THE IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

Robert G. Cooper* McMaster University

Elko J. Kleinschmidt** McMaster University

Abstract. Export sales are an important route to growth for the small-to-medium sized firm. This article reports the results of an extensive empirical study of the export strategies of a large sample of high technology electronics firms, and the performance results of adopting alternate export strategies. Six strategy scenarios were identified. The resuits show that the types of foreign markets selected, segmentation strategies and product strategies all have a pronounced impact on export sales and export growth. The best performers-a group of firms called the "world marketers" and representing 13.5% of the sample-achieved a dramatic 188% an- nual growth in exports and exported 52.5% of their output. The profiles of firms that elected each strategy scenario were deter- mined also.

INTRODUCTION

Export sales are increasingly seen as one route to corporate growth for the firm. But the question of which export strategy to elect-product strategy, segmentation strategy, choice of export markets, and so on-re- mains a concern for most exporters. This article reports the results of an extensive empirical investigation of exporters in one industry, and how the specific export strategies these firms elect affect their export per- formance.

Many managements look to foreign markets because of increasing competi- tion at home, maturing domestic markets, or limited domestic market op- portunities. Exporting as a means to corporate growth is particularly appropriate for: manufacturers of industrial goods, where international cultural differences are not likely to deter foreign sales (as is the case with many consumer goods [34]; firms, where direct foreign investment is beyond their financial and managerial capabilities; and firms with products possessing innovative advantages [38].

* Robert G. Cooper is Professor of Marketing, McMaster University, Faculty of Busi- ness, Hamilton, Canada and Director of Research of the Canadian Industrial Innovation Centre, Waterloo. ** Elko J. Kleinschmidt is Assistant Professor of Marketing at McMaster University, Hamilton, Ontario, Canada.

Date Received: January 3, 1983; Revised: October 19, 1983/March 26, 1984; Accepted: May 9, 1984.

37

Palgrave Macmillan Journalsis collaborating with JSTOR to digitize, preserve, and extend access to

Journal of International Business Studieswww.jstor.org

®

JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1985

The field of export marketing strategy has been a neglected one, however, both in text books and empirical investigations at the level of the firm. First, much academic research on international trade has dealt with entire indus- tries rather than individual firms, or has centred on the MNC (multinational corporation), and all but ignored the exporter. Second, few studies have dealt with the role of strategy, namely product/market selection, as a determinant of export performance. Those studies that do focus on export marketing have investigated the myriad of firm, managerial and market characteristics associated with a firm's propensity to export. Factors tied to export performance, often defined as export sales as a proportion of total sales, fall into 4 categories:

1. Management expectations and perceptions, including: perceptions of export risk [1, 10, 27, 29, 31, 35]; export expectations of top management [1, 22, 27]; export cost expectations [10, 29]; and management expectations of export profitability [1, 19,22,27,34].

2. Market variables, including: size of foreign markets [11, 17, 30]; level of competi- tion in foreign markets [26]; domestic market share [26]; trade barriers [17, 20, 26]; and physical and psychological distance to foreign markets [1, 21, 26].

3. Differential advantages and resources of the firm, including: product advantages and product adaptation [7, 10, 20, 30, 39]; technological advantages [7, 10, 15, 26] ;and distribution advantages [21, 23].

4. Firm demographics, including: size of firm [7, 10, 15, 16, 19, 40]; firm ownership [10, 15, 26]; and years of export experience [11,25].

Although many of these firm, managerial and market variables are linked to export performance, the role of export strategy-namely product/market specification-in these relationships is rarely considered. For example, Hirsch and Lev [19] studied determinants of the export concentration strategy of firms; Ayal and Zif [4] developed a matrix of competitive market choice strategy; and Piercy [30] looked at export strategy from the point of number of countries exported to. None of these studies dealt with export performance as the dependent variable. Of interest is Piercy's conclusion [30] regarding the role of concentrating on key markets, which conflicts with Tessler's findings [39]. Numerous investigations and writings on domestic marketing strategy point to the important part that product/market selection plays [ 6, 34]. The role of marketing strategy cannot be stressed sufficiently, whether for domestic or for export operations. Clearly there is a need to examine the different kinds of product/market strategies that firms adopt when marketing to foreign countries. An equally important issue concerns the relative merits of each strategy. Finally, an understanding of what types of firms typically choose which strategies would provide an insight into the appropriateness of alternative strategies for different firms. These questions are addressed in this article.

38

IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

A CONCEPTUAL FRAMEWORK

A conceptual framework or model was developed in order to help structure the research and to identify variables for measurement. The export per- formance a firm achieves is a function of:

1. the nature of the firm; 2. the nature of the firm's industry and markets; and 3. the export strategy the firm elects.

These relationships are shown in Figure 1. The underlying proposition of this research is that the export strategy a firm elects is closely linked to the firm's export performance; and it is this relationship which is of particular interest. The impact of other variables, namely the nature of the firm, its markets and industry, are investigated also.

FIGURE 1

A Conceptual Model of the Role of Export Strategy on Export Performance

An export strategy is very similar to a domestic marketing strategy. A marketing strategy is normally defined in terms of market selection and product strategy [3, 8, 24] and is represented by a product/market matrix. In the case of export marketing, product strategy translates into product adaptation policy, or the degree to which a firm adapts its products to foreign markets: at one extreme, the firm simply sells its domestic product abroad with minimum adaptation; at the other extreme, the firm develops products specifically for its export markets.

The strategy of market selection in export marketing involves two dimen- sions, the countries exported to and the level of market segmentation within

39

JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1985

these countries [4]. As for countries, export market selection ranges from a "nearest neighbor" approach (exporting to a convenient and proximate country) to a world orientation, where a firm's exports are sold to differ- ent countries around the world. For example, Gronhang notes that for Norwegian firms, the nearest neighbor approach amounts to selling to other Scandinavian countries [13]; in North America, the familiar U.S.- Canada trade patterns typify the nearest neighbor strategy. Other re- searchers have looked at the number of countries to which firms export, and contradictory results have been uncovered. For example, Tessler [39] recommends that successful firms concentrate on a few major markets (countries); in contrast Piercy [30] gives convincing arguments that a firm should seek as many markets as possible. Hirsch and Lev [18, 19] found conditions that point to either approach, and also concluded that export diversification (spreading exports more equally over many export markets) helps to stabilize the sales of a firm. For the current research, the "near- est neighbor" approach (few countries) and a world orientation (many countries) were used to represent the number of countries receiving exports. The second aspect of market selection, segmentation strategy, portrays the degree of market segmentation that firms use within their export mar- kets, that is, does the firm sell to essentially one and the same market seg- ment in its foreign markets [38, 40], or does it cater to a multitude of different segments? Therefore, in the current research, export marketing strategy is defined in terms of 3 dimensions:

1. degree of product adaptation; 2. countries exported to (neighbor versus world); and 3. level of market segmentation.

Splitting firms into two categories on each dimension yields a 2 by 2 by 2 cube that represents the 8 possible strategy combinations.

Export performance has been traditionally measured by a single variable, namely export sales as a percent of total corporate sales, called export intensity. The reliance on export intensity2 has been criticized in the past (for example, Cunningham and Spigel [9], Fenwick and Amine [11], and Reid [32]). Reid's recent discussion [32] of the measure of export per- formance is particularly detailed. He suggests that performance should be measured multidimensionally (intensity and extent of entering new mar- kets). In other contexts, growth is considered to be an important dynamic measure of performance.3 In this research, therefore, both export intensity and export growth were considered as gauges of export performance. Admittedly, neither measure is a totally valid gauge of export performance. For example, a firm may boast of a reasonable export intensity, and a high export growth level; but because the firm's total sales (export and domes- tic) grew substantially, the firm's exports relative to total sales remain constant. Nonetheless, both measures considered concurrently provide a reasonable picture of export performance, certainly better than either measure on its own.

40

IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

Many studies have shown that characteristics of the firm are tied to export performance. The focus of the current research is not on how these char- acteristics might predict export performance, but rather on how strategy affects performance. Nonetheless, these company characteristics do provide a setting for the export strategy, and a relationship among strategy elected, firm characteristics, and performance can be expected (see Figure 1). The firm characteristics considered in this research comprise 5 blocks of variables:

1. Firm demographics, including: size of firm; age of firm; years of export experience; and firm ownership (foreign versus domestic).

2. Managerial perceptions of market conditions, including: perceptions of the level of

competition in the main markets; export barriers; perceptions of domestic and for-

eign market potential; and intentions regarding direct foreign investment.

3. Differential advantages of the firm, including: product advantage; price advantage; distribution advantage; advertising/promotion advantage; export policy constraints

(a negative advantage). 4. Export support activities, including: export marketing planning efforts; export mar-

keting research efforts; use of external information sources; level of foreign visits; and R&D spending.

5. Goals and aspirations, including: expectations for exports; corporate growth goals; and corporate goals regarding security of investment.

The marketing concept dictates that firms should practice market segmenta- tion and design product offerings to suit their target market. Its logical extension, in export marketing, is that firms which elect a product adapta- tion and market segmentation strategy can be expected to perform better than those that do not. Moreover, economic theory suggests that the firm which selects its market with a view to the magnitude of opportunity and the nature of the firm's own competency should out-perform the firm which restricts itself to a nearby or convenient market. Additionally, certain world markets are growing more quickly than nearby markets.4 Therefore, a world oriented strategy can be expected to out-perform a nearest neigh- bor approach. The following research statements evolve from these ex-

pectations:

1. Export performance is related to the type of export strategy elected, and, in parti- cular, is positively tied to the following strategic directions:

-product adaptation strategy (versus a non-adaptive approach); -a segmentation strategy (versus no segmentation); and -world orientation (versus a nearest neighbor approach).

2. Different types of firms select different export strategies.

Although the research statements may seem self-evident, the magnitude of the differences in performance and the types of firms that select each strategy are of particular interest to both the export strategist and the marketing academic.

RESEARCH METHOD

Managers of 142 firms in the Canadian electronics industry were personally interviewed to obtain data on export strategies and performance.5 A single

41

JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1985

industry was chosen in order to control for industry differences. The elec- tronics industry provided an ideal setting for the study: many small-to- medium sized firms, heavily engaged in the export of moderate-to-high technology products. Initially, 269 firms were contacted by mail and asked to participate in the study. A total of 192 firms replied (70.6%), which, following screening for appropriateness, was reduced to 142 firms. Those 142 firms finally interviewed represented 43% of the total number of Canadian electronics firms and an estimated 60% of output (industrial goods only). The average firm in the eventual sample had annual sales of $18.5 million, and exported 46% of its output. Of these exports, an average of 53% was destined to the nearest neighbor (the U.S.) and 47% to other countries. The median number of employees per firm was approximately 100, the median age of the firm about 15 years, and almost 60% of the firms had 10 years or less export experience. One-third of the firms were foreign-owned. The managers of each firm were asked about their export marketing stra- tegies, namely the countries exported to (and split of exports by country), the nature and number of segments catered to, and product adaptation practices. A nearest neighbor exporter (versus world exporter) was defined as a firm which exported more than 67% of its exports to one country6 (in this case, the U.S.). Firms that sold to two or more market segments with- in their foreign markets vere classed as multi-segmenters (versus single segment). Product adapters were defined as firms which adapted their products beyond the minimal requirements for export markets.7 Note that all but a few firms in the sample produced proprietary products of a non- commodity nature, that is, where there was opportunity for product adaptation. Personal discussion with representatives of the few firms in the sample which produced a commodity product showed that the con- cept of product adaptation also was relevant. For example, one of the firms producing a commodity type of product explained that its export success was due to the willingness to adapt its "commodity" to special requirements of its export markets. The sample of firms was then categorized into the 8 possible export strategies. The resulting strategy groups are defined in terms of "world" versus "nearest neighbor" approach, and a "marketing" versus "selling" orientation. Here a "marketer" practices both product adaptation and market segmentation concurrently; in contrast a "seller" neither adapts his products nor practices market segmentation; and a third category (combining 4 cells into 2 groups), falling between the 2 extremes, the quasi-marketer, practices either product adaptation or segmentation, but not both concurrently. The definition and frequency of these resulting 6 strategy types is shown in Table 1. Note that only a small proportion of firms-less than 1 in 7-elected the normative strategy of a world oriented marketer. Further, only 29% practiced a marketing approach whereas al- most 60% had a world orientation.

42

IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

TABLE 1

Definition and Frequency of Strategy Types

Nearest neighbor

Marketer

Quasi-marketer

Seller

% of exports destined to nearest neighbor (mean)

Adapts products and segments Adapts products and segments markets, and markets to the markets, and markets mainly to world. nearest neighbor.

13.5% of firms 15.6% of firms

Either adapts products or Either adapts products or segments segments markets, but not both; but not both; exports mainly to exports to the world. nearest neighbor.

28.4% of firms 12.8% of firms

No product adaptation and no No product adaptation and no market segmentation, and sells market segments, and sells mainly to the world. to the nearest neighbor.

17.7% of the firms 12.0% of the firms

28.1% 90.2%

1 Note: Classification (binary on each dimension) was based on the answers to the Likert scales (see

footnote 7) and carried out by 2 independent judges. In 94.3% of all cases, identical classifi- cation was obtained. For the remaining cases, additional data not reported here were used for classification purposes.

RESULTS

Impact of Strategy

The export strategy elected-marketing versus selling, or world versus near- est neighbor-is strongly linked to export performance. Table 2 shows the relationship. Note that firms electing a world marketer strategy achieved an exceptional annual growth8 in exports of 188% compared to a low of only 23% for nearest neighbor sellers-an 8-fold difference in performance. Similarly, world marketers saw 52.5% of their output as exports, almost double the 29.3% level realized by nearest neighbor sellers. In analyzing these results, however, one cannot draw conclusions about causality. These data are cross-sectional in nature, and the research yields no evidence that strategy leads to performance. Only associations between strategy and per- formance results can be established.

Export Growth

Export growth, the dynamic measure of performance, was closely related to both dimensions of export strategy, with the marketer/seller dimension having a stronger effect than world/neighbor direction. Overall, marketing firms, practicing both product adaptation and segmentation, saw their ex- ports grow at 130% annually versus only 26% for sellers (row means, Table

World

43

JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1985

2). Similarly, world oriented firms witnessed a growth of 75% versus 51% for those with a nearest neighbor approach (column means, Table 2).

TABLE 2

Export Performance versus Export Strategy

PERFORMANCE MEASURES

EXPORT GROWTH a EXPORT INTENSITY

(% growth) (% exports/sales)

World Nearest Row World Nearest Row neighbor mean neighbor mean

Marketer 188%b 80% 130% 52.5% 46.5% 49.3%

Quasi-marketer 51% 41% 48% 52.1% 46.6% 50.4%

Seller 28% 23% 26% 42.1% 29.3% 36.9%

Column mean 75% 51% 67% 49.2% 41.5% 46.0%

a Annual growth rate, compounded over last 3 years. b Reads: World marketers achieved an export growth of 188%.

For export growth, both main effects-world versus nearest neighbor and market versus seller-were statistically significant (oa < 0.10: see Table 3). For export intensity,only the marketer-seller dimen- sion was significant (see Table 4).

Not surprisingly, the relation of strategy to export growth was strongly significant. Two-way analysis of variance of export growth versus the 2 strategy dimensions (marketer/seller and world/neighbor) was statisti- cally significant at the 0.001 level. Table 3 presents the ANOVA results. Note that the main effects were highly significant (a < 0.001), with the degree of marketing orientation significant at the 0.001 level, and degree of world orientation at the 0.08 level. But the interaction effects of these two dimensions were not significant (a < 0.10).

TABLE 3

Export Growth versus Export Strategy (Two-way ANOVA results)

Source of variation Degrees of F Significance freedom of F

Main effects 3 6.11 0.001 -marketer vs seller 2 8.54 0.000 -world vs neighbor 1 3,07 0.082

Interaction effects 2 2.06 0.131

Explained 5 4.49 0.001

44

IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

Export Intensity

Export intensity, the static performance measure, also was significantly related to the export strategy elected, but not nearly so strongly as export growth. At one extreme, firms electing a world marketing strategy-pro- duct adaptation, market segmentation and a world focus-exported more than half their sales, or 52.5% (Table 2). In contrast, those firms classed as nearest neighbor sellers, who sold unadapted products to the same segment in a nearby market of convenience, fared much worse with only 29.3% of their sales in exports. The export intensities versus strategies elected, shown in Table 2, reveal a consistent pattern, with performance increasing with both a marketing and a world orientation. On average, marketing oriented firms out-performed sellers (49.3% export sales versus 36.9%), and world oriented firms outdid nearest neighbor exporters (49.2% versus 41.5%), but less dramatically. The performance differences, gauged by export intensity, were statistically significantly related to strategy (a = 0.06). Two-way analysis of variance

(Table 4) showed export level to be significantly tied to the marketer/ seller dimension (a = 0.027). Although tendencies between export inten-

sity and the world/neighbor dimension were evident, this relationship was not significant at the 0.10 level. Overall, the main effects of the strategy elected were marginally significant (a < 0.10).

TABLE 4

Export Intensity versus Export Strategy (Two-way ANOVA results)

Source of variation Degrees of F Significance freedom of F

Main effects 2 3.56 0.031 -marketer vs seller 1 5.02 0.027 -world vs neighbor 1 2.09 0.151

Interaction effects 1 0.37 0.545

Explained 3 2.49 0.063

Note: Because of clear performance similarities (see Table 2), marketers and quasi-marketers were grouped together in this analysis.

Performance on Both Dimensions

Which strategies are associated with both high export growth and high export intensity simultaneously? Note that the 2 performance criteria -growth and intensity-were virtually independent gauges of export re- sults (r = 0.091). The "high performance" firms were identified in order to answer this ques- tion. Firms were split into 2 categories on each performance criterion (high and low, or firms above and below the median performance), yielding 4 categories of performance.9 Of particular interest were those firms in the

45

JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1985

HH cell: the "high performance" firms that achieved simultaneously both high export growth and high export intensity. Table 5 shows the propor- tion of HH firms for each strategy elected.

TABLE 5

Proporation of High Performers (and Low Performers) for Each Export Strategy

World Nearest neighbor Row means

Marketers 47.4%* 18.2% 31.7% (5.3%) (9.1%) (7.3%)

Quasi-marketers 22.5% 11.1% 19.0% (22.5%) (27.8%) (24.1%)

Sellers 20.0% 5.9% 14.3% (32.0%) (29.4%) (31.0%)

Column means 27.4% 12.3% 21.3% (21.4%) (21.1%) (21.3%)

*Note: Percentages shown are proportion of HH or high performance firms. Reads: 47.4% of world marketers are HH firms. Low performers, the LL firms, are shown in parenthesis. The remaining firms, i.e., the other 47.3% for this strategy, are LH or HL firms. The trends shown in the table are significant (chi squared: ac < 0.05).

The world marketers clearly out-performed the other strategy groups with almost half (47%) of world marketers classed as HH or high performance firms. Only 5.3% of world marketers were poor performers on both criteria, the LL firms. These trends shown in Table 5 were statistically significant (chi sqared; a < 0.05). In contrast, those firms electing a nearest neighbor selling strategy fared by far the worst: 29% of the firms that adopted this strategy were poor performers (LL firms), and only 5.9% high performance firms. The remainder were HL or LH firms.

Regardless of whether they were marketers or sellers, world oriented firms outdid consistently their nearest neighbor counterparts (Table 5). Similarly, whether they used a world or a neighbor strategy, the marketers always had a higher proportion of "high performance" firms. These tendencies were confirmed statistically: a MANOVA analysis, which tested for signifi- cant differences between strategy groups when considering both perform- ance gauges simultaneously, was significant at the 0.007 level. The research findings support the first research statement: a strategy that emphasizes a world orientation, product adaptation, and market seg- mentation is strongly linked to export performance. Export growth was considerably greater for such firms, export level was somewhat higher, and this strategy yielded a greater proportion of high performance firms in terms of both performance criteria.

46

IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

Strategy Profiles

Certain types of firms were associated with each of the export strategies. In order to identify the profiles of firms that elected the 6 export stra- tegies, one-way analysis of variance with Duncan multiple range tests was employed. Only 4 of the measures of firm characteristics were significantly tied to strategies (ANOVA; a < 0.10), although the range tests identified a total of ten of the 21 firms characteristics which differed between strategy groups (a < 0.10). The firm profiles are shown for each strategy type in Table 6 for the 10 significant firm characteristics only, and the profiles of 4 strategy groups are described below.

TABLE 6

Profiles of the Strategy Groups

STRATEGY GROUPS

Firm World World World Neighbor Neighbor Neighbor characteristics* marketer quasi- seller marketer quasi- seller

marketer marketer

Age of firm (years) L H H Export experience (years) L H H

Foreign investment intentions L H

Perceived barriers to export L H

Perceived price advantage L L L H

Export marketing planning** H H L L

Use of external information sources** H H L L

R & D spending (% of sales)** H L H L

Export expectations H H L Corp. growth goals** L L L H

* Only characteristics significant at the 0.10 level, Duncan multiple range tests, are shown. L means "low"; H means "high" on the characteristic. For example, for "age of firm", the first row, world quasi-marketers and world sellers were significantly older firms; world marketers were significantly younger.

** Denotes those characteristics also significant with the ANOVA test, a < 0.10.

1. World Marketers. World marketers, the best performers, were unique in that they were the youngest firms and also had the least years of export experience. Coincidentally, they were the heaviest spenders on R&D as a percentage of corporate sales, and undertook the most extensive export marketing planning activities. These world marketers also had the highest expectations for their export program. Of all firms, world marketers saw the fewest barriers to export marketing in foreign countries.

47

JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1985

Generally, perceived differential advantages-product, distribution, promo- tion, and so on-were not unique to any strategy group. The exception was price advantage, and, ironically, world marketers believed that they had the least price advantage of all firms. Finally, these firms, like the other marketing oriented firms, had low corporate growth goals relative to pre- vious years' growth, probably a sober reflection of the difficulty in repeat- ing the spectacular growth of previous years. There is a consistent pattern of characteristics associated with these world marketers, the high performance firms. The picture is one of an aggressive and entrepreneurial firm: young and with few years of export experience; heavy R&D spending but no product price advantage, suggesting a focus on product and technology rather than on low prices; extensive export planning; and high export expectations. Export performance was excep- tional: 188% growth in exports, and 52.5% of output as exports. 2. World Sellers. The picture for world sellers is in direct contrast to that for world marketers. World sellers were the oldest firms in the sample. They made little use of export marketing planning, had the lowest R&D spend- ing of all firms, and had the lowest export expectations. Such firms made little use of outside information sources about their foreign markets. Like world marketers, world sellers had low corporate growth goals relative to previous years' growth rates. The pattern is one of a much more conser- vative, established firm: older, little R&D, little export planning, and low expectations. Note that these firms achieved an export growth rate well below the average: 28% growth versus an all-firm average of 67%. More- over, the export intensity of these world sellers was also marginally lower than the average firm.

3. Nearest Neighbor Marketers. Nearest neighbor marketers possessed fewer distinguishing characteristics. Such firms had the most export experience (that is, had been exporting for a longer time period), and also had the strongest intentions of all firms to become involved in direct foreign in- vestment. Like world marketers, they perceived that they had no price advantage for their products and that their R&D spending was high. The growth in exports of nearest neighbor marketers was above average (80% versus 67% for all firms), whereas export intensity was just about average at 46.5%. 4. Nearest Neighbor Sellers. This small group of firms, representing only 12% of the sample, had very few unique characteristics. They made the least use of outside information sources in their foreign markets. Further, they saw the highest barriers to exports of all firms. Finally, they spent very little on R&D, but they were not significantly different in terms of age, export experience, export marketing planning, growth goals or export expectations. These firms were by far the worst performers, with an export growth rate of 23%, well below the average of 67%, and an export inten- sity of 29.3%, again far below the average of 46%. The different firm profiles that were identified across strategy groups and the results in Table 6 lend only partial support to the second research statement: different firms elect different export strategies. Indeed, there

48

IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

were a number of significant differences, particularly for the high perform- ance firms, namely the world marketers.

But there were also many characteristics that did not vary across strategy groups. The size of the firm (annual sales) and firm ownership (domestic versus foreign owned) appear to have little to do with the strategy elected. Perceptions regarding market potentials, both at home and abroad, were not tied to export strategies, nor were perceived differential advantages in terms of distribution, promotion and product. Finally, several support activities, namely foreign market research efforts and the level of foreign visits, were not particular to any one strategy type. The conclusion is that, although some company differences did exist across strategy types, these differences were not as great nor as numerous as might have been expected.

The Dual Role of Strategy and Firm/Market Characteristics on Performance

The research results above show that the product/market export strategy was strongly linked to export performance, notably export growth (Tables 2 through 5). Similarly, certain firm and market characteristics were as- sociated with different strategy types (Table 6). The questions arise:

1. is it export strategy that is related to performance? or,

2. is it the firm or market characteristics that are most closely tied to performance?

Many previous studies have shown positive answers to the second question, where performance was defined as export intensity (for example, Cavusgil [7], Daniels and Goyburo [ 10], Hirsch [ 15], Khan [21], McDougal and Stening [25], and McGuinness [26] ). In order to answer these questions, the concurrent relationships of strategy and firm/market characteristics on both measures of export performance were investigated. Covariance analysis was used (ANOVA, SPSS routine

[36], with covariate, default option) to investigate the main effects of

strategy elected (the categorical independent variable) and various firm/ market characteristics (the covariates) on export growth and intensity. Co- variates considered and suggested by previous research included:

-firm size (annual sales).'0 -firm size (number of employees). -level of restraints on exports (captures policy and other restraints to exports, notably

in the case of foreign owned firms). -perceptions of potential in domestic markets. -perceptions of potential in foreign markets. -domestic market share of the firm. -R&D expenditures as a percentage of sales. -number of firm's patents. -% of current firm sales made up by new products introduced in past 5 years. -perceived success of firm's R&D efforts. -perceived technological/product advantages of firm (4 scales). -product concentration index.

49

JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1985

In addition, multiple regression analysis with dummy variables was used (REGRESSION, SPSS routine [36], analysis of covariance, saturated model) to test the main and interactive effects of export strategy and firm / market characteristics on export performance. In the dummy variable regression, only a limited number of interaction terms were significant at the 0. 10 level, indeed fewer than might have been expected by chance. The interaction terms thus yield little to the analysis, and these regression results are not presented here. The covariate analysis provided provocative results. For export growth, the dynamic performance measure, it was clearly the strategy elected, and not the firm/market characteristics, that was tied to performance. In each co- variance analysis, the main effects of export strategy were significantly related to export growth at the 0.004 level or better (Table 7). In contrast, only 5 of the covariates were significantly related to growth (a < 0.10). These included:

-company size, annual sales (negative); -perception of domestic market potential (positive); -R&D spending (positive); -% of sales by new products (positive); -technological/product advantage (positive).

Note the consistent impact of the technological variables, namely R&D spending, sales by new products and product advantages.

TABLE 7

Export Growth versus Strategy and Covariates (Covariate analysis results)

Significance of export Covariate relationship Covariate strategy (main effects) (significance & direction)

Annual company sales 0.001 0.085 negative Company employees 0.001 N.S.

Level of export restraints 0.001 N.S. Domestic market potential 0.001 0.001 positive Foreign market potential 0.001 N.S. Domestic market share 0.001 N.S.

R& D expenditures (% sales) 0.002 0.003 positive No. of patents 0.001 N.S. % sales by new products 0.004 0.001 positive R&D success rating 0.001 N.S. Technological/product adv. 0.001 0.068 positive Product quality 0.001 N.S. Product concentration index 0.001 N.S.

N.S. means not significant at the 0.10 level.

In the case of the static measure of export performance, export intensity, mixed results were obtained (Table 8). In 5 of the 13 analyses, only the co- variate was significantly related to export intensity (a < 0. 10). In another

50

IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

6 analyses, only the export strategy was significantly related, and in 1 case, both strategy and the covariate were significantly related (a < 0.10). Those covariates related to export intensity included:

-level of restraints on exports (negative); -perceptions of potential in domestic markets (positive); -domestic market share (positive); -R&D expenditures as a percentage of sales (positive); -percent sales by new products (positive); -perceived technological/product advantages (positive).

TABLE 8

Export Intensity versus Strategy and Covariates

(Covariate analysis results)

Significance of export Covariate relationship Covariate strategy (main effects) (significance & direction)

Annual company sales 0.076 N.S. Company employees 0.081 N.S.

Level of export restraints 0.095 0.001 negative Domestic market potential N.S. 0.056 positive Foreign market potential 0.082 N.S. Domestic market share N.S. 0.001 positive

R & D expenditures (% sales) N.S. 0.001 positive No. of patents 0.099 N.S. % sales by new products N.S. 0.049 positive R & D success rating 0.062 N.S. Technological/product adv. N.S. 0.009 positive Product quality N.S. N.S. Product concentration index 0.061 N.S.

N.S. means not significant at the 0.10 level.

These results agree with other research findings. For example, McGuinness [26] found that export success (intensity) was related not to foreign own- ership, but to export restraints. He concludes that it is not foreign owner- ship per se that influences intensity, but the presence of restraints. Hirsch [15], Mc Guinness [26], and Cavusgil [7] all conclude that in technologi- cal firms, R&D and product advantages are highly associated with export intensity. Atlantic Economic Review [2] and Mc Guinness [26] dealt with market variables similar to these above.

Note that both measures of firm size (sales and employees) were not related to export intensity, a result consistent with certain previous studies. For example, Hirsch [15] found that size for high technology firms is not associated with export intensity; Cavusgil [7] concluded that size is related, but only for very small firms; Abdel-Malek [1], McDougal and Stening [25], and McGuinness [26] conclude that there is no relationship. How- ever, others (for example, Hirsch and Adar [ 17] and Tookey [40] ) did find a relationship. Therefore, the size-intensity relationship question is not yet settled, as Reid [32] points out succinctly by questioning the relevance of

51

JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1985

the prevailing size measure for export performance, especially if perform- ance is extended beyond the usual intensity level.

The conclusions from this analysis are:

1. The dynamic measure of export performance, export growth, is closely related to the export strategy elected. Certain firm descriptors do play a role as well, but in all instances, strategy is more strongly linked to performance.

2. The static measure, export intensity, is more weakly and less consistently related to export strategy. Here firm descriptors appear to play a more important role. These results concur with the findings presented earlier in the article, and also agree largely with the outcomes of previous studies.

CONCLUSIONS

The research results show clearly that the export strategy a firm elects is closely linked to the export performance results it achieves. In terms of relative impacts, the effects were:

(a) a marketing versus a selling orientation is associated with a much stronger export growth: 130% versus 26% growth.

(b) a marketing versus a selling orientation is linked to a higher export intensity; 49.3% versus 36.9% of output.

(c) a world versus nearest neighbor orientation is tied to a somewhat stronger export growth: 75% versus 51% growth.

(d) a world versus nearest neighbor orientation is associated with a somewhat higher export intensity: 49.2% versus 41.5% of sales.

All but the last relationship were statistically significant, but interactive effects between the 2 strategic directions were not significant. The results also reveal that export growth was much more strongly related to strategy than was export intensity. While other characteristics of the firm were also associated with a strong export growth rate, clearly it was export strategy and not these other factors that played the dominant role. But for export intensity, the role of strategy was not nearly as dominant nor straightforward. Here, characteristics of the firm appeared to play an equal, if not more important part, in deciding export results. Indeed, restraints on exports, domestic market conditions and market share, R&D expendi- tures and sales by new products, and technological/product advantages appear important in deciding export intensity, with export strategy of less significance. A possible explanation for these different results for the 2 measures of export performance is that export growth is a dynamic measure of perform- ance, whereas intensity is more static. Similarly, strategy is very much a dynamic concept, whereas characteristics of the firm are also more static. The dynamic measure, growth, is strongly related to the dynamic concept, strategy; and the static measure, intensity, is decided by more static vari- ables. Regardless of the explanation, these results do point to the need to consider alternate measures of export performance in order to gain a more complete picture.

52

IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

The research supports the tenets of the marketing concept as applied to international marketing: that market segmentation and designing products specifically to suit target market segments is an appropriate strategy. The marketing concept has found considerable favor in domestic operations, but has been rarely tested in an export context. The results of the current research help to extend the applicability of the marketing concept to ex- port marketing. The message for managers is that product adaptation and market segmenta- tion are key ingredients in success, not only at home, but also abroad. The manufacturer who is content merely to sell his domestic product abroad, essentially unaltered, and pays little heed to the nature and selection of segments within his foreign markets, is likely to achieve a below average export performance, particularly in terms of export growth. But if a high export growth and, to a lesser extent, a high level of exports are desired, than a careful selection of target market segments with the product as a variable, and not fixed, is essential. A second message is that a world versus a nearest neighbor orientation is probably the more preferred route, again if higher export growth is the objective. Many firms in our sample were content merely to select a foreign market that was convenient-a nearby market, both geographically and psychologically. But such a strategy of convenience may result in missed opportunities, markets that, although less convenient to access, promise higher payoffs. The performance results were clear: a world orientation leads to a considerably higher export growth, and a somewhat higher ex- port level.

Firms that elected the preferred strategy-a world marketing strategy-were distinct from other firms in a number of important ways. Some of these characteristics, such as age and export experience, are attributes of the firm itself, and are not amenable to management action. But certain activities, which are within the control of management, were clearly associated with these high performers. High R&D spending, and the reliance on techno- logical prowess, rather than price advantage, were important features of these firms. Similarly, the use of extensive export marketing planning separated these world marketers from other firms. Although no causality was shown by the research, the evidence suggests strongly that both R&D spending and export marketing planning are vital to highly successful ex- port marketing. Export success can never be guaranteed. There are simply too many un- knowns and uncertainties to yield a reliable and valid prediction of success. But this research has demonstrated that certain strategies are more likely to lead to success than others. What is most surprising is the magnitude of the performance differences between strategies. Export strategy selection and implementation becomes a critical ingredient of export success. And a strategy that is based on the marketing concept and features a world orientation could become the ideal for firms that are intent on improving export performance.

53

JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1985

NOTES

1. This research has been supported by a grant under the Technological Innovation Studies Pro- gram, Office of Industrial Innovation, Department of Regional Industrial Expansion, Ottawa, Canada.

2. Of 25 studies referred to by Kleinschmidt [23] concerned with export behavior and performance, 15 used export intensity as the dependent variable. Of these, only Fenwick and Amine [11] and Khan [21] used additional measures of export performance, but not export growth. The other ten studies surveyed were concerned with other aspects of exporting and not directly with performance. 3. See for example works by Barna [5] ,Filleyetal. [12], Hatten and Schendel [14], Penrose [28], Rumelt [33], and Starbuck [37]. 4. Note: Since Canadian firms provided the data, the "nearest neighbor" market was the U.S., which has experienced slower growth than certain other countries. 5. The interviews were conducted in late 1980, early 1981. 6. Note: an average of 67% of Canadian manufactured exports are destined to U.S. markets (ex- cludes Autopact). 7. In order to classify firms as product adaptors (or non-adaptors) and segmenters (or non-segment- ers), Likert type-multi-item scales were used: 5 items for the product adaptation dimension and 4 items for the market segmentation dimension. 8. Compounded export sales growth for the last 3 years (1978-1980). 9. The median growth rate was 37% and median export intensity was 43%. These values were used to split the sample into 2 groups on each performance criterion. 10. For a thorough discussion of firm size and export behavior see Reid [32]. He identified 2 dif- ferent dimensions (1) traditional size (see above meaures), and (2) size expressed in number of academic and technically trained employees. Both were associated with different firm factors. The latter size measure is not directly used in this research.

REFERENCES

[1] Abdel-Malek, Talaat. Managerial Export-Orientation: A Canadian Study. School of Business Administration, University of Western Ontario, 1974.

[2] Atlantic Economic Review. "How the Major Obstacles to Expansion Can Be Overcome." Atlantic Economic Review, May 1971, 12-15.

[3] Ames, B. Charles. "Marketing Planning for Industrial Products." Harvard Business Review, September/October 1968, 100-111.

[4] Ayal, Igal, and Zif, Jehiel, "Marketing Expansion Strategies in Multinational Marketing." Journal of Marketing 43 (Spring 1979): 84-94.

[5] Barna, Tiber. Investment and Growth Policies in British Industrial Firms. Occasional Papers XX, Cambridge: Cambridge University Press, 1962.

[6] Buzzell, Robert D. "Can You Standardize Multinational Marketing?" Harvard Business Re- view, November/December 1968, 108-117.

[7] Cavusgil, Salih Tamer. "Organizational Determinants of Firms' Export Behaviour: An Em- pirical Analysis." Unpublished Ph.D. dissertation, University of Wisconsin-Madison, 1976.

[8] Corey, E. R. Industrial Marketing. Englewood Cliffs, NJ: Prentice-Hall Inc., 1962.

[9] Cunningham, M. T., and Spigel, R. I. "A Study in Successful Exporting." British Journal of Marketing, Spring 1971, 2-12.

[10] Daniels, John D., and Goyburo, Juan. "The Exporter-Non-exporter Interface: A Search for Variables." Foreign Trade Review, No. 2, July/September 1976-77, 258-282.

[11] Fenwick, Ian, and Amine, Lyn. "Export Performance and Export Policy: Evidence from the U.K. Clothing Industry." Journal of the Operational Research Society 30: 8, 1979, 747-754.

[12] Filley, Alan C.; House, Robert J.; and Kerr, Steven. Managerial Process and Organizational Behavior. Glenview, IL: Scott, Paresman and Company, 1976.

[13] Gronhang, Kjell. "Exploring Industrial Export Strategies." In An Assessment of Marketing Thought and Practice, American Marketing Association Proceedings 48, 1982.

[14] Hatten, Kenneth J., and Schendel, Dan E. "Heterogeneity within an Industry: Firm Con- duct in the U.S. Brewing Industry, 1952-71." Journal of Industrial Economics XXVI, (December 1977): 97-113.

54

IMPACT OF EXPORT STRATEGY ON EXPORT SALES PERFORMANCE

[15] Hirsch, Seev. "Technological Factors in the Composition and Direction of Israel's Industrial Exports." In Raymond Vernon, ed., The Technology Factor in International Trade. NY: Columbia University Press, 1970, 365-408.

[16] Hirsch, Seev, and Adar, Zvi. "Firm Size and Export Performance." World Development 2: 7 (July 1974): 41-46.

[17 --- . "Protected Markets and Firms' Export Distribution." World Development, 2:8 (August 1974): 29-36.

[18] Hirsch, Seev, and Lev, Baruch. "Sales Stabilization Through Export Diversification." Review of Economics and Statistics, August 1971, 270-277.

[19] . "The Firm's Export Concentration: Determinants and Applications." World De- velopment 2:6 (June 1974): 27-33.

[20] Kacker, Madhav P. "Export-Oriented Product Adaptation-Its Pattern and Problems." Management International Review, 1975/6, 61-70.

[21] Khan, M. Sikander. "A Study of Success and Failure in Exports." Proceedings of the Annual Meeting of the European International Business Association, December 14-16, 1978, 1-7.

[22] Kizilbach, A. H., and Maile, C. A. "Export Marketing in a Changing Economic Environment." Journal of Small Business Management 15:1 (1977): 1-6.

[23] Kleinschmidt, Elko J. "Export Strategies, Firm Internal Factors and Export Performance of Industrial Firms: A Canadian Empirical Analysis." Unpublished Ph. D. dissertation, McGill University, 1982.

[24] Luck, David J. and Prell, Arthur E. Market Strategy. Englewood Cliffs, NJ: Prentice-Hall, 1968.

[25] McDougall, Gordon H. G. and Stening, Bruce W. "Something to Think About: Identifying the High Performance Exporters." Canada Commerce, December 1975, 12-15.

[26] McGuinness, Norman W. "The Impact of Technology and Product Characteristic on the International Sales of New Canadian Industrial Products: A Diffusion Analysis." Unpub- lished Ph.D. dissertation, University of Western Ontario, Canada, February, 1978.

[27] Neidell, Lester A. "Comparative Export Practices of Small Firms in The U.S. and Scandin- avia," Master thesis, MIT. Research Report to Federal Reserve Bank of Boston, 1965, No. 29.

[28] Penrose, Edith T. The Theory of the Growth of the Firm. White Plains, NY: M. E. Sharpe Inc., 1980.

[29] Philpot, Nigel. "Managing the Export Function." Management Survey Report, No. 26, Brit- ish Institute of Management, London, 1975.

[30] Piercy, Nigel. "British Export Market Selection and Pricing." Industrial Marketing Manage- ment 10, 1981, 287-297.

[31] Proudman, A. J. "The Measurement of Risk in International Entry Strategies." In Recent Research on the Internationalization of Business. Mathson, L. G. and Wiedersheim-Paul, F., eds. Stockholm: Almgirst and Witsell, 1979, pp. 102-107.

[32] Reid, Stan. "The Impact of Size on Export Behavior In Small Firms." In Export Manage- ment. Czinkata, M., and Tesar, G. eds. NY: Praeger Publishers, 1982, pp. 18-38.

[33] Rumelt, Richard P. Strategy, Structure, and Economic Performance. Boston: Harvard Uni- versity, 1974.

[34] Schaeffer, Sidney; Buzzell, Robert D.; and Heany, Donald F. "Impact of Strategic Planning on Profit Performance." Harvard Business Review, March/April 1974, 137-145.

[35] Simpson, Jr., Claude L., and Kujawa, Duane. "The Export Decision Process: An Empirical Inquiry." Journal of International Business Studies, Spring 1974, 107-117.

[36] SPSS. Statistical Package for the Social Sciences. NY: McGraw-Hill, Inc., second edition, 1975.

[37] Starbuck, W. H., ed. Organizational Growth andDevelopment: SelectedReadings. Harmonds- worth, GB: Penguin, 1976.

[38] Sweeney, James K. "A Small Company enters the European Market." Harvard Business Re- view, September/October 1970, 126-132.

[39] Tessler, Andrew. "Britain's Over-Ambitious Exporters." Marketing U.K., February 1980, 67-74.

[40] Tookey, D. A. "Factors Associated with Success in Exporting." Journal of Management Studies 1, March 1964, 48-64.

[41] Wind, Yoram; Douglas, Susan P.; and Perlmutter, Howard V. "Guidelines for Developing International Marketing Strategies." Journal of Marketing, April 1973, 14-20.

55