Managerial perceptions of global pioneering advantage: Theoretical framework and empirical evidence in the U.S. and Korea

Industrial Marketing Management 37 (2008) 863–872

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Industrial Marketing Management

Managerial perceptions of global pioneering advantage: Theoretical framework and empirical evidence in the U.S. and Korea C. Anthony Di Benedetto a,⁎,1, Michael Song b,1,2 a b

Fox School of Business and Management, Temple University, Speakman Hall, 1810 North 13th Street, Philadelphia, PA 19122 United States Henry W. Bloch School of Business and Public Administration, University of Missouri – Kansas City, Kansas City, MO 64110 United States

A R T I C L E

I N F O

Article history: Received 31 October 2005 Received in revised form 17 May 2006 Accepted 13 February 2008 Available online 20 June 2008 Keywords: South Korea Pioneering advantage First mover advantage Mental models Cultural environment Business environment

A B S T R A C T Managers form mental models of their business environment, and make strategic decisions based on these perceptions of reality. We study managerial perceptions of the competitive advantage gained by a pioneering firm. We expect that managers will make pioneering entry decisions based on their perceptions of pioneering advantages. Due to cross-national cultural and business environment differences, managers from different countries will employ different mental models and thus perceive the relative advantage of pioneering differently. Drawing from the literature on cultural influence on decision-making, we build a theoretical framework of perceived pioneering advantage in different cultural environments. From this framework, and from cultural differences that exist between the United States and South Korea, we derive hypotheses regarding expected cross-cultural perceptual differences. We test these hypotheses using samples of senior product managers from both countries. We find that some, but not all, of the principles of pioneering advantage empirically verified in North America are generalizable to the culturally-different South Korean business environment. © 2008 Elsevier Inc. All rights reserved.

1. Introduction Managers make sense of the complex business environment and the large volume of information surrounding them by simplified mental representations or mental models. That is, they selectively search for, perceive, and simplify the world around them into an abstraction of reality, and make strategic decisions based on this abstraction. Organizations will differ on how they process information, and thus variations among mental models will exist. Firms may differ, for example, on how they perceive their relative competitive advantage, depending on the mental model they tend to use (Day & Wensley, 1988). This study investigates managerial perceptions of the competitive advantage gained by the pioneering firm, in two different cultural and business environments. A firm that launches an innovative new product to the marketplace stands a much higher chance of competitive advantage, product success and profit performance (Griffin, 1997). Several empirical studies showed that the pioneer often gains a sustainable competitive advantage (Golder & Tellis, 1993; Kalyanaram, Robinson, & Urban, 1995; Kerin, Varadarajan, & Peterson,

⁎ Corresponding author. Tel.: +1 215 204 8147; fax: +1 215 204 6237. E-mail addresses: [email protected] (C.A. Di Benedetto), [email protected] (M. Song). 1 Both authors contributed equally to this manuscript. 2 Tel.: +1 816 235 5841; fax: +1 816 235 6529. 0019-8501/$ – see front matter © 2008 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2008.02.014

1992). At the same time, the concept of pioneering (or first-mover) advantage has been described as “definitionally elusive:” it may mean different things to different managers (Leiberman & Montgomery, 1988, 1998; Song, Di Benedetto, & Zhao, 1999). Further, most of the empirical studies of pioneering (with a few exceptions; see Song et al., 1999) have been conducted in a North American environment: much more needs to be done to understand whether pioneering advantages are universally considered important or if some are perceived to apply only in some cultures or to be more important in some cultures than in others. Our premise is that managers from different cultural environments will use different mental models in perceiving the advantages received by a pioneering firm. South Korea is different from the United States in both its cultural and business environment. The culture of South Korea, like its East Asian neighbors, is marked by high collectivism, long-term orientation, and high uncertainty avoidance. The United States and many other Western societies are more individualistic, short-term oriented, and low in uncertainty avoidance (Hofstede, 1994). Further, the South Korean business environment is characterized by large conglomerates (chaebols), whose priorities regarding global sales growth, product diversification, and R&D investment have greatly shaped South Korea's position in the world marketplace (Hitt, Dacin, Tyler, & Park, 1997; Soh, 1997). Research institutes, funded by the South Korean government, also have influenced South Korean competitiveness. Recently, these institutes, and the chaebols, have been criticized for not adequately supporting

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technology and product development, typically high-priority investments for South Korea. As a result, Korea lost some ground in the global competitive market (Chung & Kim, 2003). The generalizability of our understanding of pioneering advantage would be tested by an empirical test in a cultural and business environment clearly different from that of North America. Based on the literature examining cultural influences on decisionmaking, we build a theoretical framework of perceived pioneering advantage and its relationship to key cultural dimensions. From this framework we derive hypotheses regarding expected cross-cultural differences in perceptions of pioneering advantage between managers from the United States and South Korea. We test these hypotheses using samples of senior product managers from manufacturing firms in these two countries. We thus isolate real cross-cultural differences in beliefs about perceived pioneering advantage and can draw conclusions about whether our understanding of pioneering advantage generalizes to a culturally different environment. Differences in perceptions provide clues regarding the specific business environment prevailing in a particular culture; we explore this issue in our concluding section. An additional benefit of this study is that product development and innovation in South Korea has been underinvestigated in empirical study relative to Japan, China and other East Asian countries (Im, Nakata, Park, & Ha, 2003; Kim,1993; Mishra, Kim, & Lee, 1996; Suh & Cho, 2000). This shortcoming is difficult to justify, given South Korea's rapid economic turnaround after the 1990s Asian monetary crisis (Soh, 1997), largely fueled by technological development. This study helps to narrow the gap in understanding between product innovation in South Korea as compared to other industrialized nations. 2. Theory and research hypotheses 2.1. Advantages and disadvantages of pioneering 2.1.1. Pioneering performance Many empirical studies find that the pioneering firm outperforms later entrants in terms of market share and/or profitability. For reviews of this literature, see Leiberman and Montgomery (1988, 1998), Kerin et al. (1992), Golder and Tellis (1993). Pioneering also has its disadvantages as followers can learn from the mistakes of the pioneer. In fact, some empirical studies (e.g., Lilien & Yoon, 1990) find that later entrants often can get a long-term, sustainable competitive advantage. A review of the literature suggests that there are several categories of pioneering advantage that account for the superior performance of pioneers, as well as specific disadvantages. These specific categories of advantage and disadvantage are as follow. 2.1.2. Quality image perception advantage The pioneer gains competitive advantage if buyers have a compelling reason to continue to purchase the pioneer's product for the long term. If the pioneer builds and maintains a strong image in the mind of the buyer, the latter will have little reason to seek out information about later entrants' offerings. The advantage is more pronounced if the expected costs of information search are perceived to be larger than the resulting increase in benefits in terms of product quality or performance (Hauser & Wernerfelt, 1990).

2.1.4. Innovation leadership advantage By being furthest down the technology learning curve, the pioneer can capitalize on its investments in R&D to increase performance and perceived quality levels, or to lower production costs, solidifying its differentiation or cost leadership advantage over competitors and/or raising customer switching costs. Technological advantages can potentially help the pioneer sustain its initial advantage, even after later entrants narrow the pioneer's technological lead (Porter, 1983). If the innovation is patentable and interfirm diffusion of technology is low, the pioneer can take advantage of learning curve effects and further sustain its technological lead through preemptive patenting (Bresnahan, 1985; Ghemawat & Spence, 1985). Innovations in organizational systems, structures, and styles can also provide sustainable advantage to the pioneer, since such innovations are often slow to diffuse (Teece, 1980). 2.1.5. Scale economy advantage The pioneer can gain a sustainable economic advantage through lower overall absolute costs gained through economies of scale. As follower firms enter and attempt to build capacity to meet the pioneer's costs, the pioneer can stay ahead by investing in streamlining its production process and achieving even lower costs (Kerin et al., 1992). The follower firm can choose not to follow this strategy and instead to focus on a market niche not well served by the pioneer, but this strategy is likely to result in lower market shares. 2.1.6. Uncertainty pioneering disadvantage Technology uncertainties face the pioneer, who makes investments in R&D before the ultimately dominant product form is known (Olleros, 1986). A firm may choose to wait until competitors have pioneered the product and the dominant form has emerged, at which point the later entrant may have an advantage. Market uncertainties may cause the pioneer to choose a suboptimal position for its product; a later entrant may take advantage of the pioneer's positioning mistakes or can influence customer preferences to its advantage (Carpenter & Nakamoto, 1990). There also exist competitive uncertainties: at the time of pioneering, neither the ultimate number of follower firms nor the severity of the competitive threat may be known. A later entrant can hire away experienced personnel from the pioneering firm and learn from their experience with the product (Leiberman & Montgomery, 1988). These uncertainties may cause the pioneer to lose its early competitive lead. 2.1.7. Non-sustainability pioneering disadvantage Later entrants may free-ride on the investments made by the pioneer in R&D or market development, since imitation costs are generally lower than innovation costs (Leiberman & Montgomery, 1988). These competitors can translate these lower costs into lower prices and/or make investments to improve relative product quality, with the result that the pioneer's market share decreases through time (Huff & Robinson, 1994; Robinson, 1988; Robinson & Fornell, 1985). Further, the pioneer may not respond quickly to environmental changes, and may persist in an old product or process technology since innovation would eliminate rents on its existing products (Reinganum, 1983). 2.2. Mental models and cultural influence

2.1.3. Factor input preemption advantage Control of natural resource deposits, or prime retailing or manufacturing locations, can give the pioneer pure economic rents. Additional economic rent can be obtained on potentially mobile assets such as employees, managers, suppliers or distributors if their mobility is restricted by high switching costs (Leiberman & Montgomery, 1988). The pioneer can also spatially preempt competition by careful selection of initial geographic location (Leiberman & Montgomery, 1998).

Since the empirical analyses described above were mostly carried out in North America, one cannot determine from them the mediating role of national culture in perceived pioneering advantage (Leiberman & Montgomery, 1998). Managers tend to form simplified mental models of their business environment. They focus on certain critical pieces of information, and make decisions and measure their performance based on this information (Porac & Thomas, 1990). Not all firms will form mental models the same way. The marketing

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literature on mental models has focused on how firms perceive relative advantage (see Day & Wensley, 1988; Day & Nedungadi, 1994), and argues that different mental models will predominate in different firms, depending on whether they tend to view competitive advantage with respect to competitors, customers, or both. Culture has been defined as an “aggregate of … characteristics that influence a group's response to its environment” (Hofstede, 1980, p. 19), and may directly affect managerial problem definition, information processing, generation of solution alternatives, consensus building versus individual decision-making, and tolerance of risk (Ralston, Gustafson, Cheung, & Terpstra, 1993; Smith, Peterson, & Wang, 1996; Tse, Lee, Vertinsky, & Wehrung, 1988). That is, culture influences the manager's choice of mental model. Several dimensions of culture (notably those of Hofstede, 1980, 1994) have been used to understand cross-cultural differences in managerial decision-making: we shall focus on three dimensions most significant to our U.S.–South Korea cross-cultural study: individualism, uncertainty avoidance, and long-term orientation (Hofstede, 1994). An individualistic culture places high importance on freedom of choice and competition and a desire to seek control over one's fate. Being the opposite of individualism, collectivistic cultures stress group harmony and cohesiveness, and consideration of social objectives in decision-making (Tse et al., 1988). Uncertainty avoidance is “the degree to which people... prefer structured over unstructured situations” (Hofstede, 1994). Uncertainty-avoiding cultures may, for example, be less risktolerant in decision-making. Finally, the dimension of long-term orientation, originally named “Confucian Dynamism,” captured such values as thrift, perseverance, respect for tradition, and fulfillment of social obligations. Long-term orientation is typical of a dynamic, future-oriented mentality. South Korea, like most other East Asian countries, scores very high on collectivism, uncertainty avoidance, and long-term orientation, while the U.S. scores high in individualism, low in uncertainty avoidance, and low on long-term orientation (Hofstede, 1994). 2.3. Hypotheses 2.3.1. Pioneering performance Upon review of the extensive pioneering literature, several empirical generalizations have been identified. Most empirical studies find that pioneers obtain superior market shares (Kalyanaram et al., 1995, pp. 213–215). While these empirical studies were almost entirely conducted in North America, we hypothesize that managers from other cultures are likely to agree that pioneering firms gain performance advantages, other things being equal. There is some supporting evidence of this: studies of Japanese and Chinese managers indicate that they value pioneering as a competitive strategy (Parry & Song, 1994; Song & Parry, 1993). South Korean firms such as Hyundai and LG have followed similar competitive strategies in recent years, as South Korea has narrowed the gap between itself and fully industrialized nations like Japan through investment in technological development (Kim, 1998; Thieme, Song, & Shin, 2003). Furthermore, it has been noted that Japan's and South Korea's long-term success in the marketplace has been the result of, and will continue to depend on, the pursuit of pioneering strategies (Arrison, Bergsten, Graham, & Harris, 1992). We therefore state Hypothesis 1 as: H1. Managers from both the U.S. and South Korea perceive that pioneering firms outperform later entrants. Though all managers may agree that pioneers outperform later entrants, managers from different cultures may not agree on which specific categories of pioneering advantages are most important, due to the particular mental model they use. Because of cultural differences, we expect that managers may also perceive the disadvantages

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of pioneering differently (Song et al., 1999). Managers from more riskaverse cultures, for example, may find that the disadvantages of pioneering may outweigh the advantages and may choose to let another firm bear the pioneering risks. We develop six additional hypotheses below that permit us to explore these cross-cultural issues. 2.3.2. Quality image perception pioneering advantages Managers in collectivistic, long-term oriented cultures will be more focused on building a long-term relationship with buyers than will managers in an individualistic, short-term oriented culture. Collectivistic cultures place importance on group harmony and cohesiveness, which suggests that competitive coexistence and building of long-term channel and customer relationships are important to decision makers in these cultures. In a collectivistic culture, it would be perceived that the opportunity to build a superior image and a high-quality reputation, and thereby to encourage repeat business and long-term customer loyalty, is a key advantage of pioneering. The business environments that have evolved in the collectivistic cultures of South Korea and elsewhere in Asia have several unique features that provide evidence of these cultural traits. The Korean Chaebols play a similar role within the Korean business environment as do the keiretsu, or interorganizational networks, in Japan. Targeted industries are supported by the Korean Economic Planning Board, whose long-term policies stimulate export sales volume rather than profitability (Hitt et al., 1997). Additionally, the culture predominant in South Korea and other Asian Pacific countries is said to limit destructive competition there. For example, high collectivism, while conducive to integration within the “ingroup,” can heighten differences between “ingroup” and “outgroups” (Triandis, 1994). Thus, competitors in the ingroup may get preferential treatment, while outsiders may face extremely high entry barriers (Tse et al., 1988). In sum, the competitive rules are different in countries with a collectivistic, long-term oriented culture, as growth-based objectives, competitive coexistence among incumbent firms, and long-term relationships with customers are likely to be fostered (Deshpandé, Farley, & Webster, 1993). As a result, managers operating within this cultural environment will perceive the advantages of pioneering related to building a superior image and reputation, discouraging customer switchout, and supporting long-term customer relationships to be especially important. We propose Hypothesis 2: H2. Managers from South Korea (a collectivistic, long-term oriented culture) perceive the quality image perception advantages of pioneering to be more important than do managers from the U.S. (an individualistic, short-term oriented culture). 2.3.3. Factor input preemption pioneering advantages Individualistic cultures value freedom of choice, competition, and control over one's destiny rather than group harmony. Thus, managers from collectivistic cultures will view pioneering as a way to establish long-term relations with customers, while those from individualistic cultures are more likely to assess the merits of pioneering on how much it helps them preempt competitors' access to factor inputs and solidify their own competitive position. Compared with South Korea, the U.S. business environment has a more adversarial relationship between a firm and its suppliers and customers (Kagono, Nonaka, Sakakibara, & Okumura, 1985; Tse et al., 1988). Chaebol or Keiretsu-like long-term relationships between manufacturers and a small number of suppliers are still not common in the U.S. For example, U.S. automakers, have only recently established “American Keiretsus” to foster longer-term supplier– manufacturer relationships (Dyer, 1996), and these were company initiatives, not state-supported initiatives as in Japan and South Korea. Additionally, there is a greater threat of “outgroup” competition in the U.S. than in Asian Pacific economies, as the extremely high entry

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barriers created by government actions are usually not present. Thus, firms competing within the U.S. environment will be more concerned about the threat of new entrants, while pioneering advantages that establish competitive entry barriers will be less relevant in countries where the state erects barriers to foreign entry. In short, the predominant mental model used by management in individualistic cultures is likely to be one of competitive preemption. That is, pioneering is more likely to be viewed in these cultures as a way to preempt competition and thus to gain sustainable competitive advantage. We therefore propose H3: H3. Managers from the U.S. (an individualistic, short-term oriented culture) perceive the factor input preemption advantages of pioneering to be more important than do managers from South Korea (a collectivistic, long-term oriented culture). 2.3.4. Innovation leadership advantages As noted in the preceding paragraph, national culture is likely to affect the perceived importance of factor input advantages: managers from individualistic cultures will view pioneering as a way to preempt competitive access to factor inputs. Similarly, managers from individualistic cultures will view the innovation leadership advantages of pioneering as another way to preempt competitors and solidify their own competitive position. By establishing an innovation leadership position, the pioneer potentially gains from any applicable patent protection, and can keep proprietary information from diffusing throughout the industry for the longest period possible. Managers from a more collectivistic culture value more highly the notion of group harmony, and in some cases may even work cooperatively with competitors in consortia designed to develop and market innovative new products. Sony, for example, developed its global positioning system for automobiles as part of a 40-company consortium (Quelch & Fujikawa, 1996), while several Japanese camera companies worked jointly on what is known as the Advantix camera system (Campbell, 1999). In a consortium arrangement, instead of keeping proprietary information private as long as possible, the sharing of such information for mutual benefit is the norm. This cooperative behavior would be consistent with a more collectivistic culture such as South Korea. We propose Hypothesis 4: H4. Managers from the U.S. (an individualistic, short-term oriented culture) perceive the innovation leadership advantages of pioneering to be more important than do managers from South Korea (a collectivistic, long-term oriented culture). 2.3.5. Scale economy pioneering advantages Cultures with a long-term orientation are likely to implement policies that forego short-term profitability in favor of long-term future growth. As has been noted above, Asian Pacific countries with a Confucian tradition score the highest on long-term orientation. In particular, the South Korean government has adopted a policy of export growth that has led the Chaebols to pursue sales growth objectives (Hitt et al., 1997). South Korea has been undergoing unprecedented growth, experiencing GNP growth rates of 6–8% since the mid-1960s, as compared to 2.3% for middle-income economies worldwide (Field, 1995) and surviving the Asian financial crisis of the late 1990s (Song & Noh, 2006). Economic factors such as scale economies have made it feasible for South Korea and other NIEs to become world leaders in manufactured exports (Tan & Wee, 1995). The scale economy benefits of pioneering have been especially important to South Korea, being one of the faster-growing economies of the Asian Pacific that has fueled its economic growth by driving up worldwide manufacturing exports. We expect, then, that though all managers may agree that pioneers gain scale economy advantages, managers from countries with a long-term orientation will see the scale economy advantages of pioneering to be of particularly high

importance. We note that scale can also be built by pursuing shortterm strategies such as growth by acquisition; therefore, the pursuit of scale economy is not exclusively tied to a long-term orientation.3 As noted above, however, the recent economic history of South Korea suggests that a long-term sales growth objective, designed to increase scale and ultimately grow profitability, was explicitly implemented by governmental policy. We propose H5: H5. Managers from South Korea (a long-term oriented culture) perceive the scale economy advantages of pioneering to be more important than do managers from the U.S. (a short-term oriented culture). 2.3.6. Pioneering disadvantages Uncertainty-avoiding cultures are likely to exhibit many traits that suggest risk intolerance. In East Asian societies, for example, “face saving,” or maintaining a level of pride and dignity, is an important cultural aspect. The Japanese notion of “shame” is similar. Because of a desire to save face, East Asian managers may generate fewer solution alternatives and engage in other risk-reducing behavior (Kotabe, Duhan, Smith, & Wilson, 1991; Ralston et al., 1993; Tse et al., 1988). Face saving may be more important than organizational objectives in companies operating in this cultural environment. A subordinate may not criticize a superior's new product so as not to cause the superior to lose face, and a weak product may continue to receive funding. Indeed, in studies in China, subordinates are likely to be uninvolved in key decisions, but rather expected to obey the superior (Tse et al., 1988). As discussed earlier, pioneers face the related disadvantages of uncertainty and non-sustainability. We expect both categories of pioneering disadvantages to be more undesirable to managers from cultures exhibiting tendencies of high uncertainty avoidance. Even if they perceive the potential advantages of pioneering to be substantial, managers from high uncertainty avoidance cultures will be able to tolerate lower levels of pioneering risk than other managers, who may be more willing to gamble on a pioneering strategy. We propose Hypotheses 6 and 7: H6. Managers from South Korea (a high uncertainty avoidance culture) perceive the uncertainty disadvantages of pioneering to be more important than do managers from the U.S. (a low uncertainty avoidance culture). H7. Managers from South Korea (a high uncertainty avoidance culture) perceive the sustainability disadvantages of pioneering to be more important than do managers from the U.S. (a low uncertainty avoidance culture). 3. Methodology 3.1. Research methodology and survey instrument design Our overall research design follows the procedure for conducting international research developed by Douglas and Craig (1983). Because this is a two-country comparative study, the survey instrument must be equivalent across both countries (Kotabe et al., 1991). We used an iterative procedure to develop scales for measuring principles of pioneering advantage. We reviewed the literature for statements describing pioneering advantages and generated an initial pool of pioneering advantage principles. From the pool of items, we selected a subset using the criteria of uniqueness and the ability to convey “different shades of meaning” to informants (Churchill, 1979). We conducted twelve exploratory focus group interviews with sixty-nine marketing managers from fifteen U.S. firms to test the items for clarity and appropriateness as well as to provide input for 3

We thank a reviewer for this insight.

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additional scale items. Participants completed a questionnaire that included the items, indicating any ambiguity or other difficulty they experienced in responding to the items, and offered suggestions. Based on the feedback received from the managers, some items were eliminated, others were modified, and additional items were developed. We also conducted field research interviews in two South Korean firms, to establish content validity, further develop measures, establish equivalence of constructs, measures, and samples, and assess the possibility of cultural bias and response format bias. After completing the field research, we asked a panel of experts from prominent business and engineering schools in the United States and also a panel of managers from both the United States and South Korea to evaluate the items for clarity, specificity, and representativeness. We prepared the English version of the questionnaire, and used a parallel-translation/double-translation procedure to generate the Korean translation. The questionnaires were pretested with thirty-four bilingual MBA students from six respected business schools and with the field research participants mentioned earlier. Many items were eliminated due to difficulties in interpretation or definitional ambiguity as expressed by the participants. Using this feedback, we reduced the number of items in the final survey to fifty. In the questionnaire, a pioneer was defined as “a firm that was the first to introduce a new product/brand into its primary markets.” For all fifty scale items, Likert-type scales were used, with values ranging from 0 (strongly disagree) to 10 (strongly agree). For analysis, the scale items were centered, such that zero meant “neither agree nor disagree.” 3.2. Sample design and data collection The survey was sent as part of a regular mailing of research reports to all companies participating in an ongoing global research program (Globaltech). The sampling frame for the U.S. firms was taken from Manufacturing USA and the Directory of High Technology Industry. The sampling frame for South Korea was taken from manufacturing firms listed in the World Business Directory and World Marketing Directory. Through trade associations, personal contacts, and public information sources, key contact persons were identified, and a presurvey was conducted to gain firms' tentative commitment to participate in the research and to ensure that the final samples would be comparable across countries. We randomly selected 500 companies from the United States and 300 firms from South Korea (with appropriate industry stratification to match the samples). We used the Total Design Method for survey research (Dillman, 1978). We asked the contact person to forward the questionnaire to a senior executive who is experienced in making market entry decisions (the suggestions were: CEO, President, Vice President for Marketing, Vice President for Corporate Strategic Planning; Director of International Division). To increase our response rate, we offered participation incentives, promoted this study in meetings, established personal contacts and a good relationship with the companies, and obtained appropriate endorsements from trade associations and business leaders in South Korea. After multiple follow-up letters, phone calls and facsimiles, we received questionnaires from 233 U.S. respondents and 166 South Korean respondents. The adjusted response rates were 44.8% for the United States and 55.3% for South Korea. Respondents from both countries had substantial work experience, and were particularly knowledgeable in making global market entry decisions. For full details on the sample profiles, please see Table 1. 4. Analysis and results 4.1. Construct validity We combined the data from both countries and performed a principal components factor analysis on all fifty scale items, deleting

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Table 1 Respondent demographics

Number of participating firms Age Years of working experience Number of major market entry decisions made in past 5 years Number of overseas trips made in past year Number of industry association meetings attended in past year

U.S.

South Korea

223 44.4 (3.0) 15.2 (3.3) 17.5 (2.7)

166 42.5 (3.3) 20.6 (1.9) 20.6 (2.4)

12.0 (3.5) 3.5 (1.1)

11.2 (2.8) 3.6 (0.9)

Note: Cells show means and standard deviations (in parentheses) by country.

all those that loaded on multiple factors or had low item-to-construct loadings. This resulted in reduction of the initial set of fifty scale items to twenty-four. Principal components analysis of these twenty-four items revealed that they loaded onto seven factors as named in Table 2. All are multi-item constructs except Scale Economy Advantage, which loaded onto a separate factor. The seven constructs appear to have face validity. Factor 4 contains scale items pertaining to pioneering performance outcomes, Factors 3 and 6 contain scale items having to do with pioneering disadvantages of uncertainty and sustainability respectively, and the other four factors correspond to the four specific categories of pioneering advantage as identified in the Theory and Research Hypotheses section above. Furthermore, as indicated in the Methodology section, care was taken to ensure that respondents answering the questionnaire in different languages were responding to equivalent scale items. We therefore believe that the constructs we identified have conceptual and instrument equivalence over both countries included in the study. We assessed construct equivalence by separating the countries and conducting principal components factor analysis on the twenty-four retained items in each country separately. We found that the same seven factors emerged, with the same loading patterns and almost identical factor loadings, in both countries. We therefore have evidence of factorial similarity, factorial equivalence and measurement equivalence, which all provide evidence that the constructs are equivalent cross-nationally (Singh, 1995). We tested construct reliability in each country separately. In Table 2, we report the construct reliabilities as measured by Cronbach alpha for six of the seven constructs for both countries. (No Cronbach alpha was reported for Scale Economy Advantage as it was a singleitem construct.) These construct reliabilities ranged from 0.67 to 0.97, and almost all are above 0.7. These are in the acceptable range suggested in the literature (Peter, 1979, 1981). Examination of the patterns of item–item correlations and item–total correlations indicated that there were no deviations from internal consistency and external consistency. Thus, we conclude that the measurement model accurately fits the data in both countries. 4.2. Results of hypothesis testing We controlled for each of the background characteristics found in Table 1 by splitting each country sample into high and low groups for each characteristic (age, experience, etc.) and testing differences in means. We found that there were no significant differences in perceptions between high and low groups on any of the characteristics in Table 1. We conclude that differences on background characteristics do not affect managerial perceptions of pioneering advantage. We calculated mean scores on the seven constructs for both the United States and South Korea. We then carried out a series of ANOVAs to examine the relative levels of agreement with each construct across countries. Significant differences were found for all constructs except

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Table 2 Principal component analysis The following are some possible advantages/disadvantages of being a pioneer. We define a pioneer to be a firm who was the first to introduce a new product/brand into its primary markets. Using your overall experience, please indicate your level of disagreement or agreement by circling a number on the scale to the right of each statement. Here 0 = strongly disagree; 5 = Neutral; 10 = strongly agree; and numbers between 0 and 10 indicate various degrees of disagreement or agreement. Please do not focus on a particular brand/product. Construct/item

Factor loading

FACTOR 1: Factor Input Preemption Advantage (Reliabilities: U.S. = 0.89;South Korea = 0.81) Pioneers can preempt raw material supplies. Later entrants 0.85 often get lower quality, higher priced raw materials. Pioneers will obtain better access to superior labor. 0.84 Pioneers can preempt equipment and locations. Later entrants will have 0.78 to compete with more inferior equipment and in unfavorable locations. Pioneers will enjoy lower production costs. 0.76 Pioneers can secure more experienced managers. 0.75 FACTOR 2: Quality Image Perception Advantage (Reliabilities: U.S. = 0.73; South Korea = 0.67) To successfully compete with pioneers, late entrants will have 0.87 to offer higher product quality. Late entrants must spend more on advertising and promotion to 0.86 overcome pioneers' advantages. Late entrants into a market must offer higher levels of value (quality for 0.84 the price) to achieve high profitability. Pioneers will have better brand images with buyers. Consumers often purchase pioneer products simply because they know 0.83 them first and are used to them. FACTOR 3: Pioneering Uncertainty Disadvantages (Reliabilities: U.S. =0.79; South Korea= 0.97) Being a pioneer is more risky than being the followers. 0.88 Pioneers will have higher levels of competitive uncertainty 0.85 than late entrants do. Pioneers will have higher levels of market uncertainty than 0.80 late entrants do. FACTOR 4: Pioneering Performance Outcomes (Reliabilities: U.S. = 0.78; South Pioneers will have higher levels of market share. Pioneer's products are perceived to have higher quality by consumers. Pioneers will have higher levels of return on investment. Pioneers can charge a premium for the same products.

Korea = 0.93) 0.88 0.88 0.77 0.73

FACTOR 5: Innovation Leadership Advantage (Reliabilities: U.S. = 0.81; South Korea = 0.79) Because of “learning curve effects,” pioneers keep proprietary 0.89 information from diffusing for a longer time period. Pioneers will gain a competitive advantage from patent protection. 0.81 Pioneers' management styles are often models for this industry. These 0.73 styles are recognized for their effectiveness. FACTOR 6: Pioneering Sustainability Disadvantages (Reliabilities: U.S. =0.96; South Korea=0.73) Pioneers lose market share over time because of a deterioration 0.86 of their product quality. Pioneers lose market share over time because of declining absolute 0.84 cost advantages. Late entrants are able to “free-ride” on pioneer's development 0.76 of the market. FACTOR 7: Scale Economy Advantage Pioneers will enjoy lower direct costs due to scale economy advantage.

0.98

South Korea = 2.47 and 1.95 respectively) are significantly greater than zero at the 95% significance level; this supports Hypothesis 1. Examining the ANOVA results in Table 3 reveals cross-country differences that provide additional managerial insight. While managers from both countries agree that pioneers outperform later entrants, the level of agreement is significantly lower among South Korean managers. This finding suggests that the rewards for pioneering in the U.S. are large: the performance gap between pioneer and later entrants is perceived to be larger in these countries than anywhere else. South Korean government's economic planning policies may mitigate the relative performance outcomes of the pioneer, thus reducing the rewards accruing to the pioneer. Hypothesis 2 is strongly supported. According to Hypothesis 2, managers from South Korea should perceive the quality image perception advantages of pioneering to be more important than those from the U.S. As Table 3 shows, the construct mean for South Korea is significantly higher than the mean for the U.S. (means = −2.10 and 2.08 for U.S. and South Korea respectively, significant at p = 0.05). As noted above, perceived differences in quality image advantage can be attributed to differences between the U.S. and South Korea on the collectivist dimension and on long-term orientation. Similarly, Hypothesis 3 was strongly supported. It was expected that, due to differences in collectivism and long-term orientation, managers from South Korea would perceive the factor input preemption advantages to be less important than those from the U.S. As shown in Table 3, the construct mean for South Korea is significantly lower than the mean for the U.S. (means = 2.86 and 0.31 for the U.S. and South Korea respectively, different at 0.05 level). Thus, U.S. managers believe that factor input preemption advantages of pioneering are very important, while South Korean managers disagree. Hypothesis 4 was supported. Managers from the U.S. perceive innovation leadership advantages of pioneering to be more important than managers from South Korea (see Table 3; U.S. and South Korea means are 1.45 and 0.17 respectively, significantly different at 0.05 level). These results suggest that a pioneer can gain an advantage over later entrants from patent protection, proprietary information, or organizational innovation when entering the U.S. The pioneer should be aware, however, that such an advantage may not exist in South Korea, where governmental regulations may offer less protection of patents or proprietary information. Hypothesis 5 was not supported. No difference was found between the U.S. and South Korea in terms of their mean perceptions of scale economy advantage (means for the U.S. and South Korea are 0.63 and 0.57 respectively, not significantly different). It was hypothesized that the long-term orientation observed in South Korea would result in South Korean managers placing significantly more importance on this pioneering advantage than U.S. managers. Both the construct means were, however, significantly greater than zero, indicating that managers from both countries agreed at least that pioneers obtain significant scale economy advantages.

Table 3 ANOVA results

Scale Economy Advantage (see discussion of Hypothesis 5). The ANOVA results are presented in Table 3. According to Hypothesis 1, respondents from both the U.S. and South Korea were expected to agree that pioneering firms outperform later entrants in terms of return on investment, market share, and perceived product quality, and can charge a premium price for their products (leading to higher margins). To test this hypothesis, a onetailed test was conducted for each country, where the null hypothesis is that pioneers are not perceived to outperform later entrants, and a significantly positive mean rejects the null hypothesis. Both means for Pioneering Performance Outcomes in Table 3 (means for U.S. and

H1: Pioneering Performance Outcomes H2: Quality Perception Advantages H3: Factor Input Preemption Advantages H4: Innovation Leadership Advantages H5: Scale Economy Advantages H6: Pioneering Uncertainty Disadvantages H7: Pioneering Sustainability Disadvantages ⁎ All significances at 0.05 level.

U.S.

South Korea

Significant difference⁎

2.47 −2.10 2.86 1.45 0.63 1.63

1.95 2.08 0.31 0.17 0.57 0.24

US N Korea Korea N US US N Korea US N Korea n.s. US N Korea

1.41

1.79

n.s.

C.A. Di Benedetto, M. Song / Industrial Marketing Management 37 (2008) 863–872 Table 4 Summary of results of hypothesis testing Hypothesis

Result

H1. Managers from both cultures perceive that pioneering firms outperform later entrants. H2. Managers from South Korea (collectivistic, long-term oriented culture) perceive the quality image perception advantages of pioneering to be more important than do managers from the U.S. (individualistic, short-term oriented culture). H3. Managers from the U.S. (individualistic, short-term oriented culture) perceive the factor input preemption advantages of pioneering to be more important than do managers from South Korea (collectivistic, long-term oriented culture). H4. Managers from the U.S. (individualistic, short-term oriented culture) perceive the innovation leadership advantages of pioneering to be more important than do managers from South Korea (collectivistic, long-term oriented culture). H5. Managers from South Korea (long-term oriented culture) perceive the economic advantages of pioneering to be more i mportant than do managers from the U.S. (short-term oriented culture). H6. Managers from South Korea (high uncertainty avoidance culture) perceive the uncertainty disadvantages of pioneering to be more important than do managers from the U.S. (low uncertainty avoidance culture). H7. Managers from South Korea (high uncertainty avoidance culture) perceive the sustainability disadvantages of pioneering to be more important than do managers from the U.S. (low uncertainty avoidance culture).

Supported Both means significantly higher than zero. Supported Korea mean significantly higher than U.S.

Comments

Supported U.S. mean significantly higher than Korea.

Supported U.S. mean significantly higher than Korea.

Not Both means significantly Supported greater than zero, but not significantly different.

Not Counter to hypothesis, supported Korea mean significantly lower than U.S.

Not Both means significantly supported greater than zero, but not significantly different.

Hypotheses 6 and 7 concerned the uncertainty and sustainability disadvantages of pioneering. Contrary to Hypothesis 6, the U.S. managers tended to place significantly more importance on the uncertainty disadvantages of pioneering. As shown in Table 3, the South Korea construct mean was significantly lower than the U.S. mean (U.S. and South Korea means = 1.63 and 0.24 respectively, significantly different at 0.05 level). Also, no significant differences were found between U.S. and South Korean managers in the case of sustainability disadvantages of pioneering (U.S. and South Korea means = 1.41 and 1.79 respectively, not significantly different). Hence, Hypotheses 6 and 7 are not supported. All construct means, however, are significantly greater than zero, indicating at least that managers from both countries consider the uncertainty and sustainability disadvantages to be an important consideration in pioneering. A summary of all hypothesis test results is provided in Table 4. 5. Discussion Bass and Wind (1995) called for the marketing research community to broaden their studies and generalizations beyond the North American context; Leiberman and Montgomery (1998) called for more cross-national investigation of the specific issue of pioneering advantage. We gathered data from managers in South Korea as well as the United States to determine if the understanding of pioneering advantage supported by North American empirical studies is generalizable to a nation marked by very different cultural and business environment characteristics. South Korea, a nation rapidly industrializing, due in part to governmental and chaebol prioritization of technological development, is a ripe area for empirical study in product innovation.

869

The growing literature comparing decision-making by managers from different cultures suggests that interesting differences exist due to cultural influences (see Nakata & Sivakumar, 1996; Tan & Farley, 1987; Tse et al., 1988). We recognize that different mental models will exist across firms within a given country or group of countries, and are not implying that mental model selection will be homogeneous within a country. We are, however, interested in identifying tendencies within countries attributable to cultural environment differences. In other words, while there may be a range of mental models observed among specific firms within a given country, we suspect there will be general tendencies to favor one type of mental model or another due to the prevailing cultural environment. We found significant differences between the U.S. and South Korean managers, particularly with respect to pioneering performance and pioneering advantages, which were largely consistent with our hypotheses. As shown in Table 3, our empirical study found that managers from both countries perceive that pioneers outperform later entrants (H1). However, U.S. and South Korean managers attributed the superior performance of pioneers to different reasons. As shown in the tests of H2–H4, these differences broke down along cultural lines. Strongly supported were the hypotheses that managers from South Korea (a collectivistic culture) would perceive quality image perception advantages to be most important, while managers from the U.S. (an individualistic culture) would perceive competitive preemption and innovation leadership advantages to be more important. Though managers from both countries agreed that pioneers benefit from scale economies, the hypothesis that managers from South Korea would place the most importance on scale economies was not supported (H5). This finding may be due to the sampling frame used: most of the sample of managers worked for large companies serving large global markets. One of the most important drivers of scale economies is the size of a minimum cost operation relative to total market size (Scherer & Ross, 1990, Ch. 4). For firms operating in global markets, scale economies in manufacturing are less important. Had the sample included more firms serving only small local or regional markets, scale economies would have been more relevant and, possibly, cultural or national differences would have emerged. Finally, it was surprising that two different patterns emerged regarding the importance of pioneering disadvantages (Hypotheses 6 and 7). We hypothesized that managers from South Korea, an uncertainty-avoiding culture, would place greater importance on the disadvantages of pioneering than would managers from U.S. firms. This was not found to be the case. There may be several reasons for this unexpected finding. Firstly, while “face saving” may be more important in Asian cultures, less job security in the U.S. business environments may mean that “job saving” is more important to U.S. managers who therefore consider pioneering uncertainties as an important disadvantage. Secondly, there may be a sampling effect (see H5 above). Small start-up companies may be more likely to gamble on market pioneering than would a large multinational (Lambkin & Day, 1989). If the sample consisted of only start-ups in South Korean and U.S. cultures, it is possible that the expected direction of significance would be found. Finally, because of their experience in highly industrialized environments, managers from South Korea and the U.S. may be more knowledgeable about the severity of the risks posed by marketplace uncertainties, and may therefore place greater importance on them. 5.1. Managerial implications Practicing managers can benefit from our findings. While a manager can observe competitive pioneering behavior, the mental model driving the behavior is not observable. By comparing managers from the U.S. and South Korea, we find that managers from different

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nationalities or cultures employ different mental models and therefore will perceive the business environment differently regarding its suitability for a pioneering launch. Our results provide guidance to specific differences in mental model selection that would be difficult or impossible to pinpoint by simply observing the act of pioneering by a foreign firm. Since we are examining managerial perceptions in this study, we must carefully distinguish between perceptual differences that result from mental model selection, and those that reflect true cultural differences. Our sample consisted of senior managers with much experience in making market entry decisions, so their perceptions are likely to be close to reality. Mental models are, however, simplified versions of reality by definition, and even the most experienced of managers may have a “strategic blind spot” resulting from their selection of mental model. To the extent that managers are aware of these strategic blind spots, they should be able to avoid strategic mistakes associated with market entry decisions. Our results indicate that mental model selection is dependent on culture. Thus, to minimize strategic blind spots, it may be advantageous for a firm (especially one planning a global product launch) to build a new product development team that is not only cross-functional, but also cross-cultural. In other situations, however, differences in perceptions may reflect true cultural differences. For example, since development of long-term relationships is culturally important in South Korea, greater emphasis on personal selling during product launch may be required there than in the U.S. In short, perceptual differences between managers may reflect strategic blind spots or real cultural differences. The implication for managers is that they should seek to identify and correct the former, and to retain and capitalize on the latter. Incidentally, the fact that perceptions differ between the two countries suggests that we may not yet have a truly global marketplace. If we did, it should not matter where a firm is headquartered: its perceptions and understanding of the realities of pioneering would be about the same. It is beneficial for managers to understand their competitors' mental models, as these competitors will make strategic market entry decisions based on their preferred mental model. For example, a South Korean competitor may launch a surprise attack in the U.S. with a pioneering product. A U.S. manager may have felt this launch was unlikely because market conditions were unfavorable for a pioneering launch according to his or her own preferred mental model. The South Korean competitor may view the same market differently and find it a very desirable target for a pioneering attack, because a different mental model is used and different information about the market is gathered and processed. Our results are also beneficial to managers because the perceptions of the respondents to this study reflect the realities they actually face in their home market. The perceptions of pioneering advantage differ across countries because each home market provides different opportunities for pioneers. Thus, one can infer the market attractiveness for a prospective pioneer from the perceptions stated by respondents in this study. As an example, managers from South Korea believe that pioneers do not gain factor input preemption advantages. Managers using the mental model predominant in the U.S. consider these preemption advantages to be important benefits accruing to a pioneer, because in the U.S. and other Western markets, pioneers in fact gain these advantages. Similarly, U.S. managers do not believe that pioneers get quality image perception advantages, while those from South Korea do believe this. The results suggest that if the managers' perceptions are correct, the U.S. firm cannot expect to gain the same pioneering advantages when entering South Korean markets as compared to home, and that a strategy of factor input preemption will not result in sustainable competitive advantage in these markets. Yet, pioneers can capitalize on quality image perception advantages in these markets.

As another example, managers from the U.S. perceive innovation leadership pioneering advantages (such as patent protection and access to proprietary information) to be significantly more important than do managers from South Korea. This suggests that South Korean managers perceive that their innovations are not as well protected from competition, perhaps because patenting offers little effective protection or because their home government does not erect entry barriers to keep foreign firms out. The U.S. firm pioneering a new product in South Korea must be aware that it also cannot expect its innovation to be protected as well as would be the case in its home country. This kind of knowledge can help executives assess the costs and benefits of pioneering in markets under consideration. 5.2. Limitations and directions for future research A limitation of this study is that we have tested the perceptions of pioneering advantage over only two countries. While we found useful and interesting results regarding the generalizability of our knowledge of pioneering advantage into the South Korean market, we have only begun to explore truly global empirical generalizability. It would be of academic and managerial interest to determine how firms from other parts of the world (such as the rest of East Asia, Eastern Europe, or the Middle East) differ from U.S. or South Korean firms in their relative perceptions of pioneering advantage. We also note that our samples consist of managers employed in the U.S. or South Korea. We do not explore the issue of where the managers were trained, or the larger issue of whether cultural or business environment predominates. Our assumption is that it is primarily U.S.-trained managers working in the U.S., and South Korean-trained managers working in South Korea. While this assumption may still be reasonably valid, there is currently a trend toward more multinational experience for managers, even at the most senior levels. As this trend continues, it may become increasingly important in cross-national research to consider both nation of origin and nation of employment of managers. For example, it is possible that business environment differences may transcend national culture, a South Korean national trained by a U.S. parent firm may manage more like an American. In this view, business environment may dominate cultural environment due to training. One could also conversely argue that a South Korean working in the U.S. environment may manage more like a South Korean no matter where he or she is working (that is, cultural environment dominates business environment). Previous studies of cross-national managerial differences (e.g., Song et al., 1999) do not attempt to untangle the business environment–cultural environment issue, which remains unresolved and an intriguing avenue for future research. We ascribe noted differences between the U.S. and South Korea to cultural differences. While these differences are well documented (Hofstede, 1994; Smith et al., 1996; Tse et al., 1988), other possible differences between the two countries must also be ruled out, or accounted for. An important potential difference here is national level of industrialization. While some years ago South Korea (and also Japan and other Asian Pacific countries) might have lagged behind North America and Western Europe in industrialization, the entire Pacific Rim has increased its technological and managerial competence over the years to a level comparable to that of the United States and has translated this strength into a dominant market position in many high-technology industries (Lee & Beamish, 1995). Consider our argument in H4 (innovation leadership advantages of pioneering). Given their natural technological advantage, one might expect this pioneering advantage to be primarily important to managers from the most industrialized economies that are best positioned to capitalize on this advantage. We attribute the observed significant difference to cultural environment differences, since the differences in level of industrialization have largely eroded in recent

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C. Anthony Di Benedetto is Professor of Marketing and Senior Washburn Research Fellow at the Fox School of Business and Management, Temple University. He is also a Visiting Professor of International Entrepreneurship at Eindhoven University of Technology. He received a B. Sc. (Chemistry), an M.B.A., and a Ph. D. in Marketing and Management Science from McGill University. He serves as Editor in Chief of the Journal of Product Innovation Management. His research interests include international marketing strategy, new product launch decisions, radical innovation, and supplier–manufacturer–distributor cooperation. His research articles have appeared in numerous journals and conference proceedings.

Michael Song holds the Charles N. Kimball, MRI/Missouri Endowed Chair in Management of Technology and Innovation at the Henry W. Bloch School of Business and Public Administration, University of Missouri – Kansas City. He is also an Advisory Research Professor at the Eindhoven Center for Innovation Studies, Eindhoven University of Technology. He received an M.S. from Cornell University and an MBA and Ph.D. in Business Administration from the Darden School at University of Virginia. Dr. Song's current research interests include start-up high-tech firms, valuation of technology and new ventures, new product development, entrepreneurship in high technology environments, and technology portfolio evaluation. His research articles have appeared in numerous journals and conference proceedings.