Market Orientation and Internationalization in SME

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internationalization of SMEs(1) inter-nationalization as a learning process byan SME; and (2) internationalization fromthe time of creation of an SME.

The first stream focuses on internalorganizational factors, especially duringthe incremental process of learning in

the earlier stages of internationalization.Within this stream, certain specific con-tributions can be identified. Theseinclude the lifecycle model (Vernon1966), the ethno-centrism, regio-centrism, poly-centrism, geo-centrism(ERPG) model (Wind, Douglas, andPerlmutter 1973), the innovation model(Rogers 1962), and the Uppsala model(Johanson and Vahlne 1977; Johanson

and Wiedersheim-Paul 1975). The pre-sent study rests on the last of these, theUppsala model, in developing its theo-retical framework.

The Uppsala model is based on orga-nizational behavioral theory (Cyert andMarch 1963). According to the model,the process of internationalization isunderstood as a causal cycle in whicha firms knowledge is posited as anexplanatory variable. Essentially, compa-nies initially develop in their domesticmarkets, and internationalization is aconsequence of subsequent incrementaldecisions. Such decisions are limited bytwo factorsinformation and resources.It follows that the major barriers to inter-nationalization are a lack of informationand a scarcity of resources.

Lack of information and scarcity ofresources generates uncertainty. To mini-mize its risks, a firm is likely to begin itsinternationalization by choosing marketsthat exhibit less uncertainty. Companies with little international experiencewould rather enter markets that resembletheir domestic markets. In this regard,the concept of psychological distancebecomes important in the early stages of

the internationalization process. Psy-chological distance can be defined as agroup of factorssuch as language,culture, politics, and so onthat hinder

the flow of information between thecompany and the market. Once thecompany has acquired internationalexperience, its decisions on market entryare likely to be more dependent on otherfactorssuch as market size or theglobal economic climate.

In summary, the Uppsala model firstdescribes a firms sequence of entry intoforeign markets (in terms of the conceptof psychological distance), and thendescribes the subsequent incrementalcommitment of a firm to foreign markets(in terms of other factors).

Models that portray the international-ization of SMEs as a steady process havebeen criticized for being deterministic

and for paying insufficient attention toparticular contexts. Andersen (1993), forexample, has criticized the underlyingtheoretical weakness of all processmodels and the lack of coherencebetween theory and practice. In spite ofthis criticism, there is empirical evidencethat many SMEs have internationalizedin incremental stages (Korhonen, Luo-starinen, and Welch 1996; Crick 1995;Larimo 1991; Erramilli and Rao 1990;Luostarinen 1980; Wiedersheim-Paul,Olson, and Welch 1978; Bilkey and Tesar1977; Weinstein 1977). In particular,SMEs in mature industries are morelikely to follow such a sequential process(Andersson 2004).

The second stream of research drawson the international entrepreneurship

literature and argues that an SME can beinternational from its creation (Rialp,Rialp, and Knight 2005; Anderssonand Wictor 2003; McDougall, Oviatt,and Shrader 2003; Kuemmerle 2002;McDougall and Oviatt 2000; Madsen andServais 1997; Knight and Cavusgil 1996;McDougall, Shane, and Oviatt 1994).These companies have been described invarious ways: (1) born global (Anders-

son and Wictor 2003; Madsen and Servais1997; Knight and Cavusgil 1996); (2)global start-ups (Oviatt and McDougall1994); (3) international new ventures

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(McDougall, Shane, and Oviatt 1994);and (4) instant exporters (McAuley1999).

The most significant feature of theborn-global firms is that managementadopts a global focus from the outsetand embarks on rapid and dedicated

internationalization. They are usuallytechnology-intensive firms that areformed by active entrepreneursoften inresponse to a significant breakthroughin process or technology. Their offeringscommonly involve substantial value-adding (McKinsey & Co 1993).

McDougall, Shane, and Oviatt (1994)contend that entrepreneurship theoryand RBV theory provide valid expla-

nations of the phenomenon of theborn-global firms, and that these expla-nations are in accordance with the recenttrends that have characterized thisphenomenon(1) the increasing role ofniche markets; (2) advances in processtechnology; (3) advances in communica-tion technology; (4) the inherent advan-tages of small firms (quicker responsetime, flexibility, adaptability, and so on);(5) the means of internationalization(knowledge, technology tools, facilitat-ing institution, and so on); and (6) thegrowth in global networks.

The relevance of entrepreneurshas been underlined in the literature,which has found a positive relationshipbetween international development andan entrepreneurs international orienta-

tion (Zahra, Hayton, and ONeill 2001;Lumpkin and Dess 1996). According tothis view, international entrepreneurshipevolves from the discovery and exploita-tion of opportunities in the internationalmarketplace. The pursuit of such oppor-tunities requires the creation of newenterprises (which involves a recombina-tion of resources) (Davidsson andWiklund 2001; Moran and Ghoshal 1999),

together with entry into new markets ormarket segments (which involves inte-grated decisions regarding the degree ofresource commitment to the market).

MO The term market orientation (MO)

has been interpreted in various ways.Some authors use the term as a synonymfor customer orientation (Shapiro1988) or for marketing orientation(Trustrum 1989). Others have under-

stood MO to be a business philosophythat promotes interfunctional coordina-tion to optimize organizational perfor-mance (Grnroos 1989). These (andother) interpretations can be classified intwo major categories:

(1) A cultural perspective: this con-ceptualizes MO as part of or-ganizational culturepermanently

orientating the company toward thecreation and delivery of superiorvalue for its customers (Narver andSlater 1990); and

(2) A behavioral perspective: this con-ceptualizes MO in terms of specificbehaviors of the organizationforexample, Kohli and Jaworski(1990), who defined MO as theorganization-wide generation ofmarket intelligence pertaining tocurrent and future customer needs,dissemination of the intelligenceacross departments, and organiza-tion-wide responsiveness to it.

The two perspectives are not mutuallyexclusive; indeed, they are complemen-tary. MO implies the development of

an organizational culture that generatesorganizational capabilities through learn-ing; these capabilities are exhibited incertain market-oriented behaviors thatultimately lead to superior marketperformance.

The RBV can help in understanding thenature of MO and its relationship with theachievement of a competitive advantage.According to the RBV, MO can be consid-

ered as a resourcebecause it is an intan-gible property of a firm that enables it tomanage market information and deliversuperior value for its customers (Hunt and

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Lambe 2000). According to Day (1994),market-oriented companies developinsideout capabilities, which connectthe internal processes that define organi-zational capabilities with the externalenvironment, thus allowing the companyto be competitive by creating solid rela-

tionships with customers, distributors,and suppliers. These distinctive capabili-ties can be characterized as market-sensing and customer-linking andchannel-bonding.

Market-sensing refers to the way inwhich MO enables a firm to learn aboutits market and anticipate future events. The process of collecting, interpreting,and using market information about

customers, competitors, distributors, andsuppliers is more systematic and predict-able in companies that have a greaterdegree of MO. Market-sensing processesfollow the same general sequence ofinformation-processing activities that anorganization uses to learn (Sinkula 1994;Huber 1991). According to this view,market-oriented companies develop theexperience and resources to acquiremore market information and use it moreeffectively than companies that are not asmarket oriented. Kohli and Jaworskis(1990) definition of MO emphasizesthe importance of market-sensingcapabilities.

Customer linking and channelbonding refers to the manner and inten-sity of a firms relationships with its cus-

tomers and distributors. Market-orientedcompanies devote special attention tothese relationships to ensure that theyunderstand the particular needs andpreferences of their customers and dis-tributors, thus enhancing the process ofvalue creation. The delivery of superiorvalue produces customer satisfaction andenhanced relationships with customers.These, in turn, contribute to better finan-

cial performancegiven the higher pro-fitability of loyal customers (Day 1994). These capabilities develop through

learning processes as the firms employ-

ees apply their knowledge to the solu-tion of marketing problems. Accordingto Day (1994), these learning processesare characterized by: (1) open-mindedinquiry (based on the belief that all deci-sions are made on the basis of marketinformation); (2) widespread information

distribution (which ensures that relevantfacts are available when needed); (3)mutually informed mental models(which guide interpretation and ensurethat everyone pays attention to theessence and potential of the informa-tion); and (4) an accessible memorybank of what has been learned (whichensures that the knowledge can continueto be used).

In summary, market-oriented firmsacknowledge the relevance of usinginformation about customers and com-petitors when designing their strategies.These firms can employ this knowledgeto create and deliver a better offeringthan that of competitors in their targetmarkets (Hunt and Lambe 2000).Because MO is a distinctive resourceof the company, it allows the firm todevelop a specific competitive advantage(Jaworski and Kohli 1993; Narver andSlater 1990), and because it is difficult forcompetitors to copy this resource, anycompetitive advantage will be sustain-able (Hunt and Morgan 1995).

To operationalize a firms MO, thepresent study adopts the behavioral per-spective of Kohli and Jaworski (1990)

because: (1) this conceptualization hasbeen extensively validated (Kara, Spillan,and DeShields 2005; Siguaw and Dia-mantopoulos 1995; Kohli, Jaworski, andKumar 1993); (2) it focuses on specificbehaviors, which facilitates estimationaccuracy (Jaworski and Kohli 1993); and(3) it is compatible with the RBV of thepresent study.

MO and Internationalizationof SMEs As previously noted, models such as

the Uppsala model (Johanson and



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Vahlne 1990, 1977) rest on organiza-tional behavior theory. These modelsportray internationalization as a learningprocess whereby knowledge for futuredevelopment is gained from sequentialinternational decisions. Internationaliza-tion is thus perceived as an evolutionary

process in which companies developgrowing levels of commitment to foreignmarkets as they travel through a series ofsequential steps and accumulate deci-sions (Root 1987; Brooke 1986). Experi-ence becomes an essential factor,because it diminishes the level of uncer-tainty and risk related to foreign-marketdecisions. In this regard, there are simi-larities between internationalization and

innovation. There is evidence supporting the

application of behavior theory andgradual learning to business internation-alization (Forsgren 2001, 2000; Erikssonet al. 1997; Calof and Beamish 1995;Erramilli and Rao 1993, 1990; Hirsch1993; Erramilli 1991, 1990; Beamish1990; Kogut and Singh 1988; Root 1987;Sharma and Johanson 1987; Reid 1984; Wiedersheim-Paul, Olson, and Welch1978). There is also evidence of its use-fulness in the context of SMEs (Westheadet al. 2001; Gankema, Snuif, and Zwart2000), especially when the industry ismature (Andersson 2004), as in the casesconsidered in this study.

In accordance with the RBV approach,MO can also be understood as a corpo-

rate competence that supports a firmsactivities in its markets, including itsforeign markets. We support this state-ment on the following arguments: (1) thelearning process leading the SMEs fromtheir domestic markets to the inter-national markets represent one of theessential pillars in the sequentialapproach of internationalization; (2) thebeginning of the internationalization

process can be explained through certaincorporate competencestechnology,innovatation capabilities, entrepreneur-ship, etc. (Li, Li, and Dalgic 2004; Yip,

Gmez, and Monti 2000); and (3) com-petences fostering organization learningsuch as MOare specially relevant inthe internationalization process.

Market-oriented capabilities (marketsensing; customer linking and channelbonding) facilitate acquisition of knowl-

edge about foreign markets. These capa-bilities are especially important in theearlier stages of the internationalizationprocess, when the firm has little interna-tional experience and is therefore likelyto follow its domestic routine in termsof collecting information, disseminatingthat information across the organization,and designing a corporate response tothe market.

In this context, the dynamic-capabilities approach (Eisenhardt andMartin 2000) emphasizes the competitivevalue of MO. According to this approach,it is possible to identify four groups ofcorporate competencies: (1) managerialcompetencies; (2) resource-based com-petencies; (3) transformation-basedcompetencies; and (4) output-basedcompetencies (Lado, Boyd, and Wright1992). Of these, the resource-based com-petencies and the transformation-basedcompetencies are especially relevant tothe present study. The resource-basedcompetencies consist of core human andnonhuman assets, both tangible andintangible, that allow a firm to outper-form rivals over a sustained time. Theresource-based competencies have poten-

tial to influence a firms ability to developtransformation-based and output-basedcompetencies. The transformation-basedcompetencies are the organizationalcapabilities that are required to turninputs into outputs. These are embeddedin the social structure and culture of thefirm (Menguc and Auh 2006). Under thistypology, MO is a resources-based com-petence that fosters the development of a

corporate culture (transformation-basedcompetence) which, simultaneously,emphasizes the learning and adaptationcapabilities of the company. The appli-



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cation of an MO culture (which is a trans-formational competence) in foreignmarkets enables a faster and more effec-tive transformation of the markets infor-mation into an appropriate response.

In summary, a firms global MO is adistinctive competence that supports the

firms activities in its markets. MO canthus be represented as an antecedent ofthe internationalization process of anSME because: (1) MO fosters and facili-tates the learning process in foreignmarkets; and (2) highly market-orientedcompanies develop stronger capabilities(market sensing, customer linking, andchannel bonding) that allow the acquisi-tion of foreign market knowledge, as

well as designing a proper marketresponse.

Research Objectives andHypotheses

The main objective of this study is toexamine whether MO facilitates inter-nationalization of SMEs, thus leading tobetter performance in foreign markets.

MO and Performance in ForeignMarkets

The relationship between perfor-mance and MO has traditionally beenapproached from the MO perspective,although authors have disagreed aboutthe performance measure that should beused. According to the resources-based view, MO is a resource (or a compe-

tence) that is likely to generate a sustain-able competitive advantage leading tosuperior performance (Slater and Narver1995). MO is the core of a culture thatorientates a firms behaviors toward thecreation of value for its customers. Afirms MO can thus be assessed in termsof its customersbecause MO focuseson understanding and meeting custom-ers needs and expectations (Dickson

1992). Higher performance can then beattained through success in new productdevelopment and improved customer-retention rates (Sinkula 1994).

There is evidence of a positive rela-tionship between MO and performance(Pelham 2000, 1993; Slater and Narver2000; Deshpand and Farley 1999; Pitt,Caruana, and Berthon 1996; Jaworskiand Kohli 1993; Ruekert 1992; Narverand Slater 1990). However, these studies

have been limited to domestic contexts.Only recently has there been an effort toexplore MO in the international context,and this has produced some empiricalevidence of a positive link betweenmarket-oriented export behaviors andexport performance (Cadogan and Cui2004; Akyol and Akehurst 2003;Cadogan, Diamantopoulos, and Siguaw2002; Cadogan et al. 2002; Ngansathil

2001; Diamantopoulos, Siguaw, andCadogan 2000; Know and Hu 2000). Inthese contributions, examination of theinfluence of MO has been limited tothe export marketan export-marketoriented approach. Nevertheless, Roseand Shoham (2002) have confirmed apositive relationship between a firmsoverall MO and some dimensions of theexport performance. Their studies indi-cate that MO is a significant determinantof performance and customer satisfactionin export markets. MO activities helpmanagers to trust in the correct imple-mentation of marketing strategies inforeign markets.

As a result of the earlier discussion,the following hypothesis is proposed:

H1: MO is positively related to foreign-market performance.

MO and KA of Foreign MarketsMO promotes the acquisition and

analysis of information about customers,competitors, and environmental forces,and this knowledge can be used by orga-nizational members to create and deliversuperior customer value. From this per-

spective, a market-oriented company is alearning-oriented company (Tuominen,Mller, and Rajala 1997; Jaworski andKohli 1996). Both orientations facilitate



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an awareness of the resources that willbe required to compete and achieve asolid competitive advantage (Slater1996).

Market-oriented companies shouldthus have superior capabilities to sensethe market. Because such capabilities

involve information generation and dis-semination, MO is a dynamic capabilitythat enables a firm to enhance its skillsin acquiring new knowledge (Varela,Gutirrez, and Antn 1998) and incorpo-rating it in organizational memory (Slaterand Narver 1996). In addition, as notedearlier, the culture of market-orientedfirms can be understood as a transforma-tional competence which, through learn-

ing, enables a company to transformmarket information efficiently into anappropriate response.

Organizational learning strengthensthe connection between a company andits environment, thus enabling proactiveresponses rather than reactive responses. A learning orientation anticipateschanges in the market, and enables acompany to avoid convulsions (Day1994; Sinkula 1994). Moreover, a willing-ness to learn entails the initiation of rela-tionships with customers, suppliers, andother market agents, and the fosteringof cooperative attitudes when unfore-seen difficulties emerge (Webster 1992). The inherent flexibility of learning-oriented organizations enables them toadapt rapidly to new market oppor-

tunities (Slater and Narver 1995). Thisbehavior assists them in comprehendingthe complexity of the environment andminimizes delays in strategic decision-making (lvarez, Santos, and Vzquez2000).

Similarly, Slater and Narver (1996)consider that market-oriented companiespossess enhanced capabilities to under-stand their environment. This implies

that they take fewer strategic risks, giventhat they already benefit from informa-tion that guides their behavior withoutthreatening their performance. As a con-

sequence, a market-oriented company islikely to cope better with environmentaluncertainty in foreign markets, becauseits knowledge of those markets will beenhanced.

As a result of the earlier discussion,the following hypothesis is proposed:

H2: MO is positively related to foreign-market KA.

MO and Commitment to ForeignMarkets

The effect of MO on commitment toforeign markets can be addressed interms of the relationship between a com-panys MO and its entrepreneurial orien-

tation (EO). This complex relationshiphas received considerable attention fromscholars (Bhuian, Menguc, and Bell2005; Blesa and Ripolls 2005; Weer-awardena and OCass 2004; Dimitratosand Plakoyiannaki 2003; Liu, Luo, andShi 2003, 2002; Atuahene-Gima and Ko2001; Knight 2000; Miles and Arnold1991). An accepted conceptualizationdefines EO as an orientation whereby afirm displays a propensity for innova-tion, proactivity, and risk taking in itsstrategic decision-making (Lumpkin andDess 1996; Covin and Slevin 1986; Miller1983). In accordance with Schumpeters(1934) criterion, innovation can beapparent in a variety of forms, includingnew products, new processes, newmarkets, and so on. EO thus creates

new resources and recombines existingresoures to create value (Zahra, Jen-nings, and Kuratko 1999). Proactivityrefers to a firms ability to anticipateenvironmental changes and to benefitfrom these changes. Finally, risk-takingreflects the fact that innovative and pro-active behaviors mean that strategic deci-sions inevitably involve the assumptionof certain risks.

The relationship between MO and EOhas been widely canvassed in the litera-ture. For example, the effect of MO onthe innovative behavior of a firm has



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been demonstrated by the observationthat the rate of success in new productdevelopment is positively related to afirms MO (Verhees and Meulenberg2004; Hurley and Hult 1998; Gatignonand Xuereb 1997; Slater and Narver1994). Moreover, proactivity is an inher-

ent feature of market-oriented firmsinthat market information fosters an innovative response to changes in the envi-ronment. Market-oriented companiesattempt to satisfy the latent and actualneeds of their customers by creatingvalue offerings (Slater and Narver 1995). These firms generally adopt a long-termapproach to the market and are morelikely to develop learning processes.

Finally, a propensity for risk taking is acharacteristic of the senior managementof all market-oriented firms (Jaworskiand Kohli 1993). Following these argu-ments, we contend that entrepreneurialbehaviors and market-oriented behaviorsdisplay common characteristics.

In terms of internationalization, anEO evolves as international opportunitiesare identified and seized, which usuallyinvolves the creation of new companies,entry to new markets, and/or the target-ing of new market segments. Suchintegrated decision-making involves thecommitment of resources to the interna-tional market.

In terms of MO, market-sensing capa-bilities can assist a firm to discovermarket opportunities and design a value

proposal. Such a value proposal affectsthe whole organization, because corpo-rate resources must be aligned to createa market-responsive firm (Narver andSlater 1990). MO thus enables a firm toidentify new (foreign) market opportuni-ties which, if they are to be seized,requires the commitment of corporateresources to create customer value.Market-oriented companies will there-

fore be more active in seeking andexploiting foreign market opportunities,and will be more willing to commitresources to this process.

On the basis of the previous dis-cussion, the following hypothesis isproposed:

H3: MO is positively related to foreign-market commitment.

Internationalization as a LearningProcess

As previously noted, the Uppsalamodel presents a firms internationaliza-tion as being a continuous learningprocess about the ways to competeinternationallya process that requirestime and risks. In other words, it is achain of action leading to experience

leading to further action. In thissequence, the outcome of each iterationincrementally increases a companysinvolvement in a foreign market. A com-panys learning experience in foreignmarkets has a profound effect on itsfuture foreign expansion and its perfor-mace in foreign markets (Lord and Ranft2000) as reliable knowledge of thosemarkets reduces costs and uncertainty(Buckley and Casson 1981) andimproves profitability (Benito andGripsrud 1992).

Ghemawat (1991) has defined com-mitment as the tendency of an organi-zation to persist in its action course andstrategies. In accordance with this defi-nition, market commitment (MC) wouldrefer to the tendency of an organization

to maintain strategies in a particularmarket. According to Pauwels and Mat-thyssens (1999), MC is a major determi-nant of performance in foreign markets,and Cavusgil and Zou (1994) (in theNorth American context) and Louter,Ouwerkerk, and Bakker (1991) (in theEuropean context) have both providedevidence of a positive relationshipbetween MC and performance. Similarly,

Gerlinger, Beamish, and Da Costa (1989)have asserted that the process ofgrowing internationalization, as a conse-quence of incremental foreign-market



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commitment, will improve performancein foreign markets.

As a result of the previous discussion,the following hypotheses are proposed:

H4: Foreign-market KA is positivelyrelated to foreign-market commit-ment.

H5: Foreign-market KA is positivelyrelated to foreign-market perfor-mance.

H6: Foreign-market commitment is positively related to foreign-marketperformance.

Figure 1 shows the proposed model,along with the hypotheses. In this model:

(1) MO represents market orienta-tion;

(2) KA represents knowledge acqui-sition;

(3) PERF represents [foreign-market]performance; and

(4) MC represents market commit-ment.

MethodologyScope of the StudyTo test the model presented earlier, an

empirical study was conducted. The

scope of the study was limited to a multi-industry sample of SMEs that were oper-ating in foreign markets from their basein Andalusiaan underdeveloped regionin the south of Spain with a gross domes-tic product less than that of 75 percent ofcountries in the European Union (EU).

The sample included:

Agricultural as well as food andbeverage companies (food anddrinks; ecological products; whitegoods; fishing products)whichaccounts for 45.7 percent of exportsfrom the Andalusia region;

Consumer goods (gifts and handi-crafts, furniture and decoration,

jewelry, floriculture and ornamen-tal plants, clothing, shoes, per-fumes and cosmetics, paper, musicand audiovisual)which accountsfor 25.7 percent of exports fromthe region; and

Industrial goods (general equip-ment; auxiliary equipment for agri-culture, energy, and environment;construction materials; informationtechnology; automobiles; climatecontrol; and other equipment)which accounts for 28.6 percent ofexports from the region.

The composition of exports from theSMEs in this region is typical of under-developed regions with low economicactivity. In addition, the degree of inter-

nationalization of the firms in this study was lower than the national average, with exports being the most commonmethod of entry to foreign markets, andthe overwhelming majority of thoseexports being to countries within the EU.

Sample and Data Collection The recommendations of the Euro-

pean Union (DOCE 96/280/CE) were

used to identify SMEs for the sample. Inaddition, two extra criteria were addedfor the purposes of the model proposedin this study: (1) number of employees

Figure 1Proposed Model

MO

KA

MC

PERF



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had to be greater than 20; and (2) salesvolume had to be greater than 1.5 millioneuros per annum. These refinements ledto the discarding of small companieswhose management was not professionalenough to allow accurate estimation ofthe constructs of the model.

The final sample included 1,483 com-panies. These were targeted through aself-administered survey. A total of only112 valid responses was received, despitethe best efforts of researchers engagedin the field study. Of the final sample,47.1 percent of the SMEs were engaged infood/agriculture, 24.5 percent in con-sumer goods, and 28.4 percent in indus-trial goods. This was representative of the

region as a whole.Data collection was by means of a

mail survey addressed to foreign marketmanagers during March and April of2003; a telephone follow-up was under-taken in May 2003 to improve theresponse. Although 112 responses mightappear to be a small number in absoluteterms, other studies of internationaliza-tion have worked with samples of similarsize (Li, Li, and Dalgic 2004; Akyol andAkehurst 2003; Rose and Shoham 2002; Yip, Gmez, and Monti 2000; Leonidouand Adams-Florou 1999; Leonidou 1998).Nevertheless, the possibility of nonre-sponse bias was a concern, given therelatively small (7.5 percent) rate ofresponse. The test recommended by Armstrong and Overton (1977) was

therefore conducted. This compares theanswers from the first incoming surveys with the latest received surveys. Theresults showed no significant differencebetween the two (p = .05) on any item. Inorder to test the appropriateness of oursample, we compared it to a randomsample of 200 companies that did notanswer the survey. This test did not showany significant difference between them

in terms of industry dispersion, age, salesvolume, and profitability.In addition to the reassuring results of

this test, it should be noted that any

nonresponse bias that might be present ismore likely to affect individual measures,rather than causal relationships among variables studied herewhich are morelikely to be affected by a lack of diversityin a sample (Blair and Zinkhan 2006). Inthis regard, the present sample was fairly

representative of the studied population. Therefore, given that the present studywas confirmatory in nature (rather thaninferential), the sample was judged to bevalid for the objectives of the study.

Measurement Scales and ToolsFive-point Likert-type scales were

developed to estimate the constructs ofthe model (see appendices). Measure-

ment scales with reliable psychometricproperties, validated in previous empiri-cal studies, were selected.

MOMO was estimated with the MARKOR

scale (Kohli, Jaworski, and Kumar 1993).Kohli and Jaworskis (1990) conceptual-ization has been extensively validated(Kara, Spillan, and DeShields 2005;Siguaw and Diamantopoulos 1995), andit focuses on specific behaviors facilitat-ing estimation accuracy. Moreover, it wascompatible with the RBV of the presentstudy. The Spanish version of the scale was used. This was developed bylvarez, Santos, and Vzquez (2000), andhas been validated in Spanish compa-nies. This scale is comprised of 30 items,

of which 14 relate to intelligence genera-tion, 9 to intelligence dissemination, and7 to market response. In general, thisbattery aims to capture a firms overallMO through an assessment of specificbehaviors.

KAKA is divided by the Uppsala model

into objective knowledge and experi-

ential knowledge. Objective knowledgeis acquired through standardizedmethods of compiling and transmittinginformation (market research), and can



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be easily transferred between markets orimitated by other companies. A criticalassumption of Johanson and Vahlnes(1977) model (confirmed by Denis andDepelteau 1985; Reid 1984; Ayal and Zif1979; Sunzook 1978; Simpson andKujawa 1974), is that objective knowl-

edge is less important than experientialknowledge in the internationalizationprocess. Such experiential knowledgeconsists of business knowledge (custom-ers, competitors, and market) andinstitutional knowledge (government,institutional structures, market normsand rules) (Eriksson et al. 1997).

In the present study, KA was esti-mated with a five-item scale adapted

from Eriksson et al. (1997). Given thatKA was measured in a given firms majorexporting market (EU, North America,South America, Africa, Asia), this con-struct should be different from MO.

MCMC is apparent when a company

devotes resources to a particular market.In the case of international investments,this usually involves a high level ofcommitment. Dynamic markets requiredynamic responses, which cannot beachieved without a high level of commit-ment (Benito and Welch 1997). Thesuccess of such a commitment might notbe measured purely in economic terms;in addition, competitive advantage and

useful knowledge for continuing theinternationalization process might beobtained.

To assess foreign-market commit-ment, Yip, Gmez, and Monti (2000) sug-gested that several issues should betaken into account: (1) structure-relatedissues (structural changes consequentupon foreign-market entry); (2) strategy-related issues (specific strategic commit-

ments, such as the development ofcultural-integration programs or trainingprograms for local salesforce); and (3)human-resources issues (regarding the

share of committed resources devoted tointernational operations).

Gundlach, Achrol, and Mentzer (1995)identified an attitudinal dimension ofMC. Most of the empirical studies inforeign markets have operationalizedthis dimension as an evaluation of the

support of senior management withrespect to a particular market (Pauwelsand Matthyssens 1999).

Taking these views into account, thepresent study developed a four-itemscale to measure MC. Three of thesemeasured economic commitment, andone estimated attitudinal commitment.MC measures were made with respect toa given firms major exporting market

the EU, North America, South America, Africa, or Asia.

Foreign-Market PerformanceBecause most of the SMEs used

exports as the primary method of entryto foreign markets, foreign-market per-formance was estimated with validatedscales measuring export performance.Organizational characteristics have directand indirect effects on export perfor-mance, but they have not been evaluated within an integrated, comprehensivetheoretical framework (Rose andShoham 2002). Export sales and/orintensity have been used as indicators ofthe export performance, as has the pro-portion of export sales over total sales inboth absolute and relative terms.

The present study adapted the scaledeveloped by Shoham (1998), whichconsists of four dimensions: sales,profits, sales growth, and profits growth.This was adapted by the addition of onenoneconomic itemthe rate of successof new products in foreign markets(Katsikeas, Leonidou, and Morgan 2000). This item was added to capture theimpact of MO on performance through

innovation (Verhees and Meulenberg2004; Gatignon and Xuereb 1997). Thescale developed by Shoham (1998) issimilar to other research that has ana-



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lyzed the relationship between MO andperformance (Pelham 2000, 1997). Aspreviously, this dimension was measured with respect to the firms major export-ing market.

Analysis of ResultsMeasurement Model

An exploratory factor analysis (EFA)was first conducted to identify the under-lying dimensions in each scale. Reliabil-ity and internal consistency were thenestimated using Cronbachs alpha, itemreliability (R2), composite reliability, andaverage extracted variance (AEV). Theresults are shown in Table 1.

After estimating the MO measurement

model, MO dimensions were averagedinto a single item. This procedure facili-tates the estimation of model parameters when the sample is small (Mackenzie,Podsakoff, and Ahearne 1998). The EFAhad identified five dimensions ofMOthree belonging to informationgeneration (M1, M2, and M3), one to infor-mation dissemination (M4), and one tomarket response (M5). Cronbachs alphaestimation suggested that some itemsshould be refined as a result of their poorreliability. Thus,

M1 included items G2, G3, and G4; M2 included items G6, G10, G13,

and G14; M3 included items G5, G7, G8, and

G12;

M4 remained unchanged (from D1to D9); M5 included R1, R3, R5, and R7 (see

Appendix).

As can be seen in Table 1, MO dem-onstrated good reliability and validity(convergent and discriminant).

The scales for KA and MC were one-dimensional, with five items and four

items, respectively. These showed ade-quate convergent validity and reliability.Missing values have affected the scale

of export performance, so we have elimi-

nated those items where the missingvalues do not follow a random distribu-tion. Thus, the export performance scale was refined to five items: EXP (exportsales), TGRS (growth of export sales),PRO (profits), GPROF (growth ofprofits), and NP (success rate in new

products). The item representing export-ing propensity was discarded from theperformance scale in view of its poorreliability. The final battery displayedgood psychometric properties.

Table 2 shows the results for discrimi-nant validity by comparing AEV andcorrelations among the constructs. KAand MO were confirmed as differentconstructswith MO being globally

related to the firm, whereas KA referredto the firms major exporting market.

Structural ModelSEM methodology was used to

analyze the causal model and to test theproposed hypotheses. The results of thetests of the structural model are dis-played at the bottom of Table 1. As canbe seen, all the hypothesized relation-ships were significant (t> 1.96; p < .05),except for the relationship between MOand MC, which was weaker (t= 1.77;

p < .07). The relationship between a firms

overall MO and its export performance was significant and positive (standard-ized loading = 0.35; p < .05), thus provid-

ing support for H1. In addition, MO hadan indirect effect on export performancethrough KA and MC, similar to the directeffect (0.39). It can thus be concludedthat MO capabilities significantly contrib-uted to a firms foreign-market activities,as shown by the total effect (0.74) inTable 3.

H2 postulated that a firms overallMO has a positive influence on foreign-

market KA. The results showed a statis-tically significant relationship, and it istherefore concluded that MO capabili-ties strongly facilitated the efficient and



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Table 1Measurement and Structural Model

Global Adjustment Measures

Proponed Model c2/df (p) CMIN/DF GFI RMSR CFI RMSEA

131.7/125(p = .323)

1.054 0.840 0.144 0.931 0.025

Measurement Models

CriticalCoefficient

StandardizedLoading

R2

Market Orientation (MO)(Alpha = 0.894; AEV= 0.750; Comp. Reliab. = 0.930)

M1 0.86 0.75M2 7.70 0.83 0.69M3 8.25 0.83 0.69M4 6.04 0.72 0.52M5 5.17 0.63 0.40

Knowledge Acquisition (KA) 0.42(Alpha = 0.921; AEV= 0.760; Comp. Reliab. = 0.940)

KA1 0.88 0.77KA2 10.88 0.91 0.83KA3 8.54 0.87 0.76KA4 7.33 0.78 0.61KA5 8.54 0.85 0.73

Market Commitment (MC) 0.44(Alpha = 0.870; AEV= 0.740; Comp. Reliab. = 0.920)

MC1 0.89 0.78MC2 8.42 0.86 0.74

MC3 7.20 0.89 0.79MC4 6.67 0.80 0.63

Performance (PERF) 0.73(Alpha = 0.765; AEV= 0.570; Comp. Reliab. = 0.830)

NP 0.61 0.37TGRS 3.58 0.42 0.18

PROF 4.55 0.80 0.65GPROF 4.63 0.81 0.65



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effective acquisition of knowledge of

foreign markets (standardized load-ing = 0.65; p < .05).H3 postulated that a firms overall MO

has a direct effect on MC. The results

confirmed a positive relationship (stan-

dardized effect=

0.25), although this wassignificant only at a level of p < .08. Itcan therefore be concluded that MO isrelated to entrepreneurial behavior by an

Table 1Continued

Relationships and Hypotheses

Standardized

Loadings

Critical

Coefficient

p Hypotheses

PERFOR MO 0.35 2.18 .03 H1KA MO 0.65 5.14 .00 H2MC MO 0.25 1.77 .07 H3MC KA 0.47 3.20 .00 H4PERF KA 0.34 2.04 .04 H5PERF MC 0.30 2.05 .04 H6

Table 2Correlations

Correlations between MO Dimensions

MO2 MO3 MO4 MO5 AEV

MO1 0.686 0.660 0.424 0.395 0.511

MO2 0.647 0.465 0.633 0.537MO3 0.498 0.345 0.461MO4 0.408 0.549MO5 1 0.652

Correlations among Constructs

KA MC PERF AEV RELIABILITY

MO 0.650 0.550 0.740 0.734 0.935KA 0.630 0.760 0.756 0.917MC 0.710 0.652 0.888PERF 1.000 0.546 0.827

MO, market orientation; KA, knowledge acquisition; MC, market commitment; PERF,performance; AEV, average extracted variance.



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SME, whereby a firm seeks opportunitiesin foreign markets and commitsresources to them. MO also showed an

indirect effect (0.30) on MC through theacquisition of knowledge of the market. The total effect of a firms MO and MC was significant and strong (0.55), asshown in Table 3.

H4 proposed that a firms knowledgein a particular market was positivelyrelated to the committing of resourcesin that market. Again, the relationship was found to be significantly positive

and strong (standardized loading=

0.47;p < .05), thus confirming this hypothesis.H5 and H6 postulated the effects of

KA and MC on a firms export perfor-

mance. Both hypotheses were con-firmed; KA had a direct effect of 0.34(p < .05) and MC had a direct effectof 0.30 (p < .05) on foreign-marketperformance.

Finally, the explanatory power of thefirms MO was tested by comparing a

model that included the firms MO as theindependent variable with a model thatexcluded the firms overall MO. Theresults of this comparisonconductedby means of the indicators of parsimonyare shown in Table 4. Ascan be noted, the model including MOshowed better indicators of parsimonythan the alternative model (CMIN/DF,PGFI, and PCFI). It is thus concluded

that a firms MO is a corporate com-petence that supports foreign-marketactivities.

Discussion, Limitations,and Further ResearchContributions of the Study

The major contribution of the presentstudy was to establish MO as a distinctivecompetence that supports a firms activi-ties in foreign markets. In this context,noteworthy findings were the positiveinfluence of a firms overall MO on itsmarket KA and its resource commitment(MC) in the foreign market. With respectto KA, capabilities in cultural transforma-tion and learning (as developed frommarket-oriented behaviors) facilitate theprocess of turning information about

a foreign market into an appropriatemarket response. With respect to MC, thepresent results show that MO constitutesan entrepreneurial feature that promotesproactive behavior in foreign marketsand the commitment of greater resourcesto seize market opportunities.

Another contribution of the study isan examination of the direct effect of anSMEs MO on its performance in the

international context. The findings showthe existence of a positive relationshipbetween the two, supporting the viewthat a firms MO has a direct effect on its

Table 3Direct, Indirect, and

Total Effects

Direct Effects (Standardized)

MO KA MC

KA 0.65 0.00 0.00MC 0.25 0.47 0.00PERF 0.35 0.34 0.30

Indirect Effects (Standardized)

MO KA MC

KA 0.00 0.00 0.00MC 0.30 0.00 0.00PERF 0.39 0.14 0.00

Total Effects (Standardized)

MO KA MC

KA 0.65 0.00 0.00MC 0.55 0.47 0.00PERF 0.74 0.48 0.30



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international competitiveness. In addi-tion, the present study speculates that anindirect effect of a firms MO on exportperformance might also existthrough

the internationalization variables of KAand MC. It is of interest that this indirecteffect was found to be stronger than thedirect relationshipillustrating the inter-action of MO with a firms learningprocess in foreign markets. The highexplanatory level achieved in the depen-dent variable (R2 = 0.73) supports therole of a firms MO as a corporate com-petence behind its international perfor-mance. In this regard, by comparing theproposed model with an alternativemodel without the firms MO as an exog-enous variable, the present study empiri-cally confirmed the role of a firms MO asan antecedent of an SMEs international-ization strategy.

Finally, our results provide the follow-ing contributions to different areas of

research:(1) SMEs internationalization: the litera-

ture has underlined the relevance ofcertain corporate competences toinitiate the internationalizationprocess (Li, Li, and Dalgic 2004; Yip, Gmez, and Monti 2000). Inthis context, our research revealsthat MO represents an antecedent

of the internationalization processfor those SMEs that follow asequential approach. This compe-tence facilitates and incentivates

organizational learning, which is anessential pillar in the sequentialmodel of internationalization. Ourresults support the strong influence

that MO makes on foreign marketKA, as the organizational learningstream of research contends (Day1994; Sinkula 1994).

(2) MO: the literature has emphasizedthe positive effect of market-oriented behaviors on firms perfor-mance (Slater and Narver 2000;Jaworski and Kohli 1993; Narver andSlater 1990). Our results confirm thisrelationship in the context of foreignmarkets, following previousresearch on exportation markets(Cadogan and Cui 2004; Akyol andAkehurst 2003; Cadogan et al. 2002;Cadogan, Diamantopoulos, andSiguaw 2002; Ngansathil 2001; Dia-mantopoulos, Siguaw, and Cadogan2000; Know and Hu 2000).

Managerial ImplicationsThe findings of the present research haveinteresting managerial implications. First,SMEs that wish to improve their interna-tional performance and competitiveness would be well advised to developmarket-oriented behaviors. By promot-ing a market-oriented culture, managers will facilitate the development of core

capabilities that promote internationalcompetitivenesssuch as marketsensing, and customer linking andchannel bonding. These are outsidein

Table 4 Alternative Model Comparison

Parsimony-Adjusted Measures Model with MO Model without MO

CMIN/DF 1.054 1.12

PGFI 0.60 0.59PRATIO 0.79 0.79PCFI 0.76 0.62



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capabilities that link a firms processes with its external environment, thushelping the firm to surpass its competi-tion by creating and enhancing solidrelationships with its suppliers, custom-ers, and distributors. Such relationships,if sustained, should improve a firms

foreign performance. In addition, a firmthat adopts a market-oriented culture will be in a better position to identifyand exploit new market opportunitiesbecause MO facilitates the acquisition ofmarket knowledge and the committingof resources to capturing them.

The literature witnesses to the essen-tial role that managers play in implement-ing a market-oriented culture in a firm

(Kohli, Jaworski, and Kumar 1993). Mana-gerial involvement, commitment, andrisk-aversion are essential to the success-ful development of market-orientedbehaviors in a company. Proactive andcommitted managers are thus critical tothe development of a market-orientedculture that will identify and exploit inter-national opportunities and thus enhancea firms international performance.

Limitations and Further ResearchEvery empirical study has certain limi-

tations that restrict the generalizability ofthe findings. In this case, it is possiblethat if the study was conducted on otherregions and countries in the world, themagnitude and direction of the relation-ships in the model may be different. The

degree of economic development mayaccount for distinct SME behavior. Inaddition, given the dynamic nature ofthe internationalization process, thecross-sectional nature of the study mightnot have been the most appropriateapproach. Although the study has pro-vided strong evidence in support of thehypotheses, a longitudinal study mightoffer further interesting insights.

The low response rate and the smallsample represent another potentialconcern. However, the sample is fairlyrepresentative of the population and

there was no evidence of nonresponsebias. Moreover, given the confirmatorynature of the study, the sample can beconsidered sufficient (Blair and Zinkhan2006).

There are possible lines of futureresearch. In accordance with the indus-

trial economy approach, it would beinteresting to test the moderating roleof the environment in the relationshipbetween a firms MO and its foreign per-formance. The research objective wouldbe to identify the optimum level of MOdepending on the environmental condi-tions in foreign markets. This stream ofresearch is supported by the works ofKohli and Jaworski (1990) and Slater and

Narver (1994), and has been followed ininternational markets (Cadogan, Diaman-topoulos, and Siguaw 2002; Rose andShoham 2002).

Other lines of research emerge fromthe RBV, following Li, Li, and Dalgics(2004) contribution. The objective wouldbe to explore the influence of other cor-porate competencessuch as an EO,innovation, and technology capabilitieson the internationalization processof an SME. The dynamic capabilitiesapproach (Menguc and Auh 2006; Lado,Boyd, and Wright 1992) could be used toexplore the joint effect of these compe-tencies on the internationalization pro-cess and foreign-market performance.

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Overall Market Orientation Scale

Intelligence Generation

G1 We know our competition: we gather information about them ona regular basis.

G2 We obtain ideas to improve our products from our customers.

G3 We conduct frequent customer research to anticipate whatproducts and services they will need in the future.G4 Functional Managers are regularly informed about our actual and

potential competitors.G5 Market research insights are used for decision-making purposes.G6 We contact periodically with customers to know their perception

about the quality of our products and services.G7 We often gather market data to apply them in the development

of new products.G8 There are information systems operating within the company to

sense major industry changes.G9 We are able to quickly detect changes in customer preferences.G10 We encourage customers to make comments and even complaints

about the companys offering, since that make us improve ourjob.

G11 We regularly analyze our competitors marketing programs.G12 We frequently review the environmental changes effect on

customers.G13 We commonly measure the service level delivered to our

customers.G14 We constantly analyze to what extend the company is committed

to meet our customers needs.



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Intelligence Dissemination

D1 There are periodical encounters among the different areas todiscuss about environmental and market trends.

D2 When something important happens to a customer or customergroup, the company has access to this information on short

notice.D3 We try to make reports regarding competitive situation and future

environmental trends available to the different departments inthe company.

D4 When a department sense relevant issues related to competitors,it alerts quickly to other departments in the company

D5 Top management discuss regularly strengths, weaknesses, andcompetitors strategies.

D6 Customer and market success/failures are communicated to theother departments in the company.

D7 Salesforce share information with the company about competitionstrategies.

D8 There is a constant flow of opinions among areas to decide howto respond to competition strategies.

D9 Customer Satisfaction data are spread at all levels within thecompany.

Market Response

R1 We use customer information to improve quality.R2 In the process of new product development, we start from what

is valuable for the customer.R3 We sep the promises we make to our customers.R4 The effort devoted to product development is reviewed to ensure

it meets customer needs.R5 Customer complaints are quickly answered.R6 We are sensitive to how customer evaluates our products and

services, so required modifications in the case of negativeperceptions are performed immediately.

R7 We try to achieve competitive advantages by understandingcustomer needs.

Source: lvarez, Santos, and Vzquez (2000).



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Knowledge Acquisition Scale (Related to the FirmsMajor Exporting Market)

KA1 In your opinion, which is the level of knowledge that your companyhas regarding its foreign customers?

KA2 In your opinion, which is the level of knowledge that your company

has regarding its foreign environment?KA3 In your opinion, which is the level of knowledge that your companyhas regarding its foreign competitors?

KA4 In your opinion, which is the level of knowledge regarding theinstitutional structure, norms, culture and language of that market?

KA5 Which is the level of experience acquired in your major foreignmarket?

Source: own development.

Market Commitment Scale (Related to the Firms MajorExporting Market)

MC1 The structural changes taking place in my company due to itsforeign market entry has been . . .

MC2 Human resources devoted to internationalization training programshave been . . .

MC3 The percentage of human resources committed to foreign marketoperations has been . . .

MC4 In your company, in order to achieve its general objectives, thedevelopment of foreign market operations is considered . . .

Source: adapted from Yip, Gmez, and Monti (2000).

Foreign Market Performance Scale (Related tothe Firms Major Exporting Market)

EXP Which is the approximate percentage of exporting sales of your

major foreign market over the total sales of the company withinthe last three years?

TGRS Which is the average sales growing rate that your company displaysin its major foreign market within the last three years?

PROF How do you consider the percentage of net profits obtained in thefirms export sales?

GRPROF Setting the last three years as horizon of time, how has been theaverage growth of your export sales net profits?

NP Which is the success rate of new product/service development ofyour company in its major foreign market?

Source: adapted from Rose and Shoham (2002).

Market Orientation and Internationalization in SME

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