Exports to Arab-speaking Countries: Determinants of the Performance of Malaysian Companies

Transcription

1 International Journal of Management Vol. 26 No. 3 December Exports to Arab-speaking Countries: Determinants of the Performance of Malaysian Companies Osman Mohamad Universiti Sains Malaysia, Malaysia Abdel Hafiez Ali Universiti Sains Malaysia, Malaysia T. Ramayah Universiti Sains Malaysia, Malaysia This study examined the impact of relational variables (adaptation, cooperation, communication, trust and commitment) on the performance of Malaysian firms that have tried to export to Arab-speaking nations. The sample consisted of 106 companies exporting to at least one Arab-speaking country at the time of the study. The data was collected via a postal survey using a specially-developed questionnaire completed by a senior manager at each of these companies. After controlling the influence of the organization variables (firm size, export experience, export mode and export destination) the findings show that trust and commitment have significant impact on export performance. The results indicate that advancement in penetrating a particular export market must be based on harmonious working relationship between exporter and importer. Introduction For years, Malaysia s main export destinations have always centered on major markets like the United States of America (USA), ASEAN, Japan, China, Hong Kong and the European Union (EU). However, due to the slow-down in the US economy and the corresponding spillover effects on the Malaysian economy, it became imperative in official circles to diversify the market destinations. In order to increase bilateral trade and as a part of the new strategy and to push its products in the regions, Malaysia currently operates two trade centers in the Arabic speaking countries, one located in Dubai the capital of United Arab Emirates (U.A.E) and the other in Jeddah the most important sea port of Saudi Arabia. Table 1 shows the Malaysian exports to Arabic Speaking nations from 1995 to Background The term Arabic countries denotes all the Middle Eastern and North African Arabic language speaking nations. Arabic speaking nations have approximately 250 million people (living in eighteen countries including Palestine) and all share a dominant religion-islam. These two features of a common language and religion, distinguish these countries from others in the region. There are different ways to classify the Arabic speaking countries. The countries differ in terms of their infrastructure, natural resources, growth rate, population density, etc. Economically, the region can be simply classified into oil and non-oil based economies, as suggested by Elbashier and Nichollas (1983). These countries can also be classified into Gulf and Non-gulf countries based on the similarities of infrastructure, natural resources, growth rate, and population density.

2 466 International Journal of Management Vol. 26 No. 3 December 2009 Arabic speaking nations collectively form an important growing market, with average per capita income of more than US $3,000 (Stanat, 1998). In spite of the political, economic and socio cultural difficulties, market potential attracts foreign firms to the Arab countries. Product characteristics have been highlighted as the major successful factor in exporting to Arab nations. The study by Yavas and Tuncalp (1983) identified some product characteristics that contributed to Japanese success in Saudi Arabia, these being (1) The inclusion of a financial expert in Japanese teams; (2) the perception of the Japanese as direct suppliers; and (3) the willingness of the Japanese to adapt their products to the needs of local market. The study concluded that a successful marketing strategy in Saudi Arabia requires careful research with regard to its demographic, economic, socio-cultural, political-legal, and physical-technological environment as well as the adaptation or innovation of aspects of the marketing mix. Similarly, Yavas, Cavusgil and Tuncalp (1987) found that Japanese products rank first Table 1 Malaysian Exports to Arabian Countries (RM million) Country Total United Arab Emirates 1, , , , , , , , ,386.6 Saudi Arabia , , , , , Kuwait ,830.4 Bahrain Oman Qatar Algeria Iraq Libya Egypt , , , ,045.1 Morocco Sudan Syria ,385.4 Tunisia Yemen ,975.9 Lebanon Jordan ,222.3 Total 4, , , , , , , ,397 50,211.4 Source: Department of Statistics, Malaysia

3 International Journal of Management Vol. 26 No. 3 December in ease of placing order, advertising support, attractive styles and appearance, repair and maintaining services, timely delivery, payment method, and reliability for long-term supply among Arab consumers. In addition, the study also revealed that Saudi consumers perceived Japanese products to be more suitable to consumers needs and that there is little financial risk with Japanese products. Elbashier and Nichollas (1983) investigated the sensitivity of aspects of the marketing mix to cultural differences. Their results showed that the managers recognized the importance of cultural differences but placed more importance on economic and political factors. However, the study revealed that cultural considerations influence advertising and product adaptation, but have no impact on pricing and distribution decisions. The researchers concluded that companies should employ Arabic nationals in order to build business relationships and to reduce the influence of cultural differences. Using Saudi Arabia as an example, Tuncalp (1988) examined the different aspects of export marketing including market research, segmentation and targeting (nationality, life style and geographical aspect), and marketing planning. The study highlighted that fact that successful export marketing to Saudi can be achieved by commitment to strategic planning based on reliable and pertinent information. In addition, understanding market characteristics is necessary for exporters intending to penetrate the Saudi market. Baker and Abou-Ismail (1993), and Tuncalp (1990) pointed out that the United Kingdom s loss of its leading position in the 1960s in the Gulf countries has been partially attributed to the failure of their managers to match competitors marketing skills. The problem areas for British exports to Saudi Arabia include (1) lack of product adaptation (2) out of style of products design (3) inappropriate and unfit packaging ; and (4) erroneous translation of package labels, (5) the use of imperial measurements not the metric system, and (6) the lack of clear distribution objectives, strategy, and commitment to advertising. Leonidou (1995) drew attention to the behavioral aspect of buyer-seller relationship in the Saudi market. His study suggested that behavioral aspects of the buyer-seller relationship are most important in a situation such as the complex Saudi market environment. The importance of relational aspects has its origin in the works of the IMP group. For example, Ford (1984) reported that there a strong association exist between buyer s assessments of the technical and commercial skills of their suppliers and the extent of the suppliers commitment to them, the perceived adaptability of suppliers, their success in reducing the relationship distance and the level of conflict that exist in their businesses. Subsequent studies confirmed the importance of relationship variables (relationship valence, trust, cooperation, relationship commitment, prior guanxi, satisfaction, organizational adaptation and personnel friendship) in influencing export performance (Rosson & Ford, 1982; Styles & Ambler, 1994). The importance of maintaining relationship with foreign distributors has also been established in studies on internationalization and success of firms from developing nations (Katsikeas & Piercy, 1990; Mohamad, 1994; Dominguez & Sequeria, 1993; Christensen et al., 1987). Empirical studies on the experience of foreign firms in the Arab region are limited and

4 468 International Journal of Management Vol. 26 No. 3 December 2009 confined to the experience of firms from advanced industrialized nations. This study attempts to fill that gap. Specifically, this study was carried out to assess the impact of relational variables--of trust, commitment, adaptation, cooperation and communication- -on the export performance of Malaysian exporters to Arab nations. Methodology A mail survey was used to collect the data. The target population was Malaysian manufacturing firms currently exporting to at least one of the Arab countries. The study used purposive sampling. Information about Malaysian companies exporting to these countries was generated from the directory of the Federation of Malaysian Manufacturers (FMM 2002). A total of 398 survey questionnaires were sent to the target respondents. The research instrument contained three parts. The first part related to organizational variables (size, export mode, export experience and export destination). Size was measured through the firm s total turn over and number of employees. For mode of export, the respondents were requested to indicate whether they export directly or through intermediates (indirect). For export destination and experience the respondents were requested to indicate their export market and the number of years the firm engaged in exporting to the market. These organizational variables were used as control variables. The relational variables considered in this study were respectively; trust, commitment, adaptation, cooperation and communication. The items used to measure trust, cooperation, communication and commitment were adopted from Zineldin and Jonsson (2000) whereas the questionnaire items used to measure adaptation were taken from Cannon et al. (2000). Respondents were requested to indicate their views on a seven-point Likert scale, ranging from 1 (strongly disagree) to 4 (neutral) and 7 (strongly agree). A total of 30 items were used to measure the five relationship dimensions. Export performance was measured by three different indicators; strategic objectives, financial performance, and satisfaction with export venture. Questions or items related to strategic performance covered the extent of diversification of the export venture, improvement of knowledge and experience. Financial performance was measured in terms of profitability, sales volume and growth. Satisfaction with the export venture was measured through the extent of achieving satisfactory performance, successful exporting and whether the market met the their expectations. All the questions were measured on a seven-point Likert scale (1= strongly disagree to 7= strongly agree). Results of the Study A total of 106 usable questionnaires were returned which represents an overall response rate of 27.92%. The survey questionnaires were answered by key people in the organizations represented by general managers (41%), followed by 28.3% (senior managers) and 25.5% (sales office/administration) whilst the remaining 4.7% identified themselves as export managers.

5 International Journal of Management Vol. 26 No. 3 December Table 2 presents the characteristics of the responding firms. 61 percent of them started exporting to these markets between 3-7 years ago; and another 31.2 percent indicated that they have been in these markets between 8 to 12 years. In term of size measured in sales volume approximately 61.2 percent of the responding firms recorded sales volumes above RM25 Million and may be classified as large-sized. In term the number of employees, 66 percent of the respondents may be classified as large-sized firms. The remaining 34 percent are small and medium sized firms as they employ less than 150 employees. As regards to entry mode, approximately 70 percent of the responding firms said that export directly to their customers in importing countries, with the remaining 32.1 percent saying they entered the market using indirect channels. Most of the participating firms are from food/agriculture and electronic industries representing 37.8 percent of the total of responding firms. The Mining, Mineral, Plastic and Chemical sector accounted for 13.2 percent. The 26.4 percent of the responding firms classified under others are firms from sectors such as transportation products, building products, wood paper and printing, textile garments and leather, and petrochemical products. Table 2 Characteristics of the sample Variables Categories Frequency % Export Age 3-7 years 8-12 years years years Above 23 years Sales Volume 1-10 RM Million RM Million RM Million Above 25 RM Million Number of Employees employees employees employees Above 150 employees Export Mode (Channel) Direct exporters Indirect exporters Manufacturing Sector Food & Agriculture Mining Mineral, Plastics, & Chemicals Rubber products Metal Products & Machinery Electrical and Electronic others

6 470 International Journal of Management Vol. 26 No. 3 December 2009 Table 3 shows the direction of exports. It appears that there is an obvious concentration in one particular market, with 75 percent of the responding firms identifying Gulf countries as their main market. The majority of the respondents are exporting to Saudi Arabia and the United Arab Emirates. Exporters to Non-gulf countries are thinly spread over the 11 countries listed in the table. A common first step in assessing the goodness of measures is to conduct a factor analysis. Table 4 shows the results of the factor analysis of the relational variables trust, commitment, adaptation, cooperation and communication. Using a varimax rotation of the five relational variables, and deleting cross loadings the results confirm that original five variables are distinct and separate from each other. A high reliability alpha was achieved for most of the measures of the variables. For export performance a single factor was extracted for the three items with a reliability Cronbach alpha of Table 5 shows the results of the regression equation testing the influence of the control variables and relational variables on export performance. In step 1, none of the control variables had a significant influence on export performance. The control variables explained 3% of the variance in export performance. In step 2, the relational variables cumulatively contributed an additional 25% to the variance in export performance. The results showed that trust and commitment significantly influence export performance (β =.19 and.35 respectively). The results did not indicate any positive relationships between adaptation, cooperation and communication and export performance. Table 3 Malaysian Firms Export Destinations in the Arabic countries Groups Gulf countries Non Gulf countries Country Number of Exporters % Group percentage Saudi Arabia U.A.E Qatar Bahrain Oman Kuwait % Algeria 1.9 Iraq 1.9 Libya Sudan Syria Egypt Morocco 1.9 Tunisia Yemen Jordan Lebanon %

7 International Journal of Management Vol. 26 No. 3 December Table 4 Factor analysis and reliability for Relational variables We can always trust this customer.827 Customer has high integrity.809 Customer keeps his promises.805 When customers make important decision they also consider our interests Customer is always honest with us.863 High level of trust had been developed between the personnel in our company and this customer.518 There is no reason for us to be suspicious about this customer.756 Strong commitment to this customer.716 Intention to maintain and develop our relationship.725 Relationship requires maximum efforts and involvement.762 Company is fully open and honest in the relationship with this customer Customer spends significant energy in developing our relationship Willing to customize our products.622 Willing to adjust our production process to meet the requirement Willing to change our inventory procedures to meet the requirement Willing to adjust our distribution/delivery procedure to meet the requirement Company future goals are best achieved by working Future profits depends on maintaining a good working relationship Keep customer well informed.856 Make it a duty to keep each other well informed Customer frequently visit our place of business.842 Customer spends a lot of time to get to know our management personnel.842 Customer frequently discusses new possibilities with us.832 Customer gives us opportunities to participate in his goal setting.866 % of Variance Explained Eigenvalues Reliability Mean value

8 472 International Journal of Management Vol. 26 No. 3 December 2009 Discussion of results This paper examined the impact of the specific organization and relational variables on the performance of Malaysian exporters to Arabic nations. The empirical findings suggest that developing high trust and commitment are more important for achieving high financial performance. This result is consistent with previous research which reported positive relationship between trust and sales growth (Ambler et al., 1999; Sin et al., 2002). Likewise, the positive influence of commitment on financial performance was supported; this is also consistent with previous research (Ambler et al., 1999). It is true that committed partners invest more in developing the exporter-importer relationship; perform at a higher level and are more resistant to opportunistic behavior (Geyskens, Steenkamp, Scheer & Kumar, 1996). In general, these results suggest that the development of effective relational commitments between exporters and their customers had a positive impact on financial performance. It is crucial for Malaysian exports to take account of these relational variables of trust and commitment when exporting to Arab markets, as these countries have cultures that are concerned with friendships, human relations and trust. To earn their customer s trust, exporters should communicate effectively, adopt customers relationship norms, practice honesty and do what is necessary to avoid getting a negative reputation (Morgan & Hunt, 1994; Adamson et al., 2003). Eventually, trust will be developed once the customer has Table 5 Multiple Regressions: Control Variables, Relational Variables, and Export Performance Variables Financial Performance Control variables Model 1 Model 2 No. of employees Sale volume Export experience Entry mode Export destination Adaptation.04 Cooperation.05 Communication -.12 Trust.19+ Commitment.35** R² Adjusted R² R² F change *** ***p<0.001; **p<0.01; +p<0.10

9 International Journal of Management Vol. 26 No. 3 December confidence in the exporters reliability and integrity. It is also important to the Arabic speaking businessmen that their exchange partners exhibit strong commitment or an enduring desire to maintain a valued relationship (Anderson et al., 2003: 348) Thus, it is advisable for Malaysian exporters to work harder at presenting themselves as serious, dependable and committed marketers who have their customers best interests in mind. The role of cooperation should not be neglected either. Any conflicts or disagreements should be solved amicably without jeopardizing the state of the relationship. Exporters must be able to visualize the future business opportunities and benefits that can potentially arise from good cooperation with their foreign customers in these countries. This study investigated the performance of Malaysian exporters to specific markets in the Arab-speaking world; export markets that are relatively new for Malaysian exporters. The study revealed that organizational variables did not explain export performance. A previous study by Katsikeas, Piercy and Ioannidis (1996) found that there is no relationship between firm size and export performance. The findings of this study support this finding insofar as firms of different size have an equal chance of being successful in the export venture (Kammath et al., 1987; Ford & Leonidou, 1991). References Adamson, I., Chan, K., & Handford, D. (2003). Relationship marketing: customer commitment and trust as a strategy for the smaller Hong Kong corporate banking sector. International Journal of Bank Marketing, 21(6), Ambler, T., Styles, C., & Xiucun, W. (1999). The effect of channel relationships and guanxi on the performance of inter-province export ventures in the People s Republic of china. International Journal of Research in Marketing. 1(16) Anderson C. J., & Narus A. J. (1990). A Model of distributor firm and manufacturer firm working partnerships. Journal of Marketing, 54(1) Baker M. J., & Abou-Ismail F. (1993). Organizational buying behavior in the Gulf. International Marketing Review, 10(1), Bonaccorsi, A. (1992). On the relationship between firm size and export intensity. Journal of International Business Studies, 23(4) Cannon, P. J., Ravi, A. S., & Gundlach, T. G. (2000). Contracts, norms, and plural form governance. Journal of Academy of Marketing Sciences, 25(2), Christensen, C. H., da Rocha, A. & Gertner, R. K. (1987). An Empirical Investigation of the Factors Influencing Exporting Success of Brazilian Firms. Journal of International Business Studies. 18(3), Dominguez, L. V. & Sequeria G. C. (1993). Determinants of LDC exporters performance: A cross national study. Journal of International Business Studies, 24(1), Elbashier, M. A., & Nichollas I. R. (1983). Export marketing in the Middle East: The importance of cultural differences. European Journal of Marketing, 17(1), FMM Directory (2002). Federation of Malaysian Manufacturers, 33 rd Edition.

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