Download strategy fit and performance consequences of international

Strategic Management Journal
Strat. Mgmt. J., 27: 867–890 (2006)
Published online in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/smj.549
Received 13 February 2003; Final revision received 28 February 2006
STRATEGY FIT AND PERFORMANCE
CONSEQUENCES OF INTERNATIONAL MARKETING
STANDARDIZATION
CONSTANTINE S. KATSIKEAS,1 SAEED SAMIEE2 * and MARIOS
THEODOSIOU3
1
Leeds University Business School, Leeds, U.K.
College of Business Administration, The University of Tulsa, Tulsa, Oklahoma,
U.S.A.
3
Department of Public and Business Administration, University of Cyprus, Nicosia,
Cyprus
2
This study addresses a long-standing debate in the literature regarding the appropriateness and
performance consequences of marketing strategy standardization vs. adaptation. Much of the
relevant literature represents the headquarters’ viewpoint and broadly assesses antecedents of
standardization or adaptation across widely varying markets. Using strategic fit as the theoretical platform for analysis, the study investigates international marketing strategy for a specific
product or line within subsidiaries of U.S., Japanese, and German multinational corporations
(MNCs) operating in the U.K. The results indicate that degree of strategy standardization is
significantly related to similarity between markets with respect to regulatory environments, technological intensity and velocity, customs and traditions, customer characteristics, a product’s
stage in its life cycle, and competitive intensity. On the critical question of performance consequences, the findings suggest that superior performance results from strategy standardization
only to the extent that there is fit or coalignment between the MNC’s environmental context and
its international marketing strategy choice. Copyright © 2006 John Wiley & Sons, Ltd.
The ongoing globalization of markets and
increased competition worldwide have made
international marketing decisions ever more
important to the survival, growth, and profitability
of multinational corporations (MNCs). The issue
of standardized marketing programs vs. programs
customized to the specific requirements of
individual foreign markets has received focal
research attention for over four decades. Most
Keywords: strategy fit; international marketing; marketing
standardization; performance
*Correspondence to: Saeed Samiee, College of Business Administration, The University of Tulsa, 600 S. College Ave., Tulsa,
OK 74104, U.S.A. E-mail: [email protected]
Copyright © 2006 John Wiley & Sons, Ltd.
studies focus on the factors that influence
the choice of a particular strategy, identifying
a range of forces driving standardization or
adaptation of marketing programs (e.g., Harvey,
1993; Jain, 1989; Picard, Boddewyn, and Grosse,
1998). However, the importance of a specific
international marketing strategy lies in its potential
to enhance business performance (Samiee and
Roth, 1992). The economic benefits and the
ease of administering standardized marketing
programs make this strategy an attractive choice
for MNCs (Douglas and Wind, 1987), especially
those pursuing a global strategy (Johansson and
Yip, 1994). Yet, while standardization can offer
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C. S. Katsikeas, S. Samiee and M. Theodosiou
economies of scale, it can also lead to suboptimal
sales when it is inconsistent with the environment
in the host market (Yip, 2003).
Although there have been repeated calls for studies on the performance implications of standardization or customization (Jain, 1989; Keegan, Still,
and Hill, 1987), there are but a limited number
of such studies. More importantly, the few studies
addressing the subject report mixed results, making it difficult to develop theory and management
practice in the field. For instance, some studies
indicate that performance is enhanced by standardizing marketing strategies across markets (e.g.,
O’Donnell and Jeong, 2000; Szymanski, Bharadwaj, and Varadarajan, 1993), while others reveal
no association between standardization and performance (e.g., Albaum and Tse, 2001). Still other
studies report inverse relationships between standardization of certain marketing program components and performance (e.g., Shoham, 1999).
Investigators often attempt to establish a direct link
between strategy standardization (or adaptation)
and performance, assuming—even if tacitly—that
standardization (or adaptation) is a superior strategy (e.g., Johansson and Yip, 1994; Özsomer
and Simonin, 2004). However, it has been theorized that the appropriateness of a particular
strategy can be defined in terms of its ‘coalignment’ or ‘fit’ with environmental contingencies
(Drazin and Van de Ven, 1985; Lukas, Tan, and
Hult, 2001). Good fit between strategy and context
has been found to have significant positive effects
for performance (Venkatraman and Prescott, 1990).
Despite this concept’s centrality and appeal in
strategic planning, there is scant research targeting
the extent to which fit between marketing strategy and environmental context can explain interfirm performance differences in international markets.
The research presented here is the first empirical study designed explicitly to examine the presence, nature, and performance consequences of
fit between overall marketing program standardization/adaptation and the environment in which
it is implemented. By addressing the impact of
strategy coalignment on performance, we respond
to an important issue: whether fit matters and,
if so, the extent to which and when it matters. We explore these aspects within the context of MNCs’ international marketing strategies
on the basis of subsidiary managers’ input on
Copyright © 2006 John Wiley & Sons, Ltd.
the degree of international marketing standardization, its potential drivers, and the performance outcomes.
Prior research has typically addressed the issue
of standardization vs. adaptation from the headquarters’ standpoint. We extend current knowledge
by focusing more directly on subsidiary activities
and adopting a strategic fit framework to understand the performance consequences of international marketing strategy at the subsidiary level.
Recent studies highlight the increasingly strategic role of subsidiaries in global operations (e.g.,
Delios and Beamish, 2001; Hewett and Bearden,
2001; Özsomer and Simonin, 2004), as these have
assumed a variety of important marketing tasks
in MNCs’ drive to develop multinational flexibility (Bartlett and Ghoshal, 1991). For instance,
Whirlpool encourages its subsidiaries to undertake
product and process innovation at the local level,
with a view to enhancing its global competitiveness and performance (Govindarajan and Gupta,
1998).
Next, we discuss key issues in the deployment of marketing programs at the subsidiary level, present the theoretical base for
this study, and review the research on international marketing strategy and performance.
We then formulate research hypotheses. Subsequently, we describe the research method and
present the results. Finally, we discuss the findings and their implications and consider limitations of the study and directions for future
research.
REVIEW OF THE PERTINENT
LITERATURE
Subsidiary marketing operations
International marketing strategies may be formulated at the headquarters, the subsidiary, or
both, although the responsibility for implementing local marketing programs rests with the foreign subsidiary’s marketing unit (Hewett and Bearden, 2001). Concurrently, studies of standardization/adaptation are commonly conducted from
the standpoint of headquarters (e.g., Samiee and
Roth, 1992; Szymanski et al., 1993). Although
home office viewpoints regarding existing strategies in markets abroad are intuitively important
and such research has offered valuable insights
Strat. Mgmt. J., 27: 867–890 (2006)
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Marketing Strategy Standardization and Performance
in the literature, the validity of this information might be questionable (Onkvisit and Shaw,
1987) in view of the increasingly strategic tasks
undertaken by subsidiaries and their role in the
effective implementation of international marketing programs (Hewett and Bearden, 2001). One
cannot be certain of the extent to which a particular strategy is implemented at local levels as
intended. Thus, the accuracy of data generated
from a single respondent at headquarters with
regard to international strategies in place, environmental contingencies, and performance outcomes
in dozens of markets abroad is open to question.
Research based on the headquarters’ perspective
implicitly involves the MNC’s overall marketing
operations, which likely cover a broad range of
potentially heterogeneous products and markets.
This is conceptually problematic, as one should
expect considerable differences in marketing strategy and performance across an MNC’s different product-market domains. A particular marketing strategy may not result in the same performance levels in all markets of the firm, as
conditions and strategic imperatives differ across
markets (Ghoshal and Nohria, 1989). Hence, any
study of marketing strategy and performance at the
overall firm level, aggregating all product-market
domains, will likely result in confounded findings.
Since firms tend to be successful in some host markets and unsuccessful in others, such an approach
may discount the variability of performance (Katsikeas, Leonidou, and Morgan, 2000). Thus, to
obtain a more accurate assessment of international
marketing practices, environmental influences, and
performance, we focus on MNCs’ operations for
a particular product (line) in a specific host market served through a local subsidiary (Hewett and
Bearden, 2001).
Theoretical foundation
The concept of strategic fit provides the theoretical foundation for this study. The strategic fit
paradigm asserts the necessity of maintaining a
close and consistent linkage between the firm’s
strategy and the context within which it is implemented (Venkatraman, 1989). The core proposition
is that matching the [marketing] strategy with the
environment leads to superior performance (Lukas
et al., 2001). The concept of fit has played a key
role in the development of strategic management
Copyright © 2006 John Wiley & Sons, Ltd.
869
and organization theory fields (Zajac, Kraatz, and
Bresser, 2000), and has also served as the theoretical foundation in a number of marketing studies (e.g., Hambrick, MacMillan, and Day, 1982;
Olson, Walker, and Ruekert, 1995; Vorhies and
Morgan, 2003). Marketing applications have centered on the notion that the firm reacts to the
environment as an exogenous variable and adjusts
its marketing strategy and/or organizational form
to match the environment (Walker and Ruekert,
1987).
There is solid conceptual support for the appropriateness of strategic fit within a marketing context. For example, Day’s (1999) fundamental thesis for building a market-driven organization is
that performance is a function of fit between
a firm and its environment realized through the
design and implementation of an appropriate marketing strategy. That is, marketing strategy is
the main mechanism for achieving fit between
an organization and its external market conditions. Strategic fit thus offers a relevant foundation for performance assessment of a given international marketing strategy. Scholars have long
recognized the importance of matching international marketing strategy to the context in which
the firm operates. For example, Jain’s (1989) conceptual work points to the influence of environmental factors on the suitability of international marketing programs. Jain also recognizes
performance issues, but not within the context
of strategic fit. Thus, although tacitly incorporated in a few international marketing research
projects, strategic fit as a theoretical framework
has received nominal attention in the pertinent literature.
The concept of fit is linked closely to performance (Ginsberg and Venkatraman, 1985; Lukas
et al., 2001). Lemak and Arunthanes (1997) have
noted that higher levels of performance in global
markets depend largely on the firm’s selection
of a global strategy that is appropriate for its
unique set of circumstances. We adopt a similar position: the ‘coalignment’ or ‘fit’ between
strategy (conceptualized as the degree of marketing program standardization) and its environmental context has positive effects on business performance (cf. Venkatraman and Prescott, 1990).
Hence, the main proposition of this study is
that the degree of international marketing strategy
standardization leads to higher performance levels only to the extent that there is fit between the
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C. S. Katsikeas, S. Samiee and M. Theodosiou
environmental imperatives and the strategy being
deployed.
Research on international marketing strategy
and performance
In contrast to the vast amount of research on the
drivers of standardization or adaptation strategy,
there is a relative paucity of empirical work on
the relationship between international marketing
strategy and performance. Most studies of marketing strategy standardization are conceptual. A
systematic review of the literature reveals a total
of 13 empirical studies that focus on the relationship between international marketing strategy
and performance.1 Most of the studies examine
marketing programs and performance of exporting
firms. Only five studies investigate this relationship among MNCs, due in part to the difficulty in
generating reliable data on foreign subsidiary marketing practices and performance. Further, the unit
of analysis in most studies is the firm. Only four
studies center on the product or brand as the unit of
analysis, two of which (Hewett and Bearden, 2001;
Özsomer and Simonin, 2004) focus specifically on
MNCs.
In addition, there are two key conceptual issues
that warrant consideration. First, except for Hewett
and Bearden (2001), who examine moderating
effects of the degree of strategy standardization,
there is a consistent pattern among researchers
to investigate direct relationships of some international marketing strategy variable(s) with some
indicator(s) of performance. Six studies focus
on adaptation of one (or more) marketing strategy element and its direct impact on performance, while the remaining seven examine performance outcomes of marketing standardization.
This stream of research contributes to our knowledge of antecedents and performance consequences
of either standardization or adaptation of international marketing programs. However, conceptualization and testing of direct relationships between
strategy and performance assumes that a particular strategy enhances performance, while the other
inhibits it. This approach is contrary to the strategic fit paradigm, which posits that performance
in international markets will be enhanced only
1
A table delineating key aspects of the empirical contributions
on international marketing strategy standardization/adaptation
and performance is available from the authors upon request.
Copyright © 2006 John Wiley & Sons, Ltd.
if there is coalignment between standardization,
adaptation, or any combination of the two, and
environmental context. It also contradicts current
thought and recent empirical evidence that neither standardization nor adaptation of international
marketing programs is inherently superior (Hewett
and Bearden, 2001). Thus, some inconsistencies
in the empirical findings might be attributed to the
tradition of investigating direct links between strategy and performance.
Second, though most studies assess performance
using multiple indicators, researchers commonly
investigate individual performance indicators in
relation to marketing program components, or conceptualize performance as a unidimensional construct. However, there is consensus in the marketing and strategy fields that performance is
a complex phenomenon involving organizational
inputs and outputs variously viewed and assessed
(e.g., Bhargava, Dubelaar, and Ramaswami, 1994;
Chakravarthy, 1986). Thus, by default, performance is a multidimensional construct. Despite
repeated calls for the use of multidimensional performance measures (e.g., Bagozzi and Phillips,
1982; Katsikeas et al., 2000), our review indicates
the absence of multidimensional conceptualizations and operationalizations of firm performance
in international markets.
Synthesis
Our review of previous work has identified a number of important gaps. First, despite the persistent
debate on marketing standardization vs. adaptation, empirical research on the performance outcomes of a particular strategy is limited. We perceive the need for a holistic conceptual framework and empirical study to isolate factors that
determine the deployment of appropriate marketing strategies, which in turn can explain interfirm
performance variations in international markets.
Second, although the strategic fit paradigm posits
that coalignment of international marketing strategy with the environment in which it is implemented leads to enhanced performance (Venkatraman and Prescott, 1990), the literature offers little
guidance for pinpointing specific contextual factors
that have significant positive implications for performance in international markets. We deliberately
sought to move from the relatively high level of
abstraction of this paradigm to the identification of
specific environmental contingencies that are more
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Marketing Strategy Standardization and Performance
familiar to researchers in international business (cf.
Homburg, Workman, and Krohmer, 1999). Third,
prior research has essentially treated performance
in international markets as a unidimensional construct or examined associations of marketing program elements with single performance indicators.
To provide greater insight into firms’ international
marketing behavior, we treat performance as a
multidimensional phenomenon. Multidimensional
conceptualizations offer a coherent structure of
multifaceted, interdisciplinary knowledge pertaining to the domain of a particular construct and
the marketing problem at hand (Kuester, Homburg,
and Robertson, 1999).
871
allied resources needed to run local manufacturing operations (Samli, Wills, and Jacobs, 1993).
A standardized strategy is more likely when the
prevailing economic conditions in target markets
are similar (Sriram and Gopalakrishna, 1991). The
importance of economic conditions is also reflected
in prior studies aimed at developing clusters of
nations that share, inter alia, economic similarity
as the basis for using standardized programs (e.g.,
Sethi, 1971; Day, Fox, and Huszagh, 1988).
Hypothesis 1: Similarity of economic conditions in the home and host markets is positively
related to the degree of marketing strategy standardization.
RESEARCH HYPOTHESES
Regulatory environment
We focus on the degree of marketing standardization realized at the subsidiary level and examine
drivers of actual international marketing programs
and performance consequences of fit between realized strategy and context from the standpoint of
subsidiary management. Based on the literature
review and field interviews, we hypothesize two
sets of factors as influencing the degree of marketing standardization: first, macro- (general) environmental factors, which consist of larger societal
forces that impact the firm’s marketing strategy
including economic, regulatory, and technological
elements, as well as customs and traditions of the
environment in which the MNC operates; second,
micro- (task) environmental factors, which comprise forces close to the firm that affect its ability
to serve foreign markets including customer characteristics, marketing infrastructure, the life cycle
of the product, and the intensity of competition.
Macro-environmental factors and degree of
standardization
Economic environment
The economic environment of a host market affects
market potential and demand for industrial and
consumer products. It reflects standards of living
and employment and income levels which, in turn,
influence customer priorities in terms of the products they consider essential or desirable, as well
as the prices they can afford and are willing to
pay (Jain, 1989). The economic environment of
the host country impacts the firm’s cost structure,
as it affects the cost of raw materials, labor, and
Copyright © 2006 John Wiley & Sons, Ltd.
Similarity in laws and regulations is a factor conducive to the pursuit of standardized strategies;
however, laws and regulations governing marketing activities vary significantly across countries
(Harvey, 1993; Yip, 2003). Despite this variation,
three sets of laws and regulations are likely to
be of primary importance in developing a marketing strategy. The first concerns regulations protecting the nontangible intellectual and tangible
properties of the firm, as well as laws that guard
the firm from predatory practices of competitors (Fraser and Hite, 1988). The second group
refers to laws and regulations designed to protect
the customer; for example, advertising regulations
(e.g., for tobacco products in certain countries) are
often introduced to protect one or more customer
groups (Yip, 1989). Customer protection may also
influence technical aspects of product design, its
packaging, branding, services, and warranties, as
well as its pricing and distribution (Hill and Still,
1984). The third set pertains to technical standards, including constituents that must or must not
be used in products, as well as size, shape, and
related attributes (Boddewyn and Grosse, 1995).
The literature suggests that differences in laws and
regulations across markets are a key obstacle to
deploying uniform strategies (Cavusgil, Zou, and
Naidu, 1993; Johnson and Arunthanes, 1995).
Hypothesis 2: Similarity of regulatory environments in the home and host markets is positively
related to the degree of marketing strategy standardization.
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Technological intensity and velocity
High-technology products are better candidates
for global marketing standardization (Jain, 1989)
and the literature reports a positive relationship
between technological intensity and export marketing strategy (Cavusgil and Zou, 1994). Such
products have rapid obsolescence rates and, thus,
firms have neither the time nor the resources
to adopt customized strategies for each market
(Yip, 1989; Samiee and Roth, 1992). This condition demands rapid, if not simultaneous, market
entry and roll-out in all potential markets. Concurrently, new technologies require new production
platforms (i.e., retooling) that tend to be expensive and require a high yield to be profitable. For
example, as each generation of integrated circuits
(e.g., memory, processors) becomes denser, new
equipment that complies with state-of-the-art technology and design is required, as are new production facilities housed in ‘clean rooms’ (i.e.,
dust-free plants with strict temperature and humidity control). Globally concentrated manufacturing
and uniform uses and benefits of high-technology
products make them a prime candidate for standardization (Porter, 1986).
Hypothesis 3: The technological intensity and
velocity facing the firm is positively related to
the degree of marketing strategy standardization.
Customs and traditions
The international business literature highlights customer values, beliefs, and attitudes, education, and
aesthetic preferences, along with conditions and
patterns of product usage, as factors that influence
the degree of marketing strategy standardization
(e.g., Hill and Still, 1984; Aydin and Terpstra,
1981). In the broader cultural context, there are
indications that dissimilarity of customer backgrounds inhibits standardization (Keegan et al.,
1987; Wang, 1996). Similarity among intermarket segments considered for standardization along
these dimensions is a pivotal requirement for the
strategy’s success. Standardization across markets
is thus feasible only to the extent to which they
share such important customs and traditions (Jain,
1989). That is to say, customer backgrounds and
preferences need not be identical in all respects;
rather, similarity is imperative only along the
Copyright © 2006 John Wiley & Sons, Ltd.
dimensions that affect customer interaction with
the product and the firm.
Hypothesis 4: Similarity of customs and traditions in the home and host markets is positively
related to the degree of marketing strategy standardization.
Micro-environmental factors and degree of
standardization
Customer characteristics
Similarities between customer requirements and
evaluative criteria accommodate standardization
efforts (e.g., Douglas and Wind, 1987; Yip, 1997).
The value customers attach to a product reflects
their price sensitivity, which can influence marketing strategy decisions. Manufacturing a less
expensive model to accommodate price sensitivity in host markets tends to inhibit product standardization. Marketing standardization efforts frequently fail when firms neglect to identify clearly
defined, researched, and delineated intermarket
segments (Samiee and Roth, 1992). Customer purchasing differences across markets are likely to
require adaptation of marketing program components. Japanese parents, for example, demonstrate
a preference for changing their infants’ diapers
more frequently. Thus, Procter & Gamble and
others had to design a less absorbent diaper and
modify their host market promotional programs
accordingly.
Hypothesis 5: Similarity of customer characteristics in the home and host markets is positively
related to the degree of marketing strategy standardization.
Marketing infrastructure
Similarity between marketing infrastructures plays
a critical role in making standardization a viable
strategy (Özsomer and Simonin, 2004). A higher
degree of standardization is likely when there is
similarity in institutions within the markets targeted. Similarity in intermediary services, research
firms, media, and logistical support in host markets accommodates standardization (Jain, 1989;
Yip, 1989). In contrast, differences in the availability, cost, and competencies of these institutions from one country to another hamper the
use of standardized strategies (Douglas and Wind,
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Marketing Strategy Standardization and Performance
1987; Harvey, 1993). Variation in the number, size,
and dispersion of distributive outlets may necessitate a certain degree of adaptation in distribution
strategy, promotional methods, prevailing wholesale and retail margins, price and discount structures, and product design and packaging (Samiee,
1993).
Hypothesis 6: Similarity of marketing infrastructures in the home and host markets is positively related to the degree of marketing strategy
standardization.
Product life cycle
Standardization is a viable option when customers
are equally familiar with the product and exhibit
reasonably similar demand levels. That is, the
product is at about the same stage in its life cycle
in markets targeted for standardization (Rau and
Preble, 1987). However, products may well be
at different stages across markets due in part to
variations in customers’ product knowledge, utilization, and demand patterns, and thus firms may
have to adapt their strategies to accommodate local
market conditions. The literature echoes that the
degree of similarity in the stage of product life
cycle (PLC) between home and host markets governs strategy standardization (e.g., Özsomer and
Simonin 2004).
Hypothesis 7: Similarity of the firm’s PLC stage
in home and host markets is positively related
to the degree of marketing strategy standardization.
Competitive intensity
The intensity of competition in host markets can
significantly influence a firm’s international marketing strategy. For example, Cavusgil et al. (1993)
report that competitive intensity leads to greater
adaptation to host markets by exporting firms.
Likewise, Subramaniam and Hewett (2004) find
that competitive intensity is a significant predictor
of the decision to adapt or standardize products
in international markets. The pressure to standardize marketing strategies, on the other hand, is
in part related to the globalization trend and the
promise that firms can leverage off market similarities to standardized one or more aspects of
Copyright © 2006 John Wiley & Sons, Ltd.
873
their marketing programs (Yip, 2003). In particular, when a competitor internationally standardizes
its marketing approach for greater efficiency and
lower costs to gain a competitive advantage position, others are likely to follow the same path.
However, faced with greater competitive intensity
and a desire to be more market-oriented, local
managers are under pressure to adapt marketing
strategies to the local market environment (Yip,
1989).
Hypothesis 8: Similarity of the level of competitive intensity in the home and host markets
is positively related to the extent of marketing
strategy standardization.
Strategy fit and performance outcomes
Performance is the single most important consideration in assessing the suitability of a specific
strategy. However, as noted earlier, our thorough
literature review suggests that, despite the importance of performance implications of a given international marketing strategy (Jain, 1989), the topic
has received limited empirical attention, particularly in an MNC context, and results are contradictory and inconclusive. An appropriate strategy for a particular firm depends on the context
in which the plan is implemented (Dess, Lumpkin, and Covin, 1997; Miller, 1986; Naman and
Slevin, 1993). The strategic fit paradigm posits
that firms can enhance performance by achieving
coalignment or fit between their strategies and the
particular environmental contexts in which they
have chosen to operate. Therefore, coalignment
between environmental conditions and degree of
marketing program standardization is expected to
enhance firm performance in international markets.
Hypothesis 9: Superior performance results from
the fit between the degree of international marketing strategy standardization and the environmental context in which it is implemented.
RESEARCH METHOD
Context
The data were gathered through a survey of manufacturing subsidiaries of U.S., Japanese, and German MNCs operating in the U.K. We focused on a
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specific product (line) manufactured and marketed
by the MNC in both home and host markets. We
selected this empirical setting for a number of reasons. First, U.S., Japanese, and German MNCs represent the vast proportion of foreign direct investment in the U.K. (OECD, 2002). Second, study
of MNCs from diverse countries within a single
foreign market (U.K.) has methodological advantages: (1) variability in MNC practices for the
study sample; (2) across-firm variability within the
same industry; and (3) control over potential confounding factors in cross-national studies (Singh,
Verbeke, and Rhoads, 1996). Thus limiting the
research design also allows the development of
grounded measures meaningful to all survey participants.
Theoretically it makes no difference which two
markets are targeted for investigation. The selection of the home market as the benchmark is
methodologically appropriate, as subsidiary executives interact with key managers at headquarters
and travel there more often than is the case for
inter-subsidiary interactions. The literature, supported by the field interviews, points to the headquarters’ influential role in the MNC’s corporate
strategy and policy for its global activities. In
the vast majority of our sample firms, the home
market was the largest in terms of sales. The
choice of the home market is also consistent with
common practice in prior research (e.g., Johnson and Arunthanes, 1995; Kotabe and Omura,
1989).
our measures but also ensured that managers could
readily interpret all constructs and the items used
to measure them. They also confirmed that subsidiary managers would be better positioned to provide information on subsidiary marketing practices
and performance and have sufficient knowledge
of the firm’s home market conditions and strategies.
Questionnaire development
Initially attention was given to specifying each
construct’s domain. Next, items were drafted to
reflect the conceptual domain of a particular construct, based on a review of the literature and
field interviews. We used seven-point rating scales
to capture responses to all items. We drafted a
questionnaire that we then evaluated and revised
through in-depth discussions with five international
marketing academics serving as expert judges.
After a series of revisions, consensus was reached
as to the relevance of measures: all judges rated
each item as ‘highly representative’ or ‘somewhat representative’ of the construct being considered and they did not perceive any items as
‘not at all representative’ (Zaichkowsky, 1985).
The revised questionnaire was extensively pretested and refined in personal interviews with
subsidiary managers, thus assuring content validity.
Data collection
Field interviews
In-depth field interviews, lasting between 60 and
120 minutes, were conducted with four senior marketing executives based at headquarters and 11
subsidiary-level marketing managers. Interviews
complemented our literature review and helped
us develop a comprehensive set of measures covering critical dimensions of international marketing strategy. The interviews indicated that MNCs
do not implement identical marketing strategies
across markets and that some inter-market variation in marketing programs was common even
among firms that tended to adopt more standardized strategies. In addition, the MNC’s home market was normally the firm’s largest markets and
was typically identified as the epicenter of corporate strategy and policy for global operations.
The field procedures not only helped us develop
Copyright © 2006 John Wiley & Sons, Ltd.
The study population was developed using the
FAME and Dun and Bradstreet databases of U.K.
business enterprises. These sources provided information on each firm’s ownership structure, specifying subsidiaries of foreign MNCs and their parent company and contact details. In total, we identified 736 subsidiaries of U.S., Japanese, and German MNCs (target population). All firms were contacted to assess their eligibility and locate appropriate informants for the study.
Key informant selection
Key informants are organizational members who
are knowledgeable of and willing and able to
report on the problem being investigated (Campbell, 1955). Three steps ensured informant quality and response validity. First, each of the 736
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Marketing Strategy Standardization and Performance
subsidiaries was contacted by telephone to identify an appropriate individual. Second, if more
than one product (line) was common to the parent firm and its subsidiary, respondents were asked
to focus on the one that contributed most to
the subsidiary’s revenues, minimizing the potential for bias by incorporating perceptions of different products (or lines) into single responses.
Third, we conducted a post hoc test on informant
quality.
Pre-survey telephone contacts yielded 526 (71%
of 736) potential respondents: (1) who worked
closely with headquarters and met the knowledgeability criterion; (2) whose firms (i.e., the U.K.
subsidiary and the parent firm) had manufactured
and marketed the same product (line) locally and
in the MNC’s home market for at least 3 years;
and (3) who agreed to participate (cf. Heide and
Weiss, 1995). A total of 199 firms were excluded
because: (a) corporate policy restrictions precluded
provision of information which would allow us to
assess their eligibility (87 firms); (b) their status
had recently changed due to merger or acquisition (16 firms); (c) they had ceased manufacturing
operations (5 firms); or (d) they had no products (lines) in common with their parent company (91 firms). Another 11 subsidiaries were
excluded because correct contact information was
unavailable.
875
in the sample are capital goods (31%), consumer durables, apparel, and household products
(25%), manufactured materials (14%), technology hardware (12%), automobiles and components
(9%), and health care products and pharmaceuticals (9%).
Informant evaluation
As per Heide and Weiss (1995), the final part
of the questionnaire included two questions that
assessed the informant’s knowledge of (1) the subsidiary’s and (2) its parent firm’s home market
conditions and marketing policy for the focal product (line). A seven-point Likert-type scale, ranging from ‘not at all knowledgeable’ (1) to ‘very
knowledgeable’ (7), was used in each case. Two
other questions assessed the informant’s involvement in (1) the subsidiary’s marketing policy decision process and (2) its dealings with the parent company, utilizing seven-point scales anchored
by ‘minimally involved’ (1) and ‘highly involved’
(7). Using Kumar and associates’ (1993) threshold (i.e., individual responses above the mid scale
point) for high informant competency, a total of
22 questionnaires were eliminated because they
exhibited a rating of four or below for at least
one item. The mean composite rating for informant quality was 5.67, providing confidence in the
competence of our key informants.
Response rate
We mailed the questionnaire and a self-addressed
prepaid envelope to the key informant in each of
the 526 firms identified. Of these, 334 (63%), 71
(14%), and 121 (23%) were subsidiaries of U.S.,
Japanese, and German MNCs, respectively. We
offered a summary of the results as an incentive to participate. Reminder/thank-you postcards
to informants, two follow-up mailings, and two
further reminders yielded 198 responses (38%
of the 526 firms). We excluded five questionnaires because of considerable missing data, and
eliminated another 22 as they failed our post
hoc tests of informant quality. Thus, 171 usable
questionnaires were obtained (33% response rate).
Response rates for subsidiaries of U.S., Japanese,
and German MNCs were 33 percent (110 firms),
31 percent (22 firms), and 32 percent (39 firms),
respectively. Response patterns mirror the proportions of U.S., German, and Japanese subsidiaries
in the sampling frame. The industries included
Copyright © 2006 John Wiley & Sons, Ltd.
Assessment of nonresponse bias
We compared early and late respondents using a
t-test procedure under the assumptions of both
equal and unequal group variances. No significant differences were detected in the means of
the study constructs between the two groups. In
addition, a comparison between respondents and
a group of 82 randomly selected (one in every
four from the 328) nonparticipant firms, in terms
of sales and employee number, revealed no significant between-group mean differences. Thus, nonresponse bias does not appear to pose a problem
in this research.
Measures
With one exception, the constructs were measured
using multi-item scales. Appendix 1 shows specific
items, response formats, and internal consistency
estimates. Items included in each construct were
Strat. Mgmt. J., 27: 867–890 (2006)
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C. S. Katsikeas, S. Samiee and M. Theodosiou
extracted from the literature and modified on the
basis of the field interviews and pretests.
and customer protection (e.g., Baalbaki and Malhotra, 1995; Johnson and Arunthanes, 1995).
Marketing strategy standardization/adaptation
(MARKSTR)
Technological intensity and velocity (TECH)
In accordance with contemporary views (Özsomer
and Simonin, 2004), we view international marketing strategy as a second-order construct incorporating product, pricing, distribution, and promotion
decisions. The scale describes the degree to which
the elements of marketing strategy are standardized
in pursuing markets abroad. Respondents were
asked to compare their firms’ marketing programs
in their home and host markets with respect to a
set of 22 items representing marketing program
elements, which was developed after an extensive
review of the literature (e.g., Hill and Still, 1984;
Johnson and Arunthanes, 1995) and refined using
pretests.
The data indicate the presence of considerable variations in responses by U.S., German,
and Japanese MNCs (see standard deviations in
Appendix 1). A comparison of international marketing strategies of U.S., German, and Japanese
MNCs suggests U.S. and German MNCs tend
to use more standardized strategies than Japanese
firms (see Appendix 2). Insofar as marketing strategy components are concerned, U.S. and German
firms implement more standardized product, promotion, and distribution programs than Japanese
firms. The only exception is pricing, for which no
differences were detected.
Economic environment (ECON)
A three-item scale assesses the technological intensity and velocity of the industry (i.e., product group
identified by the respondent) in which the MNC
operates. The scale includes items assessing the
extent to which: the MNC competes in a technologically intensive sector; technology is changing rapidly; and technological developments provide significant opportunities (e.g., Cavusgil et al.,
1993; Samiee and Roth, 1992).
Customs and traditions (CUTRAD)
A three-item scale measures the extent of similarity in customs and traditions between home and
overseas markets. The items are customers’ values, beliefs, and attitudes, aesthetic preferences,
and level of education (e.g., Hill and Still, 1984;
Keegan et al., 1987).
Customer characteristics (CUST)
A four-item construct describes the homogeneity of customers in home and host markets. The
items are customer requirements, product evaluation criteria, price sensitivity, and purchasing
habits (Özsomer, Bodur, and Cavusgil, 1991; Johnson and Arunthanes, 1995).
Marketing infrastructure (MARKET)
A three-item construct measures the degree of similarity in economic conditions between the MNC’s
home and host market environments. The items
were borrowed from previous research (e.g., Douglas and Wind, 1987; Jain, 1989) and include the
level of industrial development, purchasing power
of customers, and communications infrastructure.
A five-item scale assesses the degree of similarity
in the MNC’s home and host marketing infrastructures. Items in this scale are competencies
of marketing research agencies and distributors,
availability of suitable advertising media, structure
of distribution channels, and functions performed
by intermediaries (e.g., Douglas and Craig, 1989;
Baalbaki and Malhotra, 1995).
Regulatory environment (REGUL)
Stage of product life cycle (PLCS)
A four-item construct describes the extent to which
the laws and regulations between home and host
markets are similar. The specific items employed
are technical standards, environmental laws and
regulations, and regulations concerning company
A single-item construct measures the degree to
which the focal product or product line is in the
same life cycle stage in the MNC’s home and host
markets. This measure is derived from Johnson and
Arunthanes (1995) and Kotabe and Omura (1989).
Copyright © 2006 John Wiley & Sons, Ltd.
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DOI: 10.1002/smj
Marketing Strategy Standardization and Performance
Competitive intensity (COMP)
A three-item construct taps the degree of similarity in competitive intensity in the MNC’s home
and host markets. The items composing this scale
are strength of price competition, pace of competitive moves in this product area, and frequency of
promotion wars in the industry (e.g., Jaworski and
Kohli, 1993; Johnson and Arunthanes, 1995).
877
model contained 26 items measuring the eight firstorder constructs in our study and two second-order
measurement models were also estimated for the
multidimensional constructs of degree of marketing program standardization and performance (see
Appendix 3). In all cases we used the elliptical
reweighted least-squares estimation procedure in
EQS, proven to yield unbiased parameter estimates
for both multivariate normal and non-normal data
(Sharma, Durvasula, and Dillon, 1989).
Performance (PERFORM)
Performance is viewed as a multidimensional,
higher-order construct comprising three dimensions: sales performance (SALPE), measured in
terms of sales volume, sales growth, and new
product sales; financial performance (FINPE),
assessing profitability as a percentage of sales,
return on investment, and profit growth; and customer performance (CUSPE), pertaining to customer satisfaction and customer retention. The
items were extracted from the literature on marketing (e.g., Day and Wensley, 1988), strategy
(e.g., Venkatraman and Ramanujam, 1987), and
standardization (e.g., O’Donnell and Jeong, 2000;
Samiee and Roth, 1992). Following the recommendation of Clark and Montgomery (1999)
and Day and Nedungadi (1994) for the use of
a competitor-centered performance measurement
approach, respondents were asked to assess the
performance of their firm (subsidiary) vis-à-vis
that of its main direct local market competitor in
each of these areas.2
ANALYSIS AND RESULTS
Measure validation
We assessed the validity of our measures using
confirmatory factor analysis. One measurement
2
Self-reported performance indicators were used because
(1) field interviews suggested managers were typically unable
to provide objective performance data at the product level;
(2) measurement difficulties inherent in certain objective
measures may raise comparability concerns (e.g., profitability is
contingent on internal accounting practices such as depreciation
and overhead allocation); (3) managerial decision making and
actions are guided primarily by perceptions of company
performance rather than by objective, absolute performance
ratings (Day and Nedungadi, 1994); and (4) there is empirical
support for the reliability and validity of rigorous subjective
performance measures (e.g., Venkatraman and Ramanujam,
1987).
Copyright © 2006 John Wiley & Sons, Ltd.
First-order factor estimation
Each item was restricted to load on its a priori specified factor, with the underlying factors
permitted to correlate (Gerbing and Anderson,
1988). Following the recommendation of Anderson and Gerbing (1988), the error term of the
single-item measure of PLC stage was set at 0.10.
The chi-square statistic of the measurement model
is significant (χ 2 272 = 486.97, p < 0.001), which
is expected since this test statistic is sensitive
to sample size, and the other fit indices (comparative fit index [CFI] = 0.95; non-normed fit
index [NNFI] = 0.94; root mean square error of
approximation [RMSEA] = 0.06; and average offdiagonal standardized residual [AOSR] = 0.05)
suggest a good model fit.
Second-order factor estimation
Degree of marketing program standardization was
estimated as comprising the first-order factors of
product, pricing, distribution, and promotion. Our
model tested the null hypothesis that the first-order
factors converge to a single higher-order construct.
The results suggest a good fit to the data (χ 2 205 =
412.22, p < 0.001; CFI = 0.92; NNFI = 0.91;
RMSEA = 0.07; and AOSR = 0.07). Similarly,
performance was estimated as consisting of three
first-order factors: sales, financial, and customer
performance. The overall fit of the model is good
(χ 2 17 = 29.41, p = 0.044; CFI = 0.99; NNFI =
0.98; RMSEA = 0.06; and AOSR = 0.03). In
sum, the results support our conceptualizations
of degree of marketing program standardization
and performance as higher-order constructs, each
operationalized as a linear combination of its
dimensions (Jap and Ganesan, 2000).
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C. S. Katsikeas, S. Samiee and M. Theodosiou
ordinary least squares:
Convergent and discriminant validity
All factor loadings are high and significant,
which indicates convergent validity. Discriminant
validity was checked using chi-square difference
tests in which the correlation between pairs of
constructs is freely estimated once and then
constrained to unity (Gerbing and Anderson,
1988). In all cases, the baseline model produced
a better fit and the chi-square difference
between the constrained and unconstrained models
was statistically significant, thereby providing
evidence of discriminant validity. For example,
regarding the constructs of customs and traditions
(CUTRAD) and customer characteristics (CUST),
the chi-square difference test statistic is significant
(χ 2 1 = 47.3, p < 0.001), which suggests that
these measures are distinct. Further, except for
the competitive intensity (COMP) scale, which
exhibits an alpha score close to the recommended
threshold of 0.70, our multi-item scales indicate
satisfactory levels of internal consistency (see
Appendix 1). The correlations between our main
study constructs are shown in Table 1.
Y1 = a1 + β1 X1 + β2 X2 + β3 X3 + β4 X4 + β5 X5
+ β6 X6 + β7 X7 + β8 X8 + ε1
where:
Y1 = degree of marketing strategy standardization
(MARKSTR);
X1 = economic environment (ECON);
X2 = regulatory environment (REGUL);
X3 = technological intensity and velocity (TECH);
X4 = customs and traditions (CUTRAD);
X5 = customer characteristics (CUST);
X6 = marketing infrastructure (MARKET);
X7 = stage of product life cycle (PLCS); and
X8 = competitive intensity (COMP).
As shown in Table 2(a), the value of the relevant
test statistic (F8,162 = 21.10, p < 0.01) suggests
that the null hypothesis is rejected. The model
exhibits satisfactory explanatory power accounting
for 49 percent of the variance in international
marketing strategy. The variance inflation factor
(VIF) for each independent variable was computed
to assess multicollinearity. Mason and Perreault
(1991) recommend a VIF score less than 10 as
an acceptable threshold. The highest VIF score
occurs for regulatory environment (VIF = 1.99),
suggesting multicollinearity did not pose a problem
in this study.
The regression model was also evaluated on the
basis of three tests for the detection of the absence
of misspecification. As exhibited in Table 2(a),
the White (1980) heteroscedasticity test (χ 2 44 =
3.33, p > 0.05) fails to reject the null hypothesis of homoscedastic residuals. The Jarque–Bera
Tests of hypotheses
Regression analysis was used to test our research
hypotheses. We first examined factors driving
degree of standardization and then assessed
whether presence of fit affects performance.
Drivers of standardization/adaptation
To test Hypotheses 1–8, the following multiple
linear regression model was estimated using
Table 1. Intercorrelations for the study constructsa
Construct
1. ECON
2. REGUL
3. TECH
4. CUTRAD
5. CUST
6. MARKET
7. PLCS
8. COMP
9. MARKSTR
10. PERFORM
a
1
2
3
4
5
6
7
8
9
1.00
0.55
−0.02
0.50
0.44
0.57
0.26
0.07
0.41
0.05
1.00
0.06
0.59
0.46
0.51
0.31
0.21
0.59
0.11
1.00
−0.07
0.01
−0.01
−0.09
0.16
0.15
0.04
1.00
0.50
0.51
0.36
0.06
0.55
0.07
1.00
0.50
0.33
0.09
0.51
0.11
1.00
0.27
0.06
0.46
0.15
1.00
0.06
0.39
0.13
1.00
0.24
0.05
1.00
0.17
Coefficients ≥ 0.16 are significant (p < 0.05).
Copyright © 2006 John Wiley & Sons, Ltd.
Strat. Mgmt. J., 27: 867–890 (2006)
DOI: 10.1002/smj
Marketing Strategy Standardization and Performance
Table 2.
879
Tests of hypothesized relationships
(a) Dependent variable: degree of marketing strategy standardization (MARKSTR)
Independent variables
Coefficient
t-value
Hypothesis
Intercept
ECON
REGUL
TECH
CUTRAD
CUST
MARKET
PLCS
COMP
R 2 = 0.51
Adjusted R 2 = 0.49
F -statistic = 21.10∗∗
Misspecification tests
White heteroscedasticity test:
Jarque–Bera normality test:
Chow test (mid-point):
0.93
−0.03
0.28
0.14
0.20
0.18
0.09
0.16
0.12
2.47∗
−0.35a
3.61∗∗
2.48∗
2.62∗∗
2.53∗∗
1.24a
2.72∗∗
2.03∗
H1
H2
H3
H4
H5
H6
H7
H8
(+)
(+)
(+)
(+)
(+)
(+)
(+)
(+)
Results
No support
Supported
Supported
Supported
Supported
No support
Supported
Supported
χ 2 44 = 3.33a
χ 2 2 = 1.55a
F9,153 = 2.25a
(b) Dependent variable: performance (PERFORM)—residual analysis
Intercept
|Standardized residuals|
R 2 = 0.19
Adjusted R 2 = 0.18
F -statistic = 38.79∗∗
Misspecification tests
White heteroscedasticity test:
Jarque–Bera normality test:
Chow test (mid-point):
∗∗
5.44
−0.43
42.73∗∗
−6.23∗∗
H9
Supported
χ 2 2 = 1.60a
χ 2 2 = 1.04a
F2,167 = 0.51a
p < 0.01; ∗ p < 0.05; a p > 0.05
(1980) test of the null hypothesis for the normality
of regression residuals is also supported (χ 2 2 =
1.55, p > 0.05). Further, the Chow (1960) test
(mid-point), which tests the stability of the estimated regression coefficients, fails to reject the null
hypothesis of constant parameters (F9,153 = 2.25,
p > 0.05). Thus, the reported test statistics pertaining to parameter and model significance are robust
and the regression model meets the preconditions
for their validity (i.e., homscedasticity, normality,
and parameter stability).3
Similarity in regulatory environments (t = 3.61,
p < 0.01), technological intensity and velocity
(t = 2.48, p < 0.05), customs and traditions (t =
2.62, p < 0.01), customer characteristics (t =
2.53, p < 0.01), PLC stage (t = 2.72, p < 0.01),
and competitive intensity (t = 2.03, p < 0.05)
3
Misspecification tests were performed using the procedure
REGOPT in Time Series Processor (TSP) 4.3a (Hall, 1995).
Copyright © 2006 John Wiley & Sons, Ltd.
between home and host markets are all associated
positively with degree of international marketing
program standardization. Hence, Hypotheses 2,
3, 4, 5, 7, and 8 are supported. Contrary to
expectations, no significant effect for economic
environment or marketing infrastructure was
found. Thus, Hypotheses 1 and 6 are not supported.
Impact of fit
Consistent with the study’s theoretical foundation,
testing Hypothesis 9 requires the development of
a measure that assesses fit between degree of
marketing standardization and context and then
examination of whether fit has a positive effect on
performance. Only those environmental constructs
found to be significantly related to international
marketing strategy were used for the measurement
of coalignment (Venkatraman and Prescott, 1990:
9). We employed the residual analysis method
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C. S. Katsikeas, S. Samiee and M. Theodosiou
to measure fit and assess its impact on
performance (Venkatraman, 1989). The use of
residuals to examine fit–performance relationships
is an established approach in organization theory
(e.g., Drazin and Van de Ven, 1985), strategy
(e.g., Zajac et al., 2000), and marketing (e.g.,
Olson et al., 1995). Accordingly, the absolute
standardized residuals that resulted from the
estimation of a regression model based only on
the significant contextual factors were regressed
onto performance. High levels of such residuals
indicate misalignment or misfit between degree of
marketing standardization and contextual factors,
which should negatively impact performance, and
vice versa (Venkatraman, 1989). The results in
Table 2(b) show an inverse relationship between
absolute standardized residuals and performance
(t = −6.23, p < 0.01) and indicate that the
estimated regression model is robust as it meets the
preconditions for the absence of misspecification.4
This suggests small residuals—an indication
of fit between extent of standardization and
context—are related to relatively high levels
of performance, and vice versa, which supports
Hypothesis 9.5
A series of additional analyses were undertaken to investigate linkages of fit with performance in the context of individual marketing program components. As shown in Appendix 4, the
results suggest that, except for pricing-based misfit
that exhibits a negative but insignificant association with performance, misfit in the context of
individual marketing program components detracts
significantly from performance. Understandably,
the explanatory power of the individual marketing component models is lower than that of our
4
To enhance confidence in our findings, we regressed
performance on the standardized residual value and found no
significant relationship (coefficient = 0.11; t = 1.38, p > 0.05).
Thus, it is not likely that an outlier drives our findings. We
acknowledge an anonymous reviewer for drawing our attention
to this robustness test.
5
We also tested the relationship of misfit (absolute standardized
residuals) with performance using structural equation modeling.
Performance was modeled as a higher-order construct including
first- and second-order latent factors. For misfit, the path from
the latent construct to its indicator was set at 0.95 and the
error variance at 0.10 (Anderson and Gerbing, 1988). The
structural model results (χ 2 24 = 37.76, p = 0.049; CFI = 0.99;
NNFI = 0.99; RMSEA = 0.06; and AOSR = 0.04) indicate a
good overall fit. The estimated path coefficient is −0.54 (t =
−4.96, p < 0.01) and the model’s R 2 value 0.29. This evidence
suggests misfit significantly detracts from performance, which
lends further support to our regression results (Table 4B). We
thank an anonymous reviewer for raising this issue.
Copyright © 2006 John Wiley & Sons, Ltd.
overall marketing strategy standardization model.
Misalignment in the context of individual components thus contributes to the overall misfit of
international marketing strategy and its impact on
performance (Naman and Slevin, 1993). Our overall strategy model accounts parsimoniously for
a range of contingency contexts by considering
the simultaneous and holistic pattern of interlinkages between overall marketing strategy and environmental factors, in line with Venkatraman and
Prescott’s (1990) holistic perspective of coalignment.
Further, 1 year later we generated additional
performance and marketing strategy data from
26 of the original respondents. Based on these
follow-up data, significant positive correlations
were found between strategy and each of the six
important contextual factors identified (the lowest
was for customer characteristics, r = 0.49, p <
0.01). Significant relationships were also found
between the follow-up performance measure and
fit assessed on the basis of the original data for
each contextual factor. For example, assessment
of the impact of misfit between strategy and regulatory environment yielded t = −4.16 (p < 0.01),
suggesting a positive fit–performance link, which
offers further support for the findings.
A rival approach
In line with the tradition in the field, a rival
approach might posit that the degree of standardization (adaptation) of an international marketing strategy is directly linked to performance (in
addition to the direct links of marketing strategy
with its antecedents). This possibility was examined via a series of structural equation models.
Specifically, Model 1 treated international marketing strategy and performance as second-order constructs consisting of four and three components,
respectively. The goodness-of-fit indices were
χ 2 89 = 589.50, p < 0.001, CFI = 0.59, NNFI =
0.52, RMSEA = 0.18, AOSR = 0.17. A trimmed
model (excluding the insignificant environmental factor–marketing strategy paths) was estimated that also exhibited poor fit results (χ 2 64 =
271.23, p < 0.001, CFI = 0.75, NNFI = 0.70,
RMSEA = 0.14, AOSR = 0.13). The MARKSTR–PERFORM path coefficient estimate is 0.13
(t = 1.25, p > 0.05). Model 2 treated marketing strategy standardization–adaptation as four
separate components. The fit indices of the
Strat. Mgmt. J., 27: 867–890 (2006)
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Marketing Strategy Standardization and Performance
trimmed model (χ 2 47 = 255.31, p < 0.001, CFI =
0.75, NNFI = 0.58, RMSEA = 0.16, AOSR =
0.13) were clearly below acceptable levels. The
estimated path coefficients of product, pricing,
promotion, and distribution on performance are
0.23 (t = 2.21, p < 0.05), −0.08 (t = −0.80, p >
0.05), 0.08 (t = 0.76, p > 0.05), and −0.02 (t =
−0.21, p > 0.05), respectively. In turn, Model 3
treated performance as three separate components.
The results of the trimmed model (χ 2 65 = 423.06,
p < 0.001, CFI = 0.57, NNFI = 0.48, RMSEA =
0.18, AOSR = 0.15) again showed poor fit to
the data. The coefficient estimates of standardization on the sales, financial, and customer performance facets are 0.19 (t = 1.69, p > 0.05),
0.24 (t = 2.16, p < 0.05), and 0.13 (t = 1.27, p >
0.05), respectively. Collectively, this evidence suggests the rival models provide poor explanations
of the data, enhancing confidence in this study’s
approach based on strategic fit.
DISCUSSION
The findings from this research broaden and
deepen our understanding of how international
marketing strategy is linked to performance
and underscore the need to reconsider current
thinking regarding the deployment of effective
strategies in international markets. Much of
the early standardization research focused on
the efficiencies associated with this strategy
rather than on the performance consequences
of adopting either standardized or customized
strategies in foreign markets. Additionally, the
findings of various investigators are almost
always based on information provided by
the headquarters. Thus, there has been no
conclusive examination as to how and under
what conditions the adoption of a particular
international marketing strategy might benefit the
firm.
Leveraging off the extensive research on strategy fit from the strategic management and organization theory literature, this research focuses
on the nature and performance consequences
of fit between marketing strategy standardization/adaptation and context at the subsidiary level.
In line with the contingency perspective (e.g.,
Drazin and Van de Ven, 1985; Ginsberg and
Venkatraman, 1985), the results clearly support
our main proposition that a given international
Copyright © 2006 John Wiley & Sons, Ltd.
881
marketing strategy leads to superior performance
only to the extent that the MNC has successfully achieved a coalignment between the strategy implemented and important contextual factors. Theoretically, this study contributes to existing knowledge by isolating specific factors conducive to achieving fit between marketing strategy and environmental context and establishing
fit’s positive impact on performance in international markets. This study thus offers a more
realistic answer to the question of whether the
deployment of a standardized strategy enhances
performance in international markets: superior
performance for the MNC subsidiary depends
on the presence of fit between a standardization strategy deployed and environmental conditions.
It is also evident that a number of factors
influence the degree of marketing strategy standardization. Although prior researchers have postulated such relationships and some have tested
them within the context of functional tasks such
as advertising or product management, they have
not been examined within the context of a comprehensive marketing strategy and from the perspective of the MNC subsidiary. This research
simultaneously considers all major marketing program components from the unique standpoint of
subsidiary managers. Similarities (differences) in
the regulatory environment, technological intensity and velocity, customs and traditions, customer
characteristics, PLC stage, and competitive intensity in the MNC’s home and host markets drive
the deployment of standardized (customized) marketing strategies. Such an emphasis on the overall
marketing strategy is important because it provides
a more realistic and thorough picture in the determination of fit between strategy and context and
its linkage with performance in international markets.
However, economic conditions and marketing
infrastructure were not found to predict international marketing strategy, contrasting with the
conceptual expectation expressed in the literature (e.g., Jain, 1989). Several underlying factors may explain the insignificant results. First,
prior research is largely conceptual and does
not offer a unique approach for assessing the
drivers of international marketing strategy. Second, the vast majority of studies do not address
the overall marketing program; rather, a single
Strat. Mgmt. J., 27: 867–890 (2006)
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C. S. Katsikeas, S. Samiee and M. Theodosiou
marketing element is generally targeted for investigation. Third, most empirical studies focus on
exporting firms. In contrast, the focus of this
study is on the marketing strategy deployed for
a given product (line) within MNCs. Fourth, the
insignificant findings might be due to a lack
of variability in the research context. Elements
of the economic environment (e.g., purchasing
power of customers) and marketing infrastructure (e.g., competencies of marketing intermediaries) may not vary significantly between home
and host markets of the MNCs in our sample.
A related explanation might lie in the measurement scales employed. We mainly used multi-item
measures based on prior research and field interviews. The literature is void of universal measures for standardization constructs, thus leading to
wide variations in measures deployed and findings
reported.
It is noteworthy that the highest degree of standardization deployed by MNCs was on the product dimension of international marketing strategy.
This evidence is consistent with recent research on
MNCs’ global marketing strategies (e.g., Hewett
and Bearden, 2001; Özsomer and Simonin, 2004),
but runs contrary to findings from the exporting literature (e.g., Albaum and Tse, 2001; Cavusgil and
Zou, 1994) that point to the critical role of product
adaptation in the exporter’s endeavor to penetrate
overseas markets. Several reasons can explain why
most MNCs pursue standardized product strategies. For example, the subsidiaries of large MNCs
like Goodyear and Energizer from the United
States and Varta from Germany follow the parent’s product specifications and branding policies,
because (1) their products satisfy the same customer needs across countries and are seemingly
impervious to cultural differences and (2) these
firms pursue a consistent global corporate and
brand image. Subsidiaries of MNCs in the car sector like Ford, VW, and Honda use components
provided by their parents in their production. In
all of these cases, parent companies invest heavily
in R&D to develop new, high-performing products and want to fully exploit the sales potential of their innovations worldwide (Douglas and
Wind, 1987; Yip, 2003). It should be noted, however, that in other cases MNCs use more customized product strategies. Our field interviews
suggest that MNCs tend to customize products
when they are influenced by cultural differences
and if it is cost effective to design and develop
Copyright © 2006 John Wiley & Sons, Ltd.
such products given the size of local markets.
Hitachi and Siemens, for example, deploy highly
customized strategies for their information technology products to target and serve large business customers (e.g., banks, car manufacturers)
and their foreign subsidiaries concentrate on providing integrated customer solutions through the
delivery of ‘application optimized’ products. Similarly, Playtex U.K., the subsidiary of the U.S.based MNC, Sara Lee, adapts its women’s wear
products to the tastes and preferences of the local
market.
On the critical question of the performance
impact of implementing a given marketing strategy, the results offer unequivocal support that
higher product performance at the subsidiary level
is significantly related to the extent that the strategy deployed is coaligned with environmental
imperatives. Thus, managers should appreciate
that the appropriateness of a particular international marketing strategy, whether standardized,
adapted, or any combination between the two, is
a function of strategic fit. Nevertheless, it should
be noted that MNCs do not necessarily adopt
and indefinitely stay with a given global strategy. Over time, changing market conditions and
management preferences for particular strategic
approaches play a key role in determining the
strategies an MNC will deploy in various markets. Evidence suggests that MNCs switch from
localized to standardized marketing, adopt pattern
standardization, and change again when conditions are appropriate (Nelson, 1994). Such changes
result from the efforts of MNCs to align strategies deployed at the local level with changing
environmental conditions and, in turn, enhance
their performance. Subsidiary managers responsible for the implementation of international marketing strategies need to be able to diagnose
and correct misfit. This implies development of
flexible internal resources and policies to permit
such a match. To this end, our research indicates that, in assessing the level of strategic fit,
international management should benefit from a
focus on the significant contextual factors isolated in this study. We identify a parsimonious
set of environmental factors that are important
to the achievement of strategic fit and its positive impact on performance. Our findings can also
guide MNCs’ foreign market expansion decisions
so that the consequences of such choices enhance
Strat. Mgmt. J., 27: 867–890 (2006)
DOI: 10.1002/smj
Marketing Strategy Standardization and Performance
performance through the achievement of strategic
coalignment.
LIMITATIONS AND DIRECTIONS FOR
FUTURE RESEARCH
Despite our emphasis on locating and targeting
appropriate informants and ensuring their competency, the possibility of single-respondent bias
remains. Identifying additional informants able and
willing to answer all questions of the research
instrument proved a challenging task (cf. Johnson
et al., 1993). Our attempt to generate data from
a second informant in each firm resulted in only
27 usable questionnaires that satisfied our respondent quality criteria, inhibiting the use of a multitrait, multimethod assessment (Heide and Weiss,
1995). Importantly, significant correlations were
found between the two informant reports for the 27
cases, ranging from 0.57 (p < 0.01) for customer
characteristics to 0.69 (p < 0.01) for economic
environment, enhancing confidence in the quality
of our data.
Some of the explained variance in the relationships examined may be due to common method
bias. However, the potential for common method
variance was limited as respondents were unaware
of our conceptualization, which prevented them
from responding on the basis of their knowledge
of how the model variables should be linked.
Further, all survey participants were guaranteed
anonymity, reducing the possibility of bias in
performance reports for self-presentation reasons
(Singh, 2000). Even if the performance assessments were inflated, it would be unlikely that this
would be the case for the other study constructs.
We also followed Venkatraman’s (1990) methodology to examine potential common method bias
effects. If such bias accounts for the observed relationships between the study variables, then a confirmatory factor analysis containing all constructs
should yield a single method factor. The fit indices
(CFI = 0.74, NNFI = 0.71, RMSEA = 0.13, and
AOSR = 0.08) show a poor model fit, which suggests common method bias alone is not likely to
explain the relationships between our study constructs.
The cross-sectional character of the study also
restricts our ability to make causal inferences.
Research involving dynamic phenomena such as
drivers of degree of strategy standardization and
Copyright © 2006 John Wiley & Sons, Ltd.
883
fit–performance links would require a temporal
focus. Future research can certainly contribute to
existing knowledge by using longitudinal research
designs to examine cause–effect relationships in
the study of strategy fit and performance consequences of international marketing standardization.
Further, prima facie, there is considerable similarity between each of the sample firms’ country
of origin and the focal host market. Given the
range of countries worldwide, caution should be
exercised in attempts to generalize too broadly
from our findings. Different management styles
among the three national groups of firms may also
affect their foreign subsidiary marketing practices
accordingly. For instance, Japanese firms tend to
be highly centralized and the United States less so.
However, as noted in the methods section, pragmatic and methodological considerations determined our focus on subsidiaries of U.S., Japanese,
and German MNCs operating in the United Kingdom. Future studies should expand their scope
across MNCs originating from industrializing or
less developed countries and explore potential
effects of management practices on the organization of marketing activities and extent of strategy
standardization.
CONCLUSION
The overall picture emerging from this study
highlights the performance consequences of fit
between international marketing strategy and environmental context from the perspective of MNC
subsidiary, adding significantly to the emerging
stream of standardization and marketing strategy
literature on the importance of pursuing strategic fit as a means of enhancing performance outcomes. Three macro-environmental factors (regulatory environment, technological intensity and
velocity, customs and traditions) and three microenvironmental forces (customer characteristics,
PLC stage, competitive intensity) are identified
as simultaneously affecting strategic fit and, in
turn, subsidiary performance among MNCs. This
research empirically resolves the long-standing
controversy over the benefits of standardization
versus customization of international marketing
strategies. To our knowledge, this is the first
study offering clear evidence that the presence of
fit between marketing strategy and environmental
context is an important influential force on a firm’s
Strat. Mgmt. J., 27: 867–890 (2006)
DOI: 10.1002/smj
884
C. S. Katsikeas, S. Samiee and M. Theodosiou
performance in international markets and, consequently, offers a basis for the extent to which firms
should pursue international marketing standardization. This evidence is especially timely for MNCs
fighting for growth, development, and success in
an era of increasing globalization of markets and
intensifying competition worldwide.
ACKNOWLEDGEMENTS
The authors thank George Balabanis (City University, London), Susan Douglas (NYU), Mark
Goode (University of Wales, Swansea), Neil Morgan (Indiana University), Doug Vorhies (University of Mississippi), and anonymous SMJ reviewers for their helpful comments on earlier drafts of
this manuscript.
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APPENDIX 1: MEASURES OF CONSTRUCTS
Construct
Marketing strategy standardization/adaptation
A. Product
(seven-item, seven-point Likert type scale, anchored by ‘Very
different’ and ‘Very similar’)
Product design and style
Product quality
Brand name
Packaging
Labeling
Warranties
Pre- and after-sales service
B. Pricing
(five-item, seven-point Likert type scale, anchored by ‘Very different’
and ‘Very similar’)
Selling price to trade customers
Mean
S.D.
Reliability
5.70
1.00
0.79
4.51
1.38
0.88
(continued overleaf )
Copyright © 2006 John Wiley & Sons, Ltd.
Strat. Mgmt. J., 27: 867–890 (2006)
DOI: 10.1002/smj
Marketing Strategy Standardization and Performance
887
Appendix 1: (Continued )
Construct
Selling price to end-users
Profit margins to trade customers
Profit margins to end-users
Sales terms
C. Promotion
(six-item, seven-point Likert type scale, anchored by ‘Very different’
and ‘Very similar’)
Advertising message
Advertising creative presentation
Advertising media strategy
Sales promotion tools
Publicity and public relations activities
Personal selling techniques
D. Distribution
(four-item, seven-point Likert type scale, anchored by ‘Very different’
and ‘Very similar’)
Length of distribution channels
Type of middlemen used
Distribution coverage
Control over distribution channels
Inventory controlsa
Order processing systemsa
Macro and task environments
Economic environment
(three-item, seven-point Likert type scale, anchored by ‘Very
different’ and ‘Very similar’)
Level of industrial development
Purchasing power of customers
Communications infrastructure
Per capita incomea
Cost of raw materials and labora
Regulatory environment
(four-item, seven-point Likert type scale, anchored by ‘Very different’
and ‘Very similar’)
Laws and regulations concerning company protection
Laws and regulations concerning customer protection
Environmental laws and regulations
Technical standards
Technological intensity and velocity
(three-item, seven-point Likert type scale, anchored by ‘Strongly
disagree’ and ‘Strongly agree’)
The industry sector in which our company operates is technology
intensive
The technology in our industry is changing rapidly
Technological developments provide big opportunities for our
company
Customs and traditions
(three-item, seven-point Likert type scale, anchored by ‘Very
different’ and ‘Very similar’)
Customers’ values, beliefs, and attitudes
Customers’ aesthetic preferences
Customers’ educational levels
Product usage patternsa
Customer characteristics
(four-item, seven-point Likert type scale, anchored by ‘Very different’
and ‘Very similar’)
Customers’ requirements
Customers’ purchasing habits
Product evaluation criteria
Customers’ price sensitivity
Target market segmentsa
Copyright © 2006 John Wiley & Sons, Ltd.
Mean
S.D.
Reliability
4.54
1.23
0.83
4.99
1.22
0.83
5.19
1.13
0.71
5.20
1.15
0.79
4.94
1.36
0.80
4.91
1.23
0.76
5.02
1.23
0.87
(continued overleaf )
Strat. Mgmt. J., 27: 867–890 (2006)
DOI: 10.1002/smj
888
C. S. Katsikeas, S. Samiee and M. Theodosiou
Appendix 1: (Continued )
Construct
Mean
S.D.
Reliability
Marketing infrastructure
(five-item, seven-point Likert type scale, anchored by ‘Very different’
and ‘Very similar’)
Competencies of marketing research agencies
Competencies of distribution firms
Availability of suitable advertising media
Structure of distribution channels
Functions performed by middlemen
Stage of product life cycle
(single-item, seven-point Likert type scale, anchored by ‘Strongly
disagree’ and ‘Strongly agree’)
Our product is in the same stage of its life cycle in home and host
markets
Competitive intensity
(three-item, seven-point Likert type scale, anchored by ‘Very
different’ and ‘Very similar’)
Strength of price competition
Pace of new competitive moves in this product area
Frequency of promotion wars in this industry
5.17
1.11
0.85
5.21
1.68
4.89
1.00
0.68
4.84
1.01
0.71
4.56
1.09
0.78
5.10
1.09
0.85
Performance
A. Sales performance
(three-item, seven-point Likert type scale, anchored by ‘Much worse’
and ‘Much better ’)
Sales volume
Sales growth
New product sales
B. Financial performance
(three-item, seven-point Likert type scale, anchored by ‘Much worse’
and ‘Much better ’)
Profitability as a percentage of sales
Return on investment
Profit growth
C. Customer performance
(two-item, seven-point Likert type scale, anchored by ‘Much worse’
and ‘Much better ’)
Customer satisfaction
Customer retention
a
na
Item dropped as a result of scale purification.
APPENDIX 2: DIFFERENCES IN INTERNATIONAL MARKETING STRATEGY
AMONG U.S., GERMAN, AND JAPANESE MNCS
Marketing strategy
standardization/adaptation
Product
Promotion
Pricing
Distribution
Overall marketing program
a
U.S.
(I)a
5.75
4.70
4.48
5.10
5.06
(0.96)
(1.05)
(1.44)
(1.11)
(0.82)
German
(II)a
5.90
4.67
4.73
5.21
5.18
(0.90)
(1.25)
(1.22)
(1.25)
(0.86)
Japanese
(III)a
5.10
3.55
4.25
4.10
4.30
(1.14)
(1.53)
(1.34)
(1.36)
(0.85)
F -ratio
Scheffe’s test
5.27∗∗
8.98∗∗
0.88
7.39∗∗
9.16∗∗
I > III, II > III
I > III, II > III
I > III, II > III
I > III, II > III
Mean scores (standard deviations)
p < 0.01; ∗ p < 0.05
∗∗
Copyright © 2006 John Wiley & Sons, Ltd.
Strat. Mgmt. J., 27: 867–890 (2006)
DOI: 10.1002/smj
Marketing Strategy Standardization and Performance
889
APPENDIX 3: CONSTRUCT MEASUREMENT MODELS
Measurement Model 1
Measurement Model 2
Measurement Model 3
First-order constructs
International marketing program
standardization/adaptation
Performance
Factor
Standardized
loadingsa
ECON (F1)
EC1
EC2
EC3
0.74 (9.29)
0.58 (6.98)
0.68 (8.43)
REGUL (F2)
RE1
RE2
RE3
RE4
0.74
0.81
0.71
0.58
TECH (F3)
IN1
IN2
IN3
CUTRAD (F4)
CU1
CU2
CU3
CUST (F5)
CU1
CU2
CU3
CU4
(9.85)
(11.02)
(9.30)
(7.18)
0.73 (9.14)
0.84 (10.65)
0.71 (8.84)
0.77 (10.05)
0.71 (9.07)
0.68 (8.52)
0.82
0.85
0.77
0.69
(11.48)
(12.12)
(10.61)
(9.04)
MARKET (F6)
MA1
0.79 (10.76)
MA2
0.79 (10.86)
MA3
0.72 (9.48)
MA4
0.63 (8.06)
MA5
0.68 (8.87)
COMP (F7)
CO1
0.71 (7.43)
CO2
0.66 (7.03)
CO3
0.56 (6.03)
PLCS (F7)
PL1
0.59b
Goodness-of-fit statistics
χ 2 272 = 486.97, p < 0.001
CFI = 0.95
NNFI = 0.94
RMSEA = 0.06
AOSR = 0.05
a
b
Standardized
loadingsa
First-order factors
PRODU (F1)
PRO1
PRO2
PRO3
PRO4
PRO5
PRO6
PRO7
0.41b
0.45 (3.17)
0.59 (4.18)
0.81 (4.61)
0.71 (4.46)
0.60 (4.20)
0.59 (4.18)
PRICI (F2)
PRC1
PRC2
PRC3
PRC4
PRC5
PROMO (F3)
PRM1
PRM2
PRM3
PRM4
PRM5
PRM6
0.77b
0.83 (9.87)
0.72 (8.55)
0.64 (7.54)
0.67 (7.90)
0.53 (3.92)
DISTR (F4)
DIS1
DIS2
DIS3
DIS4
0.60b
0.64 (6.16)
0.83 (7.34)
0.89 (7.49)
Second-order factor
MARKSTR (F5)
PRODU (F1)
PRICI (F2)
PROMO (F3)
DISTR (F4)
0.69
0.61
0.51
0.63
0.80b
0.77 (9.83)
0.86 (11.25)
0.79 (10.13)
0.57 (6.97)
Standardized
loadingsa
First-order factors
SALPE (F1)
SPE1
SPE2
SPE3
0.84b
0.83 (10.77)
0.54 (6.30)
FINPE (F2)
FPE1
FPE2
FPE3
0.94b
0.93 (16.50)
0.60 (8.05)
CUSPE (F3)
CPE1
CPE2
0.85b
0.94 (12.87)
Second-order factor
PERFOR (F4)
SALPE (F1)
FINPE (F2)
CUSPE (F3)
0.97 (10.62)
0.76 (9.03)
0.87 (9.23)
(3.92)
(5.47)
(4.52)
(4.86)
Goodness-of-fit statistics
χ 2 205 = 412.22, p < 0.001
CFI = 0.92
NNFI = 0.91
RMSEA = 0.07
AOSR = 0.07
Goodness-of-fit statistics
χ 2 17 = 29.41, p < 0.044
CFI = 0.99
NNFI = 0.98
RMSEA = 0.06
AOSR = 0.03
t-values from the unstandardized solution are in parentheses.
Fixed parameter
Copyright © 2006 John Wiley & Sons, Ltd.
Strat. Mgmt. J., 27: 867–890 (2006)
DOI: 10.1002/smj
890
C. S. Katsikeas, S. Samiee and M. Theodosiou
APPENDIX 4: DEPENDENT VARIABLE: PERFORMANCE (PERFORM)
Independent Variable
Intercept
|Standardized residuals|
R2
Adjusted R 2
F -statistic
Misspecification tests
White heteroscedasticity test
Jarque–Bera normality test
Chow test (mid-point)
∗∗
PRODUCT
Coefficient
(t-value)
PRICE
Coefficient
(t-value)
PROMOTION
Coefficient
(t-value)
DISTRIBUTION
Coefficient
(t-value)
5.13 (39.95)∗∗
−0.25(−3.35)∗∗
0.06
0.06
11.23∗∗
4.98 (32.99)∗∗
−0.11(−1.49)
0.01
0.01
2.21
5.16 (37.20)∗∗
−0.25(−3.35)∗∗
0.06
0.06
11.22∗∗
5.14 (39.89)∗∗
−0.25(−3.35)∗∗
0.06
0.06
11.20∗∗
χ 2 44 = 0.96a
χ 2 2 = 2.80a
F9,153 = 0.27a
χ 2 44 = 1.63a
χ 2 2 = 3.40a
F9,153 = 0.43a
χ 2 44 = 2.63a
χ 2 2 = 3.18a
F9,153 = 0.67a
χ 2 44 = 2.34a
χ 2 2 = 3.75a
F9,153 = 0.85a
p < 0.01; a p > 0.05
Copyright © 2006 John Wiley & Sons, Ltd.
Strat. Mgmt. J., 27: 867–890 (2006)
DOI: 10.1002/smj