Market Orientation in the Transition Economies of Central Europe: Orientation Scales

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Market Orientation in the Transition

Economies of Central Europe:

Tests of the Narver and Slater Market

Orientation Scales

Graham Hooley

A

STON

B

USINESS

S

CHOOL

Tony Cox

A

STON

B

USINESS

S

CHOOL

John Fahy

U

NIVERSITY OF

L

IMERICK

David Shipley

T

RINITY

C

OLLEGE

Jo´zsef Beracs

B

UDAPEST

U

NIVERSITY OF

E

CONOMIC

S

CIENCES

Krzysztof Fonfara

P

OZNAN

U

NIVERSITY OF

E

CONOMICS

Boris Snoj

U

NIVERSITY OF

M

ARIBOR

The Narver and Slater (Narver, J.C., and Slater, S.F.: The Effect of

Marketing Orientation on Business Profitability.

Journal of Marketing

54 (1990): 20–35.) market orientation scale is tested in the context of the transition economies of central Europe and found to be both valid and reliable. Relationships between market orientation and both marketing strategy and performance broadly follow predictions from the Western literature indicating that the adoption of a market orientation is equally applicable in transition as in Western economies. A number of different approaches, however, are evident in the transition economies suggesting that other business orientations may coexist with a market orientation creating a richer and more complex set or organizational drivers.

J BUSN

RES

2000. 50.273–285.

2000 Elsevier Science Inc. All rights reserved.

T here has been a great deal of recent research in the area of market orientation following the seminal works of Narver and Slater (1990) and Kohli and Jaworski

Address correspondence to Professor Graham Hooley, Aston Business School,

Aston University, Birmingham B4 7ET, United Kingdom.

Journal of Business Research 50, 273–285 (2000)

 2000 Elsevier Science Inc.

All rights reserved.

655 Avenue of the Americas, New York, NY 10010

(1990). Researchers such as Hart and Diamantopoulos (1993),

Cadogan and Diamantopoulos (1995), Greenley (1995a,

1995b), Siguaw and Diamantopoulos (1995), and Gray, Matear, and Matheson (1998) have tested, developed, and refined the early market orientation scales to create useful tools for measuring the degree of market orientation Western firms exhibit. To date, however, there has been relatively little research into the extent of market orientation in developing economies in general and the transition economies of central

Europe in particular. The question remains whether the construct is equally applicable in such different and turbulent environments.

Gray, Matear, and Matheson (1998) summarize the findings of recent market orientation studies, concluding that only a small number have investigated the moderating effects of environmental variables on the relationship between market orientation and performance. Those that have searched for such moderators, however, generally have found them. Researchers in the United States and other developed economies have found that the relationship between market orientation and performance is stronger in cases of high market and technological turbulence (Slater and Narver, 1994; Greenley,

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1995b; Doyle and Wong, 1996; Cadogan, Diamantopoulos, and Siguaw, 1998). The explanation appears to be that in more turbulent markets managers need to be more sensitive to market changes (Gray, Matear, and Matheson, 1998).

The transition economies of central Europe exhibit a high degree of environmental turbulence. Three macroeconomic indicators in particular point to the turbulence of the economies of the region: fluctuating growth rates, rising unemployment, and high levels of inflation.

The first factor has been the large, and relatively difficult to predict, swings in economic performance and growth rates.

In Hungary, for example, the decline in GDP of 11.9% in

1991 was halted by 1993 and reached an annual growth rate of 1.3% by 1996. In Poland, decline of 11.6% in GDP in

1990 was converted to strong growth of approximately 7% per annum (pa) by 1995. Slovenian GDP decline peaked at

8.9% in 1991 and by 1996 was showing an annual growth of 3.1%. Future predictions remain, however, subject to wide margins of error. A second factor has been the significant rise in unemployment rates, a phenomena not known (or at least not officially acknowledged) during the period of central planning. In Hungary unemployment rose from 2% of the workforce in 1990 to 10% in 1996, whereas in Poland the rise over the same period was from 6% to 11% (with a peak of

16% in 1993–94). In Slovenia, unemployment rose from 5% in 1990 to 14% in 1996. The rapid rise of unemployment has created a great deal of insecurity that has translated itself to the marketplace. The third factor is inflation. The economic shock measures taken in 1989–90 in Poland and Slovenia resulted in exceptionally high rates of inflation in those years

(590% in Poland and 550% in Slovenia). Although never reaching such levels since, inflation continues to be a significant factor in all economies of the region. In Hungary, annual inflation peaked at 35%pa in 1991 but has stabilized at approximately 20%pa since. In Poland, the annual rate was brought down to 19% in 1996 and in Slovenia to 9% in 1996.

Despite the success in reducing inflation levels, they remain significantly higher that in many Western, developed economies (see Business Central Europe, 1998).

Hooley et al. (1998) have discussed the microeconomic, or industry specific environment facing firms in the region.

This is characterized by increasingly price sensitive customers

(directly related to the economic and employment pressures noted above) demanding better quality products and services.

Because of the deregulation of markets and the encouragement of inward investment (especially in Hungary and Poland), customer choice is increasing, and new market segments are beginning to emerge; new products are coming to market more rapidly, and new technologies are being introduced. All these factors lead to markets experiencing rapid, and often unpredictable, change. In short, highly turbulent markets resulted. Under such circumstances, the relationship between market orientation and performance might be expected to be strong.

If market orientation is a reliable and valid construct, it should be applicable in environments and economies other those in which it originally was developed and tested. Testing and extension of the construct to date has largely occurred in similar, Western developed economies. This study set out to investigate the reliability and validity of the market orientation construct in the very different economic and business environments of central Europe. Specifically content validity was assessed through the use of in-depth interviews with managers, nomological validity was assessed through the ability of the market orientation construct to perform as predicted by marketing theory with relation to other strategy constructs, including performance, and internal reliability and consistency of the scale was assessed through the use of split-half testing by using Cronbach’s coefficient alpha (see Malhotra, 1996).

Theoretical Background and

Research Propositions

Building on earlier theoretical and empirical work (e.g., Houston, 1986; Shapiro, 1988; Day and Wensley, 1988; Deshpande and Webster, 1989), two significant approaches to measuring market orientation emerged in the early 1990s. Kohli and

Jaworski (1990) conceptualized market orientation as the acquisition of, dissemination of, and organization-wide responsiveness to, market intelligence. Their approach was further refined in Kohli, Jaworski, and Kumar (1993) and Jaworski and Kohli (1993, 1996). In parallel, Narver and Slater (1990) and Slater and Narver (1994, 1995, 1996) developed market orientation as a unidimensional construct (a single scale) with three underlying behavioral components (customer orientation, competitor orientation, and interfunctional coordination).

Both the Kohli and Jaworski’s and Narver and Slater’s approaches have been tested and refined in the literature (see, e.g., Hart and Diamantopoulos, 1993; Deng and Dart, 1994;

Siguaw and Diamantopoulos, 1995; Greenley, 1995b). The

Narver and Slater (1990) scale, in particular, is both conceptually and operationally appealing because it encapsulates the main aspects of the Kohli and Jaworski intelligence gathering, dissemination, and responsiveness constructs while at the same time assessing cultural factors (see Deshpande, Farley, and Webster, 1993; Hunt and Morgan, 1995). In addition,

Wrenn (1997) has pointed out that the Kohli and Jaworski

(1990) construct more accurately reflects marketing orientation (the implementation of the marketing concept) than market orientation (a concern with both customers and competitors). Below, we term the Narver and Slater scale “MO” for brevity.

The substantive issue for this research was to assess both the reliability and the validity of the MO construct in the turbulent economies of central Europe. If the scale is to be adopted as a measure of MO in environments other than those

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275 in which it was developed, it must be demonstrated to be both valid and reliable.

Validity concerns the ability of a construct to measure what it purports to measure (Malhotra, 1996) and can be tested in a number of ways. Most basic is content validity, assessing the extent to which it appears to contain all relevant aspects of the phenomenon under study. Assessing content validity perhaps is best approached through qualitative research and probing and exploring meaning and comprehension. Nomological validity concerns the relationship between the construct and other theoretically related constructs. Essentially the issue is “does the construct behave as predicted by theory with regard to other phenomena?” Reliability is the extent to which a measurement is replicable (Malhotra, 1996). Internal reliability can be tested through split half analysis by using

Cronbach’s alpha coefficient of reliability.

To test the nomological validity of the construct in central

Europe, we developed a number of propositions from the

Western marketing literature concerning the theoretically expected behavior of the construct with relation to other marketing and strategy constructs. First, the links between market orientation and marketing strategies pursued were addressed.

Hunt and Morgan (1995), for example, suggest that market orientation is likely to guide the choice of marketing strategy.

The recent strategy literature (see, for example, Kotler, Fahey, and Jatusripitak, 1985; Doyle, Saunders, and Wong, 1986;

Doyle and Hooley, 1992; Doyle, Saunders, and Wong, 1992;

Porter, 1996; Doyle, 1998) has drawn attention to the shortterm, financial orientation of many firms in the West compared with the longer term, market domination goals of many Southeast Asian firms (though recent economic problems in Southeast Asia may lead to a reevaluation of these perspectives).

Doyle and Hooley (1992) report greater emphasis on longterm market position building rather than short-term financial returns by market oriented firms. Wong and Saunders (1993) report an emphasis on competitive aggression amongst more market-oriented firms. Davidson (1997) also suggests that more market-oriented firms will exhibit a greater degree of aggression in their markets. Similarly, a growing number of researchers (e.g., Abrahams, 1996; Doyle, 1995; Porter, 1996) have expressed concerns that excessive internal focus on efficiency (doing things right and at minimum cost) may be at the expense of an external perspective on effectiveness (doing the right things in the first place). These lead to the first proposition designed to test nomological validity:

P1: Firms exhibiting a higher degree of market orientation will exhibit more aggressive, externally focused, longterm strategic priorities than less market-oriented firms.

The next set of issues of interest center around the implementation of the marketing strategy. Following Webster’s

(Webster, 1992) conceptualization of three levels of marketing

(orientation or culture, strategy definition, and operational implementation), the issues of strategy definition were addressed through examination of competitive positioning choices. With regard to targeting, firms are faced with a number of options along a targeting continuum. At one end of the continuum, firms might attempt to market their offerings across the whole, mass market. In undifferentiated and unsegmented markets, such as commodity markets, this approach may make good strategic sense because it maximizes the potential market for the offerings (Porter, 1985). The other end of the spectrum, typically adopted by firms operating in highly fragmented markets, is to target individual customers. Firms operating in high value markets where individual customers represent high potential returns (such as accountants working with valuable corporate clients) know they need to tailor their products and services closely to the needs of these individual customers. Recent developments in one-to-one and direct marketing (see Peppers and Rogers, 1994) recognize that many markets are moving in this direction (see Payne, Clark, and

Peck, 1995). Between these two extremes, however, lie most current markets and marketing where customers can be usefully grouped to form relatively homogeneous market segments and marketing efforts focused or targeted accordingly

(Brown, 1993; McDonald and Dunbar, 1995; Hooley, Saunders, and Piercy, 1998). A high degree of MO implies a greater level of understanding of, and responsiveness to, the specific needs of customers and therefore is likely to be associated with a more focused, or targeted, marketing approach. The second proposition can be stated:

P2: Firms exhibiting a higher degree of market orientation are likely to pursue more focused and targeted approaches in their marketing than less market-oriented firms.

A further pillar of current strategic thinking is the need to create and exploit competitive advantage. Early theories of competitive advantage (see Porter, 1980, 1985) stressed product differentiation or cost leadership as means of creating competitive advantage. More recent theories stress the importance of service provision, even in predominantly productbased markets (see, e.g., Levitt, 1986; Peters, 1986; Berry and Parasuraman, 1991; Gro¨nroos, 1994; Morgan and Hunt,

1994; Zielke and Pohl, 1996). Thus, whereas physical product quality might be at parity with competitor offerings, differentiation and advantage might be achieved through superior service or lower prices. The competitor orientation component of the MO construct would suggest that more market-oriented firms will seek to differentiate their offerings from competitors.

This leads to the third proposition:

P3: Firms exhibiting a higher degree of market orientation are more likely to seek to differentiate their offerings from those of competitors (through product quality differences, service provision, or pricing) than their less market-oriented counterparts.

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Finally, our interest turns to the links between market orientation and performance. A high degree of consensus has now emerged in the literature concerning the links between market orientation and firm performance. The marketing literature (see, e.g., Kohli and Jaworski, 1990; Narver and Slater,

1990; Ruekert, 1992; Hart and Diamantopoulos, 1993; Jaworski and Kohli, 1993; Hooley and Lynch, 1994; Slater and

Narver, 1994, 1996; Doyle and Wong, 1996; Pelham and

Wilson, 1996; Avlonitis and Gounaris, 1997; Cadogan, Diamantopoulos, and Siguaw, 1998; Gray, Matear, Matheson,

1998) suggests that more market-oriented firms outperform their less market-oriented competitors.

Scholars from other research traditions, however, such as the resource based view of the firm, dispute this (see Grant,

1991, 1995) suggesting that sustainable superior performance comes primarily through an internal focus on capabilities and resources rather than an external focus on customers. Day

(1994) has attempted to reconcile these two opposing views by pointing out that resources only assume value in creating sustainable competitive advantage if they are deployed to create something of value to customers.

It also has been suggested (Day and Wensley, 1988) that a competitive environment could moderate the effects of market orientation on performance and that market orientation may only be necessary for superior performance in some environments (see discussion above). Given the highly turbulent nature of the market environment in central Europe, the final proposition is:

P4: Firms exhibiting a higher degree of market orientation will outperform their less market-oriented counterparts.

The above propositions, developed from the Western marketing literature are designed to test the nomological validity of the market orientation construct as measured using the

Narver and Slater (1990) scale.

Methodology and

Construct Development

To test the above propositions, we undertook fieldwork in the transition economies of central Europe during 1995 and

1996. As stated above, the transition economies exhibit a high degree of environmental turbulence and change, and hence a context in which to test the propositions. Indeed, Grant

(1995), a leading proponent of the resource based view of the firm, has stated:

In general, the greater the rate of change in a company’s external environment, the more it must seek to base longterm strategy upon its internal resources and capabilities, rather than upon an external market focus.

The above would imply a severe test for the market orientation construct in such economies.

A two-stage research design was considered most appropriate for testing the reliability and validity of the Narver and

Slater market orientation scale in the transition economies.

First, in-depth, qualitative research of a case study nature was undertaken to assess the content validity of the scale and to both develop and test the other constructs of interest. Through a series of personal interviews between local research colleagues and senior managers, conducted in the local language, the constructs were presented, discussed, and, where necessary, refined. This was deemed essential to ensure that the research did not simply superimpose Western, developed economy preconceptions in these different market environments.

The second stage consisted of a quantitative survey of a broader, more representative sample of companies to test the nomological validity and reliability of the market orientation construct. Data gathered during this second stage were used for the quantitative analyses reported below that set out to test both by using established procedures.

Data collection and construct development are discussed in more detail below.

Data Collection

Data were collected in two phases in each country. First, a series of in-depth case studies were researched by local academics covering issues of market orientation, marketing strategy, marketing implementation, performance, issues relating to the privatization process and foreign direct investment

(where applicable). In Hungary, 11 cases were completed, in

Poland 12, and in Slovenia 11. The cases were conducted in a variety of industries including retailing, electronics, and brewing. Because the cases were exploratory, no attempt was made to create a representative sample of businesses in the region. Rather, a broad cross-section was attempted.

The second phase of the research was quantitative in nature by using structured questionnaires administered through mailed surveys. Questionnaires were developed first in English for use in the three countries under investigation. They then were translated into local languages by the local academics and tested on independent executive directors of local firms.

After testing, a number of minor modifications were made to the questionnaires to correct misinterpretation.

The study focused on enterprises employing 20 people or more. In Hungary, a mailing sample of 3,000 firms was constructed. In Poland, the sample was of 2,000 firms. In

Slovenia, the population of firms employing over 20 people was 1,581, and all were surveyed. In the cases of Hungary and Poland, the samples were constructed from official mailing lists and designed to be broadly representative of industry categories, firm sizes, and ownership types (state-owned as well as recently privatized, former state-owned firms, those with part or full foreign ownership and “organic” start-up firms).

The questionnaires were dispatched in three waves addressed to chief executives in autumn 1996. Each question-

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277 naire was accompanied by a covering letter, requesting cooperation, guaranteeing anonymity and indicating the importance of participation. Reply paid envelopes also were included for return of completed questionnaires,and respondents were offered a free copy of the summary results as a further inducement to participate. By the cutoff date of end December 1996, a total of 1,619 responses had been received. The response rate varied by country with 629 from Slovenia (40% response rate), 589 from Hungary (20%), and 401 from Poland (20%).

The higher response rate in Slovenia may indicate the relatively low level of academic research amongst businesses conducted in the country compared with the more extensively research

Polish and Hungarian businesses. Samples were found to be broadly representative in terms of industry sectors but there was a slight bias towards larger firms.

Constructs

MARKET ORIENTATION.

The market orientation scale developed in the United States by Narver and Slater (1990) was used as the basis for measuring market orientation in central

Europe. The parsimonious set of key indicators of market orientation covering the three underlying components of customer orientation, competitor orientation, and interfunctional coordination was presented to respondents as seven-point scales where 1

⫽ strongly agree, and 7

⫽ strongly disagree.

Two approaches to computing overall market orientation have been adopted in the literature. In the original Narver and Slater (1990) approach, orientation was calculated first on three separate scales (customer orientation, competitor orientation, and interfunctional coordination) and then averaged across the three scales to give one market orientation score for each firm. Reliability tests on each subscale produced alphas above 0.7 indicating each scale was separately reliable

(Nunnally, 1967). The averaging across the three separate subscales implies equal weight given to each of the three underlying components. Other researchers, however, (e.g.,

Deng and Dart, 1994) suggest that different weightings should be given to the components, specifically more weight attached to customer orientation than the other two dimensions.

The second approach (Greenley, 1995b) has been to average across the original scales directly rather than using subscales as intermediaries. Given that six of the fourteen items are components of customer orientation, whereas four each are components of competitor orientation and of interfunctional coordination, this approach automatically gives greater weight to the customer orientation items (six-fourteenths of the overall market orientation score rather than one-third). To test the reliability of the MO scale, we collected data on the 14 original scale items and analyses performed both on the separate components and on the composite scale.

Business Approach

Through the initial, in-depth interviews, it became clear that

Western conceptualizations of strategic orientation were limited in their power to explain the diverse approaches and priorities apparent in the transition economies. In particular a number of respondents expressed the view that their main objectives, and the strategies they subsequently adopted, were to provide security and continuity of employment for their managers and employees, an approach not specifically addressed in the market orientation scales developed in the West.

A further approach to strategic orientation assessment, originally developed by Kotler (1977) as an approach to assessing marketing effectiveness (see Hooley, Lynch, and Shepherd,

1990; Norburn et al., 1990) has been used successfully in

Southeast Asia (Huang et al., 1992), western Europe (Willenborg, Alsem, and Hoekstra, 1998) and eastern Europe (Marinov et al., 1993). This approach attempts to uncover orientation through presenting respondents with a set of alternative priorities and asking them to indicate the statement that most closely describes their company’s approach to doing business. The review of previous research in the region and the preliminary interviews conducted revealed seven alternative orientations, or sets of priorities (see Table 2). These were carefully worded to use the language of the respondents and tested through the pilot survey. After refinement, they were incorporated in the main survey, and their association with the MO scale was assessed.

Strategic Priorities and Objectives

The in-depth case studies in the transition economies revealed that many firms were simply setting their sights on survival as their prime objective in the difficult trading conditions of the mid-1990s. A three-point construct therefore was developed to encapsulate the three main priorities emerging through both the literature and this specific study: survival, short-term profit orientation, and longer term building of market position.

Hooley, Saunders, and Piercy (1998) discuss strategic focus. They identify two underlying alternatives, the second of which has two subalternatives. The basic distinction is between an internal, efficiency focus, and an external, market development focus. Under the former, the firm is driven by the constant need to find economies in its actions and operations. This may lead to reductions in product variety and tight control over marketing investment expenditures (such as customer relationship building, promotional activities, and marketing research). Under the latter, market development focus firms seek either to expand their total market (typically a strategy adopted during the introductory and growth stages of the market life cycle) or to win a greater share of the market from their competitors (more often pursued once growth of the total market has been exhausted, during maturity and decline). The three alternatives (efficiency focus, market expansion focus, and market share focus) were tested in the in-depth interviews and the pilot studies and shown to encapsulate the views of the respondents.

Whereas priorities were conceptualized according to time

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horizon addressed, the marketing objectives being pursued centered around the degree of aggression pursued in the market place. Kotler and Singh (1981) have emphasized the fundamental differences between attack and defense strategies.

Three broad sets of marketing objectives emerged from review of the literature and the in-depth interviews: defense of current position, the achievement of steady sales growth, and the achievement of more aggressive growth to dominate the market.

Marketing Strategy Variables

A central tenet of marketing theory (see Brown, 1993; McDonald and Dunbar, 1995) is focus or targeting. As discussed above, targeting decisions fall along a spectrum from targeting the whole market to targeting individual customers. Based on the preliminary case studies, and drawing on previous work on targeting in central Europe (see Hooley, Beracs, and Kolos,

1993), three levels of targeting were examined: attack the whole market, attack selected market segments, and target specific individual customers. These encapsulate the main alternatives open to firms.

Competitive positioning (see Ries and Trout, 1981; Hooley,

Saunders, and Piercy, 1998) was explored on three main dimensions: technical product quality, level of customer service and support offered, and pricing. All were measured compared to major competitors in the firm’s own market sector. Conceptually, it is possible for each to be higher, the same, or lower than major competitors.

Performance

Initially, performance was measured in financial terms as return on investment. This measure was very familiar to respondents (CEOs), and most were prepared to give return on investment (ROI) results in categories. Percentage return on investment provides a readily understood and accepted financial measure of commercial success. The categories selected followed from the preliminary case research.

Absolute performance figures, however, such as ROI and profit levels, sales volume, and market share, are notoriously difficult to compare between firms of different sizes, operating in different markets, using different accounting standards, and defining their markets in different ways. For the purposes of this study, therefore, performance also was measured on a relative, as well as absolute, (ROI) basis.

First, performance was judged against original objectives set. This shows the extent to which firms are achieving their original goals and is consequently an indicator of managerial satisfaction with results achieved. Second, performance was judged against performance in the previous financial year.

This shows the extent to which firms are improving year on year. Third, performance was judged against major market competitors. This shows where firms are outperforming similar firms facing similar market conditions. Whereas the first two comparators can be influenced by managerial expectations

(less ambitious managers may set less ambitious objectives) and market or industry factors (it may be relatively easy to improve performance in some industries, but more difficult in others), this final set of performance measures compare like with like and in many ways form the most useful measures available. On each of the three bases, performance was judged against four criteria, two financial (profit and ROI) and two market based (sales volume and market share). Respondents were asked to judge whether results on each were above, below, or the same as budget, previous financial year, and competitors. Scores were averaged over the four criteria for each basis forming three performance scales of four items each. Alphas were 0.76, 0.82, and 0.82 for each scale, respectively, all at acceptable levels.

Results and Discussion

Reliability of the

Market Orientation Scale

A total of 1,396 firms provided data enabling MO to be calculated. Initial analyses of the three underlying scales produced an acceptable alpha (0.79) for the customer orientation subscale but unacceptable alphas (0.58 and 0.57, respectively) for the competitor orientation and interfunctional coordination subscales. This suggests that the separate scales are unreliable as measures of competitor orientation and interfunctional coordination. Overall market orientation then was computed following the procedure used by Greenley (1995b), as the average score across the 14 scales. The alpha for the scale was acceptable at 0.86 (see Nunnally, 1967), and item-to-total correlations were all in the expected direction and statistically significant demonstrating internal consistency of the scale (see

Table 1). The averaging across the 14 scales without the intermediary step of subscales also up-weights the customer orientation component of market orientation.

Across the 1,396 respondents that the overall market orientation (MO) score was computed, the mean orientation was

2.97 with a standard deviation of 0.94. The sample then was divided into three roughly equal groups based on the market orientation score labeled “high MO,” “medium MO,” and “low

MO” for further analyses. These three groups represented significantly different levels of market orientation as measured by the Narver and Slater scales.

Differences between the three MO groups were tested across standard criteria. No differences in market orientation category were found with regard to industry sector (10 standard SIC codes) or market type (consumer vs. industrial, services vs. manufacturing, fast moving vs. durables). Small but significant differences were found by size of enterprise.

Perhaps surprisingly smaller firms (less than 100 employees) appeared slightly more market oriented whereas larger firms

(300

⫹ employees) appeared less market oriented. This difference is due to the presence in the sample of state-owned firms that are typically larger than their privately owned counter-

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279

Table 1.

Market Orientation (MO) Scale

Market Orientation Item

Our commitment to serving customer needs is closely monitored

Sales people share information about competitors

Our objectives and strategies are driven by the creation of customer satisfaction

We achieve rapid response to competitive actions

Top management regularly visits important customers

Information about customers is freely communicated throughout the company

Competitive strategies are based on understanding customer needs

Business functions are integrated to serve market needs

Business strategies are driven by increasing value for customers

Customer satisfaction is frequently assessed

Close attention is given to after sales service

Top management regularly discuss competitors’ strengths and weaknesses

Our managers understand how employees can contribute to value for customers

Customers are targeted when we have an opportunity for competitive advantage

MO Scale Characteristics

MO ( n ⫽ 1396)

Low MO ( n ⫽ 442)

Medium MO ( n ⫽ 468)

High MO ( n ⫽ 486) a b

Mean score on seven-point scale where 1

⫽ strongly agree and 7

⫽ strongly disagree.

Product moment correlations all significant at 0.001 level.

Cronbach alpha for scale 0.86

Mean

2.97

4.07

2.96

1.98

Mean a

( n

1396)

2.56

3.28

2.03

3.06

2.82

3.69

2.58

2.78

2.56

3.51

3.45

3.29

3.02

2.93

Standard

Deviation

1.40

1.86

1.29

1.59

1.71

1.96

1.40

1.60

1.41

1.73

1.78

1.71

1.56

1.64

Standard

Deviation

0.94

0.54

0.24

0.40

Item-Total

Correlation b

0.64

0.49

0.61

0.64

0.54

0.44

0.68

0.65

0.59

0.66

0.62

0.64

0.62

0.43

parts and because of their previous monopoly positions under tion concept generally was understood, many managers indistate planning that did little to encourage a market orientation.

cated that their goals and subsequent guiding principles in

Differences also were observed by country with Hungarian doing business were more complex. Specifically many menfirms scoring highest on the MO scale and Polish firms lowest.

tioned the need to provide security of employment for manag-

These differences can be attributed to the longer and faster ers and workers being a major driver. Others indicated that pace of market reform in Hungary and to the relatively high decisions were driven primarily by a focus on short-term influx of foreign investment bringing in Western marketing financial goals, irrespective of market requirements. Still othapproaches and attitudes. They also may be related to differers suggested that they actually were implementing a market ences in national privatization processes (see Cox et al., 1998).

orientation through focusing on producing technically the

Content Validity of the Scale

The case studies were used to explore local managers’ understanding of marketing terminology, concepts, and tools. In particular, the appropriateness of the MO scales for measuring orientation was preliminarily assessed during the case studies as a first step in assessing content validity. Case investigators explored alternative business goals and orientations. A key finding from this stage was that, whereas the market orientabest possible products in their industry. Thus, whereas the market orientation concept demonstrated a degree of content validity, it was clear that it was only one of many approaches to doing business in central Europe.

Table 2 shows the relationship between the MO groups and the answers to the business orientation question. The spread of answers across the total sample is first of interest indicating a wide variety of orientations prevalent in the transition economies.

Alpha if Item

Removed

0.83

0.85

0.84

0.83

0.84

0.85

0.83

0.83

0.84

0.83

0.84

0.83

0.83

0.85

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G. Hooley et al.

Table 2.

Market Orientation and Business Approach

Use selling and advertising to help sell our products and services

Endeavor to offer the best technical product in our industry

Identify the demands and requirements of customers and ensure our products and services meet them

Concentrate on manufacturing efficiency to achieve low unit costs to sell our products at lowest possible prices

Use our assets and resources to maximize shortterm profits or other financial measures

Organize our activities to provide security and continuity of employment for our staff and employees

Provide the goods and services society in general needs rather than simply satisfying individual customers a

Chi-square

52.1, significance

0.0001.

Figures are column percentages.

Total Sample

(1371) (%)

12.0

a

22.1

29.8

11.5

4.9

15.8

4.1

Low MO

(436) (%)

11.7

16.5

24.5

14.0

7.1

20.6

5.5

Medium MO

(458) (%)

13.5

20.3

31.4

11.6

5.0

14.6

3.5

The single most often cited approach approximates to a customer orientation (identifying and meeting the needs of customers) and as such would be expected to be closely related to MO. Indeed, it is evident that the High MO group show a significantly greater tendency to select this orientation than

Low MO firms (but not a significantly different tendency than the Medium MO firms). There is also, however, a high incidence of the High MO firms reporting a focus on offering the best technical product in the industry (a classic product orientation in the terminology of Doyle, 1998). Among the

Low MO firms, a relatively high proportion report a focus on providing continuity of employment.

The results suggest that, whereas the questions in the MO scale were considered relevant by managers in both the indepth interviews and the final survey, a high proportion of firms more readily identified with other strategic orientations when forced to choose the best description of their firm. This suggests that measurement of MO alone is incomplete in encapsulating strategic orientation in the transition economies. Indeed, it begs the question whether MO alone is adequate in other economies.

Recent research in the West has sought to take a stakeholder perspective on orientation (see, e.g., Greenley and Foxall,

1996, 1997), and it is becoming increasingly evident that different orientations are not necessarily mutually exclusive.

Simon (1996), for example, found that amongst his “hidden champions” (mid-sized German firms that were world leaders in their very focused market niches) a balance was struck between a technical/innovations orientation and a high degree of market sensitivity (market orientation). Wong and Saunders

(1993) also found that their better performers achieved a balance between market and product orientation. Similarly,

Parkinson and Chambers (1998) found that market orientation and quality orientation were complementary rather than contradictory orientations.

In the research reported above, it can be seen that the High

MO firms were almost equally divided in taking a customer focus or a product quality focus in their operations. Thus, market orientation and technical product quality orientation are not necessarily mutually exclusive alternatives as suggested in the mainstream marketing literature (see, e.g., Kotler, 1997;

Doyle, 1998). Similarly, nearly one-third of High MO firms adopted other strategic priorities, most notably providing security and continuity of employment provision (an “employment orientation”). These different emphases also are not necessarily contradictory. Whereas measurement of the degree of market orientation has been, perhaps understandably, a major focus in the marketing literature, there has been relatively little development of scales to measure other (complementary and/or contradictory) orientations. Much as it is now recognized that firms can exhibit a degree of market orientation, in the same way they may exhibit simultaneously a degree of other orientations that, when combined, give a unique business orientation for the firm.

Nomological Validity

The nomological validity of the scale was assessed through testing the propositions P1 to P4 developed above. Table 3 shows the responses to the three questions designed to test the first proposition. In all three cases, a statistically significant difference was found in the direction proposed.

High MO

(477) (%)

10.7

28.9

32.9

9.0

2.7

12.4

3.4

Market Orientation in Central Europe J Busn Res

2000:50:273–285

281

Table 3.

Market Orientation and Strategic Priorities

Strategic Priorities over last two years

Survival

Good short-term financial returns or profits

Long-term building of market position

(Chi-square

39.5, significance

0.0001)

Strategic Focus over last two years

Focus on cost reduction and efficiency gains

Focus on expanding the total market for our products

Focus on winning market share from competitors

(Chi-square ⫽ 14.6, significance ⫽ 0.01)

Marketing objectives

To maintain or defend our current position

To achieve steady sales growth

To achieve aggressive sales growth or to dominate the market

(Chi-square ⫽ 26.0, significance ⫽ 0.0001)

Total Sample (%)

(1372)

49.0

15.6

35.4

(1326)

58.4

30.5

11.1

(1391)

29.9

63.0

7.0

Low MO (%)

(437)

57.0

15.6

27.5

(423)

62.9

29.6

7.6

(440)

38.0

57.3

4.8

Medium MO (%)

(460)

49.8

18.0

32.2

(446)

59.2

30.3

10.5

(466)

27.0

66.5

6.4

High MO (%)

(475)

40.8

13.3

45.9

(457)

53.4

31.7

14.9

(485)

25.4

64.9

9.7

The High MO firms were more likely to adopt long-term market position building goals, more likely to focus on winning market share and more likely to pursue growth or market domination objectives. These all add up to a more aggressive, long-term stance in their markets. The Low MO firms, on the other hand, were more likely to focus on survival, cost reduction and efficiency gains, and defensive objectives. Proposition P1 therefore is supported.

Targeting and positioning (see O’Shaughnessy, 1995) decisions are presented in Table 4. Statistically significant differences emerged with regard to targeting and product and service positioning, but not with regard to pricing. In addition, note that the differences found in targeting contradict proposition P2. Indeed, whereas more than half of all firms surveyed report the adoption of a target market approach (segments and individuals), the High MO firms are more likely than others to seek to attack the whole of their markets. An explanation might lie in their general levels of aggressiveness and desire to dominate their markets.

Further analyses were able to shed more light on the finding. A later question in questionnaires concerned the degree of product standardization or adaptation used across the markets in which the firm operates. Firms were asked to indicate the extent of their agreement with the phrase: “We modify our

Table 4.

Market Orientation and Marketing Strategy

Market targeting approach

Attack the whole market

Attack selected market segments

Target specific, individual customers

(Chi-square ⫽ 22.17, significance ⫽ 0.001)

Product positioning

Technical quality higher than main competitors

About the same as main competitors

Lower than main competitors

(Chi-square ⫽ 41.28, significance ⫽ 0.0001)

Service positioning

Service quality higher than main competitors

About the same as main competitors

Lower than main competitors

(Chi-square

59.78, significance

0.0001)

Price positioning

Price higher than main competitors

About the same as main competitors

Lower than main competitors

(Chi-square ⫽ 3.63, Ns)

Total Sample (%)

(1352)

38.2

58.9

2.9

(1383)

13.0

67.2

19.8

(1388)

20.6

58.1

21.3

(1281)

32.1

66.4

1.6

Low MO (%)

(424)

27.8

67.2

5.0

(440)

13.9

65.2

20.9

(439)

21.4

55.1

23.5

(406)

24.6

71.9

3.4

Medium MO (%)

(452)

34.7

62.6

2.7

(463)

11.0

70.2

18.8

(465)

14.4

62.8

22.8

(423)

29.3

70.0

0.7

High MO (%)

(476)

50.8

47.9

1.3

(480)

14.2

66.0

19.8

(484)

25.8

56.4

17.8

(452)

41.4

58.0

0.7

282 J Busn Res

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G. Hooley et al.

Table 5.

Market Orientation and Performance

Return on Investment

Loss

Break even

1–9%

10–19%

20% or more

Chi-square

39.67, significance

0.0001

Performance relative to budget a

Performance relative to last year a

( n

1,343)

( n ⫽ 1,335)

Performance relative to main competitors a ( n ⫽ 929)

Total Sample

(%)

(1281)

19.5

12.1

45.1

15.7

7.6

2.08

1.78

1.99

Low MO

(%)

(413)

27.1

12.1

44.8

11.4

4.6

2.20

1.86

2.14

Medium MO

(%)

(428)

18.7

12.1

45.6

15.2

8.4

2.08

1.79

2.00

a

High MO group significantly different from other groups on all three scales at 0.05 level by using t -tests.

Performance scales are average summed score across profit, sales volume, market share, and ROI on scale 1

⫽ better than target/last year/competitors, 2

⫽ on target/same as last year/same as competitors, 3

⫽ below target/worse than last year/worse than competitors.

High MO

(%)

(440)

13.2

12.0

45.0

20.2

9.5

2.00

1.71

1.87

products and services according to different markets’ needs”.

Analysis of firms that had indicated market-wide targeting showed that the High MO firms were more likely to agree with this statement than the Low MO firms. Indeed, 76% agreed with the statement compared to only 50% of Low MO firms (statistically significant difference at 0.001 level). It thus seems that the High MO firms adopting market-wide targeting are achieving this through offering a range of products designed to meet the needs of their different markets.

Significant differences were found between the MO groups with regard to product and service positioning, but not price positioning. The High MO group were the most likely to adopt both higher technical product and service quality positions than the other firms. Low MO firms more often positioned their offerings at competitive parity. With regard to price, however, no statistically significant differences were observed between groups. Proposition P3 thus is supported in part only.

Avoiding reliance on low price as a means of differentiation by high MO firms is consistent with their superior product and service quality positioning. Given the emphasis of High

MO firms on superior product and service quality, low prices could be seen as incompatible with those premium positions

(Aaker, 1991). Congruent with these positions, however, might be higher prices, used both as quality signals and to cover the costs (usually) associated with superior quality delivery. Why higher prices are not evident is unclear. A possible explanation is the stage of development of these transition economies where limited purchasing power puts added pressure on pricing. Indeed, such pressures are increasingly evident in Western markets as well where brand premiums have been under attack in recent years (see Doyle, 1995).

These findings show that the more market-oriented firms indeed do attempt to differentiate their offerings, but on the basis of quality rather than price. They do not typically adopt low price positions as a means of differentiation despite their more aggressive stance in the market and their desires to build long-term position. These they see better achieved through higher quality than through cut price deals.

Finally, Table 5 presents the results of the analyses of performance variables by market orientation group. Significant differences were found with regard to both the absolute and the relative performance measures, all in the direction proposed. With regard to ROI, a higher proportion of the High

MO group reported higher returns (10% or more), whereas the

Low MO group were more likely to report a loss.

On the relative performance scales, the High MO group consistently reported better market and financial performance against all three criteria—budget, previous financial year, and main competitors. The High MO firms are more likely to exceed their targets, to show year on year improvement in performance and outperform their sectoral competitors. The weakest performance on each scale was observed among the

Low MO firms. Overall both absolute and relative performance results support proposition P4.

Conclusions, Future Research

Directions, and Limitation

The research has demonstrated that the overall Narver and

Slater (1990) MO scale is both valid and reliable as a measure of market orientation in the transition economies of central

Europe. When presented with the scale items, managers had little difficulty relating to them and discussions during the qualitative phase of the research suggested that the construct at least maintained face validity. The reliability coefficient

(Cronbach alpha) for the overall MO scale was good, and all items contributed in the manner predicted by the theory. In addition, analysis of results shows that in most, but not all, instances the relationships between MO and business approach, strategy, and performance is as predicted from the

Western market orientations literature demonstrating nomological validity. Adopting a market orientation appears equally

Market Orientation in Central Europe J Busn Res

2000:50:273–285

283 beneficial in turbulent transition economies as in Western developed markets.

The research also has shown, however, that other business orientations may coexist with a market orientation providing a more complex, richer insight into the stance these firms take in their markets and the factors driving their strategic decisions.

A number of avenues of further research are suggested by the above findings.

First, the MO scales could be usefully tested in other, non-Western markets. For example, testing in the markets of Southeast Asia, South America, Africa, and China would provide further evidence of the generalizability and robustness of the scale. Further attention also could be addressed to the use of the overall scale or its separate subcomponents.

Second, research into orientations could be usefully expanded to cover other strategic orientations, such as shortterm financial (Doyle, 1998), technology and innovation (Simon, 1996), quality (Parkinson and Chambers, 1998), and employment provision and alternative stakeholder perspectives (Greenley and Foxall, 1996). These other orientations should not be seen as competitors to a market orientation, rather as potentially complementary and enriching.

Third, research into the role of price as a positioning tool is called for. Whereas quality of product and service clearly have been shown to be related to market orientation, price has not. Aggressive, market domination goals might suggest low price positioning to aid market penetration. High quality positionings might suggest high prices to recoup costs and reinforce premium positions. Neither was found in the study, and the reasons behind this are not clear.

A number of limitations should be noted. First, the study is based on responses to a mailed survey directed to one respondent, the CEO, in each company. Whereas the CEO should be in a good position to judge both market orientation and the other strategy and performance issues addressed in the study, it has been argued elsewhere (see, e.g., Wensley,

1995) that other perspectives are necessary to truly judge market orientation. Second, the level of response to the mailed survey averaged 22% across the three countries. Whereas attempts were made to gauge and counter nonresponse bias, it is to be expected that the respondents are atypical in their strategic literacy and interest in marketing issues! Indeed, the overall average level of market orientation as measured by

MO was higher than the Narver and Slater (1990) score in the United States suggesting a more market-oriented sample in the first place. Because of the analysis approach of comparing market orientation within the sample, however, this bias is not a major concern.

Despite the above, it is clear that the MO construct is a valid and reliable measure of market orientation in the transition economies of central Europe.

The research reported in this article was funded by the European Union under its ACE94 initiative. The contributions of Professors Krizstina Kolos,

Irma Agardi, Marin Marinov, Svetla Marinova, Damjan Mumel, Matjaz Irsic, and Vladimir Gabrijan to the wider four country study are gratefully acknowledged.

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