Effect of Export Market Orientation on Organizational Innovation: A Structural Equation Model Analysis

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1 Australian Journal of Basic and Applied Sciences, 7(6): , 203 ISSN Effect of Export Orientation on : A Structural Equation Model Analysis Mousa Rahil Mostafa, Ng Kim-Soon and 2 Huam Hon Tat Faculty of Technology Management and Business, Universiti Tun Hussein Onn Malaysia, Batu Pahat, Johor. 2 School of Business and Management, Faculty of Business, Management and Social Sciences, Quest International University Perak Abstract: This study empirically examines the relationships of export market orientation and organizational innovation of manufacturing firms. A total 223 marketing managers from manufacturing firms exporting to Arab countries responded to this study. The questionnaire was formulated to tap into marketing manager s strategy and innovativeness on exporting to Arab countries. Structural Equation Modeling (SEM) was used to analyze the data and interpret the effect amongst the latent variables. The hypothesized model was supported (p<0.05). The generated model finds direct path between export market orientation and organizational innovation. The re-specified model also shows significant direct path between export market orientation to organizational innovation. Key words: export, market orientation, organizational innovation, marketing strategy INTRODUCTION It is commonly accepted in modern age that innovation can be brought forward by the process of knowledge creation and application. The entire business sector, including science sector, management sector, and manufacturing sector are highly influenced by the concept of innovation systems and links. Research interest on market orientation has been growing aggressively. Empirical evidence placed high regard and importance to market orientation for better economic and commercial results (Mahmoud, 200). is an important strategy that provides better mechanism when it is aligned with better market conditions. is considered as a central mechanism for strategic changes and growth by changing external and internal conditions of the organization (Vincent, 2005). In recent years, there has been an increased focus on the relationship between market orientation and new product innovation and performance. Studies of this issue have generally demonstrated that market orientation has a positive impact on new product performance (Baker & Sinkula, 2002; Kirca, Jayachandran, & Bearden, 2005). Organization usually faces three types of problems to respond to the innovation gaps (Weiss & Legrand, 20). These are: Lack of a common understanding of what innovation is, how it happens, and what prevents it. Lack of innovative leaders Lack of enabling organizational practices and cultures to reinforce innovation. The relationship between two variables i.e. exports market orientation and organizational innovation has been tested by many researchers. information collection and treatment is a major function of an innovational organization (Gupta, Raj, & Wilemon, 986). Successful innovation is a combination of market innovation culture and enterprise value (Slater, 997). The difference between innovation enterprises and companies with little achievement is due to the degree of emphasis of market orientation (Lukas & Ferrell, 2000). 2.0 Literature Review: orientation theory is idealistic because many researches demonstrate the importance of market orientation for long term profitability and success (Gotthelf, 2005). Scholars in management and marketing literature support the interrelationship among market orientation and organizational innovativeness. 2. Export Orientation: orientation is found to be very important for the manufacturing organizations as with increase in global competition and changes in consumer needs companies have to realize that they must remain very close to their market and should maintain strong relation with their customers. For an effective market orientation in Corresponding Author: Mousa Rahil Mostafa, Faculty of Technology Management and Business, Universiti Tun Hussein Onn Malaysia, Batu Pahat, Johor. m_ @hotmail.com 37

2 Aust. J. Basic & Appl. Sci., 7(6): , 203 the manufacturing organization, the product innovation, service quality, organizational innovation and knowledge generation is very important (Lado & Maydeu-Olivares, 200). 2.2 : A manager needs to develop a clear innovation strategy which have effect not only innovations in products, but also in processes, strategies and markets. An appropriate innovation strategy could make an attempt to improve internal performance indicators (e.g., employee quality and training), external performance indicators (customer loyalty and satisfaction) and the business result (e.g. sales and profit). That is why managers should include innovation in their strategic plans, which establish clear objectives for achieving success (Küster & Vila, 20). 3.0 Methodology: Based on the theory of market orientation and organizational theory, consisting on exogenous variable, export market orientation with its dimensions (Intelligence generation, intelligence dissemination, Responsiveness, Coordination mechanism) were hypothesized to have direct influence with endogenous variable organizational innovation. The structure equation modeling (SEM) approach is used in the data analysis. The hypothesis of the study is summarized below: e7 ID7 e6 ID6 e5 ID5 e RP e0 RP0 e9 RP9 e8 RP8 Intelligence Dissemination Responsiveness e IG e2 IG2 e3 IG3 Intelligence Generation Export Orientation Coordinating Mechanism e4 IG4 e6 TI e7 TI2 Technical Radical e8 TI3 Administrative IAI4 AI5 AI6 AI7 MI8 MI9 MI0 MI MI2 e9 e20 e2 e22 e23 e24 e25 e26 e27 CM5 CM4 CM3 CM2 e5 e4 e3 e2 R5 e30 RI4 e29 RI3 e28 Fig. : Hypothesized Model of constructs. 3. Hypothesis of the Study: Table : Hypothesis of the study. H Export market orientation is significantly and positively related to organizational innovation Ha Intelligence generation is able to explain positively export market orientation Hb Intelligence dissemination is able to explain positively export market orientation Hc Responsiveness is able to explain positively export market orientation Hd Coordinating mechanisms is able to explain positively export market orientation H2 innovation is an significant endogenous factor for manufacturing organization H2a Technical innovation is able to explain positively organizational innovation H2b Administrative innovation is able to explain positively organizational innovation H2c innovation is able to explain positively organizational innovation H2d Radical innovation is able to explain positively organizational innovation 3.2 Sample and Sampling: Managers working in manufacturing organizations listed in Bursa Malaysia and engaged in exporting to Arab countries were the main respondents. A total of 280 managers from different companies were requested to complete the questionnaire that contained measures of concern. A total of 235 duly completed questionnaires were returned. This gives a response rate of 83.92% which was adequate for the study through SEM analysis. After deletion of outliers, in total 223 questionnaires were finally used for analysis. 372

3 Aust. J. Basic & Appl. Sci., 7(6): , Instrument: A total of 30 observed items made of measurement of exogenous (export market orientation) and endogenous variables (organizational innovation) were adopted and modified from that used by Cadogan, Diamantopoulos & De Mortanges (999) and Tsai, Chuang & Hsieh (2008). Likert scale of 5 point was used as scaling in this research with strongly disagree, 2 disagree, 3 neutral, 4 agree, 5 - strongly agree. Along with descriptive statistics, some demographic variables like countries exported in Arab market, number of years exporting to Arab market, were also included. 3.4 Data Screening: Data screening processes include detecting outliers, reliability, normality test, and validity process were implemented in the raw data using statistical software SPSS 4.0. A total of 235 raw data were coded into SPSS version 4.0 and were analyzed using AMOS version Hypothesis Results: The hypothesized model shows support of model fit (p<0.05). From the dimensions of organizational innovation, it was noticed that market innovation is not having any impact in explaining organizational innovation. Due to this, the confirmatory model fit was affected. Thus modification indices (MI) were used in this dimension in the re-specified model. However, it was not insufficient to explain the antecedent variable. This dimension was then deleted as it was influencing the model fit. After the removal of market innovation dimension from organizational innovation endogenous variable, the re-specified model indicated model fit and goodness fit structure with (cmin/df<3.0, CFI > 0.90, rmsea <0.05). The R 2 of hypothesized model on relationship between export market orientation and organizational innovation shows a high value of 75%. It was also found that export market orientation gives an influence of 86% on organizational innovation. 4.0 Results: 4. Demographic Profile: The data from Table 2 shows that the companies that have responded to the survey were from a total of Arab countries. The profile of countries involved in this study indicated that most of the Malaysian manufacturing products exported to United Arab Emirates (UAE) 54.3%. This is followed by Saudi Arabia 29.6% and Quarter 4.5%. Table 2: Number of samples that has been collected in Arab. Demographics Frequency Percentage Arab Countries United Arab Emirates Saudi Arabia Qatar Bahrain Tunisia Kuwait Oman Jordan Morocco Algeria 0.4 Lebanon Egypt 3.3 Total Descriptive Analysis of Variables: The research framework consists of one exogenous variable (export market orientation) with four dimensions and one endogenous variable with four dimensions (Table 3). Each construct and dimension shows Cronbach alpha of acceptable values of above 0.60 (Nunnally). To satisfy the assumption of normality of the data, the test of normality namely kurtosis and skewness were performed. The normality test of dimensions of Export market orientation and organizational innovation was performed. The rule of thumb for the normality test as suggested by (Klein, 998) was that if the skewness is lower than 3.00 and kurtosis is lower than 0.00, the data is not normally distributed. Table 3 provides the value of skewness between and 0.39, and the value of kurtosis was between 0.8 and 3.7 respectively. Based on the results of skewness and kurtosis test, it indicated that the data of the study is within the acceptable level of normality assumptions. 373

4 Aust. J. Basic & Appl. Sci., 7(6): , Reliability Test on Actual Data: The 223 data collected were analyzed using SPSS version 4. Cronbach s alpha was used to ascertain the reliability of the data collected and correlations between the Export market orientation and organizational innovation and its dimensions. Table 3: Mean, Standard Deviation, Skewness and Kurtosis of the Measures. Variables Mean Std. deviation Skewness Kurtosis Intelligence Generation Intelligence dissemination Responsiveness Coordinating Mechanisms Technical Administrative Radical The analyses show that all measures exhibited high reliabilities with Cronbach s alpha ranging from 08 to 0.898, higher than the acceptable level of 0.6 (Hair, Money, Samouel, & Page, 2007). Overall, the measurements performed well and all measurements are considered reliable and valid for hypothesis testing in the main study. The results of the reliability test are shown in Table 4. Table 4: Reliability test of the variables. Variable Name of Dimensions Independent Export variable Orientation Dependent variable Dimension Items Cronbach's Alpha Intelligence Generation Code Preference MOIG - MOIG Intelligence dissemination MOID5 - MOID Responsiveness MORP8-MORP Coordinating Mechanisms MOCM2-MOCM Technical IOTI-IOTI Administrative IOAI4-IOAI Radical IORI3- IOR Exploratory Factor Analysis: For each of the item, scale factor analysis was used to reduce the total number of items to a smaller number of underlying factors. Principal Component analysis was used to extract factors (Eigen value > ). Varimax rotation was used to facilitate the interpretation of the factor matrix. The Barlett s Test of Sphericity and the Kaiser Meyer Olkin measures of sampling were used to validate the result of analysis. 4.5 Generated Model of Constructs: Generated model in Figure 2 shows the result of the hypothesized model without any changes in the modification indices. The standardized estimated is not considered to be fit as the criteria for the model fit is not up to the level. Thus, through a re-specified model is done to further evaluate to achieve fitness. Figure 3 confirmed the constructs of export market orientation and organizational innovation in the hypothesized paths. Factor analysis and hypotheses were tested in the same analysis. The SEM techniques used also provide full information about the extent to which the research model is supported. 374

5 Aust. J. Basic & Appl. Sci., 7(6): , 203 Table 5: Exploratory factor analysis of the variables. Items Loading Intelligence Generation We are fast to detect changes in our overseas customer's product preferences 05 We are able to detect fundamental shifts in our export environment 08 We generate a lot of information in order to understand the forces which influence our overseas customer's needs and preferences We generate lot of information concerning trends in our export markets Intelligence dissemination We have inter-functional meetings at least once a quarter to discuss trends and developments 05 ing personnel in our company spend time discussing export customer's future needs 05 Export sales personnel rarely shares their experiences of dealing with customers with other 03 Responsiveness We take corrective action immediately when found customer unhappy with the quality All departments are involved in implementing out export market strategies We give close attention to after sales service in our export market Our export business objective is driven by customer satisfaction 07 Coordinating Mechanisms The activities of our business functions are integrated in pursuing common goal In our company there is mutually satisfying agreements when conflicts occurs 02 In the firm our business functions are integrated in serving the needs of our export markets In this company export staff shares program and resources with other business functions Technical Famous in product innovation increases profitability Awards for product innovation increases profitability New ideas for product increase innovation diversity Administrative Teamwork creates imagine and freedom of speech Flexible thinking leads to increase administrative innovation Widely application of new method or technology increases administrative innovation Specialization or uniqueness increase administrative innovation Radical Our company frequently introduces products that are radically different from existing products Compared to your major competitor, our company introduced more radical product innovations in the last three years. We introduced innovation that brings in substantial transformation in demand patterns in the market e23 IG e22 IG e2 IG e20 IG.4 e26 ID7 e25 ID6.39 e24 ID5 e30 RP e29 RP0.39 e28 RP9.4 e27 RP8.4 e34 CM5.45 e33 CM4.4 e32 CM3.43 e3 CM2 e39 MOIG e40 MOID e4.78 MORP e42 MOCM Orientation.86 r0.75 Standardized estimates cmin : df :395 cmindf :.408 cfi :.947 rmsea : e TI IOTI TI2 TI3 e IOAI.84 IAI4.70 AI5.70 AI6.58 AI7.57 e37 MI MI IOMI.8 MI MI.44 MI2 e38.79 RI IORI RI4 R5 e e2 e3 e4 e5 e6 e7 e8 e9 e0 e.53 e2 e3 e4 e5 Fig. 2: Generated Model of constructs. 4.6 Discussion: This study empirically examines the relationships between export market orientation and organizational innovation in the manufacturing firms of Malaysia exporting to Arab countries. In the present study, the direct and indirect effect in the relationship between export market orientation and organizational innovation was measured by the application of path analysis technique. Path analysis is a subset of SEM (Hair et al., 2007), the multivariate procedure that allows examination of a set of relationships between 375

6 Aust. J. Basic & Appl. Sci., 7(6): , 203 one or more independent variables, either continuous or discrete, and one or more dependent variables, either continuous or discrete (Tabachnick & Fidell, 2007)..22 e23 IG e22 IG e2 IG e20 IG.4 e26 ID7 e25 ID6.39 e24 ID5 e30 RP e29 RP0.39 e28 RP9.4 e27 RP8.4 e34 CM5.45 e33 CM4.4 e32 CM3.43 e3 CM2 e39 MOIG e40 MOID e4.78 MORP e42 MOCM Orientation.86 r0.75 Standardized estimates cmin : df :267 cmindf :.36 cfi :.957 rmsea : e TI IOTI TI2 TI3 e36.82 IAI IOAI.84 AI5.70 AI6.58 e38 AI7.79 RI IORI RI4 R5 e e2 e3 e4 e5 e6 e7 e3 e4 e5 Fig. 3: Re-specified model of constructs. The R 2 of re-specified model on organizational innovation shows a high value of 86.4% respectively (See Table 6). Hence the result indicates that exogenous variable (Export market orientation) explained the variance of organizational innovation of above 75%. This study finds that there is direct influence of export market orientation on organizational innovation. Table 6: Direct impact of Re-specified model: Standard Regression weights. H Relationships between exogenous and Endogenous Std. Estimate H Export market orientation Ha Intelligence generation Export market orientation 0.87 Hb Intelligence dissemination Export market orientation 05 Hc Responsiveness Export market orientation Hd Coordination mechanism Export market orientation 09 H2a Technical H2b Administrative 02 H2c NA H2d Radical Conclusion: This research investigates the direct impact of export market orientation on organizational innovation in the manufacturing firms of Malaysia exporting to Arab countries. The generated model found significant direct paths between dimensions of export market orientation towards export market orientation with one of the dimension of organizational innovation i.e. market innovation not having impact on organizational innovation. Thus, in re-specified model, market innovation dimension of organizational innovation was excluded and was found model fit. The main finding of this study has been the documentation of the stages and methods employed for the implementation of successful marketing strategies. The theories of market orientation outlined have been found to be valid for past years. The elements of (Kohli & Jaworski, 990) model were also found to be applicable in defining the implementation of marketing strategies. REFERENCES Baker, W.E., J.M. Sinkula, orientation, learning orientation and product innovation: Delving into the organization's black box. Journal of -Focused Management, 5(): Cadogan, J.W., A. Diamantopoulos, C.P. De Mortanges, 999. A measure of export market orientation: scale development and cross-cultural validation. Journal of International Business Studies,

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