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IJOEM
10,3
Market orientation,
entrepreneurial orientation
and performance in
560 emerging markets
Received 7 May 2013
Tina Gruber-Muecke
Downloaded by FLINDERS UNIVERSITY OF SOUTH AUSTRALIA At 10:08 31 January 2016 (PT)
Abstract
Purpose – The purpose of this paper is to examine how market-oriented and entrepreneurial-oriented
behaviour drives firm performance in an emerging markets context.
Design/methodology/approach – Using data from 170 Austrian exporters to Central and Eastern
Europe, the authors test a conceptual model including market-oriented and entrepreneurial-oriented
practices as predictors of performance.
Findings – Results indicate that both market-orientated and entrepreneurial-oriented strategies have
positive performance effects in emerging markets.
Research limitations/implications – A limitation is that firms were not examined longitudinally, as
this is a cross-sectional study. Future research may include longitudinal studies or focus on other
markets/regions.
Practical implications – Firms are encouraged to adopt a market-oriented and entrepreneurial-
oriented strategy to achieve better results in international, emerging market operations.
Originality/value – The authors add to the emerging economy research literature by studying the
relevance of market orientation and entrepreneurial orientation in determining firm performance
in emerging markets. Furthermore, this study supports the generalizability of findings from an advanced
to an emerging economies research setting.
Keywords Emerging markets, Eastern Europe, Performance, Market orientation
Paper type Research paper
Introduction
Emerging markets present significant socioeconomic, cultural and regulative departures
from the institutional assumptions of western countries, calling into question our
understanding of constructs and relations (Burgess and Steenkamp, 2013). A large
number of well-established theories in international business research have been derived
from the context of advanced markets and highly industrialized research settings, which
raises the question whether these theories can be applied to the context of emerging
markets as well (e.g. Jaworski and Kohli, 1993; Dawar and Chattopadhyay, 2002; Burgess
and Steenkamp, 2006).
International Journal of Emerging
Markets
The question of the generalizability of findings from advanced markets to emerging
Vol. 10 No. 3, 2015
pp. 560-571
markets is a central area of interest. Firms should consider an “emerging market strategy”
© Emerald Group Publishing Limited with respect to the communalities across emerging markets (Dawar and Chattopadhyay,
1746-8809
DOI 10.1108/IJoEM-05-2013-0076 2002). Companies operating in the emerging markets of Central and Eastern Europe need
to adjust internal and external management procedures to different cultures (Park and Performance
Jang, 2010). in emerging
In this paper we analyze two firm-level constructs, market orientation (MO) and
entrepreneurial orientation (EO), both extensively discussed in the literature (Baker
markets
and Sinkula, 2009). The former reflects the extent to which firms establish the satisfaction
of customer needs and wants as an organizing principle of the firm ( Jaworski and Kohli,
1993; Kohli et al., 1993). The latter reflects the extent to which firms establish the 561
identification and exploitation of untapped opportunities as an organizing principle of the
firm (Lumpkin and Dess, 1996a,b). The nature of a firm’s MO and EO becomes important
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Literature review
In the following section we explore the linkages between MO and performance and EO and
performance. We identify the key variables for the conceptual framework.
which is the coordinated use of resources in creating superior value for target customers.
According to Jaworski and Kohli’s (1993) definition “a market orientation refers to the
organization wide generation, dissemination, and responsiveness to market intelligence”.
Similarities can be found in the definitions as they both focus on the central role of
the customer in the manifestation of MO and entail an external orientation. The central
role of customer satisfaction was highlighted in several studies (e.g. Webb et al., 2000).
Later, Cadogan et al. (2002) developed an integrated model. All activities go back to
a coordinating mechanism that ensures efficient and effective processes, incorporating the
component of inter-functional coordination coined by Narver and Slater (1990). The activities
of intelligence generation, intelligence dissemination and responsiveness are focused on
customer orientation and competitor orientation, leaving out other factors of influence.
Based on this model, additional factors of influence emerge in an international context.
These factors represent political, legal, social and economic aspects of a foreign country
market and are important for the internationalization process of a company. Cadogan et al.
(2002) mention seven influence factors for international MO: foreign market experience;
availability and quality of information; reliance on third parties; organizational
complexity; information load; purification and distortion; response rationale; and human
resource policies. Kirca and Hult (2009) highlight the context of the company and
underline that national culture influences company values and organizational behaviour
(Diamantopoulos et al., 2008).
Hypotheses development
We include MO and EO in our conceptual framework. Our empirical study aims to validate
these factors and determine the relationship between these factors and international firm
performance. Figure A1 shows the MO and EO performance framework.
Based on the framework, we hypothesize the following: Performance
H1. There is a positive relationship between the MO factors and overall firm performance in emerging
in the international target market. markets
H2. There is a positive relationship between the EO factors and overall firm performance
in the international target market.
563
Methodology
Data collection
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We chose the key informants method, which selects respondents in an organization based
on various criteria, such as job title, experience and know-how (Lin et al., 2008).
The questionnaire was pretested with regard to contents and technical practicability and
then reduced to six pages with 62 questions. A list of 5,369 Austrian exporters was
provided by the Austrian Chamber of Commerce in 2010. We selected only firms that had
international business operations for at least three years to ensure that they were able to
assess the performance indicators regarding the last three years. We invited the CEOs or
the marketing managers and marketing managing directors to participate in the online
survey. We thought that they had a greater understanding of the organizational culture,
performance and market environment than managers in other functions. A reminder was
sent after two weeks. Responses to both the independent and dependent variables came
from the same informants.
Non-response bias was assessed by comparing the average duration of the online
survey. Questionnaires with less than 120 seconds time frame were excluded. The second
stage in the data assessment was the exclusion of incomplete responses. The fieldwork
yielded 170 usable questionnaires, representing a 13 per cent response rate which is in
line with recently published studies on this topic (e.g. Boso et al., 2012b; Lado et al., 2013).
Measures
MO: this measure is one of the key drivers of performance and determines how well firm
management addresses the requirements and expectations of current and future customers,
and the measurement of customer satisfaction. We chose the Narver and Slater (1990) and
the Kohli et al. (1993) scales, because both had been previously tested. They were found to
have acceptable measurement properties, and both had been used interchangeably in
discussing the domain, antecedents and consequences of MO. Although Kaur and Gupta
(2010) criticize the measurement by Narver and Slater (1990) and Kohli et al. (1993), recent
publications rely on this scale, particularly for developing economies (Boso et al., 2013, p. 716).
All items were measured on a seven-point Likert scale anchored by “strongly agree” and
“strongly disagree”.
EO: this factor is another key driver of performance (Boso et al., 2013). The measurement
of each item of the three dimensions mainly involves evidence from three aspects: first,
an entrepreneur’s manner and action towards innovation (innovativeness); second, the
propensity and proactiveness in behaviour to risk (risk handling capability and risk
proactiveness); and third, the attitude and performance to management professional
qualification and adherence to management standards (management professionalization)
(Zhan and Deschoolmeester, 2004). All items were measured on a seven-point Likert scale
anchored by “strongly agree” and “strongly disagree”.
Firm performance: to capture different aspects of firm performance, we employed
measures of financial performance and growth (Wiklund and Shepherd, 2005).
First, profitability (Narver and Slater, 1990), which may itself be proxied by using the
IJOEM return-on-assets ratio, which is defined as the quotient of net profit after taxes to total
10,3 assets. Second, the employee growth rate was taken as a measure for firm performance.
Third, firm performance was measured by market share (Baker and Sinkula, 1999).
The respondents were asked to state their performance assessments regarding the last
three years in their major foreign target market. All items were measured on a seven-point
Likert scale anchored by “strongly agree” and “strongly disagree”.
564
Data analysis
Regarding the assessment of the measurement model, we examined our measures through
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factor analysis of the variables to ensure reliability. A cut-off loading of 0.3 was used to
screen out variables that were weak indicators of the construct. The application of this
technique requires that the minimum size of the sample should be five times the number
of variables to be analysed. For this study, the Kaiser-Meyer-Olkin (KMO) measure of
sampling adequacy was used. Kaiser (1974) suggests that samples with KMO values
below 0.5 are not acceptable, values between 0.5 and 0.7 are mediocre, values between 0.7
and 0.8 are good, values between 0.8 and 0.9 are great and values above 0.9 are superb.
KMO measure of sampling adequacy for this survey was 0.849. Therefore we considered
the result of the factor analysis on the 170 observations as stable. Out of the 36 original
independent variables, four underlying factors were identified. For this study summated
scales were used to represent the identified composite variables. The composite variables
were derived from factor analysis. Reliability analysis was used to check whether the
associations between selected variables are strong enough to make their sum a sufficiently
accurate measure of the underlying phenomenon. The identified composites were tested
for internal reliability. All were found to have Cronbach’s α exceeding 0.8.
Results
Manufacturing firms from various industries participated in the study, and they represented
the structure of the Austrian economy. The mean number of export countries was 7.38, and
all the firms had an international experience of at least three years. Tables I and II show the
results of the factor and reliability analyses. For this study, a cut-off loading of 0.7 was used
to screen and remove variables that were weak indicators of the construct. Of the
36 variables used for factor analysis, eight fail to make the cut-off, leaving 28 variables to
constitute the four constructs which are divided into MO and EO practices. The four
constructs are: customer orientation; competitor orientation; management professionalization;
opportunity and risk behaviour. The dependent construct is the three-item firm performance
(Table III). Thereliability values of the four independent and one dependent constructs meet
or exceed Nunnally’s recommended standard (Cronbach’s αW0.70) for early stage research
(Andersson et al., 2009).
Hypotheses testing
The linear regression model (adj. R2 ¼ 0.44) explains 44 per cent of the variation in firm
566 performance. The result indicates that of the MO factors only MO exhibited a highly
significant and positive relationship with overall firm performance. Therefore, H1 is
supported. Examination of the correlation matrix in Table II shows that the Pearson
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correlation coefficients between the MO constructs and firm performance are positive.
Regression analysis shows that both MO and EO have relationships with firm
performance. All factors are positively related with firm performance ( β ¼ +). The
results of the bivariate correlation analysis indicate that MO and EO constructs have a
significant correlation with firm performance. The constructs together have a greater
explanatory power on firm performance. Based on the correlation analysis, all four
factors are positive and significant in their relationship with firm performance.
Therefore, H2 is supported.
We also wanted to determine if the constructs of the MO and EO model are valid and
reliable measures of the underlying theoretical assumptions. Content, construct and criterion
validities were considered. Content validity is based on the extent to which a measurement
reflects the specific intended domain of content (Carmines and Zeller, 1991, p. 20).
The literature review included the appropriate literature in the field of marketing and
entrepreneurship. Therefore we believe that the measures of the MO and EO model were
considered to have content validity. The items which were developed from the literature can
clearly define the boundaries and conceptualization of the MO and EO model. Construct
validity is the degree to which an assessment instrument measures the targeted construct
(i.e. the degree to which variance in obtained measures from an assessment instrument is
consistent with predictions from the construct targeted by the instrument). We assessed the
elements by using principal component factor analysis. The items for each of the factors were
analysed (using orthogonal varimax rotation). Items which had factor loadings less than 0.5
were dropped. Convergent and discriminant validity are both considered as subcategories or
subtypes of construct validity. Convergent validity was achieved because all the items loaded
on one particular factor (construct). Discriminant validity was also achieved as these items
already loaded on the particular construct. Tables I and II show the results of the items and
their loadings. To demonstrate the predictive validity of the MO and EO construct, we ran a
linear regression. The result as shown in Table III produce R equals 0.69 indicating that the
four factors have a reasonably high degree of criterion-related validity when taken together
and explain 44 per cent of variance in firm performance. Therefore our model has strong
external validity.
such as the specific industry of a firm may influence the dynamics of international
activities in specific ways, and are desirable for inclusion in future research.
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Appendix Performance
in emerging
markets
MO Factors
Market orientation
Competitor orientation
Interfunctional
Firm Performance
ROA 571
coordination Employee Growth
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EO Factors
Management
Figure A1.
Professionalization MO and EO in
Opportunity and Risk emerging markets
Behavior
conceptual
framework
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