Welcome to the presentation on

How Market Orientation and Outsourcing Create Capability and Improve Performance in Emerging Markets

Dr. Satyendra Singh

Director, Centre for Emerging Markets

Professor, Marketing and International Business

Editor, International Journal of Business and Emerging Markets

s.singh@uwinnipeg.ca

www.uwinnipeg.ca/~ssingh5

Outline

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Introduction ObjectivesDefinitionsConceptual Model, HypothesesMethodologyAnalysis, ResultsManagerial Implications

Introduction

Why study this? Firms in Emerging Markets (EM) are

catching up with WestCosts – Tata, Nano; Chery, QQ Quality – Indian leather, Chinese silkProduct development pace – Films

Indicates ↓ in capability of West↑ important in recession

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Objectives

Firms need to be strategic and competitive If, Market Oriented - Outsourcing strategy

Competitive Advantage If so, trade off?

Competition vs. Cooperation

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What is Market Orientation (MO)?

Narver and Slater (1990) Customer, competitor, co-ordinaiton

Kohli and Jaworski (1990) Information generation/dissemination

Greenley (1995) EconomicCadagon et al. (1999) Export Deshpande (1993) Culture

Pitt (1996) European

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In general, MO strategy

Meets customers’ needsAnticipates market conditionsExplores and develops new productsDevelops more desirable products $Takes long-term perspective, so viableMO may firms capability

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But in EM, MO is different!

Demand > Supply!?No feedback

No culture of product returnShy, contamination by touch!

Not obsessed with changeLike permanence, memory, colony

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What is Outsourcing?

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Outsource activities despite its ability to make in-house, so focus core capability (Deavers, 1997)

Quick response to market turbulencesOn time delivery, lead timeCompetitive, if benefits > costs

If outsourced from EM

Abundant skilled labor! Fixed costs and wages BE point

performance, if firms’ capabilityOS may existing capabilities, but

borrowed capabilities Masks the decline skills, as firms may

not learnIt is risky

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Trade-off between MO and OS

MO

OS

Capability Per

form

ance

↑ CostsTimeComplexExpertise Costs

↑ SavingsLaborMrf.Risks

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Conceptual Model

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Capability Bus Perf Risk

Source-position-performance model(Day, 1994; Day and Wensley, 1988)

MO

OS

H1

H2

H6a

H6bH3

H5

H4

Competing Model - I

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Capability Bus Perf Risk

MO

OS

H1

H2

H6a

H6bH3

H5

H4

Competing Model - II

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Capability Bus Perf Risk

MO

OS

H1

H2

H6a

H6bH3

H5

H4

Theory -- Hypotheses

H1: MO ↑ CapabilityH2: MO ↑ Business PerformanceH3: OS ↑ CapabilityH4: OS ↑ Business PerformanceH5: Capability ↑ Business PerformanceH6a: MO-BP ↑, if risk ↓H6b: OS-BP ↑, if risk ↑

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Methodology

Market Orientation – Scale Customer orientation (Narver and Slater, 1990)

Customer commitment, create value, understand customer needs and satisfaction , after sales service

Competitor orientation Salespeople share competitors’ info, respond quickly to

competitors’ actions, top managers discuss competitors’ strategies, target opportunities for competitive advantage

Inter-functional dept co-ordination Info sharing, functional integration strategy, all depts contribute

to customer value, share resources with other business units

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Outsourcing – Scale

Core and Peripheral Outsourcing

(new scale developed by me) Ratio of outsourced production to in-house

production Ratio of outsourced products to manufactured

products

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Capability – Scale

Adapted from (Atuahene-Gima, 2005)

Speedy introduction of new products to markets Access to distribution network for products Creative marketing strategies for new products Secure resources for marketing new products

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Risk Aversion – Scale

Adapted from (Jaworski and Kohli, 1993) Financial risks are worth the reward Managers take big financial risks Managers develop innovative but risky

marketing strategies Managers are likely to play it safe (R) Managers implements activities only if it works

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Business Performance - Scale

Adapted from (Kotabe and Murray, 1990)

Pre-tax profitability Market Growth Market Share

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Data Collection

Kompass directory Delhi and Bombay Stratified quota sampling PIN method Personally collected – 3 months period 213 responses/1200 calls 18% response Multiple respondents all 7-pt scales Respondents’ knowledgeable about the

concept (+6. on 7-pt scale)

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Sample Characteristics

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Firms Foreign IndianTotal sample size (N=426) 221 205Manufacturing products 104 (47%) 115 (56%)Providing services 117 (53%) 90 (44%)Turnover (<Rs. 99m) 69 (31%) 88 (43%)Turnover (b/w Rs. 100 and 149m) 95 (43%) 74 (36%)Turnover (> Rs 150m) 57 (26%) 43 (21%)Turnover (<49) 64 (29%) 66 (32%)Turnover (between 50 and 99) 104 (47%) 84 (41%)Turnover (>100) 53 (24%) 55 (27%)CEO/MD/Proprietor) 126 (57%) 125 (61%)Senior manager) 77 (35%) 57 (28%)Mid-level manager) 18 (8%) 23 (11%)Proportion of outsourcing activities 62% 48%Business experience (in years) 22.5 11.8

Analysis

Factor Analysis Confirmatory Factor Analysis AMOS 4.0 Cross-group measurement validation Reliability > .7 Fit indices > .9 Multicollinearity < 4 Non-response bias ok

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Results

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Capability Bus Perf Risk

Unstandarised structural Ceffficients(Foreign/Indian), * p< .05, ** p<.001

MO

OS

H1 (.31**/.29*)

H2 (.14/.07)

H6a

H6bH3 (.19*/.21*)

H5 (1.33**/1.31*)

H4(.36**/.37**)

Model Fit Indices (Foreign/Indian):X2 (392, 641.45/412, 745.63); RMSEA (.05/.06), GFI (.88/.89), CFI (.95/.96)

Direct, Indirect, and Total Effects (Hair, 2006)

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Direct indirect(Cap)Total Effects

Full sample For. Ind. For. Ind. For. Ind.MOBP .14 .07 .41** .38** .55* .45*OSBP .36 .37 .25* .28* .61** .65**

Low risk sampleFor. Ind. For. Ind. For. Ind.MOBP .27* .31* .36* .21* .63** .52**OSBP .13 -.02 .01 .18 .14 .16

High risk sample For. Ind. For. Ind. For. Ind.MOBP -.02 .01 .14 .07 .12 .08OSBP .39* .34* .33* .39* .72** .73**

Model Fit Indices: X2 (87, 97.43), GFI=.87, AGFI=.82, NFI=.91, RMSEA=.05, NNFI=.93, TLI=.95, CFI=.97); * p< .05; ** p<.001

Implications for managers

Firms need both—MO and OS MO because difficult to imitate

Trade-off existsOS needed, not to costs but MO

No difference b/w Indian and foreign firms Low-risk firm MO, high-risk firm OS

to build capability

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Conclusion: Competition vs. Cooperation

LO OS HI

HI

LO

MO

Create value Capability OS

Initially OS to be MO MO

Manage risksLO risk-taking firms MOHI risk-taking firms OS

MO

Coop?Comp?

Comp/Coop? Comp/Coop?

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I

II

IIIIV

Future study: OS vs. Technology Transfer Kenya, Africa

Acknowledgements

The financial support from the Social Sciences and Humanities Research Council (SSHRC 4A grant # 0-40-8460-61000-000) is gratefully acknowledged.

This presentation is based on

Singh (2009). How market orientation and outsourcing create capability and impact business performance, Thunderbird International Business Review 51(4): 457 471.

References

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Question?