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Extending Marketing Activities and Strategies from Domestic to Foreign Markets Gerald Albaum David K. Tse George C. Hozier, Jr. Kenneth G. Baker ABSTRACT. Extending marketing activities and strategies from a firm’s domestic market to its foreign markets is often viewed as being synonymous with standardization of activities/strategies. However, they can be distinctly different. Standardization generally is an end result and a process, while extension (also a process and end result) can be viewed as being concerned with the source of the standardization. This paper develops a model of the extension phenomenon which links specified antecedents to extension and extension with firm specific advantages, which then lead to performance. Propositions derived from this model are Gerald Albaum is Visiting Scholar, Robert O. Anderson Schools of Management, University of New Mexico, Professor Emeritus of Marketing, University of Oregon 2 and Senior Research Fellow, IC Institute, University of Texas at Austin (E-mail: [email protected]). David K. Tse is Professor of International Marketing, School of Business, The University of Hong Kong. George C. Hozier, Jr. is Associate Professor of Management and Chair of the Department of Marketing, Information, and Decision Sciences and Kenneth G. Baker is Associate Professor of Management and Associate Dean, Robert O. Anderson Schools of Management, both at the University of New Mexico. The authors wish to thank Catherine Roster, University of New Mexico and the anonymous reviewers for their helpful comments and suggestions. Journal of Global Marketing, Vol. 16(3) 2003 http://www.haworthpress.com/store/product.asp?sku=J042 2003 by The Haworth Press, Inc. All rights reserved. 10.1300/J042v16n03_06 105 106 JOURNAL OF GLOBAL MARKETING tested by examining the behavior and perceptions of a sample of managers of Hong Kong companies. [Article copies available for a fee from The Haworth Document Delivery Service: 1-800-HAWORTH. E-mail address: <[email protected]> Website: <http://www.HaworthPress.com> © 2003 by The Haworth Press, Inc. All rights reserved.] KEYWORDS. Marketing strategies, Hong Kong, standardization, extension, export, market entry INTRODUCTION During the past 20 years two topics that have been of fundamental interest to international marketing researchers are global marketing standardization or adaptation (Levitt, 1983; Samiee and Roth, 1992; Szymanski, Bharadwij, and Varadarajan, 1993) and export marketing. In order to be able to assess export marketing behavior attention has been directed to export performance (e.g., Brooks and Rosson, 1982; Cavusgil and Nevin, 1981; Cavusgil, 1984; Madsen, 1987; Samiee and Roth, 1992). Unfortunately, there has not been agreement on a conceptual or operational definition of export performance (Madsen, 1987; Shoham, 1998). Levitt (1983) argued that world markets were becoming homogeneous and, thus, global. This meant that for a company to reap the benefits of such a marketplace, standardized marketing activities and strategies would be needed. If global markets did indeed exist it was believed that companies using standardized strategies would outperform companies using adapted strategies by either economies of scale or managerial experience. Reporting on an empirical test of this relationship in the early 1990s, Samiee and Roth (1992, p. 1) summarize their findings as follows: “However, in the critical area of performance, no difference is observed between firms stressing global standardization and others.” Cavusgil and Zou (1994) found a positive relationship between export performance and product adaptation but an unanticipated moderate and inverse relationship between performance and promotion adaptation. Szymanski, Bharadwij and Varadarajan (1993) examined the extent to which it would be desirable for companies to standardize their strategic resource mix across marketing mix variables when serving multiple Western markets. Their findings show that the strength and form of the relationships between the various marketing mix, other competitive strategy, market structure, and business performance fac- Albaum et al. 107 tors are relatively similar across the U.S., U.K., Canadian, and Western European markets. In short, a standardized approach of resource allocation evoked similar performance responses from these markets. Standardization occurs when a marketing activity is conducted the same, or a marketing strategy is the same, in all (or a set of) foreign markets. Standardization can result by either developing a “unique” marketing activity, program, and/or strategy and then introducing it into foreign markets or by extending activities, programs, and strategies from a base market to other markets. This latter approach, what we call extension and which is sometimes referred to as transference (see Sheth, 1978), typically involves the home market as the base market. Standardization and extension are both a process and an end result. Extension is viewed as being on a continuum ranging from total-extension to no-extension-at-all. More formally, we define extension for operational and conceptual purposes as: the amount of change from home market use of a marketing activity, program, or strategy when used in a foreign market. There are some basic advantages in extending (i.e., transferring) marketing activities and strategies in such a way. First, it may be very difficult to routinely generate successful tactics and strategies. If a company can successfully extend something to as many foreign markets as possible, considerable time and effort will be saved. Second, extension can lead to lower cost of developing and implementing marketing activities. Greater economies can be achieved by using existing expertise to service a foreign market (McNaughton and Bell, 2000, p. 25). Product characteristics may influence the decision on the marketing program, and unless a product has been designed for a specific market, these are likely to be the same for both domestic and foreign markets. Finally, some managers may be more comfortable in handling their duties if they are less complex and varied. There also is the risk that extension might not work out as intended. First, the nature of foreign environments differ and might be harder to understand than the home market environment. Also, if management does not fully understand why its domestic strategy has been successful–i.e., there is no model or theory explaining its success–it will be risky to extend to less familiar foreign markets. A company may extend marketing activities and strategies and yet not have a fully standardized marketing approach unless it does this in all markets. In contrast, it is possible for a company to have standard- 108 JOURNAL OF GLOBAL MARKETING ized operations in foreign markets, yet not have these developed on the basis of extension from the home market, or from any other market for that matter. The major purpose of this paper is to develop a model of the extension phenomenon which links selected antecedents to extension and then links extension with performance (consequences). Extension is viewed, operationally, in two time dimensions: (1) initial market entry, and (2) market behavior at the present time. The model is “tested” by examining the behavior and perceptions of a sample of companies based in Hong Kong, which is a major world trading economy. PRIOR RESEARCH ON EXTENSION Prior research on the extension phenomena has been concerned primarily with transference of advertising and marketing communications. Dunn (1966) used case studies to examine the transfer of successful domestic advertising campaigns to foreign markets. This was followed by a laboratory experiment testing potential factors that affect the success of advertising campaigns’ transference (Schleifer and Dunn, 1968). Later, Dunn (1976) conducted a study on the transfer of a promotion strategy. Killough (1978) studied advertising transference by conducting depth interviews with more than 60 senior managers. Two articles made important conceptual contributions to the transference issue. Sheth (1978) discussed eight advertising transference strategies based on three dimensions: (1) the expectations (i.e., benefits expected) people use to evaluate a product class; (2) the mechanics of encoding and decoding of communications as reflected in the media; (3) the “silent language,” as used in the background for advertising messages. In contrast, Keegan (1969) proposed five strategic alternatives for expansion into foreign markets on the basis of the extension or adaptation of the product and communications variables. A more recent study is one that examined transfer behavior of Danish exporting companies (Shoham and Albaum, 1994). The study looked at the extent of transfer of marketing methods and activities and the relationship of such transfer with alternative measures of export performance. Seven marketing variables were examined, and export performance was defined as “the composite outcomes of the export sales of the exporting companies” (Shoham and Albaum, 1994, p. 226). The performance composite was based on three dimensions: (1) sales, (2) growth, (3) profitability. Each Albaum et al. 109 dimension was operationally measured by multiple indicators. For example, profitability was measured by perceptual measures such as satisfaction with meeting profit expectations. One overall finding is that companies that transfer marketing strategies and activities from one market to another do not perform as well as companies that adapt to each market. This relationship holds regardless of the type of product and the cultural distance between the countries. The most recent study is of extending domestic marketing channels into a foreign market (McNaughton and Bell, 2000). This study examined the export channel choices of Canadian software companies. A transaction cost analysis model was developed to identify conditions that increase the likelihood that a company will switch from the mode used in the home domestic market to a different mode in a foreign market. A basic premise was that the channel used in the domestic market has an influence on the channel selected to enter a foreign market. Results are consistent with the idea that the domestic channel is likely to be extended to the foreign market unless there is a compelling reason to switch. Nearly two-thirds of the sample firms used the home market channel to enter the largest foreign market. The present study extends and expands on the work of Shoham and Albaum (1994) by examining a greater number of marketing activities and, more importantly, by proposing a conceptual framework that links selected antecedents with extension and outcomes, and tests propositions about these links. CONCEPTUAL FRAMEWORK We propose a contingency-based conceptual framework in which extension of marketing activities plays sequential roles in determining firm performance, as shown in Figure 1. The contingency view of strategy assumes that no universal set of strategic choices is optimal for all organizations and circumstances (Ginsberg and Venkatraman, 1985) but that optimal strategy is subject to a certain set of organizational and environmental conditions (Harvey, 1982). Researchers have attached a broader meaning to contingency by considering factors responsible for differences in strategy outcomes as contingency variables (Ekeledo and Sivakumar, 1998, p. 277). Consequently, we argue that our conceptual framework can be considered a contingency framework because it includes factors that can lead to variations in performance. 110 JOURNAL OF GLOBAL MARKETING FIGURE 1. A Conceptual Framework of Extension and Performance Antecedents Decision-Making Orientation (EPRG) Foreign Market Entered Initial Change in Marketing Variables Extent of Difference Today in Marketing Variables Importance of Marketing Variables to Success Dimensions of Firm Specific Advantage (product, promotion, distribution service, pricing, research) Firm Performance (sales growth, sales volume, market share, operating profit) Dimensions of Corporate Strategy (resources, flexibility) First, there is the extension from the domestic market that occurs when the firm begins export to a specific market (“Initial Change”). Second is the amount of extension that exists today, which is the difference today between what a company does in its home market and in a foreign market (“Extent of Difference Today”). What firms do today is affected by what they did upon initial entry into a market. Also current extension behavior leads to the importance attached to each export marketing activity in the success today of operations in a foreign market. The importance of a marketing activity/strategy to the success of the operation is postulated to lead to specific differential advantages in marketing activities over competitors. The proposed conceptual framework states that firm performance is a function of firm specific advantages in marketing, and competitive advantages that emerge from corporate or company strategy. The conceptual framework suggests that the entire process may be influenced by two antecedent variables, whose specific effect would be on initial market entry. First, whether a firm has an ethnocentric, polycentric, regiocentric, or geocentric (EPRG) orientation in its international decision-making (Perlmutter, 1969; Wind, Douglas and Perlmutter, 1972) is rel- Albaum et al. 111 evant. In their study of 456 Danish companies, Shoham. Rose and Albaum (1995) reported that orientation is related to the transference of marketing strategies, particularly for advertising, distribution and market research. Second, the specific target foreign market can be expected to affect the extent to which marketing activities are extended from the home market. Of relevance is the psychological (or psychic) distance between the foreign market and the home market. Psychological distance is a summary construct that represents the perceived dissimilarity between foreign and domestic markets (Evans and Mavondo, 2002). Prior research has established a conceptual link between psychological distance and EPRG export orientation. Both are related to stage of internationalization, organization structure, and the development of and implementation of marketing strategies. Shoham, Rose and Albaum (1995) have shown empirically that psychological distance and orientation are significantly related, at least for Danish companies. However, there has been no empirical test of the relationship between psychological distance and extension strategies. Propositions Because the theory (i.e., contingency theory) that underlies the model is very general and the empirical research very limited, we formulate the following propositions for examination: P1A: Initial marketing extension strategies will vary by the decision-making orientation of the firm. P1B: Initial marketing extension strategies will vary by the specific host market entered. P2A: The extent of extension of marketing strategies existing today is positively related to extension for initial foreign market entry. P2B: Perceived importance of marketing activities/strategies is positively related to amount of extension existing today. P3A: Firm-specific competitive advantage is positively related to the perceived importance of marketing activities/strategies to successful operations in a foreign market. P3B: Firm-specific competitive advantage is positively related to competitive advantages derived from corporate or company strategy. 112 JOURNAL OF GLOBAL MARKETING P4: Firm performance is positively related to firm-specific competitive advantages and to corporate strategy-based competitive advantages. It should be noted that there is no proposition that directly links extension to firm performance. Rather, extension is hypothesized to influence performance through competitive advantages derived from firmspecific marketing activities. The proposed model fits within the broader context of contingency theory and the relations asserted in the propositions seem to be consistent with occasional observation in the real world. In effect, this study is more theory development than theory testing. METHODOLOGY A survey of managers responsible for international marketing activities was conducted in Hong Kong. Firms there actively export a wide spectrum of products to all the world’s major regional markets. Thus, a survey of exporters provides a data set with sufficient diversity in products and markets to adequately test the propositions. A “modified” mail survey technique was used to study extension of marketing strategies and use of strategic alliances in foreign markets. A four-contact process was used for data collection: 1. A letter was sent as a preliminary notification of the survey. 2. A few days later a telephone call was made to solicit participation. 3. Questionnaires were then mailed to all those who indicated a willingness to participate, and return was to be by mail. 4. After a period of two weeks, a follow-up contact was made with respondents, including another questionnaire. The original sample of companies was selected randomly by the Hong Kong Trade Development Council, the agency of the Hong Kong Special Administrative Region Government that facilitates Hong Kong’s external commercial activities, from their database of all exporters (about 1,500) actively involved in Hong Kong’s six major export product categories–clothing and textiles, electronics, watches and clocks, jewelry, plastic products, and printed materials. Only companies with at least 5 employees in the firm were included in the original sample of 400 companies. The four-step process resulted in responses from 196 Albaum et al. 113 companies yielding a response rate of 49%. This response rate exceeds what has been reported in the literature for similar populations (Fraser and Hite, 1990; Samiee and Roth, 1992; Shoham and Albaum, 1994; Shoham, 1999; McNaughton and Bell, 2000). Measurement Eleven items were used to measure extension of marketing activities from the domestic market to a foreign market. A split-ballot, also known as split-sample, approach was used to obtain the responses to the extension variables. Each respondent was assigned randomly to respond for one of the following market areas: China, USA/Canada, Western Europe Countries, Asia (other than China). If a company did not have any operations in the assigned market area, it was free to choose any market, and the company was asked to indicate for which foreign market it was responding. Within a context of a specific foreign market, respondents were asked to indicate the extent to which they changed each marketing variable from that used in the domestic market when first entering the market, using a five-point scale (1 = very significant change, 5 = no change). Similarly, respondents reported the extent to which each variable was being performed today (date of data collection) in the foreign market differently than that for the domestic market, using a similar five-point scale (1 = very significant difference, 5 = no difference). Finally, perceived importance of each of the 11 activities in the success of company operations in the specific market was reported using a five-point scale (1 = very significant, 5 = none). Respondents were also asked to indicate how unique company performance was compared to competitors in the specified market for a number of company marketing characteristics and strategic behaviors (see Appendix Table A1). A five-point scale was used for these measurements (1 = much worse, 5 = much better). In operationally measuring performance, the present study builds on the export-performance paradigm proposed by Aaby and Slater (1989) and Madsen (1987). They use the strategy-structure-performance (SSP) paradigm in synthesizing past research on export performance. Madsen (1987) argues for three performance sub-dimensions: sales, growth, and profitability. In the present study company performance for the preceding year compared to competitors and to their own expectations as measured by sales growth, sales volume, market share, and operating profit was reported 114 JOURNAL OF GLOBAL MARKETING by responding managers using the same five-point scale that ranged from “much worse” to “much better” (see Appendix Table A2). Responding Company Characteristics Selected characteristics of the responding companies are presented in Table 1. The companies can be characterized as small- and medium-sized. More than one-half of the companies had less than 50 employees. Responding companies range in age from less than five years to more than 100 years, with the mean age being 12.7 years. More than three-fourths of the respondent firms were independent-owned Hong Kong companies and less than 10% were subsidiaries of foreign-owned companies. The vast majority (65%) reported that at least one-half of their exports represented re-exports, with most coming originally from China. In many cases re-exports were by companies that had shifted their production for Hong Kong and other markets to China. Thus, re-exports per se did not directly affect extension behavior regarding foreign markets. Turning now to the specific individuals who provided the data about their firms’ behavior and decision-making characteristics, we see that slightly more than three-fourths were male with 60% having completed at least a university or polytechnic educational program. Slightly more than 80% of respondents were Hong Kong Chinese and 70% were at a managerial level of at least senior manager. There is no evidence from the companies or elsewhere to suggest that individual respondents would not be knowledgeable about initial market entry conditions, particularly since such a high percentage were senior managers. Since a split-sample approach was used to obtain the desired information about transfer of marketing activities a question can be raised about differences in characteristics of responding companies and individuals. The distribution of each characteristic was cross-tabulated with market area and contingency tests were conducted. There were significant differences at p < .05 only for ownership of company and for decision orientation. Regarding ownership the major difference seems to be that a greater proportion of companies responding for China as their market area were subsidiaries, particularly subsidiaries of foreign companies, than was the case for companies responding for other market areas (see Table 2). As far as decision-making orientation is concerned, a greater proportion of companies responding for China and for Western Europe reported being ethnocentric in their decision making by being concerned with impact on Hong Kong; polycentrism was more preva- Albaum et al. 115 TABLE 1. Characteristics of Responding Companies and Individual Respondents Company and Respondent Characteristic Number of Companies Percent Distribution COMPANY: Number of Employees: Less than 10 44 22.4 0-49 57 29.1 50-99 21 10.7 100-249 33 16.9 250-999 23 11.7 1,000 and Above 18 9.2 Less than 5 Years 35 18.7 5-9 Years 68 36.4 10-14 Years 33 17.6 15-24 Years 33 17.6 25 Years and Above 18 9.7 Age of Company: Ownership of Company: Independent-Owned Hong Kong 153 78.5 Subsidiary of Hong Kong 15 7.7 Subsidiary of Foreign 16 8.2 Joint Venture of Hong Kong and Foreign 7 3.6 Others 4 2.1 25% or Less 42 23.0 26-50% 22 12.0 51-75% 20 10.9 More than 75% 99 54.1 Percent of Export That Is Re-Export: Nature of Office: Regional Headquarters 68 34.7 128 65.3 62 34.6 Foreign Market Involved 45 25.1 Group of Foreign Markets 14 7.8 All Markets 58 32.4 Not Regional Headquarters Decision-Making Orientation: Hong Kong 116 JOURNAL OF GLOBAL MARKETING TABLE 1 (continued) Company and Respondent Characteristic Number of Companies Percent Distribution Market Area Responded for: China 54 28.1 Asia, Other than China 38 19.8 USA/Canada 39 20.3 Western Europe 58 30.2 3 1.5 44 23.0 147 77.0 Other INDIVIDUAL RESPONDENT: Gender: Female Male Education: Below University 76 39.8 University/PoIytechnic 78 40.8 Postgraduate 37 19.4 155 80.3 15 7.8 West Europe 8 4.1 USA/Canada 5 2.6 Non-Chinese Asian 7 3.6 Other 3 1.6 93 48.7 Ethnic/National Background: Hong Kong Chinese Other Chinese Position in Company: Top Manager Senior Manager 42 22.0 Functional Manager 43 22.5 Other 13 6.8 lent for the market described as Asia Other than China; and companies responding for USA/Canada were most dominantly geocentric. The difference in ownership may not be that surprising since a major reason for foreign companies being in Hong Kong is that it served as a gateway to China, particularly Southern China. Subsidiary companies who were first “assigned” another market area in the sampling process probably did not do business in the assigned area so they responded for Albaum et al. 117 TABLE 2. Ownership and Orientation by Market Area Percent Distribution China Asia, Other than China USA/ Canada Western Europe Independent Hong Kong Company 61.1 78.9 89.7 86.0 Subsidiary of Hong Kong Company 13.0 7.9 2.6 7.0 Subsidiary of Foreign Company 18.5 2.6 2.6 5.3 Joint Venture of Hong Kong and Foreign Company 5.6 5.3 5.1 0.0 Ownership: Other 1.9 5.3 0.0 1.8 100.0 100.0 100.0 100.0 Hong Kong (Ethnocentrism) 40.0 26.5 20.0 42.6 Specific Foreign Market (Polycentrism) 28.0 44.1 17.1 18.5 8.0 0.0 11.4 11.1 Orientation: Group of Foreign Markets (Regiocentrism) All Markets (Geocentrism) 24.0 29.4 51.4 27.8 100.0 100.0 100.0 100.0 China. This might also help explain the distribution of responses by market area as the obtained sample distribution differed from the original sample distribution. Although Hong Kong is under Chinese Sovereignty, it is a Special Administrative Region and many of the “old” relationships with China and elsewhere remain in force. A question may be raised regarding whether Hong Kong-owned companies differ from those that are foreign-owned in their use of extension strategies. One answer would be to examine extension at initial entry in to the assigned (or selected) foreign market. No significant differences were found between the two ownership groups (Mann-Whitney U, P < .05). Thus, all company responses were combined into one group for analysis. FINDINGS AND DISCUSSION Each respondent was asked to indicate for the foreign market area assigned to his/her company (or selected) how the company changed its Hong Kong marketing approach for several marketing activities or strate- 118 JOURNAL OF GLOBAL MARKETING gies when first entering that market area, the extent to which marketing in that area differs “today” from the domestic market, and how important each activity/strategy is in the success of operation in that market. These data are shown in Table 3. The smaller the mean value, the greater is the change made for initial entry, the difference existing today, and the importance to success. Also shown in Table 3 are standard deviations. With the exception of “brand name,” the magnitude of the standard deviations are quite similar for each of the marketing variables within each of the model stages, and they are not particularly large. Extent of Differences For initial entry into foreign markets, the data in Table 3 show that the greatest change was made in pricing strategy (2.13) and in the product (quality, design, and strategy). The model presented earlier states that the extent of change in initial market entry would be affected by a company’s EPRG decision-making orientation and by the market area entered. Only for “Service Strategy” did initial market entry difference vary significantly by decision-making orientation, and the statistical significance was at p < .07. Interestingly, no pair of orientations differed significantly (Scheffe' range test, p < .07). From a binomial probaTABLE 3. Mean Values of Extent of Transfer and Perceived Importance to Success* Initial Entry** Difference Today*** Importance + to Success Product Strategy 2.46(1.04) 2.60(1.02) 2.24(1.02) Product Design 2.46(1.16) 2.61(1.16) 2.29(1.10) Pricing Strategy 2.13(1.03) 2.32(1.03) 2.01(0.97) Marketing Variable Advertising/Promotion Strategy 3.01(1.12) 2.88(1.06) 2.80(1.12) Personal Selling Practices and Strategy 2.94(1.12) 2.98(1.08) 2.68(1.12) Distribution Strategy 2.82(1.12) 2.87(1.05) 2.72(1.11) Product Quality 2.34(1.14) 2.60(1.17) 2.01(0.98) Service Strategy 2.69(1.06) 2.85(1.12) 2.35(1.02) Marketing Research 3.01(1.07) 2.99(0.97) 2.84(1.03) Product Function 2.94(1.10) 3.00(1.08) 2.71(1.07) Brand Name 2.99(1.34) 3.01(1.35) 3.00(1.28) *Number of respondents varied from 165 to 181. Numbers in parentheses are standard deviations. **Measured on a scale of 1 to 5 where 1 = very significant change and 5 = no change. ***Measured on a scale of 1 to 5 where 1 = very significant difference and 5 = no difference. + Measured on a scale of 1 to 5 where 1 = very significant importance and 5 = no importance. Albaum et al. 119 bility perspective finding one significant difference out of 11 is at about a chance probability level. Turning to foreign market area entered we see from Table 4 that two variables were significant at the .05 level or less and one variable at the .10 level, when size of company was used as a covariate. For the most part, the extent of change was less for entering Asia, including China, than for the other areas, which is what one would expect. Out of the total possible 66 paired tests, 10 were significant at p < .05, with most involving Asia, other than China, compared to USA/Canada and Western Europe. Since there are differences, the specific market areas where differences were greatest are not surprising. As far as P1 is concerned the results are mixed. The hypothesis is rejected for decision-making orientation (P1A), but cannot be rejected for market area entered (P1B). Extent of Extension Today The extension model suggests that the extent of difference in performance of marketing activities today in the selected foreign market TABLE 4. Mean Values of Extent of Change for Initial Market Entry, by Market Area Entered (Size of Firm Is a Covariate)* Market Area China (N = 52) Asia, Other than China (N = 38) USA/ Canada (N = 58) Western Europe (N = 38) Product Strategy 2.38 2.74 2.46 2.30 Product Designs 2.62 2.97 2.17 2.15 Marketing Variable Pricing Strategy 2.02 2.39 1.89 2.19 Advertising/Promotion Strategy 2.89 3.31 2.71 3.06 Personal Selling Practices and Strategya 2.87 3.44 2.60 2.94 Distribution Strategy 2.60 3.12 2.83 2.83 Product Qualitya 2.53 2.64 2.18 2.07 Service Strategy 2.81 2.83 2.57 2.53 Marketing Research 3.04 3.17 2.66 3.06 Product Functionsb 2.96 3.34 2.71 2.77 2.45 3.37 2.97 3.21 Brand Name * Measured on a scale of a Significant at p < .05. b Significant at p < .10. 1 to 5 where 1 = very significant change and 5 = no change. 120 JOURNAL OF GLOBAL MARKETING (compared to domestic market performance today) would be positively related to changes made in initial market entry, and such differences as those existing today are postulated to affect the perceived importance of marketing variables to the firm’s success. These links are examined by correlation analysis. As presented in Table 5 the relationships were all significant at p < .001, and all were positive. Thus, the more significant the change made for initial market entry the greater the extent of difference in conducting activities today compared to the domestic market. Similarly, the greater the extent of difference today, the more important the marketing activity/strategy is perceived to be to success. Consequently, P2A and P2B cannot be rejected. One unexpected finding was that there is a tendency for the responding companies to “return to what they know best” over time. That is, over time many companies appear to be reverting the marketing program used in the foreign market back to that being used in Hong Kong. This may or may not be the same as the domestic program used at the time of initial foreign market entry. Using the data in columns 1 and 2 from Table 3, initial entry change and difference today were compared using the t-test for Related Samples. Significant differences were observed for product strategy (t = 2.22, p < .03), product design (t = 2.32, p < .03), pricing strategy TABLE 5. Relationship Between Extent of Change Today and Initial Market Entry Change and Perceived Importance of Success Correlation Difference Today and Importance to Success (N = 48) Difference Today and Initial Entry (N = 151) Product Strategy .41 .60 Product Design .47 .65 Pricing Strategy .49 .60 Advertising/Promotion Strategy .53 .66 Personal Selling Practices and Strategy .64 .75 Distribution Strategy .65 .74 Product Quality .42 .72 Service Strategy .54 .72 Marketing Research .58 .73 Product Functions .61 .77 Brand Names .68 .76 Marketing Variables All are significant at p < .001. Albaum et al. 121 (t = 2.43, p < .02), product quality (t = 3.97, p < .001), and service strategy (t = 2.89, p < .01). In all cases mean values were greater for extent of difference today, and the greater the mean value the less there is a difference from the domestic Hong Kong market. Firm Specific Advantage Firms often times have specific advantages vis-à-vis competitors in marketing in foreign markets. These advantages may be only for individual marketing activities or strategies rather than advantages that go “across the board” and encompass the complete marketing mix. Respondent companies were asked to indicate how unique (i.e., different) their company’s performance was compared to competitors in the foreign market they responded about for a number of company activities, abilities, and behaviors. These were divided into two groups: (1) firm specific advantages and (2) corporate perceived competitiveness. Measurement was obtained by using the following five-category numerical scale: “much worse” (1), “worse” (2), “about the same” (3), “better” (4), and “much better” (5). Five dimensions were identified a priori for firm specific advantage, some of which are composites of multiple measures. These dimensions (and specific measures) are: 1. Product 2. Promotion 3. Distribution/Service 4. Pricing 5. Research Quality of product, product technology, strength of brand name. Advertising/promotion activities, personal selling activities. Distribution network, before- and aftersale service. Pricing strategy. Researching the foreign market. Corporate perceived competitiveness also was composed of five dimensions: (1) marketing expertise, (2) quickness to respond to market changes, (3) financial resources, (4) flexibility in responding to market changes, and (5) market connections in the foreign market. The model underlying this study states that a key direct determinant of firm performance is firm specific advantage, which is related to corporate perceived competitiveness and the importance to success in the foreign market that companies attribute to specific marketing activities/strategies. To test this relationship correlation analysis is used. These results are shown in Table 6. Regarding corporate competitive- 122 JOURNAL OF GLOBAL MARKETING ness, the correlations range from a low of .10 (financial resources/pricing) to .59 (market connection and research). Of the 25 correlation coefficients 24 are significant (p < .01) and only one is not significant. The one potential firm specific advantage that appears to be least affected by corporate competitiveness is pricing. When corporate competitiveness is summarized in two strategic dimensions (resources and flexibility) all correlations become highly significant. A mixed pattern emerges for the effect of perceived importance to success. First, research is not related significantly to the importance of any variable except research. The correlation (r = .22, p < .01) indicates that companies who do better than their competitors are more likely to believe that research is important to their success. Interestingly, while most other correlations are significant at p < .01 or lower, the positive values indicate that the importance of these activities is inversely reTABLE 6. Correlations of Firm Specific Advantages with Corporate Strategy and Importance of Marketing Activities/Strategies to Success Firm Specific Advantage* Product/ Brand Selling/ Promotion Distribution/ Service Pricing Research .24 .51 .41 .29 .39 .39 Corporate Perceived Competition: Marketing Expertise Quickness .27 .42 .42 .35 Financial Resources .43 .39 .50 .10a .39 Flexibility .20 .43 .44 .33 .34 Market Connection .44 .49 .57 .20 .59 .48 .58 .65 .20 .57 .24 .46 .45 .32 .38 .55 .32 .52 .36 Summary Constructs: Resources Flexibility b c Perceived Importance: Product Promotion/Advertising .33 .60 Distribution/Service .34 .42 Pricing Research .27 .33 .17 .49 .19 .57 a .36 *Unless otherwise specified, all correlations are significant at p < .01. a Not significant. p > .05. b Includes marketing expertise, financial resources and market connection. c Includes quickness and flexibility. .19 .39 a .21 a .47 .11 a ⫺.10 a ⫺.10 a ⫺.08 a ⫺.02 a .22 Albaum et al. 123 lated to their advantages. In short, their advantages seem to exist independent of how important they feel a marketing activity/strategy is. Propositions P3A and P3B asserted that there would be a positive relationship between firm specific advantages and corporate competitiveness activities and importance to success of marketing activities in the foreign market being examined. On the basis of the correlation analyses, P3A cannot be rejected statistically, except for perceived importance of activities to success and research as a firm specific advantage. However, substantively we can state that none of the perceptions about importance of marketing activities contributes to firm specific advantages. Proposition P3B cannot be rejected on any dimension. Firm Performance The last link in the extension model is the effect on firm performance of firm specific advantages and corporate perceived competitiveness. Three measures of performance were used: (1) performance compared to competitors in sales growth, sales volume, market share and operating profit, (2) performance compared to expectations in sales growth, sales volume, market share and operating profit, and (3) overall performance compared to expectations. In all measures a five-category numerical scale was used–much worse (1), worse (2), the same or as expected (3), better (4), and much better (5). It will be noted that these measures of performance are subjective rather than objective such as actual sales and profit measures. Subjective measures incorporating management satisfaction provide a different perspective (Evangelista, 1994). Although actual sales and profits are important, a given level of performance does not provide a standard for judging whether the level is related to expectations and objectives compared to competitors (Bonoma and Clark, 1988). In addition, expectations were used to simplify the analysis. These composites combined ratings for growth, volume, market share and profit. As shown in Table 7, respondent companies believe their performance compared to competitors in the year prior to data collection was slightly better. At the same time, performance about matched expectations, For not one measure was there a significant difference due to foreign market area being marketed to. Overall respondents felt their performance had been just as expected and there were no differences due to market area (p < .85). The extension model postulated that export performance would be positively related to the firm specific advantages and corporate strategy 124 JOURNAL OF GLOBAL MARKETING TABLE 7. Perceived Performance Performance Relative to Competitors a Performance Compared to Expectation Mean Value pb Mean Value pb Sales Growth 3.28 .92 2.99 .33 Sales Volume 3.30 .99 3.05 .39 Market Share 3.15 .86 2.92 .60 Operating Profit 3.11 .36 2.85 .52 Measure a Measured b on a scale of 1-5 where 1 = much worse and 5 = much better. Significance of ANOVA for difference by market area responded for. competitive advantages perceived to exist by a firm. A correlation analysis was run to examine the relationship. These findings are reported in Table 8. All correlations are positive, which is the predicted direction. Examining firm specific advantages we see that pricing is the only variable that is not significantly related to all these performance measures. Both promotion/advertising and marketing research are not significantly related to performance meeting expectations. All other correlations are significant. Turning to corporate strategy (i.e., corporate perceived competitiveness), the major dimensions were summarized into two variables. First, what we call “resources” consists of competitiveness in financial resources, marketing expertise, and connections in the market. The second variable, “flexibility,” is comprised of flexibility and quickness in responding to market changes. Examining Table 8 further we see that all correlations between corporate strategy and export performance are highly significant. On the basis of these findings, P4 cannot be rejected, although there are some weaker links in firm specific advantages’ effects on export performance. CONCLUSIONS A contingency-based model of extension of marketing activities and export performance was proposed. Seven propositions were generated from this model and tested by the experiences of a sample of Hong Kong-based companies. The only proposition that was rejected was P1A. The results of the study did not support the contention that extent of extension initially would vary by decision-making orientation, on the basis of the EPRG schema. Albaum et al. 125 TABLE 8. Correlation Between Subjective Export Performance Measures and Firm Strategic Advantage and Corporate Advantage Performance Relative to Competition Performance Compared to Expectations Overall Performance Firm Strategic Advantage: Product .35** .23* .19* Promotion/Advertising .24** .14 .19* Distribution/Service .33** .20* .26** Pricing .03 .16 .10 Marketing Research .32** .16 .26** Resources .39** .26** .24** Flexibility .29** .27** .29** Corporate Strategy: *p < .01. **p < .001. Export performance is shown to be directly affected by corporate perceived competitiveness and strategic firm advantages. Firm strategic advantages are based on the importance the firm attaches to marketing activities/strategies. This importance is derived from the extent of extension of marketing operations from the domestic market. The making of changes in specific activities and strategies are a function of need to change as well as ability to change. Obviously, we assume that extent of extension initially and where a company is now was based on assessment by management of the need and that companies had the ability to do so. Market places are not static, at least in the short-run. Changes may occur in competitive conditions, consumers’ behaviors and attitudes, the governmental environment, and so forth. Changes in the environment as well as changes within the firm typically lead to changes in firm behavior. Our analysis does not need to control specifically for external changes as where the firm is today and perceived importance to success reflect company responses. In addition to supporting–or failing to reject–the basic foundation of the extension model, other interesting findings emerged. 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SUBMITTED: July 2002 FIRST REVISION: September 2002 SECOND REVISION: October 2002 ACCEPTED: November 2002 128 JOURNAL OF GLOBAL MARKETING APPENDIX TABLE A1 Marketing Characteristics and Strategic Behaviors Quality of Your Product Product Technology Research and Developing of Your Product Production Cost Strength of Brand Name of Your Product Marketing Expertise Advertising/Promotion Activities Financial Resources Distribution Network Personal Selling Activities Before and After Sales Services Pricing Strategy Quickness to Respond to Market Changes Flexibility in Responding to Market Changes Connections in That Foreign Market Researching for Foreign Market Albaum et al. 129 TABLE A2 Performance Measures a. Compared with your competitors, how would you rate your performance last year in each of the following areas: Much Worse Worse About the Same Better Much Better Sales Growth 1 2 3 4 5 Sales Volume 1 2 3 4 5 Market Share 1 2 3 4 5 Operating Profit 1 2 3 4 5 b. Compared with your expectations, how would you rate your performance last year in each of the following areas: Much Worse Worse As Expected Better Much Better Sales Growth 1 2 3 4 5 Sales Volume 1 2 3 4 5 Market Share 1 2 3 4 5 Operating Profit 1 2 3 4 5 c. Overall, how would you rate your company's performance last year: ___Much worse than expected ___Worse than expected ___Just as expected ___Better than expected ___Much better than expected