Pioneering advantage in new service development: a multi-country study of managerial perceptions

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Pioneering Advantage in New Service Development: A MultiCountry Study of Managerial Perceptions X. Michael Song, C. Anthony Di Benedetto, and Lisa Z. Song

Pioneering advantage in manufacturing firms has received much attention in the management and marketing literature. Few research studies, however, have been conducted to investigate the pioneering advantages and disadvantages involved in new service development, especially across several geographic regions. We build a theoretical framework of pioneering advantage in service industries based on the distinguishing characteristics of services. From this framework, we develop a set of testable propositions about the importance of several types of pioneering advantage (economic, preemptive, technological, and behavioral advantages) to service managers. Specifically, we propose that all of these types of pioneering advantages are important to service managers, and that these managers perceive that pioneering results in improved firm performance. We also propose that, due to the distinguishing characteristics of services such as intangibility and heterogeneity, service managers will not perceive the risks of pioneering in a service industry to be severe. In addition, we propose that certain types of pioneering advantage will be more important to service managers in Western countries than in Asian Pacific countries due to cultural and business environmental differences. In particular, we propose that service managers from Western firms perceive preemptive advantages of pioneering to be more important than do their Asian Pacific counterparts, and service managers from Asian Pacific firms perceive behavioral advantages of pioneering to be more important than do their Western counterparts. To test our propositions empirically, we develop a set of pioneering principles from the literature. We then collect and analyze data from a sample of 982 senior managers in service industries from nine countries: the United States, the United Kingdom, Germany, Japan, China, Taiwan, Hong Kong,1 South Korea, and Singapore. We find evidence of several significant cross-cultural differences consistent with our propositions. In fact, seven of the eight propositions are strongly or partially supported. The only nonsupported proposition concerned the importance of technological advantage. We find that technological advantages of pioneering are much less important to service managers than are other pioneering advantages. We conclude with strategic recommendations for managers involved in new service development and international or global competition, and Address correspondence to C. Anthony Di Benedetto, Department of Marketing, School of Business and Management, Temple University, 1810 North 13th Street, Philadelphia, PA 19122, USA. J PROD INNOV MANAG 2000;17:378 –392 © 2000 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010

0737-6782/00/$–see front matter PII S0737-6782(00)00054-0

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provide directions for future research. We note that the insights from this study can help managers from both the West and the Asian Pacific region to better understand their global competitors who pursue a new service pioneering strategy, and can potentially help them select entry deterrence strategies more effectively. © 2000 Elsevier Science Inc.

Introduction

O

ver the past 20 years, the management of services has increasingly attracted the attention of business scholars, and a body of literature on services has emerged over this time (for reviews, see [5,6,77,78]). A small number of empirical studies have examined strategy and management in service firms (e.g., [45,50]). Despite the importance of the service sector, however, there is still a relative shortage of empirical research on service management and new service development [23]. Important early studies of service industries [64,78] specifically identified several notable differences be-

BIOGRAPHICAL NOTES Michael Song is the Darland Endowed Chair Professor of Technology Entrepreneurship and Professor of Marketing in the School of Business Administration at University of Washington, Seattle, Washington. He earned an MS from Cornell University, and an MBA and PhD in Business Administration form the Darden School at University of Virginia. His primary research interests include assessing technology risks, managing start-up technology firms, measuring values of technologies, and new product development. He has conducted research and consulted with many major multinational companies and government agencies on projects including technology evaluation and management, global market opportunity analysis, project selection, market entry strategy, and assessing technology risks. C. Anthony Di Benedetto is Professor of Marketing, Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania. He earned a BSc in Chemistry, an MBA, and a PhD in Marketing and Management Science from McGill University. His research interests include improving the new product development process, industrial new product development, and international marketing strategy. He has served as Vice President of Publications for PDMA and Editor of the PDMA Newsletter Visions, and is currently Abstracts Editor for the Journal of Product Innovation Management. Lisa Z. Song was Visiting Assistant Professor at the Eli Broad Graduate School of Management, Michigan State University, East Lansing, Michigan. She earned an MS and a PhD from Cornell university. Her research has focused on option approaches to evaluating new product development projects and pioneering advantage. Her work has appeared in Strategic Management Journal, Journal of Quantitative Financial Analysis, and in the Marketing Science Institute Working Paper Series.

tween services and manufactured goods. Services are characterized by intangibility, simultaneous production and consumption, heterogeneity, and perishability [78]. Although services can have tangible as well as intangible features, the more intangible a service is the more different should be the priorities and approaches used in its marketing [64]. Bharadwaj et al. [6] developed a conceptual framework for the establishment of sustainable competitive advantage in service industries. They noted that there might be several potential sources of sustainable competitive advantage, but that these would be moderated by the abovementioned service characteristics and also by characteristics of particular service provider firms. Pioneering advantage in manufacturing firms has been well studied in the management and marketing literature (see Lieberman and Montgomery [39,40] for reviews). Developing new products, and bringing them to market quickly, is seen as a key source of competitive advantage [9,17,61]. The literature suggests that the pioneering firm’s competitive advantage pioneering is not automatic, nor necessarily sustainable. Several empirical studies (e.g., [47,59]) find that pioneers outperform later entrants. A pioneering firm’s long-term success will, however, depend on industry factors, relative market power of the pioneer, radicalness of the innovation, and other factors ([41,43]; for a meta-analysis, see [76]). The work of Bharadwaj et al. [6] implies that the sustainable advantage obtained by a service pioneer is likely to be moderated by the nature of service industries. Relatively little empirical work has been devoted thus far to pioneering new service offerings, and it has recently been noted that cross-national studies of pioneering advantage in general have been scarce [40]. In a recent study, Song, Di Benedetto, and Zhao [66] elicited the perceptions of managers from several countries with respect to the cost advantages, differentiation advantages, and risks associated with new product pioneering. They found significant differences between manufacturing and service industry managers on these hypotheses, as well as significant cross-national differences. To our knowledge, however, no studies have attempted to build a framework of service

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pioneering advantage from the unique characteristics of services [78] and test it empirically with managers involved in service development across several countries. Managers often form simplified “mental models” of their business environments [53,67], then make strategic decisions based on their experiences, beliefs and perceptions regarding the marketplace. Thus, to understand how managers assess potential pioneering opportunities and make strategic pioneering decisions, it is important to understand managers’ perceptions of pioneering advantages as, right or wrong, it is these perceptions that managers act on. The objective of this study is to explore service managers’ perceptions of the advantages and disadvantages of pioneering a new service offering, and to identify cross-national differences. It extends the work of Song et al. [66] in that it investigates in more detail the specific new service pioneering advantages, as perceived by service provider managers. To accomplish our objective, we first build a theoretic framework for pioneering advantage in service industries. Based on the unique characteristics of services, we develop a set of testable propositions regarding the perceived advantages and disadvantages of pioneering in service industries. We then develop a set of pioneering principles from the literature. We collect and analyze data from 982 senior executives in service industries from nine countries (the United States, United Kingdom, Germany, Japan, China, and four Asian Pacific Newly Industrialized Economies or NIEs: Taiwan, Hong Kong, South Korea, and Singapore). Given the economic climate and uncertainties in the Asian Pacific region [36], the huge market potential in China, and the recent takeover of Hong Kong by China, there is a need for a greater understanding of this region and so it is particularly appropriate for inclusion in this study. Our results provide an understanding of what service managers from these nine countries perceive to be the most important advantages and disadvantages of pioneering. There is evidence that, in some international markets, pioneers can have a sustainable advantage over follower firms [47]. Cultural distance or barriers, however, can have strong implications for the ultimate success of a firm seeking to enter a foreign market, especially for the first time [3]. Therefore, an understanding of the beliefs of Asian Pacific service providers regarding pioneering advantages is strategically useful for Western managers seeking to enter the Asian Pacific market, or to defend against Asian Pa-

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cific competitors entering the Western market. (The reverse is also true, from the perspective of Asian Pacific managers.) For example, through their firsthand experiences in their own markets, Asian Pacific service managers may believe that pioneering does not bestow sustainable advantage. If this is true, it may not be important for a Western firm to rush in (and incur the pioneering risks), as the local competitors may believe that the pioneer’s advantage can be easily overcome. If, on the other hand, Asian Pacific managers view pioneering as critical to long-term success, the Western competitor would be better off to move quickly, establish a presence in the foreign market, and deter competitive entry. Furthermore, there may be substantial differences among Asian Pacific nations, indicating that some may be more attractive to enter first. Finally, cross-national differences in perceptions of pioneering advantage may be indicators or reflections of fundamental cross-national differences in cultural or business environments. We begin to explore these implications in our concluding section.

Theoretical Background Competitive Advantages and Disadvantages of New Service Pioneering Pioneering advantage has attracted a large amount of empirical research in management and marketing [25,31,34,39 – 42,46,66]. In theory, pioneers can exploit competitive asymmetries in the market, and gain comparative advantage in terms of brand recognition that can result in higher long-term profitability and market share [39,40,43]. Many studies, primarily of pioneering new (tangible) products [8,46,47,57–59, 75], indicate that the pioneer gains sustainable competitive advantage and outperforms later entrants in terms of market share and/or profitability. Studies of pioneering in financial services also found evidence of long-term pioneering advantage [45]. Other studies find no consistent evidence of pioneering advantage [51,62], or report that second or later entrants outperform pioneers [42,48]. Some of the inconsistencies in the empirical results have been attributed to a lack of standardized definition of “pioneer,” or the use of self-reported data (firms may believe themselves to be pioneers when that is not the case) [26,34,40]. A meta-analysis of the related literature found evidence that pioneering advantage exists in some, but not all, markets [68,75]. The amount of sustainable advantage obtained by the pioneer may depend on

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industry factors, the pioneering firm’s market power, and the radicalness of the innovation [10,34,41,44]. Within a given industry, however, the empirical studies suggest that it is better to be an early entrant, and that the potential advantages of pioneering (as given above) outweigh the risks [8,33]. We propose that, other things being equal, service managers would rather enter a market earlier than later to increase their competitiveness and, ultimately, their profit performance. That is, P1: Service managers perceive that pioneering results in improved firm performance.

The next set of hypotheses explores specific types of advantages accruing to the service pioneer. Drivers of Pioneering Advantage in Service Industries Pioneering advantages have been categorized into four broad types [34,39]. Economic advantages include scale economies and learning curve effects that lessen the direct costs faced by the pioneer. Technological advantages include proprietary technological information that the pioneer may be able to keep from diffusing for a long time period, perhaps through patent protection. Preemptive advantages accrue to the pioneer that can identify the best market niches, or get the lowest costs on plant, equipment and factor inputs, thereby deterring later entrants. The fourth type, behavioral advantages, pertains to issues concerning the behavior of the marketplace. For example, if switching or information search costs are high, customers will be reluctant to try later entrant brands—thus the pioneer builds a superior reputation among customers. As noted earlier, services have several distinguishing characteristics that may drive pioneering advantage. Song et al. [66], for example, showed that service managers perceived pioneering to offer less performance advantages than did manufacturing firm managers. In this section, we build a theoretical framework of service pioneering advantage, considering each of the four types of pioneering advantage in turn. Economic advantage. There are many situations in which pioneering service providers can take advantage of scale economies or of the learning curve to keep competitors out, or to lessen their probability of survival [38]. For example, there are potential scale or learning curve economies in service industries with high equipment intensity. Regional centers with expensive testing equipment may do clinical lab work for

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several local units, as an example [6]. Due to its worldwide scale of operations, American Express can invest in state-of-the-art satellite communication systems to guarantee immediate traveler check replacement, something that its smaller competitors cannot do [6]. In addition, economies of scope can be of great importance to some service providers. AT&T, for example, can prequalify credit risks for its Universal credit cards using its long-distance customer credit files, and can offer extra incentives such as reduced rates on long distance if charged to a Universal card [6]. Service providers that pursue pioneering strategies may be doing so because they recognize the economies of scale and scope available to them. We propose P2: P2: Service managers perceive the economic advantages of pioneering to be important.

Pre-emptive advantage. Because services are heterogeneous, the pioneer that succeeds in identifying and targeting a high-potential market segment or niche can preempt competitors by offering the combination of service attributes that best satisfies the segment’s demands. In the airline industry, several competitors have focused on the needs of regional business commuters and have offered prices, routes, and amenities in line with the expectations of this market segment. As a result, they have been profitable despite operating on a smaller scale than the large national and international carriers. Other opportunities for service providers to preempt competition are very similar to those available to manufacturing firms. Spatial preemption is sometimes an option. The first bank in a region to offer automated teller services, for example, can corner all the best locations for their ATM machines [16]; FedEx can get the rights to gates at key airports. Other preemptive advantages of pioneering (such as getting access to the lowest cost materials or the best labor) may also be present, depending on the particular service industry and the relative strength of the service provider. For example, Sears was able to launch its Discover Card service to its customers due to its relative strength in the retail industry and its large database of Sears charge card holders [70]. These considerations suggest P3: P3: Service managers perceive the preemptive advantages of pioneering to be important.

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Technological advantage. A manufactured-goods pioneer can seek patent protection to defend its pioneering advantage; the same extent of protection may not be available to service providers [14,69,70]. This does not mean, however, that a service provider cannot gain a technological pioneering advantage. For example, many pioneering services aimed at global markets are information- or computer software-based. For this reason, being accepted as the technological leader in a service industry may be extremely important, and a service provider may be able to derive a pioneering advantage from its technological skill. In some cases, a service pioneer may gain a sustainable technological advantage due to related complex or cospecialized assets [6,69]. That is, competitors may not be able to copy a pioneer’s service because they lack the requisite systems or infrastructure (such as a computerized inventorying system). Pennings and Harianto [52] noted that, among banks, innovations based on information technology tended to take a long time to implement and were harder for competitors to duplicate. Returning to an earlier example, the banks that were first to adopt ATM machine technology gained sustainable competitive advantage because of the required investment in information technology and infrastructure [16]. Similarly, evidence of protection of the pioneer despite low entry barriers was also found in the mutual-fund industry [45]. In other examples presented above, AT&T’s technology infrastructure made it possible to accumulate and access a customer database to promote the Universal Card successfully; and FedEx’s investment in tracking technology (as well as airplanes, trucks, warehouse facilities and the like) resulted in an infrastructure that protected it from threats by other overnight carriers. Based on these considerations, we propose P4: P4: Service managers perceive the technological advantages of pioneering to be important.

Behavioral advantage. Due to service intangibility, it may be difficult for potential customers to evaluate new pioneering services. New service adopters must rely primarily on faith that what is being offered will solve their problem. In a pioneering service launch, the reputation or image of the firm as a highly capable provider and successful pioneer can play a key role in increasing the customer’s faith in the new service and achieving a behavioral advantage. Firms with a strong track record in service pioneering (such

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as Merrill Lynch, Oracle, or Citibank) potentially can benefit from this behavioral advantage. A behavioral advantage based on high perceived switching costs may accrue to the service pioneer, particularly in the case of industrial services. In this category, clients can incur major costs (due to production downtime, personnel training, developing an efficient working relationship with the new system and new service provider), when they switch service offerings. Furthermore, because a service is provided and sold at the same time, the customer is frequently present at the time the service is produced and may be part of the production process ([77], p. 20). By entering the market first (or by actually having the customer involved in the production of the service), the pioneer potentially “ties up” the customer (and preempts the entry of competitors) as costs of switchout to one of these competitors may be prohibitively high. Goods manufacturers can foster a long-term relationship with customers by building brand equity [1]. In a service context, there often is an opportunity to build equity in the firm’s name (such as an airline putting its name and logo on its planes and equipment) [4,6]. A pioneering firm can use brand (or firm) equity as leverage to gain sustainable competitive advantage. One factor undoubtedly supporting Sears’s success with the Discover Card launch, for example, was the equity in the Sears firm name [70]. Service providers can also encourage long-term customer relationships by gaining precommitment contracts with customers [6]. Hence, we propose that behavioral pioneering advantages are likely to be very important in a service context. Specifically, P5: Service managers perceive the behavioral advantages of pioneering to be important.

Service Pioneering Risks Despite the potential long-term advantages of pioneering, there are several risks involved that may make it difficult to sustain these advantages through time. Later entrants can free-ride on technology investments made by the pioneer, or there may be uncertainty regarding which technology will become the industry standard. Further, customer needs or technologies can change, providing an opportunity to the later entrant; and heavy investment in fixed assets or organizational structure may make the pioneer inflexible and less responsive to such changes [8,34,39,49]. Thus, although a pioneer may capture an initial lead in the

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industry, it may lose its advantage as product quality declines, relative prices and costs increase, and relative product line breadth decreases [31,57]. The pioneering risks listed above are relevant in a new (tangible) product development context. Some but not all of them are likely to be viewed as substantial by service managers. In many service industries, there may be high variability in perceived service quality, due to the actions of employees and other factors [77]. There may also be a mismatch between the level of service provided, and the service level promoted to and, therefore, expected by the customer [5]. These situations present opportunities for laterentrant service providers to erode the pioneer’s advantage quickly [14]. Furthermore, new services may also be quickly and easily copied by competitors, because capital or equipment entry barriers are likely to be lower, and patent or copyright protection may not be available ([14,52,69,70]; also [77], p. 19]. A new financial service (such as a package of stocks, mutual funds, a money market account and a credit card managed jointly by a financial advisor) that proves to be popular, for example, is likely to be copied rapidly by other financial service companies. On the other hand, pioneering a new service typically requires a smaller investment of human and financial resources [14,70] (however, service industries such as airlines or overnight shipping can be very capital- and equipment-intensive). Because a lower amount of firm resources is usually at stake, and service pioneering is often relatively easy to accomplish, it is also likely to be viewed as relatively nonrisky, all other things being equal. A competitor that “free-rides” on a low-investment service innovation does less damage to the innovating firm than one that copies a high-technology manufactured good innovation that required significant investment by the pioneer in human and financial resources [74]. All things considered, the risks associated with pioneering are likely to be viewed as less critical in service industries than in manufactured goods industries. Therefore, we propose P6: P6. Service managers do not perceive the disadvantages of pioneering to be important.

Cross-cultural Differences in Perceptions of Pioneering Advantage Cross-cultural studies of managers show that enduring cultural traits strongly influence managerial actions

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[56,65]. In particular, the level of individualism (the degree to which the people in a society act as individuals rather than as members of groups) has a major influence on decision-making [21,29,30]. The U.S. and other Western cultures are individualistic, placing great importance on competition, freedom of choice, and a short-term time perspective. Asian Pacific cultures are collectivistic, stressing group harmony, and cohesiveness, consideration of social objectives, and a long-term time perspective [72]. Studies of Hong Kong executives have shown that they tend to exhibit both Western and Asian cultural traits in their decision-making, due to the historical Western influence there [56,72]. The collectivistic culture predominant seen in most countries of the Asian Pacific limits destructive competition in those business environments [72]. High collectivism encourages integration among members of the “ingroup,” while raising entry barriers against members of the “outgroup” [71]. In Japan (which has received the most attention in the literature), the actions of the Ministry of International Trade and Industry (MITI), and the existence of Keiretsu interfirm networks, encourage intense competition among incumbent domestic firms and a “survival of the fittest” in the Japanese market, but also foster a “somewhat cooperative” relationship among the survivors and protect them from attack by foreign competitors [13,32,35,73]. Keiretsu-like organizations in Korea, called chaebols, encourage a similar degree of cooperation among firms in Korean distribution channels [28]. Unlike the more cutthroat Western business environment, coexistence among competitors is more important in the Asian Pacific region [15]. Earlier (in Proposition P1), we proposed that service managers believe pioneering to be advantageous, other things being equal. Because of the cultural differences discussed above, however, the reasons why managers are motivated to pioneer may be very different. That is, particular pioneering advantages may be more important in some business environments than in others. An understanding of these cross-national differences can help managers gain insights into the motives of global competitors who launch new pioneering services. Specifically, we propose the behavioral advantages of pioneering (i.e., those related to long-term customer relationship building) will be of great importance to Asian Pacific service managers. Destructive competition is not encouraged in Asian Pacific business environments, and managers in these environments are

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more likely to focus on the relationship-building advantages of pioneering. Behavioral pioneering advantages are also more consistent with the traits of collectivistic cultures seen in this region. As discussed above, however, Western business managers are likely to see pioneering as a good way to preempt competition. Preemptive pioneering advantage is consistent with the more individualistic cultural environment and the greater focus on short-term competitive advantage seen in Western countries. We make the following propositions: P7: Service managers from Western firms perceive the preemptive advantages of pioneering to be more important than do service managers from Asian Pacific firms. P8: Service managers from Asian Pacific firms perceive the behavioral advantages of pioneering to be more important than do service managers from Western firms.

Methodology Research Methodology and Survey Instrument Design We follow the procedure for cross-national research design as proposed by Douglas and Craig [18]. We needed to assure that the survey instrument is equivalent in all countries [2,18,19,63]. We began by reviewing the literature on pioneering advantage. Based on this literature review, we generated an initial pool of pioneering advantages of each of the four types described above (e.g., “Pioneers will obtain better access to superior labor”), statements of pioneer performance (“Pioneers will have higher levels of market share”), and of pioneering disadvantage (“Pioneers will have higher levels of technological uncertainty than late entrants”). We generated multiple items for each advantage or disadvantage, based on our literature review, to tap the relevant domain as completely as possible. From the initial pool, a subset of items was selected based on their ability to convey “different shades of meaning” to informants [12]. To minimize response set bias, some of the items were reverse scored. We then conducted 12 focus group interviews with marketing managers from fifteen U.S. firms to test the items for clarity and appropriateness, and to generate additional scale items. Examination of written transcripts of the focus groups revealed consistent patterns of themes and concerns, suggesting that managers had achieved consensus regarding the items to

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be retained in the pool. Items were added, eliminated, or modified based on the results from the focus groups. Field interviews were then carried out in several Japanese and Chinese firms, which helped us select research methodologies, establish content validity, develop measures, assess cultural biases, and establish equivalence of constructs, measures, and samples. These interviews allowed us to assess the category equivalence of our constructs ([18], p. 137). We then submitted a list of constructs and measurement items to a panel of 11 academic experts from prominent business and engineering schools in Japan, China and the U.S., and 32 managers worldwide. Panel members were asked to evaluate each item for clarity, specificity, and representativeness. Based on this feedback, the English version of the questionnaire was developed, and Japanese, Chinese, German, and Korean translations were generated, using a parallel-translation/double-translation procedure to ensure the accuracy of the translation [2,63]. We conducted pretests of the questionnaire using bilingual MBA students from six leading business schools and the field research participants, resulting in elimination of a few items that were found to be ambiguous or difficult to interpret. The remaining pool of pioneering principles comprised the final version of the questionnaire, in which a “pioneer” was defined as “a firm that was the first to introduce a new product/ brand into its primary markets.” For all scale items, Likert-type scales were used, with values ranging from 0 (strongly disagree) to 10 (strongly agree). Sample Design and Data Collection The survey was sent as part of a regular mailing of research reports to all companies participating in Globaltech, an ongoing global research program. The sampling frames for each country were taken from service providing firms listed in the World Business Directory. Due to budgetary constraints, we randomly selected 500 companies from the U.S. and Japan, and 300 firms from each of the other seven countries. The firms included in the samples were from the following service industries: Long-Term Credit Banks, Banks, Securities Financing, Securities Services, Mass-Sales Stores, Food Services, Automobile Sales, Insurance, Real Estate, Shipping and Trucking, Communications, Publishing, Leisure and Hotels, and Consulting Services. Appropriate industry stratification was used to obtain matched samples.

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To administer the mail survey, we asked the contact person to forward the questionnaire to a senior executive who is experienced in making market entry decisions (the suggestions were: CEO, President, Vice President for Marketing, Vice President for Corporate Strategic Planning; Director for International Division). We offered several incentives for participation, including executive seminars and research briefing conferences. After four follow-up letters and, in some cases, multiple phone calls and facsimiles, we received questionnaires from 982 respondents across the nine countries. The response rates (adjusted for returned mail and deletion of unusable returned questionnaires) were: 29.4% for the U.S., 20.3% for the U.K., 24.3% for Germany, 40.2% for Japan, 47.0% for China, 31.7% for Taiwan, 28.7% for Hong Kong, 39.7% for South Korea, and 19.7% for Singapore. Table 1 presents the respondents’ profiles. As suggested by the Table, the respondents had substantial work experience, and were particularly knowledgeable in the areas of global new service development and launch. Table 1 also indicates that the respondents shared remarkably similar profiles across countries. The average age ranged from 40.1 (U.S.) to 46.7 years (Taiwan). Average number of years of work experience ranged from about 18 years (U.S., China, and Hong Kong) to over 28 years (Taiwan). The respondents have had extensive experience in making decisions regarding market entry: on the average, in the five past years, respondents made between 13 (Singapore) to about 21 (Taiwan) major market entry decisions. The respondents also made, on average, about eight or more overseas business trips, and attended three to four industry association meetings, over the past year.2

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Results and Discussion Analysis of Scale Item Means within Countries We centered all scale items so that zero meant “neither agree nor disagree.” To test Propositions 1 through 6, we performed a one-tailed test on each individual scale item in each country to determine whether the mean score was significantly greater than zero. A significantly positive score on an item, therefore, is evidence that the managers of that country perceive that pioneering advantage or disadvantage exists. The centered mean scores by scale item and country are provided in Table 2. Table 2 shows that P1 is partially supported. Managers from all three Western countries, Japan, Hong Kong, and Taiwan perceive that pioneers obtain a higher market share than do later entrants. Chinese managers did not agree with this statement, nor did those from Singapore or South Korea. Of all the Asian Pacific economies included in this study, the Chinese is the most centralized and controlled, and pioneering may simply be viewed as having a lesser impact on performance in such an environment. Surprisingly, managers from seven of the nine countries did not agree that pioneering firms have higher returns on investment (only those from Japan and Germany agreed with this statement). Thus, service managers in our study believe that pioneering pays off mostly in terms of sustained market share rather than returns. Proposition 2 was partially supported, as service managers did ascribe some economic advantages to the pioneering firm. As Table 2 shows, most of our respondent managers perceive that pioneers benefit from learning curve effects, though none agreed that

Table 1. Respondent Demographics

Number of participating firms Response rate (%) Age Years of working experience Number of mkt. entry decisions made in past five years Number of overseas trips made in past year Number of industry association meetings attended in past year

U.S.

U.K.

147 29.4 40.1 (3.8) 17.8 (4.1) 18.5 (3.5) 8.9 (3.4) 3.1 (1.1)

61 20.3 40.43 (3.37) 15.82 (3.55) 16.54 (3.73) 10.30 (3.06) 3.21 (1.02)

Germany 73 24.3 43.47 (3.50) 19.41 (2.38) 17.21 (3.15) 13.53 (3.48) 3.11 (1.05)

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

Japan

China

Taiwan

Hong Kong

South Korea

Singapore

201 40.2 45.42 (2.86) 22.04 (3.15) 17.64 (4.36) 7.73 (3.24) 3.04 (1.08)

141 47.0 41.8 (4.4) 17.7 (3.3) 16.8 (2.2) 8.4 (3.1) 2.9 (1.0)

95 31.7 46.7 (6.9) 28.3 (3.2) 21.2 (4.5) 9.6 (3.5) 3.0 (1.0)

86 28.7 40.5 (3.8) 17.9 (2.6) 16.6 (3.1) 8.4 (2.7) 3.0 (1.0)

119 39.7 41.5 (3.0) 19.6 (2.3) 17.7 (3.2) 11.7 (2.7) 3.0 (1.0)

59 19.7 41.6 (3.4) 18.6 (3.3) 13.7 (3.9) 10.4 (3.1) 3.2 (0.9)

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Table 2. Scale Item Means by Country (Tests of Propositions 1– 6) U.S. Pioneering performance benefits (Proposition 1) First entrants will have higher levels of market share. First entrants will have higher levels of return on investment. Economic pioneering advantages (Proposition 2) The pioneer’s “learning curve effects” play a significant role in their sucess. First entrants enjoy lower direct costs because of economies of scale. Pioneers tend to experience greater absolute cost savings (savings regardless of production scale). Preemptive pioneering advantages (Proposition 3) First entrants enjoy lower production costs. First entrants obtain better access to superior labor. Pioneering firms are able to secure more experienced managers. First entrants can preempt raw material supplies. Later entrants get lower quality, higher priced raw materials. First entrants can preempt equipment and location. Later entrants compete with more inferior equipment and in unfavorable locations. Pioneers focus on the largest and most profitable market segments. This leaves only specialized niches for later entrants. Pioneers are able to preempt the distribution channel. Technological pioneering advantages (Proposition 4) Pioneers gain a competitive advantage from patent protection. Because of “learning curve effects,” first entrants keep proprietary information from diffusing for a longer time period. The perceived higher product quality enables the pioneer to enjoy a higher price-cost margin. Behavioral pioneering advantages (Proposition 5) First entrants can create entry barriers by creating high switching costs. Pioneers (or first entrants) are perceived as technological leaders by customers. To successfully complete with first entrants, late entrants must offer higher product quality. Pioneers have better brand images with buyers. Buyers purchase more pioneer products simply because buyers know them first, use them and then stick with them. To successfully compete, late entrants into a market must offer higher levels of value (quality for the price) to achieve high profitability. Late entrants to spend more on advertising and promotion to overcome pioneers’ advantages. The quality and performance of a pioneer’s produce inhibits customer learning about competitors.

U.K.

Hong Germany Japan China Taiwan Kong

1.29*

1.02*

0.59a

0.43a ⫺0.19

0.29

0.43

0.58a

0.46a ⫺0.55 ⫺0.80

0.18

0.11

1.53a

1.29a 0.92a ⫺0.15

0.36

1.13a

0.98a

South Korea Singapore

0.35

0.46

⫺0.53 ⫺0.60 ⫺0.59 1.56a

1.64a

0.19

0.41

⫺0.16

⫺0.18 ⫺0.19

⫺0.47 ⫺0.45 ⫺0.40

⫺0.38

⫺0.20

⫺0.33 ⫺0.08

⫺0.05

⫺0.83 ⫺0.35 ⫺0.24

0.21 ⫺0.33

0.43a 0.57a

0.87a 1.26a

0.71a 1.19a

0.14 ⫺0.60 ⫺1.19 1.34a 0.44a ⫺0.84

⫺0.67 ⫺0.22 ⫺0.49 ⫺0.12 1.13a 0.97a

0.33

0.84a

0.95a

0.32 ⫺0.53 ⫺1.42

⫺0.72 ⫺0.08 ⫺0.42

2.00a

2.48a

1.74a

1.15a 0.06 ⫺1.09

⫺0.20

⫺0.10 ⫺0.99

1.84a 1.23a

0.49

0.97a ⫺1.36

0.71a

0.56

1.30a

1.19a

2.98a

2.97a

2.74a

⫺0.08 ⫺0.43 ⫺1.09

3.01a ⫺0.03

2.98a

2.85a

1.66a

⫺2.08 ⫺1.65 ⫺2.02

3.05a ⫺2.04 ⫺1.98

0.14

⫺1.42

⫺1.10 ⫺0.32

⫺0.48 ⫺0.65 ⫺2.21

⫺1.94 ⫺1.29 ⫺1.98

⫺0.55

⫺0.52

0.00

⫺0.17 ⫺0.16 ⫺1.45

⫺1.70 ⫺0.94 ⫺1.27

⫺1.22

⫺0.85 ⫺0.32

⫺0.61 ⫺0.74 ⫺2.02

⫺1.80 ⫺1.48 ⫺1.93

⫺0.01

0.48

1.11a

2.67a 2.57a

2.85a

0.33

2.22a

2.95a

2.12a ⫺1.02

0.89a

0.88a

0.06

0.03

0.40a

0.54a

⫺1.20

⫺0.95 ⫺0.12

0.88a 0.10

⫺1.18

⫺1.05 ⫺0.23

1.21a ⫺0.08 ⫺0.47

⫺1.27

⫺1.26

0.85a

1.66a ⫺.90

⫺1.22

⫺1.13

1.14a

1.03a ⫺0.33 ⫺0.77

⫺0.85 ⫺0.21 ⫺0.08

⫺1.66

⫺1.41

0.33

⫺1.21 ⫺1.72 ⫺1.35

⫺1.48 ⫺2.01 ⫺2.29

⫺0.75

⫺0.64

0.38

0.20 ⫺0.08 ⫺0.24

⫺1.22

0.94a ⫺1.16

⫺0.97

0.29

0.07 (Continued)

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Table 2. (Continued) U.S.

U.K.

Pioneering disadvantages (Proposition 6) First entrants face highest market uncertainty. 0.22 0.25 First entrants face higher technological uncertainty than later entrants. 0.74a 0.72a First entrants often have difficulty adapting to environmental changes. 0.83a 0.44 First entrants experience a “learning” period. Late entrants can avoid this by hiring away experienced personnel and learning from their experience. 0.07 0.33 Pioneers have more marketing expenditures than later entrants because pioneers have to educate consumers about their products. ⫺0.09 ⫺0.21 First entrants face higher competitive uncertainty than later entrants. ⫺0.50 0.05 Late entrants are able to “free-ride” on pioneer’s development of the market. ⫺1.25 ⫺1.10 a

Hong Germany Japan China Taiwan Kong

South Korea Singapore

0.07

0.11 ⫺0.72 ⫺0.73 ⫺0.59 ⫺0.70

⫺0.86

⫺0.10

0.00 ⫺0.69 ⫺0.32 ⫺0.24 ⫺0.81

⫺0.93

0.11

0.02 ⫺0.57 ⫺0.31 ⫺0.16 ⫺0.80

⫺0.97

0.00

0.06 ⫺0.75 ⫺0.88 ⫺0.67 ⫺0.91

⫺1.25

⫺0.27

⫺0.11 ⫺1.25 ⫺1.04 ⫺1.20 ⫺0.88

⫺1.44

0.05

0.13 ⫺1.06 ⫺1.55 ⫺1.34 ⫺0.70

⫺0.83

0.42

0.33a ⫺0.38

0.56a

0.42

0.19

⫺0.20

⫽ Scale item mean is significantly greater than zero (␣⬍0.05).

pioneers benefit from scale economies or experience greater absolute cost savings regardless of production scale. Proposition 3 was strongly supported. Five of the seven preemptive pioneering advantage items were perceived to be important in at least four of the countries in the study. Respondent managers tend to agree that the pioneer gets access to superior labor, can focus on the largest and most profitable market segments, and can preempt the distribution channel, raw material supplies, equipment and location. There are notable cross-national differences in the perceptions of these items, however, which will be more fully explored below. Proposition 4 was not supported by our empirical study. None of the technological pioneering advantages was perceived to be important by service managers in any of the countries in the study. This surprising finding is examined in the discussion and conclusions section. Proposition 5 was partially supported. Three of the behavioral pioneering advantages were perceived to be important in at least four countries: pioneers can create high switching costs, are perceived as technological leaders by customers, and have better brand images with customers. Surprisingly, however, several other behavioral pioneering advantages were not perceived to be important by service managers. For example, managers did not agree that later entrants must offer higher quality to compete effectively, or they must spend more on advertising and promotion to overcome the pioneer’s advantage.

Finally, Proposition 6 was strongly supported, as no pioneering risks were found to be important in any more than two countries (most were not significant in any of the countries; see Table 2). Only U.S. and U.K. managers perceived significant risks due to higher technological uncertainty, whereas only Japanese and Taiwanese managers were concerned about competitive free-riding. Cross-National Comparison of Scale Item Means To test P7– 8, we performed MANOVA analysis for each variable, comparing the means across the nine countries. In cases where significant differences were found, Duncan multiple-range tests were conducted to determine which country means were significantly higher or lower, at the ␣⬍.05 level. Selected Duncan multiple-range results are presented in Table 3.3 All MANOVA F-tests were significant at ␣⬍.05, except for the two economic pioneering advantages shown in Table 2 to be unimportant across all nine countries. Therefore, significant cross-national differences in perceptions of pioneering advantage exist. We are primarily interested here in the differences in perceptions pertaining to the preemptive and behavioral pioneering advantages, as these are the concern of Propositions 7 and 8, so we will focus on these for the remainder of this section. P7 is supported empirically. In general, service managers from the U.S., U.K., and Germany perceive most of the preemptive pioneering advantages to be more important than Asian Pacific managers. Hong

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Table 3. Selected Duncan Multiple-Range Test Results (Tests of Propositions 7 and 8) a. Scale Item: “Pioneers focus on the largest and most profitable market segments. This leaves only specialized niches for later entrants.” Item Mean Hong Kong U.S. U.K. Germany Singapore S. Korea Japan China Hong Kong U.S. U.K. Germany Singapore S. Korea Japan China Taiwan

3.01 2.98 2.97 2.74 0.14 ⫺0.03 ⫺0.08 ⫺0.43 ⫺1.09

— NS NS NS S S S

— NS NS S S S

— NS S S S

— S S S

— NS NS

— NS

S

S

S

S

S

S

— NS S

— NS

b. Scale Item: “First entrants can preempt equipment and location. Later entrants compete with more inferior equipment and in unfavorable locations.” Item Mean Japan S. Korea China Singapore Taiwan U.K. U.S. Germany Japan 1.84 — S. Korea 1.30 NS — China 1.23 NS NS — Singapore 1.19 NS NS NS — Taiwan 0.49 S NS NS NS — U.K. ⫺0.10 S S S S NS — U.S. ⫺0.20 S S S S NS NS — Germany ⫺0.99 S S S S S NS NS — Hong Kong ⫺1.36 S S S S S S S NS c. Scale Item: “First entrants can create entry barriers by creating high switching costs.” Item Mean Singapore Taiwan Japan China S. Korea Singapore 2.95 — Taiwan 2.85 NS — Japan 2.67 NS NS — China 2.57 NS NS NS — S. Korea 2.22 NS NS NS NS — Germany 1.11 S S S S S U.K. 0.48 S S S S S Hong Kong 0.33 S S S S S U.S. ⫺0.01 S S S S S

Germany

U.K.

Hong Kong

— NS S S

— NS NS

— NS

Interpretation: NS ⫽ not significantly different; S ⫽ significantly different at ␣ ⬍ .05.

Kong managers are an exception: in most cases, managers from Hong Kong are more like Western than like Asian Pacific managers in their perceptions. This is consistent with the results of prior studies comparing managers from Hong Kong to those from other countries (e.g. [30,72],). A typical Duncan multiple-range test results appears in Table 3a for the scale item “pioneers focus on the largest and most profitable market segments.” Managers from the three Western nations and Hong Kong all perceive this advantage to be significantly more important than do all other Asian Pacific managers. Similar Duncan test results (not shown) are obtained for several other preemptive pioneering advantages: pioneers can preempt the distri-

bution channel; pioneers enjoy lower production costs; pioneers can preempt raw material supplies. These preemptive advantages, then, are the ones perceived to be most important to Western service managers. In only one case, the Duncan test results showed some surprising differences. Table 3b shows the results for the scale item “first entrants can preempt equipment and location.” Managers from the three Western countries and Hong Kong perceived this advantage to be significantly less important than did those from Asian Pacific countries. Thus, although Western managers generally view preemptive pioneering advantages to be more important (consistent with P7), Asian Pacific managers perceive that pioneers get

PIONEERING IN NEW SERVICE DEVELOPMENT

at least one significant preemptive benefit: getting access to better equipment and locations. P8 was supported. For each of the three behavioral advantages shown above to be important, the same pattern was seen in the Duncan test results: service managers from the Western countries and from Hong Kong perceived these advantages to be significantly less important than did all other Asian Pacific service managers. The results shown in Table 3c, for the scale item “first entrants can create entry barriers by creating high switching costs,” is typical. The means from Japan, China, Taiwan, South Korea, and Singapore were not significantly different from each other, and were significantly higher than those from the Western countries and Hong Kong. Similar patterns were found for the scale items “pioneers are perceived as the technological leaders by customers” and “pioneers have better brand images with buyers” (though German managers perceived this latter item to be significantly more important than did U.S., U.K., or Hong Kong managers). Contributions and Conclusions In this study, we have sought to build a theoretical framework of pioneering advantage in new service development based on the unique characteristics of services, and to test it empirically with managers across several nations. Some recent work in the strategic management literature has compared manufacturing to service managers in terms of their perceptions of the benefits and risks of pioneering [[66]]. This study found that the perceived cost and differentiation advantages of pioneering were significantly greater among manufacturing firm managers than among managers of service providers. They also found that manufacturing firm managers perceived pioneering to be riskier than service provider managers. No previous studies to our knowledge, however, have examined the specific advantages of pioneering a new service as perceived by service managers. In this study, we examine in detail these specific advantages, and also explore whether the perceived advantage of new service pioneering varies across nations or cultures. Service characteristics such as intangibility and heterogeneity will affect the extent of sustainable competitive advantage obtained by the pioneer and will, therefore, affect the desirability of pursuing a strategy of new service pioneering. We proposed that, because of these characteristics of services, managers in ser-

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vice industries would perceive that pioneering firms outperform later entrants, but would not perceive the risks of pioneering in a service industry to be severe. We also proposed that four types of pioneering advantage (economic, preemptive, technological, and behavioral advantages) could potentially be perceived to be important in a service industry setting. To assess the extent of cross-national differences between Western and Asian Pacific service managers with respect to their perceptions of pioneering advantage, we developed cross-national propositions about the relative importance of preemptive and behavioral pioneering advantages. All but one of these propositions were supported or at least partially supported by our empirical analysis. Many of our findings (specifically, with respect to perceived risks and cross-national differences) are consistent with the limited available literature [66]. Several surprising results nevertheless emerged from our empirical results. Service managers clearly distinguished between the market-share payoffs and the profitability payoffs of pioneering, agreeing for the most part that pioneers end up with a market-share advantage but not necessarily an advantage in terms of return on investment. This may be due to the nature of service industries. As seen above, a competitor may be able to enter a service industry with a relatively low investment in capital and equipment, and may be able to catch up to the pioneer in terms of ROI quickly. A second surprising finding concerned the behavioral pioneering advantages. The service managers in our study did not believe the later entrant had to surpass the pioneer in product quality, advertising, or promotion to overtake the pioneer. This interesting observation provides indirect evidence that service managers perceive entry barriers to service industries to be relatively low, and consequently, pioneering advantages to be more difficult to sustain. Thus, although service pioneers have advantages, and the risks are perceived to be low, the long-term benefits may not be as sustainable as they might be in a manufacturing industry setting. The most surprising finding concerned the technological pioneering advantages. In Proposition 4, we noted that service pioneers may gain technological advantages for several reasons. In a technology-intensive service industry, establishment of a technological leadership position would seem to be an important pioneering advantage. In other service industries, cospecialized assets or extensive infrastructure may make it difficult for followers to copy a pioneer.

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Nevertheless, virtually no agreement was found for the pioneering advantages included in this study in any of the countries. Given the particular service industries represented here, it is perhaps not surprising that the managers in this study did not think patent protection was an important pioneering advantage. In addition, the respondents disagreed with the statement that the pioneer’s proprietary information can be kept from diffusing to competitors. As discussed above, some pioneering services (such as in the financial sector) may be much more readily copied by competitors than are pioneering manufactured goods. Interestingly, though, the respondents did not believe that higher quality services (resulting from improvements in technology) led to a higher price-cost margin. This result is consistent with the findings for P1: service pioneers are perceived to gain market share advantage but not necessarily ROI advantage (which might result from a better price-cost margin). Our cross-national results suggest that Western and Asian Pacific service provider managers perceive the advantages of pioneering a new service quite differently. First, a Western manager cannot expect that his or her counterparts in the Asia Pacific region share beliefs and perceptions about the advantages of pioneering. Although the U.S. manager is more concerned about preemption advantages, the Asian Pacific managers are by and large more likely to build brand image, and to seek to tie in customers via high switching costs. Second, we observe that among the Asian Pacific countries, there are interesting differences. Hong Kong managers are much more like Western managers in their perceptions, whereas other more subtle differences exist between Taiwan, China, South Korea, and Singapore. The insights provided in this study can help managers from the West and from the Asian Pacific region to better understand their global competitors who pursue a new service pioneering strategy, and can help them select entry deterrence strategies more effectively. For example, an Asian Pacific competitor may be less likely to enter the U.S. market if the switching costs are high and/or if the entrenched U.S. pioneering firm has a strong brand image. The U.S. pioneer could effectively deter entry to Asian Pacific firms with the exception of those from Hong Kong, which are less likely to view these conditions as insurmountable. Additional insight can be gained by considering the reasons for the cross-national differences in perceptions. These differences may indicate significant, fundamental differences across business environments.

X.M. SONG ET AL.

Managers of Western service firms, for example, have perceptions of certain advantages enjoyed by the pioneer, many of which have to do with preempting competition. The fact that Western managers perceive these advantages as the most important reflects the intensity of the competition in their business environment. A Western firm may consider taking advantage of a pioneering opportunity if it is believed that this will result in a position protected from competition. The different perceptions seen among Asian Pacific managers (except those from Hong Kong) are indicators of real differences in business environment and suggest that the nature of pioneering advantage is different in these countries. For example, a Western firm may not be able to exclude competition in the Asian Pacific as it may expect to do at home. Asian Pacific managers tend to agree that learning curve advantages and high entry barriers exist. So, if industry conditions are favorable, the Western firm seeking to pioneer in the Asian Pacific market may be able to compete most effectively against entrenched local competitors by gaining learning curve advantages and erecting high entry barriers. Our study has contributed to the understanding of new service development conducted by service providing firms. Although it was surprising that technological advantages were seen as relatively unimportant, many of the economic, behavioral, and preemptive advantages (largely developed from empirical studies of new tangible product development) were found to hold in a service industry setting. Service provider managers indeed believe that pioneering in a service industry can be a viable competitive strategy. Further research can explore how service pioneering advantage is affected by the nature of the service industry, because one might imagine that some service industries will be more conducive to pioneering advantage than others. As noted in earlier sections of this article, high equipment intensity, the presence of cospecialized assets, and other factors may moderate the advantages accruing to a pioneer in a service industry. These moderating factors should be explored in future studies in which data are obtained from across several different categories of service industries.

The authors would like to thank JPIM editor Abbie Griffin and the anonymous reviewers for their helpful comments on an earlier draft of this article. All authors contributed equally to this research.

PIONEERING IN NEW SERVICE DEVELOPMENT

Endnotes 1 We recognize Hong Kong’s unique status as a special administrative region of China. Throughout this article we will use the terms “country” or “national” rather than “country/region” or “national/regional” to simplify presentation. 2 To determine if there were any differences in the results across service industries, we split the samples by industry categories and compared the means. We did not find any significant differences in any of the results for either country sample, at a significance level of ␣ ⬍ .10. 3 We present a few representative Duncan multiplerange test results for illustrative purposes. Details of the Duncan test results are available from the authors upon request. Appendix: Sources of Scale Items used in This Study Performance Benefits: [40,42,51,75]. Economic Advantages: [24,42,51,52,75]. Preemptive Advantages: [21,27,40,57,60,75]. Behavioral Advantages: [7,11,40,42,75]. Technological Advantages: [7,26,34,40,42,55,57]. Pioneering Disadvantages: [40,58].

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