Market orientation and organizational performance: A comparison of industrial versus consumer companies in mainland China using market orientation scale (MARKOR)

Industrial Marketing Management 33 (2004) 743 – 753

Market orientation and organizational performance: A comparison of industrial versus consumer companies in mainland China using market orientation scale (MARKOR) Erdener Kaynaka,*, Ali Karab,1 a

School of Business Administration, Pennsylvania State University at Harrisburg, Middletown, PA 17057, USA b College of Business Administration, Pennsylvania State University York Campus, York, PA 17403, USA Received 1 March 2003; received in revised form 1 December 2003; accepted 31 January 2004 Available online 24 June 2004

Abstract Although not conclusive, past empirical marketing strategy studies conducted in the United States and western European countries suggested a strong positive relationship between market orientation and a company’s performance. The objective of this study is to investigate the reliability and validity of the market orientation construct in a very different socioeconomic, cultural, and business environment of Asia. Specifically, using the Kohli and Jaworski [J. Mark. 54 (1990) 1] MARKOR scale, this study investigates the market orientations of Chinese business managers who operate in a select number of industrial and consumer goods industries in urban China. Previous research has predicted a positive relationship between market orientation and performance, on the assumption that market orientation provides a firm with a better understanding of its environment and customers, which ultimately leads to enhanced customer satisfaction. Study results indicated that there were statistically significant differences between market-oriented and non-market-oriented Chinese managers in terms of their responses to market orientation scale statements. As well, a higher level of market orientation of Chinese companies operating in the Beijing area was discovered. This is rather encouraging because there is a large body of marketing literature that supports the argument that higher levels of market orientation would lead to better organizational performance. The managerial and public policy implications of the study are also discussed. D 2004 Elsevier Inc. All rights reserved. Keywords: Market orientation; China; MARKOR scale; Organizational performance; Industrial and consumer companies

1. Introduction Market orientation of companies in both manufacturing and service industries has attracted a significant amount of academic and practitioner interest in the current marketing literature (Han, Kim, & Srivastava, 1998; Kohli & Jaworski, 1990). This is no coincidence because the approach represents the implementation of the marketing concept and characterizes a firm’s inclination to deliver superior value to its customers on a continuous basis (Slater & Narver, 1994). In other words, market orientation refers to the organization-wide generation of market intelligence through * Corresponding author. Tel.: +1-717-948-6343; fax: +1-717-9486456. E-mail addresses: [email protected] (E. Kaynak), [email protected] (A. Kara). 1 Tel.: +1-717-771-4189; fax: +1-717-771-8404. 0019-8501/$ – see front matter D 2004 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2004.01.003

decision support systems, marketing information systems, continuously monitoring consumer response patterns by undertaking marketing research, dissemination of the intelligence across company departments, and maintaining organization-wide responsiveness to the changes taking place in the company market environment (Kohli & Jaworski, 1990). However, most of the studies in this area, so far, have been conducted in the developed countries of the West. To date, there has been relatively little research conducted on market orientation in developing economies, in general, and transition (emerging) economies of Asia, in particular. More specifically, empirical studies conducted thus far have principally focused on businesses and industries located in the United Sates and Western European countries (Horng, 1998). One study by Stoever (1989) suggested that foreign direct investment in developing countries lagged because of the inward market orientation of state-owned enterprises

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investment promotion materials. While this study presents a pessimistic point of view regarding market orientation, another study by Kaynak and Arbelaez (2000) provided a very positive perspective about market orientation in a Latin American developing country. This study surveyed Colombian managers and concluded that market trends are continuously changing in Colombia, and also indicated that marketing concept and market orientation pervaded the entire organization of the firms investigated. Although the marketing concept and market orientation have been highlighted in current business periodicals and academic literature for over four decades, businesses that function in global markets and want to become market oriented need to revise their outlook on the markets they serve and develop a different value system, vision, mission, or perspective of doing business. This issue becomes more important in transition economies, as these countries, in their attempt for economic development and transformation, try to improve not only their macro (at country or industry level) but also their micro (at individual company level) marketing system. As a result, it is valuable and essential that both academics and practitioners research the market orientation behavior of companies in transition economies. As globalization issues become essential to marketing practice, it is critical to consider whether (1) the existing market orientation scale items ‘‘make sense’’ in other cultures/nations and languages, (2) subsequent measure assessment would produce similar or comparable results (Kohli, Jaworski, & Kumar, 1993), and (3) comparability means that the results obtained in the United States by use of the scale items can be used to make valid comparisons between the countries covered by the research (Kumar, 1999). Past cross-cultural research literature offered us two approaches—emic and etic analysis. Emic attempts to study a culture from within by using its own system of norms, traditions, meanings, and value systems. On the other hand, etic analysis is a more detached perspective, which is more often used in comparative, cross-cultural/national studies. In global research, an etic scale would necessitate using the same set of scale items across all countries studied because it presupposes similarity across nations, which enhances the comparability among these nations. Whereas emic scale items would be tailored and/or adapted to a particular country cultural/national environment because cross-cultural/national differences are assumed (Keegan & Green, 2003, p. 243). The crucial question remains whether the construct developed in an advanced, developed country, such as the United State, is equally applicable in the different and turbulent environment of a developing, emerging economy (Hooly et al., 2000). Which items should remain the same and which ones need to be altered/modified, and which ones need to be dropped altogether? Researchers concluded that only a small number of market orientation studies have investigated the moderating effects of environmental variables on the relationship between market orientation and market performance (Gray,

Matear, & Matheson, 1998). These studies concluded a stronger relationship between market orientation and performance in cases of technological and market turbulence (Greenley, 1995; Slater & Narver, 1994). The explanation for this stronger relationship appears to be that the managers operating in more turbulent markets become more sensitive to market changes and developments. It must be pointed out here that a strong growth market, such as the Chinese economy, shows a high degree of environmental turbulence with respect to fluctuating economic growth, company performance changes, unemployment, and inflation rates. There is also the emergence of burgeoning stronger consumer markets, particularly along the coastal cities of eastern China (Zeng & Williamson, 2003). The objective of the present study is to investigate the reliability and validity of the market orientation construct in the very different socioeconomic, cultural and business environment of Asia. Specifically, this study investigates the market orientation of Chinese business managers, who operate in a select number of industrial and consumer goods industries in urban China.

2. Theoretical background Marketing is a key management function responsible for specific customer knowledge, as well as keeping the rest of the network organization informed about the customers and their expectations so that superior value is created and delivered. As a result, companies must make long-term commitments to maintain relationships while consistently providing quality, value-adding service, and innovation. Consequently, market orientation has become a prerequisite for success and profitability in most firms. Although there are some discrepancies in the use of the terms ‘‘market’’ versus ‘‘marketing’’ orientation, it generally consists of (1) customer orientation and targeting, (2) profit through customer satisfaction, and (3) integration of marketing organization, that is, integration of efforts by all areas of the organization to satisfy corporate goals by fulfilling customer needs and wants in the most desirable fashion (Perreault & McCarthy, 2002). Although Kohli and Jaworski (1990) accepted this definition, they viewed profitability as a consequence of market orientation rather than as a part of it. They defined market orientation as ‘‘organization-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization-wide responsiveness to this intelligence.’’ Market intelligence not only pertains to monitoring customers’ needs and preferences, but it also includes an analysis of how they might be affected by factors such as government regulation, technology, competitors, and other environmental forces. Environmental scanning activities are subsumed under market intelligence generation. Intelligence dissemination pertains to the communication and transfer of intelligence information to all departments and individuals

E. Kaynak, A. Kara / Industrial Marketing Management 33 (2004) 743–753

within an organization through both formal and informal channels. Finally, responsiveness is the action that is taken in response to the intelligence that is generated and disseminated. Unless an organization responds to the information obtained, nothing is accomplished. On the other hand, Narver and Slater (1990) argued that market orientation consists of three behavioral dimensions (customer orientation, competitor orientation, and interfunctional coordination) and two decision-making criteria (a long-term focus and a profit focus). Ruekert (1992) defines market orientation similarly but adds an explicit focus on strategic planning by business units. Shapiro (1988) argued that three characteristics make a company market-driven: (1) information on all important buying influences permeates every corporate function; (2) strategic and tactical decisions are made interfunctionally and interdivisionally; and (3) divisions and functions make well-coordinated decisions and execute them with a sense of commitment. Although most scholars agree on the importance of market orientation, a number of authors have voiced their concerns on the appropriateness of market orientation in ensuring the success of a company. For instance, Kaldor (1971) suggested that the marketing concept is an inadequate prescription of marketing strategy because it ignores the creative abilities of the firm. Kaldor further argues that customers do not always know what is needed or they may not be able to articulate their needs and expectations. An extreme example is the medical doctor – patient relationship, where the patient cannot specify the treatment. It is the doctor who assesses the specific needs of the patient. Yet, it does not necessarily mean that the doctor is not addressing the needs and wants of his/her patient. In fact, customers are not necessarily good sources of information about their needs. In addition, the ability of the customers to verbalize what they need/want is limited by their knowledge levels, and when they suggest modifications, they take into account the limits of technology. Consequently, a marketing-oriented firm may be preoccupied with line extension and product proliferation. As Tauber (1974) commented: ‘‘the measurement of consumer need as well as of purchase interest may be valid for screening continuous innovations, but consumers may not recognize or admit they need products that are unusual.’’ Hence, marketers sometimes need to anticipate the future needs and wants of consumers to be successful. Hirschman (1983) hypothesized that the marketing concept, as a normative framework, is not applicable to two broad classes of producers—artists and ideologists—because of personal values and social norms that characterize the production process. When the roles of the marketer and the producer are vested in the same person, conflict may arise. In fact, commercial success in an aesthetic or ideological industry, owing to the adoption of market orientation, may be viewed negatively by their peers because they have violated industry norms. In addition, consumer protection groups often raise questions about adhering to the market orientation philosophy without considering the impact on

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society as a whole and on the environment. The question is whether what is good for specific customers is also good for society as a whole (Tse, 1998). Of course, at times, conflicts may arise between consumer and societal needs. As a result, the state intervenes with rules and legislations to protect the best interest of the society as a whole, hence creating increased standards of living.

Table 1 Sample characteristics Frequency Job title Sales/Marketing manager Engineer CEO/VP/GM Quality control manager Export manager Purchasing manager Number of employees Under 10 10 – 49 50 – 99 100 – 499 500 – 999 1000 or more Type of business Banking Telecommunications Computer hardware Textile Component manufacturing Computer software Internet services Building/real estate HVAC Other consumer products Age < 25 25 – 30 31 – 35 36 – 40 41 + Gender Male Female College degree in Economics Finance/Accounting Engineering Physics/Chemistry LAS Computer science Business management Income (US$) Less than 20,000 20,001 – 40,000 40,001 – 50,000 50,001 – 60,000 60,001 – 70,000 70,001 – 80,000 80,001 – 90,000 More than 90,001

Relative Frequency (%)

86 15 33 12 2 6

48.0 8.4 18.4 6.7 1.1 3.4

9 31 38 41 11 36

5.0 17.3 21.2 22.9 6.1 20.1

40 12 18 6 30 7 2 8 2 22

22.3 6.7 10.1 3.4 16.8 3.9 1.1 4.5 1.1 12.3

8 97 36 19 6

4.5 54.2 20.0 10.5 3.5

125 40

69.8 22.3

24 14 33 17 17 17 30

13.4 7.8 18.4 9.5 9.5 9.5 16.8

80 44 20 6 2 2 3 4

44.7 24.6 11.2 3.4 1.1 1.1 1.7 2.2

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Table 2 Reliability of MARKOR market orientation scale Market orientation items (overall a=.9318) Intelligence generation (a=.7935) 1. In our business unit, we meet with customers at least once a year to find out what products or services they will need in the future. 2. Individuals from our service department interact directly with customers to learn how to serve their needs better. 3. In our business unit, we do a lot of in-house market research. 4. We are slow to detect changes in our customers’ product/service preferences (R). 5. We survey end-users at least once a year to assess the quality of our product and service offerings. 6. We often share our survey results with those who can influence our end-users’ purchase such as retailers and distributors. 7. We collect industry information by informal means (e.g., lunch with industry friends, talk with trade partners). 8. In our business unit, market intelligence on our competitors is generated independently by several departments of our firm. 9. We are slow to detect fundamental shifts and trends in our industry such as competition, technology, and regulation (R). 10. We periodically review the likely effect of changes in our business environment such as regulations and technology on customers. Intelligence dissemination (a=.8713) 11. A lot of informal talks in this business unit concerning our competitors’ tactics or strategies. 12. We have interdepartmental meetings at least once a quarter to discuss market trends and developments. 13. Marketing personnel in our business unit spend time discussing customers’ future needs with other functional departments. 14. Our business unit periodically circulates documents (e.g., reports, and newsletters) that provide information on our customers. 15. When something important happens to our major customer of market, the whole business unit knows about it within a short period. 16. Data on customer satisfaction are disseminated at all levels in this business unit on a regular basis. 17. There is minimal communication between marketing and manufacturing departments concerning market developments (R). 18. When one department finds out something important about competitors, it is slow to alert other departments (R). Responsiveness (a = 0.9220) 19. It takes us forever to decide how to respond to our competitor’s price changes (R). 20. In our business unit, principles of market segmentation drive new product development efforts. 21. For one reason or another we tend to ignore changes in our customer’s product/service needs (R). 22. We periodically review our product development efforts to endure that they are in line with what customers want. 23. Our business plans are driven more by technological advances than by market research (R). 24. Several departments get together periodically to plan a response to changes taking place in our business environment. 25. The product/service lines we market depend more on internal politics than real market needs (R). 26. If a major competitor were to lunch an intensive campaign targeted at our customers, we would implement a response immediately. 27. The activities of the different departments in this business unit are well coordinated.

Mean (n = 179)

Standard deviation

Item – total correlations

Alpha if item removed

4.24

0.99

.51

.77

4.04

0.93

.41

.78

3.84 3.96

0.84 0.87

.44 .51

.77 .76

3.95

1.01

.43

.78

3.75

0.78

.45

.77

3.88

0.79

.47

.77

3.83

0.74

.38

.78

4.03

0.84

.55

.76

3.96

0.86

.48

.77

3.73

0.91

.59

.85

3.91

1.02

.68

.84

3.93

0.91

.62

.85

3.73

0.95

.64

.85

3.92

1.07

.73

.84

3.39

1.03

.55

.86

3.68

0.85

.61

.85

3.69

0.91

.58

.86

3.65

0.96

.67

.91

3.64

0.89

.68

.92

3.72

0.97

.69

.91

3.81

0.87

.64

.92

3.58

0.86

.65

.92

3.65

0.82

.70

.91

.51

0.92

.57

.91

3.69

0.94

.61

.92

3.56

0.78

.65

.92

E. Kaynak, A. Kara / Industrial Marketing Management 33 (2004) 743–753

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Table 2 (continued) Market orientation items (overall a=.9318) Responsiveness (a = 0.9220) 28. Customer complaints fall on deaf ears in this business unit (R). 29. Even if we came up with a great marketing plan, we probably would not be able to implement it in a timely fashion (R). 30. We are quick to respond to significant changes in our competitors’ pricing structures. 31. When we find out that customers are unhappy with quality of our service, we take corrective action immediately. 32. When we find that customers would like us to modify a product or service, the departments involved make concerted efforts to do so.

2.1. Measuring market orientation Market orientation has been one of the most popular concepts studied in the discipline. A substantial number of studies have been published on this topic (see Wrenn, 1997 for a detailed listing). One of the major issues that scholars agree upon is the lack of systematic effort to develop valid measures of market orientation. This becomes even more problematic when one moves over national borders. Among the available scales for measuring market orientation (e.g., Churchill, 1979; Deshpande, 1993; Wrenn, 1997; Wrenn, LaTour, & Calder 1994), perhaps, the two most significant studies which have sought to define and operationalize market orientation are Narver and Slater (1990) and Kohli and Jaworski (1990). Based on an extensive review of literature on sustainable competitive advantage and marketing strategy, Narver and Slater agreed that operationalized market orientation consists of three behavioral dimensions (customer orientation, competitor orientation, and interfunctional coordination) and two decision-making criteria (longterm and profit focuses). On the other hand, based on an extensive literature review and the field interviews of managers, Kohli and Jaworski offered a more processdriven model that considers the stages of generating, disseminating, and responding to market intelligence as the essence of market orientation (Noble, Sinha, & Kumar 2002). These frameworks (Kohli & Jaworski, 1990 and Narver and Slater, 1990) have several commonalities with respect to customers, functional integration, and market opportunities. The authors chose to operationalize the Kohli and Jaworski framework in this study because it has been less frequently studied in developing nations and it is believed to be better suited to the data collection. 2.2. Market orientation and performance Previous research has predicted a positive relationship between market orientation and performance, on the assumption that market orientation provides a firm with better understanding of its environment and customers, which ultimately leads to enhanced customer satisfaction. However, research on the relationship between market orientation

Mean (n = 179)

Standard deviation

Item – total correlations

Alpha if item removed

3.78 3.36

0.95 0.91

.66 .64

.91 .92

3.71

0.97

.60

.91

3.74

0.98

.67

.92

3.61

0.87

.66

.92

and performance had produced mixed results (Voss & Voss, 2000). Some empirical studies suggested a positive relationship between market orientation and managers’ perceptions of overall firm performance (Jaworski & Kohli, 1993), between managers’ perceptions and financial performance (Pelham & Wilson, 1996; Slater & Narver, 1994), and between managers’ perceptions and new product performance (Atuahene-Gima, 1995, 1996; Pelham & Wilson, 1996; Slater & Narver, 1994). At the same time, several studies did not support a direct positive relationship between performance and market orientation (Han et al., 1998; Jaworski & Kohli, 1993). In summary, the relationship between company performance and market orientation may vary depending on industry characteristics, customer characteristics, or the type of performance measure used. The literature generally supports the proposition that market-driven and innovative firms will outperform their competitors (Day, 1994; Gatignon & Xuereb, 1997; Jaworski & Kohli, 1993; Narver and Slater, 1990; Slater & Narver, 1994).

3. Methodology 3.1. Questionnaire A questionnaire was developed to collect the data for the study. Market orientation scale items used in this study were mainly adopted from Kohli et al. (1993). The survey instrument consisted of three sections. Section 1 asked the respondents to answer 32 MARKOR scale questions to measure their market orientation. These questions were structured in a Likert scale type (1 to 5) with ‘‘strongly disagree,’’ ‘‘disagree,’’ ‘‘neither agree nor disagree,’’ ‘‘agree,’’ and ‘‘strongly agree’’ as the alternative choices. Section 2 of the questionnaire included questions about performance such as current and past 3-year sales in dollars, revenue growth, market share, and ROI in the last 3 years that managers evaluated the performance of their organizations. Section 3 of the questionnaire included demographic and background questions. Because most of the survey participants had very good levels of English language, the questionnaire was developed

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Table 3 Correlations between MARKOR and performance measures (n = 179) Performance measures Perceptual measures Profit goals have been achieved Sales goals have been achieved ROI goals have been achieved Our product(s) have a higher quality than that of our competitors We have a higher customer retention rate than our competitors We have a better reputation among major customer segments than our competitors We have lower employee turnover rate than that of our competitors We have been more effective in new product development than our competitors Financial measures Current sales level (million $) Sales in the last 3 years (million $) 2001 2000 1999 Revenue growth in the last 3 years (%) Market share in the last 3 years (%) 2001 2000 1999 Return on investment in the last 3 years 2001 2000 1999

Pearson correlation

Significance ( P value)

.252 .236 .161 .385

.001 .002 .052 .001

.425

.000

.429

.000

.168

.031

.455

.000

.268

.002

.206 .217 .191 .106

.018 .013 .035 .242

.223 .189 .217

.017 .051 .022

.011 .045 .113

.921 .697 .333

Table 4 Perceptual performance measures by segment

* Significant at P < .01. ** Significant at P < .001. *** Significant at P < .0001.

Current sales level (million $) Sales in the last 3 years (million $) 2001 2000 1999 Revenue growth in the last 3 years (%) Market share in the last 3 years (%) 2001 2000 1999 Return on investment in the last 3 years 2001 2000 1999

High MO (n = 99)

Low MO (n = 67)

13.628

11.743 *

20.658 11.820 11.972 7.32

12.076** 9.367* 9.176* 4.44**

24.03 20.93 20.26

18.44* 15.45 ns 13.57*

14.19 13.29 12.15

15.30 ns 12.98 ns 12.56 ns

* Significant at P < .05. ** Significant at P < .01.

Because the reliability of the scale was adequate, a summative measure was used for market orientation score.

For the last 3 years Profit goals have been achieved Sales goals have been achieved ROI goals have been achieved Our product(s) have a higher quality than that of our competitors We have a higher customer retention rate than our competitors We have a better reputation among major customer segments than our competitors We have lower employee turnover rate than that of our competitors We have been more effective in new product development than our competitors

Table 5 Market orientation and performance measures by segment

and administered in English. The questionnaire was first administered to a group of Chinese managers who were attending an Executive MBA class taught by one of the coresearchers to pilot test the questionnaire for clarity, comprehension, and consistency. As a result of the pilot, several questions were reworded, and a few of the attitudinal statements were made more applicable to the Chinese business environment (Stover & Stone, 1978). Adopted from Hooley et al. (2000), the questionnaire included several perceptual performance measures, which were intended to address company performance based on self-explicated responses. Finally, several other performance measures were used, such as profit growth, sales growth, market share, and the like, to see the relationship between higher levels of market orientation and better company performance. 3.2. Data collection

High MO (n = 99)

Low MO (n = 67)

3.60 3.61 3.27 3.66

2.92** 3.09** 2.90 ns 3.12**

3.79

3.09***

3.90

3.26***

3.39

2.92 *

3.74

3.01***

Data for the study were collected in the capital city of Beijing, China in March of 2002. The Chinese Manufacturers’ Association Beijing area membership list was used as a sampling frame. From this list of companies, 300 companies were randomly selected for the survey. With the help of executive MBA students from a university in Beijing, the marketing managers of selected Chinese companies were Table 6 Market orientation by industry Type of business

High MO

Low MO

Banking Telecommunications Hardware Manufacturing Software Textile

44.4 75.0 72.2 39.1 83.3 68.2

55.6 25.0 27.8 60.9 16.7 31.8

Row percentages, significant Chi-square at P < .05.

E. Kaynak, A. Kara / Industrial Marketing Management 33 (2004) 743–753 Table 7 Mean MARKOR scores of industrial vs. consumer goods producers Market orientation scale items Intelligence generation 33. In our business unit, we meet with customers at least once a year to find out what products or services they will need in the future. 34. Individuals from our service department interact directly with customers to learn how to serve their needs better. 35. In our business unit, we do a lot of in-house market research. 36. We are slow to detect changes in our customers’ product/service preferences (R). 37. We survey end-users at least once a year to assess the quality of our product and service offerings. 38. We often share our survey results with those who can influence our end-users’ purchase such as retailers and distributors. 39. We collect industry information by informal means (e.g., lunch with industry friends, talk with trade partners). 40. In our business unit, market intelligence on our competitors is generated independently by several departments of our firm. 41. We are slow to detect fundamental shifts and trends in our industry such as competition, technology, and regulation (R). 42. We periodically review the likely effect of changes in our business environment such as regulations and technology on customers. Intelligence dissemination 43. A lot of informal talks in this business unit concerning our competitors’ tactics or strategies. 44. We have interdepartmental meetings at least once a quarter to discuss market trends and developments. 45. Marketing personnel in our business unit spend time discussing customers’ future needs with other functional departments. 46. Our business unit periodically circulates documents (e.g., reports, and newsletters) that provide information on our customers. 47. When something important happens to our major customer of market, the whole business unit knows about it within a short period. 48. Data on customer satisfaction are disseminated at all levels in this business unit on a regular basis.

Industrial Consumer P value (n = 77) (n = 70) 4.13

4.29

4.10

2.92

3.83

3.86

3.82

4.20

.05

4.01

3.20

.05

3.73

3.67

3.86

3.82

3.83

3.82

3.00

3.98

4.12

3.55

3.90

3.09

3.66

4.17

3.33

.01

3.98

3.83

4.00

.01

2.84

.05

.01

3.61

2.90

3.41

.01

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Table 7 (continued) Market orientation scale items Intelligence dissemination 49. There is minimal communication between marketing and manufacturing departments concerning market developments (R). 50. When one department finds out something important about competitors, it is slow to alert other departments (R). Responsiveness 51. It takes us forever to decide how to respond to our competitor’s price changes (R). 52. In our business unit, principles of market segmentation drive new product development efforts. 53. For one reason or another we tend to ignore changes in our customer’s product/service needs (R). 54. We periodically review our product development efforts to endure that they are in line with what customers want. 55. Our business plans are driven more by technological advances than by market research (R). 56. Several departments get together periodically to plan a response to changes taking place in our business environment. 57. The product/service lines we market depend more on internal politics than real market needs (R). 58. If a major competitor were to lunch an intensive campaign targeted at our customers, we would implement a response immediately. 59. The activities of the different departments in this business unit are well coordinated. 60. Customer complaints fall on deaf ears in this business unit (R). 61. Even if we came up with a great marketing plan, we probably would not be able to implement it in a timely fashion (R). 62. We are quick to respond to significant changes in our competitors’ pricing structures. 63. When we find out that customers are unhappy with quality of our service, we take corrective action immediately. 64. When we find that customers would like us to modify a product or service, the departments involved make concerted efforts to do so.

Industrial Consumer P value (n = 77) (n = 70) 3.73

3.59

3.67

3.61

3.69

3.63

3.70

3.65

3.72

3.73

3.86

3.63

3.61

3.53

3.67

3.49

3.40

3.59

3.77

3.71

3.60

3.59

3.82

3.69

3.34

3.41

3.68

3.80

3.71

3.67

3.62

3.59

750

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contacted by e-mail, whereby the survey instrument was enclosed as an attached word file. In the cover letter, the purpose of the survey was clearly explained, and any outstanding questions were answered by one of the coinvestigators. Respondents were instructed to return the completed questionnaires by e-mail to one of the researchers in the United States. After a 2-week time period, 161 responses were received. A follow-up communication to the nonresponding companies produced an additional 33 responses, making a total number of 194 responses. Because of incompleteness and response errors in some 15 questionnaires, they were eliminated from further analysis. The final analysis was based on 179 responses. Table 1 shows the demographic and socioeconomic profile of the respondents. Chinese companies operating in the Beijing area studied consisted mostly of banking, component and computer hardware manufacturing, as well as consumer products manufacturing companies (61.3%). Most of the companies were medium sized and employed 100 –499 persons (22.9%), 50– 59 persons (21.2%), 1000 and over persons (20.1%). Two thirds of the survey respondents were between the ages of 25– 35 and maintained mostly sales/marketing management and quality control management (58.4%) jobs. The sample consisted of predominantly male respondents (nearly 70%); 44.7% of the respondents had an individual annual income of less than US$20,000, 24.6% had between US$20,000 to 40,000, and 11.2% had an annual income of US$40,000 to 50,000. All of the respondents possessed college education, although the majority of them had college education in engineering, business administration, and economics (a total of 48.6%).

of 3.98 and a size of n = 99, whereas Cluster 2 had an overall mean score of 2.89 and a size of n = 67 respondents. Therefore, Cluster 1 may be labeled as high MO and the Cluster 2 may be labeled as a low MO. Table 4 shows the relationship between the MO groups and the answers to the performance measures as perceived by the managers/executives. In general, the high MO group perceived that most of the company objectives were achieved, especially product development, reputation, customer retention rates and product quality. Table 5 shows the relationship between the MO groups and the performance measured in financial terms. Companies in the high MO group had higher sales, revenue growth, and market share. However, no significant relationship was found with return on investment. Table 6 shows the relationship between the types of industry represented in each segment. This provides support for the previous findings regarding the role of the industry market environment (i.e., competition and turbulence) on the level of market orientation. It is accepted that two of the key factors distinguishing consumer from industrial marketing are the intended use of the product and the targeted consumer/user. A fundamentally different marketing approach may be needed to reach the industrial or organizational buyers. Using these criteria, the authors have dichotomized the companies participated in the study as industrial and consumer goods companies. The data collected indicate about the same number of companies that participated in the study could be classified as industrial (n = 77) and consumer good producers (n = 70). To understand how managers from industrial and consumer goods companies responded to different market orientation items, the authors compared the two groups using a t test. The

4. Analysis and results A total of 179 Chinese marketing managers/executives provided data for the study. Analyses of the Kohli et al. (1993) scale produced a strong overall Cronbach alpha (0.93). Also, alphas for the three subscales were acceptable for this sample: intelligence generation scale, a=.79; intelligence dissemination scale, a=.87; and responsiveness, a=.92 (See Table 2). Confirmatory factory analysis results indicated satisfactory results for the dimensionality of the scale (GFI = 0.91, AGFI = 0.85, RMSEA = 0.10, and TLI = 0.84). Table 3 shows the Pearson correlations between market orientation and the performance measures for the whole data set. Although it is difficult to talk about causality, this table shows the positive relationship between market orientation measure and the perceptual and financial performance measures with few exceptions. The authors then split the sample into two groups using cluster analysis. K means clustering, with two clusters, was used on the MARKOR scales to split the respondents into high and low market orientation groups. These two groups represented significantly different levels of MO as measured by the MARKOR scale. Cluster 1 had an overall mean score

Table 8 Perceptual performance measures by industrial vs. consumer goods producers

For the last 3 years Profit goals have been achieved Sales goals have been achieved ROI goals have been achieved Our product(s) have a higher quality than that of our competitors We have a higher customer retention rate than our competitors We have a better reputation among major customer segments than our competitors We have lower employee turnover rate than that of our competitors We have been more effective in new product development than our competitors ns = Not significant. * Significant at P < .05. ** Significant at P < .01.

Industrial (n = 77)

Consumer (n = 70)

3.62 3.45 3.26 3.47

3.01 * 3.29 ns 2.89 * 3.47 ns

3.89

2.38 **

3.70

3.65 ns

3.09

3.10 ns

3.48

2.49 *

E. Kaynak, A. Kara / Industrial Marketing Management 33 (2004) 743–753 Table 9 Market orientation and performance measures by industrial vs. consumer goods producers

Current sales level (million $) Sales in the last 3 years (million $) 2001 2000 1999 Revenue growth in the last 3 years (%) Market share in the last 3 years (%) 2001 2000 1999 Return on investment in the last 3 years 2001 2000 1999

Industrial (n = 77)

Consumer (n = 70)

21.091

7.859***

16.378 13.610 13.150 10.32

9.095 ** 8.324 ** 9.112 * 5.30 **

21.36 19.74 19.61

23.20 ns 17.39 ns 14.75 *

16.05 14.20 13.32

10.52 * 10.61 * 10.25 ns

ns = Not significant. * Significant at P < .05. ** Significant at P<.01. *** Significant at P < .001.

results are illustrated in Table 7. An analysis of Table 7 indicates that the majority of the differences between the responses concentrated on the intelligence generation and intelligence dissemination dimensions of the MARKOR scale. That is, the study findings indicate that industrial goods producers placed more emphasis on generation and dissemination of the information than the consumer goods producers did. This finding, in fact, supports the previous propositions on this issue (Gounaris & Avlonitis, 2001). Also, 60% of the managers from the industrial goods producers indicated that they would consider their organization as market oriented, as opposed 40% of the consumer goods producers (this question was used as a validation question of the MARKOR scale). Finally, the authors compared the perceptual performance measure differences between industrial goods and consumer goods producers. Table 8 shows that managers in the industrial goods sectors perceived that most of the company objectives were achieved. Similarly, the authors compared industrial goods and consumer goods producers with respect to several financial performance measures (see Table 9).

5. Discussions and conclusions The research has demonstrated that the overall market orientation scale is a valid and reliable instrument of company market orientation in China. When presented with the scale, Chinese managers/executives had little difficulty in relating to these items. In addition, the discussions during the in-depth interview phase of the research suggested that the construct maintained its face validity. The reliability coefficients and the confirmatory factor analysis for the

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market orientation constructs indicate that the scale was adequate based on criterion used in the literature. An initial attempt was also made to examine the relationship between marketing orientation and organizational performances in a transition economy and provided empirical evidence to demonstrate the universal applicability of marketing in totally different settings. In this case, it is a low context culture. The analysis conducted in this study indicates that intelligence generation, dissemination, and responsiveness were the major factors that impacted a market orientation, which, in turn, impacts the organization’s performance in a Chinese context. Based on the demographics of the sample, it is believed that a large proportion of the managers/executives that participated in the study had higher levels of market orientation. This finding is not surprising, as these companies are operating in a very competitive market environment, where they face stiff competition from both domestic and foreign companies. As well, most of these companies are serving the needs of sophisticated consumer and institutional markets. This finding of a higher level of market orientation of Chinese companies operating in the Beijing area is rather encouraging because there is a large body of marketing literature that supports the argument that higher levels of market orientation would lead to better organizational performance. The findings of this study indicate a higher market orientation among the industrial goods producers as opposed to the consumer goods producers. This might be due to the higher tendency to focus on intelligence generation and dissemination of the industrial goods producers. This might also be due to the fact that banking/financial services companies are included in the consumer goods producers, and our previous analyses indicated a tendency of low market orientation in this sector, which might have ultimately led to a lower market orientation for the whole group.

6. Limitations and direction for future research A number of areas for future research are suggested based on the above findings. First, market orientation scales could be usefully applied to other settings. The first area that comes to mind would be a similar type of a study among the Greater China countries/provinces/territories of Singapore, Taiwan, Hong Kong, and Macau, which would be illuminating. In terms of the level of market development, one can put these countries/territories on a continuum from most advanced market system development (Singapore) to least advanced market system development (China), and others may be in between, where Hong Kong is next to Singapore, Taiwan is next to China, and Macau is in between Hong Kong and Taiwan. Market orientation comparisons not only among the countries but also across industries/sectors in each country would produce very insightful information. Second, another

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study may include companies that were not represented in the sample used in this study, which would provide further evidence of the generalizability and robustness of the scale. Third, different performance measures, such as customer satisfaction, might be used to investigate the relationship between market orientation and organizational performance in international settings. As well, additional studies that focus on identifying more appropriate methods of measuring the long-term effects of market orientation on customer and employee satisfaction are warranted. For instance, in one study, Vranesevic, Vignali, and Vignali (2002) explained the importance of company culture and point to the appropriateness of customer orientation as a method of expressing culture. Based on this, it may be suggested that a different external measure of performance, such as customer satisfaction or growth, be used in future studies. Furthermore, the connection between customer and employee satisfaction when creating company culture through customer orientation may be examined. This study has a few limitations. First, in this study, only the association, rather than causation, between constructs could be validated. Second, sample size, sample frame, and sample selection do not allow us to generalize the results of this study to a larger environment of China, as there are substantial regional, provincial, and sectoral differences within China.

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E. Kaynak, A. Kara / Industrial Marketing Management 33 (2004) 743–753 Erdener Kaynak, PhD, D.Sc. is a Professor of Marketing and Chair of Marketing Program at the School of Business Administration of the Pennsylvania State University at Harrisburg, Middletown, PA, USA. A prolific author, Dr. Kaynak has had 24 of his books (one was translated into Chinese and another into Japanese) and over 200 articles published in scholarly and practitioner-oriented journals and scholarly conference proceedings. So far, he has published works in such academic journals as Journal of the Academy of Marketing Science, Journal of Advertising Research, Industrial Marketing Management, International Journal of Research in Marketing, Journal of Business Research, European Journal of Marketing, International Marketing Review, Management International Review, and many others. His current research focuses on company market orientation, cross-cultural/national consumer behavior, and services marketing.

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Ali Kara, PhD is an Associate Professor of Marketing in the College of Business Administration, the Pennsylvania State University, USA. He holds a doctorate from the Florida International University, Miami, FL, and an MBA degree from University of Bridgeport, CT. He has published works in academic marketing journals such as Journal of Marketing Research, Journal of Advertising, International Journal of Research in Marketing, European Journal of Operations Research, Omega, Journal of Global Marketing, and made several national/international conference presentations. His current research focuses on consumer choice modeling using analytic hierarchy process and conjoint analysis, model comparisons, and market segmentation.