EXAMINING PERFORMANCE OF U.S. MULTINATIONALS IN FOREIGN MARKETS

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1 EXAMINING PERFORMANCE OF U.S. MULTINATIONALS IN FOREIGN MARKETS SUSAN P. DOUGLAS* New York University C. SAMUEL CRAIG* New York University Abstract. In the U.S., a basic tenet of business philosophy is that profitability is related to market share. The generality of this finding in markets outside the U.S. is examined based on a sample of product businesses drawn from the PIMS (Profit Impact of Marketing Strategy) data base. All businesses belong to firms whose corporate headquarters are located in the U.S. The relation between 7 marketing mix variables and market share and ROI (return on investment) is compared. In general, the relationship between market share and ROI appears to hold in European and other foreign markets. The marketing mix variables associated with these measures of performance, however, as well as the strength of the relationship, vary by market area. * The internationalization of business has emerged as one of the dominant INTRODUCTION trends in the latter half of the century [Leighton 1970]. For some U.S. companies as well as multinationals of other national origins, growth of operations overseas exceeds domestic market growth. In some cases, these are more profitable than domestic operations. This implies a need for greater attention to issues relating to business strategy and performance in international markets [Doz 1980; Lorange 1976; Wind and Douglas 1981]. In particular, it seems desirable to examine whether similar principles concerning appropriate business strategies are applicable in different countries throughout the world, and whether similar relationships between performance and the use of various marketing strategies will be found in different countries. In the U.S., a basic tenet of business philosophy, supported by findings from a number of empirical studies, is that high levels of market share are related to profitability, measured in terms of return on investment (ROI). This is frequently explained in terms of experience or learning curve effects. As management acquires experience in a given product market, efficiencies in production and distribution may be achieved, resulting in a decline in unit costs, and correspondingly higher profits [Boston Consulting Group 1970]. This suggests that 2 appropriate measures of performance are ROI and market share. ROI essentially provides a measure of financial performance in the short run, while market share provides an indication of long-run performance. Studies examining the relationship between performance and marketing mix tactics have typically found that the marketing mix variables that are related to high levels of market share are product related, as for example, high product quality and expenditure on product research and development (R&D)[Buzzell, Gale, and Sultan 1975]. Studies of the relationship between ROI and marketing mix variables are considerably more sparse, but in general tend to show results consistent with those for market share [Craig and Douglas 1982]. *Susan P. Douglas is Professor of Marketing and International Business, and C. Samuel Craig is Associate Professor of Marketing, both at the Graduate School of Business Administration, New York University. They have conducted a number of studies on international marketing strategy and information for global market decisions, and have recently coauthored a book, International Marketing Research, published by Prentice-Hall. The authors wish to thank Dr. Sidney Schoeffler of the Strategic Planning Institute for making the PIMS data base available, and Dean Askin and Roberta Bauer for performing the computer runs for this study. Journal of International Business Studies, Winter Palgrave Macmillan Journals is collaborating with JSTOR to digitize, preserve, and extend access to Journal of International Business Studies

2 Yet while these relationships have been extensively studied in the U.S., little research has been conducted in countries outside the U.S. Differences in market structure, market size, and the degree of market fragmentation, and differences in the character and degree of competition, as for example, in cartelization, or government protection of small businesses in other countries, may imply that similar relationships do not necessarily hold in countries outside the U.S. This may be further compounded by differences in the cost and availability of different media or distribution outlets, as well as regulation of advertising, pricing, and promotional activities [Buzzell 1968]. Differences in demand conditions, such as, sensitivity to price or product quality, or the need to develop awareness of a product, may also imply a need to emphasize different marketing mix tactics [Keegan 1969]. The purpose of this paper is to examine whether in fact similar relationships exist in markets outside the U.S., based on a sample of businesses in 3 different geographic areas: the U.S., Europe, and other foreign markets. First, previous findings concerning performance and the effectiveness of different marketing mix variables both in the U.S. and other countries are examined. Second, the extent to which similar relationships between 2 measures of performance-roi and market shareare found in 3 market areas is investigated. Third, whether the same marketing tools and mix variables appear to be related to these 2 measures of performance in the 3 areas is considered. Finally, a number of conclusions are drawn concerning the generality of the relationships found from one area to another, and some directions for future research are suggested. PREVIOUS In examining overall levels of performance, a consistent finding of studies con- RESEARCH ducted in the U.S. is that high market share is associated with high ROI [Buzzell 1981; Gale 1974; Buzzell, Gale, and Sultan 1975]. In general, a difference of 10 percent in market share leads to a 5 percent difference in pretax ROI. It should, however, be noted that such findings have not always been found for all types of businesses or market conditions. Industrial businesses in the later stages of the product life cycle may, for example, have low profitability relative to market share. Similarly, high technology businesses may have high profitability but low market share. Much may thus depend on the particular product market. The next question which arises is that of the mix strategies associated with high levels of performance. A number of studies have been conducted based on company performance and sales data, again predominantly in the U.S. [Leone and Schultz 1980; Parsons and Schultz 1976; Wind and Mahajan 1981]. These have found emphasis on product quality and the introduction of new products to be related to high levels of market share [Buzzell and Wiersema 1981; Gale 1974; Schoeffler, Buzzell, and Heany 1974]. Sales force expenditure has also been found to be more strongly related to market share than media expenditure for both consumer and industrial products [Buzzell and Wiersema 1981; Leone and Schultz 1980]. High prices coupled with high advertising expenditures have been found to be more profitable than low prices and high advertising expenditures [Faris and Reibstein 1979]. Outside the U.S., considerably fewer studies have been conducted. Two studies were conducted by Lambin [1970 and 1972]. He examined the impact of advertising, price, distribution, and relative product quality on market share for a small electrical appliance in 3 marketing areas: Germany, Benelux, and Scandinavia. All the variables, except price, had a positive effect on market share. In another study [Lambin 1972] he investigated the use of different types of advertising and media on market share and sales of gasoline. Total advertising expenditures were found to have no effect on total demand, but brand advertising did influence market share. 52 Journal of International Business Studies, Winter 1983

3 In addition to studies based on performance and sales data, a number of surveys of executive opinion of the relative importance of different marketing mix variables in successful performance have also been conducted. In Canada, a survey of executives in major Canadian companies [Banting and Ross 1973] indicated that the product service mix was overwhelmingly considered to be the most important mix variable. This was cited by 89 percent of the firms. The next most important variable was price, cited by 17 percent of firms. This is consistent with the results of an earlier study conducted in the U.S. [Udell 1964], in which 79 percent of firms indicated that product research and development was a key factor in success, though the next most significant factor was sales research and sales planning, cited by 73 percent of them. More recently, differences in the perceived importance of different marketing mix variables among executives of different national origins has been examined. A study comparing perceptions of marketing executives in U.S. and non-u.s. based companies showed that more U.S. companies indicated product to be the most important variable than non-u.s. based companies [Samiee 1982]. For both groups, pricing was the next most important factor, though again, fewer non-u.s. based companies ranked this as important as U.S. companies did. The variables emphasized by U.S. based companies were thus different from those emphasized by non- U.S. companies. This may reflect differences in domestic market conditions, such as, greater emphasis on non-price competition, due to cartelization and other factors, or differences in demand factors or in the nature of the marketing infrastructure. The results of this study suggest the importance of examining the validity of strategies and principles found to work in the U.S. and in other countries. Assumptions based on accumulated experience in the U.S. that high market share leads to greater profitability should not be taken for granted. Furthermore, the relation of alternative marketing mix strategies, such as, expenditure on product R&D, advertising and promotional activities, or pricing to performance, needs to be examined. These issues were investigated based on data drawn from the PIMS project. This is a large ongoing study of the performance of individual "businesses," and its relation to business strategies, market structure, and competitive characteristics, being conducted by the Strategic Planning Institute (SPI). Each business serves a specific product market and is distinguished from other businesses within the corporation in terms of production facilities, technology, customers served, strategy employed, and financial results.1 The definition of business is determined by management. The businesses examined here all had their headquarters in the United States, but served a market in one of 3 geographic areas: the U.S., Western Europe, and other foreign markets. The largest group of businesses (n = 726) was those serving markets in the U.S. The next group was comprised of businesses serving markets in Western Europe (n = 39), and the third group was comprised of businesses serving markets in other parts of the world (n = 36). Since the businesses are drawn from the PIMS data base, they constitute nonrandom samples, and cannot be considered representative of other businesses operating in these markets. Furthermore, since they are all U.S. based, they are not indicative of companies of other national origins, whether foreign or local. The data do provide some insight, however, into the operation of U.S.-based firms in foreign markets. The sample sizes for Europe and other parts of the world, while relatively small, provide a unique base for examining the relation between performance and marketing mix variables in different foreign markets for U.S. multinationals. Two measures of performance commonly used in previous studies were examined: market share and ROI. Seven marketing mix variables were included in the study: product quality, product R&D, percent new products, sales force expenditure, ad- RESEARCH METHODOLOGY Data Base Journal of International Business Studies, Winter

4 vertising and promotional expenditure, price relative to competition, and other marketing expenditures. Also considered was whether business type, that is, consumer or industrial, had any effect. In order to provide a description of the businesses in the different geographic areas, average levels of their performance and expenditure for each marketing mix variable were examined as shown in Appendix I. An examination of the levels of ROI and market share of businesses in the U.S. with European and other foreign markets shows that the average level of ROI before tax was approximately the same in the U.S. and in European markets, about 23 percent. In other foreign markets, it was higher, at 31 percent. Levels of market share were higher in European and other foreign markets than in the U.S. The average levels of expenditure for the marketing mix variables varied somewhat across the 3 areas. Promotional expenditures, particularly in media and sales promotion, were higher in Europe, as compared with the U.S. and other foreign markets. This may in part be accounted for by the slightly higher proportion of consumer businesses in the European sample, that is, 35 percent versus 23 percent in both the U.S. and other foreign markets. Product quality relative to competition was also rated higher in both European and other foreign markets than in the U.S. market. Relative price was also somewhat higher in the European markets than in the U.S., though this was not the case in other foreign markets. The proportion of new products in other foreign markets was slightly higher than in the U.S. market, but lower in Europe. Data Analysis These data were analyzed in 2 phases. First, in order to examine the relationship between ROI and market share, correlation analyses were conducted in each of the 3 geographic areas. Consistent with previous studies, a relation between these 2 was observed in the U.S.; however, none was observed in Europe or in other foreign markets. Closer examination of the data revealed the existence of 10 outliers in European and the other markets (5 in each sample). All were industrial businesses with small market share and high levels of ROI. These were deleted for the next phase of the data analysis. In the second phase of data analysis, the correlations between market share and ROI were rerun for each of the 3 geographic areas.2 This provided consistent findings across all 3 areas of a relationship between market share and ROI. The relationship between the 2 performance variables and the marketing mix variables was then analyzed by means of regression analyses conducted separately for each geographic area. Three sets of multiple regressions were run for each of the samples, one with market share as the dependent variable, and 2 with ROI as the dependent variable. In one of the ROI regressions, market share was included as an independent variable. The rationale for this was earlier findings suggesting that market share is an important determinant of ROI. Also, the inclusion allows assessment of the effect of the other independent variables on ROI, while controlling for the level of market share. The other independent variables were the 7 marketing mix variables and business type (See Appendix 2 for definitions). FINDINGS First, the findings concerning the relation between ROI and market share for both the original samples and the revised samples for the 3 geographic areas are discussed. The characteristics of the deleted businesses are examined, and the rationale for their deletion presented. Next, the relation of the marketing mix variables to market share and ROI are compared in each of the 3 geographic areas, based on the 3 sets of regressions. The implications of these analyses are then discussed. Finally, insights gained about the similarity of the relationship both among the measures of performance and between performance and the mix variables are reviewed. 54 Journal of International Business Studies, Winter 1983

5 As noted previously, a consistent finding of studies in the U.S. has been a strong positive association between market share and ROI. The findings of the correlation analyses of ROI and market share based on the initial samples in Table 1 showed that this was not the case, either in European markets or in other foreign markets. This somewhat intriguing finding led to an examination of the scatterplots of market share versus ROI for both European and other foreign markets. This revealed the existence of 5 businesses in Europe and 5 in other foreign markets with low market share and extremely high ROI. Although these businesses were then eliminated from subsequent analyses, a separate analysis was conducted to provide some indication of what these businesses were like. The outliers, that is, businesses with low market share and high ROI, were compared on a number of variables not used in the regression analysis. These businesses appeared to be exceptionally good operators. They were characterized by high investment intensity and a much higher ROI than other businesses in the data base. Although they had low market share, and hence did not benefit from experience curve effects or other economies of scale, they were in a particularly strong financial position. Working capital, inventory capital, finished goods inventory, working inventory, and fixed capital intensity were all considerably lower than in other businesses. Productivity was also substantially higher, and a higher level of purchases was made internally, that is, from other divisions of the same company. These businesses were also in higher growth markets than other businesses, suggesting that it may be easier to be profitable in such markets. The degree of enduser fragmentation was also higher, which may have been due to more specific customer targeting. Somewhat surprisingly, neither product quality nor price were significantly higher. The businesses were not more research-intensive and did not have more new products or newer plant and equipment. The degree of vertical integration was also similar to other businesses as were the number of competitors. The overwhelming conclusion was thus that these were well-managed businesses, and apart from all being industrial firms, they did not belong to any specific industry or product market which might account for their high profitability. The correlation analyses conducted without these few companies revealed results consistent across all 3 geographic areas. As Table 1 shows, in all 3 cases there was a relationship between ROI and market share, significant at the.01 level. Although clearly no definitive conclusions can be reached, given the nature of the sample, this does appear to suggest that the positive association between market share and ROI holds not only in the U.S., but also in European and other foreign markets. The next step was to see not only whether the same relationship between the 2 measures of performance would hold outside the U.S., but also whether similar marketing mix variables would be related to both of these measures. This was examined first for market share, and then for ROI. In the latter case, market share was also included in the equation. Relation Between ROI and Market Share TABLE 1 Correlation Coefficients for Market Share and ROI for the 3 Markets Correlation Coefficients Market Initial Run Second Run U.S..37a.42a Europe a Other foreign countries.13.36a asignificant at.01 level. Journal of International Business Studies, Winter

6 Relationship between Market Share and Marketing Mix Variables Multiple regressions were run to examine the relationship between the 7 marketing mix variables and market share (see Table 2). It is interesting to note that although product quality is related to market share in all 3 markets, the significance of other factors varies from area to area. In particular, substantially more variables appeared to affect market share in the U.S. as compared with other areas. Some of this, however, may merely reflect the larger sample size for the U.S. businesses. In the U.S. market, product quality, a higher price relative to competition, and expenditure on product R&D were all associated with high market share. Furthermore, a high percentage of new products and high sales force expenditure were negatively associated with market share. This is consistent with the findings of previous studies concerning the relation between market share and marketing mix variables [Craig and Douglas 1982]. On the other hand, only one mix variable had a significant relationship with market share in European markets. This variable was product quality. Neither price nor promotional variables appear to have the same significance as in the U.S., though this may in some respects be due to the smaller sample size. In any event, the directionality of the coefficients is in general the same. Business type is also a significant factor, with consumer businesses having higher market share than industrial businesses. Again, this contrasts with U.S. findings, where the reverse relationship was found. In other foreign countries, as in the U.S., product quality was positively related to market share, while the number of new products was negatively related. As in Europe, however, neither price nor promotional expenditures were significant, though again this may be due to the small sample size. Tests of the difference between the beta coefficients between the U.S. and European samples, and between the U.S. and other foreign markets, to a large extent confirm these findings. The overwhelming pattern here is that of differences between the U.S. and European, as well as other foreign markets. The only case in TABLE 2 R2 and Beta Coefficients for the Regressions with Market Share as Dependent Variable Test of differences between betas Other U.S. versus U.S. European Foreign Other Markets Markets Markets U.S. versus Foreign (n = 700) (n = 34) (n = 31) Europe Markets Sales force expenditure -.13a ns a Media and promotion expenditure a a Other marketing expenditure a a Relative price.12a ns ns Product quality.25a.44b.42b a a New products -.11a b ns a Product R&D.14a a ns Business type -.09b.66b.11 a ns Unadjusted R asignificant at.01 level. bsignificant at.05 level. 56 Journal of International Business Studies, Winter 1983

7 which there were no significant differences for both pairs of tests was in price. Thus, although the association between price and market share is not significant in Europe, nor in other foreign markets, the directionality of the association is the same as in the U.S. market. Similarly, there were no significant differences between salesforce expenditure and the proportion of new products in Europe and the U.S. nor between expenditure on R&D in other foreign markets and the U.S., again suggesting that the nature of the relationship was comparable, though they did not have a significant relationship with market share. The next step was to examine the relationship between ROI and the marketing mix variables in each of the 3 different geographic areas. This was examined based on the 2 different sets of regressions, one including market share as an independent variable, the other without market share. The overall findings concerning the relation between ROI and the marketing mix variables were substantially the same in both cases. The major difference was that the R2s were consistently higher in all 3 geographic areas when market share was included. The unadjusted R2s without market share were.10,.37, and.41 for the U.S., European, and other foreign markets respectively. With the addition of market share, the R2s increased to.24,.49, and.42 respectively. Examination of the relationship between ROI and the marketing mix variables as in the case of market share showed somewhat different results from one area to another (see Table 3). In the U.S. sample, ROI was related to the same factors as market share, namely product-related variables. Product quality was positively related to ROI, while the number of new products and expenditure on product R&D were negatively related to ROI. Consistent with the results of the correlation analysis, market share was also significantly related to ROI. In European markets, on the other hand, a high price was positively related to ROI. Expenditure on sales Relationship between ROI and Marketing Mix Variables TABLE 3 R2 and Beta Coefficients for the Regressions with ROI as Dependent Variable Test of differences between betas Other U.S. versus U.S. European Foreign Other Markets Markets Markets U.S. versus Foreign (n = 700) (n = 34) (n = 31) Europe Markets Sales force expenditure b -.12 a a Media and promotion expenditure a ns Other marketing expenditure c.05 a b Relative price.03.39b.10 a a Product quality.14a b a a New products -.07b a a Product R&D -.14a a a Market share.40a.43b.13 ns a Business type a ns Unadjusted R asignificant at.01 level. bsignificant at.05 level. CSignificant at.10 level. Journal of International Business Studies, Winter

8 force and other marketing expenditure were negatively related to ROI, though expenditure on media was positively related to ROI. These results appear to be consistent with absolute levels of expenditure on media, which were substantially higher in Europe than in the U.S., though to the extent that sales force and other marketing expenditures were also higher in European markets this suggests some inefficiencies. As in the U.S. market, share was significantly related to ROI, once again confirming the results of the correlation analyses. In the case of other foreign markets, the only marketing mix variable which appeared to be related to ROI was product quality. Product quality would thus appear to be the key factor in these markets, as opposed to promotional or other expenditures. Somewhat surprisingly, there was no significant relationship between ROI and market share, suggesting that this relationship is attenuated by other mix variables and, in particular, product quality. Examination of the beta coefficients between the U.S. and European markets and between the U.S. and other foreign markets also suggests, as in the case of market share, a general pattern of differences. The only cases where this does not occur are between market share in the U.S. and European markets, and between media and promotion expenditure in the U.S. and other foreign markets. As with market share the key finding is thus one of differences both in the specific marketing mix variables which are related to ROI, and in the nature or strength of these relationships from one geographic area to another. DISCUSSION The results of the analyses suggest 3 major findings, concerning the differences and similarities in performance and in the relationship to marketing mix variables in the U.S., European, and other foreign markets. These are: 1) the relationship found between ROI and market share in the U.S. also appears to hold in European and other foreign markets (once outliers are deleted); 2) different factors appear to be related to market share and ROI in the different market areas; and 3) differences also occur in the magnitude of these effects from one geographic area to another. These are next examined in more detail. In the first place, the relationship found to exist between ROI and market share in the U.S. appears also to hold both in European and in other foreign markets. No definitive conclusions can be reached, given the nonrandom character of the samples and their small size in European and other foreign markets. Nonetheless, it does suggest that the same link between ROI and market share occurs in other parts of the world, and is not a phenomenon which reflects certain specific characteristics of the U.S. market. It is, however, interesting to note that this finding holds only when certain industrial businesses with high ROI and low market share are eliminated. This suggests that, as has been found in the U.S., the relationship between ROI and market share exists in a number of product markets, but will not hold under all circumstances. Second, different factors appear to be related to market share and ROI in the different geographic areas. In the case of market share in the U.S., consistent with the findings of previous studies, product-related variables and price were related to high market share, while sales force expenditure was negatively related. In European markets, however, only product quality was related to market share. Similarly, in other foreign markets, product quality was again related to market share, and as in the case of the U.S., there was a negative relationship with development of new products. The factors related to high levels of ROI were also substantially different from one market to another. In the U.S. market, the findings were consistent with those observed in relation to market share. The key variables associated with high ROI were product-related variables. in European markets, however, a premium price 58 Journal of International Business Studies, Winter 1983

9 was a key factor. Media and promotional expenditures were also positively related to ROI, while sales force and other marketing expenditures were negatively related to ROI. Again, consistent with the correlation analysis, market share was related to ROI. In other foreign markets, as in the case of market share, marketing mix variables did not appear to be significantly related to ROI, with the sole exception of product quality. This suggests that other factors may be operant here, restricting the effectiveness of other marketing mix variables. The lack of a relationship between market share and ROI further suggests that the relationship depends also on other variables and is not evident when these (such as, product quality) are controlled for. Third, not only did the specific variables related to market share and ROI differ from one geographic area to another, but there were also differences in the nature and magnitude of their effects from one area to another. In comparing the different geographic markets, for example, there were only 9 cases where the differences were not significant. The key findings were thus of differences between the geographic areas. In many respects the study raises more issues concerning performance and effective marketing mix tactics for multinational corporations than it resolves. Given the nature of the sample, it is clear that the findings must be viewed as tentative. Nonetheless, they do suggest a number of problem areas and issues which provide fruitful avenues for future research. In the first place, the existence of a number of outliers with high levels of ROI but low market share suggests the need to investigate further situations in which ROI and market share are not related: in particular, whether the absence of such a relationship is specific to certain countries or types of businesses, or is associated with the rate of technological change. Similarly, whether products in the mature stage of the product life cycle have high market share, but low ROI, might be studied. The degree of competition and protection within a market are also factors to be considered. Second, the factors underlying the observed differences in the marketing mix variables associated with market share need to be examined further. An interesting issue here is that of the link between product quality and high market share. The strength of this relationship and its consistent emergence in all 3 geographic areas raises the question as to whether the competitive advantage of multinationals, especially of U.S. origin, in markets overseas lies in the marketing of quality products, rather than in price or other factors. It might, for example, be hypothesized that local competitors are more effective in tapping low price or price-sensitive segments of a market. This could be tested not only with respect to U.S. multinationals but also European, Japanese, and Third World multinationals, and different types of products and country markets. Third, the apparent differences in the mix variables related to ROI in the different geographic areas pose some even more puzzling questions. Here the findings are even more tenuous insofar as observed differences may reflect differences in accounting practices, transfer pricing, allocation of domestic product R&D expenditures to products marketed in other countries, and so on. The impact of such factors on performance needs to be investigated more systematically. In addition, the significance of the relation between ROI, price, and media and other promotional variables in European markets should be examined more closely. This might, for example, reflect the importance of developing an awareness of the product or brand in these markets, and charging a premium to cover such costs, or alternatively, higher media costs and limited availability of television media, resulting in greater use of the more expensive print media. Negative relationships associated CONCLUSIONS Journal of International Business Studies, Winter

10 with sales force expenditure, other marketing expenditures, and ROI, on the other hand, may reflect initial set up costs associated with establishing distribution facilities overseas, inefficient use of the sales force and other facilities, and higher social benefit contributions in European countries. Finally, examination of the impact of various country market environment characteristics on effective marketing mix strategies is clearly an important consideration. This might include study of government restraints on the nature and degree of competition; the entry of foreign-owned companies, products, and services; the nature and type of competition (that is, from local or other multi-national companies); product, promotion, pricing and distribution strategies; the relative costs, efficiency, and coverage provided by different media or distribution channels; and other aspects of the marketing infrastructure. Further research should also focus on the use of the larger samples, examining differences between multinationals of different national origins (that is, U.S., European, Japanese, and Third World), relative to a range of different products which vary in the degree of technological sophistication, to the type of end-user market, and to the degree of global versus local market competition. Examination of performance in different types of country markets, ranging from the developing countries to the highly industrialized countries, might also prove of interest. A broader focus is needed to examine the forces underlying performance and effective marketing mix tactics. It is hoped that these suggestions will provide some insights into appropriate strategies for multinational corporations to pursue. APPENDIX 1 A. Average Market Share and ROI Return on U.S. Firms Operating Business in: Investment Market Share U.S Europe Other foreign countries B. Average Levels of Expenditure or Ratings for the Marketing Mix Variables Mean Values Other Foreign Variablea U.S. Europe Countries Sales force expenditure Media and promotion expenditure Other market expenditure Relative price Product quality New products Product R&D Percent consumer goods businesses asee Appendix 2 for operational definition. 60 Journal of International Business Studies, Winter 1983

11 Operational Definitions of the Independent Variables APPENDIX 2 Variables Sales force expenditure Media and promotion expenditure Other marketing expenditure Relative price Product quality New products Product R&D Business type Operational Definition Sales force expenses divided by revenue Media and promotion expenses divided by revenue Other marketing expenses divided by revenue Average selling price in business relative to the 3 largest competitors Percent of products rated superior to competitors minus percent rated inferior Percent of sales accounted for by new products introduced in the 3 preceding years Product R&D expenses divided by revenue for existing products and new products and services Dummy variable for product business type, 1 = consumer, 0 = industrial 1. A more complete discussion of the data base is contained in Schoeffler, Buzzell, and Heany [1974], and Buzzell [1981]. 2. For consistency, 26 outliers were deleted from the U.S. sample. Due to the large sample size, the deletions of the outliers had little effect on the correlation of market share with ROI. FOOTNOTES Banting, P. M., and Ross, R. E. "The Marketing Mix: The Canadian Perspective." Journal of the Academy of Marketing Science, Spring 1973, pp Boston Consulting Group. "Perspective on Experience." Boston, MA: Buzzell, Robert D. "Can You Standardize Multinational Marketing?" Harvard Business Review, November-December 1968, pp _. "Are There 'Natural' Market Structures?" Journal of Marketing, Winter 1981, pp ; Gale, Bradley T.; and Sultan, Ralph G. M. "Market Share - a Key to Profitability." Harvard Business Review, January-February 1975, pp Buzzell, Robert D., and Wiersema, Frederik D. "Successful Share-Building Strategies." Harvard Business Review, January-February 1981, pp Craig, C. Samuel, and Douglas, Susan P. "Strategic Factors Associated with Market and Financial Performance." Quarterly Review of Economics and Business, Summer 1982, pp Doz, Yves. "Strategic Management in Multinational Companies." Sloan Management Review, Winter 1980, pp Faris, Paul, and Reibstein, David. "Prices, Ad Expenditures, and Profits are Linked." Harvard Business Review, November-December 1979, pp Gale, Bradley T. "Selected Findings from the PIMS Project: Market Strategy Impacts on Profitability." In Combined Proceedings, edited by Ronald C. Curhan. Chicago: American Marketing Association, Keegan, Warren J. "Multinational Product Planning: Strategic Alternatives." Journal of Marketing, January 1969, pp Lambin, Jean-Jacques. "Optimal Allocation of Competitive Marketing Efforts: An Empirical Study." Journal of Business, October 1970, pp _. "Is Gasoline Advertising Justified?" Journal of Business, October 1972, pp Leighton, David S. R. "The Internationalization of American Business-The Third Industrial Revolution." Journal of Marketing, July 1970, pp Leone, Robert P., and Schultz, Randall L. "A Study of Marketing Generalizations." Journal of Marketing, Winter 1980, pp Lorange, Peter. "A Framework for Strategic Planning in Multinational Corporation." Long Range Planning, June 1976, pp Parsons, Leonard J., and Schultz, Randall L. Marketing Models and Econometric Research. New York: North-Holland, REFERENCES Journal of International Business Studies, Winter

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