Antecedents and performance outcomes of global

competence: An empirical investigation

Aleda V. Roth a,*, Kyle D. Cattani b, Craig M. Froehle c

a Clemson University, United Statesb Indiana University, United States

c College of Business, University of Cincinnati, Cincinnati, OH, United States

Available online 14 March 2008

Abstract

We examine the role of commitment to supply chain management (CSCM) and information technology

(IT) in the achievement of global competence (GC). Through an empirical examination of 667 manufactur-

ing business units in the U.S., we confirm the importance of global competence using two objective

measures of firm performance. We investigate the direct effects of CSCM and experience with IT on

performance, in addition to their indirect effects through global competence. We show global competence to

be linked directly to objective measures of sales, and indirectly to return on assets (ROA). Despite

manufacturers’ hefty investments in IT, we find that experience with IT does not drive ROA directly, but

only indirectly through global competence and sales.

# 2008 Elsevier B.V. All rights reserved.

JEL classification: M11; Production management

Keywords: Supply chain management; Technology; Globalization; Empirical models; Manufacturing strategy

1. Introduction

Globalization is changing the way manufacturing businesses operate everywhere. Hardly a day

passes without the press highlighting ways that American manufacturers are moving towards more

foreign production. ‘‘Offshoring’’ (where companies move some or all of their operations abroad)

and ‘‘outsourcing’’ (where production is contracted out to other business entities) are prime

examples. Both have helped push emerging markets like China, India, and Brazil briskly up the

technological ladder and have resulted in some unexpected consequences for the U.S., including

product recalls and plant closings (Roth et al., 2008a). For example, the Progressive Policy Institute

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J. Eng. Technol. Manage. 25 (2008) 75–92

* Corresponding author. Tel.: +1 864 656 1880; fax: +1 864 656 2015.

E-mail address: ARoth@clemson.edu (A.V. Roth).

0923-4748/$ – see front matter # 2008 Elsevier B.V. All rights reserved.

doi:10.1016/j.jengtecman.2008.01.003

in Washington, D.C., estimates that more than 60,000 factories were opened in China by

transnationals between 2000 and 2003 (Progressive Policy Institute, 2004). China had $53.5 billion

in direct foreign investments in 2003 alone. Yet, ‘‘transnationals severely underestimated

the domestic competition, and Chinese companies won huge market share at the expense of the

transnationals. What they lack in spiffy products they made up for in marketing savvy. The

domestics built distribution networks’’ that fit China’s national situation (King, 2004, p. R3; see also

Zhao et al., 2007 for a summary of supply chain, logistics, and quality research in China). The drive

for low cost production in emerging market countries, particularly, has sometime resulted in ‘quality

fade,’ where opportunistic suppliers sometime cut corners (Midler, 2007; Roth et al., 2008b,c).

These rapid trends towards foreign production and cross-border trade have contributed to the

ubiquity of globalization, especially due to advances in information and communications

technology and supply chain practices that enable firms to buy and sell across borders more

easily. They signal that manufacturers have entered what Ferdows (1997, p. 102) calls ‘‘the age of

transnational manufacturing, where things made in one country are shipped across national

borders for further work, storage, sales, repair, remanufacture, recycle, or disposal.’’ Or, as Jack

Welch, General Electric’s former chief executive officer, stated in a 2000 speech, ‘‘A truly global

company will be one that uses the intellect and resources of every corner of the world’’ (General

Electric Corporation, 2000).

How do successful American manufacturers maintain their global primacy in the age of

transnational manufacturing? Our paper answers this question in two ways. First, we inform

researchers and professional managers of the shortcomings of traditional management practices

that view globalization as merely a path to low-cost resources and new markets. Our research

specifically pertains to manufacturers that seek foreign expansion of R&D, Marketing/Sales, and/

or Manufacturing, such as by offshoring one or more of these functions. We do not consider

global outsourcing of these functions to other organizations through contracts, alliances, etc., nor

do we consider other non-core business functions. Second, we point readers toward a richer

understanding of the business performance consequences of global competence—a term used to

describe a company’s relative competitive strength on four dimensions of internationalization:

global research and development (R&D), global marketing, global manufacturing, and

integration in foreign communities. Importantly, global competence provides a business case for

building multi-functional, global capabilities.

Global competence, then, builds on the Bartlett and Ghoshal (1989) conceptual typology of

transnational organizations and their evolutionary path to transnationality; upon the insights on

global manufacturing strategies given by Ferdows (1997), Flaherty (1996), Hayes et al. (2005);

and upon the stream of prior related empirical work where reliable and valid measures of the

global competence dimensions were developed (Cattani et al., 2001; Roth, 1998). We posit that

high-performing transnational manufacturers enjoy success because they have developed a more

holistic set of global capabilities that go beyond seeking low costs (i.e., global competence).

Thus, for American transnational companies, like Johnson & Johnson, Proctor & Gamble, and

General Electric, increasing global competence expands their exposure to foreign competition

and fosters a culture of cross-border learning and integration. Global competence also draws

theoretically upon Cohen and Levinthal’s (1990) theory of absorptive capacity, or the firm’s

ability and willingness to recognize, value, assimilate, and integrate new knowledge into its

products and processes. We empirically demonstrate that companies with high global

competence have superior business outcomes.

We evaluate the influence of two key antecedents of global competence: (1) commitment to

supply chain management practices (CSCM) and (2) relative experience with information

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–9276

technology (IT). Conventional wisdom posits that leveraging information technologies and

supply chains for competitive advantage is of increasing importance to companies competing

globally. Firms seek to achieve such leverage in order to gain market share and a higher

return on assets. The alternative is lost market share, declining stock prices, and significant

restructuring.

In the personal computer industry, for example, Dell Computer is cited frequently as a global

exemplar that has leveraged supply chain management competencies to grow market share and

profitability, and in turn, has risen to become the world’s largest personal computer manufacturer.

In the 1990s, Dell’s stock rose roughly a thousand-fold. In contrast, Compaq lost market share in

that same time period and its stock rose only about six-fold. Compaq eventually merged with

Hewlett-Packard in 2002. These anecdotal examples highlight the challenge of understanding the

complex interplay of technology and supply chain management practices. The dynamism of the

global marketplace provides a wellspring of new opportunities for those firms that can best

leverage their supply chains and IT infrastructure.

During the past decade, the emphasis on supply chain management in operations

management research has exploded, yet its roots in the literature extend much further back in the

history of manufacturing strategy. The evolution of modern supply chain management started

with Ford’s highly integrated River Rouge plant, where raw materials, coordinated with

suppliers, would enter the plant from one end and a fully assembled Model T would exit and be

placed into the distribution system (Boyer et al., 2005). The idea that supply chains should be

viewed as integrated systems dates back to the 1950s and became prominent with Forrester’s

industrial dynamics (Johnson and Pyke, 2000). Later, Toyota, Dell, and Wal-Mart demonstrated

the powerful competitive advantage of integrated supply chain management to support

globalization.

Technological progress in IT and digital commerce has provided an electronic backbone for

globalization. Sophisticated information networks shave time and costs in the transactions,

fulfillment, and collaboration processes, both within the enterprise and across partners in the

supply chain. Porter and Millar (1985) argue that ‘‘every value activity has both a physical and an

information-processing component. The physical component includes all the physical tasks

required to perform the activity. The information-processing component encompasses the steps

required to capture, manipulate, and channel the data necessary to perform the activity’’ (page

152). Furthermore, they observe that ‘‘there is an unmistakable trend toward expanding the

information content in products. . .information technology creates new businesses within old

ones’’ (pages 154, 158). It is no wonder that IT has become an increasingly critical component of

an operations management (OM) and supply chain strategy. More recently, Hayes et al. (2005, p.

169) stated: ‘‘While many technologies may be widely available to all, it is the way those

technologies are combined and exploited that provides them with the potential to deliver a

powerful, and ongoing, competitive advantage.’’

To our knowledge, no empirical study of global manufacturing strategy has yet reported on the

ways that IT experience and supply chain management jointly and systematically act to support

global capabilities. In general, rigorous empirical research on strategic roles of supply chain

management and IT as catalysts of global competence is scant, as OM-based empirical studies of

globalization are in relatively early stages of development. Given the potential opportunities

from leveraging the synergies of information technologies and supply chain relationships

(Madhok and Tallman, 1998), we believe this research provides a timely and important empirical

extension to existing theoretical work on technology, globalization, and supply chain

management and offers intriguing managerial and policy insights.

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–92 77

2. Related literature and hypotheses

In this study, we develop a structural equation model (SEM) of global competence, its

antecedents, and performance outcomes (Fig. 1). Our model was guided by the literature and by

interviews with practitioners. Specifically, we empirically investigate manufacturers’ relative

experience with information technology (IT) and their commitment to supply chain management

(CSCM) as important antecedents of what we call global competence (GC), and, in turn, we

examine the influence of IT and CSCM on business performance. Each link in our model

represents a formal hypothesis that we describe later in this section. We examine the resulting

effects of global competence, modeled as a latent variable, on two measures of business

performance, namely sales and return on assets (ROA).

By developing a numerical taxonomy of global capabilities and commitment to supply chain

practices, Cattani et al. (2001) empirically demonstrate the existence of identifiable logical

linkages among global capabilities and supply chain priorities as measured by the strength of

U.S. firms’ manufacturing and fulfillment capabilities and by their financial and marketing

outcomes. They identify three strategic, global archetypes that manufacturing firms adopt to

position themselves for competitive advantage. These global archetypes were found to be

consistent with Bartlett and Ghoshal’s (2000) conceptual typology of transnational firms and

extend Ferdow’s (1997) conceptual classification of transnational production. Even firms that

wish to defend their home markets often find it beneficial to move plants into foreign markets.

According to Bartlett and Ghoshal (2000, p. 512), ‘‘The transnational organization must have

broad sensory capabilities to reflect the diverse environmental opportunities and demands in the

international management process. . . There are three important organizational characteristics

that distinguish the transnational organization from its multinational, international, or global

counterparts: It builds and legitimizes multiple diverse internal perspectives able to sense the

complex environmental demand and opportunities; its physical assets and management are

dispersed internationally but are interdependent; and it has developed a robust and flexible

internal integrative process.’’ Clearly, the transnational organization has highly interdependent

global capabilities and a deep knowledge of local markets.

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–9278

Fig. 1. Model of antecedents and outcomes of global competence.

Ferdows (1997) coins the term transnational production to characterize products ‘‘made in the

world’’ (versus in a single country). Accordingly, he states (p. 109), ‘‘The real mastery of the

superior world-class manufacturer is that they recognize that a factory in a foreign land can have

long-term benefits also beyond production. They use foreign factories to enter new markets,

support their domestic factories, generate new knowledge, and bring needed skills and talented

people to the company. Rather than minimal investment, they invest for the long-term and

encourage development of the factories strategically as part of a robust global network to deal

with foreign exchange and other risks, a network in which the factories reinforce each other.’’

Ferdows’ conceptualization of transnational production implies multiple roles for factories.

The ‘‘missing link’’ between a transnational corporation and a transnational plant is a focus on

global strategies of manufacturing business units (MBU), which is defined as the level in the

organization at which the manufacturing strategy is formulated for the primary product.

Catapulted by simultaneous demands for global efficiency, national responsiveness, and

worldwide learning, manufacturers will find it increasingly difficult to defend their positions on

only one function’s global capabilities (Flaherty, 1996).

Insights from Bartlett and Ghoshal (2000), Flaherty (1996), and Ferdows (1997) indicate there

may be strategic importance to a MBU’s development of highly interrelated, cross-functional

global capabilities. Namely, they are essential for capturing sales from foreign and emerging

markets. Roth (1998) and Cattani et al. (2001) focused on this ‘‘missing link’’ and developed a set

of measures related to global capabilities at the MBU level. We build upon and extend this prior

related research in two ways. First, we empirically determine the existence of global competence

as a tenable construct that represents a portfolio of global capabilities. In other words, we

examine the degree to which cross-functional global capabilities coincide—and that

manufacturers with high levels of global competence will garner superior returns. Then, we

develop and test hypotheses concerning the ways that relative IT experience and commitment to

supply chain management practices contribute to building global competence as well as to

objective measures of business performance, both directly and indirectly through global

competence.

2.1. Measurement model of global competence

From a transnational perspective, being a world-class manufacturer requires a global

perspective towards competition. Yet how best to manage manufacturing in an era of continuous

change and globalization remains a subject of debate. From a theoretical perspective, Bartlett and

Ghoshal (2000, p. 10) argue that three preconditions are necessary to motivate a firm to operate in

an international arena. A firm must (1) see distinguishable ‘‘location-specific advantages’’ that

motivate investments outside the home country; (2) have ‘‘strategic competencies’’ to counter the

disadvantages of operating in less-understood foreign markets; and (3) have ‘‘some

organizational capabilities so as to get better returns from leveraging its strategic strengths

internally rather than through external market mechanisms such as contracts or licenses.’’

The underlying logic of our conceptualization of global competence draws heavily on the

evolutionary continuum of global capabilities inspired by Bartlett and Ghoshal (1989), Bartlett

and Ghoshal (2000), and Flaherty (1996), who explicitly specified the need for multi-

dimensional strategic capabilities.

Accordingly, global competence is operationalized as a latent (not directly observed) meta-

construct capturing the MBU’s competitive capabilities on global marketing (MKT), global

manufacturing (MFG), global research and development (R&D), and integration in foreign

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–92 79

communities (INT). Global marketing capabilities (MKT) include the manufacturer’s relative

competitive ability for foreign sales, its understanding of foreign customer requirements, and its

ability to gather high-quality international competitor intelligence. Global manufacturing

capabilities (MFG) indicate the firm’s ability to ‘‘offshore’’ production (i.e., manufacture and/or

assemble outside the U.S.). Importantly, our MFG construct represents a company’s owned and

operated global network of internal plants—and not, those to which it outsources and/or

subcontracts production.

Global R&D (R&D) capabilities capture the firm’s research and development in foreign

countries as well as its international product and process engineering capabilities. Proctor and

Gamble, for example, benefited from truly global product development of its liquid detergent,

which goes by Tide in the U.S., Cheer in Japan, and Ariel in Europe. Foreign integration (INT)

capabilities are indicative of a manufacturer’s depth of penetration into another country in terms of

the firm’s relationships with foreign governments as well as civic and cultural integration. Honda is

a good example of a non-U.S. company that has a high level of foreign penetration in the U.S. In

contrast, we assess U.S. firms’ levels of political and cultural penetration in foreign countries.

2.2. Hypotheses

There is growing need for insights into the relative impact of various resource investments to

foster globalization, such as those that have quick benefits versus those yielding longer-term

results. Prior research suggests that a general commitment to supply chain management and

information systems are antecedents of global competence and financial performance.

Swaminathan and Tayur (2003) present an overview of relevant analytical research models

for major issues in traditional supply chain management as well as those that arise within e-

business. The supply chain configuration issues they identify include procurement and supplier

decisions; production decisions; distribution decisions; information support decisions; and

material, information, and cash flow decisions. Our empirical research relates to this stream of

normative research, and we next outline some of the connections with globalization.

Drawing on our review of the literature, we posit that experience with IT makes firms more

able to cope with the vagaries of competing in different countries. We posit that as companies

gain more know-how and experience with a variety of operations-based technologies, they are in

a better position to build the IT infrastructures required to support globalization. Thus, we

explicitly investigate the role of information technologies that facilitate communication,

integration, and coordination of supply chain activities and transactions in the development of

global competence. For purposes of this study, we operationalize IT in terms of manufacturers’

relative experience with a variety of basic information-based technologies.

Kulp et al. (2004) develop a conceptual framework that relates information-integration

initiatives to manufacturer profitability and empirically examine this framework through a study

in the food and consumer packaged-goods industry. They find that collaborative planning on

replenishment (through vendor-managed inventory) is directly and positively related to

manufacturer margins, while collaboration on new products and services is positively related to

intermediate performance measures. Cachon and Fisher (2000) study the value of sharing

information in a stylized supply chain. They conclude that implementing information technology

to accelerate and smooth the physical flow of goods through a supply chain is significantly more

valuable than using information technology to expand the flow of information. They postulate

that the observed benefits of information technology in practice are due more to the impact of IT

on lead time and batch size than to the facilitation of information sharing.

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–9280

Global competence allows firms to utilize information technology innovations across multiple

markets, which in turn enables manufacturers to leverage these investments across more markets

(Evans and Wurster, 2000). More formally:

H1. Global competence will increase directly with the manufacturer’s relative experience with

information technology.

Similarly, we hypothesize that a firm’s global competence is affected by its level of

commitment to supply chain management (CSCM). Supply chain management has been defined

by Simchi-Levi et al. (2000, p. 1) as ‘‘a set of approaches utilized to efficiently integrate

suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and

distributed at the right quantities, to the right locations, at the right time, in order to minimize

systemwide costs while satisfying service level requirements.’’ Kopczak and Johnson (2003)

discuss the shifts in business thinking about supply chain management over the past decade,

citing in particular the change in focus from cross-functional to cross-enterprise integration, and

from single-company product design to collaborative concurrent product, process, and supply

chain design.

Supply chain management practices generally make use of various tools that extend human

capabilities (Schon, 1967) and can be broadly classified as involving hardware (e.g., physical

equipment), software (e.g., information technology and systems), or methodology (e.g.,

techniques of production) (Leonard-Barton, 1990). In our study, we explicitly consider an

MBU’s relative commitment to supply chain management (CSCM). This construct is

operationally defined by salient attributes of supply chain management practices and represents

a manufacturer’s assertion of managerial commitment to integrated operations with customers

and suppliers; alliance development with noncompetitors, suppliers, and customers; vendor lead

time reduction; vendor quality-improvement programs; and supplier reduction.

Our operational variable of CSCM is consistent with ‘‘basic’’ supply chain management

practices (Frohlich and Westbrook, 2001; Simchi-Levi et al., 2000; Johnson and Pyke, 2000;

Rosenzweig et al., 2003). Therefore, a commitment to cross-enterprise collaborative SCM affects

global competence because the development of working relationships with various supply chain

partners may require similar skill sets as manufacturers expand their global footprints. More

formally:

H2. Global competence will increase directly with the manufacturer’s relative commitment to

supply chain management.

Assuming adequate demand, the added capacity due to higher levels of experience with

technology and reduced cycle times may support increased sales because of supply availability

and revenue-enhancing products and services. In addition, experience with technology is

expected to affect ROA by lowering unit production costs as well as potentially boosting

revenues due to cycle time reduction. Thus, the following hypotheses are formulated:

H3. Experience with information technology will have a direct, positive influence on sales.

H4. Experience with information technology will have a direct, positive influence on ROA.

The extant literature and anecdotal accounts from practitioners indicate that CSCM is beneficial

for firms that have experience working globally. Increased sales are expected since a wider range of

supply chain partners might be available. Collaboration with a variety of partners with experience in

nonhomogeneous foreign markets can potentially lower total delivered per-unit costs and improve

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–92 81

service (Dyer and Singh, 1998). Therefore, we hypothesize that business performance measures of

sales and of ROA are affected directly by CSCM (Dyer, 1997). Thus,

H5. Commitment to supply chain management practices will have a direct, positive influence on

sales.

H6. Commitment to supply chain management practices will have a direct, positive influence on

ROA.

Based upon the Bartlett and Ghoshal (1989, 2000) paradigm of the transnational company, we

anticipate that global competence will increase both sales and ROA. Additionally, we expect to

observe that sales directly affect ROA.

H7. Global competence will have a direct, positive influence on sales.

H8. Global competence will have a direct, positive influence on ROA.

H9. Sales will have a direct, positive influence on ROA.

While not stated as formal hypotheses (for parsimony), we also anticipate that experience with

information technology, as well as commitment to supply chain management, will indirectly

affect both sales and ROA through their impact on global competence.

3. Database

Because of the scope of the study required to address the issues presented here, there are no

secondary databases available for testing the hypotheses given above. We employed the Vision in

Manufacturing (VIM) Project database, a biennial collaborative survey initiative between

Deloitte Touche Tomatsu International and the first author, currently at Clemson University. The

VIM study was designed specifically to address broad-scale and contemporary questions on

global manufacturing and technology strategies. (For complete details on the background of the

survey and database, see Roth (1996) and Roth et al. (2008a)).

The VIM survey data used in this study were obtained from U.S. manufacturing companies,

which span multiple industry sectors. Importantly, the study was specifically designed to collect

comparative data on manufacturing strategy, technology, supply chain management and other

best practices, and performance. The sampling frame was derived from databases of public

companies reporting at least $50 million in annual revenues. It included a probability sample of

2000 manufacturers listed in Dunn’s Industrial Guide for the U.S. The sampling frame also

included all of the manufacturers listed in Fortune Magazine’s Fortune 1000. Contact names

were assembled from market research firms, consultant client lists, and other sources.

Survey data collection generally followed procedures outlined by Dillman (1978) and

recommended by Pedhazur and Schmelkin (1991). Within 2 weeks of the initial mailing, a

second reminder mailing was sent out, and after the third week, a second questionnaire was

administered. While personal follow-ups to nonrespondents would have been desirable, this was

not possible due to the strict anonymity promised to the respondents. This procedure yielded

responses from 677 MBUs that were headquartered in the U.S. The response rate for the

American MBUs was about 20%, which is consistent with similar surveys. From our starting

dataset, 10 observations were dropped from consideration due to missing data, leaving 667

MBUs for use in the analysis. A complete description of the measures, model implementation,

and analytical methods can be found in Appendix A. Descriptive statistics are given in Table 1.

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–9282

The unit of analysis is the manufacturing business unit (MBU). The research team took special

care to mitigate single-respondent bias and to follow industry informant best practices (Mitchell,

1994). Senior manufacturing executives coordinated the responses from their management

teams. As a result, each survey represented the collective views for general strategy items as well

as data gathered from ‘‘specialists’’ within the organization where necessary (e.g., finance,

supply chain, engineering). Thus, multiple perspectives from within the organization were

represented. Follow-up studies over time have indicated that the sample tends to be biased

towards manufacturing leaders.

4. Results and discussion

The measurement of global competence and the structural model (as depicted in Fig. 1) were

empirically tested using maximum likelihood structural equation modeling (SEM). First, we

examined the measurement model of our global competence (GC) construct. Because of the

complexity of GC as a meta-construct representing four highly coupled dimensions of global

capability, we assessed the overall fit of the measurement model and the measurement properties

(see Table 2). The overall fit of the model is quite good, with RMSEA < .05, RMR < .05, and fit

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–92 83

Table 1

MBU profiles

Industry N % Sales volume N %

Capital goods 108 16.0 Under $50 million 183 27.0

Consumer packaged goods 75 11.1 Over $50 million to $100 million 95 14.0

Consumer durable goods 78 11.5 Over $100 million to $500 million 123 18.2

Aerospace and defense 97 14.3 Over $500 million to $1 billion 36 5.3

Industrial goods 290 42.8 Over $1 billion 36 5.3

Other/unknown 29 4.3 No response 204 30.2

Total 677 100.0 Total 677 100.0

Source: Vision in manufacturing study.

Table 2

Results of the measurement model for global competence (GC)

Construct: global competence

(GC)

Composite

reliability

(variance

extracted)

Indicator

variables

MLE

unstandardized

l**

MLE

standardized

l**

CR** Indicator

reliability

Model fit criteria*,

x2 (38 d.f.) = 59.75,

( p = .014), GFI = .989,

AGFI = .961; TLI = .988,

CFI = .996, Normed Rho1 = .968,

Delta2 = .996, RMSEA = .025,

RMR = .019

.98 (.93) R&D .84 .65 11.99 .73

MKT .89 .75 25.10 .73

MFG 1.23 .83 15.22 .77

INT 1.00 .85 – .81

* See Bollen (1989): GFI, AGFI, TLI, CFI, and Delta 2 > .95 and RMSEA and RMR <.05 indicates an excellent

model fit.** l represents the maximum likelihood (ML) parameters estimates associated with indicator variables reflecting global

competence, as depicted in Fig. 1. Critical ratios (CR) for two-tailed tests of significance of t-statistic associated with

unstandardized parameter estimates: All bolded parameter estimates are statistically significant (CR = 3.29, p < .001).

statistics at >.95 exceeding their threshold criteria (see Bollen, 1989). The statistically

significant observed Chi-square statistic (x2 = 59.79, 38 d.f., p = .014) is not a concern in this

analysis because it is well established that the Chi-square statistic is affected by large samples.

The overall fit of the measurement model (Table 2) is consistent with the notion of a transnational

manufacturer (Bartlett and Ghoshal, 2000; Ferdows, 1997; Flaherty, 1996).

Our empirical results show that global competence (GC) is indeed a multifaceted construct

reflected by positive, statistically significant loadings ( p < .001) on an MBU’s highly

interrelated global capabilities for R&D, MKT, MFG, and INT. As indicated by the measurement

literature, our results surpass all recommended values for the tests of reliability and validity

(Bollen, 1989).

Second, we evaluated the structural model of Fig. 1 in order to test the overall model and

the nine hypotheses. The resulting overall fit statistics were as follows: x2 = 6.46 with 10 d.f.

( p = .775); x2/d.f. = .65; RMSEA = .000, GFI = .998; NFI = .997, and TLI (Rho2) = 1.005.

These statistics indicate that, overall, the structural model represents the empirical data

extremely well according to the criteria in Bollen (1989) and Cheung and Rensvold (1999).

Examination of initial parameter estimates, including lambda (G) matrix elements and

error variances, revealed no troubling results; and there were no significant modification

indices.

In order to evaluate more fully the parameter estimates for this sample of U.S.

manufacturers, we bootstrapped 200 iterations to generate estimates of the standard errors for

the structural parameters. These estimates and their resulting significance levels are shown in

Table 3 (Bollen, 1989; Cheung and Rensvold, 1999). Six of the nine hypotheses tested (H1,

H2, H3, H7, H6, and H9) were strongly supported by the data ( p < .01); (H5) was weakly

supported ( p < .10); H8, testing the direct link between global competence and ROA, was not

supported ( p > .10). While H4 was not supported, we found an indirect influence of IT on

ROA through global competence.

In Table 4 we itemize the standardized direct, indirect, and total effects of IT experience and

CSMC on GC, SALES, and ROA, and their indirect effects on SALES and ROA through GC. We

also report the effect of SALES on ROA.

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–9284

Table 3

Maximum likelihood (ML) parameter estimates for hypothesized structural model

Outcomes Predictor Parameter* Hypothesis Unstandardized parameter estimates (t)**

GC IT GGC-IT H1 supported .30 (6.12)

CSCM GGC-CSCM H2 supported .25 (5.54)

SALES IT GSALES-IT H3 supported .46 (7.80)

CSCM GSALES-CSCM H5 weakly supported .10 (1.92)

GC BSALES-GC H7 supported .43 (7.28)

ROA IT GROA-IT H4 not supported S.17 (S1.92)

CSCM GROA-CSCM H6 supported .35 (4.61)

GC BROA-GC H8 not supported .04 (.52)

SALES BROA-SALES H9 supported .13 (2.36)

Key: IT = information technology; CSCM = commitment to supply chain management, GC = global competence.* G represents the ML parameters estimates associated with exogenous (antecedent) variables; B, the ML of parameters

estimates associated with endogenous variables as depicted in Fig. 1.** Critical ratios (CR) for two-tailed tests of significance of t-statistic: CR = 1.64, p < .10; CR = 1.96, p < .05;

CR = 2.58, p < .01; CR = 3.29, p < .001. Parameters in bold are significant at p < .10.

4.1. Influence of commitment to supply chain management

Our empirical results indicate that, as hypothesized for U.S. manufacturers, CSCM is a

key success factor for attaining high levels of global competence (GC). Clearly, CSCM helps

to develop global expertise in R&D, marketing, manufacturing, and foreign integration,

as it represents an effort to foster relationships external to the firm and to seek out best

practices and linkages across the globe. Simchi-Levi et al. (2000, p. 10) observed that supply

chain practices can have a huge impact on a company’s market share and performance

outcomes: ‘‘. . .in today’s competitive market, most companies have no choice; they are

forced to integrate their supply chain and engage in strategic partnering. This pressure stems

from both their customers and partners.’’ Besides a commitment to customer and supplier

integration, CSCM also entails working with customers and partners to improve quality and

service.

Our findings support their observation. Manufacturers in our study received a significant

direct financial effect on ROA ( p < .001) from CSCM. This should not be surprising, since good

supply chain management enables firms to gain considerable control over their inventory,

distribution, and transaction costs, the benefits of which are seen on the bottom line. However,

unexpectedly, we found the direct effect of CSCM on sales revenue was weak ( p < .10). To

highlight the complexity of evaluating the influence of CSCM on sales, further scrutiny of the

data showed its indirect effect was strong ( p < .001) due to its influence on global competence

(GC).

Thus, in terms of improving sales revenues (SALES), U.S. manufacturers reap significant

indirect benefits from CSCM when they have achieved a high level of GC. This poses an

interesting ‘‘chicken and egg’’ question as to which comes first–CSCM or GC? We infer from the

theory and empirical results that firms must first achieve a threshold level of supply chain

management skills, which in turn acts to build GC. As GC increases, synergies arise from firms’

global savvy, and they are better equipped to expand overall sales. Over time, CSCM has the

potential to enable firms to have a better grasp of their supply and distribution networks and to

enable them to become closer to globally dispersed customers. In effect, new foreign and

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–92 85

Table 4

Standardized direct, indirect and total effects of IT and CSCM on global competence, sales, and ROA for structural model

Effect of On Direct effect (t*) Indirect effect (t*) Total effect (t**)

IT GC .27 (5.92) – .27 (5.92)

CSCM GC .24 (5.69) – .24 (5.69)

IT SALES .29 (7.49) .08 (4.85) .38 (10.50)

CSCM SALES .07 (1.90) .08 (4.52) .15 (3.87)

GC SALES .31 (8.10) – .31 (8.10)

IT ROA S.09 (S1.83) .05 (2.63) �.04 (�.93)

CSCM ROA .20 (4.74) .02 (1.79) .22 (5.49)

GC ROA .03 (.50) .03 (2.23) .06 (1.25)

SALES ROA .11 (2.30) – .11 (2.30)

Key: IT = information technology; CSCM = commitment to supply chain management; GC = global competence.

Note: For two-tailed tests of significance of t-statistic: CR = 1.64, p < .10; CR = 1.96, p < .05; CR = 2.58, p < .01;

CR = 3.29, p < .001. Parameters in bold are significant at p < .10 level.* Estimates and critical ratios (observed t-statistics) for indirect and total effects are derived from bootstrapping

(nb = 200).** Due to rounding, total effect values may not equal the sum of the direct effect and indirect effect values as shown.

emerging market demand options now become available. Dell and Wal-Mart, two exemplars of

supply chain management, have followed this strategy successfully. However, to better

understand the causal dynamics, longitudinal studies are recommended for future research.

4.2. Influence of information technology

As expected, we observed a strong, direct association between IT and SALES outcomes

( p < .001). Our results indicate that information technology increases the odds that a

manufacturer can improve its sales because of its heightened ability to collect and analyze an

abundance of data to improve marketing, sales, and service. We speculate that as firms gain

experience with a variety of technologies, they acquire increasingly more technological know-

how. This know-how supports their e-commerce capabilities and enables them to better leverage

complex customer relationship management systems and the valuable data contained in them.

Interestingly, especially given American manufacturers’ relatively great investment in IT

infrastructure over the past two decades, the direct link between IT and ROA is insignificant

( p < .10). However, note in Table 4 that a strong positive link between IT and ROA arises

indirectly, through GC and SALES, suggesting that IT acts as an enabler of more fundamental

activities rather than contributing directly to the firm’s bottom line.

4.3. Overall performance impacts

Finally, we examine the squared multiple correlations of each endogenous variable in

Fig. 1. These values indicate the proportion of each endogenous variable’s variance that is

explained by the variables considered by our model. Overall, our SEM results show that the

combination of CSCM and IT explains 18% of the variance of GC. More impressive is the fact

that 29% of the variance of SALES is explained by the combination of CSCM, IT, and GC. In

contrast to these relatively high values is the variance explained for ROA, which, at 5%, is low.

This result is consistent with the conventional wisdom that many North American managers

are short-term and low cost minded; they may be trading off the longer-term revenue

enhancing and learning benefits of their global competence. U.S. managers, in the words of

Voss and Blackmon (1998), are often ‘‘preoccupied with simply getting goods through the

process. Meeting production schedules–in the face of machines that were always breaking

down, uncooperative workers, middle managers who were continually fighting fires when they

were not protecting their turf, and worse, suppliers that were just like oneself—became the

overriding objective.’’

While the statistical power of our sample is sufficient (Verma and Goodale, 1995), there are

some notable limitations to our study. First, as the sample was slightly biased towards better-

performing manufacturers, generalizing to all manufacturers, to nonmanufacturing organiza-

tions, or to those headquartered outside the U.S. should be done with caution. Future research

would benefit from investigation of these issues.

Additionally, in order to accommodate the missing values in our dataset, we employed Full

Information Maximum Likelihood (FIML) estimation. Missing values may have the effect of

inflating the standard errors of our estimated parameters. FIML minimizes this inflation by using

all available data and is preferred over pairwise or listwise deletion methods and mean-

imputation techniques because of the potential bias that may be introduced into the parameter

estimates by those other methods (see Wothke, 2000 for information on FIML). Further

longitudinal studies on these issues would be useful.

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–9286

5. Key managerial and policy insights

Our research provides several strategic insights for managers of transnational manufacturing

firms seeking to replicate the global success of firms like Proctor and Gamble and General

Electric. First, becoming a transnational firm means going beyond foreign sales and offshore

production to the achievement of global competence. Transnational manufacturing businesses

must also have a more holistic and integrated view of offshoring and other ways of expanding

business into foreign communities and fostering corporate responsibility abroad. Using the

conceptual framework we have developed, managers can assess the global competence of their

firms and identify effective means to increase their portfolio global capabilities in order to reap

positive returns from transnationalism. Our empirical results provide strong evidence that a

commitment to supply chain basics, along with technological prowess, underscores global

competences that increase sales, and in turn, ROA. As a result, the research also reaffirms the

argument that executives of transnational organizations must first develop technical and supply

chain competencies that are broad and cross-functional.

The strong relationships between information technology and global competence and the lack

of a direct effect on ROA also have important implications for manufacturing managers. While

U.S. manufacturers have paid particular attention to using information technologies to achieve

competitive advantage (Bensaou, 1997), we find that successful transnationals may not reap ROA

benefits of investments in IT directly. Rather that comes from their ability to leverage IT through

global competence, which bolsters sales. Managers with a short-term eye on ROA may fail to

recognize the possible benefits of supply chain management and information technologies,

which, along with a more comprehensive focus on global competence, can lead to increased sales

and higher ROA. In support of Cohen and Levinthal’s (1990) absorptive capacity theory, our

research demonstrates empirically that manufacturers in the U.S. with relatively more experience

using information technologies tend to be more globally competent (Cohen and Levinthal, 1994).

Evans and Wurster (1997) state, ‘‘Information and the mechanisms for delivering it. . . underlie

competitive advantage.’’

Without both the ability to plan and implement multiple technologies and gain experience

using the technologies, it would be impossible for firms to maintain the levels of

communication and process execution required to compete on a transnational basis (Chan

et al., 1997). IT enhances global competence because it aids in coordinating diverse

workforces and business entities across large distances and time. Yet, while experience

enhances technological prowess, it takes time to cultivate the requisite organizational know-

how to leverage technology. Thus, quick-fix, technological solutions may produce adverse

results. Similarly, the link between global competence and ROA is also indirect, through

increased sales. Success in attaining global competence clearly contributes to business

performance, especially in regard to sales growth.

Our results also have potential implications for policymakers seeking to bolster U.S.

competitiveness. Ferdows (1997, p. 109) suggested transnational production ‘‘forces a new

mindset and points out the changes we need to make in public policies and management

practices.’’ According to Simchi-Levi et al. (2000, p. 151), ‘‘Even if companies do not do

business overseas, the presence of foreign competitors in home markets can affect their business

significantly. To defend domestic markets successfully, companies may find it necessary to move

into foreign markets; and to cultivate them rather than solely using them as a platform for

importing goods back to the U.S.’’ Economic boundaries around the world are collapsing, and

nations are becoming much more open to international influences. As world markets evolve, the

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–92 87

ability to become a global integrator becomes more essential, and many U.S. firms are now

recognizing the importance of a commitment to supply chain management as a means to attain

global competence. The research results suggest that U.S policymakers in support of global

competitiveness must go beyond protectionism and embrace some strategic offshoring and other

forms of global business expansion.

While offshoring is often perceived as a double-edged sword, it does not mean abandoning

the U.S. altogether, nor does it mean outsourcing labor. Clearly, relying on one or two

offshore plants for production of final or semi final products, parts, and ingredients increases

operational risks (e.g., potential supply disruptions, quality fade, and other opportunistic

behaviors on the part of egregious suppliers). Arguably, the increasing number of U.S. jobs

lost to globalization must be counterbalanced through improvements in workforce

capability, which should help develop global competence and increase total sales. While

the overall number of U.S. college degrees increased between 1990 and 2000, the number of

science and engineering degrees declined. According to William Bonvillian, Legislative

Director in the office of Senator Joseph Lieberman, ‘‘We must find new tools for increasing

the flow of talent into the innovation system. . . We need a resolution in manufacturing

process to multiply productivity and restore U.S. comparative advantage in key areas.’’

(Bonvillian, 2004).

Global competence for transnational firms, as well as for U.S. domestic manufacturers

competing with foreign firms, requires a critical mass of technologically skilled workers. People

in globally savvy firms appear to have the requisite technological know-how to leverage

advanced information architectures and to help their businesses develop their supply chain

capabilities. We posit that few viable short-term solutions exist for equipping workers to compete

in the new era of transnational commerce. One can only speculate here on the leadership role that

government and industry should play in educating the workforce and developing workers’

technical and managerial talent.

The prompt enactment of policies directed at reengineering the U.S. educational system to

attract and produce scientifically and mathematically prepared students who both are well-

versed in and understand global cultures must be a national imperative. A second potential

policy issue that arises for future research pertains to accounting standards, which were

originally developed for the 19th century corporation and can lead to misguided investment

strategies that hollow the corporation in the longer term. As we enter the era of transnationalism,

we are also witnessing new theories of the firm, in which corporate assets are no longer fixed in

plant and equipment but in ‘‘knowledge assets’’ in the form of talent, intellectual property, and

innovation (Hayes et al., 2005; Roth, 1996; Kogut and Zander, 1992). While as yet we lack the

tools to comprehensively assess emerging transnational corporations, the measures of global

competence and its antecedents presented in this paper provide a broad-based gauge of critical

success factors.

Appendix A. Variables

Both qualitative and quantitative measures were employed as reasonable proxies for the

variables included in our model (Fig. 1). Qualitative measures tapped into constructs for

assessing relative global capabilities, relative experience with technology, and supply chain

management. In Table A1, the items composing each multi-item measurement index are

provided, and the descriptive statistics for all exogenous and endogenous variables appear in

Table A2.

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–9288

Note that the measurement properties of all indexes used as exogenous variables in the this

study and used as indicators of the latent global competence construct for the measurement

model were adapted from previous research using the VIM database. Each qualitative global

capability item taps into the MBU’s current competitive strength, relative to primary competitors

in the same markets, is measured on a 5-point, self-anchoring scale, where 1 = ‘‘Weak,’’

A.V. Roth et al. / J. Eng. Technol. Manage. 25 (2008) 75–92 89

Table A1

Scales, reliability estimates, and representative items (n = 667)

Scales [source] Reliability: Cronbach’s a Items

Information technology (IT)

[Roth, 1996]

.86 Relational database management systems

Electronic data interchange (EDI)

Local area networks (LANs)

Personal computers (PCs)

E-mail

Integrated IS across functions

Integration of manufacturing and engineering systems

Artificial intelligence/expert systems

Commitment to supply

chain management (CSCM)

[Cattani et al., 2001]

.86 Vendor lead-time reduction

Vendor quality-improvement program

Reduction in the number of suppliers

Integration of operations with customers

Integration of operations with suppliers

Global competence (GC)

Research and development (R&D)

[Cattani et al., 2001]

.94 Foreign product R&D capabilities

Significant foreign product engineering capabilities

Significant foreign process engineering capabilities

Marketing (MKT)

[Cattani et al., 2001]

.86* Strong foreign sales capabilities

Quality of international competitor intelligence

Manufacturing (MFG)

[Cattani et al., 2001]

.86* Ability to manufacture in other countries

Ability to assemble in other countries

Foreign integration (INT)

[Cattani et al., 2001]

.93* Strong relationships with foreign governments

Integration into foreign community (civic/cultural)

* These are interitem correlations, since Cronbach’s a cannot be calculated for two-item scales.

Table A2

Descriptive statistics (n = 667)

Global competence (GC)

IT CSCM R&D MKT MFG INT SALES ROA

Mean 2.68 2.66 2.06 2.62 2.36 2.48 2.25 2.96

S.D. 0.81 0.88 1.16 1.07 1.35 1.07 1.26 1.57

IT 1.00

CSCM .40*** 1.00

R&D .25*** .22*** 1.00

MKT .28*** .27*** .58*** 1.00

MFG .30*** .29*** .70*** .62*** 1.00

INT .31*** .28*** .66*** .77*** .70*** 1.00

SALES .44*** .30*** .29*** .32*** .37*** .38*** 1.00

ROA .05 .20*** .06 .09 .07 .12* .14** 1.00

Note: Statistically significant at: ***p < .01; **p < .05; *p < .10.

3 = ‘‘Average,’’ and 5 = ‘‘Market Leader.’’ Similarly using a 5-point scale, CSCM captures the

average degree of managerial commitment and attention over the past 3 years to the program,

practice, or business methods (1 = ‘‘No Commitment,’’ 3 = ‘‘Moderate,’’ and 5 = ‘‘Significant

Commitment’’). The IT scale represents the MBU’s relative degree of experience with each basic

technology or technique, and is also indicated by 5-point self-anchoring response categories from

1 = ‘‘No Experience’’ to 5 = ‘‘State-of-Art.’’ Note that the use of this type of multi-item

measurement scales, long used in social sciences research, is common in manufacturing strategy

research due to the qualitative nature of the constructs and because, with appropriate

questionnaire design, respondents can sufficiently discriminate over the range of items indicated

by the anchors for each scale (Narasimhan and Jayaram, 1998). An MBU’s index scores for each

construct are the averages of the composite items.

The observable variables comprising the Information Technology (IT) Experience and

Commitment to Supply Chain Management (CSCM) indexes, and their corresponding reliability

estimates, are also shown in Table A1. Cattani et al. (2001) provide comprehensive reviews of the

supporting literature for both of these scales’ measures.

The endogenous performance outcome measures SALES and ROA are the two objectives

measures of performance that we deployed in our structural model following standard

econometric methods. That is, the observed variables were assumed to be error-free estimates of

the performance constructs included in our model. In covariance structure modeling (Bollen,

1989), this would equate to setting the associated Ly values to unity and the associated Qe values

to zero. This approach also follows standard regression techniques for handling traditional

single-item variables, which are assumed to have no (or an insignificant amount of) measurement

error.

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