Recessionary period activities in forest sector firms: Impacts on innovativeness

Journal of Forest Economics 28 (2017) 80–86

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Recessionary period activities in forest sector firms: Impacts on innovativeness Eric Hansen a,∗ , Casper Claudi Rasmussen b , Erlend Nybakk b a b

Department of Wood Science and Engineering, Oregon State University, 119 Richardson Hall, Corvallis, OR 97331, United States Kristiania University College, PB 1190 Sentrum, 0107, Oslo, Norway

a r t i c l e

i n f o

Article history: Received 28 January 2017 Received in revised form 8 May 2017 Accepted 27 June 2017 Keywords: Customer orientation Product innovativeness Process innovativeness

a b s t r a c t The Global Financial Crisis (GFC) provides a unique setting to study innovativeness and customer orientation in forest sector firms. Considerable research has focused generally on innovativeness in forest sector firms, but little attention has been given to the actions of firms to the chaotic market environment during the GFC. Our objective is to clarify how a customer orientation and the practice of developing new markets during a market downturn results in enhanced knowledge-based resources, manifested as increased innovativeness. Our longitudinal design includes data representing 2012 and 2015 from 89, US-based forest sector firms. Responding firms are more focused on process than product innovativeness. During the GFC, responding firms concentrated more on foreign market development than on domestic market development. Firms with a stronger customer orientation in response to the GFC realized higher innovativeness post-GFC. Also, firms actively developing new foreign markets in response to the GFC realized higher process innovativeness. Our results support a stronger customer focus for forest sector firms as it translates to increased innovativeness and potentially improved product development. In addition, allocating resources to foreign market development during financial downturns can be a strategy to build innovativeness. ˚ © 2017 Department of Forest Economics, Swedish University of Agricultural Sciences, Umea. Published by Elsevier GmbH. All rights reserved.

1 Introduction The recent Global Financial Crisis (GFC) provides a unique setting for investigating the response of firms to market decline. The literature suggests that firms tend to react to decline either via a conservative approach, where costs are reduced and risks are avoided, or through an approach where risk is embraced and the focus is on innovating out of the decline situation (McKinley et al., 2013). A focus on customer orientation to maintain current customers and actively developing new markets are examples of activities that a firm might embrace to mitigate the impacts of a declining market. In turn, these efforts may pay long-term dividends as companies improve their innovativeness and extend their resource base with regard to product and process innovation. By analyzing the effects of post-recession market development activi-

∗ Corresponding author. E-mail addresses: [email protected] (E. Hansen), [email protected] (C.C. Rasmussen), [email protected] (E. Nybakk).

ties of forest sector 1 firms, we provide insights into the impacts of the recession on product and process innovativeness. Accordingly, this article contributes to the research stream on knowledge-based resources in forest sector companies (Cohen and Kozak, 2001; Han and Hansen, 2016; Hansen et al., 2006; Hansen and Nybakk, 2016; Hugosson and McCluskey, 2009; Niemelä and Smith, 1995; Toppinen et al., 2013; Rich, 1986). The US forest industry is a sector heavily impacted by the GFC, as its primary market, residential housing, fell by nearly 80% between 2005 and 2009 (Ince and Nepal, 2012), and overall employment fell by over 40% between 2005 and 2011 (US Census. 2013). The intensity of the decline in the US housing sector was unprecedented in modern history, and provides a rare lens through which to study the effects on innovativeness of the actions taken by companies in response to a recession. Forest sector firms are considered to be conservative by nature, to lack innovation (Leavengood and Bull, 2013; Hansen et al., 2007) and lack a marketing and customer focus

1 Forest Sector: a broad set of firms along the value chain from the forest floor to the retail floor. Here we focus on primary and secondary manufacturing firms from the US.

http://dx.doi.org/10.1016/j.jfe.2017.06.004 ˚ Published by Elsevier GmbH. All rights reserved. 1104-6899/© 2017 Department of Forest Economics, Swedish University of Agricultural Sciences, Umea.

E. Hansen et al. / Journal of Forest Economics 28 (2017) 80–86

(Han and Hansen, 2017). Analyzing firms in a low-innovation sector enhances the opportunity for unique insights because new actions or activities in response to the GFC by low-innovative firms has the potential to increase overall firm innovativeness. Little work has been performed following the paths of companies as they adapted to the GFC and eventually to what is now referred to as the “new normal” (Panwar et al., 2012). Anecdotal evidence suggests that firms increased their focus on customers and becAme more flexible to customer demands during the GFC. United States trade data show that increased exports were one way that companies adapted to the GFC. For example, lumber exports from the US grew from $900 million in 2009 to nearly $1.6 billion in 2011 (US GATS, 2016). Additionally, evidence suggests that firms in the forest sector actively pursued new domestic markets outside of housing (Han and Hansen, 2016; Merchant Magazine, 2010). By engaging in new market activities, companies force themselves to contact new customers, competitors and local authorities. In doing so, they increase their knowledge base and are able to enhance their knowledge-based resources (Hitt et al., 1997). However, previous research tends to disagree on the direction of causality (Monreal-Pérez et al., 2012). Hitt et al., (1997) state that firms should act cautiously when entering new markets, and they call for more in-depth research on international diversification and innovativeness. Entering foreign markets, even if through intermediaries, likely requires manufacturers to innovate their products and processes. Accessing export markets means being in contact with new customers and producing different products, for example, to meet differing product standards. Using data collected in 2013, representing the situation in 2012, and 2016, representing the situation in 2015, from the same firms provides us with insights into how customer orientation and the development of new markets impact innovativeness over the cycle of a recession. We chose these years because they represent the initial recovery from the GFC (2012) and a relatively stabilized market in 2015. Accordingly, our objectives are the following: • To evaluate the time-based impacts of customer orientation on product innovativeness; • To evaluate the time-based impacts of new market entry on product and process innovativeness. Our longitudinal view across the time surrounding the GFC facilitates several important contributions of this work. The underlying contribution aims to clarify how activities in response to recession lead to increased innovativeness in forest sector companies. Previous research tends to focus on product innovativeness (Keupp et al., 2012); however, it may be insufficient to focus solely on one type of innovativeness. In order to bring the literature forward, we examine the effect on both product and process innovativeness. The remainder of our paper is organized as follows. First, the theoretical background provides an overview of the conceptual approach taken in the research. This section includes an explanation of our hypotheses. Next, we explain our methods and results and follow with a discussion, including the implications of our findings. 2 Theoretical Background and Hypotheses The definitions of innovation and innovativeness are not consistent in the literature (Damanpour, 1987), and the two terms are often used interchangeably (Garcia and Calantone, 2002). Rogers (2003) defines innovation as an idea, practice or object that is perceived to be new by an individual or other unit of adoption. Innovativeness is generally characterized as a function of adoption (Rogers, 2003) and/or creation (Gebert et al., 2003). Hult et al.

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(2004) state that innovativeness relates to a firm’s capacity to engage in innovation. Following this stream of literature, we consider innovativeness as a characteristic of an organization, and an innovative firm tends to be an early adopter and/or creator of new products and processes. We apply the two most common types of innovativeness used in the literature. Product innovativeness refers to the ability of a company to develop new products, whereas process innovativeness refers to the ability to develop and implement new production methods (Keupp et al., 2012; Monreal-Pérez et al., 2012). In the resource-based view (RBV) of the firm, both tangible and intangible resources are seen as strengths of the firm (Barney, 1991; Wernerfelt, 1984). Firms within an industry possess differing resources and these resources may be difficult to obtain, making the differences among firms long-lasting (Barney, 1991). Recent work in the RBV paradigm concludes that intangible, rather than tangible, resources are more likely to produce sustained competitive advantage (Kozlenkova et al., 2014; Martín-de Castro et al., 2013). Innovativeness has previously been recognized as a knowledge-based (intangible) resource that provides competitive advantage (Cassia and Minola, 2012; Rasmussen, 2014; Wiklund and Shepherd, 2003). An innovative culture can lead to continuous innovations that translate to competitive advantage and improved firm performance (Martín-de Castro et al., 2013). The hypotheses below focus on mechanisms for developing innovativeness based on the belief that increased innovativeness can translate to sustained competitive advantage and, ultimately, improved firm performance. 2.1 Hypotheses The ability of an organization to gain information about its customers can be crucial for obtaining sustainable competitive advantage (Parasurman, 1997; Woodruff, 1997). In order to gain valuable information, companies must stay close to their customers and follow their needs closely. Market orientation emerged from the early marketing literature (Borch 1957; McKitterick, 1957) with customer orientation as a key element (Narver and Slater, 1990). Customer orientation refers to how an organization meets customer needs, provides value to customers, and to how it keeps its customers satisfied (Hansen et al., 2006; Narver and Slater, 1990). Customer orientation has since received considerable attention in the literature regarding its impacts on a variety of other constructs (Brockman et al., 2012; Hult and Ketchen, 2001; Kirca et al., 2005; Rapp et al., 2008; Tajeddini 2010). Previous research suggests that a focus on customer orientation leads to several performance outputs. However, the directionality between customer orientation and innovativeness is not fully clear since an organization’s ability to address customer needs and act accordingly can have a significant and positive impact on innovativeness, new product development and even directly on company performance (Brockman et al., 2012), yet innovativeness leads to the ability to be more customer oriented (Hansen and Nybakk, 2016), The relationship between the two has seen considerable attention in the literature (Theoharakis and Hooley, 2008; Han et al., 1998; Lukas and Ferrell, 2000; Gatignon and Xuereb, 1997). In the service-based sector, Tajeddini (2010) finds no relationship between customer orientation and innovativeness and calls for further insight into this complex relationship. While customer orientation is found to interact positively with innovativeness among small firms (Brockman et al., 2012), other work shows ambiguous results (Matsuo, 2006; Tajeddini et al., 2006). Matsuo (2006) has studied customer orientation in Japanese sales departments, while Tajeddini et al. (2006) and Tajeddini (2010) studied the hotel industry and the Swiss watch industry, respectively. In sum, previous research tends to describe the relationship as complex and authors

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call for further research in order to reveal the mechanisms across different contexts. The relationship between customer orientation and innovativeness has received little attention in the wood industry (Hansen and Nybakk, 2016). Customer orientation has also been found to have a positive impact on growth in low technology micro-firms (Rasmussen and Nybakk, 2016). However, little is known regarding the impact of customer orientation on SME manufacturers of wood products. The wood industry is characterized by businessto-business companies, with a large proportion of their products targeted to specific end users. Accordingly, it is essential to focus on what customers want and how a firm can tailor products directly toward a specific customer or end use. We therefore hypothesize a positive relationship between customer orientation and product innovativeness among forest sector firms.

biggest obstacle for firms in internationalizing is insufficient market knowledge (Hammett et al., 2009; Sasatani and Eastin, 2015). For US firms to adapt to foreign market standards, they must, for example, change to producing metric sizes. In doing so, process innovation may be needed through the entire organization. When standards and regulations change, the organization must change as well. Therefore, the need for both product and process innovation is crucial for firms that develop new foreign markets. In that sense, developing new markets will force an organization to be more innovative. We therefore hypothesize a positive effect, among forest sector firms, between developing new (foreign or domestic) markets and innovativeness:

H1. Customer orientation during a recessionary period has a positive impact on post-recession product innovativeness.

H2b. Foreign market development during a recessionary period has a positive impact on post-recession process innovativeness.

A common action for forest-sector firms during the GFC was to seek new markets (Han and Hansen, 2016). These new markets may have been domestic markets outside of the residential housing sector, such as railroad crossties, or export markets. The actions and process of developing new markets requires a number of innovations by firms and implies the development of new products because product specifications for home construction are typically different than for other applications. For example, a wood-based panel for use in the structural sheathing of a home is likely different in mechanical properties and dimensions from a panel destined for truck trailer bodies or for use in train cars. Similarly, developing export markets means new products that meet the unique specifications of foreign customers. In many cases, new products for new markets require innovations in manufacturing processes to enable the tailoring needed to meet customer requirements. Such tailoring might range from incremental changes in processing parameters via reprogramming needed for the production of different sizes to the purchase of a new piece of equipment or even an entirely new production line. Exporting goods to foreign markets is a common strategy for firms and can become a natural part of a firm’s development. Also, some studies suggest that this can positively impact innovativeness (Hitt et al., 1997; Kafouros et al., 2008). The relationship between exporting and innovativeness has been frequently studied (Hitt et al., 1997; Kafouros et al., 2008; Monreal-Pérez et al., 2012), but researchers tend to disagree regarding the causality of the relationship between entering foreign markets and innovativeness, with some suggesting a reciprocal relationship (Hitt et al., 2007)itt. There are also major differences among studies regarding how innovativeness is measured. Some studies argue that innovativeness affects firms’ decisions to enter new markets. If a company is innovative, it will differentiate itself and thereby exploit a sustained competitive advantage by exporting to new markets (Filipescu et al., 2009; Lopez and Garcıa, 2005; Pla-Barber and Alegre, 2007). The act of entering new foreign markets requires companies to adapt to new competitors and constantly develop new products and processes in order to address that competition (Monreal-Pérez et al., 2012). Looking to the resourcebased theory, one can argue that in order to develop a sustained competitive advantage, a company must increase its knowledge base and effectively handle knowledge from different sources, for example, through exporting. In the forest sector, companies are, with some exceptions, manufacturing, low-technology firms with well-established traditions (Nybakk, 2012; Nybakk, 2012; Nybakk and Jensen, 2012). Their motivation to develop foreign markets would primarily be to increase sales. However, there are consequences for these types of firms. Previous studies in the wood industry indicate that the

H2c. Domestic market development during a recessionary period has a positive impact on post-recession product innovativeness.

H2a. Foreign market development during a recessionary period has a positive impact on post-recession product innovativeness.

H2d. Domestic market development during a recessionary period has a positive impact on post-recession process innovativeness. 3 Methods We sought data from 2013 and 2016 using a standard Tailored Design Method, as suggested by Dillman (2007), via a mail survey of CEOs/owners of manufacturing wood industry firms. The survey conducted in 2016 was a follow-up study for all respondents of the 2013 survey. Two models of the previously mentioned hypotheses were tested using ordinary least squares regression. The 2013 survey was pretested by four industry managers and one specialist who were intimately familiar with the sector, resulting in only minor changes. The model included 4 main dimensions, 1) Activities, 2) Customer Orientation, 3) Innovativeness, and 4) Financial Performance. All latent variables were measured using multiple items based on previously acknowledged studies, as recommended by Churchill, (1979). The measurement of all variables are described in the following. 3.1 Measures 3.1.1 Activities Two market development activities, developing new foreign markets and developing new domestic markets, were used to determine whether respondent firms had increased their level of investment/effort. Activities data is based on 2012. A 5-point interval scale was used where 1 = decreased, 3 = stayed the same, and 5 = increased. Points 2 and 4 were not labeled. 3.1.2 Customer Orientation A 6-item customer orientation scale was adapted from the works of Narver and Slater, (1990) and Lukas and Ferrell, (2000). Customer orientation data is based on 2012. Each of the five points of the interval scale were labeled, where 1 = not at all, 2 = to a small extent, 3 = to a moderate extent, 4 = to a great extent, and 5 = to an extreme extent. 3.1.3 Innovativeness Innovativeness was measured using an adaptation of the scale developed by Knowles et al. (2008). The scale accounts for the creation and adoption of products and manufacturing processes. Product innovativeness was represented by three items and process innovativeness by four. Innovativeness data is based on 2015. A 5-point interval scale was used, with respondents providing their

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Table 1 Measurement model with standard loadings and fit values. Std Loading

Error variances

Product innovativeness, 2015 (Cronbach’s alpha = 0.88, CR = 0.95, AVE = 0.60, DV test = passed) Our company actively develops new products in-house. Our company actively seeks new products from outside this organization. Our company sees creating new products as critical to our success When it comes to creating new products, our co. is far better than the competition

0.816 Deleted to improve fita 0.820 0.805

0.578

Process innovativeness, 2015 (Cronbach’s alpha = 0.84. CR = 0.95, AVE = 0.46, DV test = passed) Our company tends to be an early adopter of new manufacturing processes Our company sees creating new manufacturing processes as critical to our success Our company actively seeks new manufacturing processes from outside this org When it comes to creating new processes our co. is far better than the competition

0.825 0.745 0.619 0.701

0.565 0.667 0.785 0.713

Customer orientation, 2012 (Cronbach’s alpha = 0.83, CR = 0.98, AVE = 0.35, DV test = passed) We constantly monitor our level of commitment and orientation to serving customers’ needs Our business objectives are driven primarily by customer satisfaction Our strategy for comp. advantage is based on our understanding of customer needs Our business strategies are driven by our beliefs about how we can create greater value for customers We measure customer satisfaction systematically and frequently We give close attention to after-sales service

0.651 0.698 0.650 0.578 0.593 0.687

0.759 0.716 0.760 0.816 0.806 0.727

Performance, 2012 (Cronbach’s alpha = 0.91, CR = 0.99, AVE = 0.67, DV test = passed) Return on sales (ROS) Sales growth rate After tax return on assets (ROA) Gross profit margin

0.879 0.814 0.938 0.972

0.477 0.581 0.346 0.237

Fit Values * Satorra-Bentler ␹2 (SB ␹2 ) (df = 113 p <0.01) Comparative Fit Index (CFI) * Incremental Fit Index (IFI) * Bentler-Bonett Non-normed Fit Index (NNFI) * SB ␹2 /df Standardized Root Mean Residual (SRMR) Root Mean Square Error of Approximation (RMSEA) * Bollen’s Rho

151.3977 0.932 0.935 0.918 1.138 0.090 0.073 0.911

* a

0.573 0.593

Denotes robust values; CR = Composite Reliability; AVE = average variance extracted; DV = Discriminant validity. Item deleted because it increased the model fit, as suggested by Byrne (2006).

evaluation of the innovativeness of their company during the prerecession years and today (March 2013) (see Table 1 for a list of the items). Only the extreme points of the scale were labeled, where 1 = not at all innovative and 5 = very innovative. 3.1.4 Financial Performance (control variable) Financial performance in 2012 was used as a control variable and was assessed by adapting subjective measures that were recommended and used in a number of previous studies (e.g. Beal, 2000; Dess and Robinson, 1984; Morgan and Strong, 2003; Nybakk and Jenssen, 2012). The following four items representing different aspects of financial performance were used: Return on sales, sales growth rate, after tax return on assets, and gross profit margin. Respondents were asked to compare their company to the rest of the industry and to judge within which quintile their firm resides. Respondents rated their facility based on how it compares with competitors in the industry using a 5-point scale, with 1 being the lowest 20%, 2 being the next highest 20%, 3 being the middle 20%, 4 being the next highest 20%, and 5 being the highest 20%. Their ratings were based on the most recent calendar year (2012). 3.1.5 Company size (control variable) Company size was used as a control variable and was measured using four categories: 1–49, 50–500, 501–1500, and 1500 + employees. 3.2 Sampling and Data Collection In an original study conducted in 2013, data were sought from manufacturers with fifty or more employees from the US wood products (SIC 24) sector. A database of 976 firms was purchased

from the North American Industrial Classification Association. In that study, 142 companies responded (adjusted rate − 15.1%) to a mail survey. The current study sought updated information, again via a mail survey, from each of these 142 companies. Accordingly, questionnaires were sent to each of the previous respondents, and a total of 89 responses were received, for a response rate of 65%. Nonresponse bias was tested by comparing early and late respondents of the 2013 survey, which indicated that non-response bias was not a concern (Armstrong and Overton, 1977).This test was followed up by comparing the 89 respondents to the 47 non-respondents of the 2016 survey on all main study variables, and no significant differences were found. Therefore, we conclude that non-response bias should not be a major concern in this data set. All survey data was also carefully checked for outliers, however, no outliers were found.

3.3 Analysis and Measurement Properties of Constructs All latent variables were treated as continuous following a long tradition in social sciences of treating Likert and Likert-like scale data collected through surveys as continuous variables. All constructs (latent variables) were tested for validity and reliability using confirmatory factor analyses in EQS (Byrne, 2006). The goodness of fit measures in the measurement model showed acceptable fit (CFI = 0.932, IFI = 0.935, RMSEA = 0.073 (see Table 1 for more details). The average variance extracted (AVE) ranges from 0.35 to 0.67. AVE should preferably be above 0.5; however, this test is conservative (Hatcher, 1994), and the 0.35 value for customer orientation corresponds to a Cronbach’s alpha of .83. The other Cronbach’s alpha values were above 0.80. Furthermore, the Composite Reliability (CR) values were acceptable, ranging from 0.95 to 0.99. Hence, the measurements were viewed as appropriate with

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Table 2 Descriptive statistics and correlations.

1. Process innovativeness 2015 2. Product Innovativeness 2015 3. Performance 2012 4. Customer Orientation 2012 5. Developing new foreign markets 2012 6. Developing new domestic markets 2012

Mean

SD

Skewness

Kurtosis

2

3

4

5

6

3.43 3.29 3.48 3.67 3.10 3.90

0.89 1.17 1.03 0.57 1.03 1.02

0.06 −0.50 −0.51 −0.35 −0.15 −0.86

0.27 -0.86 0.00 −0.14 0.48 0.54

0.40**

0.09 0.11

0.06 0.29** 0.02

0.29** 0.10 0.26** 0.08

0.20 0.14 0.22 0.01 0.30**

a) Correlations tested using Pearson’s correlation method. * Correlation significant at the 0.05 level. ** Correlation significant at the 0.01 level. Table 3 OLS regression results, customer orientation and market development impacts on product innovativeness. Variables

Control Performance 2012 Firm sizea Employees 1–49 Employees 501–1500 Employees 1500 + Main effect H1: Customer orientation 2012 H2a: Dev new foreign markets 2012 H2c: Dev new domestic markets 2012 R2 R2

Table 4 OLS regression results, market development impacts on process innovativeness. Variables

Product innovativeness 2015 Model 1

Model 2

VIF

0.064

0.045

1.144

0.068 0.135 0.174

0.008 0.112 0.127

1.160 1.125 1.061

0.359** −0.013 0.059 0.176 0.124

1.058 1.099 1.232

0.052

VIF denotes Variance inflation Factor. a Using Employees 50–500 as the base group. ** =p < 0.01;* =p < 0.05.

regard to validity and reliability. Moreover, the discriminant validity test suggested by Fornell and Larcker (1981) showed that all pairs of constructs met the minimum criteria. The results of this test provide evidence of discriminant validity for all constructs used in the study. Common method bias was tested in two ways. First, we conducted a Harman’s one-factor test by loading all items into one factor in an exploratory factor analysis. The single factor explained 29.1% of the total variation. Second, we used confirmatory factor analyses with all items loaded on one factor, which indicated bad model fit. Both tests indicate that common method bias was not a concern. Given the acceptable reliability and validity, we used composite means of the study constructs for hypothesis testing via OLS regression. Table 2 presents the means, standard deviations and correlations among all the main variables. None of the correlations indicated any common method bias problems (Pavlou et al., 2007), and the skewness and kurtosis values were within an acceptable range, indicating that the data were normally distributed. 4 Results The descriptive statistics from Table 2 show that the responding firms indicated a greater increase in efforts to develop new domestic markets than new foreign markets. OLS regression was used to test all hypotheses. The regression results in Table 3 show how customer orientation and market development impact product innovativeness. The first model includes only the control variables (R2 = .052), and the second model in Table 3 includes all variables (R2 = 0.124). Customer orientation had a significant effect on product innovativeness, supporting H1 (P < 0.01). However, developing new foreign markets (H2a, P > 0.05) and developing new domestic markets (H2c, P > 0.05) did not affect product innovativeness. None of the control vari-

Control Performance 2012 Firm sizea Employees 1–49 Employees 501–1500 Employees 1500 + Main effect H2b: Dev new foreign markets 2012 H2d: Dev new domestic markets 2012 R2 R2

Process innovativeness 2015 Model 1

Model 2

VIF

0.079

0.000

1.143

0.150 0.001 0.189

0.178 −0.051 0.186

1.118 1.124 1.042

0.265** 0.101 0.137 0.079

1.097 1.232

0.058

VIF denotes Variance inflation Factor. ***=p < 0.001; **=p < 0.01; *=p < 0.05. a Using Employees 50–500 as the base group.

ables had a significant impact on product innovativeness (P > 0.05). Variance inflation factor (VIF) values for the models were below 1.2, indicating that multicollinearity was not a concern (Kleinbaum et al., 1988). The regression results in Table 4 show how market development impacts process innovativeness. Both the model with only control variables (R2 = 0.58) and the full model are presented (R2 = 0.079). Developing new foreign markets had a significant effect on process innovativeness (H2b, P < 0.01). Developing new domestic markets was not significant (H2d; P > 0.05). The VIF values are all below 1.3, indicating no multicollinearity problems. As in the previous model, none of the control variables were significant (P > 0.05). 5 Discussion and Implications In this work, we set out to identify the outcomes of customer orientation and enhanced market development activities on the innovativeness of companies as they navigated the GFC. Our longitudinal approach to exploring this relationship is, to our knowledge, unique in the forest sector, and possibly, the general literature. We argue that a customer orientation and the practice of developing new markets should result in enhanced knowledge-based resources, expressly manifested here in the form of increased innovativeness. A focus on customers during the GFC did translate to increased product innovativeness among the responding firms. Given that the sector is traditionally commodity-focused, with limited exposure to or understanding of the end user (e.g., Han and Hansen, 2016), and lacks healthy product innovation (e.g., Leavengood and Bull, 2013), this finding supports further development of a customer focus among forest sector firms. Ultimately, our results suggest that a customer focus is one possible pathway for improved product innovativeness and therefore improved product development. Multiple authors argue for improved new product development within the sector (Leavengood and Bull, 2013;

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Stendahl and Roos, 2008) and our added evidence further solidifies this argument. Our results indicate that there is a positive relationship between new foreign market development and process innovativeness. However, the results also indicate that developing new domestic markets does not significantly affect process innovativeness. Given the parallel logic of foreign and domestic market development translating to improved innovativeness, we can only speculate about the lack of domestic market development significance. Relative to domestic markets, developing new foreign markets may require engagement in highly different political, social and business environments. In doing so, companies may gain new knowledge about rules, regulations, and customer needs and in order to process this knowledge and adapt to new contexts, companies are forced to be innovative in their internal processes. Alternatively, it may be that new domestic markets pursued by study participants were primarily new regions and/or they were simply new markets that could easily accept the products currently on offer and thus required no process innovation. In other words, according to the classic categorization of Ansoff (1957), export market development for most US forest industry firms would be a “diversification strategy” whereas domestic market development would be a “market development strategy.” If this interpretation is valid, a diversification strategy has a positive impact on innovativeness while a market development strategy does not. Still, anecdotal evidence suggests that some domestic focused efforts of companies in response to recession were generally of the diversification strategy (e.g., railroad ties). Our results indicate that allocating resources to developing new foreign markets can be a good strategy in order to build knowledgebased resources during financial downturns. While Monreal-Perez et al. (2012) argue that innovativeness has a positive effect on foreign market development, others argue the other way. The literature shows that the largest hurdle to exporting is knowledge − those that do export develop that knowledge and increase their innovativeness. For example, Hitt et al. (1997) and Kafouros et al. (2008) argue that foreign market development has a positive effect on innovativeness. Positioned in the RBV, they argue that the learning effect of the internationalization process provides companies the valuable resources that can allow them to become more innovative. The findings from our study indicate that the forest industry can increase its innovativeness by re-allocating resources to foreign market development.

Limitations and Future Work While our time-based approach to this study sheds light on the impacts of customer orientation and market entry on innovativeness during a recessionary period, it does not allow us to translate these findings to more “normal” market situations. Continued work addressing less chaotic market environments is needed. Our data fails to include firms that went out of business during the GFC and therefore gives no insight into those companies. Such insights would provide an enhanced understanding of the impacts of customer orientation and market entry on innovativeness. Although our study was designed to mitigate against social desirability bias via proper questionnaire design (Podsakoff et al., 2003) it is possible that social desirability bias impacted our results. Previous studies in the forest sector literature primarily use qualitative methods (e.g., Korhonen 2006; Bull and Ferguson, 2006) or cross sectional surveys (e.g., Wan et al., 2015; Espinoza et al., 2016), which do not yield evidence on causality. Our study was conducted at two different times (2012 and 2015) and is therefore more robust than others due to the longitudinal nature of our data. However, our research design does not allow us to confirm full

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