Market Orientation in the Asian Mobile Telecom Industry: Do Buyer and

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1 1 Market Orientation in the Asian Mobile Telecom Industry: Do Buyer and Seller Perceptions Concur? AREA OF SUBMISSION: Market orientation as a business strategy KEY WORDS: Market orientation, customer orientation, business performance, marketing concept AUTHORS: William C. Johnson, Professor of Marketing, H. Wayne Huizenga School of Business & Entrepreneurship, Nova Southeastern University, billyboy@huizenga.nova.edu, : (Fax) and Montri Verayangkura, General Manager of Nokia,South Asia Pacific Region, 108, Bangkok Thai Tower, Bangkok 10400, Thailand montri.verayangkura@nokia.com, : (Fax) SEND CORRESPONDENCE TO: Professor William C. Johnson, Wayne Huizenga School of Business & Entrepreneurship, 3100 SW 9 th Avenue, Ft Lauderdale, FL 33315

2 2 Introduction Despite the generally accepted role of marketing effectiveness in accelerating economic growth and competitiveness, marketing remains a neglected area in most companies in developing countries. Thailand is an example of a developing country in the Asia Pacific that has experienced such a neglect of marketing. Today, Thailand's domestic businesses also have an increased willingness to market consumer-oriented products through more aggressive marketing research and advertising campaigns. A market orientation strategy can be a powerful competitive advantage, because it is an invisible asset that takes a long time to establish and that is difficult to imitate (Day, 1990; Porter, 1980). Narver and Slater (1990) have empirically demonstrated the importance of a market orientation for the firm 's profitability. Asian firms, especially telecommunication/ information technology firms, need to understand the concept and application of market orientation in order to successfully compete in this global arena. Despite the abundance of previous research on the practice of market orientation, most of the research focused on the market orientation perceptions of the selling organization only. Further, although the influence of market orientation on firm performance is well established, most the previous research focused on self-report, subjective measures of performance. This research seeks to overcome these limitations of earlier market orientation research by investigating market orientation perceptions within buyer-seller dyads and using objective, not simply self-reported performance measures. Background of Asian Telecommunication/Information Technology Among several Asian countries like Singapore, Malaysia, the Philippines, and Taiwan, Thailand is a typical Asian developing country that has very high growth in telecommunication and information technology. In 1994, Thai telecommunication/information technology accounted for 7.93% of country 's gross national product (GNP) figure, with telecommunications alone accounting for 1% of the GNP. This

3 3 telecommunication value compares with a GNP of 5% in the UK, and 7% in the US. The Lehman Brother Global Economics (1997) team forecasts long-term (20-year) nominal GNP growth in Thailand to be 11% (against an average of 13.7% between 1988 and 1994). The Eighth National Economic and Social Development Plan (NESDP) in Thailand calls for wireless penetration to increase to 20% in To adjust for GNP differences between Thailand and the developed comparable countries, the NESDP has allowed for an 11-year time lag before telecommunications in Thailand will constitute a developed country contribution to the GNP. Telecommunication services in Asian developing countries are going through a period of almost revolutionary change, in which established ways of offering service continue to be replaced by newer technology based solutions. The Industrial Telecommunication Union (ITU) has stated that the only constraints to the number of wireless telecommunication providers in each member country should be frequency availability and lags in the liberalization process. With the government having vested interests in opening the slow-to-liberalize telecommunication services of Asia, the World Trade Organization (WTO) will take on the role of global regulator. A growing number of technology-savy competitors entering the Thai telecommunication market will forced already entrenched players to reevaluate their marketing strategy in order to keep or achieve a sustainable competitive advantage. We believe that a market orientation can help Thai telecommunication firms achieve this goal. The remainder of our paper is organized in the following manner: first we will briefly review previous research on the market orientation construct; next we present the study s hypotheses that evolve from the literature, followed by the methodology used to test the hypotheses; then the findings of the study are reported, followed by the conclusions and implications. Review of the Literature The last 50 years have witnessed an expansion in academic and practitioner interest in the theory and practice of marketing ( Hooley, Lynch, & Shepherd, 1990). This has been coupled with the popularization of the term, marketing, and growth in the sophistication and practice of marketing. Since the early 1950s, there has been a heightened academic awareness of the pivotal importance of a market orientation. Indeed, it can be argued that a significant amount of research in marketing has been devoted

4 4 to the study of the philosophical basis of marketing in the form of the marketing concept, as well as the operationalizations of the marketing concept into a business orientation. The concept of market orientation is a cornerstone of both marketing and strategic management (Greenley 1995b). The external orientation of an organization toward its markets can be described in terms of being market driven or market oriented. The market orientation concept has been defined and empirically validated as a way of improving business performance. However, the marketing literature reflects remarkable inconsistency in defining the concept of market orientation. The literature reviewed here reveals numerous distinct definitions of the market orientation construct based on the dominant research traditions in this particular area of the marketing discipline (Hunt & Morgan, 1995). Attempts at measuring marketing orientation have involved numerous studies, revealing several different approaches to the investigation of the market orientation phenomenon. Jaworski and Kohli (1993) who studied the antecedents and the consequences of market orientation, operationalized market orientation as collecting, disseminating, and responding to market intelligence. Kohli and Jaworski (1990) found that market orientation is composed of three sets of activities: (a) organization-wide generation of market intelligence pertaining to current and future customer needs, (b) dissemination of this intelligence among departments, and (c) organization-wide responsiveness to it. This responsiveness is composed of two sets of activities: response design (i.e., using market intelligence to develop plans) and implementation (i.e., executing such plans) Their research also found that in addition to positively influencing business performance, market orientation affords many psychological and social benefits to employees. Market orientation leads to a sense of pride in belonging to an organization in which all departments and individuals work toward the common goal of satisfying customers. Jaworski and Kohli used subjective measures in determining firm performance. Narver and Slater believe that market orientation is an organizational culture. Narver and Slater conceive such culture as an antecedent to market-oriented behavior. It is well recognized that corporate culture helps facilitate certain kinds of behavior. In their 1990 study, Narver and Slater (1990) study

5 5 report that market orientation consists of three behavioral components, customer orientation, competitors orientation, and interfunctional coordination, and two decision criteria-long, term focus and profitability. Their study found that practicing a market orientation had a positive effect on business profitability (Narver & Slater, 1990). Market orientation i.e., customer orientation, competitor orientation, and interfunctional coordination, include all the activities involved in creating superior value for the buyers in the target market. In their later study, Narver and Slater (1993) developed and tested their measure of market orientation. Using a sample of 140 business units consisting of commodity product businesses and noncommodity businesses, they found that market orientation has a significant positive effect on profitability. Business performance was measured using self-report scales in both the Narver and Slater studies. Finally, Despande and Farley (1996) developed a summary scale of market orientation which was based on a meta-analysis of some earlier market orientation scales (Narver and Slater, 1990, Jaworski and Kohli, 1993, Deshpande, Farley, and Webster, 1993) Their research produced a more parsimonious 10-item scale after assessing the psychometric properties of the individual market orientation scales. They also concluded that market orientation was in reality synonymous with a customer orientation. Market orientation is more meaningful when the assessment is conducted from both seller 's perspective and buyer 's perspective. Steinman and Desphande (1999) found that the market orientation gap existed, when the sellers evaluate their own market orientation at higher level than their customers do. The results of study indicated that the length and importance of a business relationship have some impacts on the level of the gap Despite the significant role of the marketing concept and its accompanying philosophy of market orientation in the effective and efficient teaching and practice of marketing, the marketing literature is virtually void of any comprehensive studies that measure the extent of market orientation agreement/disagreement between buyer and seller organizations. Thus, we posit that the market orientation perceptions of buyers and sellers will disagree, which leads to our main study hypothesis:

6 6 H1 Ratings of market orientation perceptions between customers and marketers will disagree. Moreover, the various market orientation frameworks have proposed a link between market orientation and business performance. Narver and Slater (1990) test empirically and provide support for the link between market orientation and business performance. Narver and Slater's study uses data from a single corporation and asks informant to perform the relatively demanding task of relating their perceptions on a scale of the return on assets of their organizations relative to competitors. The next set of consequences examined in this framework focuses on employees. The research reported by Kohli and Jaworski (1990) suggests that market orientation affords many psychological and social benefits to employees. Market orientation leads to a sense of pride in belonging to an organization in which all departments and individuals work toward the common goal of satisfying customers. Kohli and Jaworski also posit that achieving this objective results in employees sharing a feeling of contributing to the organization and thus have a commitment to it (1993). Jaworski and Kohli (1993) find that market orientation is related to overall business performance (but not market share), employee organizational commitment, and esprit de corps. The linkage between a market orientation and performance appears to be robust across environmental contexts that vary by market turbulence, competitive intensity, and technological turbulence. Narver and Slater (1990) also found a positive link between the practice of market orientation and business performance. Narver and Slater (1990) empirically tested and provided support for the link between market orientation and business performance. Narver and Slater's study used data from a single corporation and asked informants to compare their perceptions for return on assets of their organization relative to competitors. The findings of Desphande et al (1993) point out that business performance is positively correlated with customer evaluation of their supplier customer orientation, but the suppliers own assessment of customer orientation do not correspond well to that of the customer. Japanese companies with corporate cultures stressing competitiveness (markets) and entreperneurship (adhocracy) outperform those dominated by internal cohesiveness (clans) or by rules (hierarchies). Thus, we

7 7 proposed that within the Asian mobile telecommunication industry, market orientation would positively relate to various business outcomes, which leads to our second hypothesis: H2a Market orientation is positively correlated to business performance among Asian mobile telecommunication suppliers. H2b Market orientation is positively correlated to organizational commitment among Asian mobile telecommunication suppliers. H2c Market orientation is positively correlated to esprit de corps among Asian mobile telecommunication suppliers. The next section will discuss the methodology used to test the study s hypotheses. Methodology The research design was a cross-sectional design, using a field study based on 101 business-to-business buyer/seller dyads in Asian telecommunication and information technology firms. Each observation in this study was composed of four interviews. The author contacted two executives, who are influential or involved in marketing activities in a single business unit of each firm. All executives were interviewed and the process explained to them before the questionnaire was sent via to their offices. Both representatives were asked to respond to the survey questions in the context of the same specific product/market situation. Divisional rather than corporate marketing representatives were chosen because of their greater familiarity with their customers, and hence, more likely resulting in higher reliability of their self-reports. Each respondent was asked to name up to two important customer firms, which were either their down-stream distributor or their operator end users. A customer firm was chosen from among those two customer firms. Two executives from those selected, who are influential in the purchasing decision making were consolidated in the list and two from that list were then randomly interviewed. If the interviews could not be arranged, others on the list were selected randomly and the interviewing procedure was repeated. Marketing representatives from each business unit or customer account of the seller 's firm were interviewed either via phone conversation or by meeting in their offices. The researcher explained the questions and followed up by sending an to ask these

8 8 representatives to respond to survey questions in the context of some specific products, services, and market situations. A total 101 the buyer-seller dyads were obtained. It is important to note that although sampling technique is cumbersome, the use of paired buyer-seller dyads added richness and robustness to the study 's design. Table 1 illustrates the sample profile of the respondents 'firms. Table 1 Sample Profile Country Sellers Buyer Products Thailand 3 Telecom/IT firms Singapore 3 Telecom/IT firms -3 Wireless/wireline service operators Infrastructure, -3 distributors of the those telecom firms -1Television broadcasting company -2 Wireless/wireline service operators End user terminals, Value added service, General communication products Malaysia 2 Telecom/IT firms -1Television broadcasting company -2 Wireless/wireline service operators Philippines 2 Telecom/IT firms -2 Wireless/wireline service operators -3 distributors of the those telecom firms Taiwan 2 Telecom/IT firms -2 Wireless/wireline service operators -1 distributors of the those telecom firms The study data were gathered using a measure of market orientation based on Deshpande and Farley (1996) 10-item Summary Scale for Market Orientation. This 10-item scale was used for both the seller's side as well as the buyer s side of the relationship dyad. The 10-item scale was modified in order to make it apply to the buyers situation. Respondents rated their marketers' firms for each of the 10 items on a Likert-type scale ranging from one to five, where one equals strongly disagree and five equals strongly agree. Firm market orientation scores were calculated as the sum of the scores on the 10 items. The buyer respondents assessed the seller's market orientation using the modification of the 10-item

9 9 scale of the seller on a Likert-type scale ranging from one to five, where one equals strongly disagree and five equals strongly agree. Business performance was measured using a five-point scale, where respondents were asked to compare their profitability, revenue size, market share, and sales growth rate with those of the largest competitor for the specific product/market situation being described by the respondents. For example, a rating of 1 for profitability indicates that the profits were much less or much worse than the competitor, a rating of 5 would mean the business is better or much better than the benchmark. Scale reliability estimates were obtained for both the market orientation scale (.81) and the performance scales (.61). Finally, measures for organizational commitment and esprit de corp were taken an earlier study by Jaworski and Kohli (1993). Organizational commitment and esprit de corps both consisted of 7-item Likert-type scales, ranging from one to five, where one equals strongly disagree and five strongly agree. Coefficient alpha estimates of.74 and.77 were obtained for organizational commitment and esprit de corps respectively. Appendix A includes the 10-item market orientation scale, the 7-item organizational commitment scale, the 7-item esprit de corps scale and the 4- item business performance scale. The next section discusses the results of our research. Results Based on the data collected from 101 Asian mobile telecommunication buyer-seller dyads, paired T-tests were performed to determine whether market orientation perceptions differ between buyer and their suppliers. Table 2 presents the results of the paired T-tests. The results presented in Table 2 confirm our first hypothesis that market orientation perceptions do indeed differ between buyers and sellers.

10 10 Table 2. Paired T-tests for Buyer-Seller Perceptions of Market Orientation Paired Differences. SD SE of Mean t-value Df 2-tailed Sig Next, we looked at whether a market orientation really makes a difference. In other words, did practicing a market orientation result in any meaningful organizational outcomes. We regressed market orientation perceptions against various organizational outcomes as shown below in Table 3. Our investigation confirms earlier research findings that market orientation positively affects various organizational outcomes. Specifically, we found that a market orientation behavior is positively correlated with organizational commitment and esprit de corps. Surprisingly, market orientation was not significantly correlated to business performance, which was determined by comparing the supplier s profitability, revenue size, market share and sales growth with their competitors. However, a post hoc analysis, revealed that profitability was significantly related to a market orientation. Finally, we discuss our findings in the section which follows.

11 11 Table 3: Correlation Matrix: Outcomes of Market Orientation Market Orientation Business Performance Organizational Commitment Esprit de Corps Business Performance Market Orientation * 0.254* Business Performance Org. Commitment 0.208* ** Esprit de Corps 0.254* ** ** Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed). Discussion The study results showed that a market orientation was positively related to organizational commitment and organizational esprit-de-corps. This study found that most of the Asian telecom employees are highly committed to their organization and exhibit high esprit-de-corps. This was not surprising since many Asian telecom firms have established guidelines for their employees regarding commitment and esprit-de-corp. Many have rewarded their employees based on improved levels of customer satisfaction, which makes it quite clear that the employees need to focus on how buyers assess them. Asian telecom firms with a strong market orientation also tended to have employees who were more committed and to have greater esprit-de-corps within their ranks. Higher esprit-de-corps creates a sense of pride in belonging to an organization in which all departments and individuals work toward a common goal such as satisfying customers or bringing high returns to the company. These results compare favorably to earlier findings from Kohli, Jaworski and Kumar (1993), who found that market orientation led to employees having higher espritde-corps and commitment to their organizations.

12 12 Somewhat surprising was the finding that market orientation was not positively related to business performance when assessed using a self-report measure. However, when examining annual report data in this study, i.e., objective performance data, it was revealed that revenue growth and operating profit grew more than 45 % over the past two years. This study found, contrary to earlier research, that market orientation was not significantly related to business performance when using combined business performance measures (market share, sales growth, and size of revenue and profitability). In this study, profitability showed a positive relationship to market orientation. This is quite surprising given that previous research overwhelmingly confirms a positive market orientation and business performance link (Greenley, 1995; Kohli & Jaworski, 1993; Narver & Slater, 1990, 1993). We also sought to determine whether there was a significant difference between the mean rating of the seller's own assessment of the firm and the buyer's assessment of market orientation. The results showed that a gap occurs when comparing customer reports of the supplier's market orientation to the supplier's own report of market orientation. Asian telecom/high technology buyers expect the supplier to serve as a total system integrator, sometimes called turn-key project provider or even enter into a strategic partnership i.e. serve as more than an equipment vendor. Buyers expect telecom vendors to listen to their requirements and develop a deeper understanding of their businesses, not just deliver the product. Moreover, buyers expect vendors to help them to become more profitable. From the supplier's point of view, the market is still immature, so they tend to focus on providing a good deal while ensuring high margins, improved cycle time, and a rapid return on their investment. Earlier studies reported the existence of a market orientation gap, where suppliers assessed their own market orientation as being higher than their important customers' own assessment of the firm's market orientation. There are indications that the gap is related to the length and importance of a business relationship (Steinman, Deshpande & Farley 1999).

13 13 APPENDIX A Marketing Orientation (Customers) The statements below describe norms that operate in business. Please indicate your extent of agreement about how well the statements describe the actual norms in your business. Instruction: Answer in the context of your specific product/ market or service/ market business. 1.Our business objectives are driven primarily by customer satisfaction. 2.We constantly monitor our level of commitment and orientation to serving customer needs. 3.We freely communicate information about our successful and unsuccessful customer experiences across all business function. 4.Our strategy for competitive advantage is based on our understanding of customers' needs. 5.We measure customer satisfaction systematically and frequently. 6.We have routine or regular measures of customer service. 7.We are more customers focused than our competitors. 8.I believe this business exists primarily to serve customers. 9.We poll end-users at least once a year to assess the quality of our products and services. 10.Date on customer satisfaction are disseminated at all levels in this business unit on a regular basis. Strongly disagree Disagree Neither disagree Nor agree Agree Strongly agree

14 14 Business Performance: Relative to our business largest competitor, please rate your company as, we are: (1) (2) (3) (4) (5) (a) Are much less profitable (b) Are much larger(reven ue) (c ) Have a much larger market share (d) Are growing much more slowly Are less profitable Are larger (Rev) Have a large market share Are growing more slowly Are about equally profitable Are about the same size(rev) About the same market share Are growing at about the same rate Are more profitable Are smaller (Rev) Have a smaller market share Are growing faster Are significantly more profitable Are much smaller (Rev) Have a much smaller market share Are growing much faster Organizational commitment 1. Employees feel as though their future is intimately linked to that of this organization. 2. Employees would be happy to make personal sacrifices if it were important for the business unit s well-being. 3. The bonds between this organization and its employees are weak. 4. In general, employees are proud of work for this business unit. 5. Employees often go above and beyond the call of duty to ensure this business unit s well being. 6. Our people have little or not commitment to this business Disagree strongly Disagree Neither disagree Nor agree Agree Strongly agree unit. 7. It is clear that employees are fond of this business unit.

15 15 Company spirit Strongly disagree Disagree Neither disagree nor agree Agree Strongly agree 1.People in this business unit are genuinely concerned about the needs and problems of each other. 2. A team spirit pervades all ranks in this business unit. 3. Working for this business unit is like being a part of a big family. 4. People in this organization feel emotionally attached to each other. 5. People in this organization feel like they are in it together. 6. This business unit lacks an esprit de corps. 7. People in this business unit view themselves as independent individuals who have to tolerate other around them.

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