies of the truth. Arguments from university settings may often be dismissed as coming from individuals who are not relevant in the practical sense and who bear no responsibility for their statements. Real-life marketing managers are held accountable by their constituents, a standard that does not always hold for international marketing professors. Such accountability can only increase if professors seek out positions of responsibility, be it as board members in associations, as advisors to local or even national governments, or as consultants to business. To get to the critical hub linking academia, practice, and public policy, international marketing scholars must do their share. Memberships on boards can be earned through speeches, articles in newsletters, and other constructive contributions. It is necessary to provide cogent, concise, and easily understood information on key issues. For example, there needs to be a widespread understanding of why a reduction of barriers to international marketing is important and what the benefits are. The many misconceptions that abound in the international marketing field must also be addressed and removed. For example, many believe that the World Trade Organization has the power to override domestic laws. This is not the case. Nonetheless, many people believe that this is so—just as many believe in the existence of black helicopters by the United Nations. Similarly, survey research has indicated that in 1981, 12% of U.S. workers were fearful of losing their jobs. In 2000, that fear of job loss had more than tripled, even though unemployment had declined from well over 7% in 1981 to just 4% in 2000 (Hills 2001). Globalization is blamed for increases in poverty, and yet the number of people in extreme poverty has declined from 20% 25 years ago to less than 5% today (Sala-i-Martin 2002). International marketing academics should be proud of their field and should be cogniscent that they may well be the only thin three-striped black line able to keep apart fact, fiction, and emotion. Although it is unlikely that researchers can ever dictate decisions, they should be the ones providing the factual input, so that decisions, however they

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may come out, have at least a chance of being grounded in reality. For example, in times of global activism, international marketing scholars have a role in assessing both the responsibilities of the companies and the impact that codes of conduct and certifications have on markets and consumers (Gereffi, Garcia-Johnson, and Sasser 2001). Just imagine, in days of future International Monetary Fund demonstrations, academics could become the original cast members of an international marketing reality show on television.

IN CONCLUSION Many academics are disappointed in the lack of appreciation of international marketing by the world. However, worldly reaction clearly indicates that international marketing academics have also fallen short of what the world expects of them. Though perhaps disturbing to some, for marketers who thrive on change, this is a key opportunity. There are new mountains to climb and new frontiers to cross. International marketing researchers have the opportunity to shape activities so that they can continue to be at the center of social change and become the architects of improvements in the quality of life. If international marketing researchers manage to do so, they can be assured that for their discipline, the best is yet to come.

ABOUT THE AUTHORS Michael Czinkota works at Georgetown University in Washington D.C. and holds the chair in International Marketing at the University of Birmingham in the U.K. He served in the U.S. government as Deputy Assistant Secretary of Commerce. He was born and raised in Germany, and educated in Austria, Scotland, Spain and the United States. His Ph.D. is from Ohio State University. [email protected] Ilkka Ronkainen works at Georgetown University in Washington D.C. and at the Aalto (Helsinki) School of Economics. He is the co-author of International Marketing (9th edition). He grew up in Finland, and holds a Ph.D. from the University of South Carolina. [email protected]


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ACKNOWLEDGMENTS The authors extend their appreciation to Juan Luis Colaiácovo, Masaaki Kotabe, John Ryans, and three anonymous JIM reviewers for their valuable comments.

REFERENCES Barnet, Richard J. and John Cavanagh (1994), Global Dreams: Imperial Corporations and the New World Order. New York: Simon & Schuster. Bartels, Robert (1988), The History of Marketing Thought. Columbus, OH: Publishing Horizons Inc. Business America (1996), “Letter from Secretary Michael Kantor,” 117 (9), 9. BusinessWeek Online (1999), “Global Growing Pains,” (December 22), (accessed April 21, 2001) [available at http://www.businessweek.com]. Cox, Reavis (1965), “The Search for Universals in Comparative Studies of Domestic Marketing Systems,” Marketing and Economic Development, Peter D. Bennett, ed. Chicago: American Marketing Association, 143–62. Czinkota, Michael R. (2000a), “The Policy Gap in International Marketing,” Journal of International Marketing, 8 (March), 99–111. Czinkota, Michael R. (2000b), “International Information Cross-Fertilization in Marketing: An Empirical Assessment,” European Journal of Marketing, 34 (12), 1305–14. Czinkota, Michael R. and Ilkka A. Ronkainen (1997), “International Business and Trade in the Next Decade: Report from a Delphi Study,” Journal of International Business Studies, 28 (4), 827–44. Czinkota, Michael R. and Ilkka A. Ronkainen (2002), International Marketing, 6th ed. Fort Worth, TX: Harcourt Inc., 32. Douglas, Susan P. (2001), “Exploring New Worlds: The Challenge of Global Marketing,” Journal of Marketing, 64 (January), 103–107. The Economist (2001), “Globalisation and Its Critics,” a survey of Globalization, (September 29), 3–30. The Economist (2002), “Think Local,” a survey of Television, (April 13), 12–14. Fréchette, Louise (2002), “Development Cannot Be Imposed from Outside,” speech given at Yale University, New Haven (April 3). Ger, Güliz (1999), “Localizing in the Global Village: Local Firms Competing in Global Markets,” California Management Review, 41 (4), 45–63. Gereffi, Gary, Ronie Garcia-Johnson, and Erika Sasser (2001), “The NGO-Industrial Complex,” Foreign Policy, 31 (July/August), 56–65. Global Business Policy Council (2000), Globalization Ledger. Washington, DC: A.T. Kearney. Hills, Carla (2001), “Getting Over the Fear of Free Trade,” The Globalist, (accessed April 3, 2002), [available at http://www.theglobalist.com].

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International Monetary Fund (2000), International Financial Statistics. Washington, DC: International Monetary Fund. Klein, Naomi (2000), No Logo: Taking Aim at the Bullies. New York: Picador USA. Kobrin, Stephen J. (2001), “Our Resistance is as Global as Your Oppression,” paper presented at the 2001 meeting of the International Studies Association, Chicago (February). Maruyama, Magoroh (1991), “Disciplinary Contents Requirement: Academic Non-Tariff Barrier in Interdisciplinary Communication,” Human Systems Management, 10 (2), 155. Mazur, Jay (2000), “Labor’s New Internationalism,” Foreign Affairs, 79 (January–February), 79–93. Prahalad, C.K. and Stuart L. Hart (2002), “The Fortune at the Bottom of the Pyramid,” Strategy and Business, 7 (First Quarter), 38–48. Putzger, Jan (2000), “On-line and International,” Journal of Commerce Weekly (November 13–19), 27–28. Richardson, J. David and Karin Rindal (1996), Why Exports Matter: More! Washington, DC: The Institute for International Economics and the Manufacturing Institute. Sala-i-Martin, Xavier (2002), “The Disturbing ‘Rise’ of Global Income Inequality,” Discussion Paper No. 0102–44, Department of Economics, Columbia University. Simon and Schuster (1972), Webster’s New Twentieth Century Dictionary, 2d ed. New York: Simon and Schuster. Taylor, Charles and Witold Henisz (1994), U.S. Manufacturers in the Global Marketplace, Report 1058. New York: The Conference Board. Theuerkauf, Ingo, David Ernst, and Amir Mahini (1996), “Think Local, Organize . . .?” International Marketing Review, 13 (3), 7–12. The Washington Post (2002), “New Faith in Free Trade” (April 11), E1, E14. Williams, Oliver (1984), “Who Cast the First Stone?” Harvard Business Review, 62 (September–October), 151–60. World Trade Organization (2002), “International Trade Statistics” (accessed February 13, 2002), [available at http:/www.wto.org].

Chapter 1.2

The Remarkable Performance of International Marketing in the Second Half of the 20th Century Michael R. Czinkota and A. Coskun Samli

INTRODUCTION Many peoples throughout history have gained preeminence in the world through their trade and exchange activities. Among them were the Etruscans, Phoenicians, Egyptians, Chinese, Spaniards, and Portuguese. All of them had a major effect on the flow of goods and distribution of wealth around the world. It has only been since the second-half of the twentieth century that these efforts have been accompanied by a systematic understanding of consumer needs, an organized consideration of customer satisfaction, an analysis of the responsiveness of supply and demand in conjunction with cultural diversity, and by methodological approaches to market entry, expansion and penetration. Thus, it is only for the past two generations that international marketing has emerged as a research discipline. Within this short time span, globalization has enabled international marketing practitioners and thinkers to live up to the claim of the ancient Greek philosopher Socrates, who stated “I am a citizen, not of Athens or Greece, but of the world.” We define

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Michael R. Czinkota and A. Coskun Samli

globalization as “the increase in the frequency and duration of linkages between countries, leading to similarities in activities of individuals, practices of companies, and policies of governments” (Czinkota, 2002). This globalization enables international marketing to take place all around us, and to continuously offer new opportunities and challenges. Some might even call today the triumph of international marketing. There is clear proof at hand that economies driven by consumer demands are more efficient that those directed by the plans of bureaucrats. The fastest globalizing nations have enjoyed rates of economic growth up to 50 percent higher than those that have integrated into the world economy more slowly (Global Business Policy Council, 2000; Samli, 2002; Czinkota et al., 2004). Globalizing countries have also achieved relatively more gains in political freedom, and greater increases in life expectancy, literacy rates and overall standard of living. Many firms have benefited substantially from the global market. With wider market reach and many more customers, firms in the international market typically achieve simultaneously lower costs and higher profits both at home and abroad. The benefits of market diversification and the stability arising from a lack of dependence on any particular market are additional positive effects. International marketers now learn from their competitors around the globe and can access, recruit and develop the best talent from anywhere. The cumulative effect of all these dimensions is significant. Research has demonstrated that, if engaged in international marketing, firms of all sizes and in all industries were able to outperform their strictly domestic counterparts. They grow more than twice as fast in sales, and earn significantly higher returns on equity and assets (Taylor and Henisz, 1994). Indeed, for Japan, Germany and the USA there have been periods where the international sector provided the only economic growth. Workers benefit from the international marketing surge. International firms of all sizes pay significantly higher wages than strictly domestic firms. Encouraged by global media scrutiny, international firms have also become greater practitioners of social responsibility, much to the benefit of their employees around the world. Never before have so many benefited to such a degree from benevolent rules implemented by corporate headquarters.

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Consumers are the greatest beneficiaries of all. They receive an unprecedented degree of product availability and choice. The products offer a better quality of life to a broader spectrum of individuals, usually at low prices due to international competition. International marketing has made it possible that, for the first time in history, the availability of goods and services from around the globe has gone beyond the reach of the elite and has become, especially in emerging markets, a reasonable expectation for large portions of the population. In spite of all these apparent benefits bestowed by international marketing, however, both the discipline and practice face major challenges. Many practitioners refuse to participate in global markets, either judging them to be too risky or themselves too unprepared. For example, in the USA, most e-tailers do not accept orders from outside their home market, and many European firms on the web do not support sales outside of Europe. Some equate the benefits of international marketing with the siren songs that lured Odysseus’ sailors to ruin. International marketers stand accused of undermining advanced labor and living standards, exporting jobs, and exploiting, damaging or Americanizing the world. The academics representing the field are often unprepared to refute popular indictment in equally popular terms. Today, the field has its own academic journals and the second largest special interest group among the educators within the American Marketing Association. Nevertheless, academics are joining other specialties, and important subfields such as outsourcing and logistics, which could have brought major intellectual growth to the discipline, have been handed over to other fields. It almost appears as if past success achieved by international marketing has drained the field’s enthusiasm and exuberance, and risks converting it into an inward-looking, hesitant discipline which follows rather than leads. We propose to develop a brief overview of the shifts, changes and adjustments of international marketing that took place during the second-half of the twentieth century and their far-reaching economic benefits for society and individuals alike. The analysis presented here offers some lessons as to reasons for accomplishments, causes for misdirection, and an outlook for what the future may hold.

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A Chronology Table 1 presents a brief chronology of international marketing during the second-half of the twentieth century. We will look at four distinct periods—three to carry us through today, and one oriented towards the future. The periods we identify reflect the key progress that has been experienced in international marketing and its impact on macromarketing’s status. Our focus was on capturing the shifts in international marketing and trade that take place from generation to generation. One definition states that “a generation is the interval of time between the birth of parents and the birth of their offspring” (Heritage, 2005). We therefore searched for the median age of mothers at first birth. Since different countries have different median ages of first birth, and the median is changing over time, we needed to make a judgment decision of an appropriate interval. For example, in the USA the median age was 21.3 years in 1969, but increased to 25.1 years by 2005 (Census, 2005). In the 1970s Europe, the median was 22 years, but rose to 25 years by 1997 (Demos, 1999). The National Academy Press (2005) in turn reports that the current median age in formerly Soviet Asia, South and Central America is 21.5 years, in South Asia and the Middle East 20 years and in Africa 19 years. Given our desire to analyze international developments over a prolonged period, we decided to go beyond contemporary US numbers and look at the concept of a generation in its historical length and within the context of global information. Therefore, the decision was made to settle on an average generation length of 20.

1945–1964 The State of the World World War II had just ended with tremendous economic destruction to many countries. Europe gave up its claim to world leadership and, together with Asia, was concentrating on rebuilding from devastation. Individual countries had to learn how to find a new modus vivendi internally—through developing and expanding coalitions, finding a common focus, and overcoming historic patterns. The USA was victorious,


TABLE 1.

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A Chronology

Period

The world

1945–1964

A state of economic recuperation. Unsatiated demand

International marketing phases

Coincidence. Little effort needed to sell products everywhere. Trade preceded individual marketing strategies. Preliminary attempts to connect marketing functions to the economy. Growth facilitated the expansion of international marketing 1965–1984 Emergence of international Confluence. Four Asian tigers organizations become a major international force mainly emphasizing the Japanese style of marketing. Multinational corporations begin to use a marketing focus in their international outreach 1984–2004 World markets become Commingling. Asian firms, first much larger, blurring Japan then the Four Tigers and borders. Globalization’s particularly China became a power results in benefits major force emphasizing and dislocations economies of scale, low prices and delivery efficiency. 2005–forward The need for Creative conflicted collaboration. understanding of conflict More and better communication. and collaboration. Reaching out to poorer markets. Develop better products and Combining them in the form of creative conflict services. Taking advantage of the flattening world. Improving overall quality of life. Full synergistic collaboration of international marketing and globalization

and ready to be interested in the world. New experiences had been brought home. As political threats increased, a willingness to forgive and offer a clean slate to old enemies emerged. The world became divided into East and West, with market orientation driving the West, and

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planned economics dominating the East; each side developed an international infrastructure to expand the realm of its influence. The stirrings of freedom led to the shedding of colonial ties and to the emergence of new nations. This was particularly the case in Africa. The United Nations was formed in 1945 to help structure the global political debate. To facilitate international business and trade, the charter of the International Trade Organization (ITO) was signed in 1948 in Havana, Cuba. The charter, which represented a series of agreements among 53 countries, was designed to cover international commercial policies, domestic business practices, commodity agreements, employment and reconstruction, economic development and international investment, and a constitution for a new United Nations agency to administer the whole. The General Agreement on Tariffs and Trade (GATT) was part of the ITO, with the purpose of reducing tariffs among countries, and international institutions such as the World Bank and the International Monetary Fund were created (Hufbauer, 1982). Even though the ITO incorporated many farsighted notions, most nations refused to ratify it, fearing its power, its bureaucratic size, and its threat to national sovereignty. As a result, the most forward-looking approach to international trade was never taken. However, other institutions conceived at the time—the GATT, the World Bank and the IMF—remain in existence, and, by reducing international trade frictions, have made major contributions toward improving the capabilities of international marketers.

The State of International Marketing During this time, modern proactive marketing strategies were typically not used. Countries and consumers needed many products after years of under-consumption and suppliers were able to sell their wares rather easily. A lack of fear of manufacturing competition helped open up international doors. Five developments, shown in Table 2 triggered the prelude to more specific, targeted, and strategic marketing activity. European firms in particular saw international markets as a lifeline to survival and expansion. Local demand, though pent up, was limited by a lack of resources, so that drawing on foreign demand was imperative. A lack of corporate capital confined most of the forays to exporting rather


TABLE 2.

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Major Developments Encouraging International Marketing

Developments

Impact

The growth of customs unions

Ease of trading among groups of countries Increased demand for products

Economic redevelopment of Europe and Japan Emergence of new countries The development of multinational corporations Easing of barriers to global business

New demand for new products Ability to trade in different parts of the world Encouragement of trade expansion

Source: Adopted from Mazze (1967)

than investments overseas. Those firms and individuals that participated in international marketing were accorded special status by their governments, given their role as heroes of the rebuilding process. They were the ones to attract foreign currency and thereby increase reserves, making possible the imports upon which their economies depended. Special export norms were developed for international marketers to appropriately represent their country abroad. Merchandise labeled “for export” indicated a special and superior quality level that may not have been available domestically. The situation differed in Eastern Europe and the Soviet Union. In the 1920s, for example, Ford Motor Co. had constructed a huge facility in Gorky to build Model A cars and buses and Tungsram of Hungary had been a key research and development facility for GE. By the middle of the last century, international marketing between East and West had slowed down to a trickle (Hammer, 1989). To a large extent, this limited contact was the result of an ideological wariness on both sides: socialist countries perceived international corporations as “aggressive business organizations developed to further the imperialistic aims of Western, especially American, capitalists the world over” (Lauter and Dickie, 1975). Furthermore, many aspects of capitalism, such as private ownership of the means of production, were seen as exploitative and antithetical to communist ideology (Sherr, 1988). Western managers, in

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turn, saw socialism as a threat to the Western world and capitalistic values in general. In consequence, each side intended to be as selfsufficient as possible and ignored the international marketing potential outside its sphere. However, to fortify its position, the Soviet Union’s planning system allocated production facilities across its empire in order to achieve cohesion and interdependence. The resulting massive international exchange within the USSR, however, was not based on need or demand, but rather on instructions and plans handed down from above. In consequence, little, if any, of the production was ever designed to be market responsive. Rather, the goal was to fulfill the plan which is the essence of “command economies.” The US firms were mainly preoccupied with meeting local demand, which had been pent up at home during the war years. Their international outreach was typically driven by “surplus disposal” rather than market responsiveness. Nonetheless, this approach was successful since due to the devastation of production facilities in Europe and Asia, little was available for consumption. The US products not only carried with them the halo of the victorious nation, but also the mere fact of availability resulted in purchases. The key US international marketers were the multinational corporations, some of whom had revived old investments—such as Ford or General Motors—while others had begun to gradually explore the world. However, there was no concentrated effort directed at becoming a global company or country. Overall, we label this period one of international marketing by coincidence. Most companies in the world were inward looking in their efforts: European firms had a desire to go international, but were lacking resources; the US firms had the resources but were lacking interest.

The Societal Context Since the marketing field’s overwhelming domestic short-run focuses only a few pioneers such as Drucker (1954) and Wroe Alderson (1957) discussed its greater societal outreach. Drucker (1954) asserted that marketing encompasses the entire business and stimulates innovation and economic growth. Alderson discussed how individual firms become part of the national economy and achieve influence or even control (Alderson, 1957).


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Others examined how the firm’s marketing functions may reach out and influence the international economies. Revzan (1961) for instance examined marketing channels from the perspective of society. Bartels (1963) connected wholesaling functions in different countries and displayed environmental connections of distributive functions. The analyses of these pioneers were typically descriptive as opposed to strategic.

1965–1984 The State of the World There was substantial turmoil in this period. The Vietnam War had major repercussions on domestic US policies, on relations with and between Europe, Asia, and on the communist sphere. The Cold War had reached new heights—with massive amounts of troops and equipment stationed around the world, and nuclear missiles ready to go off on a moment’s notice. The independent nations of Africa were tempted with policy measures, treaties, armaments support and gifts to become adherents of either the capitalist or the socialist camp. New generations grew up with a never before sensed uncertainty of survival—a “will our generation be the last one?” feeling, which surely had an influence on national reproduction, spiritualism, and cultural cohesiveness. International organizations were not very successful—the chasm between the key players had become too large. However, on the economic front, the Western organizations pulled slowly but surely ahead. Repeated GATT negotiations resulted in major cuts in tariffs and other trade barriers, lowering the average tariff level from over 50 percent to less than 10 percent.

The State of International Marketing European firms and Japanese companies entered a period of optimismand renewed strength. The formation of the European Economic Community made marketing relations with one’s neighbors much easier, causing trade volume to swell. Though investment activity was gaining, exporting remained the primary mode of international marketing.

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Governments continued their encouragement and support of exporting firms. As needs became more specific and competition keener, international marketing strategies emerged and were put to practice. In Asia, Japan and the four Asian “tigers” emerged as major international players. Japan graduated from the position of a cheap imitator to that of a respected innovator, and became a key participant in international automotive markets with Honda, Toyota and Datsun (subsequently renamed Nissan). Hong Kong, Singapore, Taiwan and South Korea were called newly industrialized countries. Computer-aided designs and computer-aided manufacturing (CAD/CAM) enabled companies in these countries to create pockets of competent suppliers who aggressively captured a portion of international trade flows. Some of these countries subsequently developed their own product lines and global brands (such as Samsung, Emerson, or Hyundai). During that time, core differences began to emerge in marketing approaches between American companies and their Japanese or other Asian counterparts. The “Japanese miracle” emerged, leading to the identification of a Japanese management style and the Japanese marketing model. It is ironic that during this era, a society as multicultural as the US was the one to develop an ethnocentric marketing strategy for the world, displaying a tendency to use similar marketing strategies for different world markets. By contrast, the unicultural Japan gave rise to a polycentric marketing orientation uniquely designed for different world markets. This latter approach proved to be more successful than that of the USA. Becoming more international and understanding market conditions in different parts of the world were advocated as the solutions to the US trade deficit dilemma. Table 3 illustrates one study comparing the American model to the Japanese model in marketing. The true fundamentals of international marketing emerged as focal points of theory and practice. The differences between the “A” model and the “J” model illustrate key reasons for Japan’s success in international markets while the US influence receded. Whereas the US multinationals were preoccupied with extending their domestic strategies into a few large international markets, they ignored many unique and somewhat small international markets. By contrast, Japan, and subsequently the Asian four tigers, each cultivated markets


TABLE 3.

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1965–1984: Comparing Marketing Strategies: US vs Japan

Functions

The US model

The Japanese model

General orientation Overall strategy

Ethnocentric Extension of large-scale American markets

Promotional practices

Global orientation exporting the American message Positioning and repositioning existing American products

Polycentric Adaptation to unique conditions of small markets Significantly localized messages

Product strategy

Distribution systems

Pricing and entry strategy Target Market objectives

Vertical distribution system, partially or fully owned High price and high-end skimming Major world core markets Short-term profitability only

Developing products adapted and wellperforming in local markets Global distribution networks, working with the existing systems Low price and low-end penetration Small, peripheral or marginal markets Long-term profitability with future growth goal

Source: Samli (1987)

by using proactive and aggressive, specifically localized international marketing strategies. Throughout this period, the Soviet Union invested largely in capital goods production and the support of current and potential allies around the world. Support payments and cross subsidization led to temporarily successful industrial sectors, but in the long-term became major drains on the budget. Very little progress was made in consumption quantity or product quality. The West, meanwhile, experienced large increases in consumption and a rapid depreciation of the dollar. “Guns and butter” had been too high a set of expectations which the US economy could not meet. There also was the key influence of the shifting power in oil markets. Western

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trade volume rose to about $200 billion per year and the US experienced its first huge trade deficit of $5 billion. In light of this deficit, President Nixon closed the gold window, and the trade community replaced the fixed-currency gold standard with freely floating currencies capable of adjusting to market supply and demand. However, no other major public steps were taken to encourage the international marketing participation by American firms. Political adversity resulted in a stronger business divergence between East and West. Export controls, designed to restrict the flow of goods between the two regions, took on great prominence. In the USA, President Nixon had declared international marketing to be a privilege rather than a right. An increasingly restrictive export licensing regime was designed by Western nations in order to restrict the flow of strategically important products and technology into the hands of foreign adversaries. International marketing also encountered global business terrorism. In Germany, the Bader Meinhof Gang was laying bombs, shooting at police, and murdering business executives. For the first time in their history, the modern Olympic Games were disrupted by the murder of Israel’s delegation when members of the Black September organization took over the quarters of its athletes. Americans and American products were attacked particularly to demonstrate opposition to the US policies. The multipolarity of the time is perhaps characterized best by Janis Joplin, a well known singer of her time. She was a great communicator, and her songs are famous even more than three decades after her death. Just like the field of international marketing, Janis Joplin had her share of problems and difficulties. In her songs, she was perhaps the first one to raise international marketing issues. At a time when Corvettes were cool, she sang of international brands like Porsches, but implored the Lord to buy her a Mercedes-Benz (Czinkota, 2005). At the same time, she raised the issue of freedom as a key concern when she sang at her most powerful: Freedom’s just another word for nothin’ left to lose Nothin’, it ain’t nothin’ honey, if it ain’t free And feeling good was easy Lord, when he sang the blues And feeling good was good enough for me Good enough for me and my Bobby McGee (Kristofferson, 1969)


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Her song shows the inherent and growing conflict between the desire for possessions—encouraged by global exchange—and the simultaneous urge to be free from it all, not to be hemmed in or confined; walking a thin line of not being held hostage by either wealth or poverty. This is a freedom which does not force one to do something one does not want to do (Hayek, 1971). International marketers view advertisements for products both as information and as an alert mechanism. Their opponents, meanwhile, are prone to interpret the same activity as a persuasive effort to lock the world onto the shackles of consumption. It is this conflict which provides the first strong indication of a future path for international marketing, both welcoming and forbidding at the same time. The US firms became increasingly more interested in international markets—particularly when recessions caused their domestic markets to stagnate or fail. Exporters learned the bitter lesson that other firms, particularly new competitors from Japan, had arrived before them and already held market share. Foreign direct investment grew in importance, though remaining the prerogative of a few large multinational corporations. Growing oil revenues contributed to the global investment flow. International acceptance of licensing and franchising activities gave rise to corporate expansion, particularly in the hospitality and automotive industries—strongly supported by standardized approaches which offered uniformity of service and product. We label this period as one of international marketing confluence. Firms from industrial nations reached out through international marketing to increase their customer base abroad, invested if large market opportunities were encountered, and occasionally found themselves importing the merchandise necessary to satisfy special needs.

The Societal Context A number of marketing titans emerged during this era of examining environmental influences. Bucklin (1972) posited that prevailing economic and social circumstances determined the characteristics of distribution systems. Others maintained that macromarketing must be functioning well before micromarketing can reach an elevated societal status (Alderson, 1965).

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Another group compared the economic conditions and marketing practices in dissimilar countries. They concluded that economic conditions of dissimilar countries do not necessarily require major alterations in marketing practices. Attempting to connect economics to marketing, Moyer (1965) posited that marketing is indispensable to an economy. A general consensus prevailed that the marketing system is formed and manipulated by the economic environment (Bartels, 1976) rather than the other way around.

1985–2004 The State of the World This period saw a major transformation of the political landscape. After some rapid intensification of Cold War enmity, East–West relations grew almost cordial, with the ultimate demise of the Soviet Union and the dissolution of its satellite structure. Newly emerging market economies arose, with the great desire to increase their standard of living. After more than 40 years of partition, West Germany re-merged with its East-German counterpart. The European Union (EU) expanded into 25 members, many emanating from the former Eastern Europe. Additional hopefuls range from Bulgaria to Turkey. The adoption of a common currency provided cohesion to the EU formation. Yet continued high-levels of unemployment and a rejection of the constitution by the populace cast doubts on the continuity of governments and their approaches to Europeanization. In Asia, Japan became a country in prolonged recession with only exports maintaining minimal growth levels. China and India produced consistently high growth rates, and became suppliers of both goods and services for large regions of the world, particularly for the USA. Strong economic growth resulted in increased domestic demand as well, leading to disagreements between regions, inequities in income, concerns about employment, and rises in energy prices. Many African nations found themselves in the midst of regional conflicts which no longer were supported by outside donors. There was a neglect of nation building efforts and a major accumulation of international debt. Russia underwent economic transition, but was held back by continued government involvement in its economy. It appeared that whenever


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private sector efforts were seen as being too successful, a quick reigningin process emerged from the state. The USA became a crucial market to the world—with imports rising dramatically. The key players during these two decades were typically one of three categories of countries, those doing the feeding, the funding or the fighting. The USA learned the limits of trying to accomplish all three of these tasks simultaneously and experienced large and growing trade deficits.

The State of International Marketing European economic growth was severely curtailed due to corporate outsourcing, efficiency measures, and a consumer reluctance to spend. Many Europeans failed to see the benefits promised by political unification, and were directly affected by many of the economic and lifestyle drawbacks. Threats and fears, whether realistic or just on the far horizon, led to powerful inhibitions in consumption and population growth, and a growing suspicion of change and innovation. Asian firms, particularly those in China, have taken on a much greater role in international markets much more quickly than even they would have expected. Beyond their ability to deliver quality goods at very low prices, these countries have become large consumers of imports. Individuals in these economies, many of them quite young, only have experience with conditions of major growth rates. They often cannot fathom a smaller expansion which leads to expectations that may be increasingly hard to fulfill. The USA has opened up its markets to all comers. It provided leadership in the area of globalization, accelerated by decentralization, deregulation, privatization, and the development of cyberspace. Decentralization has allowed companies to make, sell, and buy products and services throughout the world according to local and regional needs. It has created new trading networks and trading blocks in various parts of the world. Deregulation eliminates barriers to trade. Efforts of the World Trade Organization, NAFTA, LAFTA, and others have accelerated international marketing.

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Privatization has been particularly important for non-government entities to get involved in globalization. Private companies decide for themselves what to make, buy or sell. This has been critical for firms in the former Soviet republics who have started to make their own private decisions. Cyberspace is perhaps the most critical of these four factors. Technology has allowed India, China and many other countries to participate directly in modern global supply chain activities for the first time (Friedman, 2005). These developments are supported by four major flows that accelerated the globalization process. Capital flows have made large foreign direct investments a reality. Global giants such as General Electric, Nokia, and Nissan have been joint venturing and investing throughout the world. Information flows through cyberspace developments helped the expansion of research and communication. New knowledge enabled many firms to internationalize. Furthermore, it stimulated worldwide consumer demand for more variety and better quality of goods and services. Technology flow is the most important aspect of globalization, and can be used very effectively by third world countries in their efforts to develop their industries and to form pockets of competent suppliers. Finally, the flow of know-how has made it possible for companies in many countries to receive the best and most competent managerial talent and advice. In many major corporations, top management teams and CEOs are now more multinational than ever (Samli, 2004). It is useful to think of the foundation of globalization as two axes, one characterized by decentralization, deregulation, prioritization, and the development of cyberspace and the other by the four flows of capital, information, technology and know-how. They provide the basis for accelerated globalization, which in turn enables international marketing to provide a growing flow of goods and services. Globalization and international marketing have developed a complex but co-stimulating relationship. Globalization reached out to provide the powerful foundation upon which international marketing makes progress. Sales of branded goods and services exploded during this era and wired consumers around the world have found themselves very close to the sources of these products and services, regardless of location. Markets


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and marketers faced new opportunities along with significant competition which provided choice and freedom to consumers. However, with weak international marketing strategies abroad and substantially open domestic markets at home, the US trade deficits reached new records. By 2006, the trade imbalance was reaching more than 5.9 percent of GDP and over $835 billion (BEA, 2006). These growing imbalances, lead to concern about international marketing. Central bankers talk about “irrational exuberance,” and Congressional voices are worried about their unemployed constituents. Even though on a relative scale, the dislocations are minor, their persistence is likely to trigger contravening policy actions. What these two decades have brought is, for the first time, major linkages between various portions of the world. Calling baseball elimination rounds the “World Series” does not make them so. The carefully devised separation of interest spheres between East and West and the artfully designed trade restrictions which limited participation of many individuals had never really allowed for “World Trade” in international marketing in earlier years. Now, due to many changes, both politically and technologically, such direct interaction is possible. This ability leads us to call this era one of commingling—where distant markets and individuals, for the first time are able to touch each other directly.

The Societal Context During this era, marketing in general is recognized as an important discipline. In addition to environmental and comparative aspects of marketing, macromarketers explored international marketing. In the earlier era Fayerweather (1965) had already identified four themes that gave critical direction to macromarketing as a discipline. He had identified the similarity of marketing problems in different countries; examined variations in marketing functions stemming from differences in basic societal systems; analyzed international economic forces that are forming trade patterns; and how these patterns are distorted by nationalistic government policies. Towards the end of this era governments’ nationalistic policies were outranked by the market forces of globalization which dominated

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trade and financial patterns (Friedman, 2000; Samli, 2002). Marketing’s societal role to advance not only the overall economic status of society but also to explore the importance of quality of life, sustainability, consumer protection and freedom in choosing goods and services became new focal points.

Future Prospects So what is the outlook, both in terms of the state of the world as well as the state of international marketing?

The State of the World Globalization appears to be unstoppable which has led some to question whether international marketing will face boundaries of growth. We think not. International marketing is not confined to either vertical or horizontal growth. Rather, like the degree lines of a protractor—which is used to measure angles—product variations, adaptations and innovations all present new opportunities for simultaneous and parallel growth. Our vision of international marketing is that of a circle which expands at a varying pace around its circumference and has ample opportunity to do so. One major challenge for international marketing is the differentiation among people, firms and nations who primarily grow, make, create, or coordinate things (Czinkota et al., 2004). These differences in activities may well lead to major conflicts. International marketing needs to develop a Schumpeterian capability to achieve creative collaboration which is born out of conflict. For example, conflict among those who grow and those who create could lead to limits in exchanges but also to the emergence of better choices; collaboration between workers and coordinators may lead perhaps to a slightly lesser quality of goods and services but a wider distribution; there may also need to be a redefinition and a reassessment of the benefits offered by expansion and progress. The key question is whether conflict and collaboration combined can lead to a better overall outcome? We believe this to be the case and call this phenomenon creatively conflicted collaboration. There needs to be collaboration in some areas and competition in others. The macro


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setting—which includes the rules of the game, and affects the ability of nations to compete—needs to be determined and enforced collaboratively. Here, the outreach and effectiveness of globalization are necessary conditions for international marketing to deliver quantity and quality of life to consumers everywhere. The micro aspects, which determine the outcome for the individual competitor, are the result of conflict driven by competition.

The State of International Marketing For international marketing to expand, there must be collaboration in macro issues which can support healthy conflict in micromarketing. Otherwise, if globalization leaves some regions or some countries behind, then the potential of international marketing will be limited (Samli, 2006). International marketing continues to generate important assimilations among value systems. More new products offer international appeal and encourage similar tastes in consumption around the world. Growing numbers of people wear denim, like Western styles of dance music, eat pizza, and splurge on sushi. Simultaneously, local product offerings help define people and give them special identity, making local idiosyncrasies different and beautiful (Johansson, 2004). Values are learned and not genetically implanted. As information technology advances, better identification and articulation of values will bring about goods and services catering to general as well as local values. In today’s times, there is a new era of friction and distrust which increases the psychological distance between peoples and slows international interactions. However, international marketing forges new linkages in thinking and makes additional progress in shaping a greater global commonality of values. It may well be that international marketing’s ability to align global values, making it easier for countries, companies and individuals to build bridges between them and think of mutuality of interest rather than that which divides them, may eventually become the field’s greatest gift to the world. While global trade volume was about $200 billion per year in the 1970s, it rose to $12,500 billion in 2006 (IMF, 2006). As international marketing learns to reach out to even the remotest markets of the world and increases consumer value, its growth prospects are high. Greater

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quantities of products and services touched by local idiosyncrasies will emerge. Consumer information and power will reach new plateaus, providing more attention to the poorer sections of the world (Samli, 2004; Prahalad, 2005).

The Societal Context In theory, powerful, progressive and futuristic collaboration of micro and macromarketing will increase performance and competition. The synchronicity of macro and micromarketing is crucial. Consumers, producers and suppliers need to have an enhanced ability to make better allocation decisions, improve their quality-of-life, and raise their level of freedom (Czinkota, 2005). Thus, creative conflicted collaboration at home and abroad is a necessity for further economic progress throughout the world.

PROGRESS WITH NO LIMITS As globalization expands without discrimination, international marketing can provide the world with improved freedom and a better quality of life. Table 4 presents a six-point summary of this scenario. Consumers will be empowered throughout the world because they are better informed. Their choices allow international marketers to make better allocation decisions (Friedman, 2005). Horizontal co-production will lead to the emergence of dedicated supply chains reaching out to the far corners of the globe. The global workforce will allow more available talent to participate in economic activity. Most importantly, the adaptive nature of international marketing will help take the sharp edge off the effects of globalization and lead to improvements in the quantity and quality of life.


TABLE 4.

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Six Trends and their Specific Impact on International Marketing

Trends

Impact

Futher progress of information technology Flattening of the world

Empowering the consumers throughout the world Horizontal production and adjustment in quality of products Reaching the remotest corners of the world Improved consumer information, better product and service choice leading to higher quality-of-life Enhanced marketability of workers throughout the world Enhancement and mitigation of globalization effects through the adaptative power of marketing

Dedicated supply chains Digital, mobile personal and virtual information flow Seamless entry to globlal workforce Guidance of marketing to improve domestic economies and global sharing of benefits

REFERENCES Alderson, W. (1957), Marketing Behavior and Executive Action, Richard D. Irwin, Homewood, IL. Alderson, W. (1965), Dynamic Marketing Behavior, Richard D. Irwin, Homewood, IL. Bartels, R. (1976), The History of Marketing Thought, Grid Inc., Columbus, OH. Bartels, R. (Ed.) (1963), Comparative Marketing: Wholesaling in Fifteen Countries, Richard D. Irwin, Homewood, IL. BEA (2006), U.S. International Transactions: Second Quarter 2006, Bureau of Economic Analysis, Washington, DC. Bucklin, L.P. (1972), Competition and Evolution in the Distributive Trades, Prentice-Hall, Englewood Cliffs, NJ. Census.gov (2005), US Bureau of the Census, Washington DC, available at: www.census.gov. Czinkota, M.R. (2005),“Freedom and international marketing: Janis Joplin’s candidacy as patron of the field”, Thunderbird International Business Review, January/February, pp. 1–13. Czinkota, M.R. (2002), Georgetown Globalization Project, McDonough School of Business, Georgetown University, Washington, DC.

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Czinkota, M.R., Ronkainen, I.A. and Donath, B. (2004), Mastering Global Markets, Thomson, Cincinnati, OH. Demos (1999), “Education and age of first birth”, Demos, August, special issue. Drucker, P.F. (1954), The Practice of Management, Harper and Row, New York, NY. Fayerweather, J. (1965), International Marketing, Prentice-Hall, Englewood Cliffs, NJ. Friedman, T.L. (2005), The World is Flat, Farrar, Straus and Giroux, New York, NY. Friedman, T.L. (2000), Lexus and the Olive Tree, Anchor, New York, NY. Global Business Policy Council (2000), Globalization Ledger, A.T. Kearney, Washington, DC. Hammer, R.M. (1989), “Dramatic winds of change”, Price Waterhouse Review, Vol. 33, pp. 23–7. Hayek, F.v. (1971), Die Verfassung der Freiheit, Mohr Siebeck, Tuebingen. Heritagedictionary.com (2005), The Heritage World Dictionary, available at: heritagedictionary.com (accessed December 21, 2005). Hufbauer, G.C. (1982), US International Economic Policy 1981. IMF (2006), International Financial Statistics, International Monetary Fund, Washington, DC. Johansson, J.K. (2004), In your Face: How American Marketing Excess Fuels Anti-Americanism, Pearson Education, Upper Saddle River, NJ. Kristofferson, K. (1969), Me and Bobby McGee, Sony Records, New York, NY (recorded by J Joplin), (CD), 1971. Lauter, P.G. and Dickie, P.M. (1975), “Multinational corporations in eastern European socialist economies”, Journal of Marketing, Vol. 25, pp. 40–6. Mazze, E.M. (1967), International Marketing Administration, Chandler Publishing Co., San Francisco, CA. Moyer, R. (1965), Marketing and Economic Development, Michigan State University, East Lansing, MI. National Academy Press (2005), Growing Up Global: The Changing Transitions to Adulthood in Developing Countries, National Academy Press, Washington, DC. Prahalad, C.K. (2005), The Fortune at the Bottom of the Pyramid, Wharton School of Publishing, Upper Saddle River, NJ. Revzan, D.A. (1961), Wholesaling in Marketing Organizations, Wiley, New York, NY. Samli, A.C. (2006), “Needed a second wave of globalization: a vital strategic posture for world entrepreneurs”, The Marketing Review, Summer, pp. 149–62. Samli, A.C. (2004), Entering and Succeeding in Emerging Countries, Thomson-Southwestern, Mason, OH. Samli, A.C. (2002), In Search of Equitable, Sustainable Globalization, Quorum Books, Westport, CT. Samli, A.C. (1987), “An alternative international marketing strategy: the ‘J’ model”, in Cavusgil, T. (Ed.), Advances in International Marketing, JAI Press, Greenwich, CT. Sherr, A.B. (1988), “Joint ventures in the USSR: Soviet and western interests with considerations for negotiations”, Columbia Journal of World Business, Vol. 23, pp. 25–37. Taylor, C. and Henisz, W. (1994), “US manufacturers in the global market place”, The Conference Board, Report 1058, New York, NY.


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FURTHER READING Fisk, G. (1987), “Macromarketing and the quality-of-life”, in Samli, A.C. (Ed.), Marketing and the Quality of Life Interface, Quorum Books, Westport, CT. Hollander, S.C. (1970), Multinational Retailing, Michigan State University International Business and Economic Studies, East Lansing, MI. Kotler, P. (2004), New Forms of International Marketing, American Marketing Association, Summer Educator’s Conference, Chicago, IL. McCarthy, E.J. (1960), Basic Marketing: A Managerial Approach, Richard D. Irwin, Homewood, IL. Richardson, J.D. and Rindal, K. (1996), Why Exports Matter: More!, The Institute for International Economics, Washington, DC.

ABOUT THE AUTHORS Michael Czinkota works at Georgetown University in Washington D.C. and holds the chair in International Marketing at the University of Birmingham in the U.K. He served in the U.S. government as Deputy Assistant Secretary of Commerce. He was born and raised in Germany, and educated in Austria, Scotland, Spain and the United States. His Ph.D. is from Ohio State University. [email protected] A. Coskun Samli has published widely in International Marketing. He is the Research Professor of Marketing and International Business at the University of North Florida. E-mail: [email protected]

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Chapter 1.3

Freedom and International Marketing Janis Joplin’s Candidacy as Patron of the Field Michael R. Czinkota

SOME BACKGROUND Patrons have been anointed to watch over guilds, professions, or special intentions. St. Valentine watches over lovers and florists. Hippocrates looks after physicians and their patients, and Her Majesty the Queen is the Patron of the Royal Society for the Arts. Having a patron appears to be particularly useful under conditions where a field and its adherents are under scrutiny or even under fire, or when the results of an undertaking can go either way. The patron is either expected to extend some measure of protection or provide that special “nudge” from above that hopefully tilts the eventual outcome in the right direction. Given the Janus-like face of international marketing, often beneficial but also known to be controversial, it seems only appropriate to search for a patron in order to obtain guidance for the future of the profession and to bring distinction upon a discipline that all too often has had to fight for recognition and acceptance.

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FINDING THE CANDIDATE Searching for patron candidates is not easy. In spite of today’s rampant globalization, many people want nothing to do with things international, much less with marketing. Others haven’t made a contribution that deserves such honorific recognition. That rapidly slims the eligible listing and brings us to Janis Joplin. She has lots of patron support going for her. She was a great communicator and her songs are famous for their outreach even more than three decades after her death. She is from America—the cradle of marketing as a scholarly discipline. Just like the field of international marketing, Janis Joplin had her share of problems and difficulties. She also was an interpreter of modern international marketing issues at their inception. She sang of key international brand thinking—her lyrics praised the glory of Porsches when Corvettes were cool, but she implored the Lord to buy her a Mercedes-Benz. In another international marketing song titled “Me and Bobby McGee,” Joplin sang about the bandanna, Hindi for “ties and bonds,” which are the core focus of the marketing discipline. She sang about the “shared secrets of my soul,” surely an early reference to customer relationship management. But Joplin is at her most powerful when she sings: Freedom’s just another word for nothin’ left to lose Nothin’, it ain’t nothin’, honey, if it ain’t free And feeling good was easy Lord, when he sang the blues And feeling good was good enough for me Good enough for me and my Bobby McGee (Kristofferson, 1969) In her concern for freedom, she has an ability to reach out across generations, which leads to her continued broad global appeal today. Millions of fans are still singing these lines. Today, when the issue of freedom has surged to the forefront in the thinking of many, let us do some thinking about its meaning in an international marketing context.

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AN ANALYSIS Let us briefly think back to the environment of the early 1970s when “Me and Bobby McGee” entered the world. The Western world in particular was reaching far beyond globalization, exploring the universe through regular Apollo landings on the moon. Back on earth, there was economic turmoil. The dollar had begun to depreciate sharply. Global trade volume was about $200 billion per year, poised to take off and reach about $8,300 billion in 2003 (International Monetary Fund, 2004). In the global financial sector, the gold window had already been closed to everyone but central banks. In light of seemingly large trade deficits, which then amounted to $5 billion per year, the U.S. government would soon abandon the gold standard altogether and replace it gradually with freely floating currencies that would adjust to market demand and supply. Terrorism was introduced on a global scale during that time. In Germany, the Bader Meinhof Gang was laying bombs and shooting at police, and for the first time, the modern Olympics were disrupted by the murder of a country’s delegation when members of the Black September organization took over the quarters of Israeli athletes. These years laid the groundwork for the globalization trends to follow over the next 30 years.

THE ISSUE OF FREEDOM Back to the lyrics and Joplin’s preoccupation with freedom. You may ask what this has to do with international marketing, particularly in light of the fact that trade between far-flung peoples has existed for millennia (just think of the Silk Road or the Spice Caravans). Well, that is true, but in modern times, international marketing, just like the term freedom, has had many links with the United States. Consider why the Pilgrims came to American shores—to be free from persecution. Look at the U.S. Constitution, which, in its preamble, refers to “securing the Blessing of Liberty.” Americans have had a special affinity for the term freedom, just as, in his time, the Yankee trader had been of world repute. Second, freedom is about options. If there is no alternative, there is no freedom, only a predestined path taken without conscious decision or the


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possibility to exercise one’s virtue. Having a true alternative provides the opportunity to make a decision, to exercise virtue. In the blaze of the klieg lights, it is easy to make the “right” decision. That is not an exercise in virtue, because real alternatives are effectively removed. The real selection among alternatives takes place in the darkness of night when nobody is looking and when there is a good chance of getting away with things. The focus and aim of international marketing is on crossing borders to provide more than one selection for customers, letting them pick among the variety offered in order to attain the greatest possible satisfaction. International marketing does so in all corners of the globe, the glamorous ones—often called the Elizabeth Arden circuit of London–Paris–Rome— as well as in the small and remote ones where the efforts are not seen by others. By operating in the limelight but also well outside of it, international marketing offers the freedom to exercise virtue—be it in decisions of pricing, supplying, or purchasing. By providing choices, international marketing also helps with decision making in general. It participates in shaping environments, if the participants are allowed actual choices (Johansson, 1990). That’s where the linkage to freedom becomes very evident, because the claims of freedom do not always match reality. An analysis of market thinking can quite easily provide the acid test here. I like going to countries where stuff is owned by “the people”—things like parks, steel plants, or television studios. I like to suggest to individuals (usually state-sponsored guides) who proudly show off these achievements of freedom that they sell their share. As we discuss this issue, typically several things happen. First, the box they all live in is pointed out: “Nobody has ever done that!” Then, the demand limitation is highlighted: “We are unaware of a buyer.” Finally, the real supply constraints emerge: “I couldn’t because they wouldn’t let me.” By then, understanding typically begins to emerge about the difference between purported and actual freedom. Freedom and international marketing are linked in many more ways. Freedom is typically recognized by specific rights and privileges in order to be meaningful. When John F. Kennedy wanted to make life better in America, he focused on the freedom of consumers. He formulated the individual’s right to safety, to be heard, to be informed, and to choose— rights that continue to play key roles worldwide when international marketers branch out today.

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Another key dimension of freedom is not to be hemmed in, allowing people to be able to work outside of the box. For most activities, the box tends to be the result of the borders that define a nation. That is usually where government policy ends and where citizenship encounters its limits. But that is a mere point of transition for international marketing. The discipline depends on the understanding of how to successfully cross national borders, what the differences are once the crossing is done, and how to reconcile profitably any conflicts resulting from variances and inconsistencies in rules and expectations. Concurrently, international marketing contains the freedom of almost unlimited growth potential. Activities confined to domestic borders will likely soon run into limits of expansion. With international market opportunities, the limits to growth are reached far less quickly. Different families of products can extend the life of goods or services for a long time. Instead of restrictions, the international marketing paradigm encourages the stripping away of restraints; instead of limitations, there is the pointing out of opportunity. Being passionate about international markets can open one’s eyes to the prospects of freedom. Freedom also means not being forced to do something one does not want to do. In the words of Hayek, freedom is the absence of force (Hayek, 1971). In today’s times, many speak about migration pressures that force people to move from their rural homes into urban areas or from their developing countries into industrialized ones. Industrialized nations, in turn, speak about immigration pressure. For both sides, little if any freedom is involved here. The individuals who do the moving would much rather stay home but cannot afford to do so due to economic exigencies. The recipient countries might not want to welcome the migrants but do so in response to political and humanitarian pressures. Both sides are losing or have lost their freedom. International marketing may have been part of what triggers some of these migrations, but it also can be instrumental in stemming the tide. It can provide the economic opportunity at home for individuals so that they need not migrate. It can let individuals become productive contributors to the global economy and, in an organized, proud, and supraterranean fashion, remove sensitive political points of friction. The chapter of world history written in the late part of the twentieth century has been most instrumental in showing us how markets,


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market forces, and the recognition of demand and supply have directly affected human rights and the extent of freedom. That was the time when the long-standing rivalry between socialism and market orientation was resolved. With all humility and gratefulness, one can now make the following conclusion: markets were right! In country after country, markets have demonstrated typically greater efficiency and effectiveness in their ability to better satisfy the needs of people. International marketing has been instrumental in stimulating these newly emerging market forces. When the Iron Curtain disintegrated, Central and Eastern Europe very rapidly joined the community of market-oriented nations. All too often, these important political shifts in the latter part of the twentieth century are ascribed simply to an overwhelming desire for democracy. To a large degree, however, the key demand for change was aimed at perestroika, a fundamental reform of the Soviet-style economy through increased availability of food, housing, and consumer goods; in other words, an increase in choice and market alternatives (Theroux & George, 1989). In spite of complaints about the slowness of change, the insufficiency of wealth redistribution, and the inequities inherent in societal upheavals, a large majority of participants in all these marketoriented changes seem to be better off now than they were before. Without the transition provided by international marketing, these changes would not have come about that swiftly.

THE COST OF ALL THIS FREEDOM Another big issue raised in the context of freedom is its cost. One keeps hearing about the large segment of the world population that is poor and therefore supposedly excluded from any international marketing efforts; the World Bank’s president calls them the 3 billion $2-a-day poor (Wolfensohn, 2001). One can also see them as an attractive $6 billion-aday opportunity for firms who may have valuable exchanges to offer. Consider the surprising (for some) effects of exchanging surpluses through international marketing: One really big surprise of the postwar era has been that historic enemies such as Germany and France, or Japan and the United States

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have not had the remotest threat of war (between them) since 1945. Why should they? Anything Japan has that we want we can buy, and on very easy credit terms, so why fight for it? Why should the Japanese fight the United States and lose all those profitable markets? France and Germany, linked intimately through marketing and the European Union, are now each other’s largest trading partners. Closed systems build huge armies and waste their substance on guns and troops; open systems spend their money on new machine tools to crank out Barbie dolls or some such trivia. Their bright young people figure out how to tool the machines, not how to fire the latest missile. For some reason, they not only get rich fast but also lose interest in military adventures. Japan, that peculiar superpower without superguns, confounds everyone simply because no one has ever seen a major world power that got that way by selling you to death, not shooting you to death. In short, if you trade a lot with someone, why fight? The logical answer—you don’t—is perhaps the best news mankind has had in millennia. (Farmer, 1987) So international marketing provides us with the opportunity to acquire resources from someone else without force. International marketing, therefore, is also crucial in contributing to freedom from war and, at the same time, assuring additional choice for consumption.

THE RISING COST OF FREEDOM We are finding that the cost of freedom seems to be increasing lately. Terms like free trade or free choice have been misleading since they all come with a price, which international marketers pay in terms of preparing their shipments, scrutinizing their customers, and conforming to government regulations of tariffs or taxes. They pay for it when subsidies are reduced and markets are opened further, resulting in more intense competition. Now prices are going up when international marketers have to file special paperwork or comply with security guidelines, which slow down the flow of merchandise. Every time a shipment is delayed, international transactions are less profitable and the subsequent business dealings


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become less competitive. Customers talk about unmet expectations and domestic firms point to the vagaries of international markets. We all are paying a higher price due to global terrorism, which has permeated the global marketplace. In most instances, terrorism is not an outgrowth of choice but rather the lack of it. Terrorists may succeed in reducing the freedom of others but not in increasing their own. The principal choices played out between those exercising terrorism and those exposed to it are those consistent with economic theory of return on investment. When terrorists select targets in response to governmental implementation of anti-terrorism policies, the harder targets are likely to motivate them to go for easier ones. Increased protection of past targets may result in attacks on new and unexpected targets that are more likely to succeed. Similarly, if terrorists can no longer enter a country, they may attack that country’s symbols and representatives abroad. If embassies are then more secured and fortified, terrorists may attack that nation’s individuals and companies. Who is typically most affected by terrorist acts? Attacks aimed at businesses, such as the infamous bombings of U.S. franchises abroad, do not bring big MNCs to their knees. The local participants, the local employees, the local investors, and the local customers are affected most. Who can protect themselves against such attacks and who can afford to protect targets? Only the more wealthy countries and companies can. They have the choice of where to place their funds, with whom to trade, and whether to hold the enemy at bay through a security bubble created via exports, a franchise, or a wholly owned subsidiary. The poor players do not have any choices and their alternatives are not improved by any gruesome act. The local firms, the nations with economies in development, and the poor customers continue to be out there, exposed to further acts of terrorism without the ability to influence events. But international marketing can enable the disenfranchised to develop alternatives. As suggested by Prahalad and Hammond (2002), multinational firms can invest in the world’s poorest markets and increase their own revenue while reducing poverty. With support from shareholders and the benefit of good governance, marketers can, and should, continue in their role as social change agents. It should be kept in mind that international marketing has value maximization at its

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heart. If it is worthwhile to fulfill the needs of large segments of people, even at low margins, then it will be done.

VALUE AND FREEDOM Implicit in raising the cost consideration is also the question of value. In a global setting, freedom can take on many dimensions. It would appear then that there are likely to be differences in valences of freedom across borders. Privileges and obligations that are near and dear to one may well be cheap and easily disposed of by others. The views of Western society may differ from those views of other parts of the world. Such differences then account for misunderstandings, surprises, and long-term conflicts. It is therefore important to consider ways we can harmonize values or at least get a shared view and understanding of values. There are two value dimensions at work here, both of them highly relevant to international marketing. One of them refers to the macro dimension and may also be circumscribed as the international values and virtues of a market economy. It is important to understand the value here because it offers, quite subtly, a mechanism of checks and balances. In a world that no longer has the political adversity and restraint of the second half of the twentieth century, the existence of a neutral and effective mechanism for this role is necessary and crucial. The unheralded underpinnings of what is being “sold” to the world in a market economy setting are fourfold. First, there is an interaction between supply and demand that is driven by reasonably free market forces. Second, this interaction permits the price mechanism to work, which provides indications as to where investments are likely to be most profitable. Third, investors, who provide resources to the economy, will find these resources to be steered to productive and efficient uses and receive the opportunity to earn profits and to keep these profits. Fourth, in return for high compensation, the non-owner managerial class provides the absentee owners or shareholders with their best efforts to preserve and increase stakeholder benefits. The keys to making this macro dimension work are governmental, managerial, and corporate virtue, vision, and veracity. Unless the world can believe in what firms and their managers say and do, it will be


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difficult to forge a global commitment between those doing the marketing and the ones being marketed to. It is therefore of vital interest to the proponents of freedom and international marketing to ensure that corruption, bribery, lack of transparency, and poor governance are exposed for their negative effects in any setting or society. The main remedy will be the collaboration of the global policy community in agreeing on what constitutes transgressions and swift punishment of the culprits involved. In order to avoid an abuse of such regulations as nontariff barriers, rigid standards emanating from an agreement supervised by the World Trade Organization are in everyone’s interest (Czinkota, Ronkainen, & Donath, 2004). A second and perhaps even more crucial issue is the value system we use in making choices. Some years ago, the Mars Climate Orbiter missions failed spectacularly as a result of the use of different values by the mission navigation teams. One team was using metric units and the other used the English system of measurement. This mistake caused the orbiter to get too close to the atmosphere, where it was destroyed (“NASA’s Metric Confusion,” 1999). There are major differences among what people value around the world. Contrasts include togetherness next to individuality, cooperation next to competition, modesty next to assertiveness, and self-effacement next to self-actualization (Hofstede, 1998). Often, global differences in value systems are what keep us apart and what frequently result in spectacularly destructive differences. How we value a life, for example, can be crucial in terms of how we treat individuals. What value we place on family, work, leisure time, or progress has a substantial effect on how we see and evaluate each other. Cultural studies tell us that there are major differences between and even within nations. International marketing, through its linkages via goods, services, ideas, and communications, can achieve important assimilation of value systems. On the consumer side, new products have attained international appeal and encouraged similar activities around the world, where many of us wear denim, dance the same dances, and eat pizza and sushi (Marquardt & Reynolds, 1994). It has been claimed that local product offerings help define people and provide identity and that it is the local idiosyncrasies that make people beautiful (Johansson, 2004). Some offer the persistence of the specific breakfast habits of the

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English and the French as evidence of immutability in the face of globalization (de Mooij, 1998). It is worth remembering that values as key manifestations of culture are learned, not genetically implanted. As life’s experiences grow more international and more similar, so do values. Therefore, every time marketing forges a new linkage in thinking, new progress is made in shaping greater commonality in values. There is another value aspect to consider. In today’s times, many people are growing uncertain about the issue of values in general. Old providers of values who were societal pillars such as teachers, soldiers, and even churchmen have, through their behavior, sown doubt on their personal rectitude. Institutions such as government or universities have suffered from a similar growth of public doubt in their credibility. In such an era of uncertainty, it is important to have some anchors on which one can rely and platforms to which one can rally. Freedom provides such an opportunity—philosophers in their vernacular call the term a “hurrah” word (Cranston, 1953). International marketing, in turn, aims to achieve the “feeling good” part of Joplin’s song—another hurrah experience—and it does so by bringing new resources and opportunities to consumers. Overall, international marketing’s interaction with the issue of values may eventually become the field’s greatest gift to the world. Its participation in aligning global values may make it easier for countries, companies, and individuals to build bridges between them. On the business side, Raymond Vernon developed an international product cycle (IPC) theory to look at the production, technology, and cost of production and to formulate predictions about their country of production (Vernon, 1966). In the years since this economic theory was formulated, many things have changed. The innovators, which Vernon saw primarily in the United States, have now emerged around the world; manufacturers have been joined by service providers in the international market; and the entire process has been gaining speed. But the fundamentals still apply. Those countries that follow the innovators most closely are the ones that participate rapidly in new developments and are consequently catching up. Here is another opportunity for international marketing to contribute to value assimilation. When a German firm moves from Hungary to Romania, the move represents a success story for both Romania and Hungary. It means that in Hungary the wages have risen to such a degree and the comparative advantage differential has


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shrunk by such a measure that it is no longer sufficiently attractive to maintain the investment of the firm. That means Hungary has caught up—come closer—to the level of the economy of Germany. It also means that Romania has become more productive and represents now a viable alternative for an investment decision. The result is that both Hungary and Romania are better off than before. But just like with Sherlock Holmes’s evidence of the dog that did not bark, a lack of response to IPC should give rise to questions. The logical consequence of the international product cycle theory should have led economic expansion into an increasing number of developing nations. In some regions, this has occurred. There has been the entry and subsequent movement of plants from Germany to Central and Eastern Europe. There have been U.S. plants going from Mexico to Brazil. Japanese plants have shifted from Korea to Vietnam. But for the past decades, we have failed to see any significant thrust of international markets into Africa. Since the withdrawal of British and French forces two generations ago, most of these nations have not been able to develop a successful domestic economic environment by themselves. If change is to come, international marketers, with their desire to create new customers and suppliers and bring about relief and freedom from extremes of hunger, sickness, and intolerance, will need to be a key part of it (Samli, 2003).

FACING THE MUSIC How does all that match with today’s discontent so forcefully expressed by the antiglobalists in their opposition to international marketing? Many claim that never before in history has there been so much evidence about such a strong opposition movement to globalization—pointing to the demonstrations in Genoa, Washington, D.C., and Seattle. Perhaps those making such claims are sadly mistaken. In looking at other “globalizers” in world history, such as the Vikings, the Mongols, the Tatars, and the Romans, there probably was both intellectual and physical opposition (or do we really believe that everybody enjoyed Genghis Khan?). But protest was never allowed to become very vocal, or to engage in repeated, large demonstrations or widespread pamphleteering. Due to rather harsh policies of dealing with the opposition, very few records of

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such resistance are available today. Consequently, comparisons with past intensity are difficult to make. It would appear that it is perhaps even more difficult to find comparable examples of benign exercise of power. Take as an example the instance when a superpower like the United States decides to bury nuclear waste within its own borders rather than foisting it upon the territory of its hapless opposition abroad. Indeed, power structures and networks are subject to shifts, but for now the timing of the how and when looks favorable for the United States. The news is good for international marketing. The discipline is so closely aligned with freedom that one can call it essential for freedom. It is the freedom Thomas Aquinas saw as the means to human excellence and happiness (Weigel, 2001). There is much reciprocal causality. Freedom has caused and facilitated international marketing; international marketing is a key pillar of the cause of freedom. Here we have identified 12 linkages between international marketing and freedom. In the art and science of fingerprint analysis, it is generally accepted that the presence of 12 points of agreement during a comparison indicates that the items compared are the same (Interpol, 2004). With hard work, and at a price, international marketing offers a road leading to growth, peace, and the emergence of values that will let humankind be more human and more kind to each other. In the matter of Janis Joplin’s candidacy for patron of international marketing, you be the judge. Just listen closely to the music and to your heart and let your mind decide.

REFERENCES Cranston, M. (1953). Freedom. New York: Basic Books. Czinkota, M. R., Ronkainen, I., & Donath, B. (2004). Mastering global markets: Strategies for today’s trade globalist. Cincinnati, OH: Thomson. de Mooij, M. (1998). Global marketing and advertising: Understanding cultural paradoxes. Thousand Oaks, CA: Sage. Farmer, R. N. (1987, October). Would you want your granddaughter to marry a Taiwanese marketing man? Journal of Marketing, 51, 114–115. Hayek, F. v. (1971). Die verfassung der freiheit. Tuebingen: Mohr Siebeck. Hofstede, G. (1998). Foreword. In M. de Mooij, Global marketing and advertising (p. xiii). Thousand Oaks, CA: Sage.


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International Monetary Fund. (2004). International financial statistics. Washington, DC: Author. Interpol. (2004). Method for fingerprint identification. European Expert Group on Fingerprint Identification. Retrieved January 24, 2004, from http://www.interpol.int/public/Forensic/ fingerprints/WorkingParties/IEEGFI/ieegfi.asp Johansson, J. K. (1990). Marketing, free choice and the new international order. Washington, DC: Georgetown University Press. Johansson, J. K. (2004). In your face: How American marketing excess fuels anti-Americanism. Upper Saddle River, NJ: Pearson. Kristofferson, K. (1969). Me and Bobby McGee [Recorded by J. Joplin]. On Pearl [CD] New York: Sony Records. (1971) Marquardt, M., & Reynolds, A. (1994). The global learning organization. Burr Ridge, IL: Irwin. NASA’s metric confusion causes Mars orbiter loss. (1999). Retrieved November 22, 2004 from http://www.cnn.com/TECH/space/9909/30/mars.metric/ Prahalad, C. K., & Hammond, A. (2002, November/December). Serving the world’s poor, profitably. Harvard Business Review, pp. 48–57. Samli, C. (2003). Entering and succeeding in emerging countries: Marketing to the forgotten majority. Cincinnati, OH: Thomson. Theroux, E., & George, A. L. (1989). Joint ventures in the Soviet Union: Law and practice (Revised edition). Washington, DC: Baker & McKenzie. Vernon, R. (1966, March). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80, 190–207. Weigel, G. (2001, December 1). Two ideas of freedom. Washington, DC: Ethics and Public Policy Center. Wolfensohn, J. (2001, August). Address at the Opportunity International Australia’s Annual Corporate Dinner, Sydney.

ABOUT THE AUTHOR Michael Czinkota works at Georgetown University in Washington D.C. and holds the chair in International Marketing at the University of Birmingham in the U.K. He served in the U.S. government as Deputy Assistant Secretary of Commerce. He was born and raised in Germany, and educated in Austria, Scotland, Spain and the United States. His Ph.D. is from Ohio State University. [email protected]

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Chapter 1.4

Academic Freedom for All in Higher Education The Role of the General Agreement on Trade in Services Michael R. Czinkota

ABSTRACT In an era of the knowledge society, one would expect to encounter a sense of urgency in assuring the free flow of higher education across national borders. Yet, to the contrary, there is a substantial reluctance to the integration of this sector into the General Agreement on Trade in Services (GATS). This contribution postulates that academia is missing out on a major opportunity by setting itself apart in trade negotiations. Though higher education has a higher calling, it will not be able to compete successfully for necessary resources unless it adapts to the rules of the World Trade Organization.

1 Introduction Learning is crucial to the evolution of humankind. The ability to build blocs of complex issues and to codify and pass on this knowledge has been the essential dimension which sets humans apart from all other creatures. Since antiquity, centers of learning have evolved that reduced

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the cost of transmission of ideas and innovations across professions and trades. These centers were the genesis of our modern medical schools, schools of fine arts and universities (Dickson and Czinkota, 1996). Typically, those countries that offered the most learning were also able to protect themselves the best. There is much truth to the saying “the pen is mightier than the sword.” Take the Roman Empire. The knowledge available in Rome—be it regarding systematic laws, administration of cities, central market locations, communication and distribution systems—all led to a reduction of uncertainty, a decrease in risk and an increased quality of life. As a result, the wellbeing within and outside the empire differed sharply. Citynations and tribes that were not part of the Empire wanted to share in the benefits of belonging and joined as allies. Much of the Empire’s growth occurred through learning advantages rather than through the marching of its legions and warfare. Of course, the advantages had to persist in order to make it worthwhile for others to belong. In its decline, outsiders were attacking an Empire that no longer offered the benefits of learning. Former allies, therefore, no longer saw any advantage in being associated with Rome, and, rather than face prolonged battles, willingly cooperated with invaders. International openness to learning (and teaching) continued to be respected over the centuries. Consider the Minnesänger of yore, where Walther von der Vogelweide moved from castle to castle to pass on the latest news and knowledge. Think of the business report filed by Marco Polo after his trip to China, offering readers valuable intelligence about potential enemies and allies and their practices in a distant society (Nevett, 2004). Remember the itinerant apprentices and artists who would travel to Italy or go to France to become masters in their field. Today there is broad acceptance of the need for and benefit of learning. UNESCO reports that “better education contributes to higher lifetime earnings and more robust national economic growth” (EFA, 2004). Those concerned with business recognize how important it is for a country to be a learning source to both insiders and outsiders. Peter Drucker, in describing post-capitalist society, sharpens the edge when he states “The basic economic resource is no longer capital, nor natural resources, nor labor. Value is now created by ‘productivity’ and ‘innovation,’ both applications of knowledge at work” (Drucker, 1993).

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2 Higher Education and Global Negotiations Governments have drawn a clear linkage between higher education and the quality of life. In the Bologna Declaration, the European Ministers of Education stated that “the vitality and efficiency of any civilization can be measured by the appeal that its culture has for other countries. We need to ensure that the European higher education system acquires a worldwide degree of attraction equal to our extraordinary cultural and scientific traditions” (Bologna Declaration, 1999). What a mission statement for those active in the transfer of knowledge! In today’s era of globalization, governments are concerned about the ability of their institutions to expand abroad, team up with global partners and outperform international competitors. Government negotiators regularly go to bat in the World Trade Organization for their corporations active in the international arena, to ensure that they have a level or at least decent playing field with reasonable rules. In a time of the global knowledge society, one would expect such concern to be particularly keen when it comes to universities. There is an existing international framework for services industries, the General Agreement on Trade in Services (GATS) within the World Trade Organization, which shapes rules and offers a negotiation forum for world trade and investment in services. The application of GATS rules to international ventures of higher education proposes an environment covered and protected by international rules and reduces the risk for investors. In consequence, there can be more investment, which leads to more competition, which gives a boost to productivity. In addition, rate of return expectations can be lowered, which makes it far easier to build international education capacity. Without the global regulatory framework of GATS there will be many opportunities for insular opponents to slow down or even prevent the flow of trade and investment into the knowledge pods of higher education. Without regulatory protection, it is easy to deny building permits, endlessly review applications for structures, implement creative licensing changes, or even just not give any public sector jobs to graduates of private universities. The umbrella of the GATS raises a private education joint venture to the level of an international trade


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and investment concern. The resulting reduction of risk is likely to substantially encourage trade and investment. Yet, even though the global community is busily engaging in the Doha Round of international trade negotiations, to date only 5 out of 148 WTO members have chosen to propose commitments for higher education (GATS). Unless there is a rapid integration of higher education in the current trade negotiations, the freedom for trade and investment in the academic sector will only be systematically addressed in the next trade round, which may be decades from now. It is therefore important to look closely at the reasons for this reluctance of countries to propose more international liberalization and, if appropriate, to find ways for overcoming this unwillingness to free up academia for internationalization.

3 Higher Education—a Different and Higher Calling Many see higher education, which we define as post-secondary or tertiary level education, as a sacrosanct activity. After all, higher education addresses the highest strata of thinking, fosters dramatic debates, and has the potential to affect social power. Historically, students—if not their faculty members—have often been the instigators of dramatic shifts in society. The issue of academic freedom is very close to the hearts of many. Being able to teach what “needs” to be taught—being able to speak out— being able to pursue thoughts to wherever they may lead are some of the most crucial components of academia. In many instances, it is felt that institutions of higher learning are the true fourth estate—an independent pillar of society crucial to innovation and progress while guarding the insights of the past. These considerations have major implications on the perspective brought to issues such as competition and “foreignness.” While competition of thought may be welcome, the same is not so easily said for competition by institutions. There are several indicators of such differentiation. For example, academic institutions have typically been very unwelcoming to any comparative rating system, even though such a

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system would be a key prerequisite for greater sector transparency for both institutions and individuals. Rather than working on facilitating a standardized assessment, work usually grinds to a halt with a finger pointing at the subtle differences which are said to make up the major gaps between universities. As a colleague from the field of logistics remarked: “The Academy always behaves more like teamsters whenever their turf is threatened.” Similarly, foreign students and professors may be accepted, but foreign institutions are seen—if not with disdain—then at least with great caution. The cultural aspects of higher education are seen as being inviolable and deserving of special protection. Since higher education thrives on that special cultural “Fingerspitzengefühl,” there are grave concerns about the participation of unsavory foreign hands. Very closely related is the topic of quality. All can agree on the fact that it is important to imbue participants in higher education with a sense of excellence and that any examinations and degrees need to be reflective of high standards. Worries about “degree mills” (usually from abroad), which certify unqualified individuals with unearned honors, have been a major explanatory reason for cross-border barriers for decades. Yet, after all this time, little progress has been achieved in the area of quality assurance. Subsidiary issues then are concerns of equivalence and comparability. How do we ensure that degrees and diplomas are equal, particularly if institutions of higher education are to accept students from another? How can a common taxonomy assure that a term used in one country maintains the same meaning when used in another? For example, at this time, the global use of the title “engineer” does not always guarantee the same level of education, nor does the term “university” connote the same type of institution. It is these concerns which lead to significant barriers to cross-border educational services activities in market entry as well as in conducting operations. For example, among others, problems have been noted in the licensing and credentialing sectors, the transmission of content, the activities of investors and in the intellectual property rights sector (Moll, 2002). The higher calling has also given higher education a special institutional perspective of itself. Academia has staunchly resisted accepting the notion


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of being part of any services “sector.” In discussions with university presidents, deans, and professors from around the world, I have been consistently assured that the problems faced are so special, specific and unique, that wholesale approaches to anything would be heresy to the purpose of higher education. As the editor of an important business journal put it “reviewers generally reject the notion that higher education is a ‘service.’ ” The special position that academia expects for itself has been made clear in the Statement on Behalf of Higher Education Institutions Worldwide. In this statement, which was co-signed by the American Council on Education, of which my home institution, Georgetown University, is a member, several limitations of multilateral and regional trade regimes in regulating education are outlined: “Trade frameworks are not designed to deal with the academic, research, or broader social and cultural purposes of higher education” and “Trade policy and national education policy may conflict with each other and jeopardize higher education’s capacity to carry out . . . its mission”, finally, “Applying trade rules to complex national higher education systems . . . may have unintended consequences that can be harmful.” (A statement, 2005) In other words, academia should be treated differently in the process of international services negotiations. It is mainly the universities themselves who apparently demand of their negotiators to ensure that the key principles of the GATS framework, such as free competition, transparency, non-discrimination and national treatment should not apply. While higher education may see itself exempt from international service industry rules, it certainly is not immune from the rules of economics, particularly when it comes to issues of supply, demand, and money. On a global level, the higher education sector has fallen behind other industries in innovations and facilities and is in need of substantial funding. Future investments are needed to implement the path-breaking capabilities to which education should be entitled.

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Even in highly developed countries students today encounter much less favorable conditions than their peers in earlier generations, and after they graduate they are positioned on a much less competitive platform. These students and their parents know that in spite of substantial public support and subsidy, the public purse alone will not bring their universities up to global leadership levels. What then are the options? Without additional funding the key alternatives are: (i) declining universities, which accommodate all, but offer progress to none; or (ii) a return to the elite institutions of yesteryear, with higher education for only a select few. Surely both models are unacceptable. Additional funds will have to come from academia’s acceptance of new economic models, consisting of a mix of fundraising, user fees, alumni contributions, and—to a growing degree—market-driven activities in the education trade and investment sector.

4 Higher Education and Productivity International competition influences productivity and has been connected to low levels of inflation. New thoughts, processes and innovations are said to be key benefits of globalization and the main motivators of investment streams. It is therefore well worth exploring how the higher education sector stacks up in the productivity field. Productivity discussions typically measure changes in output achieved with the same level of input. In academia, as in many other service industries, such measurements and comparisons are difficult to make since the type and quality of outputs and inputs vary.

4.1 A Time Transformation Perspective One basic perspective can be gleaned by looking at how much an industry has changed over time. For example, the field of transportation can be divided into land, sea, and air. Within the span of the last one hundred years, these sectors have shifted from the horse buggy, camel, or donkey to the automobile and truck on land, from the dhow to the multi thousand container ship on sea, and from the images of Ikarus and his bird feathers to large jet planes and rockets in the air.


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When we apply such a change perspective to universities in general we find that in contrast to other sectors, university structures and processes have experienced few shifts. Just think, if we could time-transport a professor (or a student) from the year 1386 in Heidelberg to one of today’s universities, that person would be a fully functional professional. There is still the classroom where the professor expounds great thoughts and the students claim to listen. There are still the volumes to read, the papers to write and the ritualized exams to take. Mostly, one professor still offers only one field at one university, and students still receive their knowledge from only one location in one course increments which, as if by magic, last exactly one semester. All this in an era, which is characterized by technology-driven knowledge generation and information dissemination, global reach, cross-fertilization of fields, substantial productivity enhancements and Six Sigma quality control levels. It might appear as if higher education has not innovated at the same pace as other industries.

4.2 A Cost Data Perspective There are also some sectoral and international productivity and cost data available. From 1995 to 2001, general business productivity in the United States increased by 17 percent. In the manufacturing sector, which was subject to most international competition, productivity levels increased by 25 percent (Bureau of Labor Statistics, 2005). All that means is that cost per unit of output have decreased. On the higher education side, U.S. data for annual institutional expenditure per student at four-year institutions indicate that between 1970 and 1996, these expenditures in constant 2000–2001 dollars increased by 37 percent (National Center for Education Statistics, 2005). If we expand our scrutiny in time and scope to include average published tuition fee, room, and board at four-year institutions in the United States, we discover, in constant 2004 dollars, an increase of 114 percent at private and of 82 percent at public institutions between 1976 and 2005 (College Board, 2004). The same data for OECD countries between 1995 and 2001 (in constant 2001 prices) show a dismal picture. If one assumes that overall education quality remained relatively constant during that period,

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there are a few productivity improvements to report: Australia is up 4 percent, Hungary 8 percent, Norway 6 percent and the United Kingdom 4 percent. In most countries, higher education productivity declined: For example, Austria recorded a drop of 9 percent, Denmark 24 percent, France 13 percent, Germany 11 percent, Greece 31 percent, Italy 20 percent and Spain 33 percent (OECD, 2004a). Since these data primarily indicate changes in expenditure per student, one could argue that rather than revealing lower productivity, they reflect higher investments per student—and therefore are a good thing. While such an argument may be accurate in the case of a specific institution due to, say, investments into classroom technology, in most instances our own look into classrooms reveals the sad reality of overburdened teaching faculty and students with fewer choices. Currently, the spheres of interest of productivity and higher education experts are culturally quite far apart from each other. To maintain the nexus between the two domains, it will be important to continue the use of joint terminology. Words and definitions do matter! As has been argued consistently over time, terms like learning efficiency, effectiveness, retention, and relevance must become part and parcel of any discussion of learning. The use of new technologies, self-paced and footloose instruction, person-specific content responsiveness, benchmarking, learning absorption testing, critical knowledge deficiency detection, and specific learning recycling must become commonplace parlance in the education industry (Dickson and Czinkota, 1996). A final key argument on the productivity side concerns the battle between central planning and market economies. In many academic organizations virtually everything remains the opposite of the entrepreneurial system. Funding comes from the government, salaries are set based on years of service, grants are awarded based on seniority. Often universities have even mobility monopolies over students within a region. Rewards for management come for the ability to manage coalitions and increase subsidies, rather than the capacity to raise industry funds or be market responsive. After many decades of ideological conflict the evidence is quite clear that central planning has not worked. Yet, in spite of our university classroom teachings to that effect, many of the institutions where we do the teaching remain the last vestiges of central planning.


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Perhaps the abandonment of a failed concept will bring prosperity to all! (Cabrera, 2005).

5 Higher Expectations of Higher Education The world places growing expectations onto academe. We conducted a Delphi study with a set of experts drawn from the policy, business, and academic communities ranging from the mega markets of the world to the emerging and developing ones. Over three rounds of interaction, these experts analyzed and debated the likelihood of changes in the international business and economic environment over the next decade and the impact of these changes. The findings reported here focus primarily on the education dimension. The full report can be found in the Journal of World Business (Czinkota and Ronkainen, 2005). The higher education sector emerged as the most important component of global strategy. There was seen a formidable need for administering national transition. Universities have internationalized over time but have not kept pace with globalization and the transformation of world relations. For many years foreign language training was the main international activity on campus. Over time, culture was added to the verbs and international studies departments were formed. Policy concerns led to programs in international diplomacy. More recently, global marketing and management courses produced the now highly competitive international business programs. In all instances, however, little has been done to deal with the conflicts and problems of transition management. The new mandate for institutions of higher learning is still to develop leaders well grounded in functional skills; however, they need knowledge of international affairs and sensitivity to a diversity of beliefs and social forces. They must know about the impact of culture and the workings of legal institutions. They need to have a sense of history and appreciation of ethics. They may have to administer crowd control, guard national treasures, and provide for public health. They will need to have an understanding of logistics and be experts at liaison with groups ranging from local zealots to representatives of international organizations. They will need to learn a dose of market-based thinking, but also be

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understanding of clashing religious beliefs and the importance of family ties. Above all, they need to communicate well. New thinking in academia must pool the best knowledge, the most spirited desire for change, and the deepest experience in implementation. Matching such resources with the most talented students from around the world will give new meaning to the term “elite.” Such global learning centers need to be linked to centers of power and maintain insights into both business and policy processes. The occasional physical presence of key decision makers from legislative, military, and judicial organizations will help. Other than that, such programs will be footloose around the world. While it may help to be part of an existing organization, close relations with like-minded partners can provide the opportunity for a coalition of many countries and institutions to teach how to do things better in the future.

6 Types of International Higher Education WTO negotiation convention considers different types of cross-border activities by industries. These are consumption abroad, delivery abroad, cross-border supply, and commercial presence abroad. Since any educational services integration into the GATS system would, at this stage, be most likely achieved by adjusting to the existing negotiating framework and terminology, the activities of international higher education are differentiated into these four dimensions. Student mobility is consumption abroad and continues to constitute an important component of the international supply of higher education services. Professors and researchers can move abroad to provide for the presence of natural persons. Programs can be sent abroad with distance learning and online education to offer a cross-border supply of services. Finally, there can be a commercial presence through the move abroad of institutions where universities open up a branch campus or join forces with another entity. One could even envision a take-over battle for the leading education provider in a country. Table 1 summarizes these four alternatives. Our subsequent discussion will follow this format.


TABLE 1.

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The Four Types of International Higher Education

Gats type Mobility

Example

1. Consumption abroad: Student mobility 2. Delivery abroad: Academic mobility 3. Cross-border supply: Program mobility 4. Commercial presence: Institution mobility

Students shift countries Faculty, researchers shift countries Distance learning, online, franchising Branch campus, j.v., investment

Adapted from: Internationalization and Trade in Higher Education: Opportunities and Challenges, Paris, OECD 2004.

6.1 Student Mobility Participating in a period of “study abroad” is perhaps the most traditional and visible experience of global higher education. This activity most directly corresponds to the view of trade in services. Over the past twenty years, student mobility has increased rapidly. The number of international students in OECD countries alone has doubled to 1.6 million, with Europe being the largest recipient and Asia being the largest emittent region. Structurally, it should be noted that Asian students typically use their mobility to acquire a degree at full fee, while American and European students typically participate in much shorter term programs (OECD, 2004b). For many countries international students represent an important source of export revenue. These students cover not only their education and travel cost, but also their living expenses for themselves and, in many instances, for their families. It has been estimated that international student mobility amounts to a minimum of 3 percent of global services exports. In Australia and New Zealand, educational services rank, respectively, third and fourth in terms of services exports (OECD, 2004b). In the United States, the expenditures of international students have consistently exceeded the monies spent by Americans studying

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abroad. This attractiveness of U.S. educational institutions resulted in a services surplus of more than US$ 10.7 billion in 2003 (U.S. Bureau of Economic Analysis, 2004). International students also make powerful contributions to their immediate environment. In financial terms, they often generate key additional income streams. In the teaching and research arena, their teaching of large undergraduate courses at relatively low compensation often enables the faculty to devote much more time to other tasks. In fact, one could argue that it may be such a low wage strategy which enables some institutions to build their research reputation. Student mobility has at its core the focus on experiential learning and the ability to be immersed in a new environment. Compared to many other ways of becoming knowledgeable about an issue, few other approaches convey the same proximity and capacity to feel, touch, see and hear the subject matter. Particularly where culture and values are key components of the experience, the student mobility approach to internationalization is unique. However, for many, constraints of time and money have been and will continue to represent harsh obstacles to such mobility.

6.1.1 Shifts in Student Mobility The vast increase in international student mobility has not been matched with a similar increase in support structures in their home and host countries. It has been relatively easy for students to “fall between the cracks.” There have been insufficient mechanisms in place to even find out whether, once arrived in a country, students actually were able to participate in classes which they intended to attend. Such a lack of infrastructure is difficult to accept, particularly for individuals at an age vulnerable to hostile intent. The murderous terrorist attacks of 9/11 may have had a long-term effect on the direction and extent of international student mobility. Today’s heightened security environment has imposed new scrutiny and reporting requirements on the academic sector, particularly in the United States. New bureaucratic processes led to lengthy delays in visa interviews and rapid increases in the delay and the denial of visas. Often, the delays conflict with admission interviews, schedules, short-term travel plans, or


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other time sensitive requirements of academe. It has been difficult for universities to restructure their time frames for international students in a manner more accommodating to the realities and needs of national security. There has also been disenchantment with studying in the United States for reasons of policy disagreements, fear of exposure to greater scrutiny, and indirect reasons such as a greater desire to stay at home. In consequence, the number of international students enrolled at U.S. educational institutions, after minimal increases in 2002/3, decreased by 2.4 percent in 2003/4, the first absolute decline since 1971. By region, the sharpest decreases were students from China (–20 percent), Japan (–14 percent) and the Middle East (–9 percent). Substantial decreases were also noted for India and several European nations. Student applications have decreased even more sharply (Open Doors, 2004). Though the delays have been greatly shortened, difficulties encountered in the United States have caused some students who earlier might have come to the US, to change their choice of country. However, these declines may also well mark a watershed indicating a reduction in student mobility. One more “score” to add to the collateral damage inflicted by the terrorists, and one additional example of unintended yet powerful consequences of policy actions. It is important to distinguish such legitimate manifestations of national security from trade concerns such as visa requirements regulating the free flow of international students, foreign exchange requirements which affect student’s ability to pursue their activities and variances in the recognition of qualifications. On the institutional side, issues such as the possibility of overburdening students in their institutional obligations need to be safeguarded.

6.2 Academic Mobility Here, conditions may often resemble those of student mobility, only that the persons involved are faculty members, researchers, and program administrators. However, the issues of culture and values become particularly powerful, since it is often through academic mobility that highly sensitive sectors of society are touched. The range of activities can be a simple speech, but also consist of a lengthy course or program development lasting for years. Those very issues, which make academic

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freedom so precious in any given classroom, may give rise to concern and even conflict when it comes to cross-border activities. Who needs a foreign professor fomenting discontent with one’s policies? It is of course tempting then to apply employment rules, visa regulations or concern with the transfer of educational materials as administrative tools in support of national priorities—yet, the discriminatory use of such tools to inhibit the services transfer is inappropriate. It is here, incidentally, where smaller countries may benefit the most from an open market approach. If the industry abandons its traditional “one professor at one institution” approach, the much broader reach of leading individuals is likely to make many more talents much more available than before.

6.3 Program Mobility For many decades and in many countries, higher education has gone the distance via correspondence teaching. Such traditional program mobility by mail has been substantially enhanced by new capabilities which have made future opportunities in distance learning particularly large. Technology has made it possible to transmit learning content at a low cost over vast distances and to do so even at synchronous learning times. Technology applications have also enabled us to re-structure the content itself to become more amenable to such transmission yet retain much of its value. Furthermore, both the educators and particularly the learners have adapted to a learning style which is visual and audio friendly—and highly transmittable. The academic sector has supported such program mobility. Universities around the world are recognizing the advantage of online coursework both as a supplement and a replacement of classroom time. Pioneering international consortium programs have brought together students from several different universities worldwide in one virtual classroom to create a global cultural learning environment. They engage in conversation and work together on projects to simulate the international work environment. The City University of Hong Kong and its HKNET, created in 1998 (City University, 2005) together with the Spanish National University of Distance Education (UJNED) or the French National Centre for Distance Learning (CNED) may serve as examples (Norway,


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2003). The impact of such efforts has been substantial. It has been reported that “international students enrolled in Australian institutions from their home country though distance education represented 9 percent of the total enrollment of international students in Australia in 2001,” and that distance education has been crucial in assisting education institutions to expand their capacity (Norway, 2003). Individual academic institutions have reached out as well. Some have done so to simply disseminate knowledge—without necessarily expecting a subsequent student or degree interaction. Take the Massachusetts Institute of Technology (MIT) as an example. Since March of 2005, this university has more than 1100 courses available on its web-accessible Open Courseware System (OCW) (Potts, 2005). The system is free and requires no registration. It does not lead to a degree or certificate and does not guarantee access to MIT professors, but it provides free, searchable and coherent access to virtually all MIT course materials. Even though most early users may have been MIT students who perhaps missed a class or wanted to check up on a particular issue, by 2005 more than 52 percent of all visitors were self learners and 54 percent of the more than 12,000 average daily visitors came from outside North America (Carson, 2004). Are there concerns about this widespread free availability of knowledge? Probably some, but Professor Paul Penfield of MIT tries to put them to rest: “The way to make progress in science is by using the best results of others—‘standing on the shoulders of giants’ is one way of expressing this idea. That’s why we publish scientific results. OCW will let the same thing happen in education” (Penfield, 2004). Besides, the system works very well as a recruiting tool. On the more remunerative side, universities also have formed consortia to reach out successfully. For example, Oxford, Stanford, and Yale universities participate in allLearn.org where non-credit courses are offered to students of all ages. There are faculty forums, live chats and student interactions, combining traditional teaching elements with streaming media, message boards and videotapes. Simultaneously, many individual faculty members have developed their own interactive distance learning approaches with multiple institutions around the world. What makes this option very attractive is the fact that it provides increasing independence of faculty members from colleges and universities in the delivery of their message and

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education (DiPaolo, 2001). Personally, for example, I have run internetbased courses out of Washington which met with students in Geneva, Switzerland, Ingolstadt, Germany, and Vienna, Austria almost simultaneously. Due to my easy internet accessibility to students for questions and discussion, I even won a top of the list spot when it came to evaluations of teaching and student satisfaction. However, all these efforts by traditional academia pale in light of private higher education sector developments. The electronic learning market around the world is about to make its major impact felt. In 2003, Western European corporate e-earning market revenues were estimated at US$ 697 million, projected to reach, with a continued growth of 24 percent per year, revenues of more than US$ 2 billion by 2008. In the Asia/Pacific Region, the revenues are expected to grow during the same period from US$ 172 million to more than US$ 723 million and in the United States the revenues are expected to rise from US$ 4.1 billion to US$ 13.5 billion by 2008, an annual growth rate of almost 27 percent (International Data Group, 2004). Such electronic learning can easily reach widely dispersed mobile groups. It can take the so far hidden resources of organizations, be they governmental, semi-public or private, and make them accessible to the world. No longer are individuals—be they teachers or learners—required to make provisions for travel and lodging which are costly, time and energy consuming. Now it is much easier to expand horizons through e-learning interactions on a global scale. For example, were a professor of international business to discuss foreign direct investment issues in a classroom, students would mainly tend to discuss the perspective of the investor entering a nation. Under e-learning conditions, however, it is quite likely that an international audience would also contribute the perspective of the nation being entered and that of the local firms experiencing the new competition—certainly a broader view. There is still substantial resistance to such e-learning on many levels. Its quality is doubted and severe barriers are erected which is not unexpected, particularly in the international arena. Accepting international competition often requires abandonment of traditional approaches. Doing so is difficult. Explains Drucker: “To abandon anything is always bitterly resisted. People in any organization, including bureaucrats and politicians (administrators and professors) are always attached to the


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obsolete; the obsolescent; the things that should have worked that didn’t; the things than once were productive but no longer are” (1993, p.164). I personally remember the furor that was raised at my home institution when I gave my first “international exam by fax”—but the caravan keeps moving on. Program mobility provides for a substantial alteration of the competitive platform of learning. Just consider the activities of the Apollo Group—corporate umbrella for several e-learning organizations, among them the University of Phoenix in the United States. More than 255,000 adult learners attended the group’s 219 institutions in 2004. Flexible class times at night or weekends and sequential and short courses which can be accessed at any time from any computer with Internet access are at the core of the firms’ offering. Graduate and undergraduate degrees are offered to students in more than 130 countries. As the firm grew, its instructional costs and services and its general and administrative expenses increased in absolute terms, yet both categories declined as a percentage of tuition to 42.5 percent and 4.9 percent, respectively in 2004 (Apollo, 2004). A good omen for productivity!

6.4 Institution Mobility Institutions of higher education also have an international mobility of their own. In the longer term one can well conceive of a substantial growth in international investment activities by universities. They can be driven externally through traditional investment capital, or internally through their own indigenous investment power. For example, given the system of university endowments and strong alumni support prevalent in some nations, there may well be opportunities for some institutions to become leading investment vehicles. Lest one underestimate the power of the ivory tower, there is some impressive financial potential present to expand around the globe. In the United States and Great Britain, for example, some universities can boast of rather significant endowments in the billions of dollars and pounds. However, two constraints need to be kept in mind. For one, the mega endowments are the exception, rather than the rule. Even though the approximate endowment of Oxford and Cambridge Universities in Britain amount to 2 billion British pounds each, the total endowments

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of the top 500 academic institutions in Britain amount to approximately 5.7 billion pounds (University Endowments, 2003). While endowment levels are substantially higher in the United States, again the US$ 23 billion endowment of Harvard University is quite unique and most other U.S. institutions have far lower endowment levels (National Association of Colleges, 2005). Second, it must be considered that in many instances, endowment funds are not fungible but rather committed and therefore not readily available for foreign investment. Nonetheless, there are several reasons why institution mobility is important and should increase. First, the institutional presence offers contextual learning to the student. The direct and individual experience can make a crucial difference in understanding. Take as an example the flying of a modern plane. Virtually all the activities necessary are regulated by computer. Even the human responses are all precisely mapped out in guide books. If any particular warning light comes on, the pilot looks it up in the manual and takes the proper response. Yet, does that make button-pushing skills sufficient to be a good pilot? Of course not! The close connection between technology, experience and sensitivity to events is what sets the excellent pilot apart—yet those traits are mostly acquired by personal interaction. Institutional mobility also helps build the fiber of connectivity which accounts for the socialization part of education. The friendships formed among cohorts, the understanding gained in terms of human interactions, and the links refreshed when returning for a “homecoming” are all dimensions which can both change and strengthen culture, and which only institutions can convey. The building of an institution is often crucial in attracting new funds for the higher education mission. Investors, both local and foreign, may not be willing to put their money at risk for anything other than the expansion of an established proven concept in higher education. Here are several examples: The Cambridge–MIT Institute (CMI) is a joint venture between Cambridge University of the United Kingdom and the Massachusetts Institute of Technology (MIT) of the United States. Funded in 2000 by the British Department of Trade and Industry (DTI) with a grant of 65.1 million pounds and private funds, CMI is jointly owned by the two universities and designed to enhance the knowledge exchange between universities and industry (CMI, 2005). Georgetown University is


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developing a branch campus of its School of Foreign Service in Qatar. With local government funding, this campus will be part of a site called Education City, where a series of universities, each concentrating on its specialties, will form an education magnet in the Middle East. The business school of Northwestern University in Chicago teaches about half of its students through local partners in locations such as Israel and Hong Kong. The school itself controls the curriculum, inspects standards and issues the degrees. But the actual teaching is outsourced—a logical step under conditions where a university can examine far more students than it can actually teach (Higher Education, 2005). Such ventures are the university industry of the future: specialization in areas of competence to use resources most effectively, and reaching out to the world to make the most efficient use of the resources employed.

7 Some Considerations for Trade Negotiators The country representatives involved in the current GATS negotiations must ask themselves an old negotiator’s question: Do we need to be followers or leaders on this issue? Typically, trade agreements tend to be designed to cover trade that already takes place. Trade is rarely initiated by trade agreements (Internationalization and Trade, 2004). Doing so is the safe way because it allows everyone to take measures on issues that are well known and familiar. It is important to realize that flows in education services across borders will take place regardless of whether or when agreements are put in place. At the same time, what is perhaps different and special in this instance of higher education is the fact that we may have waited too long already. Waiting to discuss issues, holding back on international competition in higher education may have deprived us of progress, of the benefits of such competition and may account for the slowness of change in the sector. Yet, progress is too important to be neglected or deferred to another round. In the age of a knowledge society we cannot in good conscience withhold the benefits of higher education from large segments of the global population.

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The Doha Round can bring an entirely new dimension to information dissemination and knowledge building. With today’s technology, one can combine the capabilities of education with the benefits of trade and investment to transcend national boundaries and escape from narrow sector silos. It is now important to ensure that there will be collaboration in several ways. For one, institutions must begin to think beyond their splendid isolationism, individual fiefdoms must gradually give ways to confederations. It must become possible to know about each other and collaborate within in order to structure activities without. Such a shift requires a major change in the culture of most institutions of higher learning. Next, there needs to be dialogue between educators, technologists, commercial individuals and trade negotiators. That interaction and collaboration sine ira et studio, leads all parties to understand that each of them is an important contributor of different components. Just like in a car race, the engine will not go far without fuel, tires and the driver are essential, and the race would not take place without the sponsorship by individuals and institutions. Perhaps more chairs are needed around the table to accommodate the broader thoughts and concerns pertaining to the education sector, but the losses to global higher learning, if one were not to do so now, would be era retarding—akin to the burning of the great library of Alexandria. Today, education is the crucial nexus of progress. Within the European Union, the ability to achieve cross-national education progress is essential if there is to be rapid progress by the new accession countries. Higher education must not constrain the new mobility but rather help to convert investments into innovation into direct employment outcomes. Waiting for gradual institutional transformation at a snail’s pace would delay crucially needed progress to many. However, opening up the industry to the benefits of investment mobility can speedily bring best practices to many. Developed nations are perhaps slow to react to growing opportunities and the changes in higher education. Too many entrenched forces have to be accommodated to achieve liberalization. Emerging nations, together with marginalized communities who have been excluded routinely from the benefits of higher education can achieve the most rapid gains from the global liberalization of the sector. Just think of


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detained juveniles in Malaysia who can now enroll in distance learning by universities, sit for tests by mail and be paroled early; or Native Americans who can take classes on their reservations; or any conditions in developing countries where culture or costs have constrained higher learning (Ambler, 2005; Malaysian News Agency, 2005).

8 Avenues and Responsiblities for Action Trade negotiations set the framework and outline the rules of the game. Important as those may be, however, the key activities always emanate from the players. In this instance, these are the three sectors of government, business and academia. The government needs to lose its timidity and bondage with regards to education. In many countries, there are long-standing phenomena such as the “Grandes Ecoles,” which intertwine government with higher education and encourage complacency. In this era of knowledge diversity and information diffusion, government officials must be aware of the risks they incur if their borders confine higher education input and output. Rather than being the wardens of higher education, government policy makers should become enthusiastic centrifugal forces of outreach. New approaches should not be encountered with disdain or suspicion, but rather with interest and encouragement. The unusual should be met with an anticipation of the best rather than a fear of the worst. The business sector in turn should see itself as a partner rather than just as a consumer or limited supplier of higher education. Business is boosted by the research performed by the knowledge giants who have walked before, the insights of academia have propelled us all forward. Even the failures helped avoid the pursuit of blind alleys. Investors should make higher education projects part of their desirable selection alternatives. Investment into knowledge generation and diffusion should become at least as attractive to the financial sector as the drilling of an oil well. The fact that this is not the case today may largely result from the parties having looked at each other with suspicion for too long. Though business controls resources are needed by academia, the relationship should not be characterized by conflict, but rather by an acute desire for collaboration and mutual learning. Such collaboration

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must be accompanied by reciprocal respect for values and traditions of which higher education tends to have more than most other sectors in the world. There needs to be an appreciation of why things are done in certain ways and why, after many years of trial and error, certain processes have survived. Innovation is good, but it cannot ignore the foundations erected in the past. Finally, on to academia: Movement and transfer between institutions, both domestically and internationally, should be encouraged. Such movement, at the very least, exposes members of one organization to those of another, along with their expectations, capabilities and preferences. Such exposure is likely to lead to learning, the formation and strengthening of research networks, a new understanding of problematics and a new appreciation for different conditions. There need be no fear that such mobility might change the competitive platform. With or without encouragement, market forces are already bringing about changes in competitive intensity. For example, during the past decade in Washington, DC alone, dozens of new institutions of higher learning have opened their portals to student intake. Depending on their ability to differentiate themselves and serve their market, they will either succeed or fail. Mobility, however, will help enhance competition and service. Academia should also offer greater transparency in its work. Certain terms of art or particular rituals may have great merits. In many instances, however, their original use is now shrouded in the past and only serves to intimidate, bewilder or turn away outsiders. A fresh wind of openness will make it much easier to evaluate market prospects, compare competitive offerings, and let students make wiser choices. Such clearer information will also lead to better resource allocation decisions and a renewed rise of meritocracy in academia. Openness will make the industry stronger and better. Faculty members might also consider participating more actively in the dissemination of their knowledge. For example, one could imagine professors investing into their own institution or their own discipline. Given the knowledge comfort that faculty members typically possess about their own area, one could envision a “management buyout” leading to a greater expansion of the best-positioned areas of a university. One could even surmise a faculty team making itself available with a group of professorial “turn around” experts who could improve the standing


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of a university in order to make the institution more attractive for funding, donations, or acquisition. After achieving the objective, the team would move on to the next target, bringing knowledge, reputation and investment to new shores. Finally, let us not forget about the students. Reaching out to them, working with them, and leading them on the path to discovery is one of the great thrusts and trusts inherent in the life of a faculty member. Making available more academic institutions to more people is the equivalent to finding new sands where professors can place their footsteps and have them followed by new students. Once this proud privilege offered by new opportunities is understood and appreciated, the professoriate itself will surely become the key to taking off the shackles and making higher education truly footloose.

REFERENCES A statement on behalf of higher education institutions worldwide. (2005). http://www. unesco.org/iau/p_statements/index.html, accessed March 23, 2005. Ambler, M. (2004, Summer). Distance education comes home. Tribal College Journal of American Indian Higher Education, 15(4): 8–9 (accessed February 23, 2005). Apollo Group, Inc. 2004 Annual Report. AZ: Phoenix. Bologna Declaration, Joint declaration of the European Ministers of Education (1999, June 19). Bureau of Labor Statistics, http://www.bls.gov/news.release/pdf.prod2.pdf, accessed March 4, 2005. Cabrera, A. (2005), President, Thunderbird University, Personal Interview, March 21. Carson, S. E. (2004, March). MIT OpenCourseWare program evaluation findings report. Cambridge, MA. City

University of Hong Kong. http://www.blackboard.comldocs/casestudy/en/ CITYUhongkong_casestudy.1201.pdf, accessed March 2, 2005. CMI, Cambridge-MIT Institute. http://www.cambridge-mit.org/, accessed March 16, 2005. College Board, www.collegeboard.com/prod_downloads/press/cost04/041264TrendsPricin g2004_Final.pdf (p. 9). Czinkota, M. R., & Ronkainen, I. A. (2005). A forecast of globalization, international business and trade: Report from a Delphi study. Journal of World Business, 43(2): 111–123, Dickson, P. R., & Czinkota, M. R. (1996, Fall). How the United States can be number one again: Resurrecting the industrial policy debate. Columbia Journal of World Business, 76–87. DiPaolo, A. (2001). Online education: Myth or reality? Stanford Center for Professional Development, Stanford University, http://scpd.stanford.edu/SCPD/js/brandingFrame/ externa-IURL.htm, accessed February 16, 2005.

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Drucker, P. (1993). Post-capitalist society. (p. 8) New York: Harper Business. EFA Global Monitoring Report 2005. (2004). Paris: UNESCO, p. 2. Higher education. (2005, February 24). The Economist, p. 3, accessed March 21, 2005. International Data Group. (2004, November). e-Learning market 2003–2008, forecast and analysis, Framingham, MA. Malaysian National News Agency. (2005, March 16). Detained juveniles may be allowed to enroll in distance learning, accessed March 21, 2005. Moll, J. (2002). Trade in educating and training services. Export America, 25–28. National Association of College and University Business Officers, http://www.nacubo.org/, accessed March 8, 2005. National Center for Education Statistics, http://www.nced.govllprograms.digest/, accessed March 8, 2005. Nevett, T. R. (2004). Marco Polo: International marketing pioneer. Journal of Macromarketing, 24(2): 178–185. Norway. OECD Forum on Trade in Education Services. (2003). Key developments and policy rationales: E-learning and distance courses. Paris. OECD. (2004a). Education at a glance. Paris: OECD. OECD. (2004b, August). Policy brief internationalization of higher education. Paris: OECD. OECD. (2004c) Internationalization and trade in higher education: Opportunities and challenges. Paris: OECD, p. 261. Open doors. (2004). International students in the U.S. Institute of International Education, New York. Penfield, Paul, as cited in MIT OpenCourseWare Program Evaluation Findings Report, op. cit. (p. 33). Potts, J. P. (2005, February 14). Personal interview. University endowments: A UK/US comparison. (2003, May). Sutton Trust. http//www.suttontrust.com/, accessed March 29, 2005. U.S. Bureau of Economic Analysis. (2004, July). Survey of current business. Washington DC.

Chapter 1.5

International Information Cross-Fertilization in Marketing An Empirical Assessment Michael R. Czinkota

Information is a crucial strategic resource. This is particularly the case in business, “where managing a business well is managing its future, and managing its future is managing information” (Daser, 1984). The importance of information is further underscored by the business strategy literature which has developed concepts such as the learning organization (Nonaka, 1991) and “intelligent enterprises” (Quinn, 1992). Some even claim that “to become information intensive is not a choice but rather an adaptive response, a requisite to survival” (Cadeaux, 1997). Information and its management is even more important in the international setting, where entirely new parameters and environments are encountered. The marketing literature continues to highlight the linkage between international information, competitiveness and corporate success. For example, Kedia and Chahokar (1986) claim that a lack of information is the major deterrent for international market participation by small and medium-sized firms. Some see management’s willingness to gather information as crucial for international marketing success (Dichtl et al., 1990). It has been claimed that companies can expect to remain competitive in the global marketplace only if they are aware of crucial macro and micro information from around the globe (Czinkota, 1991),

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and that “learning may be the only source of sustainable competitive advantage” (Slater and Narver, 1994). An analysis of international market failures found that most errors could have been avoided if the firm and its managers had obtained adequate information first (Ricks, 1999). On the overall point of the importance of information, Farmer (1987, p. 113), stated that “to be world class one needs world class information.” Bill Gates, Chairman of Microsoft, raises the stakes even higher when he argues “How you gather, manage and use information will determine whether you win or lose” (Gates, 1999).

International Information Integration in Marketing Managers understand that international information gathering is crucial to the success of their enterprise. The rapid growth of international activities by the leading business research organizations provides clear evidence of the corporate awareness of and desire for information on an international basis. For example, the top 50 US marketing research firms derive, on average, more than 38 per cent of their revenues from outside the USA (Marketing News, 1996). On a conceptual level, in academe, a fundamental assumption posited is that learning is likely to improve future performance (Garvin, 1993). This key tenet of course, serves as the main justification for the entire academic industry itself! It has been said that “a unique characteristic of knowledge is that it is one of the few assets that grows most when shared” (Quinn, 1992, p. 254). Furthermore, the history of the rise and fall of civilizations indicates that valuable knowledge not only can emanate in one location but also is usually footloose in origin. Key intellectual contributions have been made by places as far apart as Athens, Baghdad, Cairo, Heidelberg, Moscow, Peking, and Princeton. The three key dimensions of information and knowledge identified here are therefore: (1) information and knowledge are useful for learning and progress; (2) information and knowledge can emanate from multiple sources around the globe; (3) information and knowledge, when shared, become more valuable.

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In light of these dimensions, one would expect that academia, which has done so much to conceptually analyze information and knowledge issues, would be particularly sensitized and interested in the international transmission and use of information. Within the general area of academia, the business field would appear to be particularly attuned to such international cross-fertilization, since business research has indicated the great value of such information and knowledge linkages. Since much of the international research and focus on cultural differences has occurred in the field of marketing, one could surmise that the members of the research community in the marketing field would be the ones most successful in the international cross-fertilization of information. These expectations, however, are not universally accepted. There is the belief that the international exchange of information may be hampered by significant external barriers. For example, some hold that non-US authors face barriers to entry when it comes to publishing in US journals, particularly when these authors are mainly referencing non-US literature. There appears to be the belief that, in order to get published in US journals, the author needs to move to the USA or work in the USA for some time.1 This issue is brought home by a letter from the renowned international researcher Geert Hofstede in which he states: “I always had the greatest trouble in getting my manuscripts accepted by North American journals. Recently two of my very good manuscripts were rejected . . . Both manuscripts are now being published in Europe. My diagnosis is that most of North American social sciences is conducted by in-group persons who read only one another’s work and cite one another. There is no conscience of belonging to a borderless crowd of humans who try to explore the same social reality” (Hofstede, 1998). Similar complaints have been heard even from UK colleagues who claim that much of their work published in Europe is neither cited nor acknowledged in the USA. Maruyama likens such introspection to a “local content requirement” by US social scientists (Maruyama, 1991) which may lead to inbreeding and the insulation of researchers from progress elsewhere (Maruyama, 1998). Similar impediments may also be presented by internal barriers to authors who (plan to) publish outside their own country. Apart from language concerns, these barriers can also consist of institutional evaluation systems which do not treasure (or even count) publications

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outside one’s own narrow confines. Particularly in a “publish or perish” environment, such policies may serve to significantly affect international publication activity.

An Analysis of International Contributions to Journals Method In light of these controversies surrounding international information exchange, it was decided to investigate the degree to which the marketing literature benefits from the input of international authors. This way, a more fact-based understanding of the extent of global cross-fertilization of ideas would be obtained. Academic journals are said to reflect the developments and the directions of a field most clearly. Therefore an international analysis of key journals was conducted to analyze the country affiliation of the contributing authors. The focus was on selected journals in Europe, Japan and the USA, which were likely to carry marketing articles from international authors. In the USA, these publications were Journal of Marketing, Journal of the Academy of Marketing Science, (Columbia) Journal of World Business, Journal of International Business Studies, Journal of International Marketing and Harvard Business Review. In Europe, the analysis covered the European Journal of Marketing, published in the UK, and the publication Marketing in Germany. In Japan, the publication Marketing was reviewed. The period of analysis covered 18 years for the US publications (1980–1997), with the exception of the Journal of International Marketing, which had only been in existence since 1993 and was therefore analyzed from its initial appearance. For the UK, German and Japanese publications the period of analysis covered the 11 years between 1987 and 1997. The analysis focused on the country affiliation of authors in these journals. Particular attention was paid to non-regional authors, i.e. authors who did not have an affiliation with an institution in the country (or region) in which the journal was published. Overall, the articles and affiliations of 8,078 authors were reviewed.


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Findings The findings indicated a surprisingly low degree of international cross-fertilization for most publications. In the US journals analyzed, in an 18-year period, articles had been written by 6,361 authors. Overall, only 8.9 per cent of these articles were published by non-US affiliated authors. However, the range of international contributions varied widely by journal. For example, on the low side, the Journal of the Academy of Marketing Science had only 1.9 per cent of its contributions emanate from authors which were not affiliated with US or Canadian institutions. By comparison, the Journal of International Business Studies which positions itself as an outlet for research conducted globally, had 22 per cent of its authors coming from outside the USA and Canada. Surprising were the findings for the Journal of Marketing and the Journal of International Marketing. Both publications are marketing-specific outlets, yet they turn out to have very different degrees of internationalization. The Journal of Marketing has one of the lowest levels of international authorship with 4.7 per cent, while the Journal of International Marketing has the highest international permeation in the Western Hemisphere with an international authorship of 28 per cent. As of 1998, both of these publications are part of the American Marketing Association’s publication program. It will be interesting to see whether the high differential in international authorship levels between these two journals will continue. Over an 11-year period in Japan’s Marketing Journal the number of internationally affiliated authors was 43, or 9.1 per cent of total authors, quite similar to the average level of the USA. For Europe, Germany’s Marketing had contributions from 27 non-regional authors, which amounts to 7.3 per cent of total authors. By contrast, the European Journal of Marketing had, during the same period, 394 non-Europe affiliated authors, accounting for a total of 45 per cent of international authorship, and thus making it the most globally oriented journal of the ones analyzed here. This degree of internationalism of the authors contributing to the European Journal of Marketing (EJM) is the more remarkable, since it reflects all the authors who do not come from the European Union, which in itself already represents a very diverse number of countries. Details of all these findings are presented in Table 1.

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TABLE 1.

The Country Affiliation of Authors in Key Marketing Journals in Europe, Japan and North America

Region/journal

Percentage non-regional authors

Total authors

Non-regional authors

372

(Non-German) 27 (Non-Euro) 394

45

471

(Non-Japanese) 43

9.1

963

(Non-US/ Canada) 148

15

2,035

106

5.2

1,145

22

1.9

824

181

22

192

53

28

1,202

57

4.7

6,361

567

8.9

I. Europe Germany: Marketing (1987–1997) UK: European Journal of Marketing (1987–1997) II. Japan Marketing Journal (1987–1997) III. North America (Columbia) Journal of World Business (1980–1997) Harvard Business Review (1980–1997) Journal of the Academy of Marketing Science (1980–1997) Journal of International Business Studies (1980–1997) Journal of International Marketing (93–97) Journal of Marketing (1980–1997) Total US

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7.3

A further analysis was conducted to determine the countries of affiliation of the non-regional authors. This analysis was done in order to find out whether the home language of the country of affiliation and the language of publication of the journal had a major influence on the international contributions. For US publications there was a strong, yet not overwhelming, language effect. The lead country of affiliation of non-US/Canadian based authors was the UK, where 26 per cent of the


TABLE 2.

Non-regional Authors in US Marketing Journals 1980–1997

Rank

Country of Affiliation

Number of authors

Per cent of non-regional authors

1 2 3 4 5 6 6 8 9 9

UK France Japan Hong Kong Australia Israel Switzerland Sweden Korea The Netherlands Other

148 53 47 28 24 23 23 20 16 16 169

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authors were located. However, as Table 2 shows, a wide variety of authors from other nations were represented as well, many of them in non-English speaking locales. Of course, this analysis did not consider the extent to which authors had studied or lived in North America. In the Japanese Marketing journal no language effect was evident. The overwhelming number of contributors came from North America (38 of 43), while five contributors were affiliated with European institutions. It should, however, also be mentioned that all of the contributions by nonJapanese authors were translated by the journal staff. For the German journal Marketing 15 of the 27 non-German affiliated authors came from German-speaking countries, ten from Austria, five from Switzerland. Of the remaining 12 authors, two each were affiliated with Poland, the UK and the Czech Republic, and one each with China, Canada, Holland, Russia, Sweden, and the USA. For the European Journal of Marketing, published in the UK, there was a strong language effect. More than one-half of the non-European contributors came from the USA, followed by Australia, Canada and New Zealand. Table 3 provides some more detail on the affiliations of the non-European authors.

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TABLE 3.

Non-Regional Authors in the European Journal of Marketing 1987–1997

Rank

Country of affiliation

Number of authors

Per cent of non-regional authors

1 2 2 4 5 6 7

USA Australia Canada New Zealand Singapore Hong Kong South Africa Other

232 40 40 27 14 10 7 24

59 11 11 7 3 2 2 5

Some Early Conclusions In light of these overall findings, several conclusions can be drawn. First, in spite of the globalization of marketing practice, there is much less progress in the globalization and exchange of academic marketing concepts and thought. In particular for Germany, Japan and the USA, the extent of intellectual contributions by non-regional authors is far under-represented, when compared to the internationalization of the respective societies based on trade and investment. For example, while US GNP is now almost 30 per cent trade dependent, less than 9 per cent of the authors in key US journals come from outside the region. Quite disappointing also is the fact that countries with major marketing expertise, such as Japan and Germany, appear to have relatively few authors contributing their expertise outside their immediate region. For example, it is difficult to understand why authors from Germany do not even rank among the top ten non-regional contributors in US marketing journals. As the number two export country in the world, surely German marketing expertise deserves to be shared with others? Similarly disappointing is the fact that very little knowledge appears to be transferred by Japanese academic authors to Europe.


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At the same time, the results also include some heartening findings. Several journals, in particular the European Journal of Marketing and the Journal of International Marketing have managed to be at the forefront of offering content written by global authors. As a result, they can be considered to be the leaders in the presentation of truly global marketing knowledge. Heartening is also the finding that US authors appear to be the ones most actively sharing their expertise around the globe. Whether this is the result of pressure on US academics to publish or of their desire to address a global audience, 88 per cent of non-regional contributions to the Japanese Marketing journal and 59 per cent of the non-regional contributions to the European Journal of Marketing emanate from US affiliated authors. The quantity of these contributions may also be an indicator of the importance of US-based thinking in the marketing field.

Some Limitations There are some limitations to these findings. With a caveat typical for almost any research project, more time and resources could have permitted an expansion of the investigation to more journals in more nations over more years. However, in this analysis the principal publications likely to carry marketing articles in the key international business regions were investigated. Any expansion of coverage is unlikely to change the key findings. It could also be argued that the country affiliation of the European Journal of Marketing is the UK, rather than Europe. However, the “Editorial objectives” and “General principles” published in EJM, as well as the overwhelming portion of its authors, tend to support a “European” positioning. If one were to shift definitions, however, and consider all authors from outside the UK as international contributors to EJM, the results would not change the rank order of international authorship in the journals investigated, but would merely greatly strengthen the international lead of EJM over the other journals. This analysis also addressed only the writings in academic publications. Clearly, there are many news articles, trade publications and pamphlets which may result in a cross-fertilization of marketing thought. This research, however, focused specifically on the activities

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within the academic sector—since it is here where typically new conceptual and normative thoughts are propagated.

Enhancing the Globalization of Marketing Knowledge We must recognize the fact that marketing knowledge, and the publications disseminating such knowledge must globalize their perspective if they are to remain leading edge and cognizant of new developments around the globe. Publications which do not undertake efforts to internationalize themselves will fall behind as preferred and sought out sources of knowledge. At the same time, authors who do not expose their knowledge to a global audience may miss out on important market input. Here, then, are some recommendations which might be useful in increasing the internationalization of marketing publications. Editors and the sponsoring organizations of journals should undertake steps to internationalize their publications. This will require a systematic broadening of the distribution base of their journals. There should be no more regional marketing journals but only international ones, since important marketing work may possess value in many corners of the earth. At the same time, a journal’s value creation hinges on the content of the publication. Therefore, efforts also need to be undertaken to ensure that the content and the contributors emanate from a diverse number of sources around the globe. Proactive efforts should therefore encourage authors to submit their findings to publications outside their own regions as well. Since language considerations may pose a major constraint here, journals and their editors should make provisions for assistance in terms of language presentation. It should be kept in mind, as a former editor of the Journal of Marketing stated, that non-native authors “may speak with an accent, but they do not think with an accent” (Varadarajan, 1998). Editors will therefore have to overcome their self-reference criteria and look beyond the format and presentation of submitted manuscripts and concentrate even more than they currently do on the content. In addition, they should then, once good content is found, make provisions to provide the appropriate “localized” presentation, be it


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through translation or editing services, in order to help their own readership overcome problems of ethnocentricity. Editors may also wish to begin reconsidering the exclusivity of publication which has so long been held sacrosanct. For example, if a particular journal has only regional distribution, or very spotty global distribution, editors may no longer wish to restrict the dissemination of knowledge, but rather permit the publication of the same article in other, geographically different oriented publications. The continuation of a “one article in one journal” policy may only be viable in the future if a publication outlet can assure that global distribution of the information takes place. Otherwise, particularly during an era of increased Web-based publication activities, hard-copy journals may eventually find themselves deprived of the contributions of leading edge authors. It may also be useful for editors to revisit the structure of their editorial boards. The causality between editorial board affiliation and international orientation of journals deserves more in-depth research. There does, however, seem to be a high correlation between the international structure of the editorial board and the degree of international authorship in a journal. For example, some of the journals analyzed here which had a review board with a very international composition also tended to have the most diverse countries of origin of its authors. The European Journal of Marketing had 57 per cent of its review board from outside the UK, and 36 per cent from outside Europe. The Journal of International Marketing had 37 per cent of its reviewers affiliated with institutions from outside the USA and Canada, while the Journal of International Business Studies had 27 per cent of its review board from outside North America. Low scoring journals in terms of international authors also had few international editorial board members: for example, both the Journal of Marketing and the Journal of the Academy of Marketing Science had less than 4 per cent of their editorial board from abroad. Colleagues, department chairs and tenure and promotion committees on campus also need to be educated on the importance of the internationalization of the communication of knowledge. All too often today, publication in non-domestic outlets is automatically discounted. Rather than take such an ethnocentric approach, it might make more sense to determine the audience with which the author should, and wishes to, communicate, and then evaluate publication outlets based on their

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ability to reach that particular audience. In addition, the globalization effects of disseminating knowledge internationally and the positive repercussions on the reputation of individuals and institutions should not be underestimated. While there are some important business schools whose faculty purposefully publishes very little in English, there needs to be the eventual recognition that in an era of globalization the language of business is English. If institutions and individuals persist in publishing only in their non-English native language, there will be an increasing cost associated with that decision which affects the value of research, be it in the delay or even ignorance of new thoughts and ideas. Most important, however, is a shift in the publication and communication outlook of individual academics. As choices are made about where to publish and what publications to read, it needs to be appreciated that important knowledge exists in many parts of the world and that many readers around the globe are in need of newly developed business knowledge. Those academics who intend to be truly internationally oriented, should obtain and disseminate their knowledge on a global rather than a domestic level. Researchers who expect to be truly informed about the state-of-the-art of a field, need to search earnestly for work done in other nations. US authors in particular need to take account of non-US literature and cite or acknowledge non-US work. In this context, it is well worth remembering that the now so helpful search engines in our computer programs tend to only pick up a small portion of actual work carried out and are still heavily biased towards English language publications. Overall, knowledge is precious. It becomes even more precious when shared globally. Marketing academics in particular should feel an obligation to encourage such global cross-fertilization through their own activities by making an effort to reach out to colleagues in other countries, through both the dissemination of their works and the use of work carried out by others abroad.

NOTE 1.

The author is grateful to the anonymous reviewers for this point.


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REFERENCES Cadeaux, J.M. (1997), “Counter-revolutionary forces in the information revolution: entrepreneurial action, information intensity and market transformation”, European Journal of Marketing, Vol. 31, pp. 768–85. Czinkota, M.R. (1991), “International information needs for US competitiveness”, Business Horizons, Vol. 35, pp. 86–91. Daser, S. (1984), “International marketing information systems: a neglected prerequisite for foreign market planning”, in Kaynak, E. (Ed.), International Marketing Management, Praeger Publishers, New York, NY. Dichtl, E., Koglmayr, H.-G. and Muller, S. (1990), “International orientation as a pre-condition for export success”, Journal of International Business Studies, Vol. 21, pp. 23–40. Farmer, R.N. (1987), “Would you want your granddaughter to marry a Taiwanese marketing man?”, Journal of Marketing, Vol. 51, pp. 111–16. Garvin, D.A. (1993), “Building a learning organization”, Harvard Business Review, Vol. 71, pp. 78–91. Gates, B. (1999), Business @ The Speed of Thought, Warner Books, New York, NY, p. 3. Hofstede, G. (1998), letter to Magoroh Maruyama, cited in Maruyama, M., “Academic concept inbreeding, failure of interbreeding, and its remedy by outbreeding”, Human Systems Management, Vol. 17, p. 89. Kedia, B.L. and Chahokar, J.S. (1986), “An empirical investigation of export promotion programs”, Columbia Journal of World Business, Winter, Vol. 13, p. 20. Marketing News (1996), “Top 50 marketing/ad/opinion research firms profiled”, 3 June, p. H4. Maruyama, M. (1991), “Disciplinary contents requirement: academic non-tariff barrier in interdisciplinary communication”, Human Systems Management, Vol. 10, p. 155. Maruyama, M. (1998), “Academic concept inbreeding, failure of interbreeding, and its remedy by outbreeding”, Human Systems Management, Vol. 17, pp. 89–91. Nonaka, I. (1991), “The knowledge-creating company”, Harvard Business Review, Vol. 69, pp. 96–104. Quinn, J.B. (1992), Intelligent Enterprise, The Free Press, New York, NY. Ricks, D.A. (1999), Blunders in International Business, Blackwell Publishers, Malden, MA. Slater, S.F. and Narver, J.C. (1994), Market Oriented Isn’t Enough: Build a Learning Organization, Report No. 94–103, March, Marketing Science Institute, Cambridge, MA. Varadarajan, R. (1998), presentation at the AMA Faculty Consortium, East Lansing, MI, 13 July.

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Chapter 1.6

Trends and Indications in International Business Topics for Future Research Michael R. Czinkota and Ilkka A. Ronkainen

INTRODUCTION Forecasting changes in the international business environment is critical for the policy, corporate, and academic communities. As the importance and impact of international business overall has increased, there is a commensurate need to identify, as early as possible, emerging issues, and assess their potential effect on policy makers, practitioners, and researchers (McKinsey & Co. 2006). While there are many individual broad visions as to the future business environment (Marcovitch 1997), a more specific way to engage in forecasting is to get the business, policy and research communities to interact in the process of outlining possible scenarios and resulting actions. Since no one region or location will be the only origin of change, a diversity of opinion across geographies secures a more balanced portfolio of comments. The possibility to identify, analyze, and debate changes allows for the timely preparation of strategies in response to them. While some of the issues presented may already be emerging, the ideal results identify early signals of outlying phenomena thereby allowing policy makers and business leaders to execute proactive responses. Similarly, academics can

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be normative in their research rather than analyzing what may have already occurred (Dunning 2002). Interestingly, while most agree that international trends are more important than they were only a few years ago, preparation for the changes brought about by these trends is lagging. In their global trends survey of 1,136 executives, McKinsey and Co. (2008) found that while identifying global trends has become increasingly important, few companies are addressing them successfully. In addition, the cross-over of information between the “silos” of disciplines is very limited. For example, top management research publications show an insignificant share of articles focused on the international and policy dimensions. On average only 5 percent of articles present an international focus (Werner/Brouthers 2002). At the same time, only 11 percent of policy articles focus on international issues (Sprott/Miyazaki 2002). A review of the 69 social sciences journals, listed in die Harzing quality list and with a title beginning with “International” (Harzing 2006), revealed that many journals do not publish international research but rather try to indicate through their title that they would like to appeal to, or draw submissions from, an international community.

METHOD This study used the Delphi technique, reported to be a “method (which) produces useful results which are accepted and supported by the majority of the expert community” (Fraunhofer Institut 1998). The method integrates the opinions of experts using multiple waves of data collection and interaction between respondents. For 50 years, it has been used by leading corporations and organizations to develop strategic guidelines (Duboff 2007). Results of the technique have been used to guide decisions into investing in new technologies and markets and have brought together the thinking of a variety of different communities. The overall objective is to achieve consensus among the panelists who represent a diversity of backgrounds and geographies. The selection criteria for panelists included active careers and leadership roles in the international business community, a demonstrated ability to see issues beyond the local and current circumstances, as well as a willingness to

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engage in intellectual dialogue and debate. A total of 34 experts participated in each of the three phases of the study. There is no agreement on the specific panel size for Delphi studies, but past studies have typically included 10–30 experts (Akins/Tolson/Cole 2005). Users recommend groups of about 30 experts based on the finding that larger groups create few additional ideas and limit the in-depth explorations of the ones generated (Delbecq/Van De Ven/Gustafson 1975). This report is the latest of five international Delphi studies undertaken by the authors in the past 25 years (Czinkota 1986, Czinkota/Ronkainen 1992, 1997, 2005) in order to identify the key international business dimensions subject to change in the next 10 years. The critical question targets the appropriateness of the Delphi technique to establish expert consensus on very complex issues. Green and Armstrong (2007) suggest that “the Delphi technique could be used to improve the assessment of analogies . . ., potentially increasing accuracy further at a low cost.” We compared the predictive ability of each of the past studies. Our “hit rates” were in 1986 (82 percent), 1992 (80 percent), 1997 (65 percent), and 2005 (89 percent) providing an average accuracy level of 79 percent. Nevertheless, the changes between Delphi studies have been substantial; for example, from 2005 to 2009, terrorism and corruption issues rose in importance, while trade negotiations declined. Similarly, corporate strategies were much more influenced by the need for reform than was the case only four years earlier. Over time, the accuracy percentage has increased, possibly as a function of the panels being more global and diversified, though the 2005 result may be overly strong due to the recency of the forecast. In many cases, however, the inaccuracies have been more so on the expected rate and speed of a particular change rather than on missing out on the change itself. There have, however, also been the misses for big events—which were seemingly unpredictable, even by the world’s finest intelligence agencies. Examples are eruptions such as the fall of the Berlin wall, the disappearance of the Soviet Union, or the sudden escalation of the global financial crisis. For those instances we seek recourse to the “Black Swan” phenomenon (Taleb 2007) which postulates that conditions or phenomena which have never been encountered before (such as non-white swans in European descriptions before the discovery of Australia) are particularly hard to incorporate in a forecast.

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The quality of participants and their willingness to expend effort on the Delphi work determines the value of the study results. The experts need to understand the issues, have a vision, and represent a substantial variety of viewpoints. The selected participants needed to have more than 20 years of experience in their fields and be very well connected to their global counterparts. In addition, they needed to be active in international business for at least 10 years; have a leadership role within their professional setting; a global vision beyond local and temporary concerns and accessibility and willingness to engage in intellectual dialogue. Most business respondents were either chief executives or executive vice presidents of their organizations, most policy respondents were current or former members of the legislative and executive branches of government. The academic participants were mostly professors specializing in international business. Some individuals had participated in earlier Delphi studies, but most were new respondents. Table 1 below indicates the number, location, and profile of the panelists. In order to make use of today’s heightened connectivity and expedite the interactive process, e-mail was used for the data collection. The method was adopted also to secure participant commitment through faster turnaround periods between the waves.

TABLE 1.

Delphi Participants

Corporate Policy Research Total Responses

Africa/Asia

Europe

Americas

Total

4 3 2 9

4 4 3 11

5 5 4 14

13 12 9 34

Respondent profile Corporate: Chairman, member of the board, president, executive vice president, director Policy: Ambassador, congressman, director general, executive director, strategist Research: Rector, chaired professor, professor

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DATA COLLECTION The data collection effort started with an open-ended question. Panelists were asked to “identify international business dimensions subject to change in the next 10 years and highlight the corporate and policy responses to these changes.” Issues and projected responses were to be rated for their impact on a 10-point scale from very low to very high. Responses from the first round were categorized and linked to corporate responses. In the second round, panelists were presented with the categories and comments and were asked to indicate their level of agreement with the statements made. In addition, they were requested to rate the impact each proposed change would have on corporations and policy makers using a 10-point scale to generate the precision of information needed (Gleason/Devlin/Brown 1994). The overall goal in the first two rounds is to achieve the highest level of consensus possible among the three constituent groups. The third round focused on statements for which there continued to be disagreement between the panelists. A key element in the data collection is the interaction of the respondents across the corporate, policy, and academic communities as well as across the different geographic locations. The interaction provides broadened perspectives on the importance and impact of the trends. No one community or any geographic location has a monopoly on trends. However, some are more likely to influence or be subject to change than others. We therefore worked on securing input from multiple key groups and locations, but to also ensure that key change regions and fields were represented. This targeted diversity forces respondents to consider realistic and broad aspects within their strategic perspective. As mentioned previously, panelists in the previous Delphi studies had not identified major outliers of change (such as the collapse of the Soviet Union). Therefore, special provisions were made to re-introduce statements into the debate which were considered unusual or extreme in order to stimulate discussion of even outlandish claims in order to gauge trends beyond the normal realm of expectations (Taleb 2007).


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RESULTS Items were analyzed for their intensity by determining a word count frequency and extent of comments elicited by each issue. Subsequently, items were normalized to provide for a comparable scale. Scale values were determined by multiplying the measures of an event/issue or region with its impact on international business, based on individual responses. The result was then standardized on a scale where the highest value was represented by 100 and all other items were assigned a value relative to the top score. The two top five issues identified by the panelists are presented in Table 2.

TERRORISM Firms and policy makers have a clear understanding that terrorism is an ongoing phenomenon to be confronted. Combating terrorism was seen as a fact of life and history, resulting in a continuous job for push-back to be conducted multi-laterally and without compromise. Counterterrorism needs to preclude the failure of the will of the people and governments opposing the terrorists. The root causes of terrorism were identified as policies towards immigrants and the sometimes dividing roles taken on by advocates of specific religions, cultures, regions, or races. Approaches proposed to address these root causes were education, improved nourishment, and

TABLE 2.

Key Policy Issues

Issue

Scale Value

Terrorism Globalization Corruption Cultural adjustment Information

100 83 72 55 46

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the ability to control one’s own destiny. But there will also be a growing emphasis on national interests accompanied by limited readiness for multilateral solutions. It will be a key task for governments to diffuse such desires rather than coddle to popular demands. Only with the collaboration of all parties concerned can local and regional protectionism and de-globalization be avoided. The greatest imperative will be to develop and maintain the power to execute peace. Much disagreement rested with the assessment of key approaches to defeat, or at least to manage terrorism. Some panelists felt very strongly that materialism and “having something to lose” are key dimensions to secure for those who perceive themselves excluded from the benefits of globalization. Others suggested a prime role for spirituality, empathy for and understanding of cultural differences. Future success may favor those who have the ability to pair values with valuation. Consumers appear willing to change their consumption patterns if needed for security considerations. In response to cultural diversity and cross-border cultural conflicts many may give up earlier preferences, giving country-of-origin a new meaning. Corporations are likely to revive ethnocentric and polycentric policies and use export activities, rather than foreign direct investment, as the dominant form of dealing with foreign markets. They will either pull out from countries that lack law and order or service them only at a very high risk premium.

GLOBALIZATION Key gains of globalization are achieved by consumers, intermediaries, and originators, since those participating in the supply chain can move to different locations to benefit for low costs or other advantages. The key issue is mobility. Workers are not necessarily able to take advantage of this since the cost of moving may be quite high due to different environments and cultures. Education and training are crucial for better and more rewarding tasks for workers. When asked how countries can move up on the globalization chain, our panelists consistently rated education as the most important component, followed by competition and investment. A discussion forum with former Latin American presidents fully supported


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this perspective (Pino 2007). However, there was a sharp divide between panelists when it came to the content of education. Some stressed the importance of keeping up with learning both quantitative and qualitative knowledge. Others believed that learning of difficult knowledge—say physics, mathematics, chemistry—could be outsourced to those who revel in such materials. Quality education time could then be dedicated to other pursuits, such as music, art, or poetry. Repeatedly, the question arose whether learning was to serve an inner spiritual desire or society and whether, for example, the implantation of a “knowledge chip” would be better or worse than the stepwise acquisition of knowledge under difficult or even unpleasant conditions. A key point was: Are we really all dumbed down since the invention of the calculator? Workers in low-wage countries are often unable to earn developedmarket pay due to barriers imposed by governments. While there is strong evidence that the removal of trade and investment barriers raises living standards across the board, there still will be winners and losers. There is a need for sequencing to minimize disruptions; for example, it may be necessary that a lengthy phase-in time will allow people to adjust to change and help those who are worst hit. Location-specific differences in how quickly globalization’s effects will trickle down jointly with variations in social standards and the existence of a social net greatly affect the change on workers. Currently, brawn and assembly are cheap, while knowledge and creativity are expensive. These dimensions can be cyclical, however. Conditions may change quickly to reward “fighters” more than “thinkers.” Entire clusters of opticians and grinders became obsolete with the advent of electronic manufacture of optical devices. Those who suffer from globalization will be fierce opponents. No matter if one cogently points out that only a small portion of their troubles emanate from international issues, the mere fact that these issues are implicated will be enough to result in vitriolic campaigns against them. Of crucial importance will be the supportive role played by those who accumulate the gains from international economic activity. However, their preoccupation with managing growth may make their support questionable or limited, letting them recognize their loss only after major actions against the global economy are taken.

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Changes in reserves and economic relations, accompanied by an unbundling of financial systems between the U.S. and other nations are also likely to lead to changes in the acceptance of laws and politics. Less deep financial pockets will lead to financing difficulties in markets which have depended on an ample supply of money. The exit of marginal participants and the tightening of existing rules and expenditure habits will be one consequence. The United States continues to present new and special opportunities to the world. It offers the security and safety that have, sadly, been unattainable for most people on earth. It presents a vision, flexibility, and capability to adjust to new conditions which are the envy around the globe. A long term perspective is needed to appreciate past effects and future prospects. Global investors are not foolish when they show their reluctance to turn away from the dollar. What determines the value of money in the long term is the trust, promise, and the future that a nation offers to those holding its currency. Finding ways of steering these investor expectations enables a country to maintain or systematically alter the value of its currency. It is likely that the role of international organizations will shift. The World Trade Organization is already pressed to take on more responsibilities, some of them reaching well beyond trade. The feeling of many is that, if we are to avoid growing trade conflicts and the exploitation of local rules for the benefit of nefarious individuals and firms, a uniform implementation of key principles will be necessary. Such principles will include child employment, working conditions, and the rule of law in areas such as contract awards. Violators of such rules will eventually find out that the eventual enforcement of consistent regimes around the world, there may be an ability to run, but there is no ability to hide, particularly not from highly motivated consumer activists. Other international organizations may become much weaker. For example, in an era of individual links with one another for purposes of information, trade, and financial exchange, the developmental role of the World Bank may well diminish. Poor countries may feel that they simply have no stake, no respect, and no benefit from the institution. Similarly, the International Monetary Fund may be far outperformed by local and regional lending arrangements which do not impose requirements for economic adjustment which are harsh and of little relevance to long term


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performance. The currently overwhelming power of rich countries in the voting system of the fund increasingly lets developing countries feel that they are members of less than full value.

CORRUPTION Corruption is a major detractor from global welfare and local economic development. Its consequences are shoddily built roads, structures that collapse, clinics with equipment purchased at high prices or inappropriate specifications. In all such circumstances vast public expenditures do not achieve the envisioned use and local interest suffers. Typical side payments are 10–15 percent of all major expenditures, with much higher levels in the developing world. “It is human nature to lubricate relationship with gratuity” was a typical statement, with more diversion attributed to high-context cultures (e.g., Latin America, Latin Europe, and Asia) and less to low-context ones (e.g., United States, Northern and Germanic Europe). Yet, the social acceptance of corruption was seen as a bigger danger because it protects the elite from domestic scrutiny and control. Therefore, the ongoing impact of the U.S. Foreign Corrupt Practices Act and the OECD discussions were seen as instrumental in reducing or at least containing such misappropriations. More multilateral action is seen as necessary to ensure broad, continuous and relentless enforcement of measures against violators. Beneficiaries of ill gotten gains from bribery should eventually be pursued globally to disgorge their ill gotten gains.

CULTURAL ADJUSTMENT There is a strong belief that cultures around the globe will become more similar to each other, particularly in the area of macro issues such as accountability, performance expectations, freedom accorded within society, and product preferences. Such cultural assimilations were also seen to be profoundly influenced by the United States, threatening lessdominant cultures. At the same time, it will be more difficult to export overwhelmingly uniform ways of thinking due to an increase in regional

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and local sovereignty and calls for cultural protectionism even by multilateral organizations such as UNESCO (Moore 2005). History indicates that cultures rise and fall over time, with conflict in the process, regardless of information flows, insights, and learning. Otherwise, the world would now be speaking Greek, Latin, or Arabic. Already today, the use of English as a business language can create resentment and hostility. Companies are discovering that language also conveys cultural norms, which, in turn, reduce the creativity and local connections of their employees. It appears to be quite likely that firms will increasingly develop a norm stating “we did not hire you for your English” which will introduce a new multi-polarity to global management. On the micro level, however, ongoing culture clashes were foreseen to continue, often giving a boost to fundamentalism. In many regions of the world, individuals will, for the first time be truly exposed to new cultural groups. For example, it will be a new experience for many Americans to be exposed to large groups of Latinos, and, perhaps even be confronted with becoming a regional minority. Similarly, “Western” Europeans will become exposed to the influx and major competition from what used to be communist neighbors. Some might find this advent of new neighbors unacceptable. All these moves will not leave cultures unchanged. Culture is the result of learned behavior and adjustment to new conditions. Opening up to others on a such a gigantic scale as the world has done within a relatively short time, will bring some individual xenophobia, but also the reward of growing flexibility, better understanding and rising tolerance levels. Mobility may well create a new generation of innovators and risk takers. It is the task of governments to prevent cultural conflicts from becoming irreconcilable and to find ways to keep society cohesive, linked, and ready for collaboration. Governments must recognize the investment models driving the behavior of firms. They evaluate locations and opportunities in terms of risk and return within a particular time frame. Higher risk or shorter investment periods require higher returns. Expedited returns lead to higher prices, lower investments, and less investment stability. It is important that governments provide a lower risk platform and communicate about their planning and results, so that


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investors can recognize and reward a less risky environment. In addition, the impact of consumer activists on corporate actions needs to be recognized. Rapid and transparent information flows result in greater insights and more challenges on the part of consumers. They are willing and able to express their views, consolidate their emotions into commercial action and use their networks to enhance their reach. In consequence, governments need to develop and adhere to standards of behavior which comply with global expectations for human dignity. The corporate challenge is to reap the economic advantages of globalization while preserving local cultural values. Corporate business practices are likely to become more global due to the growing participation by Asian firms, brands, and managers in world markets. Therefore, a better understanding of networks and networking across cultures becomes more crucial. For example, Chinese, Indians, and Russians have different approaches to network building than Westerners. Increased participation by international players will affect market opportunities for American products and force firms to globalize their strategies. Similarly, corporations will opt for more use of soft power (e.g., corporate philanthropy) rather than hard power of penalties to achieve gains in the global market place (Tse/Cainey/Haddock 2007). They may also have to find ways to adjust to different subcultures around the globe which are already entrenched and growing. The Archbishop of Canterbury stirred up much public sentiment when he called for a re-examination of the role of Sharia in British life in 2008. Sharia is the body of Islamic religious law which is based on the Koran, the words and actions of the Prophet Mohammad, and the rulings of Islamic scholars. It typically finds its application mainly in Muslim countries. The Archbishop suggested that, with a population of more than 2 million Muslims in Great Britain, Sharia already figures prominently in the lives of many. Informal neighborhood councils provide rulings on family issues such as divorce; banks, such as HSBC already market mortgages which comply with Sharia rules of lending (Adam 2008). Perhaps Muslims in Britain would be more comfortable and willing to build a more constructive relationship within British society if they could choose Sharia law for the settling of civil disputes.

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INFORMATION Even though a greater diversification of information sources may typically provide for better knowledge evolution, there is an expectation of fewer data sources offering increasingly larger quantities of data due to mergers and acquisitions, cost cutting, or limited user willingness to pay. Such developments are likely to affect accuracy and reliability making data use heavily trust-dependent. To a growing degree, data users may demand more insights into the origin of information in order to gauge its validity. Just like butchers are expected to label the meat they sell with precise origins, information providers need to offer data locale and source of origin. Under such conditions, the locality of data can be systematically used to enhance credibility (e.g., through increased use of local debt-rating agencies). Due to more transparent sourcing, there will be a decrease in the willingness of firms and people to offer information. Nebulous laws and restrictions may be increasing the threat of law suits. Also, the gains from free information that have greatly helped businesses and individuals in the past 10 years are likely to shrink. There may be a tendency towards “organic” data unaltered by manipulation or interpretation. Another alternative may be “comparative” data which, on an onion basis, provide multi-source perspectives. In addition, quantitative data are likely to be combined with qualitative information, resulting in a diagnostic perspective. Once data pass the trust threshold, they can then be used in a much more aggressive and insightful way, going far beyond the traditional and retrospective use of statistics. Advancements of information technology and convergence of new technologies will allow any new equipment to be more sophisticated and to perform more functions at lower cost. Even though companies will be willing to adopt these new technologies faster than ever before, doing so will only provide a competitive edge if it is not done at the expense of ease to user and customer friendliness. While youth markets will be quick to use new capabilities, more mature buyers will be reluctant to invest in products which require a high degree of additional learning. Excelling in technology alone has no intrinsic value. It is the application of technology to satisfy human needs and values, at a profit that will matter for business success.


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LOCATION AND SOURCE OF GROWTH The key growth industries in the future are summarized in Table 3. The focus was on the industry identification rather than internal growth. In terms of geography, emerging market economies will continue to increase their impact on the global economy. The threat of polarization and an increase in regional and the local trade and finance relations will encourage an eventual completion of the Doha Round of trade negotiations. Countries will focus on those issues which are most relevant for their economies, thus leading to a differentiation of players which grow, make, create, or coordinate. Significant new market opportunities will develop within emerging economies. At the same time, growing capabilities will let these countries compete directly with more self-developed products and services in the developed world. There will be more cooperation between emerging regions, resulting in more integration among them, and perhaps more protectionism outside of their sphere. Developing nations will welcome more diversity of partners and will welcome increased competition among larger players. For some countries, this collaboration is also likely to introduce new global moral positions, raising the relative precedence of business, politics, human dignity and freedom. While efficiency will gain in importance, there will also be more incorporation of Eastern business practices into overall methods. Overall, economic power is likely to shift globally to Asia, both in terms of investment and output.

TABLE 3.

Key Industries Affected

Industry

Scale Value

Communications/IT Coordination of Services/Demographics Pharma/biotech Environmental Energy

100 84 72 66 55

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China will be the player to watch. For firms who are planning to enter the global market, succeeding in China will be a crucial indicator of competitiveness, since “if you can make it there, you can make it anywhere.” Due to domestic pressures fueled by weaknesses in the banking system, urban/rural imbalances, and regional political dissonance, top Chinese corporations are likely to expand significantly overseas. Multinational firms from third world countries will expand in general, and the Fortune 1,000 will soon include a significant number of Chinaheadquartered companies. There will also be a significant increase in mergers and acquisitions led by Chinese firms. Another important participant will be India. That country’s opening will rival the growth of China, due to its wide-spread facility with the English language, its close alignment with the rule of law, a well developed commercial infrastructure, and a democratic government. Companies are likely to see India as both a primary place for outsourcing and as an important market for their goods. In particular, Indian linkages in the communications and information sectors are likely to soar.

ENVIRONMENT, CONSERVATION AND SUSTAINABILITY China will demonstrate only limited concern towards the environment, even though environmental problems will have a major effect on its ability to compete as a global manufacturing center. Medical, environmental and other social costs will dramatically reduce the advantages of firms to manufacture in China—therefore leading to a move of FDI to other locations, including the U.S. and Europe. One consequence of China’s and India’s rapid growth will be an ongoing depletion of natural resources. Aspirations for economic progress and better lifestyles will cause shortages in the natural resources. In consequence, the sourcing and controlling of important raw materials will be a key strategic issue, often leading to preferential bilateral agreements perhaps even in contradiction to multilateral arrangements. Governments will attempt to put more land into grain production and also use tools such as subsidies and price controls. Scarcity will also drive up the price of consumer alcohol. Protection of materials within society


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from theft will become a key issue (e.g., cutting electrical wires to steal copper). Recycling and recovery will grow as vital business opportunities. Farming will become highly attractive and profitable again as fuel production from food accelerates. The global shortage of potable water will be re-discovered as a key issue and a key constraint on global advancement and wellbeing. There will be much higher government investments in desalination and reverse osmosis technologies and more emphasis on water conservation. In light of public concern about climate change, there will be growing preference for energy saving technologies and a reduction and limit to energy use. A stream of scientific and non-scientific proof will be offered for global warming, with any unusual natural phenomenon being blamed for global warming. Public impressions and perceptions will lead to changes in living patterns—for example the population of dry arid and hot climate areas may well shift due to water shortages and, say, limits to the use of air conditioning technology. Such effects will occur even if it becomes generally accepted that global warming is only slightly dependent on human activities—given the overriding argument of: What can it hurt? Africa may well emerge in offering the most opportunities for green investments and the accumulation of carbon credits. However, if the transfer of resources resulting from carbon trading grows, such trading will become, in the eyes of governments, non-sustainable and therefore prohibitive. There is more likely to be an increase in international agreements (both multilateral and bilateral) which set a framework for corporations, promotion and subsidies for technologies and products which protect the environment. Rich countries will give more importance to this concern, and most internationally operating companies will take this concern seriously. Key sectors for industry creation and expansion will focus on the protection of public health; the need for sustainability; the saving of energy, water and natural resources; the growth of biotechnology, genomics and nano-technology; the creation and promotion of eco products, services and processes. For example, sustainable water recycling technologies will spawn new industries. Governments will, at the same time, adopt and encourage more advanced pollution control policies, particularly for heavy metals and engineered (non-naturally occurring) substances.

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DEMOGRAPHICS The aging of populations of North America and Europe will be joined by those of Asia and Latin America. These older populations will become a growing customer segment for the financial-services sector as well as to providers of health care and appropriate household products. In particular, the lack of public support for the disabled and needy—often the result of cultural traditions—will create problems for generations caught in transition. At the same time, there will be major opportunities as older generations will expect more education, entertainment and involvement to enjoy their increased leisure time. As baby-boomer societies experience waves of retirement, companies will shift to increase employee longevity and loyalty. New and substantial incentives will be designed to maintain expertise within and to reduce the need to find specialists outside the firm. In a world of permeable borders, there will be more of an opportunity to pick up and move. The ability to prove and improve oneself as well as to access new resources is a powerful motivator for migration. The young and the not-so-well off are primary groups to be involved. The moves and behavior of the young will become an informational signal for others. A tremendous opportunity exists for regions to enrich their quality of life, through the acquisition of young, upwardly mobile immigrants.

REFORMING THE GLOBAL CORPORATION Corporations are likely to face increasing pressures from a wide variety of stakeholders, governments, unions, media, and the public at large. These grow even more intense in light of a corporate migration from a Western-centric organization to multi-polar structures, accompanied by a shift from a West–North to an East–South orientation. Accountability and transparency will be the basis for key developments. Accounting systems will recognize and develop procedures for calculating the value and the change of intangible corporate assets, so that they can increasingly be used to drive corporate capitalization and performance. Such assets will increasingly become the prime measure of corporations and will have the key influence on predicted future cash


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flows and stock prices. Value investors will recognize that the building of intangible assets is a multiyear, multi-faceted endeavor. Consequently, buy-and-hold strategies will become more dominant and quarter-toquarter performances will become less important in the investing decision. Corporate responsibility will be interpreted to include broad-based activity and profit sharing. Low capital manufacturing facilities will be expected around the world. Stakeholders will demand greater involvement, and, for better or for worse, will play a major role in the image building of the corporation. Since lapses in ethics or social responsibility will have a major negative impact on brand equity, strong corporations will increasingly be indicated with strong corporate social responsibility (CSR) programs and strong corporate ethical conduct. There will be a backlash against excessive executive remuneration— not only from regulators but also from shareholders, inside managers, and employees. Executive compensation will again be seen in comparison to average pay levels—which may well lead to pay raises for those at lower levels. At the same time, the higher education of future business leaders will increase new dimensions of morality, ascetics and long term orientation in their mission. Perhaps a new class of trained and dedicated managers will emerge who will become the transforming new “Jesuits” of business management, working with precision, force and success to ensure both improved performance and increased social wellbeing. Back-office and support functions are increasingly likely to be outsourced, allowing global firms to eliminate internal functions like treasury and tax. Global banks will expand into outsourcing by providing high value added services, such as the oversight of corporate treasuries. Emerging markets will increasingly account for larger portions of corporate profits and sales, particularly in light of their representation of more than two-thirds of the total consumer base. Corporations will be expected to provide improved product access and help overcome difficulties in logistics and infrastructures. For many products, the development strategies will need to shift from “the latest” to increased affordability. The most critical business functions for global success are those listed in Table 4. Given the commonalities among these functions, the indications are that all these functions will be part of an even stronger

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TABLE 4.

Critical Business Functions for Global Success

Function

Scale Value

Logistics Marketing Human resources Finance Communications

100 86 71 57 34

evolution of supply chain management around the globe. There will be a greater emphasis on the markets provided by “second tier cities”, which are large cities not yet in the political or economic spotlight—particularly in Russia, China and India. Firms will need to expand their distribution and market entry strategies to these large cities, thus creating new regional hubs. There must also be collaboration with the public sector to encourage infrastructural investments in these regions, which, in turn increase their political and economic importance. Smaller firms can benefit from the globalization of markets by focusing on niche markets, especially those abandoned by the large players. What may be uneconomical to produce for a multinational conglomerate may well be a key viable segment for much smaller firms. Of course, just because they are small players does not mean that they do not face large problems. For example, it may be a small village where nuclear waste is deposited, but the problems to be solved are of a world class nature. Strategic alliances and other joint efforts will often be the key answer based on which smaller players can compete for global market share. These firms will also be heavily dependent and therefore heavily concerned about open markets and global standards. Consequently, uniform local codes and enforcement supported by the rule of one country, one vote will be crucial for the success of smaller players.


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CONCLUSIONS AND DISCUSSION Three dimensions were seen as objectives for the future of globalization: First, the reduction of global inequality; second, new and widely enforced global rules which would provide stability and consistency of basic rights and obligations across borders; and third, the support for individual freedom. There was an expectation that over time, nations, institutions, and individuals around the world will increasingly accept these dimensions as the foundation of the good life. In reciprocal causality, freedom is seen to cause and facilitate international business, while international business is a key pillar in support of the cause of freedom. There may well be a reconsideration of the economic growth construct, particularly regarding growth expectations. Many believe that we have come to the point where mere stability and constancy is seen as wrong and as indicative of “falling behind.” There is nothing necessarily negative about rearranging resources and the acceptance of everything not being linear. It may well emerge that growth, particularly on a global level, is increasingly seen in the context of the angles on a protractor: Growth does not always have to take place at all degrees, on all levels, and simultaneously, because there are many different areas to grow. Therefore, the current “go-go-grow” economic mentality may be reduced in its future importance. Concurrently, the importance attributed to the embeddedness of industries will become more relevant. Countries, regions and cities will further specialize in the development of industry clusters. Firms increasingly will open subsidiaries and representative offices in such locations in order to take advantage of the proximity to competitors, suppliers, and customers. New corporate hubs will emerge beyond the traditional ones to exploit future opportunities. Public policy makers will encourage these developments and place greater emphasis on the special educational needs of the workforce in those industrial clusters. A new world-wide division of labor and specialization will change growth patterns by causing a new competitive setting which includes the disappearance of the old borderlines between West–East and North–South and resulting in new East-South configurations. Rather than being a function of location, the new borders are defined by research

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intensity and high standards of education and training of the human work force. Firms will have to focus on highly specialized research- and serviceintensive niche products. In order to stay ahead, they need to set the technological standard and, aim for narrow, monopoly positions. Politics will play less of a role, since liberal social market economies are not automatically more competitive and efficient than different political and economic systems which may develop in other areas. Most experts agree that (business) trends are more important to business strategy than they were only a few years ago. The critical question targets the appropriateness of the Delphi technique to establish expert consensus on very complex issues. Many of the issues raised by the panelists can be described as “wicked,” i.e., they have many causes, they change their appearances constantly, and for which no correct answers seem to exist (Camillus 2008). However, one of the most effective ways proposed to tackle them is to solicit stakeholder perspectives on these issues, involve them in developing possible scenarios, as well as communicate the findings to foster commitment to their subsequent implementation. The Delphi method is ideal as a data collection method for “wicked” problems. The choice of e-mail as a data collection tool was intended to allow the participants convenience and the possibility of responding quickly to the presented materials. Participant commitment may easily falter if the process is too long or the materials presented are too cumbersome. Additionally, the use of e-mail cuts down on the costs of the data collection effort. Even though there is much optimism in the literature for electronic Delphi work (Nielsen/Thangadurai 2007), we found the process of data collection for each of the three waves to be long (in this case, 6 months). Even with advance alerts and reminders, any one particular e-mail can be buried in the respondent’s mailbox or stopped by gatekeepers. Due to the vast amounts of data, especially in the second round, respondents may feel overwhelmed. This may be exacerbated when the respondent is working on screen with the data presented. Researchers using the Delphi technique should try strenuously to present the data in the most concise form possible. There are a number of ways to improve on the existing process. Although not necessarily practical and certainly cost prohibitive, it would be ideal to bring the panelists together at the latter stages to discuss the


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findings or to maintain the panel over a number of number of years to gauge the effectiveness of the actions or moves that may have been taken to correct for a problem. To increase validity, the use of multiple panels could be possible. The challenges of recruiting and retaining the experts needed may challenge this, however.

REFERENCES Adam, K., Archbishop Defends Remarks on Islamic Law in Britain, Washington Post, February 12, 2008. Akins, R. B./Tolson, H./Cole, B. R., Stability of Response Characteristics of a Delphi Panel: Application of Bootstrap Data Expansion, BMC Medical Research Methodology, 5, 3, 2005, pp. 1–12. Camillus, J. C, Strategy as a Wicked Problem, Harvard Business Review, 86, 5, 2008, pp. 98–106. Czinkota, M. R. International Trade and Business in the late 1980s: An Integrated U.S. Perspective, Journal of International Business Studies, 17, 1, 1986, pp. 127–134. Czinkota, M. R/Ronkainen, I. A., Global Marketing 2000: A Marketing Survival Guide, Marketing Management, 1, 1, 1992, pp. 37–44. Czinkota, M. R/Ronkainen, I. A., International Business and Trade in the Next Decade: Report from a Delphi Study, Journal of International Business Studies, 28, 4, 1997, pp. 827–844. Czinkota, M. R/Ronkainen I. A., A Forecast of Globalization, International Business and Trade: Report from a Delphi Study, Journal of World Business, 40, 2, 2005, pp. 111–123. Delbecq, A./Van De Ven, A. H./Gustafson, D. H., Group Techniques for Program Planning, Glenview: Scott Foresman 1975. Duboff, R. S., The Wisdom of (Expert) Crowds, Harvard Business Review, 85, 9, 2007, p. 28. Dunning, J. H., Perspectives on International Business Research: A Professional Autobiography, Journal of International Business Studies, 33, 4, 2002, pp. 817–835. Fraunhofer Institut. Second German Delphi Study, 1998, http://www.isi.fhg.de. Gleason, T. C./Devlin, S. J./Brown M., In Search of the Optimum Scale, Marketing Research, 6, 4, 1994, pp. 28–34. Green, K. C./Armstrong, C. S., Structured Analogies for Forecasting, International Journal of Forecasting, 23, 3, 2007, pp. 265–376. Harzing, A.-W., Journal Quality List, 14th Edition, University of Melbourne 2006. Marcovitch, J., Trends in International Business Thought and Literature: Global Change: Challenges for Business and Society: Some Thoughts for the Next Millennium, International Executive, 39, 4, 1997, pp. 519–530. McCool, J. D., Scouting Emerging Business Trends, Business Week, May 7, 2008. http://www.businessweek.com/managing/content/may2008/ca2008057_786245.htm (accessed May 20, 2008).

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McKinsey & Company, How Companies Act on Global Trends, McKinsey Quarterly, March, 2008. http://www.mckinseyquarterly.com/Strategy/Globalization/How_companies_ act_on_global_trends_A_McKinsey_Global_Survey_2130 (accessed May 20, 2008). McKinsey & Company, An Executive Take on the Top Business Trends, McKinsey Quarterly, March, 2006. http://www.mckinseyquarterly.com/An_executive_take_on_the_top_ business_trends_AMcKinsey_Global_Survey_1754 (accessed May 20, 2008). Moore, M. U. N., Body Endorses Cultural Protectionism, Washington Post, October 21, 2008, p. A14. Nielsen, C./Thangadurai M., Janus and the Delphi Oracle: Entering the New World of International Business, Journal of International Management, 13, 2, 2007, p. 3. Pino, A., MSB Hosts Panel of Dignitaries on Competitiveness in Latin America, McDonough School of Business, Georgetown University, Dec. 4, 2007. Sprott, D. E/Miyazaki, A. D., Two Decades of Contributions to Marketing and Public Policy: An Analysis of Research, Journal of Public Policy and Marketing, 21, 1, 2002, pp. 105–125. Taleb, N. N., The Black Swan: The Impact of the Highly Improbable, New York: Random House 2007. Tse, E./Cainey, A./Haddock, R., Evolution on the Global Stage: Leading Ideas On Line, October 9, 2007, available at http://www.strategy-business.com/li/leadingideas/ li00046?pg=all (accessed May 22, 2008). Werner, S./Brouthers, L. E., How International is Management?, Journal of International Business Studies, 33, 3, 2002, pp. 583–591.

Chapter 1.7

Contemporary Research Trends in International Marketing The 2000s Masaaki Kotabe and Crystal X. Jiang

The climate of the time continues to shape the contextual nature of business research. International business research is probably more influenced by various forces of the economic and political climates than its domestic (or generic) counterpart. The emergence of new market economies in Eastern Europe, China, India, and Brazil, the consolidation of the European Union, as well as a decade of economic stagnation and recent resurgence in Japan’s economy has given global competition greater significance. The emergence of regional trading blocs in the form of the EU (European Union), the NAFTA (North American Free Trade Agreement), and MERCOSUR (Mercado Común del Sur) and an increasing number of bilateral trade agreements (e.g. EU–Mexico, Japan–Mexico, Japan–Singapore) have necessitated reorganization of firms’ production and marketing strategies. Advances in technology enhance communication and permit access to ever-increasing amounts of information. Globalizing trends in culture, technology, and financial markets drive global demand and global supply chains. Given these facts, it is no surprise that multinational enterprises (MNEs hereafter) have evolved into increasingly complex business environments. They attempt to maximize economic gains and efficiencies by increasing their scope of

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operations, penetrating ever more obscure markets, and accumulating knowledge from ever wider networks of subsidiaries, alliances, and acquisitions in this increasingly fast-paced, turbulent, and competitive environment. As MNEs have pushed the geographic frontiers of their operations the paradigm has shifted from a hierarchical MNE federation focus to a network-based focus by emphasizing firms’ integrated strategies and organizations (Holm and Pedersen 2000). It becomes imperative that firms conduct more research in unfamiliar and distant markets and in less developed and rapidly changing emerging economies. They must also increase their speed in collecting, interpreting, and reacting to new and unfamiliar market stimuli in order to respond with effective marketing strategies (Craig and Douglas 2001). Although national boundaries have begun to lose their significance as psychological and physical barriers to international business, local environments, particularly cultural, political, and legal environments, still play an important role not as a facilitator, but rather as an inhibitor, of optimal global marketing strategy development. Indeed, we still debate the very issue raised forty years ago: counteracting forces of “unification versus fragmentation” in developing operational strategies along the value chain. As early as 1969, John Fayerweather wrote emphatically: What fundamental effects does (the existence of many national borders) have on the strategy of the multinational firm? Although many effects can be itemized, one central theme recurs; that is, their tendency to push the firm toward adaptation to the diversity of local environments which leads toward fragmentation of operations. But there is a natural tendency in a single firm toward integration and uniformity that is basically at odds with fragmentation. Thus the central issue . . . is the conflict between unification and fragmentation—a close-knit operational strategy with similar foreign units versus a loosely related, highly variegated family of activities. (Fayerweather 1969, 133–4) The same counteracting forces have since been revisited by many authors with such terms as “standardization versus adaptation” (1970s), “globalization versus localization” (1980s), “global integration versus local

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responsiveness” (1990s), and most recently, “scale versus sensitivity”, and “online scale versus offline market sensitivity” (2000s). Basically, the leftside concept (i.e. unification, standardization, globalization, global integration, scale, and online scale) refers to a supply-side argument in favour of the benefit of economies of scale and scope, while the right-side concept (i.e. fragmentation, adaptation, localization, local responsiveness, sensitivity, and offline market sensitivity) refers to a demand-side argument addressing the existence of market differences and the importance of catering to the differing market needs and conditions. Terms have changed, but the quintessence of the strategic dilemma that MNEs face today has not changed and will probably remain unchanged for years to come (Kotabe and Helsen 2007). The importance of these changes is reflected in the development of new research streams in international marketing (Balabanis, Theodosiou, and Katsikea 2004; Craig and Douglas 2001; Czinkota and Ronkainen 2002; Douglas and Craig 2006; Katsikeas, Samiee, and Theodosiou 2006; Kotabe, Martin, and Domoto 2003; Nakata and Huang 2005), market globalization/regionalization (Subramaniam and Hewett 2004; Rugman 2003; Zou and Cavusgil 2002), collaborative business arrangements (including strategic alliances) (Luo 2002; Reus and Ritchie 2004; Robson 2002; Warrington, Abgrab, and Caldwell 2000), and multinational corporations in emerging markets (Luo 2007a; Meyer 2004; Steenkamp and Burgess 2002). These trends have increased the importance of research in international marketing, but it is not clear how research in the field has coped with this broadened responsibility. Past reviews of international marketing research (Douglas and Craig 2006; Kotabe 2001; Nakata and Huang 2005) highlighted two major deficiencies: studies in international marketing were simple, narrow and, perhaps, parsimonious without supplying a strong theoretical framework to guide firms’ global expansion; and international marketing research lacked the methodological rigour, particularly in equivalence of constructs and concepts, in comparison to generic (or domestic) research. While the first deficiency can be attributed to the preponderance of incorporating simple conceptualizations to represent complex relationships among multidimensional constructs (Nakata and Huang 2005), the latter can be attributed to the difficulties inherent in research involving more than one country (Aulakh and

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Kotabe 1993) (e.g. conducting primary data collection, the problem of data comparability in cross-cultural research, the implementation of methodological techniques in foreign markets). There have been various attempts to address these problems (e.g. Craig and Douglas 2000). This study looks at research in international marketing to see if the discipline has overcome the deficiencies outlined in the previous review articles. We examine the state of the art in international marketing research, with particular emphasis on conceptual frameworks and theory development. Our primary focus is on studies published since the year 2000 because the first decade of the twenty-first century has been characterized by changes in virtually all aspects of businesses and personal life. Earlier review articles (e.g. Aulakh and Kotabe 1993; Cavusgil and Li 1992; Douglas and Craig 1992; Kotabe 2001) classified the research into three main streams: macro-environmental issues, marketing management, and consumer behaviour. This review of the international marketing literature follows the classification system originally employed in Douglas and Craig (1992). Advances in International Marketing (2000–2007): This chapter reviews both macro and micro-environmental topics in international marketing. Research for this review spanned more than 1,000 articles in the journals from marketing and other related business areas that are listed in the ProQuest database. A list of the journals reviewed in this survey is provided in the Appendix. Although the list is not comprehensive, it sufficiently covers the domain of research in international marketing. A large majority of articles published in the 2000s deal specifically with issues related to marketing management rather than the macroenvironments that affect marketing management practices.

1 THE MACRO-CONTEXT International marketers have paid relatively limited attention to these global economic, legal/institutional and political/social developments. Oftentimes the environmental factors are perceived as “foreign environment uncontrollables” and receive limited academic attention


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(Young 2001). The same author summarized the impact of the global business environment on international marketing literature and suggested the following research agenda:  

  

Examine the impact of the evolution of regulation and liberalization in different countries or regional markets and sectors on the firm Take a country focus to investigate government intervention in international trade and investment, as well as government assistance and support on FDI Uncover how multilateral institutions, such as the WTO, influence trade and investment relations and international marketing Examine international marketing strategies of the non-government organizations (NGOs) Use a macro-economic perspective to examine both developing country firms operating abroad and MNEs operating in poor nations in terms of international marketing and economic development.

The macro-environmental context in which the issues of area studies, consumerism in society and institutional infrastructure are addressed is not examined in detail here due primarily to the lack of substantial and specific research addressing those issues in the 2000s. As stated earlier, research focus in the 2000s has been predominantly on international marketing strategy issues. However, the discussion on the micro-environmental issues familiarizes the reader with the countries or regions that have captured the attention of international marketing researchers. A few articles addressed the issue of consumerism in society. O’Shaughnessy and O’Shaughnessy (2002) examined the connections among marketing, the consumer society, globalization, and the hedonistic lifestyle, and discussed whether marketing is guilty as charged. They propose that marketing cannot really be the cause of materialism and that there is existence of credible alternatives. Later, Abela (2006) evaluated the claims made by O’Shaughnessy and O’Shaughnessy and found associations between consumerism and reduced personal well-being and between the historical development of consumerism and rise of modern marketing; although in both cases the existence of a causal relationship and its likely direction remain unclear. The author calls for future research to investigate the possibility of

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working within the current market economy to reduce the incidence of materialism.

2 THE MICRO-CONTEXT The micro-context of research in international marketing constitutes the bulk of research conducted in the field. Although there is no single best way to arrange various topics, they are arranged as follows. First, we examine research in both organizational and personal consumer behaviour as it represents the initial interfaces between firms and customers. In particular, the effect of country of origin on consumer behaviour received a significant amount of research attention. Second, research in various modes of entry and their performance implications is examined. Third, the literature on the marketing mix strategy is highlighted as it constitutes the crux of marketing. Fourth, research in global strategy and strategic alliances is covered. Both marketing and strategy researchers generally share common research interest in these strategy-related issues. Researchers in marketing tend to be more interested in market performance implications of global strategy and strategic alliances, while strategy researchers seem to place more emphasis on the theories driving the strategies. In the next segment, we review emerging issues concerning the Internet in global marketing, ethics in the global market place, and marketing strategies for emerging markets. Finally, research methodologies that are in the extant literature are examined. A map of the topics covered under the micro-context is summarized in Table 1.

2.1 Organizational and Consumer Behaviour 2.1.1 Organizational Buying Behaviour Organizational buying research has focused on the structure of the informal group that is involved in buying decisions (e.g. Dawes, Lee, and Dowling 1998), the decision-making process (e.g. Smith and Taylor 1985), and the factors that influence both matters (e.g. Ghingold and Wilson 1998).


TABLE 1.

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A mapping of the topics covered under the micro-context

1. Organizational and Consumer Behaviour

2. Market Entry Decisions

3. Local Market Expansion: Marketing Mix Decisions

4. Global Strategy

1.1 1.2 1.3 1.4 2.1 2.2

Organizational Buying Behaviour International Negotiations Consumer Behaviour Country of Origin (COO) Initial Mode of Entry Specific Modes of Entry 2.2.1 Exporting 2.2.2 Joint Ventures 2.2.3 Franchising 3.1 Global Standardization vs. Local Responsiveness 3.2 Marketing Mix 3.2.1 Product Policy 3.2.2 Advertising 3.2.3 Pricing 3.2.4 Distribution 4.1 Competitive Strategy 4.1.1 Conceptual Development 4.1.2 Competitive Advantage versus Competitive Positioning 4.1.3 Sources of Competitive Advantage and Performance. Implications 4.2 Strategic Alliances 4.2.1 Learning and Trust 4.2.2 Recipes for Alliance Success 4.2.3 Performance for Different Types of Alliances 4.3 Global Sourcing 4.3.1 Global Sourcing in a Service Context 4.3.2 Benefits of Global Sourcing 4.3.3 Country of Origin Issues in Global Sourcing 4.4 Multinational Performance 4.4.1 Determinants of Performance 4.4.2 A Different Interpretation of Performance

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TABLE 1.

Continued.

5. Emerging Issues

6. Analytical Techniques in Cross-National Research

5.1 Internet in Global Marketing 5.2 Ethics in the Global Marketplace 5.3 Marketing Strategies for Emerging Markets 6.1 Measurement Issues 6.2 Reliability and Validity Issues

Hunter, Bunn, and Perreault (2006) examined interrelationships among key aspects of the procurement process used by organizational customers. In their study, the procurement process included the relationships among purchase importance, extensiveness of choice set, buyer power, reliance on procedural controls, a proactive focus on longterm strategic issues, and search for information. Barclay and Bunn (2006) categorized organizational buying behaviour as follows: decision stages, buying activities, process heuristics, choice heuristics, and decision tactics. They focused on process heuristics and examined how it relates to aspects of the market and organizational context and to the buying situation of an organization.

2.1.2 International Negotiations Extant studies in this area examine issues on cross-cultural business-tobusiness negotiations. As global companies rely increasingly on the effectiveness of business negotiations for their survival and growth, international business negotiations have attracted considerable attention among researchers over the last decade. A review study on international business negotiations from 1990 to 2000 identified five categories of interests in negotiation research: environmental and organizational conditions, cultural influences, characteristics of the individual negotiators, the negotiation situation itself, and the outcome of the negotiation (Reynolds, Simintiras,


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and Vlachou (2003). Environmental conditions include the legal and political environment, currency fluctuations, foreign exchange, foreign government controls, instability and change. The organizational factors include firm-specific characteristics and firms’ decision-making process. Nakamura’s (2005) study, for instance, examined how firms’ intangible assets can be an integral source of their bargaining power in negotiations with potential joint venture partners in the host country. However, the foreign partner’s bargaining power relative to joint venture partners’ does not remain constant since, in a dynamic context, the joint venture itself can enhance the partners’ bargaining power as they learn from their own international joint ventures and through increased R&D capacity. The impact of cultural factors on international negotiation has caught researchers’ attention, especially in an emerging economy context. Leung and Chan (2003) examined business to business (B-to-B) relationships in terms of issues such as “inducement factors”, “face work” and “favour” from a Hong Kong-China intra-cultural negotiation environment. Their findings suggested that Western negotiators should adapt “face work” as a cultural strategy to facilitate their market entry to the Chinese market. In an Eastern cultural context, “face work”, which can be conceptualized as saving face, facilitates smooth business transactions and long-term relationship building. With the increasing growth of international trade and business opportunities in the Arab region, it becomes important to investigate the dynamics of cross-cultural negotiation processes in an Arab context. Drawing a sample from the United Arab Emirates (UAE), Al-Khatib, Rawwas, and Swaidan (2005) examine the impact of Idealism, Relativism, and Machiavellianism on the perceived appropriateness of five opportunistic negotiation tactics: traditional competitive bargaining, attacking opponent’s network, making false promises, misrepresentation of information, and inappropriate information gathering. Idealism and Machiavellianism are found to be strong predictors of managers’ perceptions of the ethical appropriateness of negotiating tactics.

2.1.3 Consumer Behaviour The issue of international consumer behaviour suffers from three key problems—a lack of theories, a lack of measurement reliability and a

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neglect of moderating variables. Research in this area has been extensive and mostly can be grouped under the following subtitles:    

Impact of culture on consumer behaviour Universality of American consumer behaviour models to the international context Debate on global consumer homogeneity versus heterogeneity Descriptions of international consumer behaviour

Culture and Consumer Behaviour: Recently, more scholars are interested in exploring the influence of culture on consumer attitudes and behaviour. Kongsompong (2006) compared Australian and Singaporean consumer purchasing decisions and orientation toward locus of control. The study showed that Singaporean consumers, representing a typical collectivist country, demonstrated more external locus of control tendencies and were more responsive to social influence in a hypothetical buying situation than those from a typical individualist country (e.g. Australia). Similarly, Keillor, Hult, and Kandemir (2004) reported significant differences across eight countries in the impact that technical (physical goods quality) and functional (service quality and servicescape) elements of the service encounter had on consumers’ behaviour intentions. Universality of American Consumer Behaviour Models: As noted by Steenkamp and Burgess (2002), it is problematic to apply measurement instruments established in Western cultures to other cultures when more than 80 per cent of the world’s consumers live in emerging consumer markets and transitional economies. It is necessary, therefore, to develop consumer behaviour measurements that fit into the political, legal, economic, and cultural background of these countries. Keillor, Owens, and Pettijohn (2001) investigated factors that contribute to social desirability bias in a cross-cultural/cross-national setting. They found that the factors influencing social desirability bias vary across countries and cultures. These factors can be categorized as either internal (e.g. from within the nation, culture or local business community) or external (e.g. from other localities, nations or cultures). This paper clearly presents the notion that although businesses predict an increasing homogeneous pattern of consumer behaviour due to increased economic


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development, the strong influence of family, friends, and cultural traditions may override the multinational exposure. Hence, given the complexity of the international business environment, care must be taken when applying current instruments to businesses in diverse cultural contexts. Consumer Heterogeneity versus Homogeneity: Research was conducted on the attitudes of Japanese, Chinese, and Korean consumers towards foreign countries and products (Kotabe and Jiang 2006). The authors suggest that although consumers in Japan, China and Korea differ in their brand orientation, quality/price perceptions, and product feature preferences, young generations in the three countries demonstrate similarities that allow for standardized strategies across national boundaries. It is essential that business strategists identify strategically equivalent segments, suggesting that a geocentric orientation in approaching global markets is necessary to reflect both similarities and differences among consumers. Descriptive Consumer Behaviour: Research was conducted on the influence of situational factors on the Japanese gift-giving market (Gehrt and Shim 2002). Those situational factors are (1) the age of the recipient in relation to that of the giver; (2) the relationship between the recipient and the giver (informal versus formal); and (3) the occasion of the gift (ordinary visit versus gift-giving season). Situational influence was found to have a significant impact on Japanese consumer behaviour and the magnitude of situational influence is substantial. In examining the reality of counterfeits and consumers’ experience with the phenomenon, Gentry et al. (2001) indicated that consumers in emerging markets may consider the brand and the product as separate entities serving different purposes. They are generally willing to pay disproportionate parts of their income for symbolic Western brands and often lower-priced Western merchandise is mistakenly perceived as counterfeit rather than as a comparable product with low-price. Soman and Gourville (2001) examined one of the marketing practices, specifically price bundling and found that consumers are more likely to refrain from consuming and demand less compensation for an individual benefit when it is purchased as part of a bundle.

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2.1.4 Country of Origin (COO) Although the COO research falls under the domain of consumer behaviour research, it will be examined separately as it has carved out its own niche in international marketing research. The pattern of research in this domain can be placed under the following themes:     

Conceptual refinement COO and information processing Establishing further proof for robustness of COO measure Proof on robustness of COO measure Measurement issues

Conceptual Refinement: The COO construct is decomposed into the following components: country of product design (COD), country of parts manufacture (COP), country of product assembly (COA), and country of manufacture (COM) (Chao, 2001; Quester, Dzever and Chetty 2000; Insch and McBride 2004). Prior results indicate that country-of-origin components do affect consumer perceptions of design quality, manufacturing quality, and overall quality for each product in distinctly different ways (Chao 2001; Insch and McBride 2004). COO and Consumer Information Processing: Recent studies examine how consumer ethnocentrism, patriotism, and economic nationalism affect product purchase behaviour (Balabanis and Diamantopoulos 2004: Balabanis et al. 2001). The COO effect may be an outcome of a combination of two processes—cultural stereotypes and personal beliefs. Similarly, Riefler (2007) suggested that consumers differ in their animosity targets and there may be different reasons, such as economic, political, religious, or personal, that cause their animosity feelings and thus determining their foreign product purchasing behaviour. Singh et al. (2007) compared the differences between Western (US) and Eastern (China) consumers in moral intensity and personal moral philosophies in decision-making processes. Kwak, Jaju, and Larsen (2006) used data from three diverse cultural and economic environments and confirmed that consumer ethnocentrism provokes negative attitudes toward foreign advertisements and foreign products. However, their study suggested that consumer variables such as


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global mindset and a market’s e-mail communication efforts mediate consumer ethnocentrism attitudes toward foreign brands. COO could be either a benefit or a liability. Amine, Chao, and Arnold’s (2005) study explored how negative COO effects and animosity can slow down a firm’s globalization efforts. Pharr (2005) conducted a narrative review of empirical studies of COO evaluations researched from 1995 to 2005. The review indicated that COO influence was subject to culturally derived antecedents and moderated by both product-based and individual consumer factors. A number of culturally derived factors affecting COO evaluations were identified (e.g. ethnocentrism, country-specific animosity, stereotypes, and Hofstede’s cultural dimensions) (Balabanis and Diamantopoulos 2004; Gürhan-Canli and Maheswaran 2000a; Insch and McBride 2004). For example, Laroche et al. (2003) suggested that COO effects vary significantly based on the consumers’ subcultural differences such as geographic region and language. External factors such as a country’s level of economic development or the influence of a consumer’s evaluation also affect COO evaluations (Liu and Johnson 2005). As for the moderators of COO effects, brand image or brand equity were found to moderate the effect of COO on product evaluations and purchase intentions, indicating that COO evaluations may operate through a brand-based construct rather than based on product quality evaluations or purchase intentions. It is reported that consumers’ perceptions of a brand’s developmental origins are more important than COO information in relationship to the product’s parts, assembly, design, or manufacture (Pharr, 2005). Based on the framework of accessibility–diagnosticity and information integration, Jo, Nakamoto, and Nelson (2003) found that brand image protects against the effects of negative COO evaluations. Strong brands were less influenced by consumer perceptions of countries-of-origin than brands with weak images. Establishing Further Proof for Robustness of COO Measure: Research was conducted to examine the influence of COO relative to other product attributes in consumers’ evaluation of domestic and foreign food products (Ahmed et al. 2004). The results indicated that when buying low-involvement products, COO mattered to Singaporean

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consumers in terms of its effects on high-involvement product categories in developed countries. However, when considering other extrinsic factors, such as price and brand, the impact of COO was weak and brand became an important factor for local consumers. Another significant finding was that country quality perception varied across product categories. Research by Piron (2000) examined whether a product’s COO affects consumers’ purchasing intentions of public versus private and luxury versus necessity products. COO was important for luxury products and necessities but less important than intrinsic cues, such as a product’s reliability and performance. Further, it was noted that consumers’ purchasing intentions were higher with no COO information than when presented with a moderate impression. By examining Hong Kong consumers’ perception of products coming from China and other major sourcing countries, Kaynak and Kucukemiroglu (2001) suggested that “made in” images of products affect consumers’ product selection. These “made in” images can be influenced by national characteristics, representative products, political and economic background and past experience with the sourcing countries and their products. Proof Against Robustness of COO Measure: As more research decomposes COO measurement, the salience of COO information itself in consumers’ product evaluations and choices has been questioned. For example, Liefeld (2004) reported that COO of products is not an important attribute in the choice processes of North American consumers. Suggesting that past research may have inflated the influence of COO on consumers’ consumption behaviour, a study conducted by Samiee, Shimp, and Sharma (2005) revealed that consumers have only modest knowledge of the national origins of brands, since factors such as socioeconomic status, past international travel, foreign language skills, and gender affect American consumers’ capability of recognizing foreign brand origins. Furthermore, brand origin recognition is based largely on consumers’ associations of brand names with languages that suggest country origins. Another study by Chao, Wührer, and Werani (2005) suggested that in a country (Austria) where consumers speak a different language with very different cultural heritage, the use of a


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foreign celebrity and a foreign brand name balances negative COO product evaluations. Consumer ethnocentrism is considered a plausible explanation for this observation. Finally, in contrast to the general notion of using country-of-origin or “made-in” labels as the key research cue, Bradley (2001) examined the influence of country effects and company effects on company preferences among industrial buyers of electrical and electronic equipment. It was found that company effects (i.e. elements of the firm’s marketing programme) were stronger and dominated country effects. Country effect had a weak impact on company preference and serve as an interaction variable mediated by company advertising. Measurement Issues: Pereira, Hsu, and Kundu (2005), among others, looked at COO evaluations as part of the larger COO image construct which includes cognitive, affective, and nonnative components. These studies indicate that country-of-origin bias may stem not only from country-specific beliefs but also one’s emotions or feelings toward a country (Gürhan-Canli and Maheswaran 2000b). It is therefore not only necessary to examine what is being perceived based on country image but also who is doing the perceiving (Insch and Miller 2005).

2.2 Market Entry Decisions Market entry decisions have been of great interest to international business academics and practitioners (Malhotra, Agarwal, and Ulgado 2003; Mayrhofer 2004). The choice of an MNE’s foreign market entrymode, for instance, licensing, equity joint venture (EJV), or whollyowned subsidiary (WOS), represents one of the most important strategic decisions for a firm engaging in foreign direct investment (FDI). The entry mode decision influences a firm’s commitment of financial and human resources. It determines development and implementation marketing programmes, the coordination of business activities both within and across markets, and ultimately the MNEs’ success in foreign markets (Chen, Griffith, and Ru 2006; Malhotra, Agarwal, and Ulgado 2003).

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2.2.1 Initial Mode of Entry Research in this area has focused its attention on three areas:   

To lay a conceptual foundation for understanding the choice of entry-mode Entry-mode choice in service firms and how this differs from manufacturing firms Entry-mode choice in emerging economies

Conceptual Foundation: Earlier studies on foreign entry strategy have followed a transaction cost aspect (Hennart and Park 1993; Hennart and Reddy 1997; Makino and Neupert 2000) and resource-based perspective (Barney 1991). Extant studies have examined the influence of the combination of internal factors and external institutional pressures on a firms’ foreign entry-mode. Davis, Desai, and Francis (2000) examined the market entry decision-making process and found that firms’ entrymode choices can be affected by internal (parent) and external (host country) institutional pressures. Particularly, business units that are greatly influenced by their parent firm’s institutional norms would prefer wholly-owned entry-modes, whereas business units that are influenced more by host country environmental factors would prefer export as their entry-mode. More importantly, a firm’s goal of internal isomorphism could be more important than host country factors in determining entrymode choice. Further, Elango and Sambharya’s (2004) study tested for the influence of host country industry structure factors, such as entry barriers, nature of demand, and degree of rivalry, on entry-mode choice. This study supports the notion that firms seek to “fit” their mode of entry with host country industry characteristics. It is argued that the larger the institutional distance, the more difficult it is for MNEs to establish legitimacy in the host country and to transfer strategic routines to foreign subsidiaries (Kostova and Zaheer 1999). New studies have emerged from institutional theory on institutional distance and FDI (Xu and Shenkar 2002). These studies argue that entry strategies must be matched with institutional distance from the host country in order to gain the advantage over competitors with small institutional distance or those who have experience working


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with large institutional distance. Treviño, Franklin, and Mixon (2004), for instance, believe that MNEs must conform to the institutional environment prevailing in the host country (DiMaggio and Powell 1983). That is, firms should understand the level of macroeconomic and institutional reform that has taken place in proposed host countries and managers should undertake FDI where the institutional distance is minimal. Thus, following institutional theory, when institutional distances exist, firms tend to seek legitimacy as well as efficiency, by selecting less integrated modes of entry (Delios and Beamish 1999; Brouthers 2002). By incorporating multilevel factors, Luo (2001) used an integrated framework to investigate whether entry-mode choices can be affected by country, industry, firm, and project factors. The author indicated that firms should assess the risk, return, control, and stock of owned resources for each entry-mode. Brouthers, Brouthers, and Werner (2003) applied transaction cost variables to predict firms’ entry-mode choices and found that asset specificity and economic uncertainty can predict entry-mode choices. Their results indicate that transaction cost-enhanced selected entrymode choices lead to superior firm performance. Erramilli, Agarwal, and Dev (2002) explored how firms make non-equity entry-mode decisions and reported that the availability of management capabilities, firm’s imperfectly imitable capabilities, and the availability of a support infrastructure affect the modes chosen. Entry-Mode Choice in Service Firms: Sanchez-Peinado, Pla-Barber, and Hébert (2007) identified principles in the manufacturing sector that can be applied to service firms and others that can be modified to the specific characteristics of services. They suggest that entry-mode choices for service firms cannot be fully examined through the perspectives offered in the manufacturing sector. By incorporating transaction cost factors and the influence of risk and trust propensity, Brouthers and Brouthers (2003) investigated the differences between service and manufacturing firms’ international entry-mode choices. The entry-mode of service firms was driven by people-oriented measures of uncertainty: asset specificity, behavioural uncertainty, and trust propensity; whereas manufacturing firms’ looked

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at investment based uncertainties, such as environmental uncertainty and risk propensity. Ekeledo and Sivakumar (2004) suggested that resource based theory can be applied to entry-mode strategies. Their analysis indicated that the transferability of entry-mode concept, practice or theory from manufacturing to service firms depended on the type of services involved. They found significant differences between entry-mode strategies for non-separable service firms and those of manufacturing firms due to simultaneity of production and consumption of nonseparable services. Entry-Mode Choice in Emerging Economies: Prior research has examined the ownership and control of entry strategies focusing primarily on the mature market economy context. It was not until lately that studies have looked at entry-modes of MNEs in emerging markets. Entering into transition economies presents considerable uncertainty for businesses. Gielens and Dekimpe’s (2007) study indicated that managers should take certain industry wisdom into consideration, in terms of entry timing and size; otherwise a firm’s attempt to develop unique entry rules can be dysfunctional. In addition, rather than just imitating the most popular or well-recognized decision in terms of entry timing and size, managers should closely monitor the actions of their home competitors, distinguish their actions between same-format competitors and different-format ones, and adjust the observed industry practice for the specificity of their own resources. Furthermore, the negative effects of entering at a different point in time from the industry norm persist and even become amplified over time, whereas the negative impact of size differences is temporary. Meyer and Nguyen (2005) examined how institutions in an emerging economy influence entry strategy decisions. They reported that subnational institutional variables demonstrate a significant influence on both location and mode of foreign entry. Institutional pressures arising from incumbent state-owned firms and the domestic market orientation of the investor lead to a preference for joint venture entry, while the availability of scarce resources affects the location of FDI and the likelihood of green field entry.


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2.2.2 Specific Modes of Entry 2.2.2.1 Exporting Exporting has been one of the most frequently studied areas in the literature on entry-modes. Most of the academic work revolved around the following issues:        

Conceptual foundation Exporting and the marketing mix Determinants of exporting Export performance Exporting and small business Factors of export success Barriers to exporting Exporting and strategic alliances

Conceptual Foundation: The literature on export mode choices has evolved from the lenses of Hymer’s theory, through International Product Life Cycle, Internationalization, Internalization, Eclectic Paradigm, Transaction Cost Economics, to the present-day Resourcebased View explanation (Sharma and Erramilli 2004). Recently, export studies have examined the contribution of firms’ resources and capabilities to the realization of their competitive advantage in export markets, including experiential, scale, tangible resources, informational, relationship marketing, pricing, distribution, communication, and product development capabilities (Morgan, Kaleka, and Katsikeas, 2004; Zou, Fang, and Zhao, 2003). Exporting and the Marketing Mix: Lim, Sharkey, and Heinrichs’ study (2003) explored the importance of new product development practices to the export development process. The following aspects of the new product development process were investigated: team development, customer involvement, modular design, supplier involvement, and computer usage. The results support the notion that in order to achieve a higher degree of export involvement, a firm must possess new product development capabilities. The key to exporting success includes the firms’ capability to gather and analyse information to take advantage of

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opportunities and its ability to develop internal resources and capabilities to support new product development. Determinants of Exporting: The impact of organizational culture and ownership type in a firm’s export intention is explored by DosogluGuner (2001). The results indicate that while adhocracy increases the likelihood of a firm’s intention to export, internally oriented cultures (such as clan culture) decrease the likelihood. Analyses of ownership type indicate that externally controlled firms are more willing to engage in export activities than manager-controlled and owner-controlled firms. Export Performance: Leonidou, Katsikeas, and Samiee (2002) conducted a meta analysis of extant literature and assessed relationships between export marketing strategy and performance. Their study suggested: (1) a strong association between export marketing strategy and export performance measures although the relationship is not always significant; (2) that of the export performance measures examined in various studies, stronger effects are observed in relation to export proportion of sales (such as export intensity); only a few marketing parameters (product advantage, pricing strategy, and dealer support, respectively) affect different measures of performance; and (3) study characteristics (such as the time of study, geographic focus, and product type) have a limited impact on export performance. By examining export strategy-performance relationships of firms from emerging economies, Aulakh, Kotabe, and Teegen (2000) suggested a strong relationship between degree of cost leadership and performance in developed markets, whereas a strong relationship between the degree of differentiation and performance in developing countries. Standardization may be appropriate for firms to enter a culturally closed foreign country and there is an inverted U-shaped relationship between international diversification and firm performance. MacPherson (2000) identified key factors influencing firm success in exporting machine tools: an international focus, gathering market intelligence to understand foreign niche market product requirements, product specialization instead of a broad product line, and adequate R&D investments.


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Cadogan, Cui, and Li (2003) investigated the effect of export marketoriented (EMO) behaviour on export performance. EMO behaviours were important predictors of export performance in terms of growth and profits. Further, EMO behaviour was more important under turbulent competitive conditions in firms’ export operations. Sivakumar and Nakata (2003) studied culture’s role in the process and outcomes of new product development. Their theory identified four factors that influence new product development: intensity of cultural values, heterogeneity of culture values, and consistency of culture across the two development phases, and newness of the product to both the firm and the market. They found that all four factors must be considered to ensure optimal results. Gregory, Karavdic, and Zou (2007) integrated e-commerce concepts with export marketing strategy theory and examined how e-commerce affects a firm’s export market strategy and export performance. Their study illustrates the importance of using e-commerce concepts to enhance our understanding of exporters’ international operations and export performance. Exporting and Small Business: In investigating smaller firms’ export behaviour, Wilkinson and Brouthers (2006) suggested that firms’ export success largely depends on the ability to assemble and deploy appropriate resources. Since small firms generally lack necessary internal resources, export promotion activities can complement internal firm resources to enhance firms’ export performance. Economic growth of East Asian countries as well as Central and Eastern European countries has made them attractive targets for international firms, both large and small and medium-sized enterprises (SMEs). Haahti et al. (2005) proposed that SMEs employing cooperative strategies to enrich their knowledge base about export markets can consequently improve their performance. They found that knowledge intensity mediated the relationship between cooperative strategy and export performance. Firm size does not have a direct relationship with performance, but demonstrates an indirect effect on export performance through cooperative strategy and knowledge intensity. Ibeh (2003) examined the effect of external environment on the export venture creation process of small business. This author highlights

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the importance of possessing an entrepreneurial orientation when challenged by hostile operating environments. A committed top management team, the firm’s requisite competencies in product quality and technology, foreign market information search, new market development, and networking skills also contribute to export venturing prospects. A study by Brouthers and Nakos (2005) indicated that SMEs that adopt a systematic methodology in selecting foreign target markets (systematic market selection) outperform those with an ad hoc market selection methodology. When controlling for decision-maker and firmspecific characteristics, systematic international market selection serves as a significant determinant of SMEs’ export performance. Further, firm size serves as a necessary and sufficient condition for export success (Mittelstaedt, Harben, and Ward 2003). Factors for Export Success: Gencturk and Kotabe (2001) found that export marketing involvement and the use of government export promotion assistance programs are important export success factors. These findings support the importance of firms’ export involvement behaviour for export success in terms of efficiency through improved profitability, effectiveness through growth in export sales, and competitive position. Technological progress has been considered an important driver of the changing patterns of exports (Balabanis, Theodosiou and Katsikea 2004). For instance, the Internet helps exporters initiate and maintain constructive relationships with foreign customers (Chaffey et al. 2003) and assists with market research (Quelch and Klein 1996). More empirical research is necessary to determine how the Internet can support a firm’s export objectives and what factors could prevent effective use of the Internet (Balabanis, Theodosiou, and Katsikea 2004). Barriers to Exporting: An attempt is made to review, assess, and synthesize existing empirical research on barriers hindering small business export development (Leonidou 2004). Internal barriers (incorporating informational, functional, and marketing) and external barriers (procedural, governmental, task, and environmental) are summarized from


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prior studies. It is suggested that the impact of export barriers is situation-specific, which can be explained by the idiosyncratic managerial, organizational, and environmental background of the firm. Regardless of the influence of these variables, certain barriers (such as information inefficiencies, price competitiveness, foreign customer habits, and politico-economic hurdles) seem to have a systematically strong negative effect on export behaviour. Exporting and Strategic Alliances: An empirical study is conducted to examine whether cultural differences affect trust, commitment, and cooperation in international marketing channel alliances between US exporters and their foreign distribution partners (Mehta et al. 2006). The study indicates that cultural differences have a negative effect on trust, commitment, and cooperation. In other words, greater cultural differences between channel partners result in lower levels of trust, commitment, and cooperation. In summary, recent studies have incorporated a resource-based view into the industrial organization perspective by suggesting that firms’ responsiveness to the external environment and their capabilities and resources (e.g. experiential, scale, financial and physical resources, informational, relationship building, pricing, distribution, communication and product development capabilities) contribute to the achievement of a competitive advantage in export markets (Zou, Fang, and Zhao 2003; Morgan, Kaleka, and Katsikeas 2004). Although marketing researchers have developed a wide range of explanations for understanding export mode choices based upon respective paradigms within the firm, theoretical challenges for export marketing are summarized as follows (Balabanis, Theodosiou, and Katsikea 2004): 

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More attention should be directed to addressing the issue of leveraging export firms’ capabilities and transferability of capabilities across borders. Further investigation of factors that facilitate or inhibit the use of entrepreneurial and strategy-making processes; the relationships between capabilities, process for strategy-making, strategy and export performance.

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Call for more empirical study of international relationship marketing in an international context, especially involving partners from developing and transitional economies.

2.2.2.2 Joint Ventures Research in this area examined the following issues:   

Joint Venture Performance Selection International Joint Ventures Failing in Joint Ventures

JV Performance: With firms’ increasing adoption of the international joint venture (IJV) as a strategic foreign market entry-mode, considerable amount of research has focused on identifying factors conducive to superior IJV performance. Robson, Leonidou and Katsikeas (2002) provided a systemic review and integrated assessment of over ninety empirical studies on drivers of IJV performance. Their evaluation is based on an integrated framework including background, antecedent, core, and external variables on IJV performance. Yeheskel et al. (2001) investigated firms’ alliance activities and performance in Israel’s medical technology industry and found that firms that have undertaken alliances marginally underperformed those that have not. Both marketing and R&D alliances with a foreign partner are found to outperform alliances with local firms, yet marketing alliances demonstrate no effect on firms’ survivability. In contrast, production alliances that involve another Israeli firm will outperform alliances with a foreign firm, except for cost. Firms learn more through IJVs than through licensing contracts (Anand and Khanna 2000). IJVs allow firms to build relational capital, learn integrative approaches to managing conflict, and be protected from opportunistic behaviour (Kale, Singh, and Perlmutter 2000). Studies also found that personal and structural attachments contribute to IJV performance although such effects diminish as the attachments increase. Further, personal and structural attachments strengthen each other in their effects on IJV performance (Luo 2002). When competing in foreign countries, firms can align with partners that have local knowledge to mitigate shortage of resources and capabilities (Lu and Beamish 2001).


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Selection of International Joint Ventures: Chen and Hennart (2002) examined how market barriers and firm capabilities affect MNEs’ choice of joint ventures versus wholly-owned subsidiaries. Japanese investors are more likely to choose joint ventures when facing high market barriers, while those possessing strong competitive capabilities are more likely to set up wholly-owned subsidiaries. They reported that marketing factors, such as advertising intensity and brand equity, were more influential than technological ones in determining the choice of partial versus full ownership. These findings, however, vary across subsamples representing low- versus high-tech industries and consumer versus industrial products. Failing in Joint Ventures: In the face of the increasing failed joint venture cases, joint venture conflicts have become an important subject in alliance practice and research. Conflicts lead to poor performance, failure and even dissolution. In investigating terminated joint venture relationships, Peng and Shenkar (2002) used divorce as a metaphorical image to discuss a four-phase dissolution process, initiation, going public, uncoupling, and aftermath. Their study indicated that a JV relationship can be complicated by its multi-parent origins.

2.2.2.3 Franchising By incorporating the analogy of marriage to enhance current understanding of the business-to-business relationship in international retail franchising, Doherty and Alexander (2004) show that rational or hard benefits alone (such as financial stability) are not sufficient to sustain the relationships. Instead, it is essential to have mutual attraction and a trusting relationship that strives for understanding, seeking, evaluating franchise partners, and sustaining the stabilizing role of partnerships. Pak (2002) tested dynamic links between strategic motivation and the ownership structure of international franchisers. Based on the knowledge-based view perspective, Pak’s paper examines how international franchisers can be recognized not only as market seekers but also learners in terms of knowledge-gaining and strategic learning.

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2.3 Local Market Expansion: Marketing Mix Decisions This section examines the studies relating to the global standardization debate, followed by a discussion of the international marketing mix variables of product policy, advertising, pricing, and distribution.

2.3.1 Global Standardization versus Local Responsiveness The issue of a standardized marketing programme versus customized programmes to suit the specific needs of individual foreign markets has received research attention in the last four decades. The findings of each study in international marketing are summarized below: 





Katsikeas, Samiee, and Theodosiou (2006) focused on the nature and performance implications of ‘fit’ between marketing strategy standardization and adaptation by incorporating prior studies on strategy fit from the strategic management and organization theory literature. It is reported that the degree of strategy standardization is significantly related to similarity between markets with respect to regulatory environments, technological intensity and velocity, customs and traditions, customer characteristics, a product’s stage in its life cycle, and competitive intensity. They show that a firm’s superior performance results from strategy standardization only to the extent that there is a fit or co-alignment between the MNE’s external environmental and its international marketing strategy choice. Kotabe (2002) suggested that globally operating firms need to constantly seek to ‘kill two birds with one stone,’ or meet the counteracting forces between supply-side and demand-side to sustain their competitive advantage. In order to cope with the notso-peaceful business environment, firms need to proactively assess their supply-side and demand-side requirements simultaneously. By examining the 500 largest MNEs in the world, Rugman (2003) posited that there are very few truly global firms and that most MNEs operate in their home region of the triad. The study shows that multinationals are not global, but regional. US firms, for




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instance, are more intra-regionally oriented when compared to their counterparts in Europe and Asia. It is inappropriate to assume a unified and homogeneous perspective when discussing today’s businesses; neither is it appropriate to substitute global strategy for regional triad strategies. Malhotra et al. (2005) examined the variations in perception of service quality dimensions (e.g. reliability, customer understanding, responsiveness, competence, courtesy, communication, credibility, security, and tangibility) in banking services in the US, India, and the Philippines. They reported significant differences in perceptions of these dimensions and attributed them to economic and sociocultural factors. Chung’s study (2005) revealed that the spectrum of degree of standardization of marketing programme/process constructs in the home-host scenario should be product process price distribution promotion. Product type, consumer behaviour, marketing infrastructure, political environment, and firm size are important factors in the selection of standardized marketing strategies in the home-host scenario. Backhaus, Mühlfeld, and Van Doorn (2001) investigated advertisement elements that can be perceived as standardized for international advertising campaigns and reported that the visual aspect is the most important determinant of a standardized advertisement campaign, while other factors play a minor role in determining perceptions of similarity. As such, by using the same visual elements in an international campaign, firms can mitigate problems of image confusion and irritation caused by localized campaigns.

2.3.2 Marketing Mix The formulation of an optimal marketing mix is challenging when considering its effectiveness across international markets. Extensive literature exists on the influence of cross-cultural differences in consumption. Generally, culture values and norms determine consumers’ buying motives (De Mooij 2005). For example, customers’ willingness to pay for products will vary across cultures. In Japan, consumers view

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non-price information, such as brand, packaging, and advertisement, as important variables in assessing product quality and in making their buying decisions. However in emerging countries, charging a high price may be considered gouging the customer (Kotabe and Helsen 2007). Further, advertising styles that are effective in one country may be counterproductive in others. Obviously, consideration of cultural differences can be costly when firms have to adapt marketing strategies to numerous environments. On the other hand, if marketers do not consider cultural differences, they may be accused of having an ethnocentric view of the world. Current studies indicate the importance of flexibility in marketing strategies to accommodate cultural differences and similarities, interdependence, product-market conditions, and broader global concerns (Grein 2000).

2.3.2.1 Product Policy The bulk of the studies in this domain examined the following two key concepts:  

determinants of new product development and management in international markets new product adaptation and firm performance

Determinants of New Product Development: Verhees and Meulenberg (2004) investigated the combined effect of market orientation and innovativeness on product innovation and firm performance in small companies. They confirmed that effective market intelligence allows the small firm owner to better understand his firm’s markets, make better decisions in developing and marketing new products, and improve firm performance. However, market intelligence may slow down a firm’s product innovation when the owner is highly innovative, and enhances it with less innovative owners. Sivakumar and Nakata (2003) looked at ways global new product teams deal with cultural variances. This paper presented a theoretical framework focusing on the impact of national culture on product development tasks. Using analytical derivations and comparative statistics, their model examined the levels and variances of culture values


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that maximize product development success by taking into account dimensions of GNPT (global new product team) performance. Their analysis provides group compositions that optimize product development results. In the context of global product development, where to develop and deliver timely and innovative products across heterogeneous cultures, locales, and markets are critical and ongoing challenges. Dealing with such challenges requires that firms operate effectively across the geographic, political and cultural boundaries that are encountered in global operations. As the time-to-market dimension of new product development (NPD) has become a critical determinant of an MNE’s competitive advantage, MNEs increasingly rely on cross-teams to exploit their knowledge throughout their dispersed subsidiaries. Murray and Chao (2005) examined the antecedents and outcomes of international knowledge acquisition at the cross-team level. Their study showed the importance of fostering NPD project teams’ realized absorptive capacity to transform acquired knowledge resources into NPD capabilities so as to enhance new product market performance. Investigating the relationship between strategic, organizational and process factors and new product performance (NPP), a study of Japanese and South Korean companies revealed that innovation success depends on process capabilities, which are derived from a strategic focus on customers, skilled and capable NPD personnel, and intensive collaboration and effective communication across functions (Im et al. 2003). An analysis of 4,840 dyads between new product development teams and subsidiaries that were potential targets for competence transfers in a high-technology multinational company revealed that studying the determinants of competence transfer separately can yield biased results. The authors suggested broadening research by analyzing multiple determinants of competence transfer on synergies, integration, technology transfers, and geographical and cultural differentiation in multinational enterprises (Hansen and Løvås 2004). New Product Adaptation and Firm Performance: Calantone et al. (2006) studied the antecedents of product adaptation strategy, namely internal and external firm factors, and export performance of firms in the United

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States, Korea, and Japan. They reported a positive relationship between product adaptation strategy and export performance. Further, innovative organizational practices (e.g. better communication) enhance firms’ export performance. Interestingly, the influence of the similarity between the home and foreign market effect is more significant in the US than in Japan or Korea. Cultural differences also influence consumers’ product choice decisions and the diffusion of new products (Yaveroglu and Donthu 2002). Yeniyurt and Townsend’s (2003) study shows that Hofstede’s cultural dimensions (individualism, power distance, and uncertainty avoidance), moderated by socioeconomic variables, can explain consumers’ acceptance of new products.

2.3.2.2 Advertising The bulk of the literature in this domain has struggled with the issues surrounding the standardization versus adaptation debate. As globalization has demonstrated a powerful homogenizing influence on consumers in many countries, consumers worldwide receive the same intense communications and perceive global brands as ubiquitous. MNEs are increasingly interested in understanding the transferability of brand equity across cultural geographies and the management of global positioning and communication programs (Ewing, Caruana, and Zinkhan 2002). Therefore, the three key areas that have received most of the research attention are:   

Advertising Standardization versus Customization International Advertising Strategy Measurement Issues

Advertising Standardization versus Customization: An effort has been made to review, assess and recommend international advertising strategies (Melewar and Vemmervik 2004). Three basic schools of thought concerning advertising standardization have been identified: standardization, adaptation and compromise. Advantages and disadvantages of advertising standardization, adaptation as well as some of the contingency models have been discussed extensively. The authors


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provide the following recommendations and directions for future research:    

Designing a comprehensive survey that tracks companies and sectors over time A clear and easily understood definition of standardization A sufficient sampling frequency An identical statistical analysis over time and across sectors

Over the last fifty years, academic researchers have generally advocated the adaptation approach, while practitioners have alternated between advertising standardization and customization with a trend toward standardization. Even with a global theme, MNEs still find it essential to address local cultural differences in the foreign market. Using a case analysis of Toyota’s Land Cruiser SUV advertising campaign in China, Li, and Shooshtari (2006) encouraged MNEs to recognize the importance of understanding sociolinguistic systems indigenous to targeted consumers in international markets. The message is clear that marketing researchers should incorporate bicultural and bilingual ethnographic studies outside the well-explored Western cultural dimension to examine international marketing behaviours. The perspective of subsidiary managers in multinational corporations should be taken into consideration in the advertising planning process in order to avoid conflict that could decrease the effectiveness of global campaigns (Jaeseok, Tharp, and Choi 2002). Further, regional consumer clustering is more exaggerated than is applicable (Kanso and Nelson 2002). International Advertising Strategy: Two dimensions to advertising strategies have been identified (Melewar and Vemmervik 2004), to what extent an advertisement or a campaign is standardized and the geographical coverage of the campaign. The standardized school of thought promotes the idea that markets are homogeneous and that an adapted strategy is unnecessary (Levitt 1983; Peebles 1988). The adaptation school argues that advertising is more dependent on cultural influences than other marketing elements, thus making it difficult to standardize (Boddewyn, Soehl, and Picard 1986). For example, Teng and Laroche (2006) stressed the importance of matching advertising to the distinctive cultural values

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of the target consumers during international advertising and marketing campaigns. Another school of thought advocates local differences with some degree of advertising standardization (Papavassiliou and Stathakopoulos 1997). Measurement Issues: Few studies have investigated the generalizability of marketing models, concepts and theories to non-US contexts. Ewing, Caruana, and Zinkhan (2002) extend the theory of cross-national measurement invariance by examining the equivalence of four advertising response scales across six countries. They report equivalence for some of the scales.

2.3.2.3 Pricing Global pricing is one of the most critical and complex issues which global firms face. An important issue for managers is whether to adapt or standardize the domestic pricing strategy to the foreign market. A firm’s global pricing strategy may make or break its overseas expansion efforts. However, with the exception of a few recent studies (e.g. Cavusgil, Chan and Zhang 2003), studies on pricing have been ignored (Nakata and Huang 2005). The following two key areas have received considerable research attention:  

Pricing standardization versus customization Nonconscious factors

Standardization versus Customization: It has been suggested that globalization of markets does not lead to standardized pricing. Market idiosyncrasies, such as different levels of country risk, market size, and strategic importance of the market to the firm, typically justify adapted prices in local markets (Solberg, Stöttinger, and Yaprak 2006). By investigating factors that influence international pricing strategy along the standardization–adaptation continuum and incorporating the viewpoints of subsidiary managers, Theodosiou and Katsikeas (2001) suggested that customer characteristics and behaviour, economic and legal conditions, and stage of product life cycle should be taken into account when formulating pricing strategies. It is imperative that


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managers match their marketing programmes with the environmental and market conditions of the foreign markets served. It is posited that customer preference, customer retention, and price elasticity differ across service quality dimensions in vertical, horizontal, and global segment dimensions (Bolton and Myers 2003). The connection among global customers’ price elasticities, service quality preferences, and organizational characteristics indicates that (1) firms can optimize profits from establishing specific price points for service feature bundles that attract and retain customers; (2) service delivery systems can be customized to match individual customer preferences for perceived service quality; (3) the importance of understanding how price elasticities vary across different service delivery and organization profiles. Non-conscious factors: In examining the effect of nonconsciousness expectations on the relationships between price and quality on consumers, Irmak, Block and Fitzsimons (2005) suggested that consumers’ nonconscious beliefs about the price–quality relationship changes their experience with the merchandise. More notably, motivation can drive “marketing placebo” effects, thereby suggesting that innocuous marketing activities could do far more than meets the eye. Fairness has been defined as a judgment of whether an outcome and/or the process to reach an outcome are reasonable, acceptable, or fair (Bolton, Warlop, and Alba 2003). Xia, Monroe, and Cox (2004) integrated theoretical foundations of fairness perceptions and summarized empirical findings on price fairness. The authors suggested the following factors that influence price fairness judgments: transaction contextual information, procedure information, buyer–seller relationships (e.g. different types and dimensions of trust along relationship development), and more generic influences such as social norms, consumer knowledge, and individual characteristics. Shehryar and Hunt (2005) investigated whether consumers’ familiarity with products impacts the degree to which consumers are sensitive to a seller’s violation of procedural fairness norms in pricing. When less familiar with a product, consumers are more likely to rely on procedural fairness to form purchase intentions and often equate procedural fairness with perceived quality. The following topics in pricing are identified as deserving of further investigation (Nakata and Huang 2005):

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    


Pricing in inflationary or deflationary environments Using pricing to position products effectively in emerging markets Pricing transparency and signaling in regional markets Effects of dual currency pricing or dollarization on purchasing behaviours Preventing grey market through international pricing coordination

2.3.2.4 Distribution Research in this area focused on the following broad issues:    

Channel Cooperation and Conflict Channels in Emerging Markets Channels and MNE Performance Standardization versus Adaptation Debate

Channel Cooperation and Conflict: This is a popular area of research in the international marketing field. Rose and Shoham (2004), for example, examined the antecedents and consequences of task and emotional conflicts on the quality of the strategy employed and their effect on business performance and manufacturer’s satisfaction with the distribution channel. Their results suggested that team spirit and interorganizational connectedness reduce task and emotional conflicts and increase manufacturers’ satisfaction with the distribution channel. Both task and emotional conflicts have a negative impact on international channels of distribution. Channels in Emerging Markets: Griffith, Chandra, and Fealey’s (2005) study investigated whether international marketing decision-makers incorporate the natural channel when entering an emerging market. They proposed that the use of natural channels, the utilization of natural resources contained within an area of trade, allows firms to overcome the weaknesses in infrastructure and fragmented retail structure prevalent in emerging markets. Of particular note is that a mismatch between channel choices and internal (e.g. corporate elements and product elements) and external factors (e.g. market elements and customer elements) could impede the effectiveness of the entire marketing strategy in an emerging market context such as in India.


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Zhang, Cavusgil, and Roath (2003) focused on the direct and indirect effects of the manufacturer’s use of governance via relational norms and its competitiveness in the export market. Their findings indicated that the power of relational norms resides not only in their influence on tangible outcomes, such as enhanced competitive position of manufacturers in export channels, but also in their ability to generate an intangible relational asset, such as trust. The indirect effect resulting from the mediating role of trust made a key contribution to the understanding of the role of relational governance in cross-border relationships and export performance. Recognizing the environmental differences across countries and the impact of external and internal factors on channels, Kaynak and Kara (2001) examined channels of distribution in developing countries and suggested that channels should be studied based on levels of socioeconomic development. Channels and MNE Performance: Using the power–satisfaction– commitment–performance framework, Ramaseshan, Yip, and Pae (2006) explored channel exchange relationships in China. They discovered a subtle difference in channel member behaviour between individualist and collective cultures. Although the relationships between power, satisfaction, commitment, and performance are applicable to China, it is essential for firms to exercise power with caution by accounting for the collectivistic cultural context. In examining the development and maintenance of long-term channel relationships, channel governance relies on two different types of satisfaction—economic and social satisfaction (Geyskens and Steenkamp 2000). Economic satisfaction indicates a channel member’s evaluation of the economic outcomes that flow from the relationship and social satisfaction refers to a channel member’s evaluation of the psychosocial aspects of the relationship and interactions with its exchange partner. Future studies are necessary to examine different roles of satisfaction, either separately or in combination, in managing long-term channel relationships. Standardization versus Adaptation Debate: It is noted that research on marketing standardization has focused primarily on products and

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advertising (Kustin 2004). Few studies have examined international standardization strategies for the total marketing mix. Chung (2003) suggested that product-related constructs are the most likely standardized aspects, followed by process and promotion. The two least likely standardized constructs are distribution and price. A standardized distribution channel has an effect on firm performance in terms of sales growth and market share (Chung 2003).

2.4 Global Strategy A literature review was performed to advance the knowledge in the four sub-areas as identified by Douglas and Craig (1992). They are: competitive strategy, strategic alliances, sourcing, and multinational company performance. Search for articles in these four areas was conducted within an international or global context.

2.4.1 Competitive Strategy Three broad issues seem to be dominant in mainstream research:   

Theoretical and Conceptual Development to help in Understanding the Role of Competitive Strategy, Difference between Competitive Advantage and Competitive Positioning and, Sources of Competitive Advantage in International Marketing Strategy and Performance Implications.

2.4.1.1 Conceptual Development A resource-based strategic management model of MNE market entry demonstrates the value of this new conceptual framework to the understanding of competitive strategies of MNEs (Tallman 1991). The integration–responsiveness framework in the choice of the models of international strategy is less helpful for devising competitive strategy (Taggart 1998). A contingency framework illustrates how national and political institutions of a country impact the effectiveness


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of an MNE’s international strategies (Murtha and Lenway 1994). The Porter–Dunning Diamond model of international competitiveness is used to explain the current situation and the further development of the international competitive strategy of mainland China’s manufacturing sector (Liu and Song 1997).

2.4.1.2 Competitive Advantage versus Competitive Positioning Strategy literature in the 1990s tried to differentiate between two sources of competitive strategy—competitive advantage and competitive positioning. A firm experiences competitive advantage in terms of its core competencies. A firm’s competitive positioning, on the other hand, raises the need for important strategy choices beyond the core competencies of a single corporation. Such an overall strategy then combines the internal competencies of each company to become the core competencies of the entire competitive system. Competitive positioning strategy interacts with internationalization strategy in the formulation of an overall strategy (Morrison and Roth 1992). Gupta and Govindarajan (2001) suggested that global presence does not automatically equate with global competitive advantage. Firms should evaluate their global network for each value-chain activity along the dimensions of activity architecture, competencies at the locations, and coordination across locations. Subsequently, they should design and execute actions to mitigate or eliminate the sub-optimalities.

2.4.1.3 Sources of Competitive Advantage and Performance Implications Ghemawat (2003) suggested that globalizing firms must consider the trade-offs among globalization, regionalization, and semi-globalization marketing strategies. Semi-globalization presents the most cautious alternative for competing across multiple locations. The author discussed the need for international business strategy to maintain a balance between attention to location-specificity and other types of specificity. Ghemawat also examines conditions under which market specific problems should be given priority.

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Yeniyurt, Cavusgil, and Hult (2005) suggested that in order to achieve sustainable competitive advantage, there must be global market knowledge development and coordination. The inter-functional and the value-chain coordination of firms and their ability to share information and integrate business functions across the global company will result in improved strategic and financial performance.

2.4.2 Strategic Alliances Literature in this area has focused on three broad areas:   

Issues of Learning and Trust in Alliances Recipes for Alliance Success Performance Issues for Different Types of Alliances.

2.4.2.1 Learning and Trust Voss et al. (2006) integrated the cultural sensitivity construct into a relational exchange model of international alliances. Their findings showed that quality information exchange is a key construct in relational exchange and that it mediates the trust and alliance marketing performance relationship. US firms place a higher emphasis on behavioural exchanges than their relatively more affective Japanese partners. As for Japanese partners, the benevolence dimension of trust is a more important determinant of managerially assessed alliance marketing performance than for US firms.

2.4.2.2 Recipes for Alliance Success Nielsen (2007) extended our understanding of the international strategic alliance (ISA) relationship between ex ante and ex post alliance formation factors and multiple measures of performance, taking both outcome and process into consideration. The results report a significant relationship between alliance performance and host country risk as well as partner reputation proceeding alliance formation. Pre-alliance formation factors, such as prior experience, do not predict alliance performance. Post-alliance formation factors, such as collaborative


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know-how, trust and protectiveness, however, are found to have an impact on ISA performance. Trust is beneficial to alliance relations and can have different effects on alliance performance, depending on the levels of behavioural and environmental uncertainty (Krishnan, Martin, and Noorderhaven 2006). The benefits of trust can be magnified with high behavioural uncertainty; however, the beneficial effect decreases in light of strong environmental uncertainty. In other words, alliance partners should use caution in relying on inter-organizational trust and expend more effort on scanning to handle environmental uncertainty. It is believed that success of international strategic alliances requires not only the hard side of the alliance relationship management (e.g. financial issues and other operational issues) but also its soft side (e.g. the development and management of relationship capital in the alliance) (Cullen, Johnson, and Sakano 2000). Two important areas of relationship capital, specifically mutual trust and commitment have an effect on the performance of ISA within the Japanese firms. In examining relational exchange in marketing-oriented non-equity international strategic alliances, Kevin et al. (2006) reported that the exchange of relevant, timely and important information affects firms’ performance. Information exchange relies on the development of trust and cultural sensitivity in the relationships. US firms place more emphasis on behavioural exchange than their relatively affective Japanese partners, whereas Japanese partners give emphasis to the benevolence dimension of trust. Investigating how procedural, distributive and interactional justice can be individually and interactively associated with alliance performance, Luo’s (2007b) study suggests that strategic alliance performance is not only determined by economic/structural factors (such as contracting, control, complementary and governance) and social/relational forces, such as justice, but also trust, attachment, and interpersonal relationships. Hyder and Eriksson (2005) examined why two multinationals end their alliance relationships after years of collaboration. They posit that alliance partners should be prepared for separation when the goals of the partners are fulfilled. Environmental changes and changes in personnel can also cause the breakdown of successful alliances. These changes are

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not always negative; they can create viable growth opportunities for both parties.

2.4.2.3 Performance for Different Types of Alliances An analysis of 463 R&D alliances in the telecommunications equipment industry revealed that alliances contribute significantly to firms’ innovation when their technological capabilities align with those of the alliance partners. In addition, organizational form influences the ability and incentives to share information, which also affects performance. Equity joint ventures improve firms’ benefits when the firms are more technologically diverse (Sampson 2007). After examining 135 alliances among competing firms over a 30-year period, Dussauge, Garrette, and Mitchell (2000, 2004) reported significant differences in the outcomes of scale alliance where partner firms make similar contributions and link alliances where partners make complementary contributions. More asymmetrical outcomes of link alliances resulted in greater changes in the relative market shares of the partner firms due to inter-partner learning or learning-by-doing. Proper coalignment of alliance attributes (such as trust) and alliance forms (equity versus non-equity alliances) enhance alliance performance (Murray and Kotabe 2005).

2.4.3 Global Sourcing Isolated studies examined the role of global sourcing as a critical factor in a variety of competitive strategies, differentiated between opportunistic and strategic sourcing (Samli, Browning, and Busbia 1998) and offered suggestions on how to reduce the uncertainty associated with supplier selection in global markets (Min, LaTour, and Williams 1994). The global market environment has changed drastically in the last decade due to events such as the Asian financial crisis in 1997 and the terrorist attack on the United States in 2001. More attention has been given to global sourcing strategy in the context of an unstable world economy resulting in suggestions that firms need to meet the counteracting forces of both supply-side and demand-side without sacrificing marketing flexibility, manufacturing capability and R&D activities (Kotabe and Murray 2004).


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The three broad areas most often studied in this domain are:   

Global Sourcing in a Service Context Benefits of Global Sourcing Country of Origin Effects

2.4.3.1 Global Sourcing in a Service Context A growing area of interest has been the comparability of product versus services sourcing strategies. International off shoring of services is primarily driven by (1) large wage differentials between developed and developing countries and the availability of skilled employees in developing countries; (2) economic liberalization of developing countries; (3) dramatic technological change in telecommunication sectors (Ramamurti, 2004). Using the transaction cost economics paradigm, Murray and Kotabe (1999) investigated the locational (domestic versus global sourcing) and the ownership (internal versus external sourcing) aspects of service sourcing strategy. Performance implications were also discussed. Teigland and Wasko (2003) suggested that it is important that a firm find the balance between relying on internal sources of knowledge and pushing the boundaries by exploring the knowledge base of external sources. Tiwana and Keil (2007) examined the importance of peripheral knowledge in technological outsourcing alliances and suggested that outsourcing firms may need knowledge outside their common domain to effectively facilitate their alliance governance. Similar to the risks of separating manufacturing activities from R&D and marketing which may decrease firms’ capability in terms of pioneering product design and innovation over time, global sourcing of services also requires close coordination of R&D, service, and marketing activities on a global basis (Kotabe and Murray 2004). Further, given the intensified competition of service activities worldwide, firms should make great efforts to align with strategic partner firms that have the capability to deliver innovative supplementary service activities. This could result in a competitive advantage for the outsourcing firms by allowing them to utilize the external suppliers’ investment, innovations, and specialized professional capabilities that would be prohibitively expensive or even impossible

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to duplicate. It also allows them to spend their financial and developmental resources on their core service activities (Kotabe and Murray 2004). Sako (2006) believed that outsourcing business services can be part of corporate restructuring through unbundling of corporate functions as well as vertical disintegration. However, the future of business-service productivity enhancement depends on the combination of greater standardization and capturing value from customized solutions.

2.4.3.2 Benefits of Global Sourcing The benefits of global sourcing have been an important focus of academic interest over the course of the last three decades. Since the 1970s, outsourcing topics have been examined through the lenses of “economies of scale”, “competitive analysis of firms”, “strategic focus”, “relational rent”, and “knowledge management”. Murray (2001) suggested that strategic alliance-based global sourcing when highly specific assets are deployed may enhance a firm’s competitive advantage by combining resources in unique ways. This article presents the benefits gained by a firm that forms partnerships with its suppliers through global outsourcing. These partnerships create competitive advantages when suppliers possess resources that cannot be generated internally by the firm. Similarly, Kotabe, Martin, and Domoto (2003) confirmed the importance of relation-specific assets as a source of competitive advantage by extending literature on knowledge transfer, buy-supplier partnerships and the performance dynamics of inter- and intra-firm relationships. It is proposed that supplier performance will increase most where time-bound relational assets have developed between a buyer and supplier and the firms exploit the resulting communication efficiency by transferring productive knowledge. Recent research (Leiblein 2003; Leiblein and Miller 2003) suggested that the make-or-buy decision can also be framed as a real option where outsourcing and vertical integration create a platform for future investments and strategizing. The larger the uncertainty surrounding decision-making, the more valuable such options become.


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Trent and Monczka (2002) summarized factors that differentiate successful from less successful global sourcing efforts and provided suggestions to enhance firms’ global sourcing performances. One important note is that international outsourcing does not always enhance firms’ global performances. However, outsourcing from the same economic region demonstrates clear advantages (Mol, Van Tulder, and Beije 2005) when lowered transportation and transaction costs and shared institutional regimes are taken into consideration.

2.4.3.3 Country of Origin Issues in Global Sourcing It is important to understand how COO information and other cues influence MNEs’ buying processes when considering global sourcing. Andersen and Chao (2003) reviewed country-of-origin (COO) effects on global industrial sourcing and developed an integrated framework to assess how COO cues (such as product performance, price expectation, supplier performance and exchange regime of country) affect firms’ sourcing decisions. Li, Murray, and Scott (2000) examined how global sourcing locations and other related factors influence consumers’ product evaluations in the context of multiple country-of-origin considerations (e.g. country-ofdesign, country-of-assembly, country-of-corporation). MNEs should consider country designations for product design because of all the COO factors, country of destination (COD) seems to have the biggest influence on consumers’ evaluations of a product’s key functional and symbolic qualities. For MNEs from newly developed countries, firms should utilize global sourcing to overcome or reduce the effects of unfavorable stereotypes consumers hold against their products.

2.4.4 Multinational Performance The literature here has focused on two sets of issues:  

Determinants of Performance—“What” Leads to High MNE Performance An Environmental Interpretation of Performance

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2.4.4.1 Determinants of Performance Murray, Kotabe, and Zhou (2005) examined the linkage between sourcing strategy and firm performance in an emerging economy context. They reported that at low levels of product innovativeness and technological uncertainty, firms’ use of strategic alliance sourcing is positively related to market performance. However, product differentiation and demand uncertainty do not demonstrate a significant impact on the sourcingperformance relationship. Cousins and Lawson (2007) noted that relationship approaches have an effect on performance outcomes. Lu and Beamish (2004) found a non-linear horizontal s-shaped relationship between geographic diversification and firm performance. It was suggested that intangible assets, such as R&D-based and advertisingbased assets, enhanced the value of firms in geographic expansion. Further, firms’ ability to internalize the intermediate markets, such as technology, production know-how, and brands, was positively associated with their performance. A meta-analysis of fifty-six studies conducted in twenty-eight countries was conducted by Ellis (2006). It suggested that market orientation and contextual factors (e.g. the cultural setting of the study, size of the firm’s dominant market, and the level of development of the market) had an effect on firm performance. An insightful review of theoretical perspectives on multinationality and firm performance was conducted by Li (2007). The author suggested the following areas for further conceptual development and empirical investigation: (1) conceptual refinement and measurement of multinationality as a construct; (2) cost-efficiency implications of multinationality; (3) impact of internationalization motivation on both multinationality and performance; (4) two-way relationships between multinationality and performance; and (5) moderating roles of important external and internal contextual factors. High commitment of resources and the timing of entry were also found to have positive effects on the perceived economic performance of the Sino-Japanese joint ventures (Isobe, Makino, and Montgomery 2000). The effects were related to internal and external factors such as the strategic importance of an investment, parental control of a JV, and the availability of supporting local infrastructure.


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Hult et al. (2007) investigated the role of strategy and other organizational dimensions, such as leadership, culture, structure, and processes, on the performance of globally focused marketing firms. It is reported that a complex interplay of strategy, leadership and culture drives the structure and processes, which, in turn, influence marketing and financial performance.

2.4.4.2 A Different Interpretation of Performance The measurement of firm performance includes financial and operational performance. Earlier studies incorporated accounting-based and marketbased financial indicators. Operational factors such as cost efficiency and technological capability determine firms’ underlying processes which ultimately affect financial performance (Venkatraman and Ramanujam 1986). Another determinant of performance is customer fit (Santala and Parvinen, 2007). The study revealed that different customer fits are necessary given the heterogeneous, situational and contextual (e.g. cultural and social) nature of customer tastes.

2.5 Emerging Issues   

Internet in Global Marketing Ethics in the Global Marketplace Marketing Strategies for Emerging Markets

2.5.1 Internet in Global Marketing The Internet has become a powerful medium for reaching and servicing customers around the world. The fast growing Internet world has provided marketers with new ways of promoting, communicating, and distributing information and products (Warrington, Abgrab, and Caldwell 2000). Research in this area focused on the following broad issues:  

Standardization versus Localization Internet and Performance

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2.5.1.1 Standardization versus Localization Although the Internet helps companies at both global and local levels (Yip and Dempster, 2005), companies have to implement strategies to accommodate cross-national differences in infrastructure, regulation, language, buyer demographics and behaviour, payments and currency regulations (Guillén 2002). For instance, products whose features and performance are highly desired by the customers will need a strong local responsiveness in terms of web design, local language, currency, customer services, etc. On the other hand, global commodities, such as CDs, books, videos can adopt global low-cost strategies because efficiency is the main source of competitive advantage (Guillén 2002). Often viewed as the “soft” aspect of international marketing, the consideration of culture has become crucial in international marketing, such as in the context of website adaptation. Singh, Zhao, and Hu (2005) look at local websites in China, India, Japan, and US to determine if they are culturally neutral or infused with the values of the host country. Their study indicates the importance of firms’ being culturally mindful when launching standardized or machine-translated websites for their global audience.

2.5.1.2 Internet and Performance Just as in a direct-marketing exchange, it is essential to build customers’ trust in the electronic world through such cues as product guarantees, secure website transactions, and alternative ordering processes (Singh, Zhao and Hu 2005). An important message is that today’s businesses must initiate and nurture trust with on-line shoppers in order to develop long-term relationships. Hunter et al. (2004) classified organizational purchasing situations into categories with implications for e-businesses. The study suggested that the utilities of e-business vary and that these benefits depend on buying circumstances. It is important that buyers and sellers match their needs with the different uses of e-businesses to maximize the benefits of e-business in B-to-B transactions. Sharma (2005) provided a new explanation for the survival of export management companies by linking firms’ market-based assets


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with e-businesses (any business conducted over the Internet) and suggests that the linkages can enhance firms’ competitive position in their value chains, resulting in better performance. An investigation of the Internet’s roles in firms’ international business activities in an emerging economy context was conducted by Nguyen and Barrett (2006). They suggested that it was important for a firm to use the Internet to collect data and transfer information effectively and efficiently to improve foreign sales intensity. The Internet also has an impact on the following (Balabanis, Theodosiou, and Katsikea 2004):      

Internationalization of small and medium-sized enterprises (SMEs) Communication and information management Relationship management Marketing intelligence Pricing strategies The structure of distribution channels

2.5.2 Ethics in the Global Marketplace This area has been under-researched in the past. It has recently been gaining attention due to an increased awareness of the importance of cultural differences in international marketing and firms being good “corporate citizens” in foreign markets. Gaining institutional legitimacy in foreign markets has become an increasingly important focus for many multinational companies. Multinational firms must be cognizant of the social and environmental concerns that engage newly energized actors (e.g. NGOs, popular anti-capitalist and anti-globalist movements, and religious and ideological groups with economic agendas). The important points in this research area are:   

Business ethics at the macro level Ethical perceptions at the behavioural level Ethical issues in complex social and political environment

At the macro level, business ethics are examined as part of a firm’s profit motive and, further, as part of capitalism. The health and well-being of

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consumers is a subject of social responsibility in business ethics. It is hard to ignore the “ethics gaps” between what societies expect and what marketing scholars are delivering (Carrigan, Marinova, and Szmigin 2005). At the behavioural level, ethical perceptions about various business practices differ across countries. Carrigan, Marinova, and Szmigin (2005) gave a summary of the current debate on ethics and international marketing and lamented that development in the field of marketing ethics, both in theory and practice, has not progressed as quickly as those early scholars might have desired or predicted. The increasing globalization of firms and the growing interdependencies among countries require today’s marketers to have a better understanding of cultural influences on ethical and organizational practices. Paul, Roy, and Mukhopadhyay (2006) investigated the relationship between the cultural values and marketing ethics in two diverse countries. They reported significant differences in the interpretation of the marketing ethical norms between the countries. Their study clearly indicated the need for sensitivity to the values, culture and ethical standards of the countries that multinational companies enter into. MNEs are concerned about the effect their handling of ethical matters has on financial performance. A recent meta-analysis conducted by Orlitzky, Schmidt, and Rynes (2003) indicated that corporate virtue in the form of social responsibility is likely to pay off. Since images serve as a foundation for future attempts to comprehend and construct the world around us, Borgerson and Schroeder (2002) examined the ethics of representation in international marketing communication. It is suggested that firms should try to avoid bad faith and be aware of potential negative communication. They believe that increased visual and semiotic literacy is an important component of societal marketing and that firms should consider multiple constituents for corporate activities, including marketing communication. Ethical relativists (e.g. Crane and Matten 2004) suggested that morals are based on the social norms of the society in which they are practiced. It is inappropriate to apply universal moral standards to all peoples at all times. Cui et al. (2005) identified potential pitfalls for researchers who use the original, unmodified Forsyth’s Ethical Position Questionnaire (EPQ) scale in any country. The authors suggested that researchers


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employ a culture-specific approach whenever possible to ensure measurement invariance and optimal capture of cultural diversity. These studies highlight a need for marketing adaptation within a particular market over time as the societal culture, knowledge, and technology evolve (Carrigan, Marinova, and Szmigin 2005). Marta and Singhapakdi (2005) compared the perceived intensity of unethical marketing practices, corporate ethical values (CEV) and perceived importance of ethics by Thai and US business people. The authors suggested that economic development drives countries in a common direction, regardless of the divergence of their cultures and histories. Top managers need to be explicit about the behaviours they consider unethical and management training should change the “corporate ethical values” of an organization. The paper also raised the problems of unethical practices and the ethics gap in emerging markets illustrated by such issues as bribery and the need for companies to abide by the ethical principles of the local community. International marketing scholars should examine how MNEs manage the moral standards in their countries of operation, and present guidelines for managers facing normative decisions (Meyer 2004). Mainstream research on marketing ethics has generally focused on developed economies while emerging markets have received rather limited attention (Donaldson 1985; Rogers, Ogbuehi, and Kochunny 1995). Well-established MNEs have bargaining power greater than that of local governments in many developing economies. Foreign markets, therefore, are more vulnerable to unethical marketing due to their desire for economic growth, their low bargaining power, and a lack of legal framework and law enforcement to protect local firms, consumers and the society as a whole. The moral issues inherent in developing and implementing marketing strategies in developing countries are more important than ever before as MNEs expand into international markets seeking untapped market growth potential, creating new market segments and penetrating existing ones, and expanding the product life cycle of outdated products (Carrigan, Marinova, and Szmigin 2005). Frenkel and Scott’s (2002) study indicated that global firms’ application of codes of labour in foreign countries, such as emerging economies, can uphold core labour standards, improve workers’ well-being, and affect workplace performance. However, compared with compliance type

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relationships, a collaborative partnership between a global firm and its contractor generates superior performance for both parties and for their workers. In addition, higher standards may protect MNEs from negative publicity in developing countries (Frenkel and Scott 2002).

2.5.3 Marketing Strategies for Emerging Markets During the twentieth century, large economies and large trading partners have been located mostly in the triad regions of the world, North America, Western Europe and Japan, collectively producing over 80 per cent of world GDP with only 20 per cent of the world’s population. However, as the centre of economic activity shifts toward non-traditional markets in newly emerging economies (e.g. Chinese Economic Area (CEA, comprising China, Hong Kong region, and Taiwan), India, Commonwealth of Independent States (CIS, comprising Russia, Central Asia, and the Caucasus State), South Korea, Mexico, Brazil, Argentina, South Africa, Central European countries, Turkey, and the Association of Southeast Asia Nations (ASEAN, comprising Indonesia, Brunei, Malaysia, Singapore, Thailand, the Philippines, and Vietnam)) multinational firms are learning to cope with institutional environments characterized by a different set of institutional criteria, such as limited property rights, less sophisticated legal structures, and different kinds of socioeconomic relationships. Accordingly, there has been an increased amount of research on how to enter and compete in emerging markets and how firms from emerging markets can compete successfully in the developed parts of the world. Are traditional models and methods adequate to describe this changing world? Do we need to adopt new approaches to decipher the different institutional environments? Most importantly, how can multinational firms benefit from these changes? Many studies point to a fundamental inconsistency in the emerging market strategies of multinational firms. On the one hand, they see the market potential of billions of new consumers in the emerging market; on the other hand, their marketing programs are scarcely adapted for those markets. The result is low market penetration, disappointing market shares, and poor profitability. Meyer (2004) provided a comprehensive review on the FDI impact in emerging economies from


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the perspectives of industry-level, firm-level, and business ethics and presents suggestions on ways to advance current research. Khanna, Palepu, and Sinha (2005) suggested that when companies match their strategies to each country’s contexts (e.g. political and social systems, openness, product markets, labour markets and capital markets), they can take advantage of a location’s unique strengths. Although MNEs cannot employ the same strategies in all developing countries, they can generate synergies by treating different markets as part of a system. Clearly a fine-tuned marketing strategy is essential for entering emerging markets. Luo (2007a) provided a unifying framework examining the shifting regulatory and competitive parameters MNEs face in the emerging economy of China. The author analysed shifting dominant strategies MNEs used to deal with changing environmental landscapes. The study indicated the need for international business scholars to extend and rethink current MNE theories to explain the shifting parameters, prescriptions, and paradigms for MNEs in a foreign country.

2.6 Analytical Techniques in National and Cross-National Research Mainstream theories in the international marketing field were primarily based on the experience of Western (primarily US) firms. Despite the rising number of studies on firms’ global expansion, there has been a lack of theory development and contribution to the conceptual literature in the international marketing field. Further, researchers should not ignore the substantial variation in attitudes and behaviour within countries (Douglas and Craig 2006). It is essential to examine differences both within and among countries to account for intra-country heterogeneity. Our research tends to suffer from the “pitfalls and problems associated with extending the scope of research beyond the confines of a single country’s borders” (Douglas and Craig 2006, 1). More attention needs to be paid to refining conceptual frameworks and units of analysis and uncovering issues and contextual differences in multicountry marketing research. The same authors suggest the following resolutions:

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(1) Refining the conceptual framework    

Decentring the research perspective Assessing the role of context Identifying the mediators and moderators Identifying construct bias

(2) Refining the unit of analysis  Alternative units  Purposive selection  Degree of cultural interpenetration

(3) Improving construct measurement  Preliminary research and pretesting  Unit of emic/etic instruments  Use of parallel translation

Douglas and Craig (2006) proposed two approaches to adjust for crosscountry research: the adapted etic and the linked emic approach. The etic approach adapts the conceptual model developed in the base culture to other contexts, accounting for differences in the context being studied and their implications for the research design; the linked emic approach starts with the local context, but takes input from multiple research sites and incorporates them into the overall conceptual framework and research design. Reynolds, Simintiras, and Diamantopoulos (2003) outlined theoretical issues that researchers need to consider when making sampling choices in an international setting, for example, the need to balance withincountry representation with cross-national comparability. They present a framework for sampling approach in international studies and indicate how different research objectives affect the desired sampling method and the desired sample characteristics. The two broad concerns within cross-national research are measurement and reliability and validity issues of the scales and measures used. These two concerns are reflected in the research review as follows:


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2.6.1 Measurement Issues Singh (2004) contrasted classical test theory (CTT) and a more general item response theory (IRT) model and suggested that there are several issues that differ significantly. The author stressed the importance of using the simplest but most appropriate measurement model for each situation. Research was conducted to review, evaluate, and develop export performance measures (Katsikeas, Leonidou, and Morgan 2000). The same authors showed that measurement of the export performance construct suffers from serious conceptual, methodological, and practical limitations thereby hindering theory advancement in the field. The following efforts should be made:   

 

Adopting a contingency approach in selecting individual export performance measures Incorporating multiple measures to explore the multifaceted phenomenon of export performance Utilizing multidimensional conceptualizations and operationalizations of export performance and examining interrelationships among them Referencing multiple frames of reference to discover the impact of performance from different perspectives Combining primary data with secondary sources of information to explore export performance indicators

Culture is a fuzzy concept that has raised definitional, conceptual, and operational obstacles for researchers. Soares, Farhangmehr, and Shoham (2007) advocated several approaches to conceptualizing and operationalizing this multidimensional construct. They proposed a multimeasure approach for cultural assessment using Regional Affiliation, Indirect Values, and Direct Value Inference. Their multi-method approach contributes to current research toward capturing this elusive concept. The traditional concept of using countries as the cultural unit of analysis or basis for market segmentation has been criticized since most countries are already multicultural and growing evermore so. Furthermore, even within relatively homogeneous nations, individuals

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vary substantially in the extent to which they identify with, adhere to, and practice cultural norms. An increasing number of researchers argue that increasing globalization is reducing the heterogeneity of consumer behaviours within countries, while increasing commonalities across countries. Cleveland and Laroche (2007) developed and validated a multifaceted scale for the measurement of acculturation to global consumer culture (AGCC) and proposed a research paradigm for simultaneously assessing global and local cultural influences on consumption behaviours. As suggested by Ueltschy and Krampf (2001), consumer satisfaction scales and service quality measures are culturally sensitive. That is, a measure that works well in one market may not function properly or comparatively in a culturally diverse group in the same country or abroad.

2.6.2 Reliability and Validity Issues Prior studies suggest that response styles can be a source of systematic measurement error and thus threaten the validity of conclusions drawn from marketing research data (Bearden and Netemeyer 1999). The Baumgartner and Steenkamp (2001) study examined five forms of stylistic response: acquiescence and disacquiescence response styles, extreme response style/response range, midpoint response, and noncontingent response. Their study indicated that response styles can lead to nontrivial contamination of observed scores and substantial bias in observed correlations between scales that are contaminated by stylistic variance. Further, when compared with the variation across scales, the variation across countries is small. Their findings provided evidence for the robustness of response style effects across different countries, cultural settings, and languages. In the same spirit, Murray et al. (2007) examined the cross-cultural measurement invariance of the export market orientation (EMO) and export performance (EP) scales, and tested the EMO–EP relationships with a sample of Chinese and non-Chinese export ventures. Their results provided support for measurement invariance both for EMO and EP between Chinese and non-Chinese firms. Without the evidence supporting the cross-national invariance of EMO measures in the emerging economy context, our understanding of the relative impact of


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EMO in explaining EP for firms from developing nations vis-à-vis those from developed nations would be inaccurate. A review of research methodologies in international business was conducted by Yang, Wang, and Su (2006). The study indicated that mail surveys dominate empirical research. An over emphasis on empiricalquantitative research may bias researchers toward theory building. Accordingly, to address the issue of survey method dominance, Nakata and Huang (2005) advocated comparative ethnography, historical or time series analyses, and computer simulations as well as developing modules or workshops to enrich theory and construct development.

3 CRITIQUE AND DIRECTIONS FOR FUTURE RESEARCH Having surveyed the international marketing literature published since 2000, we have to ask if the research deficiencies identified in the last three decades have been addressed. In the early 1990s, Douglas and Craig (1992) lamented that strategy issues were a sadly neglected area in international marketing and that marketing’s role in global strategy was largely ignored. Kotabe’s (2001) review of the international marketing literature published during the 1990–1999 period echoed the same concerns. These earlier literature reviews, among others, asserted that researchers in international marketing continue to borrow concepts and theories from the management and strategy literature, and tend to relate them to market performance. Once seen as a trend over the last thirty years, however, such criticisms may have been ill-founded. The survey of the recent literature as well as the personal experience of the authors of this chapter points to a trend in which researchers trained in the marketing field have increasingly started publishing their marketing strategy-related work in some leading management journals, primarily in Strategic Management Journal. This trend rather appears to suggest that the scope of research areas published in leading marketing journals have narrowed over time such that marketing strategy researchers have found it easier and more impactful by publishing their work in strategy journals rather than in marketing journals. In a positive light, international marketing

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researchers complement management and strategy researchers in subjecting supply-side theories to demand-side considerations. Market segmentation and target marketing are two major concepts uniquely developed in the marketing literature with focus on the demand (customer) side. Yet, studies in these areas continue to be scarce in both domestic and international marketing literature. This area of research promises to have some profound impact on supply-side strategy research if sufficiently developed. In particular, benefit and intermarket segmentation concepts appear promising for further development in the international marketing literature. In the generic (domestic) context, marketing as a discipline has gradually migrated away from economic issues to behavioural issues. For example, marketing was developed as a study of distribution channels and logistics at the dawn of the twentieth century. Today, logistics is not generally considered as part of the marketing discipline. Even economics of new product development as well as marketing strategy is increasingly considered outside the mainstream marketing field. On the other hand, behavioural research, as well as quantitative applications, in consumer behaviour, promotion, and channel management has become mainstream. In the international area, the same forces have been at work. Consequently, there have been a disproportionately large number of studies in consumer behaviour, modes of entry (particularly, exporting), and channel performance. The focal area of marketing is the marketing mix strategy, encompassing product, price, promotion, and distribution management. Studies that address various aspects of the marketing mix were limited to the standardization versus adaptation issue. Part of the limited attention to each aspect of the marketing mix is due to the difficulty of conducting empirical research. Product development has become so technically and technologically complex that this area is increasingly better examined by researchers in the engineering fields, or jointly by those in engineering and marketing fields. Pricing has always been one of the most difficult areas of research in marketing as firms are not willing to share pricing and cost information. Promotion—in particular, advertising-related research, such as advertising effectiveness and global advertising—as well as consumer behaviour has attracted many marketing researchers. It is due mainly to the relative ease of collecting data and theory development


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from the psychology literature. Research in distribution management is more or less limited to such behavioural issues as dyadic trust and power (control) relationships. Although global sourcing issues (including procurement and supply chain management) are considered part of the broadly defined domain of marketing (Douglas and Craig 1992), studies in these areas, as stated earlier, appear to have gradually migrated into the strategy literature away from the contemporary domain of marketing. One area where marketing has genuine strength is research methodology. As the marketing discipline has evolved into a strongly psychology-based behavioural discipline, researchers have paid serious attention to the reliability and validity of measurement issues. In the last decade, we have seen the trickle-down effect of an increased call for more methodological scrutiny in international marketing research. However, it should be noted that international marketing research is faced with many more operational difficulties and pitfalls in conducting empirical research than is generic, domestic-bound research (Craig and Douglas 2000; Kotabe 2001). Consequently, international marketing researchers may not be able to address those measurement and other methodological issues as effectively as would be possible in domestic research. As stated at the beginning of this chapter, the current climate strongly affects the contextual nature of research in international marketing. One such change that needs to be highlighted first is the recent rise of emerging economies. The dramatic institutional, cultural, and strategic transformations of firms from the emerging markets of Eastern Europe and the rapidly re-emerging markets of Southeast Asia have ramifications for the global economy in the twenty-first century. There is a significant demand for knowledge on interpreting firms operating in emerging economies. Firms’ strategic choices and performance are not only driven by industry conditions and firm capabilities but are also a reflection of the formal and informal constraints of a particular institutional environment that firms have to conform to (Peng, Lee, and Wang 2005). It is therefore worthwhile to consider the profound differences in institutional frameworks between emerging economies and developed countries in addition to examining industry- and resource-based factors (Makino, Isobe, and Chan 2004) when interpreting MNEs’ behaviour and performance. Consequently, institutional theory could be included when probing into

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emerging economies. Firms today are under constant competitive pressure to move forward both reactively (responding to the changes in the market and competitive environments) and proactively (anticipating the change) with a sound evaluation of the economic, cultural, political, and legal environments of the country markets they enter. The international marketing field also needs to incorporate theories from social sciences, such as anthropology, sociology, and political science to produce new theories and perspectives (Nakata and Huang 2005). Although we witnessed a significant increase in the percentages of comparative and global studies and a corresponding drop in single country research, regional frameworks have received scant attention (Nakata and Huang 2005). With the increasingly crucial role of regional trade agreements such as NAFTA, MERCOSUR, and the EU in the global economy, it is important that the debate between regional standardization and local adaptation needs to be further focused on. Further, regionalization may have important effects on the use of international joint ventures. With the unified European Union, low transaction costs may affect the entry strategy choices of European firms (Reus and Ritchie 2004). Our recognition of the challenges inherent in conducting crosscultural research has not led to the debate on the adaptation of qualitative methods. Some scholars suggest utilizing qualitative research methods to enhance cross-cultural understanding and lessen potential problems of cultural bias and ethnocentric assumptions (e.g. Osland and Osland 2001). Qualitative research can be particularly appropriate in developing countries where secondary data collection is more difficult than in developed countries and where social, face-to-face relations and trust relationship building are valued (Harari and Beaty 1990; Kotabe, Parente, and Murray 2007). Researchers should take into consideration environmental characteristics, resource constraints, and cultural traits in their international marketing research. Further, most past research in international marketing has focused on large firms. It is increasingly important to understand the approaches adopted by small and medium-sized enterprises (SMEs) that have successfully established themselves in international markets. Another profound change in the last decade has been the proliferation of the Internet and electronic commerce. The Internet opened the gates


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for businesses to sell direct-to-consumers across national borders. Further, advances in information technology and reductions in the cost of communication are facilitating the shift of backroom operations to the developing world. The fast growing Internet and accompanying information technology applications make it possible for firms to function as a network of interconnected responsibilities (Cavusgil 2002). As for marketing research, the latest technology should enable scholars to create approaches to interpret behaviour in differing cultural contexts and to integrate complex data from diverse sources and environments. There is also a need for international marketing researchers to collaborate with scholars in emerging economies to obtain an inside perspective on relevant marketing issues (Czinkota and Ronkainen 2002). It is time for researchers to develop new frameworks and theories to enhance our understanding of businesses in different and diverse environments.

APPENDIX 1 LIST OF JOURNALS REVIEWED Marketing Journals

General Business Journals

Advances in Consumer Research European Journal of Marketing Industrial Marketing Management International Journal of Advertising International Journal of Market Research International Journal of Research in Marketing International Marketing Review International Journal of Research in Marketing Journal of Advertising Journal of Advertising Research Journal of Business and Industrial Marketing Journal of Consumer Behavior Journal of Consumer Behaviour

Academy of Management Executive Academy of Management Journal Academy of Management Review American Sociological Review British Journal of Management Business Horizons California Management Review Competitiveness Review Decision Sciences European Management Journal Harvard Business Review International Business Review International Journal of Innovation Management International Journal of Management

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Marketing Journals

General Business Journals

Journal of Consumer Marketing Journal of Consumer Research Journal of International Consumer Marketing Journal of International Marketing Journal of Marketing Journal of Marketing Research Journal of Marketing Theory and Practice Journal of Product and Brand Management Journal of Retailing Journal of the Academy of Marketing Science Marketing Management

International Journal of Management Reviews Journal of American Academy of Business Journal of Business Ethics Journal of Business Research Journal of General Management Journal of International Business Studies Journal of International Management Journal of Management Journal of Management Studies Journal of Managerial Issues Journal of Small Business Management Journal of World Business Long Range Planning Management Decision Management Science Management International Review Multinational Business Review Organization Studies Oxford Review of Economic Policy R&D Management Sloan Management Review Strategic Management Journal Thunderbird International Business Review

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Section 2

Competition from Emerging Markets

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Chapter 2.1

Dynamic Capabilities, Government Policies, and Performance in Firms from Emerging Economies Evidence from India and Pakistan Omar R. Malik and Masaaki Kotabe

INTRODUCTION Economic liberalization in emerging economies over the last two and a half decades (Sachs and Warner, 1995) has provided increased technological and learning opportunities for Emerging Market Firms (EMFs), leveraging options for offering new products and imitating capabilities of developed country firms (Zahra et al., 2006). Trade and market liberalization fuels dynamism in emerging economies. As market environments become more dynamic, firm capabilities also require corresponding changes (Hoskisson et al., 2000). Thus a key question pertaining to this adaptation to environmental changes is: How do firms manage the creation of new, and reconfiguration of existing capabilities necessitated by changing environments? In response to economic liberalization, many EMFs have responded to expanded menus of technological options by actively acquiring

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new technologies and upgrading firm capabilities. Technological and capability upgrading of firms from industrializing economies has been a historically recurrent pattern across firms from many countries (Abramovitz, 1986). Technological capability upgrading processes of Japanese (Cho et al., 1998; Friedman, 1988; Lynn, 1985; Ozawa, 1974), South Korean (Kim, 1997, 1998), Taiwanese (Mathews and Cho, 2000), and Indian firms (Lall, 1983, 1984, 1987) have been documented over time. These studies, which are largely qualitative, have predominantly focused on country and industry level explanations of technology absorption and capability building. This literature stream provides a research opportunity to develop systematic firm-level understanding of processes underpinning technology absorption and capability building in EMFs. EMFs are fundamentally different from their counterparts in industrialized economies in terms of both their weaknesses and strengths (West and DeCastro, 2001). EMFs, in most cases, have historically focused low attention and resources on R&D, and consequently have weaker technological capabilities compared with Multinational Enterprises (MNEs) from industrialized economies. Many EMFs have relied upon buying off-the-shelf technologies from industrialized country firms, and have used these sourced technologies as a basis for firm-level capability development. Hence, mechanisms for developing new capabilities in EMFs are theoretically distinct from R&D based learning before doing (Henderson and Cockburn, 2000). Furthermore, the institutional context of emerging economies is also very different from industrialized economies. Emerging economies display resource scarcities and a pervasive role of government institutions in economic activities (Austin, 1991; Wright et al., 2005). These institutional characteristics, coupled with economic liberalization, lead to firm-level changes in resources and capabilities that are different from those in industrialized economies. Thus researchers have pointed out the need to study how firms adapt and learn in the face of environmental changes in emerging economies (Hoskisson et al., 2000; Wright et al., 2005). This study answers these calls to develop and test theory pertaining to EMFs (Bruton and Lau, 2008) by examining the question of how firms from two important Asian economies—India and Pakistan—develop dynamic capabilities that can possibly enhance

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performance. In this manner, our study also contributes to the resources and capabilities literature stream, where researchers have called for identifying capabilities that lead to superior performance in specific contexts (Collis, 1994; Priem and Butler, 2001). In rapidly changing environments, firms need capabilities that facilitate change to reconfigure resources and take advantage of new opportunities (Wright et al., 2005). The organizational capabilities perspective (Collis, 1994; Nelson and Winter, 1982; Teece et al., 1997; Winter, 2003) provides an appropriate theoretical lens for conceptualizing capabilities for change or dynamic capabilities in EMFs. Dynamic capability has been defined as “the capacity of an organization to purposefully create, extend, or modify its resource base (Helfat, 2007, p. 1)”. The dynamic capabilities literature also points out that these capabilities are identifiable organizational processes, which are firm specific, but also share commonalities among firms facing similar environmental conditions (Eisenhardt and Martin, 2000). In a seminal conceptual article on dynamic capabilities, Teece et al. (1997) have identified three main types of organizational processes that underpin dynamic capabilities: organizational processes for learning, reconfiguration and coordination. Learning refers to use of repetition and experimentation to improve organizational processes. Reconfiguration delineates firm capabilities in identifying external opportunities through scanning, and then changing the asset structure of firms to take advantage of opportunities. Coordination capabilities relate to how managers within firms coordinate and integrate internal activities. In this study we extend the dynamic capabilities perspective vertically and horizontally. As a vertical extension we offer our conceptualization of three dynamic capability building mechanisms, important for EMFs, that map over the Teece et al. (1997) conceptualization of learning, reconfiguration and coordination. We theoretically conceptualize and define organizational learning, reverse engineering, and manufacturing flexibility as EMF dynamic capability building mechanisms and posit their links with performance. As noted in the literature, the relationship between developing dynamic capabilities and superior performance is neither a given nor conceptually clear (Zahra et al., 2006). Our conceptualization also includes the synergistic capability building roles played by managerial perceptions and use, of both input side and

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marketing related government support policies targeted at EMFs, thereby incorporating the role played by these important contextual variables within our conceptual framework (Bruton and Lau, 2008). In vertically extending the domain of dynamic capabilities research, we tested our framework on a sample of Indian and Pakistani firms. Here our contribution is to test theory, developed specifically for EMFs, on a sample of firms from two major Asian emerging economies (Bruton and Lau, 2008). Since we examined dynamic capability creation mechanisms related to new technology absorption, our unit of analysis was product technologies. We defined this as a related set of subsystems, implemented as a whole, to create and sell a new product group. Product technologies included both equipment and process technologies. All constructs in this study were measured at this level of a focal product technology implemented by an emerging market manufacturing firm. Our dependent variable was performance, defined at this level of analysis, including both financial and operational aspects of performance (Venkatraman and Ramanujam, 1986).

CONCEPTUAL FRAMEWORK EMFs face low availability of domestically produced capital equipment and technologies. Therefore, most equipment and technologies used by EMFs are imported from industrialized countries (Tybout, 2000). In many cases, these technologies are considered matured in industrialized nations, and are designed for labour-saving rather than labour-intensive applications. Equipment and technology importing EMFs face immediate challenges of reducing output costs by adapting imported technologies in ways that make them more labour-intensive and use locally abundant raw materials (Lall, 1983; Lecraw, 1977; Wells, 1983). Furthermore, given the relatively smaller market sizes of most emerging economies, another key EMF goal has been to adapt production technologies for a smaller scale of operations (Wells, 1983). Earlier research has pointed out that rather than using R&D based learning as a mechanism for technology development, EMFs use cumulative learning in real-time production environments to adapt imported technologies, with aims to create lower cost output and smaller


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scale production systems (Cantwell and Tolentino, 1990; Lall, 1983; Tolentino, 1993). This EMF specific nature of technology development points towards organizational learning as a key dynamic capability creating mechanism for these firms. EMFs typically manufacture simple products and are weak in product differentiation and marketing capabilities (Aggarwal and Weekly, 1982). Products and services, created by EMFs, are mostly marketed to low cost market segments in both home and other developing country markets (Lecraw, 1977; Wells, 1983). Lacking product focused R&D, many EMFs use foreign competing products as sources of both ideas and knowledge and employ systematic reverse discovery through studying and disassembling such products. By way of example, Mahindra & Mahindra, a large Indian industrial firm, has established a “tear-down” complex in Chennai, India, employing 1,000 engineers to reverse-engineer products and technologies (Marsh, 2006). Thus EMFs’ weaknesses in new product development processes, and anecdotal evidence point towards the importance of reverse engineering as a dynamic capability development mechanism for EMFs. Since EMFs buy technologies off-the-shelf, these technologies have to be integrated with firm-level routines to enhance performance. Effective integration of externally sourced technologies with firm-level routines has the potential of leveraging a standardized, available to all with financial resources, technology into a source of superior performance. In manufacturing firms, lean production systems have evolved as the key source of organizational meta-routines that mark superior coordinative processes (Womack et al., 1990). Indian firms are systematically acquiring lean-production capabilities, focused upon creating manufacturing flexibility (Ohno, 1988), as part of their strategy to build manufacturing prowess (Mahmood, 2005). Hence, fostering manufacturing flexibility based routines is an important dynamic capability development mechanism for EMFs. Governments are an important contextual aspect influencing firm behaviour across countries (Ring et al., 2005), especially in emerging economies (Bruton and Lau, 2008). In the early stages of industrial development, government agencies can facilitate technology absorption among local firms through a variety of support processes (Mahmood and Rufin, 2005; Porter, 1990). EMFs find existing paths and processes

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difficult and costly to change. This resistance to change is rooted in path-dependence (David, 1985) and structural inertia (Hannan and Freeman, 1984). Capability upgrading is further hampered by EMFs’ information and knowledge asymmetries compared with industrialized country firms. Because absorbing new technologies is a slow and deliberate process involving both experimentation and imitation, government policies can help EMFs overcome some of these barriers to building new capabilities through setting priorities and developing and implementing policy programmes (Metcalfe, 1994). Therefore, we incorporate two key aspects of the perception and use of government support policies by EMF managers in our framework, taking account of government support on both the inputs and marketing value adding activities of EMFs. The conceptual framework for this study (see Figure 1) includes three dynamic capability development mechanisms uniquely important to EMFs adapting to liberalization induced environmental changes. Additionally, we conceptualize the synergistic effects of government support policies. We develop the logic that links these dynamic capability mechanisms to performance in the hypotheses section of this article, arguing that appropriately construed and implemented these dynamic

Input Supporting Government Policies H1

H4

Organizational Learning

H2 Reverse Engineering

H3

Performance

Manufacturing Flexibility

H5 Marketing Supporting Government Policies

FIGURE 1

The Conceptual Framework


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capability development mechanisms lead to superior performance. In the following sub-sections, we conceptually tailor the independent variable constructs used in this study with aims to establish their relevance and importance to EMFs.

Organizational Learning Organizational learning is the capacity of an organization to learn from experience and experimentation (DiBella et al., 1996; Easterby-Smith et al., 2000). Because EMFs have been historically weak in R&D or experimentation based learning, the main mode of their organizational learning is experiential learning. Experiential learning is based upon improvisation and trial and error cycles (Zahra et al., 2006), with the aim of adapting externally obtained technologies for effective use within EMF operations (DiBella et al., 1996). This form of learning is different from R&D based learning, because the aim of activities undertaken is to carry out actual production and not to generate information that reduces production uncertainty. Knowledge is created as a consequence of identifying and solving problems that occur during the course of production activities (Arrow, 1969). Problem solving by engineers and workers translates into shared group cognitive schemas that are later institutionalized as learning based organizational routines (Bontis et al., 2002; Crossan et al., 1999). Thus learning by doing is an important component of EMF organizational learning (Dutton and Thomas, 1985; Stiglitz, 1987). Hence, we define EMF organizational learning as learningbased associations between actions and outcomes that occur as by products of experience in using focal technologies (Arrow, 1962, 1969).

Reverse Engineering Reconfiguration based organizational mechanisms focus on changing asset structures in response to market and technological change (Teece, 2007). Products represent the flip side of a firm’s resources and capabilities (Wernerfelt, 1984), thus processes causing changes in product offerings represent reconfiguration capabilities applied to organizational assets. In

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cases where firms have weak R&D capabilities (Teubal, 1996), such as EMFs, reverse engineering is a useful alternative product development mechanism. In this sense, reverse engineering can aid in shortening time for new technology absorption and product development by identifying knowledge components of products that meet market needs. Projects for reverse engineering can be instigated through both competing products as well as customer ideas (Von Hippel, 1988). As an organizational mechanism, reverse engineering consists of spillovers of product specific knowledge from competing products and ideas to EMFs. In this study, we define reverse engineering as knowledge obtained by disassembling products into observable technological units and gleaning declarative and procedural knowledge (Kogut and Zander, 1992) that allows imitation, and improvements in product designs (Kim, 1997; Samuelson and Scotchmer, 2002).

Manufacturing Flexibility Lean manufacturing methods (Spear and Bowen, 1999; Womack et al., 1990) have been widely implemented because of their perceived performance advantages (Haunschild and Miner, 1997). Effective implementation of lean manufacturing routines builds coordinative capabilities that integrate activities within firms (Teece et al., 1997). This model of effective manufacturing management has also spread to EMFs, and firms are implementing these methods to build effective operations and increase flexibility (Mahmood, 2005). These EMF attempts to implement lean manufacturing systems are tempered by obstacles to full-scale implementation in many emerging economies. Most emerging economies suffer from weak and unreliable transportation and power infrastructures, and complex labour and tax law regimes. Therefore, EMFs have to significantly localize and selectively pick lean manufacturing routines that can work in emerging economy environments. This leads to EMF managers focusing on salient and core aspects of lean manufacturing, with an emphasis on operations within firms. A broad objective of lean manufacturing is to provide manufacturing flexibility (Ohno, 1988). Flexibility, broadly defined, is a firm’s capacity to


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adapt to changing environmental conditions with low impact on performance (Upton, 1994). Specifically, manufacturing flexibility is defined in terms of a firm’s ability to vary products, product mixes and production volumes quickly through use of coordinated routines (Nemetz and Fry, 1988; Upton, 1994). Given that dynamic capabilities are created intentionally and deliberately (Dosi et al., 2000), the following question emerges: Which sets of flexibility routines would be most pertinent for EMFs? Since creating flexibility and efficiency are primary rationales of lean systems (Coriat, 2000; Cusumano, 1988), we expect ability to vary production volumes (Upton, 1994) and use of inventory management systems that reduce manufacturing process inventories (Coriat, 2000) to be primary representations of manufacturing flexibility in EMFs. Weak R&D capabilities make it less likely for EMFs to create flexibility through varying products or product mixes as these firms have relatively narrower product lines compared with industrialized nation MNEs. Thus, in this study, we define EMF manufacturing flexibility as the ability to vary production volumes easily and quickly, and the capacity to reduce manufacturing process inventories relative to earlier levels.

Input Supporting Government Policies Government agencies in emerging economies can help firms on the input side by helping in technology identification, selection and implementation (Mazzoleni and Nelson, 2007). For example, the government of India’s Department of Science & Technology has established technology development programmes in areas such as instrumentation development and drug manufacturing process improvements to aid local firms improve technological capabilities. Similarly, the Government of Pakistan under the auspices of its Ministry of Science & Technology (MoST) has established an array of Technology Development Institutes (TDI) focused on providing technological support to local firms. TDIs can reduce costs to firms of selecting and implementing new technologies (Grossman and Helpman, 2001). EMF managers, in many cases, may not be fully aware of better technology options because of information asymmetries. TDIs can aid in this search process using

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superior government resources. Managers may also be hesitant to experiment with newer technologies because they may require changes to organizational routines (Feldman and Rafaeli, 2002), and furthermore implementing newer technologies is undertaking expensive investments with uncertain outcomes (David, 1986). TDIs can help in reducing this uncertainty by aiding in adaptation of technologies for local use. Awareness and perceptions of benefits offered through TDI support would vary among EMF firm’s managers. This would lead to different levels of usage of policy benefits by firms. Therefore, we conceptualized input supporting government policies as managers’ perceptions of how TDIs helped EMFs in identifying, selecting and implementing new technologies.1

Marketing Supporting Government Policies Given that EMFs are weak in marketing capabilities compared with MNEs from industrialized nations (Aulakh et al., 2000), governments can play a role in partly compensating for these weaknesses, and also help in EMF capability development in this arena. In many cases, in the light of the evidence supporting the relationship between exports and economic growth (Kraay, 1997; Tybout, 2000), government support on the marketing side is manifested through export promotion activities. In India, the government has implemented a decentralized model where an apex body, the Indian Federation of Export Councils, oversees government sponsored export councils operating in a range of industries such as chemicals, pharmaceuticals and textiles. Pakistan government’s export promotional activities are coordinated under the aegis of the Trade Development Authority of Pakistan. Both governments sponsor a range of marketing supporting activities through these institutions. Generally, emerging economy governments apply a range of specific policy instruments including financial incentives for exporting firms (Lall and Teubal, 1998), establishing product quality standards (Porter, 1980), and help in marketing research and distribution (Dominguez and Sequeira, 1993). Financial incentives attract EMFs to export markets (Bauman and Braga, 1988), product quality awards spur product devel-


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opment processes (Porter, 1980), and marketing research and distribution support can reduce knowledge gaps, allowing EMFs to broaden and deepen their involvement in export markets (Johanson and Vahlne, 1977). Thus we defined marketing supporting government policies as financial incentives, product quality standards, and complementary downstream capabilities provided by government agencies. As in the earlier case of input supporting government policies, the levels of use of these policies would depend on the awareness and perceptions of EMF managers. Therefore, we captured perceptions of government marketing side support, since these would mirror varying levels of usage of policy benefits by EMF managers.

HYPOTHESES Organizational Learning and Performance Implementation of new technologies presents temporally and spatially situated opportunities for EMFs to learn (Tyre and Orlikowski, 1994). As EMFs undertake implementation of new technologies, managers, engineers and workers face problems as well as performance gaps in realizing potential value from improved operations. Implementation problems and performance gaps instigate search and learning among individual employees (Winter, 2000). Systematic problem solving at this stage can lead to building individual knowledge and skills, as well as shared understanding among employees regarding how to increase value from using new technologies (Crossan et al., 1999; Sitkin, 1992). This integrated specialized knowledge of individual employees forms the basis for an organizational learning capability (Grant, 1996). Because EMF learning is largely a by-product of repetition and experience it is largely focused upon exploitation of newly implemented technologies (Adler and Clark, 1991).2 This systematic error detection and correction, within the context of newly implemented technologies, leads to single-loop learning within EMFs. Problem solving also leads to new cognitive schemas, shared between employees, that can lead to improved process methods. This formation of shared mental maps borders double-loop learning where operating methods, frames of

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reference and assumptions are revised in attempts to enhance performance (Fiol and Lyles, 1985). However organizational learning, as a dynamic capability development mechanism (Zollo and Winter, 2002), does not always lead to superior performance (Zahra et al., 2006). Organizational learning will only lead to performance improvements to the extent that such learning leads to effective new routines at the firm level (Bontis et al., 2002). It is possible that organizational search can plateau at low levels of acceptable performance (Winter, 2000), and organizations can also learn ineffective routines that lead to lower levels of performance (Nystrom and Starbuck, 1984). Furthermore, organizational mechanisms that facilitate integration on individual knowledge at the group level, and the institutionalization of group schemas at the firm level are necessary for organizational learning to have a positive impact on performance (Bontis et al., 2002; Crossan et al., 1999). These opposing arguments necessitate an empirical test of the relationship between organizational learning and performance in the EMF domain, as this relationship varies across contexts and conditions. Hypothesis 1: Organizational learning is positively associated with performance in manufacturing firms from emerging economies.

Reverse Engineering and Performance The dominant mode for new product development in EMFs is imitation of successful products.3 Low levels of development of R&D capabilities in EMFs lead to weak understanding of cause–effect relationships in product development, thereby fuelling technological uncertainty. Experiential approaches to product development, based upon improvisations, iterations and extensive testing can help reduce this technological uncertainty (Brown and Eisenhardt, 1995; Eisenhardt and Tabrizi, 1995). Besides potentially reducing causal ambiguity in product development, reverse engineering of successful competing products also allows EMFs to gain late follower advantages by building upon market winning product attributes. Successful competing products provide cognitive representations of states of knowledge4 that if successfully


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imitated and improved upon lead to higher chances of success for new products (Gavetti and Levinthal, 2000). Effective reverse engineering addresses the antecedents of causal ambiguity: complexity, tacitness and product design specificity (Reed and Defillippi, 1990). Complexity is reduced through studying various elements of competing products, and developing an understanding of what certain parts accomplish, and why they fit in predetermined configurations. Tacit knowledge is built as engineers work with existing product designs and attempt to recreate and improve these products. Knowledge specific to designing better products can come from customer ideas about improved product attributes (Von Hippel, 1988) and from customer experiences in using EMF products (Rosenberg, 1982). Thus effective reverse engineering can significantly reduce causal ambiguity in product development. Reverse engineering as a dynamic capability creating mechanism allows EMFs access to external knowledge that helps in product development, and consequently shifts EMF asset bases. Katila and Ahuja (2002) have found that in the context of the global robotics industry, an interaction between depth and scope of knowledge search is positively associated with the number of new products launched by firms. Thus we would expect that systematic reverse engineering would lead to higher numbers of improved product offerings from EMFs. Furthermore, creating these new products would also contribute to dynamically reconfiguring EMF asset bases, to reflect changing product lines, and realign EMF asset structures with products demanded by customers (Teece, 2007). This logic leads to our second hypothesis: Hypothesis 2: Reverse engineering is positively associated with performance in manufacturing firms from emerging economies.

Manufacturing Flexibility and Performance Global diffusion of manufacturing best practices is encouraging many EMF managers to attempt implementation of lean manufacturing systems, despite infrastructural obstacles to effective integration of these systems in many emerging economies. Although, there are many studies

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on the relationships between implementing lean systems and firm performance (Womack et al., 1990), there is little cause–effect analysis of how performance improves because of implementing specific lean manufacturing routines (Davies and Kochhar, 2002). Winter and Szulanski (2001) have argued that firms identify and transfer valuable traits of a business model when replicating capabilities. Knowledge of these valuable traits is labelled as the “Arrow Core” of a business model. Firms that choose a template for replication go through iterative cycles of exploration and exploitation (March, 1991), as they learn and implement the Arrow Core of a selected template. Similarly, in the course of implementing lean manufacturing systems, EMFs focus on the most salient aspects of lean systems—flexibility and inventory reduction—and go through cycles of attempting to implement routines related to these meta-routines. Increasing production volume flexibility, through modifying internal equipment and processes, contributes to agility in responding to changing customer demand patterns. Lowered inventories expose problems in manufacturing flow, thereby increasing throughput, and also reduce variable costs (Katayama and Bennett, 1999). EMF attempts at systematically building manufacturing flexibility contribute to the development of an internal integration and coordination based dynamic capability (Grant, 1996; Teece et al., 1997). Integrated and coordinated operations, besides increasing efficiency, position EMFs to respond effectively and flexibly to market opportunities, as well as downturns. Based on these arguments we present our third hypothesis: Hypothesis 3: Manufacturing flexibility is positively associated with performance in manufacturing firms from emerging economies.

The Synergistic Effect of Organizational Learning and Input Supporting Government Policies As EMFs search for new technologies to improve competitiveness, TDI support can aid in identification of appropriate technologies (Mazzoleni and Nelson, 2007). In this search process, TDIs can bring to bear superior


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scientists and technologists funded by government resources. EMFs, in many cases, may not have the resources to attract such talent, and also have not historically treated in-house scientific capability as a priority. Once appropriate technologies are identified, selection of well-fitting technologies can again gain from the resource advantages of TDIs (Metcalfe, 1994). Selection may also involve work by government scientists and technologists to adapt selected technologies for effective use by EMFs. In this role, TDIs become external developers of technologies for EMF use. Moreover, TDI support in implementation of new technologies would help reduce knowledge asymmetries between EMF employees and TDI scientists. Two-way communication between these groups would lead to effective use of new technologies within EMFs, and also educate TDI scientists about the needs and capabilities of EMFs. TDI knowledge of EMF capabilities can have a positive feedback effect into future technology identification and selection efforts. TDI interventions can be conceptually construed as targeted knowledge spillovers from the public sector, aimed at EMFs, which help reduce costs involved in absorbing new to firm technologies (Grossman and Helpman, 2001). Government support in search, adaptation and implementation of appropriately fitting technologies provides a lower cost and higher productivity starting point for organizational learning efforts.5 Subsequent, organizational learning efforts build upon this higher starting point in technological choice by identifying and solving implementation problems, merging new technology with organizational routines, and thereby creating superior performance. Hypothesis 4: Input supporting government policies will enhance the effect of organizational learning on performance in manufacturing firms from emerging economies.

The Synergistic Effect of Manufacturing Flexibility and Marketing Supporting Government Policies The main objective of government support for marketing activities, provided through a range of institutions, is to encourage EMFs to build

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marketing knowledge. Marketing knowledge includes understanding of quality standards, market segments and distribution systems in viable foreign markets. By offering these services through government agencies, and linking export performance to financial rewards, governments hope to instil customer driven resource investments in EMFs, thereby facilitating more customer-oriented marketing strategies. Greater understanding of target markets, especially niches, can combine very effectively with manufacturing flexibility to enhance returns for EMFs. These performance gains would be underpinned by the ability to adjust nimbly to changing demand patterns at low costs to the firm, and the capacity to tap into niche markets overlooked by larger competitors. Fiegenbaum and Karnani (1991) have found that smaller firms with manufacturing flexibility are better positioned to target niche markets, and smaller firm size combined with flexibility has a positive impact on performance. Furthermore, better market knowledge also allows EMFs to effectively differentiate their products in foreign markets (Aulakh et al., 2000). Combining effective differentiation with manufacturing flexibility can provide EMFs with low cost and differentiation as bases for competitive strategies (Porter, 1980). These integrated strategies which are combinations of low cost and differentiation, can allow EMFs to establish stronger competitive positions than those grounded in either differentiation or low cost alone (Karnani, 1984). Based on these arguments, we expect that: Hypothesis 5: Marketing supporting government policies will enhance the effect of manufacturing flexibility on performance in manufacturing firms from emerging economies.

METHODS Research Settings and Design We chose India and Pakistan as representative emerging economies. Both these countries provide a rich context to study dynamic capability building among manufacturing EMFs. India has a larger economy, which is liberalizing at a measured pace, and enjoys a mix of low, medium and high technology firms. Pakistan has a relatively smaller economy, is at


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similar levels of economic liberalization, but has a largely low technology industrial structure. This combination provides a diverse and illustrative sample for understanding dynamic capability development mechanisms that lead to superior performance in EMFs. Both economies also share structural attributes including relatively limited resources compared with richer economies, largely unskilled manufacturing workforces, use of older technologies, and relatively small manufacturing sectors. These shared attributes allow for the study of firms from these two economies as archetypical EMFs. We opted to collect data for this study through a survey instrument, because secondary data for focal variables were unavailable. Our survey instrument had questions, using Likert scales, about firm and technology characteristics, dynamic capability building mechanisms, and performance impacts of new technology implementation (see the Appendix for details of scales and items). English is widely spoken in both countries so we administered our survey in this language. Data for this study were collected in 2004 and 2005. Indian manufacturing firms in Chennai, Coimbatore, Hyderabad, Mumbai, and Tirupur responded to our survey. In Pakistan data were collected from firms in Lahore and Sialkot. All seven cities are relatively large manufacturing centres in these countries.

Data Collection There are significant obstacles in data collection in emerging economies (Hoskisson et al., 2000). Comprehensive and current lists of firms are unavailable. Many firms are hesitant to share any data, especially information pertaining to financial performance and firm size because of widespread tax evasion. Further, mail systems in both these countries are also unreliable. In these circumstances, personal interviews of managers are suitable means for data collection. Personal interviewing ensures access to correct respondents, facilitates accuracy in interpretation of the survey instrument, and improves data quality (Slater and Kwaku, 2004). Our interviewers were trained on the nature of the questions in the instrument, as well as our broader research objectives. Respondents were mainly upper level and middle managers, with manufacturing managers (25) constituting the largest group (27 per cent of respondents);

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directors (18) and general managers (18) each constituted 19 per cent of respondents; maintenance managers (7) and R&D managers (6) were the next largest groups of respondents. Smaller groups of respondents were chief executive officers (5), engineers (4), international (3) and marketing managers (3), assistant general managers (2), a consultant (1), and a development manager (1). The main benefit in targeting these managers as respondents was that they had been directly involved in selecting and implementing new technologies, and were in a position to engage in higher order reflective thinking about the focal phenomena for this study (Podsakoff and Organ, 1986).

Sample We set three criteria for firms that were included in the sample for this study. First, we chose manufacturing firms that had recently implemented new technologies. Examples of technologies purchased offthe-shelf by EMFs included manufacturing process equipment for textile manufacturers, fermentation process equipment and enterprise resources planning software for pharmaceutical manufacturers, injection moulding and assembly equipment for automotive component manufacturers, and grinding machines and quality checking equipment for machine tool manufacturers. Second, we chose local firms, i.e. EMFs with India and Pakistan as home countries. Third, we chose firms with some involvement in international business, mostly in the form of exports. Since published listings of firms were either unavailable or inaccurate, we decided to target main exporting manufacturing industries in both countries. This was a non-random sample in the strict sense of the definition of randomness of samples. However, our sample provides stratified sampling from populations of firms of interest. We attempted to maximize variance on focal variables, especially on our dependent variable: performance. This strategy of maximizing variance on focal and dependent variables is suitable in situations where strict probability samples are not feasible (Hazelrigg, 2004). We collected completed survey instruments from 115 firms (India = 65 and Pakistan = 50). However, some of these completed instruments did not meet our criteria for the sample. Some were MNE subsidiaries,


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problematic because subsidiaries may have formalized mechanisms for creating knowledge spillovers; others were non-exporters, or had not reported new technology information. We eliminated these firms from our analyses. Our final sample was 93 firms (India = 54 and Pakistan = 39). Sample details are presented in Table 1. Firms in our sample derived a large share of their sales and profits from selling in foreign markets, on average 50 per cent of sales and 43 per cent of profits came from foreign operations. Major international selling regions included South East Asia, Middle Eastern countries, the USA, Canada, and Europe. In terms of industrial focus, our sample represented a range of low and medium technology manufacturing industries. Largest groupings of firms were in textiles (29 per cent), pharmaceuticals (14 per cent), metal products (14 per cent), electrical equipment (11 per cent) and automotive components (11 per cent). We compared our sample with the industrial structure of each country with data obtained from the United Nations Industrial Development Organization (UNIDO) industrial statistics database. Our sample covered 59 per cent of Indian and Pakistani manufacturing industries. This comparison is shown in Table 1. Thus the industries in our sample provide an adequate representation of the major manufacturing and exporting activities of firms from both these countries. TABLE 1.

Sample Characteristics

Characteristics

Indian firms

Pakistani firms

Total sample

Firms’ attributes Numbers of firms Sell under own brands Average number of foreign markets Average % of sales in foreign markets Average % of profits in foreign markets

54 78% 9 34% 30%

39 80% 5 74% 60%

93 79% 7 50% 43%

Foreign markets’ attributes Main foreign markets (% of firms selling in each) Africa Europe

39% 46%

26% 36%

33% 42%

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TABLE 1.

Continued.

Characteristics

Middle East Russia and Central Europe South East Asia South America USA and Canada Focal product technology group’s attributes Average focal product technology group as % of sales Average focal product technology group as % of profits

Indian firms

Pakistani firms

Total sample

59% 24% 69% 24% 43%

51% 26% 56% 13% 44%

56% 25% 63% 19% 43%

65%

48%

61%

57%

27%

51%

Industrial focus of sample firms

Indian firms

% of Indian Pakistani % of Pakistani Total manufacturing firms manufacturing sample

Auto components Bonding materials Chemicals Electrical equipment Fabricated metal products Food Leather products Machinery and equipment Paper containers Pharmaceuticals Surgical instruments Textiles Total

13.0% 1.9% 9.3% 13.0%

2.9% N.A. 7.6% 5.3%

7.7% 0.0% 0.0% 7.7%

3.5% N.A. 8.5% 7.7%

10.5% 1.1% 5.4% 10.8%

20.4%

19.8%

5.1%

0.7%

14.0%

0.0% 0.0% 3.7%

6.5% 0.6% 7.1%

2.6% 5.1% 0.0%

15.2% 0.8% 1.6%

1.1% 2.2% 2.2%

3.7% 22.0% 3.7%

1.5% 8.6% N.A.

0.0% 2.6% 12.8%

1.6% 7.7% 0.3%

2.2% 14.0% 7.5%

9.3% 100.0%

5.8% 65.7%

56.4% 100.0%

23.5% 71.1%

29.0% 100.0%


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Scale Development We developed scales and items based upon the conceptual domain of our focal constructs. First, we conceptually defined each construct. Second, we developed items that would serve as indicators of that domain. Concurrently, we reviewed relevant literature and initially identified a pool of items for each construct. Third, these items were reduced in number through correlational analysis of a subset of the data from initially completed survey instruments. Fourth, we conducted exploratory factor analyses to identify items that loaded on each construct and then verified that these items corresponded with the conceptual definition of the construct. Finally, we conducted exploratory factor analyses and calculated reliabilities for each scale. Performance. EMF performance was measured using a scale consisting of eight items. Our items focused on the impact of a focal product technology on creation of new products, improvements in existing products, sales and profit growth, market share growth, customer satisfaction levels, return on investment, and speed to market. We used five-point Likert scale items to capture these aspects of firm performance. We collected subjective data for this scale because performance information in EMFs is closely guarded for reasons stated earlier. Chandler and Hanks (1993) have argued that in such situations managerial self-reports on performance are acceptable proxies, and are closely correlated with objective performance measures (Dess and Robinson, 1984). Reliability for this scale was measured using coefficient alpha (α = 0.89). Principal component analysis revealed a single factor with an eigenvalue of 4.58 accounting for 57 per cent of the variance and having factor loadings ranging from 0.64 to 0.86. Organizational learning. In accordance with our conceptual definition, we measured this construct by using three Likert scale items indicating whether solving problems associated with the focal product technology had improved the ability to incorporate focal new technology into manufacturing processes, and to what extent operational problems had been solved. We also tapped into the actions—outcomes association formation aspect of organizational learning by asking whether employees

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had developed new skills because of employing this new technology. Reliability for this construct was 0.73 and a principal component analysis showed one factor with an eigenvalue of 1.96 which accounted for 65 per cent of the variance. Factor loadings on this component ranged from 0.71 to 0.90. Reverse engineering. This scale consisted of four items. Two of these items examined the extent to which new product development was influenced by competitors and customers (Von Hippel, 1988). Further, we ascertained if competing products were disassembled with aims to learn product and process knowledge that underpinned these products (Kim, 1997). Finally, we asked if the focal firm’s new products were based upon designs and technology of competing products (Samuelson and Scotchmer, 2002). Reliability for this scale was 0.76. A principal component analysis of these four items yielded a single factor that had an eigenvalue of 2.37 that accounted for 59 per cent of the variance. Factor loadings for items for this scale ranged from 0.58 to 0.83. Manufacturing flexibility. In measuring this construct we focused on two aspects: inventory reductions and creation of volume flexibility. Two items representing inventory reduction focused on the extent to which raw material and in-process inventories were reduced using new processes. Two additional items asked if the focal firm’s plants could shift between low and high production volumes easily and quickly. Reliability for this scale was 0.75. A principal component analysis of items associated with this scale showed a single factor with an eigenvalue of 2.32 that explained 58 per cent of the variance. Loadings on this factor ranged from 0.56 to 0.88. Input supporting government policies. This construct focused on the role played by TDIs in helping EMFs identify, select and implement focal product technologies. Accordingly, we had three items that asked questions about the level of TDI support in identifying and selecting focal technologies from available options and help in technology implementation. Since these items were stated in the negative, i.e. TDIs did not help, they were reverse-coded before further analysis. Reliability for this scale was 0.92. Principal component analysis revealed one factor with loadings greater than 0.50 and an eigenvalue of 2.61. This factor


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accounted for 87 per cent of the variance and had loadings ranging from 0.90 to 0.95. Marketing supporting government policies. To measure government support in EMFs’ marketing activities, we used eight items that asked questions about the extent of government support in sponsoring quality inspections for exported products, help in market research, customer contacts and distribution, and aid in attending trade and export events. Reliability for this scale was 0.88. Factor analysis showed a single factor with loadings exceeding 0.50. This factor had an eigenvalue of 4.41 and explained 55 per cent of the variance. Loadings on this factor ranged from 0.53 to 0.84.

Addressing Validity and Common Method Bias Estimation of discriminant validity of constructs was first carried out by examining average correlations of intra-construct items as a “within” correlation and the average correlation between each construct’s items with each other construct’s items as a “between” correlation. The intraconstruct correlations were higher than the between correlations, providing an estimate of discriminant validity of the constructs in our study. We also conducted a confirmatory factor analysis (CFA) of our measurement model. This six-factor CFA model included items for our hypothesized theoretical constructs: organizational learning, reverse engineering, manufacturing flexibility, input supporting government policies, marketing supporting government policies, and performance. Each item was allowed to only load on one construct for which it was an indicator. Item loadings were as hypothesized and were significant (all except one at p < 0.001, the remaining one at p < 0.01). Results indicated that a six-factor model fitted the data moderately well (χ2 = 412.86, df = 347, p < 0.001, GFI = 0.79, AGFI = 0.72, CFI = 0.96, IFI = 0.96).6 The GFI and AGFI index values were interpreted in the context of a relatively small sample size ( 0.10). We discuss plausible theoretical reasons for this lack of support for Hypothesis 5 in the next section.

DISCUSSION This study is one of the first steps in developing the dynamic capabilities perspective for emerging market firms. In this regard, we developed and


TABLE 4.

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(b) Regression Results on Firm Performance (Manufacturing Flexibility × Marketing Supporting Government Policies as Moderator) Model 4

Independent variables

β

S.E.

Country 0.06 0.24 Industry –0.07 0.01 Percentage of 0.15 0.42 sales in foreign markets Percentage of –0.13 0.45 profits in foreign markets Number of –0.01 0.01 foreign markets Organizational 0.31 0.08 learning Reverse engineering 0.38 0.10 Manufacturing 0.32 0.09 flexibility Input supporting –0.19 0.10 government policies Organizational 0.22* 0.11 learning × Input supporting government policies Marketing supporting –0.05 0.10 government policies Manufacturing flexibility × Marketing supporting government policies 0.00 ∆R2 ∆ F value –0.67 0.46 R2 0.39 Adjusted R2 F 6.37*** Notes: N = 93. * p < 0.05, ** p < 0.01, *** p < 0.001.

Model 5

t

β

S.E.

t

0.51 –0.83 1.05

0.06 –0.07 0.15

0.24 0.01 0.43

0.51 –0.82 1.01

–0.85

–0.13

0.45

–0.83

–0.07

–0.01

0.01

–0.07

3.57***

0.31

0.08

3.54***

3.69*** 3.39***

0.38 0.32

0.10 0.09

3.66*** 3.27**

–1.93*

–0.19

0.10

2.34*

0.22

0.11

–0.05

0.10

–0.50

0.00

0.08

–0.02

–0.52

0.00 –0.60 0.46 0.38 5.77***

–1.84 2.24*

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tested a conceptual framework of dynamic capabilities, relevant to EMFs, and their association with firm performance. We also modelled and tested the role of the use of two categories of government support mechanisms by EMF managers—input supporting and marketing supporting policies—in catalysing firm-efforts in capability building. A central contribution of our study is the identification, conceptualization and testing of EMF context-specific dynamic capability mechanism (Collis, 1994). Although previous research on EMFs has focused on weak R&D as a primary attribute of these firms (Wells, 1983), our findings show that dynamic capability mechanisms different from internal product and process R&D are operative, and linked to superior performance in these firms. Specifically, fostering reverse-engineering, creating manufacturing flexibility, and implementing experiential organizational learning contribute towards enhanced performance. These findings are supportive of earlier assertions that dynamic capabilities vary across contexts but also have general attributes, are composed of routines in moderately dynamic markets, and are rooted in the initial resource conditions faced by firms (Collis, 1994; Eisenhardt and Martin, 2000). Recently researchers have started to delineate the importance of looking beyond the firm level to understand origins of firm capabilities (Dosi et al., 2000). Public policies and programmes can be important external catalysts for developing firm capabilities (Helfat and Peteraf, 2003). Especially in emerging economies, governments are important participants in business and powerful influencers of economic activity (Austin, 1991). Findings from this study suggest that managerial use of government support on the inputs side in identifying, selecting and implementing new technologies when combined with firm-level organizational learning will have a synergistic impact on firm performance. This result provides preliminary support for the catalysing role played by TDIs across many emerging economies. We also hypothesized a synergistic relationship between manufacturing flexibility and marketing supporting government policies. However, we were unable to find support for this hypothesis. Coordinating marketing and operations capabilities effectively, though normatively desirable, has been a challenge even within business organizations. Thus such coordination at multiple levels—government agencies and EMFs—may be even harder to achieve. Another plausible reason for this lack of support may be


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that marketing support government policies, as defined in the present study, include a range of activities such as export financing, quality inspections, market research and foreign market distribution support. Because different government departments administer policies, weak coordination across departments may lead to inefficacy of policy implementation. Effective coordination of public policy programmes has historically been a noticeable weakness of emerging economy governments (Evans, 1995). It is possible that the governments of India and Pakistan do offer marketing support for domestic firms that operate internationally, through a proliferation of government departments and agencies, but are unable to coordinate efforts in ways that build upon the manufacturing flexibility of these firms. Our study also makes two methodological contributions. First, we have shown that it is possible to conceptualize and operationalize dynamic capabilities, which are fundamentally routines-based organizational processes oriented towards adaptation in changing environments (Nelson and Winter, 1982). Second, we have developed new reliable scales that tap into the conceptual domains of dynamic capability mechanisms and government support policies. There has been considerable debate on whether organizational capabilities are observable (Eisenhardt and Martin, 2000). Recent conceptual work has pointed out that a routines-based view of dynamic capabilities, making such capabilities observable, allows furthering empirical research in this domain (Jacobides, 2006; Winter, 2003). This study both conforms to this view and takes a step towards its initial validation as an empirical approach.

LIMITATIONS This study also had many limitations. Our data were self-reported accounts of middle level managers. Although we used interviewer training, interviewing and detailed accounts of activities, to reduce informant bias, such sources of bias cannot be ruled out as a possibility. We developed new measures for our focal constructs. Although we have attempted to ascertain the validity and reliability of these measures, given that our research design was cross-sectional, further elaboration, testing

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and validation of these measures is required. Our performance measure encompasses both operational and financial dimensions of growth related to new product technology implementation; development of finer-grained performance measures would have led to stronger content, discriminant, and convergent validity for the dependent variable. Furthermore, use of objective performance measures, if available, would have increased the strength of our conclusions. Given the cross-sectional nature of our research design, we were only able to show association rather than causality between dynamic capability building mechanisms and performance. Finally, our sample size was both relatively small and non-random. Interpretation of the results of this study should be underpinned by the assumption that this was a convenience sample and that our focus on firms with some export sales may have biased the sample towards higher performing firms in emerging economies.

CONCLUSION Despite the limitations of our study, we have taken a first step in developing and testing a conceptual model of dynamic capabilities in emerging economies. This research has practical implications for both firm managers and policy makers in emerging economies. Firm managers can gain from our results by identifying and fostering dynamic capabilities, thereby leading to better adaptation to liberalization induced environmental changes. Policy makers can use our findings to adjust government support mechanisms in ways that they synergistically combine with firm capabilities. Our research can be extended in at least three directions. First, future research can theoretically extend our model by identifying country, industry and firm variables that are antecedent to the dynamic capability development mechanisms identified in our model. Additionally, linking dynamic capabilities to finer grained measures of performance would also provide theoretical insights into the work initiated in this study. Second, understanding of the historical development, internal architecture, role and performance impacts of dynamic capabilities requires longitudinal study. Developing process models of each of these dynamic capability mechanisms would provide deep insights into how EMFs


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incorporate new technologies in enhancing performance. Third, the role of governments and external network connections in fostering firm capabilities is gaining more research attention. Research focused on the evolution and performance impacts of specific policy and programme initiatives will further knowledge of how governments can shape firm capabilities in emerging economy contexts. Finally, questions related to industry and firm heterogeneity in capabilities and performance offer additional avenues of research in this domain. As emerging economies display rapid growth rates, answering questions of why some firms renew and grow while others persist in low performance will provide greater understanding of firm-level adaptation.

ACKNOWLEDGMENTS We thank Tom Brush, Andrew Delios, and our three reviewers for helpful comments on earlier versions of this article.

NOTES 1

2

3

4 5

As pointed out by one of our reviewers, this is a narrow conceptualization of government catalyst programmes used to aid firm capability building. However, this form of government intervention is commonly observable across many emerging economies, and similar interventions have been attributed with relative success in newly industrialized countries (Amsden, 1989, 2001). Predominant focus on exploitation would lead to competency traps, where firms continue to stay with exploitation-based activities because of lack of resource allocation towards explorative activities (Levitt and March, 1988). We thank an anonymous JMS reviewer for pointing out this implication of this type of organizational learning. The relative efficacy of reverse engineering would vary across institutional contexts. Legal regimes vary across states, and what may or may not be reverse engineered, and the extent of allowable reverse engineering would vary across states. We thank an anonymous JMS reviewer for pointing this out. In this sense, reverse engineering is a lower cost and low risk exploration mechanism. Logically, it would be possible for TDIs to aid in firm reverse engineering efforts. However, our definition and operationalization of the reverse engineering construct is focused on knowledge spillovers from customers, competitors and competing foreign products, whereas our definition and operationalization of input supporting government policies is narrowly focused on government support in identifying, selecting and implementing new

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6


product technologies. Given these definitional and operational constraints, we did not hypothesize an interaction effect between EMF reverse engineering and input supporting government policies. Furthermore, given recent efforts at strong enforcement of Intellectual Property Rights regimes in many emerging economies, governments may be hesitant to directly support firm reverse engineering efforts. GFI, goodness-of-fit index; AGFI, adjusted goodness-of-fit index; CFI, comparative fit index; IFI, incremental index of fit.

APPENDIX: SCALES AND ITEMS FOR CONSTRUCTS (All items were measured on a five-point scale on which 1 was “strongly disagree” and 5 was “strongly agree”.)

α = 0.89) Performance (α        

The use of this product technology has allowed us to create new products. The use of this product technology has allowed our company to offer modified or improved products to our customers. The use of this product technology has led to sales growth for our company. The use of this product technology has led to growth in profits for our company. We have increased our market share by using this product technology. Our customers are more satisfied as a result of our employing this product technology. Our return on investment has improved because of using this product technology. Our speed of getting new products to market has increased because of using this product technology.

α = 0.73) Organizational Learning (α 

Solving problems with this new technology has improved our ability to incorporate this new technology into our manufacturing process.


 

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Most of the implementation problems associated with this new technology have been solved. Our engineers and manufacturing workers have built new skills using this new technology.

α = 0.76) Reverse Engineering (α  

 

We look towards our foreign competitors for ideas to develop new products. Our engineers have often bought competing products and disassembled them in order to understand the technologies and manufacturing practices underpinning these products. Some of our new product ideas have come from foreign customers. We have developed new products based upon the design and technology of competing foreign products.

α = 0.75) Manufacturing Flexibility (α    

We have attempted to reduce our raw material inventories by using new inventory management processes. We have attempted to reduce our in-process inventories by using new inventory management processes. Plants owned by this company can change from low volumes of production to high levels of production easily and quickly. Plants owned by this company can change from high volumes of production to low levels of production easily and quickly.

Input Supporting Government α = 0.92) Policies (α (All three items for this construct were reverse-coded.) 

Government technology development institutes did not play any role in helping us identify this technology.

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




Government technology development institutes did not play any role in helping us select this technology from various available technology options. Government technology development institutes did not play any role in helping us implement this technology.

Marketing Supporting Government α = 0.88) Policies (α       

Our national government offers financial incentives to exporting firms. Our national government has instituted a series of quality inspections and certification processes that help exporting companies. Our government helps in conducting market research in foreign countries. Our government helps in obtaining commercially available market research about foreign markets. Our government has helped us obtain foreign customers for our products. Our government has helped with distributing our products in foreign countries. Our government has offered this company financial or material support for attending trade shows and export fairs.

All the government support methods mentioned in this section (Marketing Supporting Policies) are available to our competitors as well as other industries.

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Chapter 2.2

A “Strategy Tripod” Perspective on Export Behaviors Evidence from Domestic and Foreign Firms Based in an Emerging Economy Gerald Y. Gao, Janet Y. Murray, Masaaki Kotabe, and Jiangyong Lu

INTRODUCTION Exporting, as opposed to other modes of foreign market entry, is the quickest and easiest way for firms to penetrate foreign markets and engage in internationalization (Johanson & Vahlne, 1977, 1990; Root, 1994). It requires fewer organizational resources, provides greater flexibility for managerial actions, and involves lower business risks than other modes of entry such as licensing and equity investment (Leonidou, Katsikeas, Palihawadana, & Spyropoulou, 2007). Globalization and the rapid growth of international trade have further made it imperative for firms to seek opportunities for market expansion. Governments in emerging economies have increasingly provided incentives for both local and foreign-invested firms to actively export and compete in foreign markets (Aulakh, Kotabe, & Teegen, 2000; Kotler, Jatusripitak, &

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Maesincee, 1997; Luo, 2000). Given that many firms from emerging economies lack experience in marketing their products abroad, it is imperative for them to comprehend the impetus for export behaviors and, more importantly, the outcomes of such behaviors. However, there have been few empirical studies conducted on export behaviors of firms from emerging economies or the performance implications of such behaviors (e.g., Aulakh et al., 2000). This represents a notable research gap in exporting. There have been many empirical studies conducted on the determinants of export performance (Fernández & Nieto, 2006; Filatotchev, Dyomina, Wright & Buck, 2001; Zhao & Zou, 2002; for a review, see Aaby & Slater, 1989; Zou & Stan, 1998). At the macro level, researchers have investigated variables including comparative advantage, government policies, exchange rate fluctuations, and domestic market characteristics. Micro-level research focuses on factors including export strategies, managerial perceptions and attributes, firm resources, and firm capabilities/competencies. Although studies that have examined export performance using the developed nation context are abundant, much of the knowledge regarding successful export performance is fragmented, often resulting in inconsistent findings. In rectifying such a deficiency, Aaby and Slater (1989) proposed an integrative model of export performance in synthesizing export knowledge. However, their literature review focused only on factors closely related to managerially controllable variables, thus omitting the effects of external environmental factors on export performance. In an effort to better synthesize and assimilate the fragmented knowledge on export performance, and to overcome the weaknesses pointed out in previous reviews, Zou and Stan (1998) conducted a review of the empirical literature on export performance by including both internal and external determinants of export performance. Specifically, internal determinants are informed by the resource-based view, whereas external determinants are supported by industrial organization theory. Despite the excellent efforts by these researchers in reviewing and synthesizing the export performance literature, they have assumed institutions as “background” (Peng, Wang, & Jiang, 2008). This represents a serious shortcoming, as institutions in emerging economies differ drastically from those in developed countries (Seligman, 1999;

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Shenkar, 2005). The role of institutions is more salient in emerging economies because the rules are being fundamentally and comprehensively changed, and the scope and pace of institutional transitions are unprecedented (Peng, 2003). Indeed, as institutions in emerging economies significantly shape the strategies and performance of both domestic and foreign-invested firms, omitting institutional environments in examining the drivers of export behaviors and performance has seriously limited our understanding of exporting. In our study, therefore, we address two questions: (1) Does the institutional environment affect export behaviors of firms based in emerging economies, above and beyond resource- and industry-based factors? (2) What are the effects of firms’ export behaviors on firm performance? We attempt to correct the deficiencies in the extant literature on exporting by addressing these two questions based on the “strategy tripod” perspective introduced by Peng (2006) and Peng et al. (2008). We contribute theoretically to the extant literature on exporting by integrating the resource-, institution-, and industry-based views in examining the factors that influence a firm’s export propensity (whether firms export or not) and export intensity (export sales as a percentage of total sales), and their relationships with firm performance. We tested these relationships by empirically using a 4-year comprehensive longitudinal data set from China. In response to Wright, Filatotchev, Hoskisson and Peng’s (2005) call for research on comparing domestic and foreign firms’ strategies in emerging markets, we included both domestic private enterprises and foreign wholly owned subsidiaries based in China, and compared export behaviors between these two types of firms. We chose China as the research context for the following reasons. Since China liberalized its economy for trade and investment in the late 1970s, it has risen as a globally influential economic powerhouse. With an annual growth rate of approximately 10% in the last two decades, China now ranks as one of the world’s largest economies and trading partners for many major economies, including the EU, the US, and Japan. Worldwide exports reached US$13.7 trillion in 2007, and China became

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the largest exporter, with US$1.22 trillion in exports, surpassing the United States with US$1.14 trillion (CIA, 2008). Many Chinese firms have pursued internationalization, and the Chinese government has adopted a flexible and practical approach to govern these firms’ international initiatives (Liu & Li, 2002), thus providing a unique institutional environment for exporting. Likewise, many foreign-invested firms have established manufacturing operations in China to capitalize on its high economic growth, huge market size, and low labor cost. Consequently, China has become an excellent sourcing and exporting platform, and a marketing location for both Chinese and foreign firms to improve their firm performance. Thus the Chinese market provides an excellent research context to capture the complexity of exporting using the “strategy tripod” perspective.

THEORETICAL FOUNDATION AND HYPOTHESES DEVELOPMENT There exist several studies examining firms’ export behaviors and strategies in China. Researchers have investigated the determinants of firms’ export behaviors indicated by export propensity and export intensity (Buck, Liu, Wei, & Liu, 2007; Zhao & Zou, 2002) and the effects of different product strategies and capabilities on export performance (Brouthers, O’Donnell, & Hadjimarcou, 2005; Brouthers & Xu, 2002; Zou, Fang, & Zhao, 2003). However, more studies have examined the effects of internal, as opposed to external, factors on firms’ export behaviors (Zou & Stan, 1998). In particular, institutional environment factors have mostly been neglected in the extant literature, despite the fact that institutional factors have a direct effect on firms’ behaviors and strategic choices, especially in emerging economies that are experiencing drastic institutional changes (Peng, 2003; Peng et al., 2008). We summarize the major findings of studies on firms’ export behaviors and strategies in China in Table 1. In using an emerging economy as a new empirical context to test and extend existing theories, it is imperative that IB researchers strive to contribute to the theoretical development of the overall field of business disciplines and social sciences (Meyer, 2006, 2007; Peng et al., 2008).


TABLE 1.

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A Summary of Studies of Export Strategy in China

Studies

Sample

Brouthers and Xu Survey data of 88 Chinese export (2002) companies located at developed and coastal provinces

Zhao and Zou (2002)

Secondary data of 1649 Chinese manufacturing firms from China’s Leading Companies

Zou et al. (2003) Survey data of 176 product–market export ventures of 50 companies located at an eastern province of China

Key findings (1) Performance satisfaction decreases when Chinese exporters pursue price leadership product strategies and increases when they pursue branding product strategies. (2) Chinese exporters can significantly increase performance satisfaction when using branding product strategies and targeting other less-developed countries. (1) Chinese manufacturing firms’ export propensity and intensity are significantly lower in a highly concentrated industry than in a less concentrated industry. (2) Firms located in coastal areas have higher export propensity and intensity than firms located in inland areas. (1) Export marketing capabilities including distribution, communication, and product development capabilities have significant effects on financial performance of export ventures. (2) Low-cost and branding advantages mediate the relationship between export marketing capabilities and export financial performance.

Brouthers et al. (2005)

Survey data of 68 Chinese and 33 Romanian exporters

(1) Exporters from emerging markets can imitate the home country MNEs’ generic product strategies in Triad nations. (2) Exporters that successfully fit host country strategies achieve high levels of satisfaction with export performance.

Buck et al. (2007)

Secondary panel data of 7697 Chinese firms in 1998–2001

(1) Multinational enterprises in China positively affect local Chinese firms’ export behaviors. (2) FDI from Hong Kong, Macau, and Taiwan generates a stronger effect on export propensity than FDI from OECD countries.

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Research focusing on an emerging economy can help lead to the emergence of an institution-based view of strategy, in conjunction with the traditional resource- and industry-based views (Peng, 2006; Peng et al., 2008). The rise of the institution-based view as an influential theoretical tool is an outcome of Kiggundu, Jørgensen, & Hafsi’s (1983) call for new theoretical tools to capture the complex and rapid change in the organization–environment relationships in emerging economies. In using a “strategy tripod” (i.e., resource-, institution-, and industry-based) perspective, we contribute to the theory building of exporting research. Based on these paradigms, we developed hypotheses in examining the determinants and performance outcomes of firms’ export propensity and export intensity in an emerging economy. Our conceptual model is presented in Figure 1. The resource-based view focuses on the origins of firms’ competitive advantage, and addresses why firms in the same industry vary systematically in performance over time (Barney, 1991; Teece, Pisano, & Shuen, 1997; Wernerfelt, 1984). According to the resource-based view, firms accumulate both tangible and intangible resources that represent the ultimate sources of competitive advantage (Barney, 1991; Collis, 1991; Zou et al., 2003). This perspective focuses on the internal factors of

Resource-based view Cost leadership competencies Differentiation competencies

Institution-based view Free market mechanism development Intermediate institutions development

Export behaviors Export propensity Export intensity

Industry-based view Industry export orientation Industry instability

FIGURE 1

A “Strategy Tripod” Perspective

Firm performance


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firms, thus complementing the traditional emphasis of strategy on industry structure and strategic positioning within the industry as the determinants of competitive advantage (Eisenhardt & Martin, 2000; Porter, 1980). It assumes that resources are heterogeneously distributed across firms, and that resource differences persist over time (Wernerfelt, 1984). The two types of resources that are necessary for creating competitive advantages are assets and capabilities (Day, 1994; Zou et al., 2003). Assets are a firm’s accumulated resource endowments (e.g., investments in the facilities). Capabilities (or competencies) are a firm’s accumulated knowledge and skills that enable the firm to coordinate activities by deploying its assets advantageously (Day, 1994; Zou et al., 2003). Thus the resource-based view stresses that firms with superior systems and structures have better performance. This is the case not because firms make strategic investments that may deter entry and raise prices above long term costs, but rather because they have substantially lower costs, or offer substantially higher quality or product performance (Teece et al., 1997). Based on the resource-based view, a firm’s internal competencies drive its export behavior, which in turn affects firm performance. In the extant literature on exporting, firm resources and competencies that have been used include R&D activity and uniqueness of product (Schlegelmilch & Crook, 1988) and technological intensity (Aaby & Slater, 1989) to measure differential advantages and resources; Aulakh et al. (2000) have also used cost leadership and differentiation in examining export performance. In our study, we examined cost leadership and differentiation competencies as a firm’s internal competencies that are related to export propensity and export intensity (Aulakh et al., 2000). Defined as “the rules of the game” (North, 1990; Scott, 1995), institutions exhibit significant legitimacy pressures for firms, and directly affect firms’ strategic choices and performance consequences (Hoskisson, Eden, Lau, & Wright, 2000; Peng, 2003; Peng et al., 2008; Wright et al., 2005). The institution-based view asserts that firms sharing the same environment will adopt similar practices, thus becoming “isomorphic” with each other. Driven by legitimacy motives, firms conform to institutional pressures (DiMaggio & Powell, 1983; Kostova & Roth, 2002). Broadly speaking, institutions can be classified as formal and informal ones that guide societal transactions in the areas of politics, law,

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and society. The institution-based view focuses on the interplay between institutions and organizations, and considers strategic choices as the outcomes of such interplay. Specifically, in addition to industry conditions and firm competencies, formal and informal constraints of a particular institutional environment that managers encounter also drive their strategic choices (Peng et al., 2008). In other words, institutions determine directly how firms formulate and implement strategy that creates a competitive advantage (Ingram & Silverman, 2002; Peng et al., 2008). As profound differences in institutional frameworks exist between emerging and developed economies (Peng et al., 2008), it is critical to include the institutional environment when examining firms’ export behaviors and export performance in an emerging economy such as China. In our study, we used free market mechanism development (represented by market-determined prices and the reduction of local protectionism) and intermediate institutions development (represented by market intermediaries development, consumer rights protection, and intellectual property right development) as factors for institutional environment in China, as these are often regarded as the two most important indicators for the business environment in emerging economies. The industry-based view, pioneered by Porter (1980), stresses that the key principle of competitive strategy formulation is a firm’s relationship to its environment, represented by the industry in which it competes. In other words, external factors determine the firm’s strategy, which in turn affects its performance (Scherer & Ross, 1990). Thus the external environment exerts pressures to which a firm must adapt to survive and prosper (Collis, 1991). While firms’ dependence on the external environment poses constraints on their strategic choices, they can manage their dependence by developing appropriate competitive strategies. Firms develop and implement competitive strategies in an attempt to alter their position in the industry vis-à-vis competitors and suppliers. Hence industry factors play a critical role in determining and limiting a firm’s strategic behavior (Teece et al., 1997). Based on this rationale, the industry factors are the primary determinants of a firm’s export behaviors (Cavusgil & Zou, 1994; Zou & Stan, 1998). Various industry factors have been used in the extant literature on exporting, for example industry export intensity (Naidu & Prasad, 1994), industry


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export orientation (Campa & Goldberg, 1997), and industry instability (Sakakibara & Porter, 2001). In our study, we examined industry export orientation and industry instability as industry factors that are related to export behaviors.

Firm Competencies The resource-based view suggests that a firm can gain a competitive advantage through deploying its valuable, rare, inimitable, and nonsubstitutable resources (Barney, 1991). Performance differences between firms result not only from the control of idiosyncratic resources, but also from competencies that combine and transform available resources into superior customer value (Barney, 1991; Day, 1994). Firms can develop competitive competencies with respect to competitors in a specific industry through the strategies either of cost leadership or of differentiation (Porter, 1980, 1985). The literature has provided supportive evidence for the link between these two competitive strategies and firm performance (e.g., Aulakh et al., 2000; David, Hwang, & Pei, 2002; Spanos, Zaralis, & Lioukas, 2004). Consistent with those previous studies, we define firms’ realized competencies along the dimensions of cost leadership and differentiation, which reflect an observable pattern of strategic resources deployment (Mintzberg, 1978). Firms pursuing a cost leadership strategy aim to enhance performance and increase market share based on competitive advantages through a low-cost position relative to their rivals. In order to achieve cost leadership competencies, firms have to outperform their competitors in activities of producing, selling, and delivering goods and services to customers by providing consumer value at lower costs. Cost leadership competencies require large-scale production facilities, rigorous process improvements, cost reduction through experience, cost control, and cost minimization in R&D, advertising, sales, and services. Because of the ability to match competitors’ offerings at lower prices, firms with realized cost leadership competencies can achieve above average returns (Porter, 1980, 1985). Firm characteristics and competencies are considered as important determinants of export behaviors (Zou & Stan, 1998). If firms’ domestic

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competitive competencies enable them to engage in exporting, they can leverage such strengths in international markets. For example, Salomon and Shaver (2005) have found that domestic and export sales are complements for Spanish-owned firms, and their strengths in the domestic market drive export sales. Moreover, firms with cost leadership competencies can rely on their domestic competitive advantages to compete in international markets. Therefore we expect that firms from China that have developed cost leadership competencies in the domestic market are more likely to become exporters and have higher export volumes. Hence we hypothesize: Hypothesis 1: Cost leadership competencies are positively related to (a) the export propensity and (b) the export intensity of a firm. Firms pursuing differentiation strategies emphasize producing a good or a service that customers perceive as unique and are willing to pay a premium price for (Porter, 1980, 1985). Differentiation strategies can be realized through creating strong brand equity, continuous innovation, advanced technology, and superior customer service. To implement such a strategy, firms have to make investments in costly activities such as extensive R&D, product design, and brand development. If firms can successfully differentiate themselves from rivals in the marketplace, they can enjoy above-market prices, because differentiation strategies can create high customer loyalty. Firms can achieve competitive advantages through differentiation strategies, which in turn enhance firm performance. Moreover, compared with advantages through cost leadership, differentiation advantages are more difficult for competitors to imitate and hence are more likely to be sustained (Barney, 2002). In the exporting literature, researchers have found that technology level or R&D intensity are positively associated with export propensity (e.g., Benvignati, 1990). However, findings of the impact of technology on export intensity are inconsistent, with some studies reporting positive effects whereas others report insignificant or even negative effects (cf. Aaby & Slater, 1989; Zou & Stan, 1998). Despite the inconsistency, researchers have suggested that firms can make investment in R&D in order to innovate for foreign markets (Kuemmerle, 1999). Firms with realized differentiation competencies are better equipped to compete in


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the export market. Firms’ ability to apply their differentiation competencies to export markets affects their export behaviors. Hypothesis 2: Differentiation competencies are positively related to (a) the export propensity and (b) the export intensity of a firm.

Institutional Environment Institutions significantly shape firms’ strategy and behaviors, because of their salient role in emerging economies, and consequently we posit that firms’ export behaviors may be stimulated or deterred by the institutional environment. As the largest emerging economy, China has been experiencing the change from a centrally planned to a market-based economy through liberalization and privatization, accompanied by institutional transitions in political systems, legal frameworks, and market structures (Child & Tse, 2001; Peng & Heath, 1996). Because the institutional transition is far from complete in China, formal institutions including legal system and regulations remain weak, while informal institutions still play a significant role in driving firm behaviors (Chen & Chen, 2004; Luo, 2000). Firms can face serious institutional difficulties because of government control and the imperfection of the market mechanism (Nee, 1992). In addition, the central government has delegated some authority to lowerlevel governmental units, so provincial governments can formulate policies to govern business operations. For instance, the provincial government usually controls key resources, including raw materials and energy. Since the Chinese government exercises control over firms’ operations and management in terms of resource distribution, investment size, bank loans, and strategic organizational changes, firms operating in China opt for developing relationships with both central and provincial government officials and legislators, who have the power to ratify projects, allocate resources, arrange financing, supply raw materials, and provide opportunities that are vital to firms’ growth (Luo, 2000). Institutional changes are expected to foster more transparent rules of the game and increase market efficiency. As predicted by Peng (2003), there will be a longitudinal process from a relationship- to a

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market-based structure. Because of the institutional transition in China, many barriers for business operations have gradually been removed. However, the extent of the transition to the market economy still varies between different locations and industries. The development of a free market mechanism increases the efficiency of market transactions and resources allocation in the industry, which is helpful for firms in achieving economies of scale nationally. Firms’ dependence on government relationships to secure resources can be reduced (Child & Tse, 2001). Moreover, the development of intermediate institutions also reduces the transaction and agency costs and uncertainties for firms. Firms would then rely less on bureaucrats for contract enforcement and dispute settlement (Walder, 1995). Therefore an improved institutional environment can foster a better overall business environment and facilitate firms’ export behaviors. Hypothesis 3a: The development of free market mechanisms is positively related to (a) the export propensity and (b) the export intensity of a firm. Hypothesis 3b: The development of intermediate institutions is positively related to (a) the export propensity and (b) the export intensity of a firm.

Industry Factors Firms often imitate the export behaviors of other firms within the same industry. First, firms can gain benefits from exporting by enjoying economies of scale, revenue diversification, and larger market powers. Other firms exporting to foreign markets may serve as an important signal of export attractiveness. Moreover, exporting firms can create external economies and information spillover, which in turn reduce the costs of exporting. Second, an industry is an organizational field providing relevant information about the characteristics and behaviors of firms. Firms usually observe and follow their competitors’ behaviors in the same industry because the decisions and actions by competitors increase the legitimacy of similar actions (Guillén, 2003; Scott, 1995). The desire to conform to


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the established norms often leads to inter-organizational mimetic behaviors (DiMaggio & Powell, 1983). The oligopolistic reaction theory suggests that firms pursue follow-the-leader strategies in locating foreign investments (Knickerbocker, 1973). The literature has provided empirical evidence about mimetic behaviors in entry mode decisions in foreign markets (Guillén, 2003), international expansions of automotive components of supplies (Martin, Swaminathan, & Mitchell, 1998), and location choices of chain acquisitions (Baum, Li, & Usher, 2000). Hence other firms’ export behaviors in the same industry serve as a reference point and subsequently increase the attractiveness of exporting. Hypothesis 4: The export orientation of an industry is positively related to (a) the export propensity and (b) the export intensity of a firm. In addition, domestic industry instability can have a direct effect on firms’ export behaviors. Industry instability measures the sum of fluctuations of the market share of each individual firm in a specific industry. When the domestic market is stable, firms may have little motivation to explore sales opportunities in the export market because export markets are comparatively riskier. Moreover, competitive pressures in the home market can keep firms actively pursuing innovation activities, which eventually produce a competitive industry in world trade (Porter, 1980, 1985; Sakakibara & Porter, 2001). Sakakibara and Porter (2001) have found a strong relationship between market instability and world export share, using a sample of Japanese firms. Salomon and Shaver (2005) have further suggested that domestic and export sales are substitutes for foreign-invested firms in Spain. In China, the transition toward a market economy has created one of the most competitive markets in the world. The rise of township and village enterprises and private enterprises brings new forces to the economy, and foreign-invested firms also exert high competitive pressures for local firms (Buckley, Clegg, & Wang, 2002; Shenkar, 2005). A number of firms have emerged as powerful competitors in the global market, including Haier, Lenovo, and Galanz. Some have become successful exporters through leveraging their competitive advantages in the domestic market (Zeng &Williamson, 2003). As the domestic

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market becomes saturated and more competitive, firms are compelled to consider exporting and search for opportunities in international markets. Hypothesis 5: Instability of the industry is positively related to (a) the export propensity and (b) the export intensity of a firm.

Performance Implications Export performance has received much attention in the exporting literature. Researchers have measured export performance in various ways, including sales, profits, and changes of performance; the most frequently used measure in previous studies is export intensity (Leonidou, Katsikeas, & Samiee, 2002; Shoham, 1998; Zou & Stan, 1998). Numerous studies have examined the determinants of export intensity. However, whether export intensity contributes to firm-level performance has attracted only limited attention. In the economics literature, previous studies have provided consistent evidence that export firms have higher levels of productivity than nonexporters (e.g., Bernard & Jensen, 2004; Greenaway & Kneller, 2004). Furthermore, researchers have found that for firms that engage in exporting activities, the knowledge gained from international markets can improve performance, measured by total factor productivity (e.g., Alvarez & Lopez, 2005; Blalock & Gertler, 2004). However, several studies have indicated a negative relationship between export intensity and firm financial performance. Ito (1997) found that export intensity had a negative effect on ROA (return on assets) for a sample of Japanese manufacturing firms in 1985. This suggests that firms may be forced to sell products abroad to maintain employment, even with lower profitability. Geringer, Tallman, and Olsen (2000) have concluded that exporting activities contribute positively to Japanese multinational firms’ performance, measured by ROS (return on sales), but only for a very limited time period. Using a sample of small- and medium-sized Japanese firms, Lu and Beamish (2001) have also found a negative relationship between export intensity and firms’ ROA. They suggested that the relationship is affected by Japanese yen appreciation, which


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significantly increased the costs of exporting. Small- and medium-sized firms were forced to lower the prices of export goods, and suffered from a diminished export margin.We posit that firms need to possess competitive advantages in the export market in order to compete for financial success. Otherwise, export behaviors may not bring benefits for firms. Hence export propensity and export intensity can contribute to better performance for firms with realized competencies in the domestic market. Hypothesis 6: (a) Export propensity and (b) export intensity are positively related to firm performance for a firm with realized competencies.

METHOD Data Our main data source is the Annual Census of Chinese Industrial Firms (2001–2005), which is conducted by the National Bureau of Statistics of China. It covers all industrial enterprises, including domestic and foreign-invested firms with at least 5 million RMB (or approximately US$676,000) annual sales. The data set provides detailed information on a firm’s identification, assets, liabilities, capital structure, financial performance, total shipments and exported shipments, among others. The number of manufacturing enterprises with valid total shipments and exported shipments information in the database varies from 152,000 to 243,000 for various years. According to the data from China statistical yearbooks, the database consistently represents approximately 70% of China’s total export during the period. The data set is suitable for studying the export strategy of firms from China for the following reasons. First, Chow (1993) has reported that census data are reliable and internally consistent for empirical studies. Studies using the data have been published in leading journals (e.g., Pan, Li, & Tse, 1999; Tan & Peng, 2003). Second, the multi-year census data enable us to employ a panel data structure to test our models. Thus we can investigate firms’ export behaviors over time, and test the dynamic causal relationship,

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which is the main advantage over static cross-sectional data (Filatotchev et al., 2001; Fitzmaurice, Laird, & Ware, 2004). Export policies in China have experienced dramatic changes for both domestic and foreign firms in the last two decades. First, the export behaviors of foreign firms in China were formerly subject to strict government controls. Since the 1980s, China has adopted policies to encourage foreign firms to establish export-oriented firms. According to the Law on Foreign-invested Enterprises of the People’s Republic of China adopted in 1986, foreign invested firms must either make investment in high technology and realize import replacement, or export at least 50% of total outputs annually. These restrictions were removed in 2001. Second, China established two separate trading regimes during the mid-1980s. Foreign firms were allowed to use direct exporting for their own products (Naughton, 1996). However, exporting of domestic firms had to be channeled through state trading companies. With China’s accession to the WTO in 2001, all firms are now entitled to obtain direct export rights, including private enterprises. In our study, we focus on domestic private enterprises and foreign wholly owned subsidiaries. Domestic private enterprises include the following types: individual invested private enterprises; joint enterprises by private investors; private limited liability corporations; and private shareholding enterprises. Domestic private enterprises usually adopt a simple and flexible structure, which enables them to select aggressive strategies and react quickly to market opportunities (Peng, Tan, & Tong, 2004). The contribution of domestic private enterprises to China’s export has increased significantly, and they accounted for 17.8% of the overall export volume in 2006. Ample evidence has demonstrated that foreign-invested firms in China have been a driving force for its economic and export growth. According to statistics provided by China Customs, foreign-invested firms produced 58.2% of the export volume from China in 2006. Therefore a study on exporters based in China is deemed not comprehensive if it excludes foreign-invested firms. We excluded SOEs from our study because the government still heavily controls SOEs’ operations and strategies. Although the government has undertaken various reforms to change the mechanism of SOEs, most SOEs in China continue to rely on the government (Peng


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et al., 2004). Moreover, SOEs’ contribution to the overall economy has dropped substantially because of the reform and privatization of SOEs in China. Although SOEs account for 32.3% of the total sales of industrial enterprises with at least 5 million RMB sales, they contributed only 19.8% of China’s export volume in 2006. In constructing a balanced panel of domestic private enterprises and foreign wholly owned subsidiaries during 2001–2005, we obtained a balanced sample of 18,644 firms. Because we used lagged firm-level variables in our models to eliminate endogeneity problems and establish casual relationships, we dropped the data of 2001. In doing so, the number of observations used in our analyses was 74,576 (4×18,644), with 49,372 domestic private enterprises and 25,204 foreign wholly owned subsidiaries.

Measurement of Variables We provide the measurement for the dependent, independent, and control variables as follows. Dependent variables. Following the literature, we used two dependent variables—export propensity and export intensity—to measure export behaviors (e.g., Fernández & Nieto, 2006; Zhao & Zou, 2002). Export propensity equals 1 if a firm exports a positive proportion of its output in a specific year, and 0 otherwise. Export intensity equals the ratio of export sales to total sales by a firm in a specific year. For the effects of export behaviors on firm performance, we used ROS. Independent variables. We measured Firm Competencies of a firm i’s competitive position along the dimensions of cost leadership and differentiation as the divergence from typical levels of the three-digit industries (MacKay & Phillips, 2005). In constructing the industry–year median, we excluded the firm itself. We divided this deviation by the range of different measures in each industry–year, thus bounding these proxies by – 1 and 1. The measures of cost leadership and differentiation competencies can be expressed as

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Cost Leadership Competenciesi,t (1)

Differentiation Competenciesi,t

(2)

where i stands for firm, j stands for industry sector, and t stands for year. Following the literature, we measured cost leadership competencies by: (1) production cost to total sales ratio; and (2) selling and administrative cost to total sales ratio (Berman et al., 1999; Nair & Filer, 2003). Small values of these numbers indicate better operational efficiency for firms. Differentiation competencies were measured by: (1) R&D intensity, which is R&D expenses divided by total sales; and (2) new product outputs to total outputs ratio (David et al., 2002; Thomas, Litschert, & Ramaswamy, 1991). In order to pursue a successful differentiation strategy, a key factor is the ability to offer innovative goods and services in the marketplace (Porter, 1980, 1985). We used two Institutional Environment indices for (1) free market mechanism development, and (2) intermediate institutions development. Because of the institutional transition and unbalanced development across different regions in China, institutional environments in different provinces are quite different. The institutional indices were developed by the National Economic Research Institute (NERI) for regional marketization level for different provinces in China. The indices reflect the development status of market trading mechanisms and other institutions in achieving more efficient market functioning. The index of free market mechanism development captures two subindices of the percentage of products with market-determined prices and the reduction of local protectionism, which affect a firm’s ability to decide where and at what price to sell their products. The index of intermediate institutions development, on the other hand, was measured by three sub-indices of market intermediaries development, consumer


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rights protection, and intellectual property right development that secure a firm’s property rights in case disputes happen while the firm is selling its products (Child & Tse, 2001). Sub-indices were computed by NERI using data from the statistical yearbooks, reports from the administration of industry and commerce, and survey data, etc. A score for each province was given based on objective measures, such as the ratio of lawyers or the ratio of accountants to the provincial population, and then normalized to a value between 0 and 10 proportionately to measure institutional conditions relative to other provinces. The NERI indices are available from 1997. We matched the index with our multiyear data. Indices beyond the base year of 1997 were relaxed from the 0–10 restriction to reflect institutional changes over time, and the final indices were weighted averages of sub-indices. The indices have been used in economics and finance studies on China (Chen, Firth, Gao & Rui, 2006; Li, Meng, & Zhang, 2006). We measured Industry Factors as: (1) industry export orientation, by calculating the percentage of exporters in a specific industry; and (2) industry instability, by following Sakakibara and Porter (2001). We constructed industry instability from the sum of individual market share fluctuations of firms in the market.

Industry Instabilityjt

(3)

where Sit is the domestic market share of the ith-ranked firm in industry j for period t, calculated for all firms available. These two variables are both at three-digit industry levels. Control variables. Following previous studies on export behaviors, we included four control variables in our analyses. Firm size was measured by the logarithm of the number of employees (Verwaal & Donkers, 2002). We also controlled for industry sales growth rate at the three-digit industry level and foreign wholly owned subsidiaries with a dummy variable (foreign subsidiaries=1, domestic firms=0). We report descriptive statistics of variables and the correlation matrix in Table 2. We checked the variance inflation factors and found that the highest value was 1.65, which indicated that multicollinearity was not a serious problem.

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0.02*** 0.01** –0.00 –0.01***

0.03 0.13

Mean SD

***p