University of South Australia A Retrospective Analysis of Marketing Strategy and Innovation Management in the Thai Export Manufacturing Industry Tanompong Best Panich B.BA. (Industrial Management), B.A. (Communication Arts), PGDipArts (Mass Communication), M.A. (Media Studies) International Graduate School of Business Division of Business University of South Australia cr eal ia, SITY OF SOUTH Al UNIVER! LIBRARY Submitted on this 1“ of April in the year 2008 for the partial requirements of the degree of Doctor of Business AdministrationDOCTOR OF BUSINESS ADMINISTRATION DISSERTATION SUBMISSION ‘SUPERVISOR APPROVAL DECLARATION Candidate Name: Tanompong Best Panich UniSA Candidate ID Number: 100053239 Dear Sir/Madam, To the best of my knowledge, the dissertation contains all of the candidate's own work completed under my supervision, and is worthy of examination. | have approved for submission the dissertation that is being submitted for examination. ne Convene a seesneeet April 2008... Dr. He du Date Principal Supérvisor, School of Marketing Supported by: M7 q Son st April 2008... Dr. Marguerite Kolar Date Chair, IGSB Doctoral Academic Review CommitteeDeclaration “Thereby declare that this paper submitted in partial fulfilment of the DBA degree is my own work and that all contributions from any other persons or sources are properly and duly cited. [further declare that it does not constitute any previous work whether published or otherwise. In making this declaration I understand and acknowledge any breaches of the declaration constitute academic misconduct, which may result in my expulsion from the program and/or exclusion from the award of the degree,” Name of candidate: ‘Tanompong Best Panich Signature of candidate: Ay Md. y Date: 1 April 2008 iiAcknowledgements I wish to express my wholehearted appreciation to my research supervisor, Dr. Hervé Remaud, for his time, guidance, advice and caring supervision throughout this research. I would also like to offer my everlasting gratitude to Ms Sue Warman who contributed her time and editing skills. My sincere thanks go to Ms Chou Tea and all administrative staff at the University of South Australia for their assistance and support, 1am grateful for the strong cooperation of the Thai Chamber of Commerce, The Federation of Thai Industries, Department of Thai Export Promotion - Ministry of Commerce, Thai Gems & Jewellery Traders Association, Thai Garment Manufacturers Association, Thai Frozen Foods Association and Thai Food Processors’ Association. Many thanks go to the numerous exporting company respondents and 12 highly organised interviewers in Thailand for participating in and collecting data for the completion of this research. Special thanks also go to all friends in Australia and Thailand who have encouraged me during the challenging period of this study. Finally, I would like to dedicate this dissertation to my father who passed away in 1990. He is forever in my mind. Without him, I would not have come this far. iiiTable of Contents Page Declaration ii Acknowledgements iii Table of Contents iv List of Figures vii List of Tables viii Abstract x Chapter 1 Introduction 1 Introduction 1 Marketing Innovation 2 Resource-Based View of the Firm 4 ‘Understanding Export Performance 5 Exporting in Thailand 8 Statement of the Problems 9 Research Questions 1 Objectives of the Research u Scope of the Research 12 Contributions of the Research 12 Structure of the Dissertation 13, Chapter 2 Literature Review, Research Hypotheses and Models 15 Section 1: Export Performance and Firm Characteristics 15 Export Performance 15 Limitations of Past Exporting Research 18 Firm Characteristics 18 Section 2: Firm Resources — A Resource-Based Theory of the Firm 20 Section 3: Innovation 2 Dimensions of Innovation 4 Benefits of Innovation 27 Section 4: External Environment 29 Section 5: The Role of Exporting in Thailand 31 Export Promotion Programs 33 ivPage Section 6: Research Hypotheses 34 Section 7: Research Models 38 The Conceptual Model of Marketing Innovation 38 Operational Definitions of the Constructs in Marketing Innovation Model 40 ‘The Proposed Full Model of Export Performance 40 Operational Definitions of the Constructs in Export Performance Model 43 ‘Summary 4B Chapter 3 Research Methodology 45 Section 1: Research Design 45 Selecting Industries 45 Sampling and the Sample Size 46 Instruments 47 Section 2: Measurement 48 Marketing Innovation Model 48 The Extended Model of Export Performance 49 Section 3: Data Collection Method 50 Section 4: Validity and Reliability 31 Section 5: Data Analysis 31 The Concept behind LISREL 52 Notation Used in LISREL 53 Model Estimation 34 General Interpretation of the Fit of LISREL 56 Data Analysis Process 58 Criteria in Selecting and Adjusting the Fitted Model 59 Summary 60 Chapter 4 Research Analysis and Findings 62 Section 1: Data Analysis 63 Demographics of Exporting Companies 63 Opinions of the Respondents upon Various Issues 66 Export Performance 8Page Section 2: Model Analysis 83 Model Estimation 84 Marketing Innovation Model 84 Estimation of the Full Model of the Export Performance 88 The Best Fitted Model of Export Performance 89 Hypotheses Testing 95 Structural Paths 96 Interpretations 98 Summary : 99 Chapter 5 Discussions, Implications and Conclusion 101 Introduction 101 Marketing Innovation Model 101 Export Performance Model 102 Section 1: Discussions 103 Respondents’ Suggestions for the Development of Marketing Innovation in Exporting Companies 109 Section Implications M1 Empirical Implications of Marketing Innovation on Export Performance 111 Theoretical Implications 118 Section 3: Limitations 120 Section 4: Suggestions 121 Section 5: Conclusion 123 References 125 Appendices 140 Appendix A: Questionnaire 141 Appendix B: List of the 12 Top Executives 148 Appendix C: List of Organisations and Associations that cooperated in this research 149 Appendix D: Conclusion on Executive Interviews 150 Appendix E: Participant Information Sheet 153 Appendix F: Consent Form 155 Appendix G: Table of Bivariate Correlation, Mean and Standard Deviation 156List of Figures Figure Page 1.1 Capabilities and Competitive Advantages 1 1.2 A General Model for Assessing Export Performance and Variable 6 1.3 Conceptual Framework of a Proposed Model of the Export Marketing Strategy and Innovation Management Capabilities in the Thai Manufacturing Industry 11 2.1 Marketing Innovation Model: Constructs, Measurement and Variables 39 2.2 The Proposed Full Model of Export Performance: Constructs, Measurement, and Variables 41 4.1 Marketing Innovation Model 87 4.2. Modified Competing Models 90 43 Model I 91 4.4 Model II 92 45 Model IIT 92 4.6 The Best Fitted Model of Export Performance 94 5.1 Export Performance Model 102 viiList of Tables Table Page 2.1 Export Performance Measures Used in Previous Research 16 2.2. Major Export Markets of Thailand 2002-2006 532 2.3. Ratio of Export Goods from Thailand in World Markets 2002-2006 32 2.4 Factors Affecting Export Performance: Latent and Observed Variables 42 3.1. The Population and the Sample Size 46 4.1 Demographic Data of Firms 6 4.2. Number of Markets and Regions of Key Exports for Company’s Products 65 4.3. Respondents’ Opinions on Technology and Research and Development Budget 66 4.4 Respondents’ Opinions on Firm’s Marketing Strategy o7 45. Respondents’ Opinions on their Firm’s Management Styles 68 4.6 Respondents’ Opinions on the Importance of Different Modes of Firm’s Intemational Involvement to Marketing Innovation o) 4.7. Respondents’ Opinions on the Influence of their Firm Characteristics to Marketing Innovation a 4.8 Respondents’ Opinions on the Influence of Firm Resources to Marketing Innovation 2 4.9 Respondents’ Opinions on the Agreement of Characteristics of their Firms’ Product Innovation during 2004-2006 2B 4.10 Respondents’ Opinions on the Level of Changes of their Firms’ Working Process Innovation during 2004-2006 74 4.11 Respondents’ Opinions on the Level of Changes of their Firms’ Export Market Innovation during 2004-2006 15 4.12 Respondents’ Opinions on Various External Factors’ Impact upon Export Performance 76 4.13 Respondents’ Opinions on Strategic Objectives of their Companies B 4.14 Respondents’ Report on Achievement of Strategic Objectives’ of Company 79 4.15 Respondents’ Report on Sales Growth of the Company during 2003-2006 80 4.16 Respondents’ Report on Profit due to Marketing Innovation during 2003-2006 81 4.17 Respondents’ Opinions on the Success of Marketing Innovation Classified by New Product, New Working Process, and New Market 82 viiiTable 4.18 Respondents’ Opinions on Overall Company’s Performance due to the Adoption of Marketing Innovation 4.19 Second-Order Measurement Model of Marketing Innovation 4.20 Descriptive Information and Reliability of the Scales Used 4.21 LISREL Analysis Results of Three Competing Models in Searching for the Best Fitted and the Most Parsimonious Model of Export Performance 4.22 Summary of the Results in Hypotheses Testing 4.23 Estimated Parameters from the Structural Model “The Best Fitted Model of Export Performance’ 4.24 Direct, Indirect, and Total Effects of Independent Variables on Export Performance Page 83 86 89 93 96 97 98, ixAbstract The objectives of this research project are threefold: (1) to identify the key marketing innovation factors which drive successful export marketing strategy in Thai manufacturing companies, (2) to test the proposed model “The Full Model of Export Performance’ on Thai export manufacturing companies, and (3) to suggest recommendations to Thai export manufacturing companies in order to improve their export performance, The conceptual framework in this study was developed from Aaby & Slater (1989) and Chetty & Hamilton (1993)’s concept, and incorporates the resources-based theory in analysing the performance of exporting firms. The model was analysed empirically by using 249 questionnaires that were collected from top executives in 4 high growth export sectors in Thailand (food processing, gems and jewellery, garments, and electronic and electrical products). The Linear Structural Relationship Model (LISREL) was employed to test the model. The study shows that the marketing innovation of exporting companies in Thailand includes of 3 constructs: new product innovations (unique features, customers’ needs, high quality), new working processes (using computers, applying international standards, re-engineering, using new technology), and new markets (access to new markets, new packaging, new promotional approaches, new support provided to foreign distributors). The best fitted model of export performance is composed of 4 latent constructs: (1) export performance (profitability, market penetration, sales growth, building awareness/image overseas), (2) marketing innovation (new products, new working processes, new markets), (3) firm resources (executives’ marketing knowledge, executives or managers who take responsibility for exports in particular, export marketing department dependability, good relationship with others related to the business), and (4) firm characteristics (number of full-time employees). The findings of this study lead to the suggestion that the success of exporting companies in Thailand depends on several efforts in marketing activities. The most important are that exporting companies should concentrate on: creating new products,developing their own national brand names; improving new working process by employing marketing information systems and new technology; and penetrating new markets by concentrating on a niche market. Enhancing marketing innovation strategy needs multi-cooperation from many parties such as government agencies, trade associations and educational institutions. In addition, vision, knowledge in international marketing, and good relationships with customers and the top executives and middle managers of related exporting companies are considered to be valuable resources of firms in creating marketing innovation in Thailand. xiChapter 1 Introduction introduction Globalisation and stronger international competition are some of the major challenges in international marketing that require changes, adaptation in competitive postures and development of strategies matched to the changing environment (Porter, 1986; Douglas & Craig, 1999). Marketing strategies widely used include introduction of new products to markets, penetrating new markets, creating more intensive new distribution channels, better production facilities, increased marketing expenditures, price reductions and acquisitions of other companies (Bradley, 2001). These strategies can help a company to better compete with its rivals during a given period of time, but competitors can always, at least at one stage, imitate them. Therefore, a company has to prepare medium to long-term strategies that will create a sustainable competitive advantage. Slater (1996) proposed six key sources of competitive advantage ranging from easier to imitate to difficult to imitate: quality, services, low cost, speed, innovation and learning. (See Figure 1.1) Figure 1.1: Capabilities and Competitive Advantages Competitive Parity and + Sustainable Competitive Advantage Average Performance and Superior Performance Easier to imitate Difficult to Imvtate = Quality Services Low-cost Speed Innovation Learning Source: Slater, SF 1996, ‘The challenge of sustaining competitive advantage’, Industrial Marketing Management, vol. 25, pp. 79-86. According to Slater (1996), sustainable competitive advantage for superior performance is a result of innovation and leaming that are capabilities difficult to imitate, Unlike purely domestic firms, those firms engaged in international marketing are exposed to more diverse and complex environmental contexts at both the level ofthe industry and the firm, as well as in their home and host country markets (Miller, 2003; Huszagh, 2002). Exporting firms often have to modify their marketing activities in a variety of ways to adjust to changes in environmental hostility in their domestic market (Rao, Kreighbaum & Hawes, 2003) as well as in overseas markets (Green, 1987). For instance, various obstacles for exporting are perceived to exist in both home and overseas markets, requiring adjustments in export marketing strategies (Axinn, 1998; Bauerschmidt et al., 2005). In the marketing field, Drucker (1954) was one of the first scholars to. comment about this concept; “There is only one valid definition of business purpose; to create a customer. Because it is (...) Its the-customer who determines what the business is its purpose to create a customer, any business enterprise has two — and only those two — basic functions; marketing and innovation.” ‘Though an increased interest has emerged in conceptualising and measuring the marketing concept, little attention has been devoted to Drucker’s second basic function, innovation (Deshpande et al., 2003). In a separate branch of literature, which is the diffusion of innovations, scholars have noted the importance of organisations being innovative (Rogers, 2003). Much of this literature focuses on innovativeness as a dependent variable, presuming it to be important and worthy of study. Increasingly, however, scholars have linked innovativeness to organisational performance, suggesting that a firm needs to be innovative to gain a competitive edge in order to survive and grow (Gronhaug & Kaufmann, 1998). This issue is important because the relationship between organisational factors such as innovativeness and business performance has not been studied adequately (Capon, Farley & Hoening, 2000) Marketing innovation is a complex phenomenon that can be operationalised in various ways. It will become an important part of the research in this research. Marketing Innovation ‘There are many studies and research materials on marketing in terms of ideas, knowledge and measurements. However, the concept of innovation attracts less interest from marketing researchers. There is only limited research in this fieldadopting a marketing perspective, though innovation is very important in enabling a company to develop a sustainable competitive advantage. The reason for this limited interest in innovation may be linked to the pioneering period for innovative ideas, knowledge and scientific development. It could also be the result of the various and complicated meanings of the word itself. This makes the concept of innovation difficult to study and measure, since the work will be based on different theories, different contexts and definitions. In general, interpretation of innovation is linked to new technological developments. However, many academics have suggested that innovation should not be attached particularly to technology. It should have wider meanings to encompass. any new ideas initiated by a company for the purpose of its own business profits. Porter (2000) placed great importance on innovation. He gave a wide definition of the word ‘innovation’ as an act of perceiving or discovering new and better ways to compete in an industry and bringing them to market (Porter, 2000, p. 22), Innovation has so much value and usefulness, academics and researchers from different areas agree, since it acts as a catalyst in industry and commerce. It invigorates efforts and brings new opportunities for profitable expansion (Chisnal, 2005); creates competitive advantage (Porter, 2000; Foxall & Johnston, 2004); and especially may create sustainable competitive advantage (Slater, 1996). Companies can achieve competitive advantage through the creation and exploitation of innovative products and services that are more appealing to their customers, more profitable than those produced by their rivals (Foxall & Johnston, 2004), and more difficult to imitate (Slater, 1996). Lee & Brasch (1998) and also Kotabe et al. (2000) linked the ideas and importance of innovation to an organisation’s performance by suggesting that an organisation has to have innovation to gain competitive advantage, survive and grow. After studying various researches on innovation, many academics mentioned the importance of organisation and innovation (Rogers, 2003). Most of this research emphasised innovation as important and valuable to study, but unfortunately there are still few studies in the marketing field of the relationship between innovation and organisational performance. Studies of organisational performance can be divided into macro-economic, industrial sector, and micto-economic organisations. Most of the case studies camefrom developed countries such as the United States, Canada and countries in the European Union (EU). There are only a few studies from developing and less developed countries. The effects of globalisation have caused many countries to face trade imbalances and inequalities (Douglas & Craig, 1999). How these situations are solved will depend on the appropriate reactions and abilities to adjust on the part of each country and each company. In term of the study on marketing innovation needs to have the supported theory. The following topic is a discussion of resource-based view of the firm and how it relates to export performance, Resource-Based View of the Firm The key to a resource-based approach to strategy formulation is to understand the relationships between resources, capabilities, competitive advantage and profitability (Hofer & Schendel, 1998). Resources are defined as those tangible and intangible assets that are tied semi-permanently to a firm (Caves, 1990), Examples of resources include brand names, in-house knowledge of technology, employment of skilled personnel, trade contracts, machinery, efficient procedures, capital, etc. One of the most influential lists of conditions that underlie sustainable competitive advantages was provided by Barney (2001), who stated four conditions; (1) valuable, (2) rare, (3) imperfectly imitable, and (4) imperfectly substitutable. The resources and capabilities of a firm are the central considerations in formulating its strategy: they are the primary constants upon which a firm can establish its identity and frame its strategy, and they are the primary sources of the firm’s profitability. This requires the design of strategies which exploit to maximum effect each firm’s unique characteristics. Before the 1990s, the principal developments in firm strategy analysis focused upon the link between strategy and the external environment. By contrast, the link between strategy and the firm’s resources and skills has suffered comparative neglect (Grant, 2001). More recently there has been an interest in the role of the firm’s resources as the foundation for firm strategy. At the corporate strategy level, theoretical interest in economies of scope and transaction costs have focused attention on the role of corporate resources in determining the industrial and geographical boundaries of the firm’s activities. At the business strategy level, explorations of therelationships between resources, competition and profitability include the analysis of competitive imitation, the appropriability of returns to innovations, the role of imperfect information in creating profitability differences between competing firms, and the means by which the process of resource accumulation can sustain competitive advantage. Together, these contributions amount to what has been termed ‘the resource-based view of the firm’, In this research, the main theme is export performance. The following topic is to understand the export performance and how the export performance related to the research. Understanding Export Performance In the past 30 years, studies on the determinants of export performance have been an important stream of international marketing research (Aaby & Slater, 1989). However, these studies are adapted for practical purposes and to show the links between different variables and the success of exports. Bilkey (1982) was the first to study and synthesise export research in ‘Variables Associated with Export Profitability’: He reviewed 43 studies on the export behaviour of firms from 11 countries. He found consistency among the findings regarding several dimensions of export behaviour, such as obstacles to exporting (insufficient finances, insufficient knowledge about foreign sales opportunities) and management systems of exporters and non-exporters, He also found some conflict among some factors that act as determinants of export performance, such as the stage, the company, the size of business and motivation, Apart from Bilkey’s research, a work on ‘Management Influences on Export Performance: A Review of the Empirical Literature 1978-88” by Aaby & Slater (1989) also showed the relationship of various variables to export performance for the first time in the ‘Strategic Export Model’ or ‘A General Model for Assessing Export Performance and Variables’ as shown in Figure 1.2. This major study led to a concise idea of internal variables that would affect export performance.igure A General Model for Assessing Export Performance and Variable * signicant variables from study of Chety & Hamiton (1868) ‘Source: Adapted from Aaby & Sater (1989) and Chetty & Hamilton (1993)The major internal variables consist of 3 factors that can be controlled through management. These are firm characteristics, firm competencies, and firm strategies: 1, Firm characteristics include the firm’s size, consensus in management and acknowledgement from management. 2. Firm competencies are composed of technology, knowledge of marketing and exporting, planning, export policy, quality control management and communication. 3. Firm strategies include major variables such as market selection strategy, sales representative selection, product mixture, product development, sales promotion, pricing and personnel. ‘The Strategic Export Model of Aaby & Slater illustrates how the relationships among major factors in organisational variables affect a company’s export performance. However, Glass (1993) criticized the model as having a defect in terms of the way reviews of research works were used, when the researchers presented their variables’ analyses based on situational assessment. Glass’s comment aside, the model is widely referred to in many export studies. It also drew a frame of reference for ideas used in export research. Chetty & Hamilton (1993) experimented with the relationship between various variables that have an impact on export performance as described in Aaby & Slater’s model. Their experiment was based on a statistical method called meta-analytical analysis, which uses a vote-counting process. They also studied other export research and extended the study period for another three years. So Chetty & Hamilton’s literature review covered 1978 to 1991. The result of their study is consistent with Aaby & Slater’s in terms of variables. They also found variables in each factor having significant statistical impact on a company’s performance. These variables are a firm’s characteristics (size, management, attitude to profitability); competencies (technology, marketing knowledge, export analysis); and export strategy (market selection, product mix, prices). Chetty & Hamilton (1993) commented that only a few research works on export performance yielded clear conclusions and were strong enough in terms of research models. This may be due to simplified relationship linkages in terms of questioning, measurement and research model design. Moreover, most of the studies are survey research of innovation concerned with two aspects of exports; enteringforeign markets (since the entry of a foreign market by a domestic company is deemed trading innovation), and studying innovation in the aspect of technology only. Most of the export performance researches came from the developed countries such as the United States, Canada and countries in the European Union (EU). This research concemed in the export performance in Thailand. The following topic is the exporting in Thailand, Exporting in Thailand Exporting is one of the key factors in economic development, particularly in developing countries like Thailand. It is widely accepted that international marketing is vital to Thailand’s economic development. Development in both the public and private sector, particular in improving efficiency and quality in exports to gain a greater inflow of foreign currencies, is deemed the key factor in allowing the country to achieve its goal as stated in the National Economic and Social Development Plan (Wechasara, 2005). Since the beginning of the 1990s, Thailand has been well advanced in its transition from an agricultural to an industrial and services-based economy. Three-quarters of the country’s exports consist of manufactured items. Thailand’s exports have changed from agricultural product-oriented to industrial product-oriented. The 1997 economic crisis in South East Asian countries posed a highly turbulent and continuously changing environment. In Thailand, immediately after the economic crisis, the business environment was characterised by a large drop in the exchange rate of Thai currency in relation to US dollar (Johri & Ngamkroeckjoti, 2003). To mitigate the adverse impact of the 1997 economic crisis, Thai government implemented a number of measures to revive domestic consumption and stimulate new investments for exporting. Thailand has a diverse economy, with high growth in nearly all sectors. There is much new investment, including extensive public sector infrastructure development. The manufacturing industry is growing rapidly. The dramatic shift was associated with the relocation of industries to Thailand from Japan and the newly industrialising economies (NIEs) of East Asia, namely South Korea, Taiwan and Hong Koa. With this movement of foreign investment, Thailand’s exporting has shifted from traditional manufactured exports of textile products, canned food, sugarand jewellery to computer components, integrated circuits, footwear, plastic products, travel goods and electrical appliances. The study of Thailand’s exports shows that export growth rates of many products have tended to decline since 2002 (Kakwani, 2004). Exports of technology-intensive products grew by 11.73%, while traditional agricultural product exports grew by only 2.94%. Industrial product exports rose by 2.10% and those of labour-intensive industrial products by 3.31%. Among these, garments and footwear have faced serious problems. The decline is due to the entry of new competitors in both labour and capital-intensive sectors in the Asian market. Thailand's major competitors include China, India, Indonesia and Malaysia. Jirapaeth (2003) stated that higher labour costs, with the five-year average growth rate of 14.04% (1998-2002) and the problem of labour shortages are the causes of higher production costs. Production of export goods in Thailand has to rely extensively on imported capital goods and raw materials. This is considered the major obstacle to the development of the country’s export production. Statement of the Problems In Thailand, a declining trend in exports (Kakwani, 2004), more competitors in the world export markets (Jirapaeth, 2003) and lower competitiveness in production and management (Lueprasithskul, 2004) are all considered negative aspects of economic development, Systematic research is needed to understand a country’s export business, especially intemational marketing which will enable exporters to set. up sustainable businesses and to make great strides in management development for higher competitive efficiency and effectiveness. In the export marketing strategy, export growth and other types of export performance are functionally dependent on a country’s demand for goods.and services (Reid, 1986). While export performance and innovation management are frequently viewed as interlinked, with technology considered the major factor, no retrospective analysis views the innovation in other aspects beyond the technological framework. However, a number of researchers have suggested that the use of innovation management for organisations and countries is considered a sustainable leap-forward development.This research empirically examines the role of innovation management in the meaning of product changes, working process changes, and new approaches to marketing. As Porter (2000) points out, innovation management includes both improvements in technology and better methods of doing things. Innovation ‘management shifts competitive advantage when rivals either fail to perceive a new way of competing or are unwilling or unable to respond. In this research, the conceptual frameworks of ‘A Strategic Export Model’ of * Aaby & Slater (1989), and ‘Firm-Level Determinants of Export Performance: A ‘Meta-Analysis’ of Chetty & Hamilton (1993) are used as the basic framework in building “The Proposed Model of the Export Marketing Strategy and Innovation Management Capabilities in the Thai Manufacturing Industry’. In addition, this research proposes that firm characteristics might be influenced by business management. Therefore, the construct of firm characteristics is included in business management. Environment variables are also included, as shown in the conceptual model of this research in Figure 1.3; 10ng) ie) | “Chey tamon (29) 7] Gare tou (sa Research Questions 1. What are the key marketing innovation factors that can be identified in successful Thai export manufacturing companies? 2. What are the determinants of export performance in the Thai export manufacturing companies? Objectives of the Research 1. To identify the key marketing innovation factors which drive successful export marketing strategy in Thai manufacturing companies.2. To test the proposed model “The Full Model of Export Performance’ on Thai export manufacturing companies. 3. To suggest recommendations to Thai export manufacturing companies in order to improve their export performance. Scope of the Research Three distinctive features should be noted at the outset of the research framework; 1. The study is conducted by selecting industries from exporting companies located in Thailand. 2. The conceptual framework of this research assumes that performance of an exporting company can be directly affected by marketing innovation strategy 3. The study concentrates on the variables affecting the performance of exporting company suggested by Aaby & Slater (1989) and Chetty & Hamilton (1993). These variables are firm characteristics, firm resources and firm strategy. Contributions of the Research The research contributions will develop an extended export performance ‘model titled “The Full Model of Export Performance’. An analytical procedure which facilitates the simultaneous examination of the interrelationship among four theoretical components; export performance, marketing innovation, firm resources and firm characteristics, will be performed using the Linear Structural Relationship Model (LISREL). Major contributions to this research are three-fold; 1. Empirical and managerial contribution: - Identify the key marketing innovation factors that affect the export performance of export manufacturing companies in Thailand. - Thai export manufacturing companies will be able to use the findings to better understand the determinants of export performance. - Government agencies such as the Department of Export Promotion in Thailand can use the research findings to better assist exporting companies. 122. Theoretical contribution - Enhancing and testing an extended model of export performance by adding the marketing innovation components into the existing empirical model of Aaby & Slater (1989) and Chetty & Hamilton (1993). 3. Methodological contribution - The use of the Linear Structural Relationship (LISREL) statistic model for data analysis will systematically test the relationship of firm resources, firm characteristics and marketing innovation on export performance. Structure of the Dissertation Following the current Chapter 1 (Introduction), the dissertation is structured as follows; * Chapter 2: Literature Review, Research Hypotheses and Models. This chapter is divided into seven sections and covers a review of some empirical research and the theoretical framework mostly adopted by researchers. Literature streams concem export performance, firm characteristics, firm resources, innovation and external environment. Preliminary information about Thailand and the role of exporting are included. Research hypotheses and models make up the last two sections. * Chapter 3: Research Methodology. Chapter 3 explains the research design, including selecting industries, population and sample size, instruments, the measurements, the data collection method, validity and reliability, and the data analysis including definition of the Linear Structural Relationship Model (LISREL). © Chapter 4: Research Analysis and Findings. Chapter 4 is presented in two sections. The first one describes some demographics of the exporting companies as well as the opinions of respondents to export performance, marketing innovation, firm resources, firm characteristics and environment. And the second section is the model estimation and the fitting of the model to the data. The Linear Structural Relationship Model (LISREL) is used as the statistical tool to discover the model which best 13represented the data. All eight hypotheses stated in Chapter 2 are tested and results are reported. © Chapter 5: Discussions, Implications and Conclusion. The purpose of this research was to develop ‘The Full Model of Export Performance’ which enhances the empirical model of Aaby & Slater (1989) and Chetty & Hamilton (1993) by including the marketing innovation component. This study has demonstrated that marketing innovation comprises three main factors which are new product, new working process and new market. Each factor consists of variables that can best explain the phenomenon of exporting firms in Thailand, especially working process innovation and new market innovation. The cause and effect of each variable are examined. An analytical procedure which facilitated the simultaneous examination of the interrelationship among the theoretical components of export performance, marketing innovation, firm resources and firm characteristics was performed by using LISREL. The implications which can be inferred from the best fitted model are discussed in details. 14Chapter 2 Literature Review, Research Hypotheses and Models The purpose of this chapter is to present conceptual definitions of the major constructs included in this study, the research hypotheses and the proposed extended model of export performance. The relevant literature was reviewed and analysed. The research hypotheses are based on the theories discussed and incorporated in ‘The Full Model of Export Performance’. The model is presented in the form of Linear Structural Relationship Model (LISREL). This chapter is divided into seven sections and covers a review of some empirical research and the theoretical framework mostly adopted by researchers, Literature streams concer export performance, firm characteristics, firm resources, innovation and external environment, Preliminary information about Thailand and the role of exporting are included. Research hypotheses and models make up the last two sections. Section 1: Export Performance and Firm Characteristics Export Performance Lee & Brasch (1998) defined exporting as the process of marketing to foreign countries other than the home country. They mentioned that export distribution can be carried out by three methods; through an export representative (such as a combined export management firm) or other types of agents to which the firm in question delegates foreign sales responsibility, by dealing directly with customers in a foreign country, or by selling through a merchant middleman who buys for his own account and exports at least a part of his purchases. Cavusgil & Nevin (2001) offered a comprehensive conceptual definition that this study will adopt. Exporting is ‘the marketing-related decisions and activities of firms which are engaged in international businesses’. (Cavusgil & Nevin, 2001, p. 115) ‘The term ‘Export Performance’ has been used in different ways based on the specific objective(s) of researchers. Thus, there is no uniform definition of export 15performance in the literature (Cavusgil & Zou, 1994; Zou & Stan, 1998; Morgan, Kaleka & Katsikeas 2004). Table 2.1 illustrates a variety of export performance measures adopted by previous researchers, as well as the criteria employed by government agencies. Table 2.1: Export Performance Measures Used in Previous Research Performance Measure Studies Export sales level Bello & Willamson (1995); Bilkey (1985); Cavusgil (2004a); Cavusgil & Zou (1994); Cooper & Kleinschmidt (1995); Fenwick & Amine (1979); Kaleka (2002); Madsen (1989); McGuinness & Little (2001); Pierey et al. (1998); Sood & Adams (1984); United Kingdom Awards (U.K. Awards) Export profits | Bilkey (1982, 1985); Madsen (1989); U.K. Awards Export sales growth Cavusgil & Zou (1994); Cooper & Kleinschmidt (1995), Kirpalani & MacIntosh (2000); Madsen (1989); U.K. Awards Ratio of export sales to total sales ‘Axinn (1988), Chetty (2006); Gomez-Mejia & Luis (1998); U.K. Awards Ratio of export profits to | U.K. Awards total profits Increase of importance _| U.K. Awards of export to total business ‘Overcoming barriers to export Bauerschmidt et al. (2005); Sullivan & Bauerschmidt (1987); U.K. Awards Propensity to export Bilkey (1985); Cavusgil (2004b); Denis & Depelteau (1985); Kaynak & Kothari (1984); Piercy (1981a); Reid (1986); Rosson (2001) Export involvement | Diamantopoulos & Inglis (1998) Exporter internationalisation | Piercy (1981b) 16Performance Measure Studies Attitudes toward export | Brady & Bearden (1979); Johnston & Czinkota (1992); Rosson (2001); Saminee & Walters (2001) ‘Acceptance of product | Angelmar & Pras (1984) by export distributors Source: Adapted from Cavusgil & Zou (1994) ‘The most frequently used performance measures appear to be economic in nature such as export sales, export growth and profits from exports. Cameron (1996) identified five common themes in strategy research on performance. Shoham (2003) discussed these themes underlying the export performance perspective as follows; 1. Performance is a central concept in export assessment. It is related to multiple issues in exporting. For example, an exporter’s choice of marketing mix and the form of market entry (such as direct exporting or use of middlemen) might lead to differing performance levels. 2. Export performance is organisation-specific. In other words, organisations that use profit ratios to measure performance will tend to use similar ratios for exports. 3. Export performance is defined differently by individuals in an organisation. Stakeholder groups that interact in the internal and external environments of the firm introduce further diversity. Some measures of performance are needed to evaluate and reconcile their differences. 4. The usefulness of any definition depends on the purpose of the research, and more than one definition might exist. 5. Performance in exporting is problem-driven in many cases. Appropriate definitions might differ across problems. The measures of performance depend on the objectives of an individual exporter. 17itations of Past Exporting Research Despite the contributions of previous research on exporting, a few limitations can be highlighted. * Most of the studies are based on the assumption that exporting can be differentiated from domestic business operations and viewed as a unique altemative (Bilkey, 1978; Reid, 1981). Known as a single-activity assumption, that approach facilitates concentration on the post-export behaviour of firms (Mintz, 1967). However, for most of the firms which export, resources are shared between domestic and export-oriented business units. Distinctions between domestic and export operations become even less clear when firms view exporting as simply another expansion alternative — for example, when firms regard Mexico and Canada as simple extensions of the U.S. market (Czinkota & Johnston, 1993). In short, many factors thought to be related to export expansion appear to be related also to domestic expansion, and vice versa. © Another limitation is about the ‘born global’ companies.’ These companies do not think the export market as an extension of the domestic market but directly have a global or international vision of the market. ‘* Also the methodological limitations of past research warrant discussion, where almost all of the data were gathered from a single state (Gomez-Mejia & Luis, 1998) ora single developed country. In other words, what would happen when studying the case of a less developed country. Firm Characteristics Export marketing researchers have often given particular attention to various firm characteristics. Among those most commonly examined within the spectrum of the exporting field are firm size (Bonaccorsi, 1992; Culpan, 1999; Cavusgil & Naor, 1997; Czinkota & Johnston, 1993; Reid, 1982), the level of export involvement (Cavusgil, 2004a; Diamantopoulos & Inglis, 1998; Fraser & Hite, 2000), company experience with exporting activities (Erramilli, 2001; Madsen, 1989; Moon & Lee, 2000), and attitudes toward future exports (Gripsrud, 1990). 181. Firm size. In a critique of the Czinkota & Johnson (1993) study, Reid (1985) raised several methodological issues that may confound the results from a study concerning organisation size, These include lack of a conceptual base for predicting the relationship between a firm’s size and export performance, 2. Management commitment. Export goal consistency among management is important for export success, while lack of willingness by management to commit resources to exporting has a negative influence on performance (Cavusgil & Nevin, 2001), Gronhaug & Lorenzen (2002) found a high positive correlation between management involvement and export performance among Norwegian exporters. So, a positive relationship between management commitment and export performance can be suggested. 3. Management perceptions. Aaby & Slater (1999) concluded that knowledge of the nature of management attitudes, (mis) perceptions and dispositions toward exporting are important to enhance export performance, Successful export performance has been related to the management’ positive expectations conceming the effects of exporting on the business’s profitability (Cavusgil & Nevin, 2001; Cavusgil et al., 2003). Furthermore, based on a survey of 473 firms, Cavusgil (1994) concluded that management’s attitudes toward risk-taking are positively related to export performance. 4, Business management. Susanta (2006) argued that business and managerial behaviour is strongly influenced by culture such as shared value systems or attitudes. Culture has been defined as (Hofstede, 1980, p. 54): “...the collective programming of the mind which distinguishes the members of one human group from another.” ‘The word ‘culture’ is reserved for societies as a whole or nations, whereas ‘subculture’ is used for the level of an organisation, profession or family. Thus, cultural or societal values at the national level can be traditionally expected to influence organisation and management style. Most notably, the Japanese business management style has been delineated as an alternative, contrasting and highly effective approach (Pascale & Athos, 2001; Ouchi, 2001). Undoubtedly, business culture in Asian countries differs from business culture in Western countries, The network of family and personal contacts is the principal channel through which Chinese entrepreneurs obtain and test information crucial for the development of their companies, and for the forging of new business alliances 19(Weidenbaum, 1996). In addition, the leadership of firms tends to be long-lasting and stable, allowing for the accumulation of deep knowledge about an industry and the building of strong networks (Redding, 1995). With a lean and mean structure, the Chinese firm can react very quickly. Vadhanasindhu (2005) examined common factors of management practices among successful companies in Thailand and compared them with those of excellent American companies. The results revealed that the differences were the utilisation of ‘a matrix organisation, utilisation of peer-review performance appraisal and the encouragement of employees” entrepreneurial and innovation skills In conclusion, a review of previous studies conducted by Westen researchers identified a wide range of firm characteristics associated with a firm’s success in exporting. Nevertheless, there is a dearth of systematic research focusing on the analysis of a firm’s competitive advantages in export markets in relation to such prominent organisational features as business culture (Katsikeas, 2004). Section 2: Firm Resources — A Resource-Based Theory of the Firm The resource-based theory of the firm complements and integrates contributions from many perspectives, notably industrial organisation and transaction cost theory (Conner, 2001; Mahoney & Pandian, 2002; Peteraf, 2003). With hindsight, the resource-based theory of the firm is said to encompass well-established theories of firm’s growth and profit, implying that a long list of classic contributions to economic and strategy research — such as Ricardo (1817), Schumpeter (1934), Penrose (1959), Ansoff (1965) and Andrews (1971) — can be claimed to reflect, resource-based arguments avant la letire. What differentiates the resource-based view from industrial organisation theory is the focal level of analysis. The resource-based approach emphasises the firm level, while industrial organisation theory focuses on the industry or market. Resources are defined as those tangible and intangible assets that are tied semi-permanently to a firm (Caves, 1990), Examples of resources include brand names, in-house knowledge of technology, employment of skilled personnel, trade 20contracts, machinery, efficient procedures, capital, etc. (Wemerfelt, 1984). Since resources are located or produced inside the firm, theories of organisational behaviour and structure point to major sources of sustainable competitive advantage (Powell, 2002). One of the most influential lists of conditions that underlie sustainable competitive advantages was provided by Barney (2001), who stated four conditions; (1) valuable, (2) rare, (3) imperfectly imitable, and (4) imperfectly substitutable. ‘These characteristics follow from a number of underlying mechanisms such as unique historicity, causal ambiguity, social complexity, tacit knowledge, future uncertainty and variable rationality (Lippman & Rumelt, 1992; Bamey, 1996a, 1996b; Dierickx & Cool, 1989; Schoemaker, 2000). There are three factors to consider within firm resources as follows; 1. R&D. Chow et al. (1997) agree that research and development provide the foundation for an organisation’s offerings. Although the benefit of R&D may not be obvious in the short term, it is an absolutely crucial activity for maintaining one’s competitive position, Technological innovations must be integrated with the marketer’s understanding of his potential customers’ needs. R&D is an important activity for the export industry. In 2005 private organisations in the United States spent almost $100 billion on R&D — on average about 3.4% of total sales and 46.8% of total profits (Business Week, 2006). In a comparison of company performance in 2002 with R&D spending from 1999 through 2001, (Business Week, 2003) there appeared to be a significant correlation between R&D spending per employee and return on assets. 2. Human resources. In their resource-based empirical studies, Hansen & Wernerfelt (1989) and Powell & Dent-Micallef (1997) found that human resource factors explained greater proportions of performance variance than strategy and market share factors. Powell (1996) found that behavioural factors such as an open culture and CEO commitment, explained significantly greater total quality management (TQM) performance variances than process factors e.g., defect reduction and traditional quality control methodologies. 3. Technology resources. Technology is an asset of the firm. Technology intensiveness is consistently found to be related to propensity to export (Cavusgil & Nevin, 2001; McGuinness & Little, 2001; Cavusgil, 1994; Cooper & Kleinschmidt, 1995; Daniels & Robles, 1995; Joynt, 2002). One study concludes that technology is 21best applied as a standard in all markets (Christensen et al., 1997), however contextual factors could explain this relationship. If the respondents in these studies primarily marketed their products in developed countries, technology could be an important source of competitive advantage over local producers. In less developed countries, though, other sources of competitive advantage such as low cost could be more important. In the study of eighty-nine Canadian indigenous enterprises, Reid (1986) found very little relationship between technology and export performance beyond encouraging a firm to make an early entry into an export market. He argued that possession of more specialised knowledge did not create a competitive advantage. It depended on how the firm took advantage of it, in other words; the problem is to transfer the resource into a capability. He criticised current research supporting the theory that technology was related to export performance, because associations with export performance were based on research in industries where exports included significant intra-company trading. Consequently, he concluded that current research on technology did not reflect true export performance, The evidence on technology and export performance was thus mixed. Section 3: Innovation Innovation is a complex phenomenon that can be operationalised in various ways. According to Webster (1994), innovation is a new idea, a new method or device. Drucker (1996) stated that innovation was an economic or social rather than a technical term. It can be defined in demand terms rather than in supply terms; that is, as changing the value and satisfaction obtained from resources by consumers. ‘Schumpeter (1934) was primarily an innovator who developed new combinations of productive means, He proposed the concept of innovation in five categories as follows; 1. The introduction of a new good; that is, one with which consumers are not yet familiar or a new quality of good 2. The introduction of a new method of production; that is, one not yet tested by experience in the branch of manufacture concerned, which needs by no means to 22be based on a discovery that is scientifically new, and can also exist as a new way of handling a commodity commercially. 3. The opening of a new market; that is, a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before. 4, The conquest of a new source of supply of raw materials or half manufactured goods, again irrespective of whether this source already exists or whether it first has to be created 5. The emerging of the new organisation of any industry, like the creation of a monopoly position (for example, through transification) or the breaking up of a monopoly position. Kuczmarski (2006) viewed innovation as a mindset, a pervasive attitude, or a way of focusing market thinking beyond the present into the future. Marketing innovation is a pervasive spirit that stimulates individuals, as well as teams, to holistically endorse a belief in creating newness across all dimensions of the company, such as new markets, new product ideas, new manufacturing approaches, new customer segments, new selling methods, new ways to deliver old products, new services, ete. ‘A more behaviour-oriented view of innovation was offered by Zaltman, Duncan & Holbek (2003). They defined innovation as any idea, practice, or material artifact perceived to be new by the relevant unit of adoption. This view had been earlier defined by Rogers & Schoemaker (2001). Porter (2000), whose concept is employed in this study, defined innovation in a broader sense of strategic terms. He included not only technologies but also new methods or ways of doing things that sometimes appeared quite mundane. For instance, innovation can be manifested in a new product design, a new production process, a new approach to marketing, or anew way of training or organising. Redding (1995) proposed that with an emphasis on network relationships, a company can bring in technology and create market access more easily. In contrast, Weidenbaum (1996) argued that a family-run business always keeps control within 23the family, which may be an obstacle for high-tech companies which require innovative experts. In conclusion, innovation has been studied by groups of researchers as diverse as economists, management technologists, organisational sociologists and strategy theorists. While economists (Acs & Audretsch, 2000; Scherer, 2004) and some management technologists (Utterback & Abernathy, 2005) have studied innovation at the level of the industry, organisational sociologists (Kimberly & Evanisko, 1991; Damanpour & Evan, 2004) and strategy theorists (Zahra & Covin, 2004; Lengnick- Hall, 2002) have looked at innovation at the level of the firm. Each group has a different research focus and consequently has emphasized different levels of analysis and different dimensions of innovation (Gopalakrishnan & Damanpour, 2004). Dimensions of Innovation Dimensions that have been used frequently to understand innovation include; type of innovation (Utterback & Abernathy, 2005; Daft, 1998; Damanpour & Evan, 2004; Kotabe, 2000), source of the innovation (Burgelman & Sayles, 1996; Maidique & Patch, 1998; Zahra & Covin, 2004); intensity of the innovation (Capon & Glazer, 1997; Maidique & Patch, 1998); timing of innovation (Ansoff & Stewart, 1997; Rogers, 2003; Lieberman & Montgomery, 1998; Smith, Grimm & Gannon, 1999; Abrahamson, 2001); magnitude of innovation (Kimberly & Evanisko, 1991; Damanpour & Evan, 2004). Some studies use a combination of dimensions such as type and magnitude (Damanpour & Evan, 2004; Ettlie, Bridges & O’Keefe, 1994). An innovation type at the firm level is characterised as the adoption of new products, new processes and new markets (Aiken & Hage, 1971; Kimberly & Evanisko, 1991; Carroad & Carroad, 2002; Porter, 2000). 1. Product innovations are output innovations which customers of an organization come into contact with. There are many types of product innovations through new technological methods that change existing assets and facilities of firms, which Porter (2000) mentioned in his study. For instance, Japanese firms have gained advantages in many industries through emphasis on smaller, compact, lower-capacity 24product varieties that foreign competitors disdained as less important and less profitable. Korean firms have matched the ability of Japanese firms to mass-produce standard colour TV sets and VCRs. Brazilian firms have technology and designs comparable to Italy’s in casual leather footwear. ‘New products can have a favourable effect on market share to the extent that they satisfy customer needs better than the existing goods (Davidson, 2006), and prevent competitors from taking away a business’s customers with their own new products (Hayes & Abemathy, 2000). Though new products can cannibalise the sales of existing products and consume the marketing resources that would otherwise go to them (Hambrick & Schecter, 2003), continuous and constant innovation are competitive imperatives for maintaining and/or building share. Hence, in the aggregate, market share at the strategic business unit (SBU) level can be expected to vary positively with the rate of new product introductions. The relationship between new product introductions and profits, however, is equivocal. There is evidence to suggest that new product introductions could hurt business profits in the short run. Developing and introducing new products can require large investments in R&D, plant and equipment, and in advertising and promotion to build consumer awareness. Yet, evidence from studies on ‘excellent’ companies suggests that new products and profits are positively related in the long run (Peters & Waterman, 2002; Maidique & Hayes, 2004), Other evidence suggests that new products and profits are positively related when consumers are willing to pay a price premium for superior new products that cannot be readily duplicated by competitors (Booz & Hamilton, 2001; Cooper, 1996). 2. Process innovations are tools, outputs, devices and knowledge in throughput technology which mediate between inputs and outputs (Utterback & Abenathy, 2005; Ettlie & Reza, 2002). A successful new-process development requires creative inputs and analytical disciplines. These new ideas are refined in the design phase to address customers’ needs. Urban & Hauser (2003) proposed that the analytical discipline was used to minimize risks in the phase of design evaluation, pre-testing, test-market forecasting, controlling the national launch, and transition to maturity. Among the most famous studies, Cooper & Kleinschmidt (1997) and De Brentani (1999) found that innovation was found to correlate with the new-product process. Innovation is addressed in idea 25generation (opportunity identification), competitive analyses (design) and technological superiority. Innovation is addressed by identifying gaps in the market (perceptual mapping, design) and coordinating marketing, R&D, and engineering (eg,, total quality procedures, design) In the 2000s quality is a necessary requirement for success in the export industry. Clark & Fujimoto (2001) studied the auto industry globally and found that total product quality was critical to attracting and satisfying customers. Building quality products requires qualified engineers and marketers, R&D excellence (e.g. superior quality and reliability, competent engineering, good project management), and technical performance, according to Zirger & Maidique (2000) in a study of the most important determinants of success or failure in new electronic products. 3. Market innovations are new markets in foreign countries which are different from a firm’s existing markets. Creating new markets may arise when a firm (1) perceives an entirely new buyer; (2) serves a market segment that rivals have ignored; (3) develops an after-sale service (Carroad & Carroad, 2002; Porter, 2000). Roberts (1999) studied the evolution of successful high-tech firms and found that a critical factor in the successful ones was an orientation toward marketing. In the study of 21 greater Boston high-tech firms, which had survived more than five years and had sales of more than $5 million, a market-oriented transformation (importance of marketing, market-oriented control of new products, and new-market- oriented chief executive officers) characterised the higher performers. In another similar study of 114 technology-based firms, Roberts (2000) found an evolution in surviving firms toward marketing with less emphasis on engineering. He also found the best opportunities for rapid growth come from building an internal critical mass of engineering talent in a focused technological area, with products targeted to a focused set of customer needs, sold to gradually broadening groups of end users through single channels of sales and distribution (Robbers & Meyer, 2001). The importance of market orientation has been found in more mundane industries. Naver & Slater (2000) found in a commodity product business such as lumber and building supplies, which based on 140 products, there was a substantial positive effect from market orientation on profit. Some studies (Robinson, 1997; Day, 1996; Tessler, 1987; Attiyeh & Wenner, 2001) recommended a market 26concentration strategy based on the traditional notion that larger market shares in a few key markets are associated with higher profitability in the long run Boston Consulting Group, 1998 and Buzzel et al., 2005). Others (Hamermesh, 1998 and Piercy, 1982) recommended a market diversification strategy based on the rationale that taking low market shares in widely dispersed markets may be more profitable than concentrating on a few key markets. From the contradictory empirical results, either export market concentration or market diversification leads to better export performance (Lee & Yang, 2001). While product innovations have a market focus and are mostly driven by customer need, process innovations have an internal focus and are efficiency-driven (Utterback & Abernathy, 2005). The appropriateness of each of these two types from a performance viewpoint varies significantly based on the organisation’s environment (Utterback & Abernathy, 2005), and the competitive strategy (Zahra & Covin, 2003) Economists, management technologists, strategy theorists and sociologists acknowledge the differences between product and process innovation because of their distinct characteristics and the different types of skills required to manage their generation and adoption (Gapaladrishnan & Damanpour, 2004). However, only a few studies (Utterback & Abernathy, 2005; Floyd & Wooldridge, 2000; Zahra & Covin, 2004) have compared and contrasted the relative effectiveness of both types. There are two key power roles in which innovation can benefit a company; (1) competitive advantage protection, which stems from competitive marketing innovation, and (2) shareholder, employee and customer satisfaction (Kuczmarski, 2006). Competitive advantage protection provides to a company a long-term competitive ‘insurance’ policy (Slater, 1996). Kuszmarski (2006) defined competitive advantage protection as a strategic approach for pre-empting, protecting against, or jumping ahead of competition. Competitive advantage protection enables a company to accelerate growth, experience incremental margin enhancement, and build additional core competency, which bolsters competitive advantage. 27Kuczmarski (2006) described the role of innovation in improving competitive advantage by shaping business strategy in four ways as follows: 1, Radical leapfrogging. A company aims to develop new products that will leapfrog competition. The end outputs of this strategy usually are products or services that bring totally new consumer-perceived benefits. They are radically different from anything currently offered in the market. Consumers or end-users will clearly perceive the functional, emotional, psychological, or performance benefits of these new products as better or as greater than those offered by any competitive product. 2. Benefit differentiation. Competitive innovation can play a major role in adding new benefits to an existing product. By focusing on new benefits, the existing or newly developed product will provide a new source for competitive advantage. ‘The degree of uniqueness and benefit differentiation will most likely determine the duration and strength of the competitive advantage. 3. Market share stimulation. There are many different approaches for stimulating market share, ranging from advertising and promotions to distribution channel diversification and pricing. However, competitive innovation can also be used to build market share by launching line extensions, flankers, and new-and- improved products. This approach offers end-users new reasons to purchase a company’s product line rather than competitors’ products. 4, Value-engineering or cost-reduced. New products and processes can also be achieved through competitive innovation. Sometimes the lower cost benefit can be passed on directly to consumers, resulting in a price reduction. Alternatively, the cost savings can be applied internally to boost gross profit margins. This incremental margin revenue can then be used to build awareness or stimulate trial through increased marketing. The second power role — shareholder, employee and customer satisfaction ~ provides a means of increasing the satisfaction level of companies’ three key constituencies. If satisfaction can be increased for these constituencies with increased profitability, it is quite safe to assume that senior management will be rewarded. Innovation can serve both competitive advantage protection and satisfaction roles concurrently. ‘The more innovation-oriented a company is, the faster it achieves both roles. 28This study uses innovation types; product, process and market as an approach and analyses the relationship with export performance. It analyses innovation as a strategy or a stream of decisions patterned at the firm level. Marketing innovation can be developed in many ways depending on a company’s resource management, (Bradley, 2001). Innovation has so much value and usefulness, academics and researchers from different branches agree, since it acts as a catalyst in industry and commerce. It invigorates efforts and brings new opportunities for profitable expansion (Chisnal, 2005); creates competitive advantage (Porter, 2000; Foxall & Johnston, 2004); and especially creates sustainable competitive advantage (Slater, 1996). Companies can achieve competitive advantage through the creation and exploitation of innovative products and services that are more appealing to their customers and more profitable than those produced by their rivals (Foxall & Johnston, 2004). Management must integrate the strategies of various functions, including marketing, finance, production and R&D, in order to achieve consistency. The marketing innovation strategy must begin with a designation of the target segment and the specific needs to be met by the firm. The subsequent development of product, price, promotion and distribution strategies will obviously have implications for the other functional areas. ection 4: External Environment The external environment has been conceptualised in a variety of ways. It can be conceptualised in terms of its level of hostility, heterogeneity and dynamism (Miller, 2003), turbulence (Davis et al., 2001), or volatility (McKee, 1999). Several studies have focused on the hostility level of the environment, making a distinction between hostile and benign environments (Covin, 1999; Khandwalla, 1997). A hostile environment was cheracterised by precarious industry settings, intense competition, harsh, overwhelming business climates, and the relative lack of exploitable opportunities (Yeoh & Jeong, 2005). 29While some earlier studies have acknowledged the importance of the external environment in exporting (Walters, 2003; Cooper, 1996; Green, 1987; Cavusgil, 1994), a review of the literature reveals that the majority of exporting studies have essentially adopted a reactive stance with respect to the external environment, which is often described as ‘uncontrollable’ or ‘given’. The external factors beyond the firm’s control are the lack of macro-level incentives, unfavourable exchange rates, and the absence of a stimulating national export policy (Gomez-Mejia & Luis, 1998). Cavusgil (1994) concluded that external factors, such as exchange rate, levels of domestic and foreign demand, relative rates of price-level increases, and commercial policy proved to be poor predictors of firms’ export behaviour. Similar conclusions were reached in a 2006 report commissioned by the Congressional Joint Economic study, done by a Washington international consulting firm ‘Quick, Finance and Associates’ (Greenberg, 2006). Earlier research that has considered the impact of the environment often conceptualises the external environment in terms of perceived obstacles to exporting, or in terms of problems associated with exporting itself (Bauerschmidt et al., 2005; Gripsrud, 1990). Such a reactive approach, unfortunately, ignores the fact that firms may view uncertainties arising in their environment as opportunities and, hence, may proactively take advantage of changes in the environment through innovative and aggressive marketing activities such as development of new products and/or markets (Yeoh & Jeong, 2005). As such, while the importance of the external environment has been acknowledged, such key issues as how firms deal with environmental changes ~ albeit favourable or unfavourable — and their subsequent performance implications, have not received much scholarly attention. In conclusion, empirical results of determinants of exports concerned with external factors are mixed. 30Section 5: The Role of Exporting in Thailand At the end of World War Il, Thailand was basically an agrarian economy. Heavily dependent on rice, which accounted for some 25 %of GDP and about one- half of exports, Thailand had only a very small manufacturing sector and limited basic infrastructure. Over the ensuing 40 years, real annual GDP growth has averaged some 7%, Output and exports have become increasingly diversified. By the beginning of the 1990s, Thailand was well advanced in its transition from an agricultural to an industrial and services-based economy. The dramatic shift was associated with the relocation of industries to Thailand from Japan and the NIEs of East Asia, namely, South Korea, Taiwan and Hong Kong. With this movement of foreign investment, Thailand’s exporting has shifted from traditional manufactured exports of textile products, canned food, sugar and jewellery, to computer components, integrated circuits, footwear, plastic products, travel goods and electrical appliances. The 1997 economic crisis in South East Asian countries posed a highly turbulent and continuously changing environment. In Thailand, immediately after the economic crisis, the business environment was characterised by’a large drop in the exchange rate of Thai currency in relation to US dollar (Johri & Ngamkroeckjoti, 2003). To mitigate the adverse impact of the 1997 economic crisis, Thai government implemented a number of measures to revive domestic consumption and stimulate new investments for exporting. In the 2000s, the scale and degree of internationalisation of the Thai economy had reached a level where it could now be considered a global player (Department of Export Promotion, 2003). From 1987, Thailand attained a double-digit real growth rate for three consecutive years and emerged as one of the world’s fastest growing economies. Although growth was forecast to be slower throughout the 1990s, and it did indeed slow after 1990, the economy still expanded at an average annual rate of 7-8 Yaa year through the 2000s, even after the impact of the 1997 economic crisis, The agricultural sector, which was Thailand's engine of growth in the 1970s, was replaced by manufacturing in the 1990s. Since 2000, the manufacturing sector accounted for more than three-quarters of Thailand’s export earings. 31In 2003, key factors that brought about high growth rates included growth of the export sector, investment and tourism, all of which had expanded considerably faster than the projected rates (Svasti & Mephokee, 2004). Table 2.2 presents Thailand’s major markets of exporting during 2002-2006. Table 2.3 shows the ratio of export goods from Thailand in various world markets. Table 2.2: Major Export Markets of Thailand 2002-2006 (Unit: Million Thai Baht) a3 2002 2003 2004 2005 2006 Zone 1. ASEAN | 353,141 | 18.8% | 606,949 | 19.3% | 679,845 | 19.9% | 759,060 | 19.9% | 810,686 | 20.2% 2.USA | 602,228 | 20.59% | 639,100 | 20.4% | 650,685 | 19.1% | 733,800 | 19.3% | 795,736 | 19.8% 3. Japan | 559,480 | 19.0% | 594,276 | 19.0% | 636,099 | 18.7% | 717,524 | 18.8% | 760,231 | 18.8% 4. EU 563,702 | 19.2% | $77,770 | 18.4% | 612,203 | 18.0% | 704,907 | 185% | 756,984 | 18.8% $.Other | 662,312 | 225% | 719,507 | 229% | 827,478 | 24.3% | 895,749 | 23.5% | 900,812 | 22.4% Total | 2.940.863 | 1000% | 3,137,602 | 100.0% | 3,406,310 | 100.0% | 3,811,039 | 100.0% | 4024448 | 1000% Source: Business Economics Department (2007) Table 2.3: Ratio of Export Goods from Thailand in World Markets 2002-2006 (Unit: Percent) Economic Zone 2002 2003 2004 2005 2006 1. ASEAN 16.3 18.2 19.9 19.8 20.6 2. USA 21.5 21.0 178 18.0 19.1 3. Japan 17.0 1 16.8 16.8 15.6 4. EU 17.4 15.6 15.1 15.9 15.3 5. Other 279 28.1 30.4 29.5 29.4 Total 100.0 100.0 100.0 100.0 100.0 Source: Business Economics Department (2007) 32Export Promotion Programs The trade promotion and assistance provided by the Thai government play an increasingly important role in today’s growing international trade (Kotler, Jatusripitak & Maesincee, 2005) especially in an exporting sector. Seringhaus & Rosson (2000) classified two approaches that the government should use to promote exports: direct and indirect programs. Direct programs concentrate on the demand side while indirect programs focus on the supply side. They proposed four interesting major types of government initiative and implementation activities as follows: 1. Encouraging non-exporters with strong competitive products to consider first-time exporting. Non-exporting firms may require motivational programs. Government can do this by providing information on the benefits of exporting or case histories of successful exporters. 2. Helping first-time exporters through the early, difficult phases of international marketing. ‘These exporters need extensive information on ‘how” and “where? to export. 3. Promoting the idea of renewed exporting to failed exporters who might succeed in the next try. 4. Supporting continuing exporters as they attempt to improve their performance. This group of exporters may need help to publicize, advertise, and exhibit their products abroad and for meeting directly with foreign buyers (Cavusgil, 1990). They also distinguish five types of company situations in relation to exporting as follows: 1. Non-exporters: these are companies that have no exporting experience and are currently not considering exporting. 2. Failed exporters: these are companies that have some experience in foreign marketing but have decided to withdraw from these activities. 3. First-time exporters: these are companies that have decided to export in the near future. 334, Expanding exporters: these are companies that plan to penetrate their products into one or more new foreign markets. 5. Continuing exporters: these are companies that plan no major changes but want to fine-tune their present export operations. The indirect programs aim to improve the exporter’s competitiveness and performance through structural and process changes. They include productivity, research and development, technology and innovation, manpower planning, regional and sectored development, and fiscal measures such as tax and investment incentive policies, at both the industry and firm levels. Section 6: Research Hypotheses This study uses innovation type, product and process, and innovation source as an approach and analyses the relationship with performance, It analyses innovation as a strategy or a stream of decisions patterns at the firm level,” Alll other constructs are mainly based on resource-based theory. There are eight hypotheses related to the export performance. The objective is to examine whether the hypotheses.can be rejected in ‘Thai exporting context’, The elaboration of the theoretical rationale for these hypotheses follows; 1. Marketing innovation Marketing innovation in this study consists of three variables; new product, new working process and new market. New products can have a favourable effect on market share to the extent that they satisfy customer needs better than the existing goods (Davidson, 2006) and prevent competitors from taking away a business’s customers with their own new products (Hayes & Abernathy, 2000). They can cannibalise the sales of existing products and consume marketing resources (Hambrick & Schecter, 2003). Continuous and constant innovations are competitive imperatives of maintaining and/or building share (Szymanski, 2003). Evidence from studies on ‘excellent companies’ suggests that new products and profits are positively related in the long, run (Peters & Waterman, 2002; Maidique & Hayes, 2004). Successful new product 34development requires creative inputs and analytical disciplines. Cooper & Kleinschmidt (1995) and De Brentani (1999) found that innovation was found to correlate with the new product process. In penetrating a new market, previous studies (Robinson, 1997; Day, 1996; Tessler, 1987; Attiyeh & Wenner, 2001) recommended a market concentration strategy. The traditional view stated that larger market shares. ina few key markets are associated with higher profitability in the long run (Boston Consulting Group, 1998; Buzzel et al., 2005). Other researchers (Hamermesh et al., 1998; Piercy, 1982) recommended a market diversification strategy based on the rationale that taking low market shares in widely dispersed markets may be more profitable than concentrating on a few key markets. From the contradictory empirical results, either export market concentration or market diversification lead to better export performance (Lee & Yang, 2001). In addition, Bello & Williamson (1995) and Rosson (2001) found that there was a positive relationship between export performance and a firm’s support to distributors. Other studies by Christensen et al (1997) and Kirpalni & MacIntosh (2000) reported a positive relationship between export performance and competitive pricing. Therefore, the first hypothesis for this particular study is stated as follows; Hy: The greater the degree of marketing innovation, the higher the level of export performance. 2. Firm resources Firm resources in this study consist of five variables; finance, R&D budget, technology, human resources and marketing knowledge. Firm resources enable firms to select better export markets, formulate suitable marketing strategies and effectively implement them (Douglas & Craig, 1999; Terpstra, 1997): Chow et al. (1997) found that intense competition among firms required great financial commitments, especially for survival. They also found that R&D provides the foundation for an organization’s offerings, Although the benefit of R&D may not be obvious in the short term, it is an absolutely crucial activity for maintaining a firm’s competitive position. Technology intensiveness is consistently found to be related to propensity to export (Cavusgil & Nevin, 2001; ‘McGuinness & Little, 2001; Cavusgil, 1994; Cooper & Kleinschmidt, 1995; Daniels & Robles, 1995; Joynt, 2002). From the human resources aspect, Hansen & 35Wermnerfelt (1989) and before them Powell & Dent-Micallef (1997) found that human resource factors such as organisational climate and goal directedness explained greater proportions of performance variance than strategy and market share factors. Reid (1982) suggested that firms’ export expansion was influenced by financial and human resources such as sales, assets and number of employees. Zirger & Maidique (2000) found that when an electronics company built a quality product it required qualified engineers, marketers and R&D. They concluded that a firm’s resources had an influence on the success or failure of the firm’s performance. In conclusion, a company’s resources have an association to many aspects of organisational factors and firm performance. There are few empirical studies which have employed a resource-based view of export ventures. Consequently, this area has a limited store of past research findings. The following hypotheses are stated and empirically tested. Hz: The greater the degree of firm’s resources, the higher the level of export performance. Hy: Firm resources have a positive relationship to marketing innovation. 3. Firm characteristics Firm characteristics in this study consist of five variables; firm size, management commitment toward exporting, management perception toward profit, number of export product lines and business culture. There is inconclusive evidence on export success based on firm size (Aaby & Slater, 1989). Cooper & Kleinschmidt (1995) established a negative relationship between size and export intensity, while McGuinness & Little (2001), Czinkota & Johnston (1993); Diamantopoulos & Inglis (1998) concluded that there was no relationship. However, some empirical evidence supported the positive relationship between export performance and a firm’s management commitment (Bilkey 1982; Daniels & Robles, 1995; Czinkota & Johnston, 1993; Rosson, 2001). For example, Gronhaug & Lorenzen (2002) found a high positive correlation between management involvement and export performance among Norwegian exporters. Furthermore, Aaby & Slater (1989) concluded that knowledge of the nature of management 36attitudes, (mis) perceptions and disposition towards exports was important to enhance export performance. Based on the traditional belief that firm characteristics are influenced by national culture, firm characteristics in a particular country should have some unique characteristics. This study assumes that Asian business management variables should be included in measuring firm characteristics. It is expected that the five variables of firm characteristics proposed in this study can be verified and can explain the relationship between and among export performance and marketing innovation of exporting companies in Thailand. The two hypotheses are stated as follows; H4: The greater the levels of firm’s characteristics, the higher the level of export performance. Hs: Firm characteristics have a positive relationship to marketing innovation. Hg: Firm characteristics have a positive relationship to firm resources. 4, Environment Social, economic and demographic change results from factors far beyond the control of any individual firm. Even in govermmental policy making, where business has a clear responsibility to participate, the individual firm is unlikely to have a significant influence on decisions (Price, 1996). Porter (2000) stated that in international markets, innovations that yield competitive advantage anticipated both domestic and foreign needs. Previous studies have suggested that export performance is enhanced when exporting firms match their marketing strategies with changes in their external environment (Ansoff, 1997; Kaynak & Kuan, 1993). Indeed, depending on the level of environmental hostility, firms may modify their target markets (Green & Allaway, 2005), standardise or adapt product offerings (Cavusgil, Zou & Naidu, 1998), adjust. other marketing mix variables (Cooper, Hartley & Harvey, 2000), or intensify their exports (Rao, Kreighbaum & Hawes, 2003). The environment in this study consists of nine variables; (1) politics, (2) economy, (3) society, (4) Thailand's membership in the WTO, APEC and other international organisations, (5) public laws, regulations, (6) Culture, religion, 37traditions, (7) environment reserves, (8) foreign currency exchanges, and (9) Thailand's commitment to the International Monetary Fund (IMF). ‘The seventh and the eighth hypotheses are stated as follows; Hy; The attitudes of executives towards the environment have a positive effect on export performance. Hy: The environment has a positive relationship to marketing innovation. Section 7: Research Models. According to the eight hypotheses above, two research models were formulated and presented. The first one is a sub model which will be included in the extended model: the full model of export performance of export manufacturing companies in Thailand. There are ‘The Conceptual Model of Marketing Innovation’ in Figure 2.1 and ‘The Full Model of Export Performance of Export Manufacturing Companies in Thailand’ in Figure 2.2. These two proposed models are used as a basis for subsequent empirical work. Both models employ and depict in the form of Linear Structural Relationship Model (LISREL) which will be explained in the next chapter. The Conceptual Model of Marketing Innovation Figure 2.1 depicts that the conceptual model of marketing innovation of export manufacturing companies in Thailand is composed of three sub-constructs. These are new product, new working process and new market. 38surement and Vi Figure 2.1: Marketing Innovation Model Maretng Innovation a ~ open ay faye on EAGI TPR ‘New Product (n)) ener. Y2 = unique features Ys; = customer’s need Jo = ghee can tnn samptin New Working Process (12) Ys = IT-computer (increase efficiency) Ys = 180 9000 (increase efficiency) yr = downsizing (reduce cost) Ye = re-engineering (reduce cost, increase efficiency) Yo = new technology (increase efficiency) New Market (n) Yio = access to new market yu = new packaging Yio = new promotional approach Yas = _ new training to sales force of foreign distributor Yig = new promotion support provide to foreign distributor Yis = new price competitiveness Note: Ci, 2, Cs defined as an error term of Mi, Nav Ms £15 8x Ese 61s defined as an error term of y}, yi, Ys» Yis Fespectively 39Operational Definitions of the Constructs in Marketing Innovation Model Operational definitions of the constructs in marketing innovation model are defined as follows; Marketing Innovation: the important term in this study is ‘innovation’. The term is defined as practices created by learning or discovering new methods to improve competitiveness within the same industry and presenting the result to markets (Foxall & Johnston, 2004). Thus, marketing innovation is defined as strategies to promote innovation such as new products, new working processes and new markets used by the company during the last three years. ‘New Product is defined as products that are new, both in terms of the products themselves and brand names to customers in foreign markets. ‘New. Working Process is defined as an adaptation of new technology or new management (Porter, 2000) by export companies or units of the companies to help reduce production costs, or management of export costs of the companies. New Market is defined as a market to which the company has never exported its products before, either directly or through sales agents. It also includes marketing activities such as new prices, new sales agents and new sales promotions. ‘The Proposed Full Model of Export Performance The proposed full model of export performance is presented in Figure 2.2. This model shows that there are five constructs that are proposed in this model. The exogenous constructs are firm resources, firm characteristics, marketing innovation and environment. The endogenous construct is export performance. 40ie Full Model of Export Performance: Construct 41‘Table 2.4: Factors Affecting Export Performance: Latent and Observed Variables Exogenous Variables Endogenous Variable Firm Resources (&) X; = Executives’ marketing knowledge X2 = Working hours of executive staff X3 = Staff creativity X4= Assigned responsibility for export development X= Export marketing department dependability X= Budget for export development X= Modem technology &) Size (number of full-time employees) Commitment of executives to exporting Perception of executives toward export profit Number of export product lines Business management (relationship, organisation structure, decision-making) Firm Characté Marketing Innovation (&) (*variables have been shown in Figure 2.1, p. 39) | Environment (E,) X13= Politics X14= Economy Society (¢.g. population) International participation (¢.g. WTO, APEC) Public laws, regulations Culture, religion, traditions Environment reserves Foreign currency exchanges Thailand’s commitment to the Intemational Monetary Fund (IMF) Export Performance (m:) Y1 = Profit Y) = Market share Y3 = Growth Y«= Objectives of firm 42Operational Def ns of the Constructs in Export Performance Model Operational definitions of the constructs in the proposed full model of export performance are defined as follows; Export Performance is defined as executives’ acknowledgement concerning exports that marketing innovation strategy has yielded results in terms of the firm’s performance. Firm Characteristics are defined based on Aaby & Slater (1989), Chetty & Hamilton (1993), Redding (1995) and Weidenbaum (1996). Components of firm characteristics are firm size, management commitment toward exporting, perception of executives toward profit, number of product lines and business culture. Firm Resources are defined in this study as competencies in marketing knowledge, export analysis, finance, human resources and technology. Environment is defined in this study as a perception of executives toward environments outside their exporting company. Summary This chapter combined the literature review, research hypotheses and models together. It is divided into seven sections that cover the literature review related to export performance, firm characteristics, firm resources, innovation, extemal environment and the role of exporting in Thailand. It also explains the proposed hypotheses and the research models. The two proposed research models, the marketing innovation model and the full model of export performance, are described. All factors in the models are explained. Both models employ and depict in the form of Linear Structural Relationship Model (LISREL) which will be explained in the next chapter (Chapter 3). Significant correlations are hypothesised between the marketing innovation model and the proposed full model of export performance. The hypothesised relationships which are expressed in the null form in eight hypotheses were tested using bivariate correlation analysis. The hypotheses in the full model of export performance are summarised as follows; 43Hj: The greater the degree of marketing innovation, the higher the level of export performance, Hy: The greater the degree of firm's resources, the higher the level of export performance, Hy: Firm resources have a positive relationship to marketing innovation, Ha: The greater the levels of firm’s characteristics, the higher the level of export performance, Hit Firm characteristics have a positive relationship to marketing innovation, He: Firm characteristics have a positive relationship to firm resources, Hi: The attitudes of executives towards the environment have a positive effect ‘on export performance, He: The environment has a positive relationship to marketing innovation. 44Chapter 3 Research Methodology ‘The purpose of this chapter is to present the research methodology of this study. The research design, including selecting industries, population and sample size, instruments, the measurements, the data collection method, validity and reliability, and the data analysis including definition of the Linear Structural Relationship Model (LISREL) are explained in this chapter. Section 1: Research Design Selecting Industries To suit the purposes of this study, the industries selected were required to meet the following three criteria; 1. The selected industries were ranked in the top 10 in terms of export value of their products for the last three years (2003-2005). 2. The selected industries were considered as sunrise industries according to the Master Plan for Industrial Development of Thailand (TDRI, 2005). 3. The selected industries were considered as an export-focused sector in the export promotional plan of the Ministry of Commerce in Thailand. The four chosen industries which met these three criteria were electronic and electrical products, food processing, garments, and gems and jewellery. To avoid bias, inclusion of firms that were required to export by parent company policies, subsidiary companies were excluded. To ensure that companies in each industry were displaying strong exporting effort, a list of companies considered to have major export activities was obtained from Thailand’s Selected Exporter Companies 2005-2006 of the Department of Export Promotion, Ministry of Commerce in Thailand, 45Sampling and the Sample Size The sampling frame for this study was the exporting companies in Thailand’s Selected Exporter Companies 2005-2006, The population of this study was 1,578 exporting companies located in Thailand. A stratified random sampling was used to select the companies from each of the four industries by percentage. The total sample size was 500 companies. Industry Population Sample Size I. Electronic and Electrical Products 161 30 2. Food Processing 512 150 3. Garments 467 150 4, Gems and Jewellery 438 150 Total 1578 500 Techniques used to support the participants in this study were: (1) asking for cooperation in collecting data from organisations and associations in Thailand by posting the questionnaire to participants; (2) sending the participant information sheet with the questionnaire and providing the executive summary to respondents after the completion of the research; and (3) sending follow-up postcards to remind them to complete the questionnaire. The expected return rate would be more than 20%, The sample size was determined according to the recommendation of Steven (2006). Factor analysis should have five subjects per variable and multiple regressions need to have 15 subjects per one predictor. Both of these statistical methods need a sample size of not less than 100. Respondents were a random sampling from the executive managers (president, general manager, export manager, marketing manager) who were responsible for exporting or marketing activities. By choosing key informants from the executive | management level, the competency of responses to the issues for marketing innovation and export performance would potentially minimise measurement ertor. 46Instruments Data were collected through a questionnaire (see Appendix A) designed to fit the objectives of the study. The questionnaire consisted of a series of questions and was divided into four main parts; 1. company’s profile, 2. the respondent's response on their company’s marketing innovation, 3. the respondent's response on their company’s export performance, and 4. the respondent’s response on the level of environment that affects their company. To ensure the content validity and reliability, the questionnaire development process included the following steps; 1. Extensive review of academic literature, text and research articles to capture the measures of each key construct variable identified in the theoretical model. 2. Twelve in-depth field interviews conducted with export executives. In these interviews, the executives were probed regarding the key contribution of marketing innovation, the preliminary operationalisation of the constructs, and suggestions for developing marketing innovation in exporting companies. 3. A draft questionnaire was constructed using the results of the extensive review and twelve in-depth field interviews. The questionnaire was checked for construct validity by the research advisor. 4. A small scale questionnaire was pre-tested by randomly selecting two firms from each of the four industries. This process was to ensure the interpretability of the questionnaire items. Furthermore, analysis of the pre-test results was beneficial because it identified the key informant - whose primary responsibility in the firm was export marketing Based on the results of personal in-depth interviews and questionnaire pre-iests, some modifications were made to the research instrument to make sure that respondents understood all questions in the questionnaire. 47Section 2: Measurement Marketing Innovation Model Marketing innovation was measured by using three constructs; new product, new working process, and new market. The constructs in marketing innovation model (as seen in Figure 2.1, p. 39) were measured as follows; ‘New Product was measured by using four statements, Each statement was scored on a seven-point scale ranging from ‘strongly disagree’ to ‘strongly agree” Respondents were asked to rate their level of agreement regarding a company’s new product based on these four statements; ‘Most of our new products were ‘otally new to the market’, ‘Compared to competitive products, most of our new products offered some unique features or attributes to the customer’, ‘Most of our new products met the customers' needs’, and ‘Most of our new products were higher quality than competing products. For example; more distinctive, stronger, more durable, etc.’ New Working Process was measured by using five statements. Each statement was scored on a seven-point rating scale ranging from ‘no change’ to ‘maximum change’. Respondents were asked to rate the level of change regarding the extent to which their companies engaged in new management processes during the last three years based on the five statements; ‘Using the computer’, ‘International standard application e.g. ISO, HACCP’, ‘Downsizing of an organisation or department’, ‘Re- engineering’, and ‘New technology e.g. new machinery’. New Market was measured by using six statements. Each statement was scored on a seven-point rating scale ranging from ‘no change’ to ‘maximum change’ Respondents were asked to rate the level of change regarding the extent to which their companies engaged in new marketing activities during the last three years based on the six statements; ‘New market expansion’, ‘Packaging change’, ‘New promotional approach’, “Training salespeople of foreign distributors/subsidiaries’, ‘Promotional support provided to foreign distributors/subsidiaries’, and ‘Price competitiveness in the export market’. 48The Extended Model of Export Performance The extended model of export performance was composed of five key concepts; export performance, marketing innovation, firm resources, firm characteristics and environment. The measurement of each concept was explained as follows; Export Performance was measured using a multiple-item scale based on Cavusgil & Zou (1994). Export performance was measured as the executive or export manager’s assessment of the initial strategic objectives of company, sales growth of the company in each year (2003-2006), export profit in each year (2003-2006) and overall performance. Marketing Innovation was measured as mentioned above on p. 48. Firm Characteristics were measured by using seven statements; ‘Suitable number of full-time employees’, ‘Commitment of executives to exporting’, ‘Perception of executives toward export profit’, ‘Number of export product lines’, ‘Importance placed by executives on improving business and relationships (between the firm and customers, finance information sources, government agencies, etc.)’, ‘Having a formal organisational structure’, and ‘Centralised decision-making’. Each item was scored on a seven-point rating scale ranging from ‘weak influence’ to ‘strong influence’. Respondents were asked to rate their company characteristics in each statement. Firm Resources were measured by using seven statements; ‘Executives’ marketing knowledge’, ‘Working hours of executive staff’, ‘Staff creativity’, “Executives or managers who take responsibility for exports in particular’, ‘Export marketing department dependability’, ‘Budget for export development’, and ‘Modern technology such as machinery, computers to facilitate designing and control of working processes’. Each statement was scored on a seven-point rating scale ranging from ‘weak influence’ to ‘strong influence’. Respondents were asked to rate the significance of company resources, Environment was measured using ten items; ‘Politics’, ‘Economy’, ‘Society (e.g. population)’, ‘Thailand’s membership in the WTO, APEC and other international 49organisations’, ‘Public laws, regulations’, ‘Culture, religion, traditions’, ‘Environment reserves’, ‘Foreign currency exchanges’, ‘Thailand’s commitment to the Intemational Monetary Fund (IMF)’, and ‘Others (please specify)’. Each item was scored on a seven-point rating scale ranging from ‘negative effect’ to ‘positive effect’. Respondents were asked to rate their perception toward the condition of each environmental variable during the year 2003-2006. The field survey was conducted in two stages; pre-test and mailed questionnaire, These two stages of collecting the data are explained as follows; The First Stage: Prior to the collection of data, personal in-depth interviews were held with eight executive managers who were responsible for exporting or marketing activities in four selected industries (two companies for each industry) and with four high authorities in each of the four industries (see ‘List of the 12 Top Executives’ in Appendix B and ‘Conclusion on Executive Interviews’ in Appendix D). Personal interviews enabled the discussion of export ventures in the total context of company characteristics, policies, companies’ marketing innovation, performance and suggestions for improving performance in terms of marketing innovation strategy. ‘The results from this stage were used to check the construct and content validity of the developed questionnaire. The Second Stage: Before collecting the data, personal contacts from the researcher as well as the participant information sheet (see Appendix E) and questionnaire (see Appendix A) were employed to ask for cooperation in collecting data from the directors/presidents of the following organisations; 1. The Thai Chamber of Commerce The Federation of Thai Industries Department of Export Promotion, Ministry of Commerce, Thailand Thai Gems and Jewellery Traders’ Association Thai Frozen Foods Association Thai Food Processors’ Association IAWwRYD Thai Garment Manufacturers’ Association 50Four associations - Thai Gems and Jewellery Traders’ Association, Thai Frozen Foods’ Association, Thai Food Processors’ Association and Thai Garment Manufacturers’ Association, cooperated in distributing questionnaires to their committees and to members who were qualified to act as respondents in this research. To ensure an adequate response rate, two successive mailings were done. The first mailing contained the participant information sheet explaining the objectives of the research, the questionnaire, the request form for the executive summary to respondents after the completion of the research and.a self-addressed stamped envelope. Three weeks later, follow-up postcards were sent as a reminder to participants whose completed questionnaire was still outstanding. A copy of the executive summary was offered to participants as an incentive. In conclusion, the questionnaire was sent to 500 exporting firms that met the selection criteria outlined previously by mail. Section 4: Validity and Reliability Content validity was checked by interviewing 12 top management personnel of exporting companies. The reliability of the measures was assessed by using the feedback provided by 12 top-level and middle-level management personnel such as vice president, managing director, export manager, marketing manager and an academic person in the marketing field (research supervisor). Subsequently measurement purification analyses were performed on the data collected in the survey. The statistical examination of these data included exploratory factor analyses and confirmatory analyses, path analyses as well as calculation of frequency, means, variances, correlation matrices, adjusted item-to-total correlation and coefficient alphas. Section 5: Data Analysi Due to the explanatory and causal nature of this study, the Linear Structural Relationship Model (LISREL) was used to examine the hypothetical relationships among factors. Three benefits accrue via this method of statistical analysis. Firstly, 51given the paucity of empirical studies to date employing Aaby & Slater’s model in the Thai context, a proposed extended model maintains that the marketing innovation constructs are best tested by using LISREL. These statistical results can explain the direction or probable causal paths among the variables tested. Secondly, the LISREL simultaneously allows for testing the relationship between each dyadic or pair-wise relationship among the variables. Finally, validation of the constructs of export performance, firm characteristics, firm resources, marketing innovation and environment could be established using this statistical method. The Concept behind LISREL ‘The structural equation model (also referred to as ‘SEM model’) has become very popular in the social sciences and the behavioural sciences, especially in psychology, education, sociology and marketing. For a fuller account of SEM model, see Bollen (1989) and Jreskog & Sérbom (1998). A major feature in the development of the structural equation model from the earlier causal (‘path’) model of the 1960s and 1970s, is the conceptualisation of latent variables, The terms ‘unmeasured variable models’ and ‘latent variable models’ refer to classes of structural equation models which explicitly incorporate measurement error into the estimation, and treat observed, or manifest variables as indicators of underlying constructs rather than perfectly measured representations of these same constructs (Bollen, 1989). These models ate quite general, and subsume many of the multivariate techniques which have been dealt with in earlier courses, including confirmatory factor analysis, structural equation (causal) modelling for recursive and/or non-recursive systems, and to some extent the analysis of variance/analysis of covariance, principal components analysis, etc. In common usage, the model used in this study is referred to as LISREL, but it should be noted that LISREL is one of the many computer programs now available to work with these models. Jéreskog & Sérbom from Uppsala University in Sweden are both well-known as ‘gurus’ in this field who developed the statistical software program in calculating the linear structural relationship model. This software program is known as ‘LISREL’. LISREL statistic program was one of the first programs available and is widely used among academics and researchers in western countries but this program is 52considered as an innovation tool for Thai researchers (Wiratchai, 2005). Compared to other programs such as EQS (distributed by BMDP), AMOS, and PROC CALIS (for use with mainframe or microcomputer SAS), LISREL is probably the most widely used and best known. LISREL The use of path diagrams to represent the structural equation model facilitates the specification and understanding of the LISREL methodology. In LISREL, latent constructs are indicated by circles or ovals, while observed variables are indicated by squares or rectangles. Measurement errors are denoted by epsilon (e) and delta (8). Causal relationships are denoted by gamma (y) and beta (8). Notation Used in LISREL Symbol Interpretation Observed Variables: g Observed variable Xi Independent observed variable vi Dependent observed variable 8 The error term for x; & The error term for y; Unobserved Variables: Unobserved or latent variable & Independent unobserved variable ni Dependent unobserved variable & The error term for n 53Primary Symbols used in Path Analysis wy Fl Straight arrow signifies that variable at base of arrow ‘causes’ variables at head of arrow. PD curved twornead arows signify association between two variables. @ Xs ‘Straight two-head arrows connecting two variables signify feedback relation or reciprocal causation. Source: Bollen (1989) Relationships between Variables Interpretation A. Coefficient of an observed independent (x;) or dependent (,)) variable in a measurement equation. Similar to a factor loading. ‘Ay is a px m matrix of coefficients of the regression of y on 1. Ax is aq x m matrix of coefficients of the regression of x on E. B_ is an mx m matrix of coefficients of the n-variables in the structural relationship. Tis an m xn matrix of coefficients of the §-variables in the structural relationship. Source: Jéreskog & Sérbom (1998) Model Estimation A technique based on maximum-likelihood analyses of a structural equation system was used as the primary analytical tool to examine the plausibility or fit of the proposed model. LISREL VIII (Jéreskog & Sérbom, 1998) provides a method of estimating the unknown parameters in a set of linear structural equations which are believed to be related to observed variables, According to Jéreskog & Sérbom (1998), the most general form of the model assumes a causal structure among a set of latent 54variables, and it assumes that ‘the latent variables appear as underlying causes of the observed variables’. The method thus allows for the selection or identification of latent or theoretical constructs and of observed variables which are believed to underlie those constructs. Furthermore, the model allows for the inclusion of multiple measures of the latent constructs. Once the latent and/or observed variables are chosen, the hypothesised relationships among them are expressed in the form of structural equations. The LISREL VIII model consists of two distinct components; (a) the measurement model and (b) the structural model (Jéreskog & Sérbom, 1998 and Jéreskog et al., 2000). The measurement model relates observed variables to latent constructs, thus describing the measurement properties of the observed variables (i.e., their adequacy or accuracy as indicators of the latent constructs). The structural model provides estimates of the hypothesised interrelationships among the variables. The LISREL VIII measurement models for observed independent (x) and observed dependent (y) variables may be expressed as follows; Measurement model forx: x = AyE+ lo g nt i PP Measurement model for y: io where, x Ax a vector of observed independent variables a matrix of coefficients relating observed independent (x) variables to unobserved independent (£) variables & = a vector of latent independent variables & = avector of errors of measurement in x ¥ = avector of observed dependent variables ‘Ay = matrix of coefficients relating observed dependent (y) variables to unobserved dependent (n) variables in the y measurement equation 1 = a vector of latent dependent variables & = a vector of errors of measurement in y 55The measurement models in LISREL VIII also produce two matrices, Qs and 0, which are the variance/covariance matrices of 8 and ¢, respectively. The LISREL may be expressed as follows; n= Bn+Tet+e where, 1 = _avvector of latent dependent variables & = avvector of latent independent variables B = amatrix of coefficients representing direct causal effects of 1 variables on other n - variables E = amatrix of coefficients representing direct causal effects of & variables on other n - variables & = arandom vector of residuals or errors in the structural equations LISREL VIII also produces the matrices, ©, which is the covariance matrix of the latent independent variables, and y, which is the covariance matrix of the error terms, ¢. General Interpretations of the Fit of LISREL Model fit determines the degree to which the structural equation model fits the sample data. LISREL VIII offers the researcher several indicators of the goodness-of- fit of the hypothesised model. These indices and the general interpretations are as follows; 1. Parameter estimate the parameter estimates reflect the strength of the hypothesised relationships within the model. 2. Standard errors and t-value for each estimated parameter: Jéreskog & Sérbom (1998) stated that ‘the t-value for a parameter is defined as the parameter estimate divided by its standard error’, and that it ‘can be used to test whether the true parameter is zero’. They stated, further, that t-values greater than 2.0 in magnitude are judged to be different from zero. In an analysis having a large sample size, this test states that the z test z-value of 1.96 is significant at 0.05 level of significance. 563. Square multiple correlations for each observed variable: the square multiple correlations reflect the amount of variance shared by a given observed variable and the latent construct(s) to which it is purportedly related. Hence, it measures the amount of variation in true score which is also known as reliability. 4. Coefficients of determination: these are measures of the strength of several relationships jointly. LISREL VIII provides coefficients of determination for the set of x-variables, the set of y-variables, for each structural equation, and for the system of structural equations collectively. 5. Normalised residuals: the normalised residuals reflect differences between the model’s predicted variance/covariance (or correlation) matrix and the sample variance/covariance (or correlation) matrix. According to Jéreskog & Sérbom (1998), a normalised residual greater than 2.0 in magnitude indicates that the model is inadequate to account for the covariance of the two involved variables. Thus, the normalised residuals provide information regarding the possible origin of misspecifications in the model. 6. Modification indices: for each fixed parameter in the model, the modification index provides the expected decrease in chi-square (72) if that parameter alone is freed. This index provides statistical information about specific structural modifications that may be made to improve the fit of the model, provided that those modifications are in accordance with the theories. In addition to the above information, model fit criteria commonly used for the overall goodness-of-fit of the whole model to the data are the overall x” measure (and its associated degrees of freedom and probability), a Goodness-of-Fit Index (GF), Adjusted Goodness-of-Fit Index (AGFI) and Root-Mean-Square Residual (RMR) (Bollen, 1989). These criteria are based on differences between the observed (original, S) and model-implied (reproduced, ©) correlation or covariance matrices. With respect to the x” measure, Jéreskog & Sérbom (1998, p. 46) stated that ‘although the 77 measure may be derived theoretically as a likelihood ratio test statistic for testing the hypothesis that 5 is of the form implied by the model against the alternative that Dis unconstrained, we emphasise that such a use of 7f is not valid in most cases for several reasons’. They cautioned that in most empirical work the S7hypothesised model is tentative at best, and further, that the 1? statistic is valid only if all observed variables have a multivariate normal distribution, the analysis is based on the sample covariance matrix and if the sample size is very large. Bollen (1989) consequently suggested that the most appropriate use of the x7 measure is as a goodness-of-fit measure, which may be of particular importance in comparative model testing. Generally, large 7? values (and small probabilities) indicate poor overall fit of the model to the data, while small 7° values (and large probabilities) reflect good fit. According to Bollen (1989), the degrees of freedom serve as a standard by which to judge the relative size of the measure. If the model fits the data well, the expected value of 7? is equal to the degrees of freedom. Similarly, Bollen (1989) recommended that the GFI and the RMR, both of which have a zero to one range in value, should serve primarily as indicators of the relative fit of different models for the same data or the fit of one model for different data. For the present analysis, measurement models for x-variables, y-variables, and a structural model are formulated. As suggested by Joreskog et al. (2000), the information provided by LISREL VIII is used to assess the goodness-of-fit of the proposed model and its overall fit to the data. In addition, the original model is modified according to information provided by the analyses based on the evidence from the literature. Data Analysis Process ‘The data analysis was divided into three phases; Phase One: preliminary analysis was employed using SPSS. All data were shown in percentage, mean, standard deviation and correlation. Phase Two: second-order factor analysis was used in verifying the conceptual model of marketing innovation (as seen in Figure 2.1, p. 39). The results showed the significant variables that can best explain the marketing innovation factor. Phase Three: after verifying the marketing innovation factor, LISREL was employed to test all eight hypotheses and the relationships among factors in ‘The Full Model of Export Performance’ (as seen in Figure 2.2, p. 41). Three stages for testing the model are as follows; 58(a) Testing the conventional model with three constructs; firm characteristics, firm resources and export performance in order to verify whether or not this model fit in the Thai context. (b) Testing the modified conventional model with the same constructs as (a) and adding the marketing innovation construct into the model. This stage examined whether or not the proposed model fit the data. (c) Testing the full model of export performance with the same constructs as (b) and adding environmental variables to the model. This stage examined the goodness- of-fit of this full model, whether or not this proposed full model was the best fit compared to the model in stage (b). All model testing results will be shown in terms of model fit (x2) and proportion of variance explained (R’). Criteria in Selecting and Adjusting the Fitted Model There were four basic criteria in testing the fit of the LISREL; chi-square statistic (¢°), p-value, standardised residual value, and goodness-of-fit. According to the standard chi-square test, a small value of 7” relative to the degree of freedom indicates a satisfactory fit, while a large value relative to the degree of freedom suggests that the model does not fit the data. Hence, some relationship exists among variables. To explore further how a model fits, Haberman (1998) has suggested that the residual analysis and the analysis of linear combinations of frequencies be employed, Adjusted residuals provide indications of which observed frequency is larger or smaller than the expected frequency in the model. Each adjusted residual has the expected value of 0 and variance of 1. As N becomes larger, the distribution of an adjusted residual is the same as the standardised normal distribution N (0, 1). Overall, the fit is g00d if the Pearson chi-square and the likelihood ratio chi-square are non-significant and all adjusted residuals are well below 2 in magnitude (Haberman, 1998; Wiratchai, 2005). 59Summary The objectives of this chapter were two-fold. The primary objective was to explain the research design; sampling design, instrumental design and analysis design. The secondary objective was to operationally define the variables in the two proposed models; the marketing innovation model and the extended model of export performance. ‘There were five sections in this chapter; 1. Research Design included selecting the industries, sampling and sample size, and instruments. The selected industries were ranked in the top 10 in terms of export value of their products for the last three years (2003-2005) and were considered as sunrise industries according to the Master Plan for Industrial Development of Thailand (TDRI, 2005), also an export-focused sector in the export promotional plan of the Ministry of Commerce in Thailand. There were four industries that met the criteria; electronic and electrical products, food processing, garments, and gems and jewellery. The sampling frame was obtained from Thailand’s Selected Exporter Companies 2005- 2006 of the Department of Export Promotion, Ministry of Commerce in Thailand. The population was 1,578 exporting companies. The total sample size was 500 companies selected by random sampling. Data were collected through a questionnaire with the 12 personnel in-depth interviews pre-test. 2. Measurement included in the two proposed models; the marketing innovation model and the extended model of export performance. The marketing innovation was measured by using three constructs; new product, new working process and new market. The extended model of export performance was composed of five key concepts; export performance, marketing innovation, firm resources, firm characteristics and environment, 3. Data Collection Method was conducted in two stages; 12 personnel in-depth interviews for the pre-test and 500 mailed questionnaires. To ensure an adequate response rate, two mailings were done. The first mailing contained the participant information sheet explaining the objectives of this research, the questionnaire, the request form for the executive summary to respondents after the completion of the research and a self-addressed stamped envelope. Three weeks later, postcards were sent as a reminder to participants whose completed questionnaire was still outstanding. 604. Validity and Reliability. The validity was checked by interviewing 12 top management personnel of exporting companies. The reliability was assessed by using the feedback provided by them. The 12 top-level and middle-level management personnel were vice president, managing director, export manager, marketing manager and an academic person in the marketing field. 5. Data Analysis was divided into three phases; (a) analysis using SPSS, (b) analysis to verify the marketing innovation model, and (c) use of LISREL to test eight hypotheses and the relationships among factors in “The Full Model of Export Performance’. 61Chapter 4 Research Analysis and Findings Research analysis and findings are presented in two sections. The first one describes some demographics of the exporting companies as well as the opinions of respondents to export performance, marketing innovation, firm resources, firm characteristics and environment. And the second section is the model estimation and the fitting of the model to the data. The Linear Structural Relationship Model (LISREL) is used as the statistical tool to discover the model which best represented the data. All eight hypotheses stated in Chapter 2 are tested and results are reported. Of the 500 questionnaires which were mailed, 12 questionnaires were returned as undeliverable. A total of 277 responses were received, leading to a response rate of 56.76%. Of the returned questionnaires, 28 questionnaires were disqualified as the respondents were not currently exporting, had less than one year of export experience, ran the business as a subsidiary company, or had closed the factory. ‘The response rate dropped to 51.02%. This response rate can be considered as highly satisfactory, given that mail survey studies with top management as respondents typically achieve a response rate of around 20% (Powell, 2002; Tootelian & Gaedeke, 1997), Of the 249 responses, the majority of the respondents held a top management position; 26 presidents (10.4%), 15 vice-presidents (6%), 131 managing directors (52.6%), 20 export managers (8.0%) and 21 marketing managers (8.4%) involved in export marketing decision-making. The remaining 56 respondents (22.4%) represented middle-level managers such as plant managers, financial and accounting managers, and production managers with substantial responsibility for export activities. Work experience in the export field ranged from six months to 35 years - an average of 10 years. In terms of types of business, 73 (29.3%) were working in food companies, 55 (22.1%) were working in gems and jewellery companies, 59 (23.7%) were working in garments and the rest (62 companies, 24.9%) in electronics and electrical products. 62Section 1: Data Analysis Demographics of Exporting Companies Data in this part were organised into different types according to the distinctive characteristics of the variables under consideration. The data are presented as raw numbers and percentages of respondents as shown in Table 4.1 and Table 4.2. Table 4.1: Demographic Data of Firms Ttems Count (Percentage) ‘Number of full-time employees Below 100 81 (32.53%) 100 to 500 102 (40.96%) 501 to 1,000 31 (12.45%) 1,001 or more 35 (14.06%) ‘Year of company’s international operations 1 to 5 years 56 (22.49%) 6 to 10 years 81 (32.53%) 11 to 15 years 41 (16.47%) 16 to 20 years 35. (14.06%) 21 to 25 years 21 (8.43%) 26 years or more 15 (6.02%) ‘Number of product lines currently exported 1 to 3 product lines 125 (50.20%) 4 to 6 product lines 60 (24.10%) 7 to 9 product lines 16 (6.42%) 10 product lines or more 48 (19.28%) Cx}Items Count (Percentage) ‘Average ratio of export sales out of total sales 1% - 25% 38 (15.26%) 26% - 50% 39 (15.66%) 51% - 75% 35 (14.05%) 76% - 100% 137 (55.03%) Note: n = 249 Table 4.1 shows that for firm size, 40.96% of the 249 exporting companies had between 100 and 500 full-time employees and 32.53% of the sampled firms had below 100 full-time employees. Thus the majority (73.49%) of firms surveyed were small-to- medium-sized enterprises (SMEs). In terms of export experience, 32.53% of the sampled firms had been engaged in the export business for 6-10 years, while only 6.02% of the sample had been in international business for 26 years or more. : Of the 249 firms, 50.20% had 1-3 product lines and about half of that number (24.10%) had 4 -6 product lines. For the average ratio of export sales (by volume) out of total sales, 55.03% of companies exported 76%-100% of their products. In conclusion, most of the sampled firms had 100-500 full-time employees, had engaged in the export business for 6-10 years, had 1-3 product lines and had exported more than 76% of their products to foreign markets. 64Table 4.2: Number of Markets and Regions of Key Exports for Company’s Products ‘Items Count (Percentage) ‘Number of countries company exported 1 to 3 countries 47 (18.87%) 4 to 6 countries 68 (27.31%) 7 to 9 countries 41 (16.47%) 10 countries or more 93 (37.35%) Regions that were most important export markets Asia and Pacific” 198 (79.52%) North America 171 68.67%) Middle and Western Europe 167 (67.07%) ASEAN* 135 (54.22%) Eastem Europe 39. (15.66%) Central and South America 39 (15.66%) Africa 39 (15.66%) Note: n= 249 Table 4.2 shows that 37.35% of companies had exported to 10 countries or more, while 27.31% had exported their products to 4 to 6 countries. Major export markets of the companies’ products were Asia and Pacific (79.52%), North America (68.67%), Middle and Western Europe (67.07%) and ASEAN (54.22%). Only 15.66% of companies reported that their major export markets are in Eastern Europe, Central and South America, and Africa. " Asia and Pacific included the following countries: Japan, China, South Korea, Taiwan, Australia and New Zealand. * ASEAN (The Association of Southeast Asian Nations) included the following countries: Brunei, ‘Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore and Vietnam 65Opinions of the Respondents upon Various Issues Data in this section were organised according to the opinions of the respondents upon various issues. The data are presented in terms of frequency count and percentage of respondents as shown in Table 4.3 to Table 4.5. These three tables show respondents’ opinions on the following issues: technology, research and development (R&D) budget, marketing strategies and company’s current management styles. Table 4.3: Respondents’ Opinions on Technology and Research and Development Budget Items ‘Count (Percentage) ‘Technological orientation compared with major competitors in foreign market Far below major competitors 7 (2.81%) Slightly below major competitors 25 (10.04%) Equal to major competitors 162 (65.06%) Slightly above major competitors 33 (13.25%) Far above major competitors 22 (8.84%) R&D budget as a percentage of total sales No budget 98 (39.36%) Less than 1% 51 (20.48%) 1-3% 64 (25.70%) 46% 20 (8.03%) 7.9% 5 (2.01%) 10 % or more 11 (4.42%) Note: n= 249 From Table 4.3, 65.06% of the respondents stated that the technologies used in their companies were equal to their major competitors, while only 2.81% stated that their technologies were far below their major competitors and 8.84% were far above their major competitors. 66For the research and development (R&D) budget, 39.36% of the respondents reported that they had not set any budget for R&D, 20.48% of respondents reported that they had set their budget for R&D less than 1 % of their companies’ total sales. Only 4.42% of respondents reported that they had set their R&D budget 10% or more of their companies’ total sales. In conclusion, most of the respondents from the exporting companies stated that the technologies used in their companies were equal to their major competitors. Most of the 98 respondents’ companies (39.96%) stated that they had not set a budget for R&D. Only 11 companies (4.42%) had set their R&D budget 10% or more of total sales. Table Respondents’ Opinions on Firm’s Marketing Strategy Items Count (Percentage) Marketing strategy of company a.) “We try to be the ‘first mover’ in new produets, even 80 (32.13%) if some of our efforts fail.” b.) “We try to be the ‘first mover’ in selling products 61 (24.50%) {new or old) in new markets, even though some of our efforts fail.” c.) “We prefer to maintain a secure position in relatively 56 (22.49%) stable product or service areas. Emphasis is on protecting our market share.” 4d.) “We always follow the competitors in new products 30 (12.05%) and new markets.” ©) “We prefer to let competitors take on the risks of new 22 (8.83%) products or new markets, and then we react once those are clear to us. We aim to have the easier path to Total 249 (10.00%) Table 4.4 shows the respondents’ opinions on exporting firm’s marketing strategy. Of the 249 respondents, 80 (32.13%) had employed the ‘first mover" strategy in new products, while a similar number, 24.50% and 22.49% respectively, had used the 67‘first mover’ strategy in selling their products in new markets, or had preferred to maintain their market share. Table 4.5: Respondents’ Opinions on their Firms’ Management Styles Management Style Count (Percentage) a) Family style (centralised decision-making) 66 (26.50%) b) Formal structure 53 (21.30%) ©) A mixture of a) and b) 123 (49.40%) 4) Others 7 (2.80%) Total 249 (100.00%) Table 4.5 shows respondents’ opinions on their company’s current management styles. It showed that the management style used by most sampled companies (49.40%) was a combination of family style and formal structure. The family style, which has centralised decision-making was used by 26.50% and the formal structure was used by 21.30%. Only seven companies (2.80%) stated that they had used other management styles. 68The following data analysis results show respondents” opinions related to five issues. These are firms’ intemational involvement, firms’ characteristics, firms’ resources, marketing innovation (new product, new process, new market), and the impact of external factors upon export performance, The results and the interpretation of analysis are shown in Table 4.6 - 4.12 as follows; Table 4.6: Respondents’ Opinions on the Importance of Different Modes of Firm’s International Involvement to Marketing Innovation | Statistics Indicating Importance of Firms? Firm’s International Involvement International Involvement to Marketing Innovation Mean SD 1. Use of export trading company 3.66 1.23 2. Distribution by:- - Direct selling to foreign end users 5.24 1.05 ~ Through agents 3.94 1.27 + Through distributors 3.52 130 - Through the governments 257 0.89 3. Established branch office in foreign countries 3.49 1.50 4. Offshore sourcing 3.08 1.28 5. Joint venture 3.54 1.34 6. Patent 3.36 139 Note: a)n = 249 b) 7-point rating scale, where 1 = least important and 7 = most important Table 4.6 shows the respondents’ opinions on the importance of different modes of firm’s intemational involvement to marketing innovation. There are six different modes of activity to describe a firms’ involvement in internationalisation. The mean score of opinions for each mode indicates the importance level of that mode. The 69initials SD denote the standard deviation for involvement among firms. Since the scale used is a 7-point rating scale, a mean between 3.51 - 4.50 would represent a neutral level of the importance of international involvement of firms to marketing innovation. The data showed that of all six categories of firms’ international involvement, direct selling to foreign end users had the most importance to marketing innovation with a mean score of 5.24 and SD of 1.05. The remaining five categories of firms’ intemational involvement indicated a similarly neutral level of importance to marketing innovation, namely; distribution through foreign agents (mean = 3.94, SD = 1.27), use of export trading company (mean = 3.66, SD = 1.23), joint venture (mean = 3.54, SD = 1.34), distribution through foreign distributors (mean = 3.52, SD = 1.30) and an established branch office in foreign countries (mean = 3.49, SD = 1.50). The three categories of firms’ international involvement which were least important were; patent (mean = 3.36, SD = 1.39), off-shore sourcing (mean = 3.08, SD = 1.28) and distribution 57, SD = 0.89). In conclusion, of all six categories of firms’ international involvement, direct through the governments (mean selling to foreign end users was considered the most important to marketing innovation. Distribution through the governments was considered the least important to marketing innovation and the remaining modes of activity had means which indicated that they were considered of neutral importance. 70: Respondents’ Oj to Marketing Innovation ns on the Influence of their Firm Characteristics Statistics Indicating Influence of Firm Firm Characteristics Characteristics to Marketing Innovation Mean sD 1. Suitable number of full-time employees 4.05 1.09 2. Commitment of executives to exporting 5.24 0.89 3. Perception of executives toward export profit 4.82 0.99 4, Number of export product lines 4.35 1.01 5, Importance placed by executives on improving 5.08 091 business relationships (between the firm and customers, finance information sources, government agencies, etc.) 6. Having a formal organisational structure 457 0.99 7. Centralised decision-making 423 115 Note: a) n= 249 ) 7-point rating scale, where 1 = weak influence and 7 = strong influence Table 4.7 shows respondents’ opinions on the influence of their firm characteristics to marketing innovation. The mean score for each item indicates the influence level of that item, while the initials SD indicate the standard deviation of the opinions. Since the scale used is a 7-point rating scale, a mean between 3.51 - 4.50 would represent a neutral level of influence of firms’ characteristics to marketing innovation. Out of seven items, there are four items which were considered to have most influence on marketing innovation; commitment of executives to exporting (mean = 5.24, SD = 0.89), importance placed by executives on improving business relationships between the firm and customers, finance information sources, government agencies, ete. a(mean = 5.08, SD = 0.91), perception of executives toward export profit (mean = 4.82, SD = 0.99) and having a formal organisational structure (mean = 4.57, SD = 0.99). Three items of firm characteristics indicated a medium level of importance to marketing innovation. These were number of export product lines (mean = 4.35, SD = 1.01), centralised decision-making (mean = 4.23, SD = 1.15) and suitable number of full-time employees (mean = 4.05, SD = 1.09). In conclusion, of all seven items of firm characteristics, commitment of executives to exporting was considered to have the most influence on marketing innovation. The importance placed by executives on improving business relationships between the firm and customers, finance information sources, government agencies, etc. had the second most influence, and a suitable number of full-time employees, the lowest influence on marketing innovation. ‘Table 4.8: Respondents’ Opinions on the Influence of Firms Resources to Marketing Innovation Statistics Indicating Influence of Firm Resources to Firm Resources Marketing Innovation Mean SD 1. Executives’ marketing knowledge 494 0.93 2. Working hours of executive staff | 4.90 0.87 3. Staff creativity | 4.86 1.04 4, Executives or managers who take responsibility 483 1.03 for exports in particular 5. Export marketing department dependability 481 1.10 6. Budget for export development 450 1.04 7. Modem technology such as machinery, 4.63 ll computers to facilitate designing and control of working processes Note: a)n= 249 b) 7-point rating scale, where 1 = weak influence and 7 = strong influence nRTable 4.8 shows respondents’ opinions on the influence of their firm resources to marketing innovation. The mean score for each item indicates the influence level of that item, while the initials SD indicate the standard deviation of opinions. Since the scale used is a 7-point rating scale, a mean between 3.51 - 4.50 would represent a medium level of influence of firm resources to marketing innovation. The table shows that out of seven items, six were considered to have the most influence on marketing innovation and only one item had a neutral level of significance. Executives’ marketing knowledge was considered to have the most influence on marketing innovation (mean = 4.94, SD = 0.93). The working hours of executive staff had the second most influence (mean = 4,90, SD = 0.87). Budget for export development had the lowest score on level of influence on marketing innovation (mean = 4.50, SD = 1.04). In conclusion, of all seven categories of firm resources, executives’ marketing knowledge was considered to have the most influence on marketing innovation. The working hours of executive staff had the second highest mean and budget for export development was considered to have the least influence on marketing innovation. Table .espondents’ Opinions on the Agreement of Characteristics of their Firms’ Product Innovation during 2004-2006 Statistics Indicating | | Characteristics of Their Firms’ Product Innovation | Veve! of Agreement of Product Innovation Mean sD T. Most of our new products were fotally new to the 243 130 market 2. Compared to competitive products, most of our 3.33 123 new products offered some unique features or attributes to the customer 3. Most of our new products met the customers’ 3.44 117 needs 4. Most of our new products were higher quality than | 3.67 1.07 competing products. For example, more 7BStatistics Indicating Level of Agreement of Product Innovation Mean sD Characteristics of Their Firms’ Product Innovation distinctive, stronger, more durable, etc. Note: a)n = 249 b) 7-point rating scale, where 1 = strongly disagree and 7 = strongly agree Table 4.9 shows respondents’ opinions on the agreement of characteristics of their firms’ product innovation during 2004-2006. The mean score for each item indicates the level of agreement on that item, while the initials SD indicate the standard deviation of opinions. Since the scale used is a 7-point rating scale, a mean between 3.51 - 4.50 would represent a neutral level of agreement with characteristics of their firms’ product innovation The table shows that respondents were less likely to agree that their products during 2004-2006 were totally new to markets (mean = 2.43, SD = 1.30). The respondents were more likely to agree that most of their new products were higher quality than competing products. For example, more distinctive, stronger, more durable, etc, (mean = 3.67, SD = 1.07) Table 4.10: Respondents’ Opinions on the Level of Change of their Firms’ Working Process Innovation during 2004-2006 Statistics Indicating the Level Firms’ Working Process Innovation acm Working Process Innovation Mean sD 1. Using the computer 4.70 133 2. Intemational standard application e.g. ISO, 3.33 2.00 HACCP 3. Downsizing of an organisation or department 3.44 131 4, Re-engineering 3.67 1.49 5. New technology e.g. new machinery 4.16 143, Note: a) n= 249 b) 7-point rating scale, where 1 = no change and 7 = maximum change 14Table 4.10 shows respondents’ opinions on the level of change of their firms’ working process innovation during 2004-2006. The mean score for each item indicates the level of change of that item, while the initials SD indicate the standard deviation of opinions. Since the scale used is a 7-point rating scale, a mean between 3.51 - 4.50 ‘would represent a medium level of change in firms’ working process innovation. The table shows that of all five categories of firms’ working process innovation, using the computer had the most level of change during 2004-2006 (mean = 4.70, SD = 1,33), There were two categories of firms’ working process innovation which indicated a medium level of change during 2004-2006; bringing new technology e.g, new machinery into the company (mean = 4.16, SD = 1.43) and re-engineering (mean = 3.67, SD =1.49). There were another two categories of firms’ working process innovation showing a low level of change; downsizing of an organisation or department (mean = 3.44, SD = 1.51) and the application for international standards (mean = 3.33, SD = 2.00). In conclusion, of all five categories of firms’ working process innovation during 2004-2006; firms’ using the computer showed the highest level of change. Firms’ applying for international standards e.g. ISO, HACCP showed the lowest level of change. Table 4.11: Respondents’ Opinions on the Level of Change of their Firms’ Export Market Innovation during 2004-2006 Statistics Indicating the Level of Change Firms’ Export Market Innovation of Firms’ Market Innovation Mean sD 1. New market expansion 439 1.38 2. Packaging change 3.41 1.56 3. New promotional approach 3.27 1.43 4. Training salespeople of foreign distributors/ 2.59 1.49 subsidiaries 5. Promotional support provided to foreign 2.75 1.52 distributors/subsidiaries 6. Price competitiveness in the export market 439 139 15Note: a) n= 249 ) 7-point rating scale, where 1 = no change and 7 = maximum change Table 4.11 shows respondents’ opinions on the level of change of firms” export market innovation during 2004-2006. The mean score for each item indicates the level of change of that item, while the initials SD indicate the standard deviation of opinions. Since the scale used is a 7-point rating scale, a mean between 3.51 - 4.50 would represent a medium level of change of firms’ export market innovation. The table shows that of all six categories of firms’ export market innovation, only two categories - new market expansion (mean = 4.39, SD = 1.38) and price 39) showed a medium level of change during 2004-2006. Another two categories of firms’ export market competitiveness in the export market (mean = 4.39, SD = innovation indicated little level of change. These were packaging change (mean = 3.41, 43). The SD = 1.56) and applying new promotional approach (mean = 3.27, SD = other two categories had very little level of change, namely having promotional support provided to foreign distributors/subsidiaries (mean = 2.75, SD = 1.52) and training .59, SD = 1.49). salespeople of foreign distributors/subsidiaries (mean = In conclusion, of the six categories of firms” export market innovation during 2004-2006, new market expansion and price competitiveness in the export market showed the highest level of change. Training salespeople of foreign distributors/subsidiaries demonstrated the lowest level of change. ‘Table 4.12: Respondents” Opinions on Various External Factors’ Impact upon Export Performance Statistics Indicating the Impact of External External Factors Factors to Export Performance Mean SD 1. Politics 255 136 2. Economy 2.50 2.04 3. Society (e.g. population) 3.13 0.93 4, Thailand’s membership in the WTO, APEC 3.52 118 and other international organisations 5. Public laws, regulation 2.71 1.34 766. Culture, religion, traditions 3.12 0.83 7. Environmental reserves 3.12 1.16 8. Foreign currency exchanges 3.71 2.12 9. Thailand’s commitment to the International 237 1.65 Monetary Fund (IMF) Note: a)n = 249 b) 7-point rating scale, where 1 = negative effect and 7 = positive effect Table 4.12 shows the respondents’ opinions on the impact of various external factors upon export performance. The mean score for each item indicates the level of impact of that item, while the initials SD indicate the standard deviation of opinions. Since the scale used is a 7-point rating scale, a mean between 3.51 - 4.50 would represent a medium level of impact of external factors upon export performance. The table shows that of all nine categories of extemal factors, the foreign currency exchange (mean = 3.71, SD = 2.12) and Thailand’s membership in the WTO, APEC and other intemational organisations (mean = 3.52, SD = 1.18) showed a moderately high level of impact upon export performance. Three external factors showed the same level of low impact on export performance; society (¢.g, population) (mean = 3.13, SD = 0.93); culture, religion, traditions (mean = 3.12, SD = 0.83) and environmental reserves (mean = 3.12, SD = 1.16). The factor considered to have the least impact was Thailand’s commitment to the International Monetary and Fund (mean = 2.37, SD = 1.65). In conclusion, of all nine categories of external factors, foreign currency exchanges were considered to have had the highest impact on export performance. Thailand’s membership in the WTO, APEC and other international organisations had the second highest impact. Thailand’s commitment to the International Monetary and Fund was considered to have little impact on export performance. 7Export Performance Export performance has been treated as the dependent variable. The measured variables in this construct include both strategic and economic measures. The following tables are the analysis results. Strategic Performance ‘Table 4.13: Respondents’ Opinions on Strategic Objectives of their Companies Rank Count Strategic Objectives No. (Percentage) 1. Improve new export markets 78 G136%) 2. Increase the profitability of the company 72 (28.98%) 3. Protect the company’s market share position 70 (28.16%) 4. Increase the awareness of our produet/company 65 (26.12%) 5. Respond to demand from abroad 62 (24.95%) 6. Respond to competitive pressure 58 (20.64%) 7. Others 32 (11.20%) Note: n = 249 for each item Table 4.13 shows respondents’ opinions on strategic objectives of their companies, measuring by rating each strategic objective in relation to its importance (1 is the least important and 7 is the most important). The results showed that to improve new export markets was deemed the most important among the seven given strategic objectives (31.36%). The second most important strategy was to increase the profitability of the company (28.98%), followed closely by the need to protect the company’s market share position (28.16%). Other objectives (11.20%) specified by. executives included the desire to create customer relationships, finding commercial 8partners or foreign joint investors to gain access to their better expertise, developing and promoting Thai products to the world market, and developing human resources capabilities. Table 4.14: Respondents’ Report on Achievement of Strategic Objectives’ of Company Ttem ‘Strategic Objectives’ Achievement Rank Count (Percentage) 1. _ Improve new export markets 2 152 (61.0%) 2. Increase the profitability of the company 4 124 (49.8%) 3. Protect the company’s market share position 3 140 (56.2%) 4, Respond to demand from abroad 1 174 (9.9%) 5. Increase the awareness of our product/company 5-115. (46.2%) 6. _ Respond to competitive pressure 4 124 (49.8%) Note: n= 249 for each item Table 4.14 shows respondents’ reports on the achievement of their companies’ strategic objectives. All objectives were considered to have been achieved by at least 46% of respondents. The highest achieved strategy was to respond to demand from abroad (69.9%). The second highest achieved strategy was to improve the new export markets (61.0%) and the third highest achieved strategy was to protect the company’s market share position (56.2%). Interestingly enough, comparing the results of respondents’ opinions in table 4.13 and 4.14, it is clear that the strategic objective ranked highest for importance is not the strategic objective which was most highly achieved by the company. It is the strategy of responding to demand from abroad which actually had the highest achievement rate. 79Economic Performance Table 4.15: Respondents’ Reports on Sales Growth of the Company during 2003-2006 Sales Growth Rate | Increase | Year stable | Tnerease | Increase | Increase Un | Decrease | 16% Total (0%) 15% | 610% | 11-15% | answered | |_» | 2003 | 20 33 64 43 28 33 28 249 | (8.0%) | (13.3%) | (25.7%) | (17.3%) | (11.2%) | (13.3%) | (11.2%) | (100%) | 2004/15 26 69 48 | 30 34 27 249 (6.0%) | (10.4%) | (27.7%) | (19.3%) | (12.0%) | (13.7%) | (10.8%) | (100%) | 2005| 25 36 60 46 24 39 19 249 | (10.0%) | (14.5%) | (24.19%) | (18.5%) | (9.6%) | (15.7%) | (7.6%) | (100%) | | 2006| 37 28 68 34 27 44 1 249 | (14.9%) | (11.2%) | (27.3%) | (13.7%) | (10.8%) | (17.7%) | (4.4%) | (100%) Table 4.15 shows respondents’ reports on sales growth of their companies during 2003-2006. For 2003, a quarter of respondents (25.7%) reported that their companies’ sales growth had increased 1-5%.13.3% of respondents reported that their companies’ sales growth increased by 16% plus, or that sales growth had been stable, For 2004, 27.7% of respondents reported that their companies’ sales growth increased 1-5%, while 6% of respondents reported that their companies’ sales decreased. For 2005, 24.1% of respondents reported that their companies’ sales growth increased 1-5%.14.5% of the respondents reported that their companies’ sales growth was stable. For 2006, 27.3% of respondents reported that their companies’ sales 80growth increased 1-5%, and 17.7% of respondents’ reported that sales growth of their company increased by 16% up. In conclusion, in terms of the respondent reports on the extent of their companies’ sale growth, patterns of the sales growth were similar over the four years. About one quarter of respondents (25.7-27.7%) reported that their sales growth had increased by 1-5%, while 8.0-15.7% of respondents stated that their sales growth had decreased. Table 4.16: Respondents’ Report on Profit due to Marketing Innovation during 2003-2006 Profit due to Marketing Innovation Year 5 No] Don’tknow | Notsure | Unanswered | Total 2003; 91 | «68 27 35 28 249 | (36.5%) | (273%) | (10.8%) | (14.1%) | 11.2%) | 100%) 2004 | 100 65 25 35 24 249 (40.2%) | (26.1%) | (10.0%) | (14.1%) | (9.6%) (100%) 2005 | 109 7 21 34 18 249 (43.8%) | (26.9%) | (8.4%) | (13.7%) | (7.2%) (100%) 2006 | 128 38 17 34 12 249 (56.4%) | (23.3%) | (6.8%) | (13.7%) | (4.8%) (100%) Table 4.16 shows respondents’ reports on profit of their companies from marketing innovation activity during 2003-2006. For 2003, 36.5% of respondents reported that their companies had generated profit from marketing innovation. 27.3% of respondents report that their companies made no profit, while over a third could not accurately respond. For 2004, 40.2% of respondents reported that their companies had generated profit from marketing innovation, while 26.1% of respondents report that their companies made no profit. For 2005, 43.8% of respondents reported that their companies had generated profit from marketing innovation, while 26.9% of respondents reported that their companies had made no profit. 81For 2006, 56.4% of respondents, the highest percentage of “Yes” responses, reported that their companies had generated profit from marketing innovation, while only 23.3% of respondents reported that their companies had made no profit. In conclusion, the percentage of respondents who agreed that marketing innovation during 2003-2006 had helped to increase their companies’ profit, increased steadily with each year. Quite a substantial number, 30% of respondents, were unable to accurately report on profit made from marketing innovation for each year. Table 4.17: Respondents’ Opinions on the Success of Marketing Innovation Classified by New Product, New Working Process, and New Market Statistics Indicating the Success Level of Marketing Innovation Marketing Innovation Mean SD 1. New product 3.87 1.48 2. New working process 3.84 131 3. New market 3.89 1.27 Note: a)n = 249 b) 7-point rating scale, where as 1 = negative effect and 7 = positive effect Table 4.17 shows respondents’ opinions on the success of marketing innovation in their companies classified by new product, new working process, and new market. ‘The mean score for each item indicates the level of influence of that item, and the initials SD indicate the standard deviation of opinions. Since the scale used is a 7-point rating scale, a mean between 3.51 - 4.50 would represent a medium or neutral level of influence of marketing innovation in their companies. The table shows that all three categories of marketing innovation scored a medium or neutral level of influence. New market shows the most positive effect with a mean score of 3.89 and SD of 1.27. New product scored second, (mean = 3.87, SD = 1.48) and the level of influence which scored last was new working process (mean = 3.84, SD = 1.31). 82Table 4.18: Respondents’ Opinions on Overall Company’s Performance due to the Adoption of Marketing Innovation Statistics Indicating the Level of Company's Company’s Overall Performance Overall Performance Mean sD 1. Profitability 3.69 1.94 2. Market penetration 3.69 1.90 3. Sales growth 3.86 1.96 4, Building awareness/image overseas 4.08 1.93 Note: a) n= 249 ~ b) 7-point rating scale, where 1 = far below expectations and 7 = far exceeded expectations Table 4.18 shows respondents’ opinions on overall company performance due to the adoption of marketing innovation. The mean score for each item indicates the level of the company’s overall performance, and SD indicates the standard deviation of opinions. Since the scale used in this part is a 7-point rating scale, a mean between 3.51- 4.50 would represent a medium or neutral level of agreement on expectations met in regard to overall performance. Of the four categories of companies’ overall performance, building awareness/image overseas had been met most successfully with a mean score of 4.08 and SD of 1.93. The remaining scores indicate that overall performance had slightly more than average success due to the adoption of the marketing innovation. These are sales growth (mean = 3.86, SD = 1.96), profitability (mean = 3.69, SD = 1.94) and market penetration (mean = 3.69, SD = 1.90). 83Section 2: Model Analysis As indicated in Chapter 2, eight significant associations between marketing innovation and export performance which included firm resources, firm characteristics and environment are hypothesised. The following section explains the model estimation. The hypothesised relationships between variables are tested and demonstrated in the model (as seen in Figure 2.2, p. 41). Model Estimation Measurement models for-the x and y variables After having identified possible indicator variables underlying each construct and having developed a conceptual model of marketing innovation and the full model of, export performance, the next step was a confirmation process of the adequacy of the selected indicator variables. The resolution of measurement problems within the sets of observed x and y variables was attempted prior to testing the full structural model. The procedure was performed in an attempt to verify that the theoretical constructs contained in the model could be captured by the observed variables (see the table of bivariate correlation, mean and standard deviation of 40 variables in Appendix G). To measure whether the items in the questionnaire could capture distinct constructs, maximum likelihood exploratory factor analysis (using oblique rotation) and confirmatory factor analysis were performed upon the fall set of measurement items. The second order factor analysis in LISREL VIII was employed and tested for the marketing innovation construct. Based on the studies, there were 15 y- variables which appeared to be indicators of the four latent variables of marketing innovation, new product, new working process, and new market. The initial examination of the observed variables revealed high multicollinearity, low parameter estimates and correspondingly low squared multiple correlations for totally new product (y;) variable of new product, and the downsizing (y7) variable of a new working process construct (i.e., estimated parameter value = 0.45, 0.49 and squared multiple correlation = 0.21, and 0.23 respectively). For a new market construct, new price competitiveness (y1s) (estimated parameter value = 0.44 and square multiple 84correlation = 0.19) and new training to sales force (y13) were dropped (parameter value = 0.49 and squared multiple correlation = 0.23). The estimate of error variances (0) for these variables was high (0.75 for downsizing and 0.81 for new price competitiveness in new market). According to these results, small common variance was shared by each of the involved subconstructs and the second order of latent construct, marketing innovation. Consequently, these four variables were dropped from the new process and new market constructs. Thus, the results indicate that the assignment of 11 of the 15 items on the scales is sufficient. ‘As mentioned earlier, this study conceptualises marketing innovation as a higher (second) order construct. Specifically, this study proposes that the intercorrelations among the first-order factors of new product, new working process, and new market can be explained in terms of a higher order marketing innovation construct. To establish the existence of a second-order factor for marketing innovation, it was necessary to test the null hypothesis that the first-order factors converge to a single higher order construct. Table 4.19 (p. 86) shows the figure of loadings, ¢ statistics in parenthesis, standard errors, factor scores and fit indices resulting from fitting this model to the data. As shown in the model, a unitary second-order factor fits the data well. Figure 4.1 (p. 87) shows that the chi-square statistic for this model, x? = 36.25, df = 34, p= 0.36, is not significant. There is evidence of the convergence of the variable indicators within their respective first-order factors (new product, new working process, and new market) and the convergence of the first-order factors within the second-order construct. This second-order test of the convergence yields first-order loadings parameters and overall goodness-of-fit statistics that are identical to those of a three-factor first-order model with unconstrained coefficients. The amount of variation in the first-order factors accounted for by marketing innovation is 62% in the case of new product, 81% for new working process, and 79% for new market. Thus, marketing innovation model can be better explained by new working process, then new market and moderately explained by new product. Since the model adequately explains the intercorrelations among the first-order factors, this study employs the second-order model to represent the composite marketing innovation in the proposed full model. 85Table 4.19. nd-Order Measurement Model of Marketing Innovation Indicator (Parameter) New Product New Working Process New Market Standardised first-order |Toading gp Factor | Loading gp Factor | Loading gp, Factor loading @..) (evalue) score | (value) SF score | (value) score ‘Unique features (21) 080 0.07 0.32 (12.09) ‘Customer's needs (ia) 085 0.07 042 (12.73) High quality Qa) 0.76 0.07 0.27 1 (1.49) ‘Computer (A42) 0.63 0.10 0.17 (631) ISO (an) | 0.60 010 0.17 6.16) Re-engineering (ha) O71 O11 O22 (6.44) New technology (in) 085 012 048 6.85) ‘Access new market (hs) 069 010 0.18 (2.16) New packaging @ss) 073010 0.22 (729) New promotion (cs) 0850.10 0.44 (7.65) New support to foreign 0.65 0.09 0.18 distribution (ns) (7.18) Structural Equations (R) 0.39 0.66 0.62, Standardised second-order Marketing Innovation loadings (y; ) aaa SE. New Product 0.62 0.10 (6.40) ‘New Working Process 081 0.17 (4.73) ‘New Market 0.79 015 (5.08) 86Summary statistics Overall fit , df = 34, p = 0.36 Croubach (ex) for: .98, Adjusted GFI = 0. - New Product construct = 0.62 .97, NNFI = 1.00 - New Working Process construct = 0.81 CFI = 1.00, IFI= 1.00 ‘New Market construct = 0.79 74 .0093, = Marketing Innovation Figure 4.1: Marketing Innovation Model i Z | yn sa(oay a ane Non wit ene Ren we cays f aedgeascas ‘pesasoun wma eee frends e039 ‘ / , \ anchneen asa) e y 2 x yw ‘ » x 4 New po vein] | caters \ al in New ow tow : =| sme: | | Havent | eee i] fered) | cary posageg)| | soree:| | San J ia] { i ‘ LISREL goodness-of-fit measures Overall fit: x? = 36.25, df= 34, p = 0.36; GF 0.98, RMSEA = 0.0093 Note: 1. Coefficients; y1,,y21,vs1 fepresent casual linkages 2. tvalue is in parenthesis 3. 2.= relationship between an unobservable variable and its measure 4, GFI = Goodness-of-fit index 5. RMSEA = Root mean square error of approximation 87Estimation of the Full Model of the Export Performance After the establishment of measurement models of five constructs (export performance, marketing innovation, firm characteristic, firm resources, and environment) for the observed independent and dependent variables, the full model of export performance was tested by using LISREL VIII. The immediate results indicated that the original proposed full model of the export performance did not fit to the data, Variance of the error terms for the structural equations were not positive definite. When examining the statistical indices (e.g. parameter estimates, standard errors, f-values, etc.) provided by LISREL VII, the results indicated that the model did not fit to the data. Examples of unreasonable values are many, ¢.g. correlations greater than 1.0, negative variances, matrices which were not positive definite, negative squared multiple correlations, and extremely large standard errors. Jéreskog et al. (2000) discussed this issue as follows; “When a model has been judged not to fit the data adequately by any ground previously considered, the question arises how the model should be modified to {fit the data better. What the model should be cannot be decided on a purely statistical basis, however. The best situation is if there is a substantive theory that can be used to decide how the model should be changed.” Thus, the next procedure is to modify the model so as to improve its fit to the data, while maintaining its theoretical integrity. To measure the ability of the items in each construct, the maximum likelihood exploratory factor analysis (using oblique rotation) and confirmatory factory analysis were performed for each construct and on the full set of measurement items. The items needed to meet the following criteria (Jéreskog & Sérbom, 1998); (a) each item be based on the factor with an eigenvalue greater than 1.00, (b) each individual item be correlated with the factor concemed at the 0.05 level or above, (c) each item to be 88included to have no significant correlation with another factor. Table 4.20 lists these constructs as well as their descriptive statistics and correlation matrices. Reliability of each construct is indicated in underlined figures along the diagonal. 20: Descriptive Information and Reliability of the Scales Used Original | Retained Construct Number | Number Correlation of Items | of Items | 1. Performance 4 4 0.24 2. Marketing Innovation 15 i 0.44 0.28 3. Firm Resources 1 4 |022 053 O12 4, Firm Characteristics 4 1 031 024 035 0,99 | 5. Environment 9 9 | 0.05 018 0.21 0.17 27 | Note: see the retained number criteria in pp. 59 and 64 ‘The Best Fitted Model of Export Perfor In this section, a search process was performed to modify the initial proposed full model of the export performance so as to improve the parsimony and the fit of the model. According to the procedure described by Jéreskog & Sérbom (1998), the search process is supposed to detect and to correct for any specification error indicating a lack of correspondence between the hypothesised model and the ‘true’ model characterising the phenomena. The objective was to find the best fitted and the most parsimonious model in which all parameters are sound and meaningful. The search process started with modifying the initial hypothesised model by eliminating the unsound parameters, adding parameters with a large modification index and justification. Next, the competing models or the equivalent models were tested and the results were compared in order to obtain fitted model (refer to pp. 56-58 for ‘General Interpretation of the Fit of LISREL’). From the hypothesised full model of the export performance, six competing models were modified based on the theoretical integrity. Those modified modes, shown in Figure 4.2 display only the main constructs. Models A, B and C consist of five 89constructs. These are export performance, firm characteristics, firm resources, marketing innovation, and environment. Models D, E and F consist of four constructs, the environment construct is neglected. After several runs of the LISREL model, the comparison of the analysis results indicated that model F was the best fitted model. (A) (0) ® © () ) 90lote: FC = Firm Characteristics FR = Firm Resources EN = Environments MI= Marketing Innovation EP = Export Performance The next step in specification search was to find the most parsimonious model for export performance from the best fitted model F. In this step, three other competing models shown in Figure 4.3 ~ 4.5 were tested. The first one (model I) was similar to model F. The second one (Model II) was model I after eliminating firm resources construct, and the third one (Model IIT) was the one which eliminated both constructs of firm resources and firm characteristics. The analysis results are shown in Table 4.21 Three Competing Models in Searching for the Best Fitted Model Figure 4.3: Model I B2s = 0.50 (6.18) yi = 0.23.14) 1 = 0.07 (0.82) Sr a ¥ CS . (EQ ~~~ R12=0.43 (3.97) innovation say) Overall fit: x= 31.35, df= 37, p = 0.73; GFI = 0.98, RMSE = 0.00 91Figure 4.4: Model II erat ND 1.24 2.98). B12 =0:38 (4.30) takeing torn (m2) Overall fit: y= 4.01, df= 11, p = 0.97; GFI = 1.00, RMSE = 0.00 Figure lodel IIT 711=028.86) Ave Expat { .imovaton = ——+{ periomance Ke (nm) Overall fit: 7? = 1.61, df= 12, p = 0.99; GFI = 1.00, RMSE = 0.00 Note: 1. Coefficients; y11,y22 ys; represent casual linkages 2. Evalue is in parenthesis 92Table 4.21: LISREL Analysis Results of Three Competing Models in Searching for the Best Fitted and the Most Parsimonious Model of Export Performance Parameter Path Model I Model II Model IIT Parameter | SE | Parameter | SE | Parameter | SE FC> EP yu =023 [3.14 | y1=0.28 | 3.86 FC > MI yi = 0.07 | 0.82 | y1=0.24 | 2.98 FC FR ya =0.35 | 4.89 MI> EP B2=043 | 3.97 | Bn=0.38 | 4.30 | yx1=0.28 | 3.86 FR> MI Bas = 0.50 | 5.18 FR EP Bis =-0.09 | -0.87 | ¢ 31.35 4.01 1.61 af 37 1 12 P 073 097 0.99 lat 0.847 0.364 0.134 GFI 0.98 1.00 1.00 RMSE 0.00 0.00 0.00 Resquare for the | overall model 0.24 O14 0.08 In order to obtain the best fitted model, the criteria suggested by Jéreskog & ‘Sérbom (1998) and Bollen (1989) were applied here. Considering the two goodness of- fit measures (GFI and RMSE), the three models were competitive. However, the GFI for Model I is lower than GFls for Model IT and III, but the high value of 1 /af for Model I (x? /df = 0.847) indicates that Model I has a very good fit, far more than Model TI and Ill. Since the differences in 7s and dfs between Model I and II and between II and III show that there are large drops in 7? as compared to the differences in dfs (a drop 93of 33.34 as compared to 26 and a drop of 29.74 as compared to 25). It signified that Model I is better than Models II and III. The value of square multiple correlation also supported the results. Thus, the best fitted and the most parsimonious model is Model I. Figure 4.6: The Best Fitted Model of Export Performance Ancoseaan_ «le - — 3D ere een) ALN Sante BY nett | owt — oh a noose Lt aos ay (325) = Ne ic oT ~{ watea \ 1.2=0761075)(/ weve) Noein ns ey ovr 37, p = 0.73; GFI = 0.98, RMSEA = 0.00 Note: 1. Coefficients; v1, vas,va1 represent casual linkages 2. tvalue is in parenthesis 3. 4. relationship between an unobservable variable and its measure 4, GFI = Goodness-of-fit index 5. RMSEA = Root mean square ettor of approximation 94Figure 4.6 shows the best fitted model of export performance. The examination of the overall fit of the proposed model was very encouraging using traditional 1.35, df = 37, p = 0.73; GFI = 0.98, AGFI = 0.96, NFI = 0.96, NNFI= 1.00, RMSEA = 0.034). Not only did the overall fit measures indicate a fit, the point measures (4? estimate of RMSEA was below the 0.05 level recommended by Browne & Cudeck (2003). The other indicator was that the expected cross-validation index (ECV1) for the model (0.52) was less than the ECVI for the saturated model (0.63). Alll of these measures suggest that model fit to the data reasonably well. Hypotheses Testing Given evidence of correspondence between the hypothesised constructs and their respective indicators, as well as the evidence that the constructs are distinct (Bagozzi & Phillips, 2002), the full model was tested. The environment construct was excluded from the model because of the low significant relationship with export performance. Four of the eight hypothesised causal paths were statistically supported at the 0.05 level of significance. Table 4.22 summarises the results of hypotheses testing. Consequently, it was determined from the analysis that the best fitted model of marketing innovation on export performance with firm resources and firm characteristics, as originally estimated, was the best fitted model to the data. 95Table 4.22: Summary of the Results in Hypotheses Testing Hypotheses Results | Statisties* Hi: The greater the degree of marketing innovation, Supported 0.43 the higher the level of export performance, G97) Hh. The greater the degree of firm’s resources, the Not Supported | -0.09 higher the level of export performance. (0.87) Hy. Firm resources have a positive relationship to Supported 0.50 marketing innovation. (5.18) He The greater the levels of firm’s characteristics, the | _ Supported 023 higher the level of export performance. (3.14) Hs, Firm characteristics have a positive relationship to. | Not Supported | _0.07 marketing innovation, (0.82) He: Firm characteristics have a positive relationship to | _ Supported 035 firm resources. (4.89) Hy: The attitudes of executives towards the environ- | Not Supported | __0.05 ments have a positive effect on export (0.05) performance. Hg. The environments have a positive relationship to | Not Supported | __ 0.10 marketing innovation. 0.91) Note: “Standardised structural coefficient is shown and f-value is in parentheses. Structural Paths The standardised structural coefficients with t-values for the measurement relations and structural paths of the model are represented in Table 4.23. Based on the non-significant chi-square, x°= 31.35, df= 37, p = 0.73, and the indicators of model adequacy such as GFI = 0.98, adjusted GFT .96, NFI = 0.96, NNFI = 1.00, and RMSEA = 0.00, the fit of the model to the data appears to be good. The full model explains the 0.24 variance in the export performance [Compared to the 0.35 variance in 96the export sales growth (Cavusgil & Zou, 1994), the 0.13 variance in the export sale (Bilkey, 1985) and the 0.09 variance in the export profits (Madsen, 1989)]. The parameter estimates for the structural paths; y11, y31, Bi2, B23 were all positive and statistically significant, which is consistent with the direct and indirect effects predicted in the hypotheses. Only yp: and Bs are statistically non-significant. Tabl Estimated Parameters from the Structural Model ‘The Best Fitted Model of Export Performance’ Parameter and Relationship a Structural t-value (From > To) Coefficient Exogenous > Endogenous yu Firm characteristics (size) > Export performance (H,+) 0.23 3.14 ya Firm characteristics (size)-> Marketing innovation (Hs-)* 0.07 0.82 ya Firm characteristics (size) > Firm resources (Het) 0.35 4.89 Endogenous > Endogenous Biz Marketing innovation > Export performance (H)+) 0.43 3.97 Bas Firm resources > Marketing innovation (Hs+) 0.50 5.18 Bis Firm resources > Export Performance (H2-)* -0.09 0.87 Structural Equations R? Constructs Export Performance 0.24 Marketing Innovation 0.28 Firm Resources, 0.12 Summary Statistics: = 31.35, df= 37, p = 0.73 GFI = 0.98, Adjusted GFI = 0.96 NEI = 0.96, NNFI= 1.00 RMSEA = 0.00 Note: Standardised solution is from LISREL Vill *Rejected hypotheses To clearly understand the cause and effect of each construct in the model, a key feature of LISREL VIII also reports the total effects, which are obtained by summing 9o7the direct and indirect effects (j.e., estimated for direct paths plus estimated for indirect paths, retaining positive or negative signs). The reporting of results here includes both direct and indirect effects. The direct and indirect effects (from the LISREL output) are depicted in Table 4.24. Total effects are simply the sum of direct and indirect effects Table 4.24: Direct, Indirect, and Total Effects of Independent Variables on Export Performance a, 2 a) @) Total Independent Direct Indirect | SE. SE. | Standardised | SE. Variables Effects Effects Effects (t-value) (value) (value) Marketing Innovation |__0.43 0.43 97) | 0.11 ° . G97) ou Firm Characteristies | 0.23 0.08 O31 | @14). | 0.07] (0.08) | 0.08 (4.18) 0.04 Firm Resources -0.09 0.22 0.13 | (087) |o11] @.13) | 007 (147) 0.09 Interpretations Firstly, firm characteristics which are represented in this study by the size of the company (number of full-time employees) positively and directly influence the firm’s export performance and firm resources. Furthermore, both paths appear to be strong, as judged by their parameter estimates, standard errors, and ¢-values. The positive relationship between firm characteristics, firm resources and export performance are consistent with the hypotheses Hy and He in Chapter 2. However, the parameter estimate for the firm size to marketing innovation path is not strong since the ¢-value is lower than 2.0 in magnitude (y21 = 0.07 and t-value = 0.82). This result, therefore, means Hs must be rejected: the marketing innovation strategy of the exporting company is not statistically correlated to the firm size (number of full-time employees). Thus, this path can be viewed somewhat tentatively. 98Secondly, firm resources exert some relationship between export performance and marketing innovation. The coefficient of B23= 50 with f-value = 5.18 shows the positive relationship between firm resources and marketing innovation. However, there is a negative relationship between firm resources and export performance (B13 = -0.09 with t-value = -0.87), but this negative effect is not statistically significant and this hypothesis H, is rejected. Thirdly, the marketing innovation was found to exert a direct positive influence on export performance. The positive influence of marketing innovation on export performance is as hypothesised, (B12 = 0.43 with ¢-value = 3.97), and is stated with the hypothesis expressed in Hy. Summary The response rate of the 249 responses out of the 500 mailed questionnaires can be considered as highly satisfactory of 51.02% retumed questionnaires after 12 undeliverable questionnaires. In term of types of business, the highest representation of companies came from the food industry (29.3%, 73 companies), second highest was electronics and electrical products companies (24.9%, 62 companies), third highest was companies from the garments industry (23.7%, 59 companies) and the lowest representation came from gems and jewellery companies (22.1%, 55 companies). There are two sections in this chapter; T. Data Analysis. Most of the sampled firms had 100-500 full-time employees. ‘The majority (73.49%) of firms surveyed were small-to-medium-sized enterprises (SMEs). Most of them had engaged in the export business for 6-10 years, had 1-3 product lines and had exported more than 76% of their products to foreign markets Major export markets were Asia and Pacific (79.52%), North America (68.67%), Middle and Western Europe (67.07%) and ASEAN (54,22%). As for the opinions of respondents to export performance, marketing innovation, firm resources, firm characteristics and environment; most of the respondents stated that the technologies used in their companies were equal to their major competitors. The 98 respondents’ companies (39.96%) stated that they had not set a budget for R&D. Only 11 companies (4.42%) had set their R&D budget 10% or more of total sales. It is very interesting to 99see that executives’ marketing knowledge of firm resources had the most influence on marketing innovation and the external environment factor of foreign currency exchanges had the highest impact on export performance. 2. Model Analysis described the model estimation and the fitting of the model to the data. The Linear Structural Relationship Model (LISREL) was used as the statistical tool to discover the model which best represented the data. All eight hypotheses between marketing innovation and export performance which included firm resources, firm characteristics and environment were tested in the model. Through an iterative process involving the modification and testing of numerous models, the marketing innovation model and the best fitted model of export performance were found. Both models appear to fit the data well. The hypothesised relationships between model components were tested and accepted; only one hypothesis could not be accepted. The results obtained from the estimation of the model are explained in details with data analysis in the first part of Chapter 5, with attention given to the theoretical and empirical implications, and conclusion. 100Chapter 5 Discussions, Implications and Conclusion ‘The purpose of this research was to develop ‘The Full Model of Export Performance’ which enhances the empirical model of Aaby & Slater (1989) and Chetty & Hamilton (1993) by including the marketing innovation component. This study has demonstrated that marketing innovation comprises three main factors which are new product, new working process and new market. Each factor consists of variables that can best explain the phenomenon of exporting firms in Thailand, especially working process innovation and new market innovation. The cause and effect of each variable are examined. An analytical procedure which facilitated the simultaneous examination of the interrelationship among the theoretical components of export performance, marketing innovation, firm resources and firm characteristics was performed by using LISREL. The implications which can be inferred from the best fitted model are discussed in details. Introduction Marketing Innovation Model ‘The marketing innovation model of exporting firms is composed of three sub- constructs as shown in Figure 5.1 (p. 102). These are new product (unique features, satisfy customers’ needs, higher quality than competitors), new working process (computers, intemational standards, re-engineering, new technology) and new market {access to new markets, new packaging, new promotional approaches, new support provided for foreign distributors). New working process and new market best explain marketing innovation with a factor loading of 0.81 and 0.79 respectively. The new product sub-construct moderately explains variance of marketing innovation with a factor loading of 0.62. 101Export Performance Model The export performance model of exporting firms in four high potential growth- rate industries in Thailand is composed of four latent constructs. These are export performance (profit, market share, growth, and company image), marketing innovation (new product, new working process and new market), firm resources (executives? marketing knowledge, executives or managers who take responsibility for exports in particular, export marketing department dependability, and relationship) and firm characteristics or firm size. The export performance model is shown in Figure 5.1. Figure 5. xport Performance Model Firm Resources () Y31 = 0.35 (4.89)" “B13 = -0.09 (-0.87) He (+); — Eh} R23 = 0.50 (6.18) Export Performance my, yi = 0.23.14) He) 07 (0.82) LISREL goodness-of-fit measures Overall fit: 1.35, df=37, p = 0.73; GFI = 0.98, RMSEA = 0.00 Note: 1. Coefficients; y11,y21,¥s1 represent causal linkages 2. tvalue is in parenthesis 3. 4.= relationship between an unobservable variable and its measure 4. GFI = Goodness-of-fit index 5. RMSEA = Root mean square error of approximation 102From Figure 5.1 in term of the results, firm characteristics (H) and marketing innovation (H,) have a significant positive relationship to export performance (11 = 0.23 and Biz = 0.43 respectively). Firm resources have a positive relationship to marketing innovation (Hs, B23= 0.50), but do not have a significant positive effect on export performance (H2, B13=-0.09). The relationship between firm resources and export performance can be described as a spurious relationship. In practice, marketing innovation strategies are able to enhance export performance depending on the level of firm resources. The size of export companies in this study is best measured by the number of full-time employees. Thus, the way to improve export performance partly relies on the number of full-time employees. The relationship of all paths between firm characteristics, firm resources, export performance, and marketing innovation are positive. The combined effect might influence the positive relationship from firm resources to export performance. However, the dash line between the latent variable of firm resources and export performance represents a non-significant relationship. The respondents in this study exhibited a high level of interest in the subject of marketing innovation and export performance in Thailand. From 249 sampled firms in high-potential growth industries (food processing, gems and jewellery, garments, and electronics and electrical products), approximately 32% of respondents made a number of suggestions about export performance. ‘The strength of the research findings was found not only in the quantitative data, but also in the qualitative in-depth executive interviews. Results from the hypotheses tested also reveal many interesting points which will be discussed in detail hereafter. Section 1: Discussions 1, Effects of Marketing Innovation on Export Performance Hy: The greater the degree of marketing innovation, the higher the level of export performance. The results of the LISREL analysis detailed in Chapter 4 show that marketing innovation by exporting companies in the selected industries is composed of three sub- constructs, These sub-constructs are new product, new working process and new 103market. From marketing innovation model (as seen in Figure 4.1, p. 87), comparing the factor loadings (coefficients; y11, y21, Y31), this model can explain differences among the companies in developing new working processes and new markets, with factor loadings of 0.81 and 0.79 respectively. The new product sub-construct has a factor loading of 0.62. The results are consistent with previous studies (Aiken & Hage, 1971; Kimberly & Evanisko, 1991; Carroad & Carroad, 2002 and Porter, 2000). The results confirm that innovation at the company level is characterised by the adoption of new products, new working processes and new markets. Analysing the path between marketing innovation and export performance, the results confirm the hypothesis (H,) that marketing innovation has a positive influence on export performance. When evaluated in the context of previous studies of ‘excellent’ companies, the results confirmed that new products and profits were positively related in the long run (Peters & Waterman, 2002; Maidique & Hayes, 2004). According to this research, the sales growth rate of the sampled firms during 2003 to 2006 tended to decline slightly. However, the percentage of profit from exporting based on marketing innovation tended to increase since 2003. In 2003, 36.5% of respondents agreed that marketing innovation could help the firms to make more profit. Furthermore, an interesting issue was raised by some of the respondents stating that they had no idea about the extent of profit resulting from marketing innovation and were reluctant to answer. For example, in 2005, 8.4% of respondents stated that they had no idea, 13.7% were not sure and 7.2% were reluctant to give any answer. This can be explained as follows; (a) Marketing innovation has an effect on export performance in the long term. It can help the company to not lose their market share, though there is an ambiguity in the correlation between marketing innovation and export performance. (b) Executives or exporters may lack knowledge and understanding about the correlation between marketing innovation and profit. There may bea lack of knowledge and understanding about the correlation between marketing innovation and profit, or there may be other factors that make it impossible to discover a correlation. However, most respondents believed that marketing innovation had some influence on export performance. 1042. Effects of Firm Resources on Export Performance Hy: The greater the degree of firm’s resources, the higher the level of export performance. Hg: Firm resources have a positive relationship to marketing innovation. The relationship between firm resources and export performance based on Hp is partially true, since there are positive total effects and indirect effects between firm resources and export performance (0.13 and 0.22 respectively, see Table 4.24 p. 98). The negative relationship between firm resources and export performance is opposite to what was hypothesised (Hz), but this relationship is not statistically significant. The minus sign must be interpreted with caution. There might be some other hidden influences exerted between firm resources and export performance. There could be some specific intangible assets which link the firm with external constituencies (Nanda, 2006). Some examples are consumer loyalty, worker human capital and public trust. The company’s performance can vary significantly based on the organisation’s environment (Utterback & Abernathy, 2005) and competitive strategy (Zahra & Covin, 2003). The parameter estimates from the full model indicated that firm resources exert a positive influence on marketing innovation, which is consistent with the hypotheses H. This means that firm resources had a positive relationship to marketing innovation. This empirical study can verify that the resource-based theory can be applied in the exporting company context with some caution. Resources that exporting companies in this study considered valuable were executives’ marketing knowledge, export marketing department dependability, and having good relationships between the firm and customers, financial information sources, civil servants, ete. The last variable in this study is labelled as ‘relationship’. This study found that most top executives and respondents claimed that human resources was a factor that could affect some change in the company. Some respondents mentioned that management styles in some companies, such as family style and a ‘one-man show’ system, always make changes in management difficult or even impossible. Such systems could discourage employees from brainstorming innovative ideas. From the questionnaire survey, the management style currently used by 49.4% of the sampled companies was a mixture of family style 105and formal structure, Family style accounts for 26.5%, formal structure 21.3% and others 2.8%. Thus, the management style in exporting companies should be considered as an important variable in encouraging or discouraging marketing innovation The other interesting variable was the research and development budget (R&D). In the past, companies have used technology or the R&D budget as a valuable resource in stimulating innovation. For example, in 2006, private organisations in the United States spent almost $170 billion on R&D — on average about 3.4% of total sales and 46.8% of total profits (Business Week, 2006). In this study, 39.36% of the sampled companies reported that their companies did not have an R&D budget, only 4.42% of the sampled companies reported the R&D budget at 10% or more. The contradiction between R&D budgets of exporting companies in Thailand with those in other developed countries makes an interesting point for further study. 3. Effects of Firm Characteristics on Export Performance H4: The greater the levels of firm’s characteristics, the higher the level of export performance. Hs: Firm characteristics have a positive relationship to marketing innovation. ‘He: Firm characteristics have a positive relationship to firm resources. From the results of LISREL detailed in Chapter 4, there are positive relationships between firm characteristics (number of full-time employees) and export performance, and between firm characteristics and marketing innovation. These significant relationships confirm the hypotheses Hy and Hs. The parameter estimates from the full model indicated that firm characteristics exert a positive relationship to firm resources, which is consistent with the hypothesis Hs. This means that firm characteristics has been affected directly by firm resources. For firm characteristics or firm size, the most common hypothesis is ‘the larger companies have the size advantage that enable them to effectively engage in exporting much more than smaller companies’ (Aaby & Slater, 1989). Aaby & Slater’s strategic model does allow for the use of firm size, but they concluded that ‘company size by itself is not an important factor unless it is linked to aspects such as financial strength or variables related to economies of scale (...). Competencies are probably more important than firm characteristics’. This 106research found a different relationship from the previous study. Cooper & Kleinschmidt (1995) established a negative relationship between size and export intensity, while McGuinness & Little (2001), Czinkota & Johnston (1993) and Diamantopoulos & Inglis (1998) found no relationship. Calof (2004) noted the failure of previous researchers to identify ‘the amount of variance explained by size’ in the relationship between firm characteristics and export performance. He concluded that in the consideration of the firm size and export behaviour relationship, ‘its importance is limited, as the amount of variance explained is modest’, In the context of marketing innovation, firm characteristics had a positive relationship with marketing innovation. The relationship is not extremely strong since the t-value is lower than 2.0 in magnitudes. 40.96% of the sampled firms had between 100 and 500 full-time employees, while 32.53% of the firms had fewer than 100 full- time employees. This data showed that most of the exporting companies in Thailand are small to medium-sized businesses. The effect of size is not clearly noticed in other aspects of the business beyond human resources. In many cases, qualifications such as educational background, experience in exporting or some technical skill are desired by organisations. In selecting marketing innovation strategy, the small-to-medium-sized enterprises (SMEs) should put emphasis on developing new products with unique features and penetrating a niche market. A large company should carefully perform its marketing innovation within new working processes by using its resources effectively and efficiently. 4. Effects of Environment Hy: The attitudes of executives towards the environment have a positive effect on export performance. He:The environment has a positive relationship to marketing innovation. The questionnaire survey provided evidence that extemal environments had a moderate impact upon export performance. When analysed individually, the foreign currency exchange and Thailand’s membership in the WTO, APEC and in other intemational organisations all had moderate impact upon export performance (mean = 3.71, 3.52 respectively). In addition, the respondents reported that the society (e.g. 107population) (mean = 3.13), culture, religion, traditions (mean = 3.12), environmental reserves (mean = 3.12), public laws and regulations (mean = 2.71), politics (mean = 2.55) and economy (mean = 2.50) had low impacts on firms’ export performance. The environmental factors which respondents ranked from +1 to +3 (for a positive effect) in terms of the degree of impact on their companies were the economy, foreign currency exchanges, and Thailand's commitment to the International Monetary Fund (IMF). Government roles such as politics, public laws and regulations also had an impact on the companies. Respondents mentioned that some factors such as floating exchange rates indicated both positive and negative effects. For example, the sales volume factor improved the export performance of the company; the source of funding factor caused problems with cash-flow. All of these factors indicated by executives and statistics results raised questions regarding the conclusion by Cavusgil (2004a). He concluded that ‘external factors, such as currency exchange rates, level of domestic and foreign demands, relative rates of price-level increases, and commercial policy proved to be poor predictors of the firm’s export behaviour’, Furthermore, Cavusgil (2004a) suggested that ‘in order to understand variations among firms with respect to the existence and the extent of export activity, one must explore some crucial factors within the firm and its management’. Similar conclusions were reported in a 2006 commissioned report to the Congressional Joint Economic Study by a Washington- based intemational consulting firm, Quick, Finance and Associates (Greenberg, 2006). This report suggested a third approach to understanding export performance - that one should emphasise variables that are internal rather than external to the firm. Differences in how firms react to the changing environment are thus captured, both in terms of the strategies followed over time, and in the differences in firm characteristics and firm resources over time. Thus, empirical studies such as depth interviews and questionnaire surveys need to be developed for the specific purpose of testing the relationship between particular factors in the environment on marketing innovation and export performance. 108Respondents’ Suggestions for the Development of Marketing Innovations Exporting Companies ‘These suggestions have been highlighted by some respondents in an open-ended question in the questionnaire. There were 80 respondents (32.13%) answered. All of the answers were analysed according to the relevant context and were organised into two main parts. The first part required a suggestion from respondents on marketing innovation development. The second part was a summary of the respondents’ problems and constraints in relation to marketing innovation development within their companies. Part I: Marketing Innovation Development Company Sector The respondents from 249 exporting companies commented that their companies should develop marketing innovation based on the following issues; 1. New produ : To improve the quality of the products, the companies should emphasise added value to products and show determination to reach international standards such as ISO 9000, ISO 14000 and HACCP. Also the companies should develop new or more interesting packaging with lower cost and making the products easier to carry. 2. New working process: The existing machines are too old. New technology such as new modem machines should be introduced to the production process to strengthen companies’ productivity. 3. New market: Businesses have to attempt to expand their foreign markets in order to strengthen their companies’ performance. Other suggestions included service quality such as customer care, pricing, quality of products, service and honesty, and building relationships between companies and foreign raw material suppliers. Government Sector In this part, respondents suggested that government agencies should extend their support to the exporters in different areas. The suggestions were as follows; 1091. Providing marketing knowledge and information such as setting up marketing information systems in terms of prices, quantities and quality of products which would be useful for developing products and markets. 2. Financing long-term loans to the export industry. 3. Improving service systems in the government’s export promotion agencies. ‘The Ministry of Science and Technology, the Foreign Affair Trade department, the Customs department and the Revenue department are some examples of government agencies that should improve their working efficiency in order to serve exporters better. 4, Establishing a copyright and patent centre managed by a private organisation, 5. Providing training courses and business development techniques to all levels of the export industry’s personnel. 6. Amending some laws and regulations in order to provide better support for exporters. Part II: Constraints of Marketing Innovation Development The constraints affecting marketing innovation development as described by the companies’ executives can be summarised as follows; 1. Lack of financial and technological support from the government. 2. Problems of red tape in service from government agencies such as the Ministry of Science and Technology, the Customs department, the Revenue department and the Foreign Affair Trade department. 3. High interest rates and low liquidity, causing problems in cash-flow management. 4, Lack of constructive cooperation among the companies in the export industry. For example; price-cutting is highly destructive competition between competitors. 5. Problems affecting new product creativity due to the executives’ lack of knowledge of modemised technology. 6. Problems in developing marketing channels in foreign markets. Even though a company can develop new products of better quality with its own brand name, it may be affected by high marketing management costs in those markets. 1107. Problems of management systems in some companies, such as the family or “one-man show’ system, which always make any change in management difficult or even impossible. Such systems also discourage management brainstorming that can lead to difficulty in innovation. 8. Resistance to change. Thai people do not welcome new changes easily; therefore, itis difficult to convince staff in organisations to understand the need for the innovation. In conclusion, it is suggested that export companies should focus on developing better product quality with an aim to reach international standards. Companies should bring in new technologies to their production processes for better product quality at lower cost. Moreover, the executives agree that existing problems and constraints have damaged marketing innovation development. These problems need to be solved by both the companies and the government. Section 2: Implications Empirical Implications of Marketing Innovation on Export Performance This research was based on three fundamental objectives; the development of the marketing innovation model, the development of the full model of export performance, and the application of these models to international business, in particular to the development and promotion of Thailand’s exports and to the strengthening of its “long-term competitiveness. This research revealed a number of important and complementary points from executive interviews, questionnaire survey and the analysis, of the causal effects by utilising the LISREL statistical program. The number of implications drawn from this study can be organised into two section: implications for export businesses, and implications for governmental agencies and private organisations. 1. Implications for Export Businesses The managerial implications can be presented in four parts according to the findings; size of the company, marketing innovation development, human resource development, and internal and external support development. rte1.1 Size of the company Size of the company in this study was measured in terms of the number of full-time employees. A large-sized company was defined as a company with 500 employees or more. The small-to-medium-sized enterprise (SME) was defined as the company that had 500 employees or less. There are two scenarios in improving export performance in terms of the size of the company. 1.1.1 A large size company must be aware that it needs to compete in global arenas. After the period of economic and financial crisis in Southeast Asia, a successful firm needs to concentrate its business portfolios around its core competencies. The company should actively seek to create new and intemal sources of advantage such as reduction in cost, time and risk in the working process. Also it should develop new products around the core products of the company. Core products are generally developed by two major innovation processes; (1) A ‘Ladder’ or ‘technology-driven’ process which aims to acquire new technology or modem machines used in the working process. Modem technology is the key to new product success. (2) A ‘Production and Design-Driven’ process which aims to develop unique features or special design of a product. 1.1.2. The small-to-medium-sized enterprise (SME) needs to be flexible enough to respond to rapid changes. In essence, the SMEs have more limited resources in terms of physical capital and labour. The benefit comes from its small scale organisational structure, which can help to quickly respond to new changes. However, this depends on their capabilities, knowledge and pro-activity in order to increase its export performance and identify the new market opportunity or penetrate a niche market or sell a unique product. 1.2 Marketing innovation development ‘Marketing innovation is composed of three components; new product, new working process and new market, The implications are as follow; 1.2.1 New product. New product and the presentation of products which match customer demand are the priority of the export business. Better product quality and standard are essential if the company is determined to be competitive, because they will enable the company to maintain and expand its markets in the long term. In term of consumer goods, new product development should be focused on fulfilling customers’ demands and adding value, with quality at international standards 112or even above. Goods that are not related to daily life, or luxury goods, should contain distinguishing characteristics with special designs, and should be responsive to market demand at the same time. New products should have their own brand names. There is a need for Thai exporting companies to develop their own brand names. Having strong brand names would give the company a chance to gain access to foreign markets through channels such as franchising and licensing. There is also an incentive for joint investment in other areas, which will not only help increase the growth of the company’s sales, but also improve the company’s reputation and profit in the long term. 1.2.2. New Working Process. New working process is defined as making existing products or their production better, cheaper, or more efficient. In its working process, the company should try to reduce costs but still maintain the highest efficiency. According to the responses of the sampled group of export companies, using the computer and new technology e.g. new machinery, played important roles in increasing working efficiency and reducing production costs, which could lead to higher productivity in the long run. 1.2.3 New Market. Penetrating new markets was indicated by many respondents as the first major strategic objective. However, the analysis showed that new market expansion as an objective was accomplished after the objective of responding to customer demands in foreign markets. Major markets of the exporting companies in this study were Asia and Pacific, North America, Middle and Western Europe. Therefore, new market expansion should include geographic expansion and penetrating a niche market. New market expansion could be done together with new product development to strengthen the company’s presence in foreign markets. In addition, the company should create different kinds of marketing channels by using incentives. At this point, customers and partners may be able to introduce company techniques for creating incentives or stimulating orders. Packaging should be developed to be more attractive and durable. Though new market expansion may involve heavy expenditure, it should enable the company to achieve a higher growth rate in the long term. 1.3. Human resource development 1.3.1 Information updates. The most precious resource for an export business is executives and staff who are highly knowledgeable, skilled and experienced in an export environment (Lee & Brasch, 1998). High level executives who have direct 113and indirect responsibilities in the export process, from product development to production and market expansion, should develop their marketing knowledge to have the most current information. They should have information about the economy, politics, rules and regulations related to merchandise and products in the industries in which they are engaged, and the demographic changes among their regular customers. At the same time executives should look for new target groups for future alternative markets. This alternative may help executives if they lose their competitiveness in existing markets, no matter what the reasons are. In the case of companies that import raw materials or machinery, executives should acquaint themselves with those new technologies and build up relationships with suppliers, both domestic and abroad, This knowledge will impart skill, vision and perspective to their exporting business, and possibly result in new product development. However, companies should create an internal climate built on the thirst for information. This can be done by providing staff with information about their foreign competitors’ new product developments, for example. Company performance should also be publicised occasionally to motivate staff and improve the chance of acceptance of changes in the future. 1.3.2. Participating in trade delegations or exhibitions. Export company executives should participate in trade delegations or exhibitions abroad. Participating in exhibitions arranged by Thai agents may not be able to improve sales or profits in the short term, but could enable the company to gain a reputation and become better known in the foreign markets, which in tum, would help improve the image of both the firm and the country. This would also motivate personnel to lear about the company’s product positioning in terms of consumer demand and market direction, For companies with low budgets that prevent them from participating in trade exhibitions, executives and staff could acquire information through borrowing recorded tapes or videos from the Department of Export Promotion. Information about products, markets, or opinions of academic experts could benefit companies with a limited budget. Using the intemet to access the websites of competitors on trade units in foreign countries could also help promote the vision and development of new ideas. 1.3.3 In-house training. Although executives and staff may have chances to attend external training courses and seminars conducted by governmental or private agencies, it is still considered inadequate. A company should also emphasise in- house training to encourage a climate of collective leaming. The in-house approach would also result in training and knowledge development based on the real status of the 14company. Essential training topics that would be useful in the long term include the development of skills in foreign exchange risk analysis and assessment, information technology such as the internet and data processing software, marketing management, accounting, finance, etc. 1.4 Internal and external supporting factors In terms of intemal factors, executives should encourage their staff to express opinions and ideas conceming the company more frequently and freely. They should build direct contacts with their customers. In practice, staff should be encouraged to lear, especially about customers’ demands and competitors’ strategies. For example, the company should conduct market research in its foreign market to acquire clients’ opinions on the company’s products and their needs for products in the future. The company should install a computer system to be used for internal management and external communication. At least, the company should acquire its own e-mail address, and try to allocate a certain amount of budget to develop its home page on the net to facilitate both local and foreign communications. In the event that the company fails to get access to new market channels, the home page would enable it to present itself and its products to the world market. In terms of external factors, export companies should focus on cooperating with government agencies, educational institutions, and product research and development centres, particularly with those that provide training courses about products or working processes of industries in which the company is engaged. These knowledge and experience exchanges would lead to better cooperation between the company and outside agents, For example, educational programs on the development of new working methods in solving problems, efficiency improvement, designing and packaging, studies of alternatives for adding value and increasing production efficiency. 2. Implications for Government Agencies and Private Organisations The research results suggested that marketing innovation within the company would result in better performance. However, marketing innovation and export performance are related to external factors such as the economy, foreign currency exchange rates, Thailand’s commitment to the International Monetary Fund (IMF), and the government’s rules, regulations and services. The government should be 11smore responsive if it expects the export sector to be the country’s major source of income for economic revival and increase liquidity in the short and long term. This means that the government should be responding to the needs of exporting companies and associations that represent export groups. For this part, the research suggested the following; 2.1 Revised export promotion criteria The government or the Department of Export Promotion (DEP) should revise the export promotion criteria based on the firm size. This new basis should be used as a guideline not only in designating industrial sectors, but also in implementing policies to provide support at both the industry level and the company level. For example, DEP may consider factors concerning the firm size (number of full-time employees), a firm’s previous export target markets, or analysis of factors such as firm by export to total sale volume. Different sized firms may need different support on the development of marketing innovation. Firms that have been in business between | and 5 years would need different governmental export promotions from those in the business for more than 10 years. For example, first-time exporters will need product and market information support. The need of extensive information on ‘how’ and ‘where’ to export are mostly demanded. Expanding exporters may need some specific selling techniques and presentation techniques for their products as well as how to make the successful bids for export contracts. Firms that have a high percentage of exported products may have specific needs as to how to price and promote their products in different markets. Different firms will need different export encouragement strategies to be developed. The Thai goverment should provide export assistance programs that are able to respond to firms’ needs more effectively. 2.2 Developing an ii tion support program The government’s export promotion policy and measures should be able to boost marketing innovation in terms of supporting updated information on products, working process, and markets. These policies need to support Thai export firms in the short and long term. In particular, the local area network or internet services should be established to provide numerical data, not only the graphics and text concerning trade figures, but also marketing innovation information of competitors in the foreign markets. 1162.3 Reforming and improving the service system The inter-related problems of customer administration, red tape in general, and corruption have been addressed in Thailand and many developing countries in the region, Measures that can help address red tape and corruption are regulatory reform to reduce discretion of officials and civil service reform. Furthermore, the government should improve the service system of the governmental agencies relating to export business in the Customs Department, the Foreign Trade Department and the Revenue Department with an emphasis on being neutral, honest, quick and accurate. A serious improvement will be an incentive for exporting product development and market expansion, 2.4 Providing finance and funds The government and industrial associations should implement measures to boost liquidity in the export business in the short and long term. They should also mobilise funds from domestic and foreign sources to promote development in the product and production process. There are good reasons in principle to subsidise firm training programs. It should be relatively straight forward to provide tax incentives for firm export training programs. 2.5 Setting a research group The Department of Export Promotion and industrial associations should set up specific units to conduct research on various topics such as problems, obstacles, resolutions and development concepts concerning marketing innovation and export performance, product design, adding value to products, market penetration as well as impact of some specific external environments (i.e. the foreign currency exchange rate on export performance). Furthermore, the DEP should set up its marketing information systems and open this service to exporters. For example keeping statistics on the major suppliers of Thai exporters by industry ot by product, or providing data on the performance of major overseas importers. 2.6 Establishing a national research institution The government and the industrial associations should make an effort to establish a national research centre to develop the product and production process. This centre should be independent, but be partially financially supported by the government and the industrial association. According to the survey, 32.10% of exporting firms do 117not have budgets for research and development. The interviewed executives believe that a national research centre would be useful to every company and also protect free- riders. 2.7 Reforming the curriculum and supporting joint training initiatives in educational institutions ‘The government and educational institution, both private and public, from high school to higher education levels, should improve their educational programs and activities. The curriculum should focus more on developing students’ creativity, and fundamental knowledge in various subjects such as languages and computers. The universities and technical colleges should provide training courses to improve knowledge and skills for personnel at every level of export firms. These training programs would bring about exchanges between theories and practicality and would eventually lead to innovation and better performance. 2.8 Open-market policy The government should maintain its open-market policy because it is important to build up business opportunities which will directly affect the country’s liquidity, foreign currency exchange rates, and income allocation for innovations of the company. The policy would eventually have direct and indirect impacts on the export firms? performance. In conclusion, marketing innovation needs strong cooperation from multiple parties, Human resources, budget, information and support from both the public and private sectors are all essential for the success of a company’s marketing innovation. Theoretical Implications This research developed ‘The Full Model of Export Performance’ which enhanced and tested the existing empirical model of Aaby & Slater (1989) and Chetty & Hamilton (1993) by adding marketing components into the model. An analytical procedure, which facilitated the simultaneous examination of the interrelationship among four theoretical components; export performance, marketing innovation, firm resources and firm characteristics, was performed using the LISREL statistical program. ‘The marketing innovation model developed in this research appeared to support the 118need for the inclusion of the marketing innovation construct to the export performance model. This research also demonstrated the need for a more integrative approach to the study of the exporting area. This approach would prove to be useful in explaining export performance. The best fitted model presented in this research was composed of four constructs; export performance, marketing innovation, firm resources and firm characteristics. A firm characteristic, which was represented in this research by company size, directly correlated to export performance and firm resources, but did not influence marketing innovation strategy. Marketing innovation strategy was described as the adoption of new products, new working processes and new markets. Marketing innovation had a direct effect on export performance. Firm resources also had a mild influence on export performance, but did not directly affect export performance. There were other factors from various sources which affected export performance, one of those being external environment. In the past, major principles of international business studies were developed from the fundamental business environments of European countries and the United States. In these countries, economic, social and cultural development and conditions have their own characteristics and are different from those found in the Asian region, including Thailand. This research has shown that a resource-based theory is sufficiently supported by the data on export companies. Conducting this kind of research by employing the same theoretical basis in different countries in each region may prove to be very challenging. However, adaptation of the relationship marketing paradigm is also interesting and may be able to explain factors affecting marketing innovation and performance of export businesses. This would allow a firm’s export involvement to be seen from a more incisive and less structured perspective. Moreover, efforts should be directed to apply to other theories such as customer satisfaction (Bolton & Drew, 2001; Cadotte, Woodrull & Jenkins, 199° ‘hurchill & Surprenant, 1992) and trust (Doney & Cannon, 1997; Moorman, Deshpande & Zaltman, 2003; Dwyer, Schurr, & Oh, 1997). However, there are some research questions that should be explored further, such as what management factors in the organisation influence the development of marketing innovation or how much influence on marketing innovation comes from external factors regarding managed float exchange- rate system, customers, partners and governmental regulations. In addition, a comparative study of this type of research across different cultural groups is highly 119encouraged. So far, this research on innovation strategy will have some success in classifying firms most likely to react to it. Though there are a number of significant findings from this research, some limitations can be found. First, the survey was conducted in only four industries (food processing, gems and jewellery, garments, electronics and electrical products) and data were collected from the exporting companies in Thailand only. Therefore, any generalisation beyond these industries and this country must be made with caution. Second, one may wish to examine the relative explanatory power of external determinants of export performance, along with marketing innovation and organisational variables. Ideally, this would require a longitudinal study that measures changes in such ‘environmental’ variables as currency exchange rates, inflation and tax incentives for exporters. Studies of firms’ export performance over time should lead to a better understanding of the firms’ behaviour and the dynamics of how internal and external factors interact to yield influences upon export performance. Third, the data were collected by the key informant approach (Seidler, 1984), Some have pointed out that a study needs to capture the perceptions of multiple informants, especially in a self-reported study (Johnston & Czinkota, 1992; Rosson, 2001). Others have suggested that choosing the appropriate key informant could help alleviate some of the potential problems (Huber & Power, 1995; Kumar, Stem & Anderson, 2003). In fact, some recent studies have looked at the need for employing multiple informants and objective data versus using executive managers as key informants. Those studies found that using executive managers was adequate for obtaining reliable and valid data (Menon & Howell, 2006; Tan & Litschert, 2004; Zahra & Covin, 2003). Finally, Zahra & Covin (2003) found that subjective assessments made by executive managers about strategy and performance closely paralleled secondary objective data. By choosing key informants from the executive management level who felt competent to respond about marketing innovation and export performance, the data collection was performed on the ground that the potential for measurement error could be minimised. 120Fourth, this study used five constructs; export performance, marketing innovation, firm characteristics, firm resources, and environment. There were four constructs that were included in the best fitted mode! which are export performance, marketing innovation, firm characteristics, and firm resources. Overall the structural equation (R?) of export performance from the LISREL analysis is 0.2. The low R? may be explained by the possible existence of other constructs, not included in this research, which might affect firm resources and export performance. Therefore, a further study could add some other related constructs to the model such as consumer loyalty, worker human capital, etc. However, the inclusion of other constructs must be done with great care and with theoretical support. If not, the results could be distorted and false implications could create major mistakes for practitioners. Section 4: Suggestions The suggestions for future research are divided into two parts. The first part involves concepts, theories and issues that should be studied. The second part deals with research design suggestions. 1. Theoretical Perspective Following this research study, future research would be done in many aspects. 1.1 To better understand the relationship between marketing innovation and performance by including factors related to how the innovation affects different types of the organisations. Testing and comparing the models between export and non-export companies would prove very useful. 1.2. The role of business management or practice in the light of firm resources, marketing innovation and performance is a worthy research issue. The relationship between the firm and customers, or between the firm and financial information sources, which is labelled as a ‘relationship’ variable, may prove to discover significant issues if there are some applications involved such as customer satisfaction (Bolton & Drew, 2001; Cadotte, Woodrull, & Jenkins, 1997; Churchill & Surprenant, 1992) and trust (Doney & Cannon, 1997; Moorman, Deshpande & Zaltman, 2003; Dwyer, Schurr, & Oh, 1997). 1211.3 The best fitted model presented in this research was composed of four constructs; export performance, marketing innovation, firm resources and firm characteristics. Adding more constructs to this model may increase the explanatory power and the predictive power of the export performance. Suggested variables are production factors such as raw material and labour. These two factors may be related to marketing innovation as constrained resources. The other external factor that may exert influence upon firm resources and export performance is consumer loyalty. These mentioned constructs are worth to study in order to build a better understanding of export performance. In order to investigate the causality between the choice of the export market expansion strategy and export performance, a longitudinal research is recommended as well. 1.4. In reality, there are some differences among industries. Further research should investigate the fit of the marketing innovation model and the export performance model in different industries in order to better explain the factors of interest in different settings. 2. Research Design Suggestion 2.1 Statistical method. Determining the statistical method is a very important factor. It should be considered together with the concepts and theories selected as the fundamental analysis, in terms of whether they are appropriate for the objectives and data, and how flexible this statistical method can be. The Linear Structural Relationship Model (LISREL), the high-level model used in this research, is deemed highly useful. The LISREL statistical program, developed by Jéreskog & ‘Sérbom in 1977, is highly efficient in terms of preparing fundamental data, analysis and presentation, both in describing (syntax command) and building diagrams (path diagrams) to analyse relationships among factors, making it very practical for researchers. This statistical program has been widely utilised by researchers in marketing and international marketing in Western countries. Once adapted to the study of causal and efféct relationships, LISREL can enable an improvement in social research work in Thailand. The LISREL model with latent constructs proved to be useful because it relaxes certain assumptions about error terms and gives more accurate analysis results (Wiratchai, 2005). This method will help researchers to explain causes 122and effects of the variables of interest more systematically and accurately, which will be very useful to the development of specific concepts and theories. Therefore, the universities and business training organisations should provide knowledge and training courses in the LISREL statistics and program. 2.2 The test of both the construct validity and content validity is very important. The content validity of this research was conducted by interviewing export business leaders and executives. This part verified the construct of variables based on Thailand’s context. The researcher also participated in various national exhibitions of the export industry such as Bangkok Gems and Jewellery Fair’07, Thailand Exhibition in the foreign countries, etc. This process brought about a better understanding of the characteristics of the business, product lines, market destination and the company’s strategies under support. Therefore, it is suggested that future research needs to focus on verifying the construct validity of the models. 2.3 New measurement. New measurements should be developed to measure the variables in the models. For instance, ratio scale measures of marketing, innovation should be developed and tested against existing measures to determine which is a more valid predictor of actual behaviour. Section 5: Conclusion This research was conducted in an effort to understand the interrelationships and effects of several independent variables on marketing innovation and export performance based on the best fitted model. A field survey was employed using effective response questionnaires from 249 top executives in exporting companies in Thailand. In the process of searching for the model fitted to the data, all five constructs; export performance, marketing innovation, firm resources, firm characteristics and environment were manipulated, and their effects were examined. The eight hypotheses were tested. The empirical results revealed that the key marketing innovation factors could be explained by three sub-constructs which were new product, new working process and new market to identify in successful Thai export manufacturing companies. Based on this analysis, marketing innovation strategy was shown to be able to improve the performance of exporting companies. In the respondents’ suggestions for developing marketing innovation in exporting companies, some 123suggestions included service quality and building relationships between companies and suppliers. And some suggested that exporting companies should focus on developing better product quality with an aim to reach international standards. Companies should bring in new technologies to their production processes for better product quality at lower cost. The implications for exporters, government agencies, export associations and suggestions for future research were also presented. However, it must be considered that marketing innovation development requires continuity and seriousness from top management in order to yield benefits in the long term. It is believed that marketing innovation can lay a foundation for long-term competitiveness which will enhance the country’s competitive advantage when compared to its competitors in the world market. This research suggests that the relationship of marketing innovation and export performance needs to be better understood. Future research is strongly recommended, especially in underdeveloped countries. 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Your response will help to develop a better understanding of this phenomenon and guide both export companies and public policy decisions to improve performance among exporting firms, Remarks Marketing innovation is defined as any new idea or activity that a company has developed during the last three years (2004-2006) involving exporting - in terms of new products, new working processes, or new markets. Guideline 1. The overall questionnaire has 4 parts; © Part 1: Business Profile © Part 2: Marketing Innovation © Part 3: Export Performance © Part 4: Environment 2. We realise that in some cases, you may not have the exact figures to fill in the questionnaire. In these cases, your best estimates are sufficient. 3. Please return the completed questionnaire in the envelope provided before 25 May 2007. Thank you very much for your time and your kind co-operat Tanompong Best Panich DBA Candidate University of South Australia 141Part 1: Business Profile In the following section, you will be asked to respond to a series of questions conceming general characteristics of your company. We realise that in some cases you may not have the exact figures to fill in. In these cases, your best estimates are sufficient. Personal Information LL 2. 3 Your position: Years of experience in working in exporting: Which industry is your company in? [ ] Electronics and Electrical Products _[ ] Food (Frozen, Processing) [ ] Garments [ ] Gems and Jewellery [ ] Other (please specify) General Characteristics of Company ‘Number of full-time employees: How many years has the company been involved in international operations? Percentage (%) of export sales (by volume) out of total sales of the company; 2003: % 2004: % 2005: % 2006: % . Please indicate export sales growth rates of your company by checking the appropriate category in each column. Sales Growth Rates (compared to the previous year) Year Negative Stable Increase | Increase | Increase ] Increase 0%) 1.5% 6-10% 11-15% 16% up 2006 2005) 2004 2003 Number of product lines which your company currently exports? [ ] 1-3 product lines [ ] 4-6 product lines [ ]7-9 product lines [ ] 10 or more product lines To how many countries does your company export? [ ] 1-3 countries [ ] 4-6 countries [17-9 countries [ ]10 countries or more 1427. Among the following regions, which are your 5 most important export markets? (Please rank from | - 5 where 5 = ‘least important’ and 1 = ‘most important’) [ ] North America (U.S.A., Canada, Mexico) [ ] Middle and Western Europe (Italy, France, England, Germany, Belgium, Denmark, Greece, etc.) [ ] Eastern Europe (Russia, Bulgaria, Hungary, Poland, etc.) [ ] Central and South America (Brazil, Caribbean countries, etc.) [ ] Africa (Egypt, Israel, Morocco, etc.) [ ] ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Vietnam) [ ] Asia and Pacific (Japan, China, South Korea, Taiwan, Australia, New Zealand) 8. Inrelation to your major competitors, what is the position of your most technologically important product? [ ] Far below my major competitors [ ] Slightly below my major competitors { ] Equal to my major competitors [ ] Slightly above my major competitors [ ] Far above my major competitors 9. What is your average annual R&D budget as a percentage of total sales? [ ] No budget [ ]Less than 1% [ ]1-3% [146% []7-9% { ]10 % or more 10. Please choose one statement only, which best describes your company. __ [a] “We try to be the ‘first mover’ in new products, even some of our efforts fail.” [b.] “We try to be the ‘first mover’ in selling products (new or old) in new markets, even though some of our efforts fail.” __ [e] “We prefer to maintain a secure position in relatively stable product or service areas. Emphasis is on protecting our market share.” ___ [d.] “We always follow the competitors in new products and new markets.” ~~ [e] “We prefer to let competitors take on the risks of new products or new markets, and then we react once those are clear to us. We aim to have the easier path to success than competitors.” 11. Which one of the following best describes your company’s current management style? (Please choose only one answer) ___ [a] Family style (centralised decision-making) —___[b.] Formal structure ~~ fe] A mixture of [a.] and [b.] ~~ [a] Other (please specify) 14312. Please rate to what extent the following factors influence the export activities of your company. ‘Weak Influence ‘Strong Influence Factors all 1 2 3 6 7 T. Firm Characteristics 1.1 Suitable number of full-time employees 1.2 Commitment of executives to exporting 1.3 Perception of executives toward export profit 1.4 Number of export product lines 15 Importance placed by executives on improving business relationships (between the firm and customers, finance information sources, | government agencies, etc.) 1.6 Having @ formal organisational structure 17 Centralised decision-making |2. Firm Resources 2.1 Executives’ marketing knowledge 2.2 Working hours of executive staff 2.3 Staff creativity 2.4 Executives or managers who take responsibility for exports in particular 2.5 Export marketing department dependabitit 2.6 Budget for export development 2.7 Modem technology such as machinery, computers to facilitate designing and control of working processes 13. Please rate the importance of the following factors on your company’s marketing innovations. Least important —>_Mast important Factors 1t2f3 4s ez 1. Use of export wading company 2. Distribution by:- = Direct selling to foreign end users = Through agents = Through distributors = Through the governments Established branch office in foreign countries ‘Off-shore sourcing ‘Toint venture Patent 144Part 2: Marketing Innovation 1. For the following questions, please think about marketing innovations in the last 3 years (beginning of 2004). Please state your level of agreement or disagreement with the following statements in regard to your company’s new export products. Product Innovation Level of agreement Strongly disagree Strongly agree 3 [4] 5 6 T. Most of our new products were totally new to the market 2. Compared to competitive products, most of our new products offered some unique features or attributes to the customer 3. Most of our new products met the customers’ needs 4. Most of our new products were higher quality than competing products. For example, more distinctive, stronger, more durable, etc. process in your company? 2. Compared to 3 years ago, what is the level of change regarding new working Working Process Innovation Level of Change No change Maximum change 3 [4 [5 6 T. Using the computer 2. Intemational standard application eg. ISO, HACCP 3. Downsizing of an organisation or department 4, Re-engineering 5. New technology e.g. new machinery markets in your company? 3. Compared to 3 years ago, what is the level of change regarding new export Export Market Innovation Level of Changes No change Maximum 37415 6 change 7 7. New market expansion [2 Packaging change 3. New promotional approach 4. Training salespeople of foreign distributors/subsidiaries ‘5. Promotional support provided to foreign distributors/subsidiaries 6. Price competitiveness in the export market 145Part 3: Export Performance For the following questions, please think about your company’s export performance in the last 3 years, (beginning of 2004). 1. Three years ago, how important were the following strategic objectives in export marketing? Least important > ‘Most important Strategic Objectives i 2 3 4 3 6 7 1. Protect the company’s market | share position 2. Respond to demand from abroad 3. Improve the new export markets 4, Increase the awareness of our produc/compan 5. Respond to competitive pressure 6. Increase the profitability of the compan 7. Other objectives (please specify) 2. At present (beginning of 2007), to what extent have these objectives been achieved? Least achieved > Most achieved Strategic Objectives a a 1 2 3 7 1. Protect the company’s market share position 2. Respond to demand from abroad 3. Improve the new export markets 4, Increase the awareness of our product/company ‘5. Respond to competitive pressure 6. Increase the profitability of the company 7. Other objectives (please specify) 1463. Did any of the company’s marketing innovations make its export ventures profitable for the following year? If export ventures were already profitable, did any marketing innovations make a greater impact in terms of sales volume? Year Yes No Dorit know / 2006 2005 2004 2003 4, Overall for the last 3 years, in terms of sales volume, to what extent has each of the following innovations influenced the company’s export performance? Level of influence Innovation ‘Negative ‘No Positive effect effect effect 3 2 “1 0 +1 2 3 1, Product innovation 2. Working process innovation 3. Marketing innovation 5. Thinking only about last year, 2006. Please rate to what extent any of these marketing innovations met the company’s export performance expectations. " Far Far below | Below Slightly Met. Exceeded Slightly exceed. below exceeded Export Performance | expectat- | expect- expect- | expect- ed 4 expect- cexpect- ions | ations ations | ations expect- ations ations ations T, Profitability 2. Market penetration. 3. Sales growth 4, Building awareness! image overseas Part 4: Environment . Which of these external factors in Thailand have influenced (either negatively or positively) your export business venture? j Negative effect = Positive effect ae 3 [ 2 T= oTatwiyTs . Politics i | . Economy i 2. 3. Society (e.g. population) 4, Thailand's membership in the WTO, APEC and other international organisations 5. Public laws, regulations 6. Culture, religion, traditions 7. Environment reserves 8. Foreign currency exchanges 9. Thailand's commitment to the International Monetary Fund (IMF) 10. Others (please specify) 147Appendix B: List of the 12 Top Executives Name Position ‘Mr. Santi Viratsakdanont The Federation of Thai Industries President ‘Mr. Boonyong Assarasakomn Thai Gems and Jewellery Traders Association Chairperson Mrs. Virawan Atichart Thai Gems and Jewellery Institute of Thailand Director Mrs. Kobkarn Wattanavrangkul Toshiba Thailand Co., Ltd. Chairperson Mr. Dej Pathanasethpong* Thong Thai Textile Co., Ltd. Thai Garment Manufacturers Association President Mr. Somboon Juasathirattana* Thai Garment Export Co., Ltd. Thai Garment Manufacturers Association Vice President Dr. Som Chatusripitak LC.C. Intemational (Public) Co., Ltd. Chairperson Mr. Songdet Tansurat Santa Crafis Merchandising Co., Ltd. Managing Director Mr. Poj Aramwattananont* Andaman Seafood Co., Ltd, Thai Frozen Foods Association President 10 Mr. Phomsin Phacharintanakul* Seafood Enterprise Co., Ltd. Thai Frozen Foods Association Director n Dr. Suwanchai Sangsuklam Chainavee Cold Storage Co., Ltd. Director 12 Mr. Paisan Jongbanyadchareon C.P, Interfood (Thailand) Co., Ltd. Managing Director “Interviewed as both position (Company and Association) 148Sema aA RYN Appendix C: List of Organisations and Associations that cooperated in this research The Thai Chamber of Commerce The Federation of Thai Industries Departments of Thai Export Promotion, Ministry of Commerce Intemational Trade Training Institute, Royal Thai Government Thai Gems & Jewellery Traders Association Thai Gems and Jewellery Institute of Thailand Thai Garment Manufacturers Association Thai Frozen Foods Association Thai Food Processors’ Association Thai Broiler Processing Exporters Association 149Appendix D: Conclusion on Executive Interviews March - April 2007 In this research, 12 high-ranking executives were interviewed. At the time of the interview, the sample group consisted of chairmen of industrial associations and/or high ranking executives in the frozen and processed food, gems and jewellery, electrical appliances and electronics, and garment industries. The information obtained from these interviews was used as a framework to validate the concept, and to develop and improve questionnaires used as an information-collecting tool for the research. The conclusions about factors and variables relevant to marketing innovation, and suggestions about marketing innovation development for Thailand’s export business, follow. In terms of new concepts in marketing innovation such as product development, working system improvement, and new market expansion: most executives agreed that there was some product development in their companies or industries, for example, more value-added products and new product designs. In terms of working processes, most of them agreed that the working processes in their firms had been re-engineered for better efficiency and lower expenses. Some were setting or had set their targets to develop working and production processes for exporting to reach international standards, including environmental quality system certification (ISO 14000). In terms of markets, most executives focused on their existing markets. However, some were attempting to expand into new markets such as South America. In terms of factors influencing or encouraging firms to develop new products, most executives agreed that the vision and experience of executives played a very important role; followed by skilled human resources, especially in middle management; and equipment, tools and machinery. Discussing the sources of new ideas for new product development and initiation, most executives agreed that most new ideas stemmed from the owners or high-ranking executives who had experience in export business, travelling abroad, participating in exhibitions and catching up with information from various sources. On the other hand, most lower-level staff was afraid of expressing their ideas. When they faced problems 150or came up with ideas for problem-solving, they would prefer to discuss them with their superiors. New technology and equipment also encouraged development of some innovations. As well, joint investments with foreign companies, or direct contacts with foreign clients also helped local companies gain access to new ideas and demands, leading to changes in products and production processes within their firms. In terms of competitiveness compared with their foreign counterparts, particularly in the adaptation of new technology, most executives agreed that the country’s existing export business had equal or higher technology in the food industry for example. However, executives from the garment industry declared that Thailand is less competitive because most of the companies in this industry still used outdated machinery. Budgets allocated to product research and development, including sending staff to training courses and seminars, had clearly changed in terms of percentages, in some cases from no budgets in the past, to modest outlays in the present. However, most of the executives thought that the amount of their R&D budgets could not be indicated clearly, because allocations would depend on the company’s situation over a specific period of time. Asked if their companies’ specific characteristics were deemed better than those of their foreign competitors, most executives agreed that long experience in each business and in exporting had helped them gain knowledge and skills about their products. Besides, their products were of high quality with lasting reputations. Some executives said the long relationship with their foreign clients and partners played an important role in this process. However, these executives had different ideas about their organisational management characteristics. Some believed that their organisations had a definite management structure, with de-centralised decision-making processes. Others thought that the family system still strongly influenced companies’ management and decision- making processes, resulting in fewer changes. Some executives observed that their companies had once tried de-centralisation; aiming to develop human resources and making staff feel part of the ownership. For many reasons, after a period of time, the 151