Welcome to the presentation on  How Market Orientation and Outsourcing Create Capability and Improve Performance in Emerging Markets  Dr. Satyendra Singh Director, Centre for Emerging Markets Professor, Marketing and International Business Editor, International Journal of Business and Emerging Markets

Outline 2  Introduction  Objectives  Definitions  Conceptual Model, Hypotheses  Methodology  Analysis, Results  Managerial Implications

Introduction  Why study this?  Firms in Emerging Markets (EM) are catching up with West  Costs – Tata, Nano; Chery, QQ  Quality – Indian leather, Chinese silk  Product development pace – Films  Indicates ↓ in capability of West  ↑ important in recession 3

Objectives  Firms need to be strategic and competitive  If, Market Oriented - Outsourcing strategy  Competitive Advantage  If so, trade off?  Competition vs. Cooperation 4

What is Market Orientation (MO)?  Narver and Slater (1990)  Customer, competitor, co-ordinaiton  Kohli and Jaworski (1990)  Information generation/dissemination  Greenley (1995)  Economic  Cadagon et al. (1999)  Export  Deshpande (1993)  Culture  Pitt (1996)  European 5

In general, MO strategy  Meets customers’ needs  Anticipates market conditions  Explores and develops new products  Develops more desirable products  $  Takes long-term perspective, so viable  MO may  firms capability 6

But in EM, MO is different!  Demand > Supply!?  No feedback  No culture of product return  Shy, contamination by touch!  Not obsessed with change  Like permanence, memory, colony 7

What is Outsourcing? 8  Outsource activities despite its ability to make in-house, so focus  core capability (Deavers, 1997)  Quick response to market turbulences   On time delivery,  lead time  Competitive, if benefits > costs

If outsourced from EM  Abundant skilled labor!   Fixed costs and wages   BE point   performance, if  firms’ capability  OS may  existing capabilities, but  borrowed capabilities  Masks the decline skills, as firms may not learn  It is risky 9

Trade-off between MO and OS MO OS Capability Performance ↑ Costs Time Complex Expertise  Costs ↑ Savings Labor Mrf. Risks 10

Conceptual Model 11 CapabilityBus Perf Risk Source-position-performance model (Day, 1994; Day and Wensley, 1988) MO OS H1 H2 H6a H6b H3 H5 H4

Competing Model - I 12 CapabilityBus Perf Risk MO OS H1 H2 H6a H6b H3 H5 H4

Competing Model - II 13 CapabilityBus Perf Risk MO OS H1 H2 H6a H6b H3 H5 H4

Theory -- Hypotheses  H1: MO  ↑ Capability  H2: MO  ↑ Business Performance  H3: OS  ↑ Capability  H4: OS  ↑ Business Performance  H5: Capability  ↑ Business Performance  H6a: MO-BP ↑, if risk ↓  H6b: OS-BP ↑, if risk ↑ 14

Methodology

Market Orientation – Scale  Customer orientation (Narver and Slater, 1990)  Customer commitment, create value, understand customer needs and satisfaction, after sales service  Competitor orientation  Salespeople share competitors’ info, respond quickly to competitors’ actions, top managers discuss competitors’ strategies, target opportunities for competitive advantage  Inter-functional dept co-ordination  Info sharing, functional integration strategy, all depts contribute to customer value, share resources with other business units 16

Outsourcing – Scale  Core and Peripheral Outsourcing (new scale developed by me)  Ratio of outsourced production to in-house production  Ratio of outsourced products to manufactured products 17

Capability – Scale  Adapted from (Atuahene-Gima, 2005)  Speedy introduction of new products to markets  Access to distribution network for products  Creative marketing strategies for new products  Secure resources for marketing new products 18

Risk Aversion – Scale  Adapted from (Jaworski and Kohli, 1993)  Financial risks are worth the reward  Managers take big financial risks  Managers develop innovative but risky marketing strategies  Managers are likely to play it safe (R)  Managers implements activities only if it works 19

Business Performance - Scale  Adapted from (Kotabe and Murray, 1990)  Pre-tax profitability  Market Growth  Market Share 20

Data Collection  Kompass directory  Delhi and Bombay  Stratified quota sampling  PIN method  Personally collected – 3 months period  213 responses/1200 calls  18% response  Multiple respondents  all 7-pt scales  Respondents’ knowledgeable about the concept (+6. on 7-pt scale) 21

Sample Characteristics 22  FirmsForeignIndian  Total sample size (N=426)  Manufacturing products104 (47%) 115 (56%)  Providing services117 (53%) 90 (44%)  Turnover (<Rs. 99m)69 (31%) 88 (43%)  Turnover (b/w Rs. 100 and 149m)95 (43%) 74 (36%)  Turnover (> Rs 150m)57 (26%) 43 (21%)  Turnover (<49)64 (29%) 66 (32%)  Turnover (between 50 and 99) 104 (47%) 84 (41%)  Turnover (>100)53 (24%) 55 (27%)  CEO/MD/Proprietor) 126 (57%) 125 (61%)  Senior manager)77 (35%) 57 (28%)  Mid-level manager)18 (8%) 23 (11%)  Proportion of outsourcing activities62%48%  Business experience (in years)

Analysis  Factor Analysis  Confirmatory Factor Analysis  AMOS 4.0  Cross-group measurement validation  Reliability >.7  Fit indices >.9  Multicollinearity < 4  Non-response bias ok 23

Results 24 CapabilityBus Perf Risk Unstandarised structural Ceffficients (Foreign/Indian), * p<.05, ** p<.001 MO OS H1 (.31**/.29*) H2 (.14/.07) H6a H6b H3 (.19*/.21*) H5 (1.33**/1.31*) H4(.36**/.37**) Model Fit Indices (Foreign/Indian): X 2 (392, /412, ); RMSEA (.05/.06), GFI (.88/.89), CFI (.95/.96)

Direct, Indirect, and Total Effects (Hair, 2006) 25 Directindirect(Cap)Total Effects  Full sampleFor.Ind.For.Ind.For.Ind.  MO  BP **.38**.55*.45*  OS  BP *.28*.61**.65**  Low risk sampleFor.Ind.For.Ind.For.Ind.  MO  BP.27*.31*.36*.21*.63**.52**  OS  BP  High risk sampleFor.Ind.For.Ind.For.Ind.  MO  BP  OS  BP.39*.34*.33*.39*.72**.73** Model Fit Indices: X 2 (87, 97.43), GFI=.87, AGFI=.82, NFI=.91, RMSEA=.05, NNFI=.93, TLI=.95, CFI=.97); * p<.05; ** p<.001

Implications for managers  Firms need both—MO and OS   MO because difficult to imitate  Trade-off exists  OS needed, not to  costs but  MO  No difference b/w Indian and foreign firms  Low-risk firm  MO, high-risk firm  OS to build capability 26

Conclusion: Competition vs. Cooperation LO OS HI HI LO MO Create value  Capability  OS Initially  OS to be MO  MO Manage risks LO risk-taking firms   MO HI risk-taking firms   OS  MO Coop? Comp? Comp/Coop? 27 I II IIIIV Future study: OS vs. Technology Transfer Kenya, Africa

Acknowledgements  The financial support from the Social Sciences and Humanities Research Council (SSHRC 4A grant # ) is gratefully acknowledged.  This presentation is based on Singh (2009). How market orientation and outsourcing create capability and impact business performance, Thunderbird International Business Review 51(4):

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