Market Orientation and the Performance of Sri Lankan Apparel Manufacturers in the Post MFA Environment

Transcription

1 University of South Australia Market Orientation and the Performance of Sri Lankan Apparel Manufacturers in the Post MFA Environment Nalaka Harshijeeva Godahewa BSc. Eng.(Hons), MBA Submitted in fulfilment of the requirements of the degree of Doctor of Philosophy November 2007 International Graduate School of Business University of South Australia

2 Declaration I declare that this thesis titled Market Orientation and the Performance of Sri Lankan Apparel Manufacturers in the post MFA Environment, submitted in fulfilment of the requirements of the degree of Doctor of Philosophy, is the result of my own work. I also declare that the thesis contains less than 100,000 words and does not contain any material that has been accepted for the award of any other degree or diploma. To the best of my knowledge and belief it contains no material previously published by any other person except where due reference is made in the text Nalaka Harshijeeva Godahewa 15 th November 2007 i

3 Acknowledgements Education has always been a passion for me. It was also my means of progress in life. Most of the progress I have made in my professional career could be attributed to my commitment to read and learn on my own. My educational goals were clear from the very beginning; a BSc. degree in Engineering, professional qualifications in both Finance and Marketing, an MBA and finally a PhD. When I started my journey reading for this PhD 5 year ago, I had already achieved the other milestones, so I was ready for the task Throughout this journey there were many who supported me and I wish to thank them all. My wife, Manouri, an engineering graduate like myself, gave up her career early in life to support mine and look after our family. She was always my motivator and my closest friend and had learnt to tolerate my dedication to work which often resulted in neglecting family commitments. Someone with a sharp eye for detail, Manouri also deserves special thanks for painstakingly proof- reading this thesis and making some valuable observations with regard to the contents and the structure. My supervisor, Dr Steven Goodman from the University of Adelaide, who was also a great motivator, helped me shape my work to the required academic standard, constantly providing me with valuable feedback through numerous cycles of improvements. I thank him for his valuable time, intellectual support and constant encouragement. Being someone who could easily relate to me, Dr. Steven knew exactly how I felt at different stages of this journey and always had the right formula to get me back on track. I must thank Prof. Bobby Banerjee, Prof. David Richards, Prof. Barry Elsey and Prof. Margaret Patrickson of the University of South Australia and Prof. Douglas Lamont from USA, who helped me during the early stages of my proposal development. Special thanks should go to Prof. Barry Elsey for giving me confidence at the early stages of my research. I must also thank Dr. Brianne Hastie of the University of South Australia who reviewed the statistics component of my research work and gave me some valuable advice. The staff of Asia Pacific Management Institute, who coordinated the study programme displayed professionalism all throughout. I experienced the same level of professionalism ii

4 whenever I contacted the staff of the University of South Australia too. I would like to recognise their contribution and thank them. I would also like to thank Dr. Saman Kelegama, Director of the Institute of Policy Studies of Sri Lanka and Mr. Tuley Coorey, Secretary General of the Joint Apparel Associations Forum of Sri Lanka for recognising this research project as one of national interest and endorsing the same. Finally, I wish to thank all the respondents who spent time responding to the questionnaire despite their busy schedules managing one of the most strenuous industries in the world. Without their support this research would not have been possible. This work is dedicated to my mother who worked tirelessly to provide me with my early education, without the support of my father who passed away when I was not even one year old. iii

5 Abstract Following the abolition of the Multi Fibre Agreement (MFA) which governed the global apparel and textile trade for 30 years, the apparel industry of Sri Lanka, the largest export revenue earner of the country, is going through a difficult transition period. The country is actively seeking solutions that could enhance the performance of the industry. This thesis studies the impact of market orientation on the business performance of the Sri Lankan apparel manufacturing organizations in the post MFA environment. An attempt is made to enhance the existing market orientation theory by addressing a research gap and highlighting the importance of the relationship perspective in business to business marketing. A four dimensional market orientation construct is developed to overcome the limitations identified in the extant market orientation theories. The study also identifies resource availability as an antecedent of market orientation along with six other antecedents which are commonly discussed in literature. It further investigates whether the market orientation-business performance relationship is moderated by the prevailing business environment. The proposed modifications to the theory are empirically tested within the context of the apparel industry. Adopting a positivist paradigm and a quantitative approach, the research used a cross sectional design, where data was collected from key informants of the participating firms using a self-administered questionnaire. Of the 212 companies contacted, 99 responded resulting in a response rate of 45.8%, after removing two questionnaires which were incomplete. Statistical analysis was carried out using SPSS 13 software for Microsoft Windows. The main analytical technique used was multiple regression analysis. According to the conceptual framework, the market orientation construct comprises of four main components; (a) customer orientation, (b) competitor orientation, (c) inter-functional coordination and (d) relationship emphasis. The conceptual framework was developed combining the learnings from two streams of research; market orientation and relationship marketing. It supports the emerging view that in most, if not all, business to business marketing situations, inter-organizational relationships have a significant influence on the final outcome, thereby highlighting certain limitations of the traditional market orientation thinking. iv

6 Subjective measures were used to investigate the relationship between market orientation and business performance. Three key performance indicators; (a) sales growth, (b) return on investment and (c) customer retention were used to measure the performance of the organization. The empirical findings show a positive relationship between market orientation and all three performance indicators. The research investigated seven possible antecedents of market orientation;(a) top management emphasis, (b) top management risk averseness, (c) interdepartmental connectedness, (d) inter departmental conflict, (e) centralisation, (f) reward systems availability and (g) resource availability. When the hypotheses were tested, five of them were supported by the empirical findings and two were not. Accordingly, the research identified top management emphasis, connectedness, centralisation, rewards systems availability and resources availability as antecedents of market orientation. Of these, top management emphasis, inter departmental connectedness, rewards systems availability and resources availability led to greater market orientation within the company, whereas centralisation was found to be a barrier to market orientation. The research also investigated the influence of two environmental factors; (a) market turbulence and (b) competitive intensity on the market orientation-business performance relationship. The hypotheses that market turbulence and competitive intensity act as moderators of market orientation-business performance relationship were not supported by the findings and were therefore rejected. Hence, it can be concluded that market orientation leads to greater performance regardless of the environmental conditions. This research has been endorsed by both the National Institute of Policy Studies and the Joint Apparel Exporters Associations Forum of Sri Lanka as a study of national interest. The empirical findings offer a clear message to the Sri Lankan apparel manufacturers that market orientation could help improve their performance in the post MFA environment. v

7 Table of Contents Page Declaration Acknowledgements Abstract Table of Contents List of Tables List of Figures i ii iv vi xii xv Chapter 1 Introduction 1.1 Objectives and the structure of the chapter Research questions The origins of the research Research gap The significance of the research Conceptual model Understanding key constructs Research method Data collection Measuring instruments Conducting the survey Analytical techniques used Thesis overview Chapter summary 15 Chapter 2 The Research Context: Apparel Industry 2.1 Objectives and the structure of the chapter The significance of the industry The global apparel industry 17 vi

8 2.3.1 The world trade in apparel Market segmentation in apparel sourcing Distribution channels in global apparel Broadening of global apparel sourcing networks Multi-Fibre Agreement Multi-Fibre Agreement and the impact of its phasing out The global impact of MFA phase-out Apparel industry in Sri Lanka Industry background Strategic initiatives The post MFA experience and challenges ahead The emphasis on the need to be market oriented Chapter summary 53 Chapter 3 - Literature Review 3.1 Objectives and the structure of the chapter The evolution of the marketing concept Operationalising the marketing concept Market orientation Evolution of different perspectives of market orientation Theories on market orientation Measures of market orientation Market orientation and business performance Measuring performance Antecedents and barriers of market orientation Moderators of market orientation Extending market orientation theory Market orientation and organizational culture Market orientation and learning organization Market orientation and innovation Market orientation and organizational leadership Market orientation and strategy Relationship marketing 108 vii

9 3.6.1 Evolution of relationship marketing Domain of relationship marketing Relationship marketing in the current context Role of trust and commitment in relationship building Consequences of relationship marketing orientation Relationship perspective of market orientation Defining and measuring relationship emphasis The importance of resource availability Chapter summary 122 Chapter 4 - Conceptual Framework and Hypotheses 4.1 Objectives and the structure of the chapter Research questions Developing the conceptual framework Key components of the conceptual framework Market orientation Antecedents of market orientation Business performance as a consequence of market orientation Moderators of market orientation Research hypotheses Hypotheses related to antecedents Hypotheses related to performance Hypotheses related to moderators Chapter summary 137 Chapter 5 - Research Methodology 5.1 Objectives and the structure of the chapter Selection of the research paradigm, method and design Research paradigm Selection of methods Research design Sampling procedure 143 viii

10 5.3.1 Sampling frame Sampling method Sample size Units of analysis Research participants Testing for informant bias Developing survey instrument The measurers used Pre-testing the questionnaire Data Collection Data preparation Data analysis procedure Getting a feel for the data Testing the goodness of data Method of testing the hypotheses Reliability Validity Factor analysis Common method variance in self reports Selection of multivariate techniques Correlation analysis Multiple regression analysis Testing for the moderator effect Chapter summary 171 Chapter 6 - Analysis of Data and Research Findings 6.1 Objectives of the chapter Data preparation Analysis of responses Testing for non response bias Testing for differences between the responses from key informants with different durations of service experience 175 ix

11 6.2.4 Testing for differences between the responses from key informants 177 at different hierarchical levels Testing for differences between the responses from key informants 178 representing companies of different sizes Checking for violations of assumptions Reliability and validity tests Findings of the reliability tests Findings of the validity tests Findings of the factor analysis Factor analysis of market orientation Factor analysis of antecedents Factor analysis of moderators Findings of the Harman s one factor test Descriptive statistics Correlation analysis Correlation between market orientation and business performance Correlation between antecedents and market orientation Correlation between moderators and market orientation Hypotheses testing Antecedents of market orientation Antecedents of customer orientation Antecedents of competitor orientation Antecedents of inter functional coordination Antecedents of relationship emphasis Consequences of market orientation The moderator effect in the relationship between market orientation 219 and consequences 6.8 Chapter summary 222 Chapter 7 Discussion and Conclusions 7.1 The objectives and the structure of the chapter The research background Consequences of market orientation 225 x

12 7.3.1 Sales growth Return on investment Customer retention Antecedents of market orientation Moderators of market orientation Contributions of the study Managerial implications Limitations of the research and recommendations for future 240 research 7.9 Conclusions Concluding Remark Chapter summary 245 Bibliography 246 Appendix A : Cover Letter 283 Appendix B : Endorsement Letter one 285 Appendix C : Endorsement Letter two 286 Appendix D : The Research Questionnaire 287 xi

13 List of Tables Table Description Page 1.1 Definitions of key constructs World apparel imports 2001 to The key apparel importing regions Performances of 20 best known apparel retailers in Trends in United State s apparel imports, Share of females employed in the apparel industry in selected 27 countries 2.6 Labour costs in apparel industry in year 2002 ( selected countries) Trade agreements that influenced global apparel sourcing in the 30 recent past 2.8 Twenty five countries whose apparel exports were the largest 32 percentage of total merchandise exports in Regional differences in quota constraints of US apparel imports, Some key dates in the history of establishing the MFA and the 35 ATC 2.11 Integration of textile and clothing into GATT under ACT Quota rents and price premiums for textile and clothing (Data 37 related to 1994) 2.13 Changes in import market share of selected product categories 38 since certain apparel quotas were removed 2.14 Employment statistics in apparel manufacturing (Selected 39 countries, ) 2.15 Sri Lanka apparel export data from Matching the capabilities with dynamics of world demand 43 (Rankings for , ) 2.17 Comparison of growth patterns of China, India and Sri Lanka 44 apparel exports ( As percentages of global apparel trade) 2.18 SWOT analysis of the Sri Lankan apparel industry The changes in average prices of USA imports after MFA 49 xii

14 3.1 Authors supporting different perspectives of market orientation Different research perspectives on market research Previous studies on the effect of market orientation on 80 performance 3.4 Research findings on moderators influence on market orientation business performance relationship Common applications of research paradigms Changes made to the questionnaire after pilot test Guidelines for identifying significant factor loading 161 based on sample size 5.4 Review of research methodologies used in the past Research hypotheses assessment An analysis of the responses received Testing for non response bias by comparing early respondents 175 and late respondents 6.3 Testing for the mean differences between responses from key 176 informants with different service experience 6.4 Testing for the mean differences between responses from key 177 informants at different hierarchical levels 6.5 Comparing the responses from key informants representing 178 companies of different sizes 6.6 Reliability of scales Factor analysis : market orientation Factor analysis : antecedents of market orientation Factor analysis : moderators of market orientation Descriptive statistics Correlation analysis between market orientation, its components 194 and business performance 6.12 Correlation between antecedents and market orientation Correlation between moderators and market orientation Relationship between the antecedents and market orientation 201 xiii

15 6.15 Relationship between the antecedents and customer orientation Relationship between the antecedents and competitor orientation Relationship between the antecedents and inter-functional 207 coordination 6.18 Relationship between the antecedents and relationship emphasis Relationship between the market orientation and sales growth Relationship between the components of market orientation and 212 sales growth 6.21 Relationship between the market orientation and return on 213 investment 6.22 Relationship between the components of market orientation and 214 return on investment 6.23 Relationship between the market orientation and customer 215 retention 6.24 Relationship between the components of market orientation and 215 customer retention 6.25 Relationship between market orientation and overall performance Relationship between the components of market orientation and 218 overall performance 6.27 The moderator effect of market turbulence and competitive 220 intensity 6.28 Correlation analysis on market orientation, moderators and consequences 221 xiv

16 List of Figures Figure Description Page 1.1 Conceptual model and main hypotheses to be investigated Distribution of global apparel imports in year (By region based on value share) 2.2 Segments in apparel marketing Building blocks of the literature review Conceptual framework Typology of moderator variables 170 xv

17 Chapter One Introduction 1.1 Objectives and the structure of the chapter This thesis studies the relationship between market orientation and business performance in the Sri Lankan apparel industry. A refined model of market orientation is empirically tested using data obtained from Sri Lankan apparel organizations. It is also aimed at identifying the factors that help Sri Lankan apparel manufacturing companies to create market orientation within their organizations. The purpose of this chapter which comprises of 10 separate sections is to provide an overview of the thesis and its organization. It begins by presenting the research questions identified in section 1.2 followed by discussions on the origins of the research in section 1.3. Section 1.4 explains the research gaps in detail while the significance of the study and its main contributions are presented in section 1.5. The next section 1.6, introduces the conceptual model which is also presented graphically. The main constructs are defined in section 1.7 before proceeding to section 1.8 where the research methodology and how data is analysed are explained. In section 1.9 a clear picture of how the thesis is structured is presented. The chapter summary is presented in section Research questions It is expected to investigate the following key questions through this research study; 1. What are the dimensions of market orientation in a business to business marketing scenario such as apparel industry? 2. What are the antecedents of market orientation in business to business marketing? 3. What role is there, if any, for market orientation to assist Sri Lankan apparel manufacturers in the post MFA era? 4. Are there any environmental factors that moderate the market orientationbusiness performance relationship in the Sri Lankan context? 1

18 1.3 The origins of the research Since the production of mechanical sewing machines in the 1850s, sewing apparel products has always been, and remains, a labour-intensive activity with small capitalinvestment requirements. As a result, several developing countries such as Sri Lanka have identified the export of apparel products as an important means of economic growth (Abernathy, Volpe and Weil, 2006). By 2004, the apparel industry of Sri Lanka had grown to be the largest export revenue generator for the country, contributing more than 51% of the export income (CBSLAR, 2005). The rapid growth of the industry over two decades was primarily attributable to the availability of substantial quantities of apparel quota to the Sri Lanka apparel manufacturers. The quota system in the apparel industry was a result of the Multi-Fibre Agreement (MFA), which has been governing the world trade of textiles and clothing since With the availability of substantial quantities of quota in several key categories, Sri Lanka had already become an attractive apparel sourcing location for USA, EU and several other developed countries (Kelegama, 2005). During the period of rapid growth, many companies prospered, but relatively little attention was paid by the government or the key players in the industry to develop a long-term strategy to sustain the business. The Sri Lankan apparel industry continued to be dependent on the availability of the quota system to sustain the business. Apart from a few vendors who had the foresight, no one else made any effort to invest into backward integration or to acquire the design and development skills necessary to advance further in the apparel value chain. By the turn of the century the rules of the industry had started to change. A number of low cost Asian countries such as Vietnam, Cambodia, Laos, Myanmar and several East European countries were rapidly expanding their market share in the international market (Cole, 2004). With higher labour productivity, lower manufacturing costs, faster access to raw material and shorter lead-times, these countries had gradually started to threaten the competitive advantage previously enjoyed by the South Asian countries including Sri Lanka, India and Bangladesh (Tewari, 2006). Recent developments such as African Growth Opportunity Act (AGOA), China s entry into WTO, the formation of bilateral and regional trading blocks such as North American Free Trade Movement (NAFTA), the Caribbean Basin Initiative (CBI) were all becoming direct threats to the apparel manufacturers in the South Asian block (Yang, 1994). 2

19 In 1995 a World Trade Organization (WTO) agreement on textiles and clothing (ATC) was signed creating a ten-year plan phasing out quotas in four discrete steps; the last step was to be taken on 1 st January 2005 with the elimination of all quotas among WTO member nations (Abernathy et al., 2006). Accordingly, each apparel producing nation was expected to witness a gradual removal of their quota allocations over a period of 10 years. This meant a potential danger to countries such as Sri Lanka, which were highly dependent on apparel exports for the economic growth. The year 2004 was a significant year as it signalled the end of regulation for the apparel industry. After 30 years of existence, the Multi Fibre Agreement (MFA) was formally wound up in December As a result, Sri Lanka, which for a long time had benefited by the existence of MFA had to start competing in the open market without the quota protection. During 2005, the first year after the elimination of quota system, Sri Lanka achieved only a moderate growth compared to many of its regional and global counterparts. During the 1 st half of 2006, sales dropped by 4% compared to the previous year (SLAEA, 2006). It was clear that the country needs to find effective methods to enhance its competitiveness, if the industry is to survive in the long run (Dent and Tyne, 2001). Market orientation becomes a subject of interest in this context. The aim of the current research is to study the impact of market orientation on the performance of Sri Lankan apparel manufacturing companies. The prevailing wisdom suggests that having a market orientation could lead to superior performance and ensure long term success in today s highly competitive business environment (Fritz, 1995; Pitt, 1996; Ngai, 1997; Doyle and Wong, 1998; Appiah-Adu, 1998; Pulendran et al., 2000; Maydeu-Olivares, 2003). The resurgence of interest in market orientation in the recent past can be attributed to its association with organizational performance (Diamantopoulos and Hart, 1993). The important question is whether market orientation could provide the necessary impetus to the Sri Lankan apparel manufacturers to perform better in the open market. To answer that question, the hypothesis that a higher degree of market orientation would lead to better performance, needs to be empirically tested in the Sri Lankan context. In doing so it is also necessary to address any limitations in the market orientation theory identified during the literature review. The antecedents of market orientation should also be identified as they provide the necessary foundation for building a market orientation within an apparel manufacturing organization. 3

20 1.4 Research gap The apparel industry is essentially a relationship driven business where marketing focus is business to business. Meeting one s commitments, even without a contractual agreement, is an accepted norm in the apparel industry and negative word of mouth can cause irreparable damage to one s reputation (Yang,1994). Given that customer retention is of utmost importance to the Sri Lankan apparel manufacturers, particularly in the post MFA era, it is necessary for companies to be effective at managing customer relationships. Since the current research is also aimed at finding how performance of the apparel manufacturers could be improved, both market orientation and relationship marketing become important subjects. Despite the large volume of literature on market orientation and relationship marketing, relatively few have researched the link between these two constructs. Helfert, Ritter and Walter (2002) point out that there is a limitation in existing perspectives of market orientation as the emphasis on long term relationship management is usually missing. He suggests that more work is necessary to understand market orientation from a relationship perspective. Accordingly, this research investigates the link between market orientation and relationship marketing in greater detail with particular reference to the Sri Lankan apparel industry. Steinman and Deshpande (2000) raise the question as to how much market orientation is enough for successful long term continuation of a supplier customer relationship and suggest that the appropriate level of market orientation is what the customer thinks it should be. Helfert et al.(2002) endorse this view and raise the question as to what extent the commonly used measures of market orientation are capable of addressing the relevant issues from the customer s point of view. This line of thinking highlights a potential gap between the expectations of customers and the perceptions of the suppliers with regard to the level of market orientation. Using empirical evidence Steinman and Deshpande (2000) further establish the existence of a gap where suppliers and customers disagree about the suppliers level of market orientation. This limitation has been highlighted in several studies as a possible reason for the sometimes weak relationship between market orientation and firm s success in the long run (Steinman and Deshpande, 2000; Helfert et al., 2002; Sin et al., 2005). While market orientation focuses on integrating all functional areas of the organisation to attain competitive advantage by satisfying customer needs and wants, the focal point in relationship marketing is the need to satisfy customer needs on a continuous basis over a long period (Hakansson and Ford, 2002). The basis for connection between the 4

21 two constructs, relationship marketing and market orientation is emphasizing that the key to the success of a business is its willingness and the ability to determine the needs and wants of customers and satisfying these needs more effectively than the competitors from a long term perspective (Steinman and Deshpande, 2000). A long term orientation is particularly important in a business to business marketing scenario as in the case of the apparel industry. As Berry and Parasuraman (1991) point out, in business to business marketing the relationships between buyers and sellers tend to be continuous and direct, both at individual and organizational level. It is this long term continuity factor that the current models of market orientation to some degree fail to address, resulting in a gap that could be addressed by incorporating a relationship dimension into the construct. Tse and Sin (2004) express market orientation as an offensive strategy that helps the company to establish a strong position in the market by coordinating various functions within the organisation, monitoring competitor moves and satisfying customer needs. They also view relationship marketing orientation as a strategy more concerned with building long term relationships by cultivating trust, empathy, bonding and reciprocity between the company and the customers. While it appears that both market orientation and relationship marketing have a direct impact on the business performance of a firm, a key difference between the two perspectives is the time horizon involved (Sin et al., 2005). This was also highlighted by Helfert et al.(2002) who identified the following limitations in the commonly used market orientation measures; (1) market orientation is usually measured in relation to markets and not individual customers, (2) market orientation does not take into account the inter-organizational relationships. Both these can be considered limitations in studying the impact of market orientation on the business performance. These issues, combined with those stated earlier in this section, are of great significance in business to business marketing which relies heavily on individual contacts that usually span over a long period. A question that can be raised therefore is whether relationship orientation is a missing link in extant market orientation studies. It highlights a potential gap in the market orientation literature which requires further investigation. The research investigates this gap through an empirical study conducted within the context of the apparel industry. Little has been written in the extant literature about marketing in the apparel industry. Most of the recorded studies on the apparel industry focus on operations management. Lack of strong marketing focus is probably the main reason why apparel manufacturing companies all over the world, fail to sustain their businesses in one location for more 5

22 than years without looking for new locations that offer cheaper manufacturing costs (Gereffi, 2003). Given the fact that the Sri Lankan apparel industry is also now facing open competition after long years of protection, it is appropriate to study the application of market orientation within the industry and its implications. 1.5 The significance of the research The contribution from this research is significant due to several reasons; 1. The researcher aims to enhance theory on market orientation by exploring its potential variations specific to business to business marketing. This research investigates a unique four component market orientation construct including the relationship emphasis dimension developed based on a synthesis of work of past researchers and the candidate s original thinking. 2. The researcher identifies resource availability as an antecedent of market orientation and empirically tests it. This is also a novel argument and results in further modifications to the existing theories on market orientation. 3. The academic contribution in enhancing market orientation theory is also significant due to the desired result of its application. Considering the fact that the apparel industry is going through a transition of great significance following the abolition of the Multi Fibre Agreement (MFA), it is an appropriate time to evaluate the impact of market orientation on the performance of the apparel manufacturing organizations. Since the transition in the apparel industry is more crucial for smaller apparel manufacturing countries whose economies are heavily dependent on the apparel industry, Sri Lanka could be considered an ideal location for the research study. A research gap has been identified revealing a necessity to investigate the link between market orientation and relationship marketing constructs based on the view that relationship marketing should be considered an integral part of market orientation in a business to business marketing scenario. Identification of resource availability as an antecedent of market orientation is also an extension of the theory which is empirically tested in this research along with the other constructs. Accordingly, this research contributes towards further enhancement of the growing body of knowledge on market orientation. 6

23 Research is not only a creative process but a discipline, where some concepts are better understood only by studying more than once (Pitt, 1996). Previous researchers who studied market orientation in different parts of the world have generated sometimes conflicting results. For example, Narver & Slater (1990/1994), Ruekert (1992), Pelham & Wilson (1996), Pitt, Caruana and Berthon (1996), Pulendran et al., (1996), Baker and Sinkula (1999), Matsuno et al., (2000), Matsuno, Mentzer and Rentz (2005) etc., found a positive relationship between market orientation and business performance, whereas Greenley (1995), Balabanis, Stables and Phillips (1997), Appiah-Adu (1998), Han, Namwoon and Srivastava (1998) and Baker and Sinkula (1999) did not find any significant relationship between them. Accordingly one cannot arrive at any preconclusions about the market orientation and business performance relationship within the unique and distinct business environment of Sri Lanka without finding appropriate empirical evidence. At the time this research was initiated there wasn t a single recorded study on market orientation conducted in Sri Lanka. Further, there is a specific value addition possible as this study could help revive this single largest export industry of the country which is currently going through a transition following the elimination of MFA. 1.6 Conceptual model The conceptual model that is used in this research has been developed based on a comprehensive literature search and critical evaluation of the existing theories. This research has taken the position that market orientation should be viewed from both a behavioural perspective as proposed by Kohli and Jaworski (1990) and a cultural perspective as proposed by Narver and Slater (1990). A major modification to the existing theories is the recognition of the relationship emphasis as a component of market orientation and the inclusion of resources availability as an antecedent of market orientation. Keeping promises and building trust are vital traits in winning the hearts of the buyers in the apparel industry. The ability to empathize and view situations from each others perspective helps both the supplier and the customer to reciprocate, making allowances for each other and returning similar favours both ways (Chetty,1999). Since relationship management is at the heart of this whole exercise, relationship emphasis is hypothesised as an integral part of market orientation. Accordingly in this research, it is hypothesised that market orientation comprises of four components; (1) customer orientation (2) competitor orientation (3) inter functional coordination and (4) relationships emphasis. 7

24 This research focuses on three business performance indicators; (a) sales growth (b) return on investment and (c) customer retention. It is hypothesised that greater market orientation leads to greater business performance. The conceptual model identifies seven antecedents which are empirically tested in the research. They are; (a) top management emphasis (b) top management risk averseness (c) interdepartmental connectedness (d) interdepartmental conflicts (e) centralization (f) rewards systems availability and (g) resources availability. The market changes that are shaping the industry and the increased competitor activities are likely to have a strong influence on the market orientation business performance relationship. The research tests two potential moderators of market orientation business performance link; (a) market turbulence and (b) competitive intensity. The conceptual model and the main hypotheses used in the research are graphically presented in figure (1.1) below. These are explained in detail in chapter 4-conceptual framework and hypotheses. 8

25 Figure 1.1 : Conceptual model and main hypotheses to be investigated Top management emphasis Top management risk averseness Inter-departmental conflict Inter-departmental connectedness Centralization Reward systems availability Resource availability H1+ H2- H3- H4+ H5- H6+ H7+ Market Orientation Customer orientation Competitor orientation Inter-functional coordination Relationships emphasis Market turbulence Competitive intensity H8 + H9 + H10+ H12+ H13+ Sales growth ROI Customer retention 1.7 Understanding key constructs The conceptual model presented above includes 17 constructs which are defined in table (1.1) below. Table 1.1: Definitions of key constructs Construct Definition 1 Market Orientation An organizational culture that most effectively and efficiently creates the necessary behaviours within the organization, for the creation of consistent superior value for the customers over time and thereby ensures continuous superior performance for the business. 2 Customer Orientation 3 Competitor Orientation Sufficient understanding of the expectations of target customers so that the company can create consistent superior value for them. It involves acquiring information about the target customers, analysing and disseminating the information throughout the business so that all the relevant departments can be effective in delivering the required value. Sufficient understanding of the capabilities and strategies of current and potential key competitors so that appropriate business strategies can be developed in order to face the challenge of competition effectively. It involves acquiring information about the existing and potential competitors of the organisation, analysing and disseminating the relevant information throughout the business so that they can be used effectively. 9

26 4 Inter Departmental Coordination 5 Relationship Emphasis 6 Top Management Emphasis Coordinated activities and sharing of resources between different departments for the purpose of creating and delivering superior value for the customers. It involves understanding each others role in the value chain, disseminating relevant information throughout the business and supporting a common goal. The proactive engagement in creating, developing and maintaining committed, interactive and profitable exchanges with the selected customers over time. The behavioural components involved are bonding, empathy, reciprocity and trust. The extent to which the top management of the company keeps highlighting the importance of customer satisfaction for the success of the organisation and express its commitment towards creating consistent superior value for the customers over time. 7 Risk Averseness The extent to which the top management of the company shows willingness to take risks in managing the company business and accept failures as being normal. 8 Inter Departmental Conflict 9 Inter Departmental Connectedness Active disagreement between people from different departments who have different motives and do not share common values which leads to tension between departments. The degree of formal and informal direct contacts among employees from different departments. When people from different departments share similar values and have similar opinions about work, they behave as part of a cohesive group with common objectives. 10 Centralisation The act of consolidating power and authority under a central control. In a centralised operation decision making authority is not delegated and only a few could actively participate in the decision making process. 11 Reward Systems Availability Availability of formal or informal systems by which the organization recognizes and rewards the employees who uphold the core values of the organization and contribute towards achieving common objectives. 12 Resource Availability 13 Competitive Intensity 14 Market Turbulence Access to valuable, rare, imperfectly imitable and non substitutable resources that can provide a distinct competitive advantage to an organization. The degree of competition in the industry. Changes in the composition of customers in the market and their preferences. 15 Sales Growth The year-on-year increase of sales revenues and business volumes compared to the previous years, which could be considered as an indication of healthy performance of a business entity. 16 Return on Investment (ROI) 17 Customer Retention Return on investment is a measure of business viability. It is calculated by dividing the profit made by an organization, by the total funds that have been invested in that organization s assets, over any given period. The ability of the organization to keep its customers, without losing them to competition. Source: Developed for this study based on Narver and Slater (1990); Kohli and Jaworski (1990) and Harker (1999). 10

27 1.8 Research method This research adopts a positivist quantitative approach with a cross sectional study design and a survey method. The selection of the research paradigm and the methodology will be explained in more detail in chapter five Data collection To obtain information, a mail survey was conducted. The sample included CEOs, Directors, GMs or senior managers of participating companies. The reason for identifying this top level of management as key informants was due to several reasons. 1. In order to get a better insight (Greenley, 1995) 2. Top management commitment is important for achieving market orientation (Kohli & Jaworski, 1990) 3. Ultimate responsibility of market orientation is at corporate level (Webster, 1992) 4. Managers may not have a full understanding of the firm s market orientation or the supporting culture (Despande, Farley and Webster, 1993) When measuring performance, it is usually impractical to expect the busy executives to collect and submit actual performance data even if they agree to divulge such information (Pitt, 1996). It has been already empirically established that there is a strong positive correlation between subjective measures and objective measures of business performance (Dess and Robinson, 1984; Pearce et al., 1987). Accordingly, this research assesses the business performance of the selected organizations using subjective data where perceptions of the key respondents are assumed to reflect close approximations of the actual performances of their respective organizations Measuring instruments The survey questionnaire was developed after studying the measures used in a number of previous research studies and by making the necessary modifications to suit the current research. Four former studies have made significant contributions towards developing the survey instrument used for measuring purposes in this research 11

28 (a) Measures of market orientation are adopted with modifications based on Narver and Slater (1990); Deng and Dart (1994); Gray, Matear, Boshoff and Matheson (1998) and Sin, Tse, Yau, Chow and Lee (2005). (b) Measures of antecedents of market orientation are adopted with modifications based on Kohli and Jaworski (1990); Pulendran, Speed and Widing (2000) and Helfert, Ritter and Walter (2002). (c) Measures of moderators of market orientation are adopted with modifications based on Kohli and Jaworski (1990); Pulendran et al. (2000). (d) Measures of business performance are adopted with modifications based on Kohli and Jaworski (1990); Pulendran et al. (2000) and Pelham (1997). The survey instrument was pre tested before finalizing Conducting the survey The research uses a cross sectional study design. A mail survey using a self administered questionnaire was selected as the method of data collection. It is a commonly used method in extant market orientation - business performance studies (Narver and Slater, 1990; Jaworski and Kohli, 1993; Greenley, 1995; Fritz, 1996; Selnes, Jaworski, and Kohli, 1996; Pelham, 1997; Appiah-Adu, 1998; Baker and Sinkula, 1999; Matsuno, 2005). The sampling frame used in this research is the list of apparel manufacturing companies provided by the Joint Apparel Associations Forum (JAAF) of Sri Lanka. JAAF is a union of four apparel associations; (a) Free Trade Zone Manufacturers Association, (b) National Apparel Exporters Association, (c ) Sri Lanka Chamber of Garment Exporters and (d) Sri Lanka Garment Buying Offices Association. Virtually all Sri Lankan apparel manufacturers are members of one of these associations (JAAF, 2002). Hence it is the main body representing the apparel organizations in Sri Lanka. The sample frame used in this research comprised of the list of member companies of JAAF excluding the member companies of the Sri Lanka Garment Buying Offices Association. 12

29 The research was endorsed by both the Joint Apparel Associations Forum and the Sri Lanka Institute of Policy Studies. The questionnaire which was sent to 212 apparel organizations was supported by letters from these two institutions endorsing the research as one of national interest. The response rate was 45.8 % with 97 valid questionnaire responses used for the analysis Analytical Techniques Used Most of the previous research studies on market orientation have made use of multiple regression analysis technique in their respective research methodologies (Jaworski & Kohli, 1993; Pelham & Wilson, 1996; Matsuno, Mentzer and Rentz, 2000; Subramanian and Gopalakrishna, 2001). Though not used widely, another technique adopted by researchers studying market orientation is the structural equation analysis (Raju, Lonial and Guptha, 2000; Kara et al., 2005). However considering the extensive and effective utilization of multiple regression analysis in this field, it was used as the key analytical technique in this study. 1.9 Thesis overview The thesis is organized in to seven chapters. Chapter 1: Introduction This chapter introduces the study and sets the framework for the research. It justifies the need for the research, summarizes the research gaps, establishes the significance of the research, presents the research questions and the conceptual model and provides a description of how the research will be conducted and the findings will be analyzed. Finally, it explains how the thesis is organized into different chapters. Chapter 2: Research Context: The Apparel Industry This chapter provides a general overview of the apparel industry with specific reference to Sri Lanka. It is important to understand the context in 13

30 which the research has been carried out and the relevance of the study. Accordingly, a comprehensive study has been carried out on the global apparel industry, Multi Fibre Agreement (MFA) and its influence on trade, the past and the future of Sri Lankan apparel industry and the implications of the phasing out of MFA. Chapter 3: Literature Review This chapter provides a comprehensive review of the existing market orientation literature. The chapter also highlights the fact that extant literature has not adequately explored the important link between market orientation and relationship management, leading to the observation that relationship emphasis should be viewed as an integral part of market orientation in business to business marketing. Chapter 4: Conceptual Framework and Hypotheses This chapter presents the conceptual framework developed based on the findings of the literature review and critical analysis of the same. It also provides details of the research questions and the hypotheses used in this research. Chapter 5: Research Methodology A detailed discussion of the research paradigm and the methodology used is provided in this chapter. It explains the rationale of selecting the particular method, research tools used, the sampling process, data collection procedures and the techniques used for data analysis. Chapter 6: Analysis of Data and Research Findings This chapter presents the results of the data analysis and discusses the findings. It also explains the procedures adopted at various stages of data analysis. Main components of this chapter are data validation process, factor analysis, correlation analysis and multiple regressions. The results of hypotheses testing are presented in this chapter. 14