8/10/2019 MO and Enterpreneurship Orientation
1/13
Ownership, strategic orientation and internationalization in emerging markets
Yi Liu a,1, Yuan Li a,*, Jiaqi Xue b,2
aAntai College of Economics & Management, Shanghai Jiaotong University, School of Management, Xian Jiaotong University, Xian 710049, Shaanxi, Chinab International Business School, University of International Business & Economics, Beijing 100029, China
1. Introduction
Thepast
ten
years
have
witnessed
rapid
growth
of
internation-
alization
in
firms
from
emerging
markets.
The
World
Investment
Report (UNCTAD, 2006) suggests that, as a group, firms from
emergingmarkets have emerged as significant outward investors,
and
scholars
have
therefore
recently
engaged
in
theoretical
inquires into
the
phenomenon
of
internationalization
by
such
firms. They argue that special institutional characteristics which
the transformation of the economic system engenders drive these
firms
to
pursue
distinctive
approaches
to
successful
internation-
alization
(Child
&
Rodrigues,
2005;
Luo
&
Tung,
2007;
Yamakawa,
Peng, & Deeds, 2008). From this perspective, institutional factors
andspecific
strategic
orientations
are
the
key
triggers
for
achieving
international goals
in
firms
which
operate
in
emerging
markets.
At first, strategic patterns of firms from emerging markets, such
as the former Soviet Union and China, followed centralized, state-
planned
business
approaches
that
are
not
appropriate
for
success
in a
global
economy
which
is
characterized
by
a
free
market
and
intense competition (Boisot & Meyer, 2008; Yamakawa et al.,
2008). As reform has been taking place in these economic systems,
emerging
economies
have
been
experiencing
massive
and
complex
changes in
institutions,
including
government,
economic
systems,
and enterprise ownership structures (Child & Tse, 2001; Peng, Tan,
& Tong, 2004). Privatization has encouraged more new entrants to
come into
the
market
as
entrepreneurial
startups
(Peng,
2003).
Firms which
are
inclined
to
pursue
new
opportunities,
initiate
changes and take risks have led to the prevalence of entrepreneur-
ial activities in emerging markets. The open and free market has
thus
fostered
a
competitive
business
environment.
Many
firms
have
realized
that
they
must
put
more
emphasis
on
customers needs and satisfaction in order to remain viable and
even to survive (Golden,Johnson, & Smith, 1995). Furthermore, an
open door
policy
leads
firms
from
emerging
economies
to
enter
international
markets
in
order
to
obtain
a
competitive
advantage
in the global economy (Boisot & Meyer, 2008). These changes as
well
as
the
results
they
lead
to
have
forced
firms
to
recognize
that
successful
internationalization
cannot
be
achieved
using
the
means and approaches of the old economic system, but instead
require firms to learn new business approaches in a global market
andadopt
appropriate
strategic
orientations
(Li,
Liu,
&
Zhao,
2006;
Mathews,
2006).
Previous studies suggest that entrepreneurial orientation (EO)
andmarket orientation (MO) provide the foundations on which a
firm can
build
its
interactions
with
dynamic
foreign
markets.
These
orientations determine
the
firms
behavior
and
international
performance (e.g., Knight & Cavusgil, 2004; Luo, Sivakumar, &
Liu, 2005). Recently, research in strategy and marketing has shown
that EO and MO are crucial for superior performance by firms from
emerging markets
(Lau
&
Busenitz,
2001;
Li,
Liu
et
al.,
2006;
Liu,
Luo, & Shi, 2003; Subramanian & Gopalakrishna, 2001), and that EO
is especially helpful for achieving success in foreign markets (Luo &
Tung, 2007; Yamakawa et al., 2008; Zhou, 2007). However, until
now research
has
not
identified
the
different
roles
that
EO
and
MO
Journal of World Business 46 (2011) 381393
A R T I C L E I N F O
Article history:
Available online 31 August 2010
Keywords:
Internationalization
Ownership concentration
CEO ownership
Strategic orientation
Entrepreneurial orientation
Market orientation
A B S T R A C T
For firms from emerging economies, market orientation and entrepreneurial orientation are two of the
most important strategic orientations to consider when entering the global marketplace. This study
explores how, in emerging markets, ownership structure affects these strategic orientations and their
effectiveness in facilitating international business success. Our findings, based on survey data from
Chinese firms, suggest that ownership structure, specifically ownership concentration and CEO
ownership, can lead firms to choose different strategic orientations. Furthermore, we find that
entrepreneurial orientation directly promotes a firms internationalization activities, whereas market
orientation has an inverse U-shaped relationship
with internationalization
activities.
2010 Elsevier Inc. All rights reserved.
This study is supported by KPCEM (09JZD0030) and NSFC (70872090;
70741420172) and Program for Innovative Research Team in UIBE.
* Corresponding author. Tel.: +86 29 82665093; fax: +86 29 82668957.
E-mail addresses: [email protected] (Y. Liu), [email protected] (Y. Li),
[email protected] (J. Xue).1 Tel.: +86 29 82665029; fax: +86 29 82668382.2 Tel.: +86 10 64493511.
Contents
lists
available
at
ScienceDirect
Journal of World Business
journal homepage : www.elsev ier .com/loc ate / jwb
1090-9516/$ see front matter 2010 Elsevier Inc. All rights reserved.
doi:10.1016/j.jwb.2010.07.012
http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.sciencedirect.com/science/journal/10909516http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://www.sciencedirect.com/science/journal/10909516mailto:[email protected]:[email protected]:[email protected]://dx.doi.org/10.1016/j.jwb.2010.07.0128/10/2019 MO and Enterpreneurship Orientation
2/13
play in a firms internationalization, and has not explored the
specific driving effects of EO and MO on a firms internationaliza-
tion behavior.
More importantly, the constant changes taking place in
emergingmarkets have also caused institutional factors to become
important drivers of a firms choice of strategic postures
(Hoskisson, Eden, Lau, & Wright, 2000). One especially important
reform is that firms formerly owned only by the government in a
centrally planned economy have been allowed to have other
owners, including the CEOs (Filatotchev, Dyomina, Wright, & Buck,
2001; Young, Peng, Ahlstrom, Bruton, &Jiang, 2008). Such changes
in ownership structure may well influence the strategic posture of
firms (Peng, 2003) and may also change the progress of their
internationalization. However, precisely how these reforms in
ownership structure differently affect strategic orientations such
as EO and MO has been ignored in existing literature.
To fill these research gaps, this study attempts to address two
questions: What are the roles of (i) ownership structure and (ii)
particular strategic orientations, in the internationalization of
firms from emerging markets? The main contributions of this
study are the following.
From a theoretical viewpoint, by taking into account the
different characteristics of EO and MO, this article explains the
differences between the effects of ownership concentration andCEO ownership on both EO and MO, as well as the different effects
of EO and MO on the internationalization activities of firms. We
provide a theoretical explanation about how ownership concen-
tration and CEO ownership affect the internationalization activities
of firms from emerging markets through their choice of EO or MO.
From an empirical viewpoint, unlike existing studies which
have been conducted in developed economies, we here shift the
focus to the context of firms in emerging economies, and
investigate the case of firms in China. China, as the largest
emerging market in world, has a long history of a centrally planned
economy and state ownership of enterprises. Yet today, China is
changing from a centrally controlled society into a market-driven
economy. Many
Chinese
MNEs
are
emerging
and
posing
a
major
challenge to Western MNEs (Child & Tse, 2001; Young et al., 2008).During internationalization, these Chinese MNEs have to face not
only complex and competitive foreign markets but also turbulent
institutional and
economic
environments.
Thus
China
represents
a
unique opportunity
to
test
internationalization
theory.
By
using
data painstakingly collected through face-to-face interviews with
senior executives in charge of 607 Chinese firms, we provide
evidence to
show
that
ownership
concentration
and
CEO
owner-
ship
have
different
effects
on
EO
and
MO.
Further,
this
study
examines the positive effect of EO on internationalization activities
and the inverse U-shaped relationship between MO and interna-
tionalization
activities.
2. Theoretical background and conceptual model
2.1. Internationalization
Internationalization, which is defined as a process of increasing
involvement in international operations across borders (Welch &
Luostarinen, 1988),
comprises
a
wide
variety
of
activities
including
exporting, licensing,
OEM,
and
direct
foreign
investment.
Here,
we
are interested in those substantive forms of outward internation-
alization associated with firms from emerging markets. Seeking
andselling
in
foreign
markets
are
the
most
common
and
important
outward activities
adopted
by
firms
from
emerging
markets
as
they begin to internationalize (Child & Rodrigues, 2005; Fila-
totchev et al., 2001; Zhou, Wu, & Luo, 2007). A majority of these
firms
are
still
in
the
early
stages
of
the
internationalization
process,
with exporting
being
their
dominant
mode
of
foreign
market
participation (Aulakh, Kotable, & Teegen, 2000). FDI is another
important form of outward activity. FDI outflow from emerging
markets has increased from 3% of the worlds total FDI outflow
(19781980 average) to over 17% ($133 billion) in 2005, and is
projected to grow even further (Yamakawa et al., 2008). Previous
studies also suggest that FDI is the most effective way for firms
fromemerging markets to access and source strategic assets (Deng,
2009; Luo & Tung, 2007). Therefore, in this study, we view seeking
and selling in foreign markets and FDI as the most important
outward activities in the internationalization of firms from
emerging markets.
The big progress toward internationalization by firms from
emergingmarkets began after the reform of the economic system
(Child & Tse, 2001; Mathews, 2006). Firms in the old economy
followed centralized, state planning approaches which were not
appropriate for success in a global economy characterized by a
market-oriented system and intense competition (Boisot & Meyer,
2008; Yamakawa et al., 2008). As these economies reformed and
became transitional, firms had to develop more sophisticated
strategies and identify new approaches to make space for
themselves in markets that were already crowded with very
capable firms (Bonaglia, Goldstein, & Mathews, 2007; Wright,
Filatotchev, Hoskisson, & Peng, 2005). Luo and Tung (2007) show
that firms from emerging markets tend to use a series of aggressiveand risk-taking measures to compensate for their competitive
weaknesses in order to overcome their latecomer disadvantage on
the global stage. Firms based in emerging markets therefore need
to choose an effective strategic orientation for internationalization
to overcome their relatively limited resources and to improve their
performance (Mathews, 2006).
2.2. Strategic orientations of firms from emerging markets
The strategic orientation of firms is the deeply rooted set of
values that guide their strategy-making (Gatignon & Xuereb,
1997). It creates proper behaviors to interact with the marketplace
(Noble,
Sinha,
&
Kumar,
2002), and
provides
a
critical
mindset
for
firms to survive and prosper in the competitive global market(Knight & Cavusgil, 2004). Existing literature has shown that MO
and EO are important strategic orientations (Noble et al., 2002;
Zhou,
Yim,
&
Tse,
2005), because
they
provide
firms
with
capabilities
to
achieve
competitive
advantages
(Bhuian,
Menguc,
& Bell, 2005; Day, 1994), and success in internationalization
(Knight & Cavusgil, 2004; Weerawardena, Mort, Liesch, & Knight,
2007; Zhou,
2007).
From
a
resource-based
view,
distinctive
resources
or
capabilities
are
firm
specific,
difficult
to
imitate,
andthey generate a competitive edge in the market, particularly in
highly competitive or challenging environments, e.g. the global
market
(Barney,
1991;
Grant,
1996;
Teece,
Pisano,
&
Shuen,
1997).
These resources
or
capabilities
can
be
used
to
drive
subsequent
strategies and fund continued development of new capabilities
needed
for
international expansion
(Luo,
2000).
These
capabilitiescan
help
firms
identify
opportunities
and
respond
quickly
to
them
in
foreign
markets.
For
firms
based
in
emerging
markets,
resources
and capabilities are critical to the success of internationalization.
MO and EO build the firms learning capabilities (Slater & Narver,
1995)
and
accumulate
knowledge
resources
about
international
markets and
operations
(Autio,
Sapienza,
&
Almeida,
2000).
Since
most firms from emerging markets are young and tend to lack
substantial financial, human and physical resources, these
intangible
resources
are
especially
critical
in
the
entering
new
foreign markets.
Furthermore,
because
these
firms
may
deal
with
diverse environments across numerous foreign markets, they can,
by themselves, replicate market-based knowledge and innovation
capabilities
which
derive
from
MO
and
EO
across
varied
markets
(Luo,
2000).
Making
use
of
these
capabilities
offsets
the
weakness
Y. Liu et al./Journal of World Business 46 (2011) 381393382
8/10/2019 MO and Enterpreneurship Orientation
3/13
due to poor tangible resources and supports international
expansion. MO and EO are particularly relevant for internationali-
zation of firms from emerging markets (Lau & Busenitz, 2001;
Subramanian & Gopalakrishna, 2001; Yamakawa et al., 2008).
Emergingmarkets have liberalized their economies by embark-
ing upon an economic reform program to move from a command
toward a more free-market economy. Such transformations tend to
break up oligopolistic control and create a shift to a buyers market,
which in turn fosters a competitive business environment
(Filatotchev et al., 2001). As a result, management attitudes
towardscustomers and markets have changed. Firms now not only
have to put strong emphasis on customer satisfaction through
enhancing quality in production and improving the responsiveness
of services offered and promoting, but also must increasingly rely
on market research to recognize changes in economic systems and
in the market environment (Golden et al., 1995).It is important for
firms from emerging markets to adopt a market orientation in
order to survive the competition and gain competitive advantages
during the transition to a market economy (Zhou, Yim et al., 2005).
Moreover,since governments have started to loosen restrictions on
the private sector, more new entrants have come into the market
as entrepreneurial startups (Peng, 2003). Because EO promotes the
renewal of existing practices and the pursuit of new opportunities
(Lumpkin & Dess, 1996), it is quite appealing to emerging-marketfirms that aim to rejuvenate themselves and distinguish them-
selves in a highly turbulent market. Therefore, firms from
emerging markets can emphasize either MO or EO or both in
order to adapt to the development of a market economy.
EO, which reflects a firms propensity to pursue new market
opportunities, is associated with innovativeness, managerial
vision, and proactive competitive posture (Covin & Slevin, 1989;
Lumpkin & Dess, 1996). Paying more attention to the intersection
of international business and EO, some scholars point out that
international EO implies that firms make the leap into interna-
tional markets by a posture of aggressiveness, innovativeness and
boldness because of unique entrepreneurial competencies and
outlook
(e.g.,
Autio
et
al.,
2000;
McDougall
&
Oviatt,
2000).
In
this
study, we use Millers (1983) conceptualization of EO and view EOas a multidimensional construct, consisting of dimensions of
innovativeness, proactiveness and risk-taking (Covin & Slevin,
1989;
Miller
&
Friesen,
1982;
Zahra,
1991).
A substantial
amount
of
research
has
emphasized
the
inherent
value in EO and the linkage between this strategic orientation and
desired organizational outcomes (Barringer & Bluedorn, 1999;
Jennings
&
Young,
1990;
Matsuno,
Mentzer,
&
Ozsome,
2002;
Miller
&
Friesen,
1982). Specifically,
EO
can
allow
a
firm
to
see
and
exploit opportunities in foreign markets, can enable it to
successfully enter the global market (Weerawardena et al.,
2007), and
can
provide
international
firms
with
dynamic
capabilities to
engage
in
cross-border
activities
and
trade
(Jones
&Coviello, 2005; McDougall & Oviatt, 2000; Zahra & George, 2002).
For instance,
Nummela,
Saarenketo,
and
Puumalainen
(2004)suggest
a
positive
relationship
between
a
managerial
global
mindset
(i.e.,
proactive
and
visionary
behavior)
and
the
degree
of
internationalization. Zhou (2007) finds that international en-
trepreneurial proclivity drives the pace of early internationaliza-
tion
in
internationalizing
firms
from
China.
In
emerging
markets,
EO
is
a
particularly
critical
force
for
pushing firms to enter foreign markets (Yamakawa et al., 2008;
Zhou, 2007). Fierce competitiveness in domestic markets forces
firms
to
identify
and
pursue
opportunities
in
international
markets
(Luo
&
Tung,
2007). When
expanding
internationally,
firms
from
emerging markets need to develop a posture that is innovative,
visionary, and proactive to pursue these new opportunities and
respond
quickly
to
them,
in
the
face
of
relatively
limited
resources
(Bonaglia
et
al.,
2007;
Yamakawa
et
al.,
2008). This
strategic
posture should make it easier for these firms to circumvent
environmental uncertainties, and therefore it constitutes a
potential source of competitive advantage in a foreign market.
Accordingly, EO should be instrumental in motivating firms from
emerging markets to enter onto the global stage, in spite of the
uncertainty and risk.
Unlike EO, MO places great emphasis on customer pull and
places the highest priority on the profitable creation and
maintenance of superior customer value (Kohli & Jaworski,
1990; Slater & Narver, 1995). Firms with a high degree of MO
focus on customers, competitors and internal coordination, based
on market demands (Narver & Slater, 1990). In this study, we view
MO as a strategic mindset that determines the priority placed on
seeking and using market information to create and deliver
superior customer value (Noble et al., 2002; Zhou, Yim et al., 2005).
Both academic scholars and business practitioners have pointed
out the importance of MO and activities related to it, in
organizational performance. They argue that a firm with a high
degree of MO aims to continuously provide superior buyer value
and attain superior performance (Baker & Sinkula, 1999; Kohli &
Jaworski, 1990; Narver & Slater, 1990). MO drives the firm to
expand and develop new markets, such as the international
marketplace. Knight and Cavusgil (2004) argue that MO provides
the foundation from which the firm interacts with diverse foreignmarkets. Firms with this strategic posture create specific market-
oriented activities aimed at overcoming challenges and maximiz-
ing performance.
In international markets, firms from emerging economies suffer
from some weaknesses, relative to global and local competitors,
because of their unfamiliarity with the foreign market (Child &
Rodrigues, 2005; Luo & Tung, 2007). These firms need to nurture
MO because it gives better results by taking into consideration
customer attitudes and benefits, analyzing information about
competitors, and providing the required products and services at
the right time and place. MO can make the firms focus on
knowledge derived from analyses of customers and competitors
and thereby
respond
more
appropriately
to
foreign
markets
(Narver & Slater, 1990). Market-oriented firms can recognizeevents and trends in a market ahead of their competitors,
assimilate it, and apply it to direct decision-making and operations
in
the
foreign
market
(Day,
1994). Thus,
MO
will
favorably
impact
decisions
made
by
emerging-market
firms
during
international
expansion.
2.3.
Ownership
structure
in
emerging
markets
In this study, we focus on two major types of ownership
structureownership concentration and CEO ownershipbecause
they are
salient
features
of
corporate
governance
in
firms
based
in
emerging markets
(Li,
Guo,
Liu,
&
Li,
2008;
Peng,
Wang,
&
Jiang,
2008; Young et al., 2008). Ownership concentration represents the
distribution of
the
size
of
stockholdings
(Hill
&
Snell,
1989).
Thelarger
the
proportion
is,
the
more
concentrated
the
ownership
is
(Coles,
McWilliams,
&
Sen,
2001;
Tuschke
&
Sanders,
2003).
Although firms from emerging markets struggle to transform
themselves into profitable modern corporations, a weak gover-
nance
environment
in
which
ineffective
formal
institutions
and
their
enforcement
have
led
to
concentrated
firm
ownership
is
more
common in emerging markets (Dharwadkar, George, & Brandes,
2000). Young et al. (2008) posit two reasons why dominant
ownership
is
more
prevalent
in
emerging
markets.
First,
because
institutions are
often
lacking
or
ineffective,
it
is
difficult
for
firms
fromemerging markets to trust professional managers and outside
investors and to share sensitive information with them, thus
making
crossing
the
threshold
from
dominant
to
dispersed
ownership
more
difficult.
Second,
as
boards
of
directors
lack
Y. Liu et al./Journal of World Business 46 (2011) 381393 383
8/10/2019 MO and Enterpreneurship Orientation
4/13
8/10/2019 MO and Enterpreneurship Orientation
5/13
According to agency theory, CEO ownership is an incentive
mechanism which closely aligns executives interests with those of
other shareholders (Jensen & Meckling, 1976). A rational increase
of CEO ownership can promote managerial support for entrepre-
neurial orientation and lead the CEO to pursue entrepreneurial
projects (Jones & Butler, 1992). Since the wealth of executives and
that of their shareholders are closely aligned through CEO
ownership, the shareholders are willing to support innovative
and risky projects chosen by the CEO, thus helping to increase the
EO (Zahra et al., 2000). This result is especially apparent in
emerging markets which often have inefficient external gover-
nance mechanisms and therefore are not challenged by product
market competition, a managerial labor market, and the threat of
takeover. In this kind of situation, internal mechanisms such as
CEO ownership are relied on more heavily to substitute for or
complement external governance (Young et al., 2008). When CEO
ownershipnotably increases, the incentive effect on the innovation
and proactiveness of CEOs should be more significant (Jenkins &
Seiler, 1990), thereby strengthening the EO of emerging-market
firms. Therefore, we propose:
Hypothesis 2. In firms from emerging markets, an increase in CEO
ownership is positively related to EO.
3.2. Ownership structure and market orientation
The effect of ownership concentration on MO, as compared with
that on EO, is more complex. When ownership concentration is
very low, dispersed owners often lack the necessary internal
information and motivation to monitor managements actions and
decisions effectively (Hill & Snell, 1989). This is especially true in
emerging markets, because the market system is incomplete and
market monitoring of firms is weak. Shareholders cannot imple-
ment effective internal monitoring of the CEO and the CEO may
focus on short-term profit and not attend to the long-term benefit
of the firm (Xu & Wang, 1999; Young et al., 2008). Such
considerations can lead to CEO opportunism and can lead CEOs
to refrain from taking part in market competition and fromdevoting time and resources to meeting the needs of customers. As
ownership concentration increases, however, larger shareholders
have a stronger incentive to deal with information about the
market and the firms production, and to monitor the behavior of
top managers (Coles et al., 2001; Lee & ONell, 2003). The market
environment in emerging economies is highly uncertain and
therefore can cause a firms strategy to change rapidly (Li & Peng,
2008). Under such conditions, because power in control and
decision-making can be more efficiently balanced among a few
larger shareholders, top managers have to pay more attention to
changes in market competition and customers demands. They
need to continuously work to obtain benefits from the market
through greater efficiency in meeting the needs of customers. As a
result, the
MO
of
an
emerging-market
firm
will
be
strengthened.Further, when ownership concentration is at a moderate level,
some larger shareholders obtain more power in the firms board of
directors (BOD). If CEOs deviate from the firms interest and do not
manifest a long-term commitment to developing their markets,
the majority shareholders can re-direct them to place more
emphasis on market orientation. In this way, ownership concen-
tration will further strengthen the market orientation of the firm
(Jaworski & Kohli, 1993). Moreover, moderately concentrated
ownership implies that there is no shareholder who can absolutely
exercise control over the firm. If majority shareholders try to
compel management to adopt strategies which can maximize their
benefits
at
the
expense
of
the
firms
long-term
profits,
they
will
be
monitored by minority shareholders, who will instead encourage
behaviors
that
create
superior
customer
value
(Narver
&
Slater,
1990).In emerging markets, the demands of customers change fast
and therefore require that the CEO have more flexibility (Li, Liu
et al., 2006). Thus, moderately concentrated ownership can ensure
an increase of MO in emerging markets.
On the other hand when ownership is too highly concentrated
in a specific group, the largest shareholder may have excessive
control power over the BOD. Especially in emerging markets, the
BOD is controlled by major shareholders, such as family and state
(Cuervo-Cazurra, 2006; Young et al., 2008). These shareholders are
risk-averse, and prefer to choose low-risk projects which are less
responsive to the needs of potential customers and which slow the
speedof attending to customers. These behaviors to reduce the risk
of incurring the higher costs involved in responding promptly to
customer demands (Qu & Ennew, 2005). The CEO is motivated to
make decisions mainly based on the wishes of the largest
shareholder rather than on information about changes in market
competition and the demands of customers (Grosfeld & Tressel,
2002). As a result, the CEO does not pay enough attention to market
information and does not actively respond to customer demands,
and the MO of the firm becomes weak (Webster, 1988). Therefore,
we suggest:
Hypothesis
3.
In
firms
from
emerging
markets,
the
relationship
between
ownership
concentration
and
MO
is
an
inverse
U-shape.Existing literature reveals conflicting perspectives on the
relationship between CEO ownership and MO in developed
economies. For example, Donaldson and Lorsch (1983) assert that
executives are interested primarily in the financial health and
survival of their firms and therefore, when making decisions, do
not give much consideration to the impact on their personal
finances. Sanders (2001) disputes this argument and notes that
once executives have ownership, they will avoid investments that
donot
increase
the
wealth
of
shareholders.
In
this
study,
we
argue
that whether CEO ownership is or is not beneficial to the
improvement of MO in emerging markets mainly depends on
the level of CEO ownership.
When CEO
ownership
increases
from
a
low
to
a
moderate
level,
executives will engage in improving shareholders wealth becausedoingso will also improve their own wealth, and on the other hand,
MO which emphasizes customer value and helps to capture and
retain
customers
can
also
create
this
kind
of
wealth
for
other
owners
of
the
firm
(McNaughton,
Robert,
Morgan,
&
Kutwaroo,
2001). Hence, the CEOs have a motive to encourage individuals in
thefirms to track changing markets, share market intelligence with
others, and
be
responsive
to
market
needs,
thereby
strengthening
MO.
When ownership by executives exceeds a moderate level, the
firms market orientation may decrease. In such a case,
executives,
when making a
decision,
consider
not what they
might gain
but what they might lose, such as
the
value
of
their
stock (Sanders, 2001). Following this logic, when executives
hold
a
large amount
of
stock,
they may
pay
more
attention
to theprice
of
the
stock and cut
various
costs that could reduce
the
firms
short-term benefits.
Since
collecting and disseminating
market intelligence often require the commitment of consider-
able human and physical resources, and since the introduction
of new products, services
and programs
often runs a
high risk
of
failure (Jaworski &
Kohli, 1993), large stock ownership
is
likely
to cause executives to pursue stock valuewhich can add to their
wealth in the short term at the expense of the firms long-term
health.
Particularly, because
the threat
of
takeovers
is
virtually
absent
in
emerging markets
(Young
et
al.,
2008), CEOs are not
concerned about termination of employment even when doing
things which may damage long-term development. Thus CEOs
would
not adopt a
market-orientated
mindset. We
therefore
suggest:
Y. Liu et al./Journal of World Business 46 (2011) 381393 385
8/10/2019 MO and Enterpreneurship Orientation
6/13
Hypothesis
4.
In
firms
from
emerging
markets,
the
relationship
between CEO ownership and MO is an inverse U-shape.
3.3. Strategic orientation and internationalization of firms from
emerging markets
In accord
with
previous
sections
which
suggest
that
interna-
tionalization is certainly an act of entrepreneurship (Jones &
Coviello, 2005; Zahra & George, 2002),we argue that, in emergingmarkets,
entrepreneurially
oriented
firms
are
innovative,
risk
taking,
and
proactive
(Bhuian
et
al.,
2005). These
firms
should
have
a higher propensity to expand their cross-border activities.
While many firms from emerging markets cannot afford to
compete
on
tangible
resources
(e.g.
funds
and
equipment),
they
excel in
intangible
resourcefulness
(Yamakawa
et
al.,
2008), such
as new ideas, novelty, and creative processes. They generally
possess dynamic capabilities to integrate and synthesize internal
resources
and
external
learning
and
to
apply
both
to
the
competitive
environment
(Zhou,
2007). Such
ability
is
vital
to
a
firms survival and growth in a foreign market (Kogut & Zander,
1992). For example, some firms from emerging markets, like Mabe
(Mexico),
Arcelik
(Turkey)
and
Haier
(China),
have
invested
heavily
in R&D
and
innovation
in
order
to
generate
their
own
distinc-tiveness, as witnessed by numerous national and international
awards and registered patents (Bonaglia et al., 2007).
Decisions
with
regard
to
international
expansion
imply
a
high
level of
uncertainty
as
firms
enter
physically
or
culturally
distant
markets or become more dependent on revenues generated in
marketsdifferent from the more familiar domestic market (Calof &
Viviers, 1995).While
most
firms
from
emerging
markets
probably
will
stay
in
their
home
market,
a
relatively
small
number
of
entrepreneurially oriented firms which are willing to undertake
risky
decisions
(Lumpkin
&
Dess,
1996;
Miller,
1983). Entrepre-
neurially
orientated
firms
may
more
readily
accept
the
uncertainty
embedded in further increasing cross-border activity. One promi-
nent example of a firms internationalization offers a clue: Chinas
Lenovo
undertook
a
series
of
aggressive,
risk-taking
measures,such as
acquiring
IBMs
PC
division,
to
compensate
for
its
competitive disadvantages and to facilitate internationalization
(Biediger et al., 2005; Luo & Tung, 2007). Therefore we propose:
Hypothesis
5. In firms from emerging markets, EO is positively
related to the level of internationalization.
The generally positive performance influence of an MO is well
supported (Jaworski&Kohli, 1993; Matsuno etal.,2002)particularly
in international firms (Knight & Cavusgil, 2004; Luo, Zhou, & Liu,
2005).However, other researchershave contended that, formarket-
oriented firms, the tyranny of the served market can result in
overlooking potential markets (Slater & Narver, 1995) and may
increasingly prioritize the gathering and distribution of deficient
information
over
time (Baker
&
Sinkula,
1999).
Some
studiesconcerning the link between MO and performance in emerging
markets also report inconsistentfindings (e.g.Appiah-Adu, 1998; Li,
Sun, & Liu, 2006). Judging from these conflicting conclusions, we
surmise that the relationshipbetween MO and the internationaliza-
tion of firms from emerging markets is more complex.
As a firms MO increases from a low to a moderate level, its
degree of internationalization is likely to increase accordingly. In
an emerging market where the market is open and the business
environment is competitive, a market-oriented firm is likely to
take on a learning attitude. This attitude will lead it to an
increased understanding about how to operate in a free,
competitive marketplace and how to update its knowledge base
with regard to customers and competitors in the current market
(Appiah-Adu, 1998). Such an attitude involves a continuous search
for ways of adapting to new situations, and it encourages firms to
apply this knowledge to new conditions (e.g., foreign markets)
where similar problems probably exist.
When market orientation goes beyond a moderate level,
however, international involvement may decrease. Christensen
and Bower (1996) note that firms with a high level of MO tend to
listen toocarefully totheir currentcustomers andarethereforemore
sensitive to risks. Becauseofhigh transaction costs,firms areusually
cautious about committingfirm-specific resourceswhen perceiving
a highly uncertain environment (Williamson, 1985). This cautious-
ness is even more apparent for firms from emerging markets. It is
well known that firms need to have long-haul investments in the
process of international expansion, since it is costly to withdraw
invested resources (Luo, 2000).However, most firms from emerging
markets lack key resources and international experience (Child &
Rodrigues, 2005; Yamakawa et al., 2008). As a result, firms with a
high MO are more likely to operate in stable and predictable
environments. They tend to allocate more resources to the current
market to ensure safe adaptability, rather than to increase
investments in foreign markets where potential risks exist. Such
resource deployment does not help a firm take advantage of
emerging opportunities in an international market, and thus
impedes the firms internationalization. Therefore we propose:
Hypothesis 6. In firms from emerging markets, the relationship
between MO and internationalization is an inverse U-shape.
4. Methodology
4.1.
Sample
and
data
collection
To test these hypotheses, survey data were collected by means
of
a
questionnaire
administered
to
executives
from
a
sample
of
representative firms in the Shaanxi, Sichuan, Liaoning, Shanghai,
Guangdong, Shandong, Henan and Shanxi provinces of China.
These provinces (and the city) were selected because the firms in
these regions
reflect
economic
development
and
internationaliza-
tion practices in China. Additionally, these provinces and this cityshare cultural commonalities based on their history and geo-
graphic regions.
First, we
developed
a
set
of
questionnaires
following
the
research
literature.
Second,
after
consulting
extensively
with
several executives, we modified the instrument to accurately
reflect conditions that firms face in China. Using preliminary draft
questionnaires,
a
pilot
test
was
conducted
with
15
firms
from
the
Shaanxi,
Henan,
and
Shandong
provinces;
these
responses
were
excluded from the final study. The questionnaire was revised using
feedback from the pilot study and also in accordance with a sample
frame
provided
by
the
Economy
Commerce
Committee
(ECC,
a
special administrative
unit
of
the
government
for
managing
firms)
of the eight provinces, which was created by randomly selecting
various
types
of
enterprises.
The
sample
was
cross-sectional.
Theinstrument
was
administered
through
a
structured
interview.
In
addition
to
reading
the
background
references,
the
interviewers
had been briefed on the objectives of this study and trained in
interviewing techniques. These interviewers thoroughly explained
how
to
complete
the
questionnaire
and
assured
the
respondents
that
their
responses
would
be
confidential,
thus
minimizing
the
possibility of misinterpretation of the questions and concerns
about completing the survey.
A
total
of
850
enterprises
were
approached.
Unfortunately,
some firms
were
not
able
to
participate
for
reasons
that
included
company policy of non-participation in surveys or company
liquidation. Also, some firms data were discarded because of
inadequate
completion
of
the
survey
instrument.
A
total
of
607
enterprises
had
all
the
necessary
data.
The
effective
participation
Y. Liu et al./Journal of World Business 46 (2011) 381393386
8/10/2019 MO and Enterpreneurship Orientation
7/13
rate thus was 71.4 percent (607 out of 850), which is excellent for
survey research of this type.
A common concern with survey methodology is non-response
bias. To check for non-response bias, we obtained information
about ownership type and sales of 171 non-responding firms, and
compared the responding and non-responding firms along these
major firm attributes using t-tests. All t-statistics were statistically
insignificant. Finally, we compared the responding firms with the
non-responding firms and found no significant differences in terms
of firm size. Along with the high response rate, these results
suggest that there is no non-response bias in this study.
4.2. Measurement
4.2.1.
Ownership
structure
Basing our work on prior research by Pedersen and Thomsen
(1999), together with consideration of Chinese firm ownership
reform (Li, Sun et al., 2006),we measured ownership concentration
asthe ownership share of the largest owner (%). Another variable of
ownership structure is CEO ownership. Using the criterion
developed by Tuschke and Sanders (2003), we measured CEO
ownership by the proportion of the firms shares owned by the
CEO. Because ownership structure, especially CEO ownership, is a
sensitive question in Chinese firms and most executives are notwilling to provide objective data directly, ownership concentration
and CEO ownership were scaled from 1 (015%) to 7 (91100%) for
the purpose of reducing the sensitivity of the questions and making
them easier to answer.
4.2.2. Entrepreneurial
orientation
Our entrepreneurial-orientation scale was modified from the
onesdeveloped by Khandwalla (1977) and Covin and Slevin (1989)
and adapted to the context at hand, with the addition of one item
used by Li, Liu et al. (2006). The final measure included six items, all
assessed on a seven-point Likert scale with the anchors 1 = totally
disagree, 7 = totally agree: (1) a strong emphasis on R&D,
technological
leadership
and
innovation;
(2)
a
strong
tendency
to seek high-risk high return innovation projects; (3) a strongtendency to adopt an active posture when facing uncertainty; (4) a
strong tendency to initiate action that competitors respond to; (5)
a strong
tendency
to
be
a
leader,
always
being
the
first
to
introduce
newproducts,
services
or
technology;
and
(6)
a
strong
tendency
to
adopt a competitive undo-the-competitors posture.
4.2.3.
Market
orientation
This scale
was
measured
on
fifteen
items
adapted
from
Kumar,
Subramaniam, and Yauger (1998) and assessed on a seven-point
scale, including customer orientation, competitor orientation, and
inter-functional
coordination.
The
items
of
customer
orientation
are the
following:
(1)
we
put
strong
emphasis
on
customer
satisfaction, (2) we put strong emphasis on understanding
customer needs,
(3)
we
make
use
of
frequent
and
systematicmeasures
of
customer
satisfaction,
(4)
we
pay
close
attention
to
after-sales
service,
(5)
we
frequently
increase
customer
value
or
reduce costs, and (6) we emphasize high quality of products. The
items of competitor orientation are as follows: (1) we respond
rapidly to
competitors
actions,
(2)
we
share
competitors
strategic
information
within
the
company,
(3)
top
managers
discuss
competitors strength and strategies frequently, and (4) we have
a competitive advantage in targeting customers. Inter-functional
coordination
consists
of
these
items:
(1)
we
share
customer
information among
functional
departments
efficiently,
(2)
we
respond to customer calls inter-functionally, (3) all functional
departments contribute to customer value, (4) all employees know
market information
well,
and
(5)
employees
in
the
marketing
department take
part
in
new
product
development.
4.2.4. Internationalization
Following Zahra et al. (2000) and Zhou et al. (2007), three items
were developed to measure internationalization specifically for
firms from emerging markets, evaluating the extent of the firms
actual outward activities along a seven-point scale (1 = very small
extent, 7 = very large extent): (1) aggressively seek foreign
markets; (2) sell products or services in foreign market; and (3)
enter into overseas locations funded by outward FDI. In this study,
the scale of internationalization indicates the intensity of outward
activities that a firm has undertaken.
4.2.5. Control variables
In all tests, we controlled for several variables that could
possibly affect strategic orientation and internationalization as
well. This group of variables includes the firms characteristics,
domestic market strategy, industrial factors, government interfer-
ence and policy influence. Firm size, measured by the number of
full-timeemployees, was controlled because of its potential impact
on entrepreneurial orientation (Luo, Zhou et al., 2005; Zahra et al.,
2000), market orientation (Liu & Eddie, 1995) and internationali-
zation (Zhou, 2007). Firm age, measured by the number of years in
business, is important in an emerging market, because older firms
are more risk-averse and inertial with respect to EO, MO, and
international activities (Yiu, Lau, & Bruton, 2007; Zhou, Gao, Yang,& Zhou, 2005). Domestic market strategy was measured with the
question How much effort does your firm make to enter into a new
domestic market? (1 = very little; 7 = very much). This variable
can impact EO and MO because it shows that the managers have a
favorable attitude toward change and innovation and therefore are
more likely to adopt EO and MO (Powpaka, 1998; Zahra, 1991).
Domestic market strategy also affects internationalization because
putting more resources into building a domestic power base and
competence, for the purpose of constraining activities in new
foreign settings, is not conducive to international growth (Autio
et al., 2000).3 Competitive intensity and industrial regulation have
beenconsidered as key determinants of market orientation (Li, Sun
et
al.,
2006;
Powpaka,
1998)
and
entrepreneurial
orientation
(Lee
&
Peterson, 2000; Luthans, Stajkovic, & Ibrayeva, 2000) in emergingmarkets, and propel firms to seek fortunes abroad (Luo & Tung,
2007; Yamakawa et al., 2008). Competition intensity was
measured
with
the
question
How
competitive
is
the
domestic
market
of
your
main
product/industry?
(1
=
not
competitive
at
all;
7 = very competitive), while industrial regulation was measured
with the question How great is the extent to which industrial
regulation
constrains
your
firms
development?
(1
=
does
not
constrain at
all;
7
=
constrains
to
a
large
extent).
Government
interference and policy influence are controlled because these two
institutional factors, which are typical characteristics of emerging
markets (Li,
Liu
et
al.,
2006;
Peng,
2000),
may
either
support
or
inhibit
a
firms
strategic
orientation
and
internationalization.
Government intervention, measured with the question How great
is the
extent
to
which
your
firm
independently
makes
decisions(1 =
completely
independent;
7
=
completely
controlled
by
gov-
ernment), can
weaken
entrepreneurial
actions
through
promoting
a conservative attitude (Child & Rodrigues, 2005), can reduce
initiative in developing market orientation due to excessive
protection
(Li,
Sun
et
al.,
2006), and
also
can
give
encouragement
3 In their study of early internationalization in the Finnish electronics industry,
Autio et al. (2000) argue that the more time managers put into developing domestic
competencies which focus on learning about domestic issues and building a
domestic power base, the more resistant they will be to shifting the major attention
of their firms to full-fledged efforts in foreign markets. Thus we consider strategic
choice of entry into new domestic market as a control variable influencing
internationalization, because this variable makes it difficult for firms to move away
from focusing exclusively on the domestic market in terms of resource constraints
and
organizational
inertia.
Y. Liu et al./Journal of World Business 46 (2011) 381393 387
8/10/2019 MO and Enterpreneurship Orientation
8/13
and support for overseas expansion through government-spon-
sored programs (Child & Rodrigues, 2005; Luo & Tung, 2007). Policy
influence
was
measured
with
the
question
How
do
policy
changes
affect your firms creative activities? (1 = completely adverseeffect; 7 = completely favorable effect). National policies in favor of
firms innovation will encourage market-oriented activities and
entrepreneurial
potential
(Lee
&
Peterson,
2000;
Qu
&
Ennew,
2005) and
are
very
likely
to
be
an
influential
force
in
MNE
decision-
making as to internationalization (Dikova & Witteloostuijn, 2007).
4.3. Reliability
and
validity
assessment
Table 1 reports estimates of construct reliability, factor
loadings, and average variance extracted. As detailed in the
following
sections,
the
five
latent
constructs,
involving
26
items,
were
found
to
be
reliable
and
valid
in
the
context
of
this
study.
We first diagnosed item-to-total correlations for each con-
struct.
None
were
below
0.4,
and
therefore
all
items
continued
toremain
in
the
study.
Although
the
construct
measures
used
in
this
study
are
based
primarily
on
previously
validated
measurement
items and are strongly grounded in the literature, they were
modified partly to fit the Chinese context. Inter-item consistency
was
assessed
by
Cronbach
alphas.
Typically,
reliability
coefficients
of
a =
0.70
or
higher
are
considered
adequate.
Nunnally
(1978)
further states that permissible alpha values can be slightly lower
(>a = 0.60) for newer scales. Therefore, an alpha value over a = 0.6
can
be
accepted
to
assess
reliability
in
our
study.
As
can
be
seen
from
Table
1,
Cronbach
alphas
values
of
all
factors
were
above
a = 0.65, which suggests that the theoretical constructs exhibit
good internal consistency.
To further
test
the
reliability
of
the
measures,
we
obtained
data
frompaired
informants
representing
270
of
the
607
sample
firms.
We categorized these informants into two groups: CEO/general
manager and senior managers (such as marketing or business
development
managers).
We found substantial congruence between answers to the samequestions by the two separate respondents for the same firms
(Pearson correlation coefficients were all statistically significant
and
ranged
from
0.36
to
0.79).
We
then
conducted
a
series
of
t-tests
to determine
if
there
were
any
differences
among
the
responses
of
the two groups on each of our constructs and found no statistically
significant differences. These data provide evidence that the
interviewees
responses
are
reliable.
We
subsequently
examined
the
convergent
validity
of
the
constructs with a CFA, using LISREL (Joreskog & Sorbom, 1993). The
fit indexes indicate that the model fits the data well (x2 = 192.85;
x2/df
=
2.26;
GFI
=
0.95;
AGFI
=
0.92;
NFI
=
0.96;
NNFI
=
0.97;
CFI
=
0.97;
RMSEA
=
0.07).
All
items
loaded
on
their
respective
constructs, and each loading was beyond 0.7 except for two items.
Considering
new
items
or
items
used
in
a
new
context,
this
valuecan be
reduced
to
0.4,
a
common
threshold
for
acceptance
(Atuahene-Gima
&
Li,
2004).
We
analyzed
the
explained
total
variance of the constructs, and average variance extracted
exceeded 42%. These results imply both the statistical significance
of relationships
between
the
items
and
constructs
and
the
reliability of
individual
items.
Furthermore, in order to test difference between a subjective
scale of internationalization and the objective indicator of a firms
internationalization
using
multiple
secondary
data
sources,
we
succeeded in
obtaining
objective
indicators,
namely
international
sales as a percentage of total sales (Sullivan, 1994; Walters &
Samiee, 1990). We were able to obtain data concerning 155
overlapping
firms,
and
the
measurement
of
internationalization
was
significantly
correlated
with
this
indicator
(r
=
0.245,
Table 1
Measurement validity assessment.
Constructs Items Factor loadings
Ownership concentration The ownership share of the largest owner
CEO ownership The proportion of firms shares owned by CEO
Entrepreneurial orientation (a= .86; AVE=0.52) 1. A strong emphasis on R&D, technological leadership and innovation .79
2. A strong tendency for high-risk high-return innovation projects .61
3. A strong tendency to adopt to an active posture when facing uncertainty .72
4. A strong tendency to initiate actions that competitors respond to .79
5. A
strong
tendency
to
be
a
leader,
always
introducing
new
products,
service
or
technology
first
.846. A strong tendency to adopt a competitive undo-the-competitors posture .84
Market orientation (a= .86; AVE=0.77; x2=244.15;GFI =0.95; AGFI=0.93; NFI=0.95; NNFI =0.96; CFI=0.97; RMSEA=0.06)
Customer orientation (a= .87; AVE=0.49) .87
1. Customer satisfaction objectives .84
2. Emphasis on understanding customer needs .85
3. Measure customer satisfaction .85
4. Give close attention to after-sale service .81
5. Frequently increase customer value or reduce costs .57
6. High quality of products .73
Competitor orientation (a= .87; AVE=0.55) .89
7. Respond rapidly to competitors actions .83
8. Share competitors strategic information in company .82
9. Top managers discuss competitors strength and strategies .85
10. Have competitive advantage in targeting customer .80
Interfunctional
coordination
(a=
.89
AVE
=
0.58)
.8911. Efficient sharing of customer information among functions .89
12. Inter-functional customer calls .83
13. All functions contribute to customer value .87
14. All employee knowing market information .76
15. Marketing employee taking part in new product development .76
Internationalization of firm (a= .68; AVE =0.45) 1. Aggressively seek foreign markets .70
2. Sell product/services in foreign market .84
3. Enter into overseas locations funded by outward FDI .75
Goodness-of-Fit Statistics (x2=192.85; x2/df =2.26; GFI=0.95; AGFI =0.92; NFI=0.96; NNFI =0.97; CFI=0.97; RMSEA =0.07)
Y. Liu et al./Journal of World Business 46 (2011) 381393388
8/10/2019 MO and Enterpreneurship Orientation
9/13
p
8/10/2019 MO and Enterpreneurship Orientation
10/13
0.18 to 0.25, and the change in the R2 between Model 3 and Model
4,were also statistically significant. Thus ownership concentration,
CEO ownership and their squared terms are significant predictors
of market orientation, providing support for H2 and H4.
Finally, we tested the effect of entrepreneurial orientation and
market orientation on the internationalization of a firm, after
introducing control variables in Model 5. Consistent with H5 and
H6, the results of Model 6 show that entrepreneurial orientation is
positively related to internationalization, and that the squared
term of market orientation is negatively related to internationali-
zation. The R2 increase from 0.18 to 0.22, and the change in the R2
between Model 5 and Model 6, were also statistically significant,
providing support for H5 and H6.
6. Discussion
This study focuses on the relationships between ownership
structure, strategic orientations and internationalization of firms
from emerging markets. Our results show that in emerging
markets, a difference in ownership structure can lead firms to
choose different strategic orientations, and further that different
strategic orientations affect the internationalization success. This
study extends the current literature in the following ways. First,
this study brings into sharper focus the differing impacts ofownership concentration and CEO ownership on both EO and MO,
the key antecedents affecting the internationalization of firms
fromemerging markets. If indeed EO and MO represent important
parts of a firms strategic orientation, the theoretical delineation
and empirical testing offer useful insights into factors contributing
to both EO and MO formation during internationalization in the
context of emerging markets. Second, by examining the different
effects of EO and MO on the internationalization of firms from
emerging markets,
this
study
provides
additional
richness
to
the
extant research. The positive effect of EO on the internationaliza-
tion of firms corroborates the entrepreneurial nature of younger
international firms in the context of emerging markets and thus
extends
the
international
entrepreneurship
literature.
The
inverse
U-shaped effect of MO on a firms internationalization challengesextant research and more effectively explains the complex
influenceof MO on the internationalization of firms from emerging
markets.
Thus,
our
study
provides
significant
insights
concerning
the
international
development
of
firms
based
in
emerging
markets
from the perspective of institutional ownership, thereby making a
contribution to the literature on international business. Major
findings
are
as
follows.
We
find
that
ownership
concentration
is
negatively
related
to
EO in firms from emerging markets. This result shows that high
ownership concentration is a disadvantageous factor which
impedes
entrepreneurial
activities
in
firms
from
emerging
markets. From
this
finding,
we
can
conclude
that
high
ownership
concentration definitely constrains top managers use of innova-
tion
and
proactiveness,
because
the
largest
shareholder
is
oftenaverse to
the
risks
involved
in
the
internationalization
of
firms.
Further,
this
result
supports
and
further
extends
the
research
of
Peng et al. (2004), which asserts that firms from transitional
economies like China may not provide sufficient incentives to top
managers
to
undertake
entrepreneurial
activities.
We
also
find
that
CEO
ownership
is
consistently
and
positively
related
to
EO
in
firms
fromemerging markets. The result suggests that CEO ownership is
clearly relevant to a firms decision-making direction and process,
and that
it
can
be
used
to
provide
incentives
for
the
CEO
to
strengthen
the
firms
EO.
This
finding
is
consistent
with
the
study
by Zahra et al. (2000), who find that managers owning an equity
stake in a medium-sized firm promote entrepreneurial activities.
Obviously,
these
two
findings
clearly
describe
the
different
effects
of
ownership
structure
on
EO,
a
conclusion
which
further
enriches
the literature about how ownership and corporate governance
affect entrepreneurial activities.
The second group of findings concerns the association between
ownership structure and market orientation. As predicted owner-
ship concentration has an inverse U-shaped effect on market
orientation. This result shows that when ownership is moderately
concentrated among shareholders, the distribution of ownership
and control power not only can lead the main shareholders to
monitor the executives decision more efficiently, but also can
provide institutional space for top managers to identify and take
advantage of market demands more effectively. Meanwhile,
another finding is that the relationship between CEO ownership
and MO is an inverse U-shape. This result shows that lower and
higher levels of CEO ownership do not lead executives to increase
MO, but that a moderate level of CEO ownership can ensure
enhancement of MO. From this result, we can rationally explain
reason why there are conflicting opinions about the relationship
between CEO ownership and MO in the literature (Donaldson &
Lorsch, 1983; Sanders, 2001). When CEO ownership is higher,
share-holding executives will avoid investments that might
negatively influence the short-term increase of shareholders
wealth (Sanders, 2001), and therefore may make the firm lose
market opportunity and decrease its future market competitive-
ness. Yet when, at the opposite end of the spectrum, CEOownership is very low, the executives will again be interested
primarily in quick growth of the firms market share (Qu & Ennew,
2005), an emphasis which may lead the firm to enhance its
competitiveness but still ignore improvement in its return on
investment. This finding also explains the reason why stock
ownership sometimes does not motivate executives to support
certain strategic orientations, such as MO, and thus extends the
theory of corporate governance.
We find different effects of strategic orientation on the degree
of a firms internationalization. The results suggest that EO is
positively related to internationalization, but that MO has an
inverse U-shaped relationship with internationalization. The
former
result
provides
a
conclusion
similar
to
the
studies
of
Nummela et al. (2004), Knight and Cavusgil (2004) and Zhou(2007), who found that EO is important for born-globals and small
and medium-size enterprises. Our study further indicates that the
internationalization
behavior
of
firms
from
emerging
markets,
whichhave
some
common
traits
with
born-globals
in
international
expansion, can also be described as entrepreneurial. This finding
corroborates the entrepreneurial nature of younger international
firms from
emerging
markets,
and
thus
extends
the
international
entrepreneurship literature.
However, differing from prior studies which suggest that MO is
positively related to a firms internationalization (Knight &
Cavusgil,
2004;
Luo,
Sivakumar
et
al.,
2005), our
findings
indicate
an
important
limitation
of
an
overly
strong
market
orientation
during the internationalization process in the context of emerging
markets.That
is,
firms
with
a
high
level
of
MO
listen
too
carefully
totheir
current
customers
(Christensen
&
Bower,
1996).
This
leads
managers
to
emphasize
current
customers
needs
and
not
to
spend
enough time and resources exploring the potential opportunities
in overseas markets. This is especially true because firms often do
not have
sufficient
resources
to
accomplish
these
two
tasks
at
the
same time.
How
to
meet
existing
demands
efficiently
in
the
domestic market becomes the main issue these firms focus on,
because the main customers of such firms are often located in the
domestic
market
at
the
early
stages
of
the
internationalization
process.
Our results provide insights into the comparative effects of EO
and MO on internationalization of firms from emerging markets,
thereby
expanding
the
research
of
previous
scholars
who
found
that either
EO
or
MO
might
have
direct
or
indirect
positive
Y. Liu et al./Journal of World Business 46 (2011) 381393390
8/10/2019 MO and Enterpreneurship Orientation
11/13
associations with a firms internationalization (e.g., Knight &
Cavusgil, 2004; Weerawardena et al., 2007). Our results make a
significant contribution to the literature on the internationaliza-
tion of firms.
Finally, accompanying the rise of the emerging economies to
become new global challengers, top firms from emerging markets
increasingly pose competitive challenges to companies from the
developed economies. A study by Boston Consulting Group (2006)
found 100 companies from emerging markets with total assets in
2006 of $520 billion, more than the worlds top 20 car companies
combined. Although these challengers possess several core
capabilities that drive them to develop into contenders for global
leadership, such as vision of their ambitions founders and the
ability to reach outside their home markets (Boston Consulting
Group, 2009; The Economist, 2008), many of them are still in the
early stages of globalization. For these firms in particular, it will be
important to move beyond opportunistic steps toward globaliza-
tion and develop appropriate and well-defined strategies. This
paper may offer the theoretical guidelines for new global
challengers in shaping the strategic postures which are helpful
to successful internationalization.
7. Managerial
relevance
Besides its theoretical contributions, this article has several
practicalmanagerial implications as well. First, our study suggests
that a stronger EO can improve an emerging-market firms
internationalization, and, with respect to antecedents, that CEO
ownership is beneficial for strengthening EO but that ownership
concentration decreases EO. Thus, when firms hope to increase EO
for the purpose of improving their internationalization, their BODs
should increase CEO ownership and reduce ownership concentra-
tion in
order
to
motivate
CEOs
to
take
more
innovative
measures
and to proactively grasp opportunities in the internationalmarket,
thereby helping firms from emerging markets to improve their
competitive position in global markets.
Second,
from
the
results
of
the
inverse
U-shaped
relationship
between ownership structure and MO, firms should understandthat either a very high or a very low level of ownership
concentration and CEO ownership is not helpful in improving
market
orientation.
Therefore,
when
firms
markets
want
to
improve
their
MO,
ownership
should
be
moderately
concentrated
in shareholders so that the governance mechanisms not only
ensure efficient monitoring of executives decision-making but
also
establish
a
suitable
constraint
system
among
shareholders.
Meanwhile,
the
BOD
should
require
the
CEO
to
hold
an
appropriate
level of ownership, since either too little or too much CEO
ownership can decrease a firms market-oriented activities.
Third,
because
of
the
different
effects
of
EO
and
MO
on
the
degree of
internationalization,
firms
from
emerging
markets
should increase their EO in the process of internationalization
and
rationally
balance
their
MO.
In
this
way,
these
firms
canimprove
the
development
of
their
internationalization,
because
top managers
will
be
encouraged
to
take
proactive
actions
in
international competition by introducing innovative products and
services and by taking more risks in the global market. Meanwhile,
firms from
emerging
markets
should
balance
the
demands
of
current
customers
in
the
domestic
market
with
those
of
potential
customers in international markets, and effectively allocate
resources, deploying them between current and new foreign
markets
when
implementing
their
market
orientation.
8. Limitations and future research directions
This study
has
the
following
limitations
which
should
be
addressed
in
future
research.
Clearly,
the
results
of
the
current
study are context-specific. Although it is theoretically feasible to
extend this study to other contexts, the specific differences
between China and other emerging economies may restrict the
generalizability of the findings. Therefore, a useful extension
would be to conduct this study in other emerging-market settings
such as eastern European countries. Further, in emerging markets,
internationalization may take many forms (e.g., licensing, OEM,
joint venture, and strategic alliance). In future research, it is
necessary to overcome any constraints in measuring this factor. A
more valid measure to describe the various situations in which
firms are internationalizing is needed. Moreover, the firms
experience, length of involvement internationally, international
sales ratio and or international profitability could influence the
relationships between governance mechanisms and strategic
orientations. For most firms from emerging markets, the progress
of internationalization can help them to adjust the influence of
governance mechanisms on the choice of strategic orientation, and
further influence the performance of their internationalization.
Future research should focus on the moderating effects of these
factors on the relationships between governance mechanisms and
strategic orientations, and/or the moderating effect of ownership
structure on the relationships between other strategic behaviors
and firm internationalization performance. Finally, in addition to
its contributions to an understanding of strategic orientation, wehopethat this article can provide an important first step for further
examination of key antecedents and consequences of the
internationalization of firms and thereby promote future studies
in this important area.
Acknowledgement
The
authors
would
like
to
thank
Professor
Peter
W.
Liesch
and
the two JWB reviewers for their insightful comments.
References
Appiah-Adu, K. (1998). Market orientation and performance: Empirical tests in a
transitional
economy. Journal of Strategic Marketing, 6(1):
2545.Atuahene-Gima, K., & Li, H. Y. (2004). Strategic decision comprehensiveness and newproduct development outcomes in new technology ventures.Academy of Manage-ment Journal, 47(4): 583597.
Aulakh, P. S., Kotabe, M., & Teegen, H. (2000). Export strategies and performance offirms
fromemerging economies:Evidence fromBrazil, Chile,and Mexico.Academyof Management Journal, 43(3): 342361.
Autio, E., Sapienza, H. J., & Almeida, J. G. (2000). Effects of age at entry, knowledgeintensity, and imitabilityon international growth.AcademyofManagement Journal,43(5): 909924.
Baker,W., & Sinkula, J. (1999).The synergistic effectof marketorientationand learningorientation on organizational performance. Journal of the Academy of MarketingScience, 27(October): 411427.
Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal ofManagement, 17(1): 99120.
Barringer,B., & Bluedorn, A. (1999). The relationship betweencorporate entrepreneur-ship and strategic management. Strategic Management Journal, 20(5): 421444.
Biediger, J., DeCicco, T., Green, T., Hoffman, G., Lei, D., Mahadevan, K., et al. (2005).Strategic action in Lenovo. Organizational Dynamics, 34(1): 89102.
Bhuian, S. N., Menguc, B., & Bell , S . J . (2005). Just entrepreneurial enough: Themoderating
effect of entrepreneurship on the relationship betweenmarket orien-tation and performance. Journal of Business Research, 58: 917.
Boisot, M., & Meyer, M.W. (2008). Which way through the open door? Reflections onthe internationalization of Chinese firms. Management and Organization Review,4(3): 117.
Bonaglia, F., Goldstein, A., & Mathews, J. A. (2007). Accelerated internationalization byemerging
markets multinationals: The case of the white goods sector. Journal ofWorld Business, 42(4): 369383.
Boston Consulting Group. (2006). The new global challengers. Boston: The BostonConsulting Group Inc.
Boston ConsultingGroup.(2009). The2009BCG100 newglobal challengers. Boston: TheBoston
Consulting Group Inc.Calof, J. L., & Viviers, W. (1995). Internationalization behavior of small and medium-sized South African enterprises.Journal of Small Business Management, 33: 7179.
Child, J., & Rodrigues, S. (2005). The internationalization of Chinese firms: A case fortheoretical extension? Management and Organization Review, 1(3): 381410.
Child,
J., & Tse, D. K. (2001). Chinas transition and its implications for international
business. Journal of International Business Studies, 32(1): 521.
Y. Liu et al./Journal of World Business 46 (2011) 381393 391
8/10/2019 MO and Enterpreneurship Orientation
12/13
8/10/2019 MO and Enterpreneurship Orientation
13/13
Tuschke, A., & Sanders, W. G. (2003). Antecedents and consequences of corporategovernance reform: The case of Germany. Strategic Management Journal, 24: 631649.
UNCTAD. (2006). World InvestmentReport2006: FDI fromdevelopingand transitionaleconomies: Implications fordevelopment. NewYork andGeneva:UnitedNations.
Walters, G. P., & Samiee, S. (1990). A model for assessing performance in small U.S.exporting firms. Entrepreneurship Theory and Practice, 15(2): 3350.
Webster, F. E. (1988). Rediscovering themarketingconcept. BusinessHorizons,31(MayJune): 2939.
Weerawardena, J., Mort, G. S., Liesch, P. W., & Knight, G. (2007). Conceptualizingaccelerated internationalization in the born global firm: A dynamic capabilities
perspective. Journal of World Business, 42:
294306.Welch, L. S., & Luostarinen, R. (1988). Internationalization: Evolution of a concept.Journal of General Management, 14(2): 3455.
Williamson, O. E. (1985). The economic institution of capitalism. New York: Free Press.Wright,M., Filatotchev, I., Hoskisson, R. E., & Peng, M.W. (2005). Strategy research inemerging economies: Challenging the conventional wisdom. Journal of Manage-ment Studies, 42(1): 133.
Wuyts, S., & Geyskens, I. (2005). The formation of buyersupplier relationships:Detailed contract drafting and closepartner selection.Journal of Marketing, 69(Oc-tober): 103117.
Xu,X. N.,& Wang, Y. (1999). Ownershipstructure andcorporate governancein Chinesestock companies. China Economic Review, 10: 7598.
Yamakawa,
Y., Peng, M. W., & Deeds, D. L. (2008). What drives new ventures tointernationalize from emerging to developed economies? Entrepreneurship Theoryand Practice, 32(1): 5982.
Yiu, D. W., Lau, C. M., & Bruton, G. D. (2007). International venturing by emergingeconomy firms: The effects of firm capabilities, home country networks, andcorporate entrepreneurship. Journal of International Business Studies, 38: 519540.
Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. (2008). Corporategovernance in emerging economics: A review of the principal-principal perspec-tive. Journal of Management Studies, 45(1): 196220.
Z
Recommended