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Welcome to the presentation on
How Market Orientation and Outsourcing Create Capability and Improve Performance in Emerging Markets
Dr. Satyendra Singh
Director, Centre for Emerging Markets
Professor, Marketing and International Business
Editor, International Journal of Business and Emerging Markets
www.uwinnipeg.ca/~ssingh5
Outline
2
Introduction ObjectivesDefinitionsConceptual Model, HypothesesMethodologyAnalysis, ResultsManagerial Implications
Introduction
Why study this? Firms in Emerging Markets (EM) are
catching up with WestCosts – Tata, Nano; Chery, QQ Quality – Indian leather, Chinese silkProduct development pace – Films
Indicates ↓ in capability of West↑ important in recession
3
Objectives
Firms need to be strategic and competitive If, Market Oriented - Outsourcing strategy
Competitive Advantage If so, trade off?
Competition vs. Cooperation
4
What is Market Orientation (MO)?
Narver and Slater (1990) Customer, competitor, co-ordinaiton
Kohli and Jaworski (1990) Information generation/dissemination
Greenley (1995) EconomicCadagon et al. (1999) Export Deshpande (1993) Culture
Pitt (1996) European
5
In general, MO strategy
Meets customers’ needsAnticipates market conditionsExplores and develops new productsDevelops more desirable products $Takes long-term perspective, so viableMO may firms capability
6
But in EM, MO is different!
Demand > Supply!?No feedback
No culture of product returnShy, contamination by touch!
Not obsessed with changeLike permanence, memory, colony
7
What is Outsourcing?
8
Outsource activities despite its ability to make in-house, so focus core capability (Deavers, 1997)
Quick response to market turbulencesOn time delivery, lead timeCompetitive, if benefits > costs
If outsourced from EM
Abundant skilled labor! Fixed costs and wages BE point
performance, if firms’ capabilityOS may existing capabilities, but
borrowed capabilities Masks the decline skills, as firms may
not learnIt is risky
9
Trade-off between MO and OS
MO
OS
Capability Per
form
ance
↑ CostsTimeComplexExpertise Costs
↑ SavingsLaborMrf.Risks
10
Conceptual Model
11
Capability Bus Perf Risk
Source-position-performance model(Day, 1994; Day and Wensley, 1988)
MO
OS
H1
H2
H6a
H6bH3
H5
H4
Competing Model - I
12
Capability Bus Perf Risk
MO
OS
H1
H2
H6a
H6bH3
H5
H4
Competing Model - II
13
Capability Bus Perf Risk
MO
OS
H1
H2
H6a
H6bH3
H5
H4
Theory -- Hypotheses
H1: MO ↑ CapabilityH2: MO ↑ Business PerformanceH3: OS ↑ CapabilityH4: OS ↑ Business PerformanceH5: Capability ↑ Business PerformanceH6a: MO-BP ↑, if risk ↓H6b: OS-BP ↑, if risk ↑
14
Methodology
Market Orientation – Scale Customer orientation (Narver and Slater, 1990)
Customer commitment, create value, understand customer needs and satisfaction , after sales service
Competitor orientation Salespeople share competitors’ info, respond quickly to
competitors’ actions, top managers discuss competitors’ strategies, target opportunities for competitive advantage
Inter-functional dept co-ordination Info sharing, functional integration strategy, all depts contribute
to customer value, share resources with other business units
16
Outsourcing – Scale
Core and Peripheral Outsourcing
(new scale developed by me) Ratio of outsourced production to in-house
production Ratio of outsourced products to manufactured
products
17
Capability – Scale
Adapted from (Atuahene-Gima, 2005)
Speedy introduction of new products to markets Access to distribution network for products Creative marketing strategies for new products Secure resources for marketing new products
18
Risk Aversion – Scale
Adapted from (Jaworski and Kohli, 1993) Financial risks are worth the reward Managers take big financial risks Managers develop innovative but risky
marketing strategies Managers are likely to play it safe (R) Managers implements activities only if it works
19
Business Performance - Scale
Adapted from (Kotabe and Murray, 1990)
Pre-tax profitability Market Growth Market Share
20
Data Collection
Kompass directory Delhi and Bombay Stratified quota sampling PIN method Personally collected – 3 months period 213 responses/1200 calls 18% response Multiple respondents all 7-pt scales Respondents’ knowledgeable about the
concept (+6. on 7-pt scale)
21
Sample Characteristics
22
Firms Foreign IndianTotal sample size (N=426) 221 205Manufacturing products 104 (47%) 115 (56%)Providing services 117 (53%) 90 (44%)Turnover (<Rs. 99m) 69 (31%) 88 (43%)Turnover (b/w Rs. 100 and 149m) 95 (43%) 74 (36%)Turnover (> Rs 150m) 57 (26%) 43 (21%)Turnover (<49) 64 (29%) 66 (32%)Turnover (between 50 and 99) 104 (47%) 84 (41%)Turnover (>100) 53 (24%) 55 (27%)CEO/MD/Proprietor) 126 (57%) 125 (61%)Senior manager) 77 (35%) 57 (28%)Mid-level manager) 18 (8%) 23 (11%)Proportion of outsourcing activities 62% 48%Business experience (in years) 22.5 11.8
Analysis
Factor Analysis Confirmatory Factor Analysis AMOS 4.0 Cross-group measurement validation Reliability > .7 Fit indices > .9 Multicollinearity < 4 Non-response bias ok
23
Results
24
Capability Bus Perf Risk
Unstandarised structural Ceffficients(Foreign/Indian), * p< .05, ** p<.001
MO
OS
H1 (.31**/.29*)
H2 (.14/.07)
H6a
H6bH3 (.19*/.21*)
H5 (1.33**/1.31*)
H4(.36**/.37**)
Model Fit Indices (Foreign/Indian):X2 (392, 641.45/412, 745.63); RMSEA (.05/.06), GFI (.88/.89), CFI (.95/.96)
Direct, Indirect, and Total Effects (Hair, 2006)
25
Direct indirect(Cap)Total Effects
Full sample For. Ind. For. Ind. For. Ind.MOBP .14 .07 .41** .38** .55* .45*OSBP .36 .37 .25* .28* .61** .65**
Low risk sampleFor. Ind. For. Ind. For. Ind.MOBP .27* .31* .36* .21* .63** .52**OSBP .13 -.02 .01 .18 .14 .16
High risk sample For. Ind. For. Ind. For. Ind.MOBP -.02 .01 .14 .07 .12 .08OSBP .39* .34* .33* .39* .72** .73**
Model Fit Indices: X2 (87, 97.43), GFI=.87, AGFI=.82, NFI=.91, RMSEA=.05, NNFI=.93, TLI=.95, CFI=.97); * p< .05; ** p<.001
Implications for managers
Firms need both—MO and OS MO because difficult to imitate
Trade-off existsOS needed, not to costs but MO
No difference b/w Indian and foreign firms Low-risk firm MO, high-risk firm OS
to build capability
26
Conclusion: Competition vs. Cooperation
LO OS HI
HI
LO
MO
Create value Capability OS
Initially OS to be MO MO
Manage risksLO risk-taking firms MOHI risk-taking firms OS
MO
Coop?Comp?
Comp/Coop? Comp/Coop?
27
I
II
IIIIV
Future study: OS vs. Technology Transfer Kenya, Africa
Acknowledgements
The financial support from the Social Sciences and Humanities Research Council (SSHRC 4A grant # 0-40-8460-61000-000) is gratefully acknowledged.
This presentation is based on
Singh (2009). How market orientation and outsourcing create capability and impact business performance, Thunderbird International Business Review 51(4): 457 471.
References
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