Cooperative strategy, knowledge intensity and export performance of small and medium sized enterprises

Journal of World Business 40 (2005) 124–138 www.socscinet.com/bam/jwb

Cooperative strategy, knowledge intensity and export performance of small and medium sized enterprises Antti Haahti a, Vivekananda Madupu b, Ugur Yavas c, Emin Babakus b,* b

a Faculty of Business and Tourism, University of Lapland, Rovaniemi, Finland Department of Marketing and Supply Chain Management, Fogelman College of Business and Economics, University of Memphis, Memphis, TN 38152, USA c Department of Management and Marketing, College of Business and Technology, East Tennessee State University, Johnson City, TN 37614, USA

Abstract A model depicting the relationships among cooperative strategy, knowledge intensity and export performance is developed and tested using a sample of small and medium sized enterprises (SMEs) from Finland and Norway. The empirical results suggest that knowledge intensity mediates the relationship between cooperative strategy and export performance. Firm size did not show a direct impact on performance, but its indirect effect on export performance through cooperative strategy and knowledge intensity was significant. Overall, the results suggest that SMEs employing cooperative strategies to enrich their knowledge base about export markets can consequently improve their performance. # 2005 Elsevier Inc. All rights reserved.

1. Introduction Within the past 30 years or so paralleling the growing liberalization and integration of the world trading system and the recognition that exporting is an attractive way of tapping foreign market opportunities, investigation of factors critical to firms’ export success and performance has been the focus of increased research attention. The large number of theoretical and empirical studies is prima facie evidence of the attention (Aaby & Slater, 1989; Cavusgil & Zou, 1994; Chetty & Hamilton, 1993; Cooper & Kleinschmidt, * Corresponding author. Tel.: +1 901 678 3857; fax: +1 901 648 2685. E-mail address: [email protected] (E. Babakus).

1985; Gemunden, 1991; Hoang, 1998; Javalgi, White, & Lee, 2000; Katsikeas, Piercy, & Ioannidis, 1996; Leonidou, 1998; Leonidou, Katsikeas, & Samiee, 2002; Morgan, Kaleka, & Katsikeas, 2004; Walters, 1993; Zou & Stan, 1998). This interest is not without reason. Identification of factors that facilitate export success and impact export performance provides managers and public policy makers with valuable guidelines for design and implementation of pointed marketing strategies and public policies (Cavusgil, 1984). A plethora of studies examining factors associated with export success and performance across the globe have been conducted in the context of small and medium sized enterprises (SMEs) (e.g., Bijmolt & Zwart, 1994; Douglas, 1996; Katsikeas, Deng, &

1090-9516/$ – see front matter # 2005 Elsevier Inc. All rights reserved. doi:10.1016/j.jwb.2005.02.003

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Wortzel, 1997; Namiki, 1988; Obben & Magagula, 2003; Yaprak, 1985). This makes sense. SMEs are main providers of technological innovations and entrepreneurship. They can adapt to environmental changes more readily and flexibly than larger firms and can exploit selective market niches more effectively (Keng & Jiuan, 1989; Yaprak, 1985). And, compared with large firms, which are already heavily involved in exporting, SMEs offer better prospects for sharp increases in exports (Katsikeas et al., 1997). Indeed, fueled by advances in transportation and communication technologies, more and more SMEs participate in international activities (OECD, 2002; Oviatt & McDougall, 1994) and reinvigorate national economies through international expansion and exporting (Carmichael, 1994; Carney, 1995; Hutchison, 1996; OECD, 2002). In the two Nordic countries where this study was conducted, SMEs account for 98.5% (Finland) and 98% (Norway) of all firms. Cognizant of this and also recognizing the crucial role of SMEs in exporting, governments in both countries are very active in export promotion. For instance, to support and facilitate SMEs’ export efforts, the Finnish Institute of International Trade (FINTRA) has created export centers in 38 countries and the Norwegian Trade Council established 40 offices in key markets around the world (OECD, 2002). The export volume of the Finnish SMEs reached 42% of the GDP in 2000 (OECD, 2002). As impressive as these figures may be, SMEs, nevertheless, are plagued with a number of problems which deter them from exporting and/or detract from their export performance. Not surprisingly, calls continue to be made to better understand SMEs’ export behaviors (Obben & Magagula, 2003). Past studies investigating determinants of export success/performance have been useful in identifying a multitude of factors ranging from firm-specific variables to strategy/policy elements to external factors. While enlightening, past research is not without limitations. First, despite the recognition of the critical roles of cooperative strategy (Hakansson & Johanson, 1988; Hansen, Gillespie, & Gencturk, 1994; McGee, Dowling, & Megginson, 1995) and knowledge intensity (Autio, Sapienza, & Almeida, 2000) on export success and that such knowledge can result from cooperation with other parties (Samiee & Walters, 2002), the relationship between cooperative strategy and knowledge intensity, and their potential impact on export performance is not

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researched. The second limitation of prior research is that studies on the topic primarily focus on formal cooperation and virtually ignore informal cooperation and its role in knowledge acquisition and management (Contractor & Lorange, 2002; Jaklic, 1998). This is surprising since most successful cooperative initiatives are often based on informal or non-contractual processes (Huggins, 2000; Leonidou & Theodosiou, 2004) and SMEs prefer to acquire knowledge through informal relationships (Seringhaus, 1993; Souchon & Diamantopoulos, 1999). Third, with a few exceptions, majority of research in the area is based on single-country investigations. This precludes generalizations and slows down export marketing theory development (Diamantopoulos, Souchon, Durden, Axinn, & Holzmuller, 2003; Katsikeas et al., 1997; Stottinger & Schlegelmich, 1998). Finally, prior research studies typically examine the univariate effects of relevant variables on export performance (Katsikeas et al., 1996) or use simple regression models. Less attention has been paid to simultaneous estimation techniques such as structural equation models that can account for relationships among multiple explanatory and dependent variables (Dhanaraj & Beamish, 2003). 1.1. Purpose The purpose of this study is to address these gaps. Specifically, by drawing on the resource based view of the firm (Wernerfelt, 1984), which has been recently applied in the context of international market entry decisions in general (Laird, Kirsch, & Evans, 2003) and exporting in particular (Dhanaraj & Beamish, 2003; Morgan et al., 2004), we develop a model that provides theoretical linkages and empirical evidence regarding the relationships between cooperative strategy and knowledge intensity, and their relationship with SMEs’ export performance. We test our model via structural equations approach by using data from two Nordic countries, Finland and Norway. In the next two sections, we present the conceptual model, the relevant literature and the research hypotheses that guide our study. These are followed by the presentations of the method and results of the empirical study we undertook. Finally, we provide a discussion of the results and limitations, and offer future research directions.

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2. Conceptual model Fig. 1 presents the conceptual model guiding our study. The model is grounded in the resource-based view (RBV) of the firm (Wernerfelt, 1984) and its extensions as knowledge-based (Grant, 1996a) and relational views (Dyer & Singh, 1998) of the firm. RBV focuses on unique resources and capabilities of a firm for sustained competitive advantage. Based on Grant (1996a) and mounting empirical evidence (Autio et al., 2000; Dhanaraj, Lyles, Steensma, & Tihanyi; Wiklund & Shepherd, 2003; Yli-Renko, Autio, & Sapienza, 2001) we contend that knowledge is a key strategic resource and a firm’s capability in integrating and exploiting knowledge is a source of competitive advantage. In effect, we propose that export market knowledge accumulated from various sources constitutes a valuable ‘‘entrepreneurial resource’’ (Dhanaraj & Beamish, 2003) and exerts a significant positive influence on the performance of SMEs (Wiklund & Shepherd, 2003). The RBV and its extension as the relational view of the firm (Dyer & Singh, 1998) also suggest that relationship-building capabilities are valuable assets that can lead to better performance (Morgan et al., 2004). As we will elaborate on in the next section, we consider an SME’s ability to build informal cooperative relationships with other organizations as a critical strategic capability. An SME’s ability to build cooperative relationships with other entities is closely tied to its social skills and resources (Ellis & Pecotich,

2001; Lee, Lee, & Pennings, 2001). Informal cooperative strategy is built around social networking activities and its success heavily depends on the accumulated ‘‘social capital’’ of SME owners/managers in the eyes of their external partners including customers, distributors, competitors and suppliers (cf. Yli-Renko et al., 2001). Since firms can cooperate with domestic as well as foreign partners, our model incorporates both domestic and foreign cooperative strategies. The model proposes that both domestic and foreign cooperative strategies directly impact knowledge intensity. While recognizing that knowledge acquisition and exploitation depend on other factors such as the absorptive capacity (Cohen & Levinthal, 1990; Zahra & George, 2002), motivation to learn and learning capacity (Simonin, 2004), we propose that SMEs capable of developing cooperative ties with other organizations have an advantage in identifying, acquiring and exploiting export market knowledge more effectively. The key underlying premise of our model is that cooperative strategy leads to higher levels of knowledge intensity about export markets. In other words, knowledge acquisition is ‘‘a primary motivation’’ for an organization to adopt a cooperative strategy (cf. Shenkar & Li, 1999, p. 134). We contend that those SMEs with effective cooperative strategies will acquire higher levels of useful information and experiential knowledge about their export marketing environment which, in turn, will lead to better performance. Hence, knowledge intensity

Fig. 1. Research model.

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is proposed to mediate the impact of cooperative strategy on export performance. As shown in Fig. 1, we also examine firm size as a control variable since it may have a significant influence on the other constructs and confound the relationships posited in the conceptual model (see Fig. 1). In the next section, we expand on the relevant literature to develop the specific research hypotheses in the model.

3. Relevant literature and hypotheses 3.1. Cooperative strategy and export performance Undoubtedly owing to increasing globalization and regional integration of markets and economies, convergence of tastes, shortening technology and product life cycles, increasing firm interconnectedness and interdependency, cooperative arrangements between firms as a business strategy have not only become popular in recent years (Silverman & Baum, 2002; Tallman & Shenkar, 1994) but in the 1990s cooperative strategy also became a ‘‘very fashionable’’ area of ‘‘intellectual debate’’ (Faulkner & de Rond, 2000; Uzzi, 1997). In the literature, terms such as collaborative/cooperative arrangements, clusters/ networks, and strategic alliances are often used interchangeably. Researchers also employ different definitions of cooperation (cf. Campbell, 1998). However, the general consensus is that cooperation is a process by which individuals, groups and organizations come together, interact and form relationships for mutual gain or benefit (Smith, Carroll, & Ashford, 1995). Firms cooperate with each other to gain competitive advantage (Beamish & Banks, 1987; Tallman & Shenkar, 1994) and to reap the benefits of synergy (Kaufmann, 1995). They often deliberately deploy cooperative strategies to extend their resource bases (including knowledge) that are not sufficiently available internally. Cooperative strategies are especially critical for the survival and growth of small firms which indeed employ such strategies more so than their larger counterparts (Suarez-Villa, 1998). A cooperative strategic posture by SMEs at the international level is even more important compared to larger firms. This is because many small firms suffer from a relatively restricted resource base (Jarillo,

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1989), especially, in such critical areas as research and development and international marketing, and consider their own resources far too limited to be really competitive in the global marketplace (Koivisto & Vesalainen, 1994). Cognizant of this, SMEs often use international cooperation as a means of entering and engaging in activities in foreign markets (Kaufmann, 1995). 3.1.1. Formal and informal cooperative strategy Cooperative strategies can be either formal (e.g., joint ventures, licensing or management contracts) or informal. Although research on cooperative strategy has mainly focused on formal cooperative strategy (Hakansson & Johanson, 1988), a great deal of cooperation among firms remains informal (Hakansson, 1986) and smaller firms without the financial and managerial resources necessary to engage in formal cooperative relationships such as joint ventures (e.g., Namiki, 1988) stand to benefit more from informal alliances (cf. Hansen et al., 1994). Moreover, firms often initiate cooperative relationships on an informal basis through social interactions (Yli-Renko et al., 2001). It appears that informal cooperative relations thus formed may pave the way for formal relationship later on if interests of the parties match. Indeed, in a study by Donckels and Lambrecht (1995), 72% of those SMEs which were in a joint venture (a formal relationship) had first started off with a looser association (an informal relationship). Perhaps, more importantly, research indicates that export firms prefer to rely on knowledge acquired through informal relationships (Souchon & Diamantopoulos, 1999; Leonidou & Theodosiou, 2004). Given that much is known about formal cooperative strategy as a result of prior research (Contractor & Lorange, 2002) and that informal cooperative strategies are more prevalent among SMEs which exhibit a preference for such forms of cooperation, the present study focuses on informal cooperative strategies. 3.1.2. Domestic and foreign cooperative strategy Since firms may cooperate both with domestic and foreign entities, informal cooperative strategy can be both domestic and foreign. Due to geographic and social proximity (Forsman & Solitander, 2003) and cultural similarities, establishing informal cooperation

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with domestic entities is easier. There are challenges, however, in achieving cooperation with foreign entities (Erez & Earley, 1993) as cooperation rests on norms of behavior and values which may differ between countries. Furthermore, social and geographic distances may compound the difficulties. However, such obstacles are not insurmountable and indeed advances in communications technology alleviate difficulties due to geographic separation (Forsman & Solitander, 2003; Tallman et al., 2004). Moreover, several studies indicate that SMEs benefit greatly from informal cooperation with foreign distributors and customers, and through visits to trade fairs (Cavusgil & Naor, 1987; Cavusgil & Zou, 1994; Seringhaus, 1993; Souchon & Diamantopoulos, 1999; Styles & Amber, 1994). Past research shows that there is a positive relationship between cooperative strategy and firm performance (Contractor & Lorange, 1988; Human & Provan, 1997; Kaufmann, 1995; Schmitz, 1998; Suarez-Villa, 1998). Hence, we advance the following hypothesis: H1. SMEs’ use of informal cooperative strategy (domestic and foreign) is positively related to their export performance. 3.2. Knowledge intensity Knowledge is among the most valuable and meaningful organizational assets (Drucker, 1993) affecting the competitiveness of firms, if not their very survival (Quinn, 1992; Toffler, 1990). Indeed, according to Nonaka (1991) p. 96 ‘‘in an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge.’’ Grant (1996b) suggests that in order to create a competitive advantage, firms need to harvest and exploit knowledge. Nonaka and Takeuchi (1995) even go so far as suggesting that the ability of a firm to manage and cultivate knowledge differentiates success from failure. Owing to the importance of knowledge, several scholars have recently argued for a ‘‘knowledge-based view of the firm’’ suggesting that the key role of a firm is to create, store and apply knowledge rather than simply reduce transaction costs (Conner & Prahalad, 1996; Grant, 1996a; Kogut & Zander, 1992). Since SMEs are resource constrained, their acquisition of appropriate knowledge is fundamental

to their success in international operations (e.g., Douglas, Craig, & Keegan, 1982). According to Autio et al. (2000), knowledge is a mobile resource and ‘‘provides a flexible platform for international expansion’’ (p. 913). Knowledge can also be easily combined with fixed assets (e.g., sales network, manufacturing facilities) in foreign markets at relatively low costs (McDougall, Shane, & Oviatt, 1994; Oviatt and McDougall, 1997) and facilitate the deployment of a firm’s other resources (Grant, 1996a; Penrose, 1959). Liesch and Knight (1999) convincingly argue that ‘‘while the amount and quality of requisite knowledge surely varies from firm to firm, from project to project, and from one point in time to another, its acquisition is a necessary condition for SME internationalization.’’ (p. 391). 3.2.1. Informal cooperative strategy and knowledge intensity Organizations can acquire information about various aspects of their markets and improve their knowledge base through informal cooperative strategies and social networks (Zhao & Aram, 1995). Forsman and Solitander (2003) add that, in particular, networks and clusters facilitate knowledge acquisition and transfer between firms due to physical, social and cultural proximities. Since informal relationships can serve as conduits for knowledge flows and acquisition (Saxenian, 1994; Von Hippel, 1987) and span a range of cooperative arrangements in various areas such as R&D, sales, and market research, collectively these cooperative activities benefit SMEs not only in acquiring knowledge but also in capitalizing on opportunities (Foo, Ancona, & Degroff, 1999). Polanyi (1966) differentiates between two types of knowledge: tacit or informal knowledge, and explicit or formal knowledge. Tacit knowledge is deeply rooted in individuals’ actions and experiences, including their ideas, values, subjective insights, intuitions, hunches, and emotions. It is not easily visible and expressible (Nonaka & Takeuchi, 1995). Explicit knowledge, on the other hand, is easily visible in various forms such as scientific formulae, product specifications, manuals, or computer programs. While tacit knowledge is personal and hard to formalize and communicate to others, explicit knowledge can be expressed in words and numbers and can easily be transferred

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(Lam, 2000). Informal cooperative strategies are highly viable channels for acquiring tacit as well as explicit knowledge. In their international operations, SMEs often depend on knowledge about markets acquired through informal sources. In fact, informally acquired knowledge is not only preferred to other sources by SMEs (Compas Inc., 2001; Gilmore, Carson, & Grant, 2001; Liesch & Knight, 1999), but also actually referred to and used in the same way as marketing research (Crick & Katsikeas, 1995; Reid, 1984; Seringhaus, 1993). As cogently argued by several scholars (Amine & Cavusgil, 1986; Diamantopoulos, Schlegelmilch, & Allpress, 1990; Gilmore et al., 2001; Leonidou & Adams-Florou, 1999; McAuley, 1993), reliance on informal and personal ‘‘experiential’’ knowledge is perhaps the most distinctive feature of the SME approach to export market knowledge acquisition and use. Informal cooperative strategy contributes to the flow of information between firms without undue formalities and bureaucratic hassles. This flow of information not only helps the creation of new knowledge but also facilitates its dissemination within the organization (Nahapiet & Ghoshal, 1998). Hence, cooperation with other firms facilitates SMEs’ access to relevant foreign market information and increases their knowledge intensity about export markets. Based on the preceding discussion, we posit the following hypothesis: H2. SMEs’ use of informal cooperative strategy (domestic and foreign) is positively related to their knowledge intensity about foreign markets. 3.2.2. Knowledge intensity and export performance There is overwhelming evidence that organizational knowledge has a positive effect on firm performance (Probst, Buchel, & Raub, 1998; Toften & Olsen, 2003; Wiklund & Shepherd, 2003). Empirical studies in the export literature also lend credence to this and suggest that knowledge intensity and performance (international sales growth) are positively correlated (Autio et al., 2000; Leonidou & Theodosiou, 2004; Yli-Renko, Autio, & Tontti, 2000). It is also evident that successful exporting firms tend to acquire more information about foreign markets (Johnston & Czinkota, 1982). Therefore, we advance the following hypothesis:

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H3. SMEs’ knowledge intensity of export markets is positively related to their export performance. 3.3. Size as a control variable Firm size can potentially confound the relationships proposed in this study. For instance, firm size may influence the level of cooperative strategy (Steensma, Marino, & Weaver, 2000). While Hagedoorn and Schakenraad (1994) research shows that larger firms are more likely to engage in cooperative relationships than small firms, Suarez-Villa (1998) contends the opposite. Export knowledge use may also vary according to firm size (Leonidou & Theodosiou, 2004; McAuley, 1993). Diamantopoulos et al. (1990) concluded that firms systematically using export market information are larger than nonusers. Similarly, Samiee and Walters (1990) determined that large companies collect export market information more actively than smaller firms. However, Yeoh (2000) research indicates that the positive relationship between firm size and the amount of information search is not significant. The mixed findings regarding the role of firm size in cooperative strategy and knowledge intensity are also evident in studies exploring the relationships between firm size and export performance. For instance, a study by Piercy, Kaleka, and Katsikeas (1998) indicates that firm size has a positive impact on export performance. However, other studies report that export success is not significantly influenced by firm size (e.g., Diamantopoulos & Inglis, 1988) or it is modestly or conditionally influenced by size (Calof, 1994; Cavusgil, 1984; Katsikeas et al., 1997). Hence, controlling for size will allow for better delineation of the relationships proposed in our model. In addition, the results may provide further insights about the role of firm size in the study of export performance.

4. Method 4.1. Sample Data for the study were obtained from the rich data base of INTERSTRATOS group (Internationalization of Strategic Orientation of Small- and Medium-sized Enterprises) which was formed to explore the patterns of internationalization and to describe the adjustment

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strategies of manufacturing SMEs in eight European countries: Austria, Belgium, Finland, Great Britain, the Netherlands, Norway, Sweden, and Switzerland. The data for the project were collected through twowave postal surveys in each country. Participating firms were selected randomly from manufacturing firms with less than 500 employees and questionnaires were sent to the owner/manager of these SMEs. The master questionnaire for the project was pre-tested through pilot studies carried out in Finland and Austria. It was then translated into languages of participating countries. For the present study, we used data collected from Finnish and Norwegian SMEs. Past research investigating factors critical to firms’ export success has pursued one of two main avenues. As noted by a number of researchers (e.g., Bijmolt & Zwart, 1994; Katsikeas et al., 1997; Katsikeas et al., 1996), while some studies compared and contrasted exporting and non-exporting firms, others have related various internal and external factors to the performance of exporting firms only. Because the purpose of this study is to explain export performance, we restricted the scope of our investigation to exporting SMEs. The effective sample sizes were 87 for Finland and 62 for Norway. The majority of firms in both samples (72% of Finland and 60% of Norway) were mechanical tool/equipment manufacturers and the rest were in the electrical component/equipment-manufacturing sector. The SMEs in both samples were comparable in terms of the mean number of full-time employees (Finland = 80 and Norway = 86). Likewise, the mean export revenue as a percentage of total revenue was almost identical in both samples (Finland = 33% and Norway = 32%). 4.2. Measurement 4.2.1. Cooperative strategies Respondents’ domestic and foreign informal cooperative strategies were measured by asking them whether or not they had cooperated with domestic or foreign partners for the: extension of product range, research and development, raising funds, sales, market research, after sales service, advertising/promotion, purchasing, transportation/warehousing, manufacturing, administration, and electronic data processing. By adding the number of items checked under domestic and foreign partners, domestic and foreign cooperative

strategy indices were developed. Hence, the range of summated scores, which were used in our analyses, could range from 0 to12. The internal consistency reliabilities of these indices, based on K-R 20 formula, exceeded the guidelines suggested in the literature (Nunnally, 1978). They were: Finland—Domestic (.80), Foreign (.80) and Norway—Domestic (.75), Foreign (.88). The two sets of items were subjected to exploratory factor analysis using the combined data. The analysis yielded two significant factors where items loaded heavily on their respective factors. These results suggest that the measures exhibit convergent and discriminant validity. 4.2.2. Knowledge intensity There is no generally accepted approach to the measurement of knowledge intensity (Autio et al., 2000) and a consensus is yet to emerge (Toften & Olsen, 2003). In the past, researchers have taken two alternative approaches. Under the first approach, researchers used objective indicators of knowledge, such as R&D spending and patents. However, especially in the context of SMEs, such indicators are considered problematic (Spender & Grant, 1996). For instance, in most small firms there are no distinct R&D departments and the cost allocated to R&D is hard to assess (Autio et al., 2000). Furthermore, the number of patents held by a company may reflect a strategic stance rather than knowledge or innovation (Spender & Grant, 1996). Under the second approach, researchers directly questioned respondents about the sources of information they consulted (Ahogankas, 1998). This method is considered to be the preferred method of gauging knowledge intensity in SMEs (Eisenhardt & Schoonhoven, 1990). In this study, we adopted this approach and measured knowledge intensity as a summated score of twelve binary (yes/no) variables, each of which represented a potential information source of knowledge. Specifically, respondents were asked to indicate if they had consulted each source for their export activities during the last twelve months. The reliability coefficients of this measure, based on K-R 20, were .74 for the Finnish and .76 for the Norwegian samples. The summated score (potentially ranging from 0 to 12) was used as a measure of knowledge intensity. An exploratory factor analysis of the knowledge intensity items using the combined data resulted in one general factor suggesting convergent validity. It should be noted

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perceptual self-report measures are often employed in export marketing studies (Leonidou et al., 2002). Firm size. Consistent with prior research (e.g., Holzmuller & Kasper, 1991; Javalgi et al., 2000; Katsikeas et al., 1997), the control variable, firm size, was measured by the number of full-time employees. Correlations, means, and standard deviations of the measures of the model constructs and the control variable (firm size) for both samples are presented in Table 1. As Table 1 shows, the average scores of the study variables are comparable across the two countries. In both samples, the average score for foreign cooperative strategy is higher than that of domestic cooperative strategy. In effect, participating firms reported more than twice as many informal cooperative relationships with foreign partners compared to the number of domestic partnerships. The correlations among the variables are generally stronger in the case of Finland. The relatively moderate correlations among the perceptual measures indicate that the measures exhibit discriminant validity in both samples.

that our measure corresponds to what Yli-Renko et al. (2000) refers to as ‘‘managerial learning’’ or the accumulated foreign market knowledge, and represents a unitary concept of foreign market knowledge that is acquired at the firm level through training and education, experience, and advice and information from a variety of sources such as suppliers, customers, government sources, export clubs, chambers of commerce, public promotion institutions, consultants (e.g., general business, taxation, legal matters), national and international trade shows, international organizations, and research institutions. 4.2.3. Export performance There are three principal ways of measuring export performance (Cavusgil & Zou, 1994; Francis & Collins-Dodd, 2000; Katsikeas, Leonidou, & Morgan, 2000; Leonidou et al., 2002; Matthyssens & Pauwels, 1996): economic (e.g., export sales ratio, export sales volume), non-economic (e.g., new markets exports, contribution of exporting to product development) and generic (e.g., perceived export success, satisfaction with overall export performance). In this study, we used two economic measures of export performance. One was export intensity (export sales as a percentage of total sales), which is the most frequently used measure of export performance in the literature (Calof, 1993; Katsikeas et al., 2000; Wolff & Pett, 2000). The other was a self-report perceptual measure of export sales growth. The latter measure was obtained on a 5point scale. Because firms do not typically report the financial details of their exporting activities and, hence, access to valid archival data is difficult, such

5. Model assessment and tests of hypotheses The research model and hypotheses were tested by conducting a path analysis using LISREL 8 with the sample covariance matrix as input (Joreskog & Sorbom, 1993). Each construct in the model was represented by its indicator measure. The model was first tested using each country data separately. We then tested the model using both samples simultaneously by imposing equality restrictions on corresponding path coefficients

Table 1 Correlations, means, and standard deviations of study variables Finland (n = 87)a

Norway (n = 62)b

1

2

Domestic cooperation (DCOOP) Foreign cooper6ation (FCOOP) Knowledge intensity (KINT) Export intensity (EXPINT) Export growth (GROWTH) Size (SIZE)

1.00 .452 .190 .018 .111 .031

1.00 .505 .236 .313 .223

1.00 .250 .457 .290

1.00 .139 .266

1.00 .051

Means S.D.

1.01 1.79

2.48 2.51

2.99 2.40

.33 .32

2.82 1.04

a b

3

Correlations
.20 are significant beyond .05 level. Correlations
.25 are significant beyond .05 level.

4

5

6

1.00 80.1 129.1

1

2

3

4

5

1.00 .244 .129 .056 .097 .386

1.00 .588 .330 .029 .335

1.00 .496 .141 .265

1.00 .033 .026

1.00 .182

.98 1.67

2.32 2.90

2.37 2.23

.32 .32

3.16 1.03

6

1.00 86.1 95.6

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for both groups. This two-group simultaneous analysis served as a cross-validation of the proposed model across the two countries. The results of separate and simultaneous analyses are presented in Table 2. The model fit statistics (x2 and the associated pvalues) in Table 2 indicate that the proposed model fits the data very well both separately as well as simultaneously. In the case of Finland, the model explained 16% of the variance in export sales growth (GROWTH), 13% in export intensity (EXPINT), and 34% in knowledge intensity (KINT). For the Norwegian sample, the proportion of the explained variance was 8% in GROWTH, 22% in EXPINT, and 36% in KINT. The two-group simultaneous analysis results indicate that the model explains 9% of the variance in GROWTH, 12% in EXPINT, and 32% in KINT. As Table 2 shows, the path coefficients from domestic cooperative strategy (DCOOP) and foreign cooperative strategy (FCOOP) to export performance (EXPINT and GROWTH) have t-values that are less than 2.00 across all three sets of results. Using a t-value
2.00 as an indicator of statistical significance (Joreskog & Sorbom, 1993), these results reveal that cooperative strategy

variables (both domestic and foreign) do not have a significant direct influence on export performance. Therefore H1 is not supported by the data. The results regarding H2 indicate that domestic informal cooperative strategy (DCOOP) does not have a significant impact on knowledge intensity (KINT), while foreign informal cooperative strategy (FCOOP) does have a significant positive impact. These results are consistent across all three analyses. Therefore, H2 is partially supported by the data. H3 states that knowledge intensity will be positively associated with export performance. The results in Table 2 indicate that, in the case of Finland, knowledge intensity (KINT) has a significant positive impact on export sales growth (GROWTH), but no significant impact on export intensity (EXPINT). Opposite results are obtained in the case of Norway. However, the twogroup simultaneous analysis results indicate that knowledge intensity (KINT) has a significant positive impact on both performance measures (EXPINT and GROWTH). Considering model degrees of freedom and sample size, the two-group simultaneous results are more dependable. Hence, H3 is supported by the data.

Table 2 Results of model testinga Finland (n = 87) ML estimate (t-value) DCOOP ! EXPINT (b1) FCOOP ! EXPINT (b2) DCOOP ! GROWTH (b3) FCOOP ! GROWTH (b4)

.13 .21 .03 .15

DCOOP ! KINT (b5) FCOOP ! KINT (b6) KINT ! EXPINT (b7) KINT ! GROWTH (b8) SIZE ! DCOOP (g1) SIZE ! FCOOP (g2) SIZE ! KINT (g3) SIZE ! EXPINT (g4) SIZE ! GROWTH (g5) Model fit Explained variance (R2)

.03 (0.3) .54 (5.3) .11 (0.9) .32 (2.6) .04 (0.4) .24 (2.3) .16 (1.8) .19 (1.8) .11 (1.1) x21 = 0.00, p = 1.00 EXPINT = .13, DCOOP = .01 GROWTH = .16, RCOOP = .06 KINT = .34

(1.2) (1.6) (0.3) (1.2)

Norway (n = 62) ML estimate (t-value) .03 .09 .05 .02

(0.2) (0.6) (0.4) (0.1)

.1 (0.1) .52 (4.6) .44 (3.1) .20 (1.3) .39 (3.3) .36 (3.0) .17 (1.4) .14 (1.1) .25 (1.7) x21 = 1.84, p = .18 EXPINT = .22, DCOOP = .15 GROWTH = .08, RCOOP = .13 KINT = .36

Two-group simultaneous analysis: common metric ML estimate (t-value) .09 .16 .04 .05

(1.1) (1.6) (0.5) (0.5)

.01 (0.1) .52 (7.0) .23 (2.4) .29 (3.0) .15 (1.9) .28 (3.5) .16 (2.3) .09 (1.2) .16 (1.9) x221 = 30.47, p = .083 EXPINT = .12, DCOOP = .02 GROWTH = .09, FCOOP = .05 KINT = .32

DCOOP, domestic cooperation; FCOOP, foreign cooperation; KINT, knowledge intensity; EXPINT, export sales/total sales; and GROWTH, export sales growth. a All path coefficients are standardized estimates.

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The model in Fig. 1 and the three specific research hypotheses explicitly suggest that knowledge intensity partially mediates the relationship between cooperative strategy and export performance. Additional analyses were undertaken in order to examine the partial mediation role of knowledge intensity. Support for the partial mediation requires that the following three conditions are met (Baron & Kenny, 1986). First, the independent variables (DCOOP and FCOOP) have to be related significantly to the mediator (KINT). Second, the mediator (KINT) has to be related significantly to the dependent variables (EXPINT and GROWTH). Third, initial relationship between the independent variables (DCOOP and FCOOP) and the dependent variables (EXPINT and GROWTH) should be reduced when the mediator is included in the analysis. Using the two sample data sets simultaneously, we tested each one of the conditions for partial mediation by including firm size (SIZE) as a control variable. The first analysis resulted in a good model fit (x29 ¼ 16:3, p = .06) and indicated that FCOOP had a significant positive effect on KINT (g = .52, t = 6.96) while DCOOP did not (g = .001, t = .07). Hence, the first condition was met for FCOOP but not for DCOOP. The second analysis also provided a good fit (x210 ¼ 15:9, p = .10) and indicated that KINT had a significant impact on EXPINT (g = .29, t = 3.60) and GROWTH (g = .31, t = 3.72). Thus, the second condition for mediation was met. Finally, by removing knowledge intensity from the model in Fig. 1, we examined the direct effects of DCOOP and FCOOP on EXPINT and GROWTH. The model fit the data well (x215 ¼ 21:3, p = .13) and FCOOP showed significant effects on EXPINT (g = .27, t = 3.12) and GROWTH (g = .20, t = 2.24). The effects of DCOOP on EXPINT (g = .09, t = 1.08) and GROWTH (g = .05, t = .51) were not significant. These results, combined with the prior results from the full model depicted in Fig. 1, indicate that knowledge intensity indeed fully mediates the relationship between foreign cooperative strategy and export performance. Finally, our analysis indicates that the control variable firm size (SIZE) does not have a significant direct influence on export performance. It does, however, have a significant positive impact on knowledge intensity (KINT) and foreign cooperative strategy (FCOOP). Size also has a significant positive effect on

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performance indirectly through foreign cooperative strategy (FCOOP) and knowledge intensity (KINT). These results collectively indicate that size does matter in establishing informal foreign cooperative relationships as well as increasing knowledge intensity.

6. Discussion and implications By drawing on the resource-based view of the firm and its extensions, in this study we developed a model that provides theoretical linkages and empirical evidence regarding the relationships between informal cooperative strategy and knowledge intensity, and their relationship with SMEs’ export performance. We tested our model via structural equations approach by using data from Finland and Norway. Our approach and results are significant in several ways and contribute to the body of knowledge. First, we show how informal cooperative strategy, virtually ignored in prior research, impacts export performance. The finding that informal cooperative strategy plays a significant role in improving SMEs’ export success is the first piece of empirical evidence. Second, unlike the bulk of prior studies in exporting, which are single-country investigations and thus impede export marketing theory development, our research is cross-national. Given that our model holds true for both Finland and Norway, there is reason to believe that the model is cross-nationally viable. Third, unlike majority of the past studies which explore univariate relationships between relevant variables and export performance, our study utilizes structural equations modeling. This approach provides the ability not only to simultaneously estimate parameters in models with multiple exogenous and endogenous variables, but also allows simultaneous estimation across multiple samples. Thus, we were able to obtain more reliable insights regarding hypothesized relationships. The main proposition of our study that SMEs employ cooperative strategies to enrich their knowledge base about export markets and consequently improve their export performance was supported by the study. However, the hypothesized direct positive impact of cooperative strategy on export performance did not receive empirical support. Hence, our findings suggest that knowledge intensity completely mediates the relationship between cooperative strategy and

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export performance. In other words, SMEs reap the benefits of cooperation through knowledge intensity. This, inturn,significantlyinfluencesexport success.This finding is consistent with J. Barney’s (cf. Shenkar & Li, 1999) observation that a primary purpose of pursuing a cooperative strategy is knowledge acquisition. Our findings also indicate that, of the two types of cooperative strategies, SMEs should focus on building relationships with foreign partners to increase their knowledge intensity. Focusing on domestic partnerships does not seem to offer a significant benefit in increasing knowledge of export markets or improving export performance. The nonsignificant linkage between domestic cooperation and knowledge intensity may be due to a poor choice of domestic partners. Or alternatively, although those partnerships may have been fruitful for domestic market success, because of having outdated knowledge, they may not have been instrumental in adding to the knowledge base of the focal SME. Knowledge intensity showed a significant direct influence on export performance. Those SMEs with a focus on improving their knowledge of export markets demonstrate better export performance. The source of information in building a knowledge base, domestic or foreign, does not seem to matter as long as the intensity of export market knowledge is elevated. The finding that firm size has a positive influence on export performance indirectly through cooperative strategy and knowledge intensity is consistent with some past studies (e.g., Diamantopoulos & Inglis, 1988), but contrary to others (e.g., Piercy, Kaleka, & Katsikeas, 1998). The present findings suggest that firm size has a direct effect on building informal foreign cooperative relationships as well as increasing export market knowledge base. This, in turn, results in better export performance. Broadly, our findings suggest that to improve their export performance, SMEs should seriously consider forming partnerships with other SMEs, and public officials should encourage and facilitate cooperation among these small and medium sized enterprises.

7. Limitations and future research directions Although this study expands our knowledge of the relationships among cooperative strategy, knowledge intensity and export success, the findings should be

viewed as tentative and viable prospects for further research remain. First, the scope of this study was restricted to Finnish and Norwegian SMEs. Furthermore, the companies surveyed were manufacturing concerns. Therefore, extension of the research to other countries, larger companies and non-manufacturing establishments are needed for cross-validation. Second, only informal cooperative strategies were considered in the current study. Inclusion of formal cooperative strategies into the model would enrich our understanding of the relationships among cooperation, knowledge intensity and export performance. Also enlightening would be studies comparing firms that employ formal cooperative strategies to those which employ informal strategies. Third, the two countries studied here share similar cultural values (Boter & Holmquist, 1998). The excellent model fit we obtained when analyzing the Finnish and Norwegian data sets simultaneously may have been partially due to cultural similarities. Since owner/managers’ cultural values may influence the degree and nature of their cooperative behaviors, to broaden the data base for further generalizations studies among respondents from different cultures would be helpful. For instance, those SME owner/managers from cultures with high uncertainty avoidance may prefer formal cooperative strategy with contractual safeguards (Steensma et al., 2000). Fourth, data from single-informants (self-report data from a single SME owner/manager for all variables) were used in this study. Such data are prone to common-method variance. Thus, future studies should consider multiple-informants and multimethod measurement approaches to minimize common method-variance. Fifth, in this study, we used binary measures (dichotomous scales) of cooperative strategy and knowledge intensity. Although these measures demonstrated acceptable internal consistency reliabilities, for finer insights, future research should consider alternate items and multichomous scales in capturing informal strategy and knowledge intensity constructs. Sixth, our study did not differentiate between family-owned SMEs and non-familyowned SMEs. It would be interesting to investigate if the results obtained in our study will equally apply to both types of SMEs. There is reason to expect differences since family businesses are more conservative and less active in their strategic international behaviors (Donckels & Aerts, 1993).

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Seventh, past research investigating the nature of cooperative strategy within the context of strategic alliances in general (Contractor & Lorange, 2002; Parkhe, 1993) and alliances involving entrepreneurial firms in particular (Larson, 1991) indicates that successful cooperation ultimately requires a high level of trust among partners. The role of trust may be even more critical in the implementation of an informal cooperative strategy. Hence, it would be interesting to investigate the role of trust as an antecedent to cooperation or an intervening construct between cooperative strategy and knowledge intensity. On a closing note, it should be underscored that not all firms are equally capable of acquiring and exploiting knowledge. The ability to absorb external knowledge depends to a great extent on the ability to identify and evaluate the new external knowledge. In other words, the ability of a firm to exploit external knowledge is dependent on its absorptive capacity or its ability to recognize the value of new external knowledge, assimilate and apply it (Cohen & Levinthal, 1990; Zahra & George, 2002). And research shows that SMEs differ in their ability to acquire and exploit knowledge (Yli-Renko et al., 2001). While it was beyond the scope of this study to investigate the complex and multifaceted relations between absorptive capacity and knowledge exploitation for competitive advantage, inclusion of absorptive capacity in future research would be critical for richer managerial and theoretical implications. We hope our study will inspire other researchers to pursue relevant issues in the future. Such research, on one hand, can further contribute to the theoretical framework of exporting as a field of scholarly inquiry and, on the other hand, can facilitate managerial decisions.

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