ijbs-2010_vol_10-1

IJBS, Volume 10, Number 1, 2010 ISSN: 1553-9363

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY®

SPONSORED BY:

www.csuci.edu

Managing Editors:

Professor Tahi J. Gnepa, Ph.D. Professor William P. Cordeiro, Ph.D. California State University Stanislaus California State University Channel Islands

A Publication of the

International Academy of Business and Economics® IABE.ORG

International Journal of Business Strategy, Volume 10, Number 1, 2010 ii

International Journal of Business Strategy® Volume 10, Number 1, 2010 ISSN: 1553-9363 Managing Editors: Dr. Tahi J. Gnepa, California State University-Stanislaus, Turlock, California, USA

Dr. William P. Cordeiro, California State University-Channel Islands, California, USA

Editorial Board: Dr. Cheick Wagué, Dean, South Stockholm University, Stockholm, Sweden Dr. Bhavesh M. Patel, Pandit Deendayal Petroleum University, Gujrat, India Dr. Sid Howard Credle, Dean, Hampton University, Hampton, Virginia, USA Dr. Alan S. Khade, California State University-Stanislaus, Turlock, CA, USA Dr. Zinovy Radovilsky, California State University East Bay, Hayward, California, USA Dr. Phapruke Ussahawanitchakit, Mahasarakham University, Thailand Dr. Khalid Alkhathlan, King Saud University- Al Kharj, Saudi Arabia Dr. Palaniappan Thiagarajan, Jackson State University, Jackson, MS, USA Dr. Ricarda B. Bouncken, University of Greifswald, Greifswald, Germany Dr. C. B. Claiborne, Texas Southern University, Houston, Texas, USA Dr. Ben-Jeng Wang, Tunghai University, Taichung, Taiwan, ROC Dr. Marius D. Gavriletea, Babes Bolyai University, Cluj-Napoca, ROMANIA Dr. Detelin Elenkov, Angelo State University, Texas, USA Dr. Benoy Joseph, Cleveland State University, Cleveland, Ohio, USA Dr. Vishnuprasad Nagadevara, Indian Institute of Management Bangalore, India Dr. Ansgar Richter, European Business School, Oestrich-Winkel, GERMANY Dr. David Ward, European School of Economics, Milan, ITALY Dr. Moshe Zviran, Tel Aviv University, Tel Aviv, ISRAEL Dr. Michael Benham, European Business School, GERMANY Dr. Scott K. Metlen, University of Idaho, Moscow, Idaho, USA Dr. Fred N. Silverman, Pace University, White Plains, New York, USA Dr. Premilla D’Cruz, Indian Institute of Management, Ahmedabad, INDIA Dr. Alain Nurbel, University of La Reunion, CERESUR, FRANCE Dr. Anand Desai, Ohio State University, Columbus, OH, USA Dr. Joy Bhadury, University of North Carolina, Greensboro, North Carolina, USA Dr. Aharon Tziner, Dean, Netnaya University College, Netnaya, ISRAEL Dr. John S. Croucher, Macquarie University, Sydney, AUSTRALIA Dr. Eric Girard, Siena College, Loudonville, New York, USA Dr. Ernesto Noronha, Indian Institute of Management, Ahmedabad, INDIA The IJBS is a peer-reviewed and publicly available journal listed in the Cabell’s Directories 2004-12 Editions. The IJBS is also listed in the Ulrich’s International Periodicals Directory since 2004. The IJBS is available online from the EBSCO Publishing and Cengage/ Gale Group Publishing. The IJBS is sponsored by California State University, Channel Islands, USA. The IJBS is a Registered Trademark of the IABE. The IJBS is a publication of the International Academy of Business and Economics. All rights reserved. ©2010 IABE. WWW.IABE.ORG

Printed and Published in Russia.

International Journal of Business Strategy, Volume 10, Number 1, 2010 iii

International Journal of Business Strategy Volume 10, Number 1, 2010; ISSN: 1553-9363

A Welcome Note from the Managing Editors: We proudly present to you a new issue of International Journal of Business Strategy (IJBS), Volume 10, Number 1, 2010, a publication of the International Academy of Business and Economics. In this issue, we publish 11 papers on various topics in the business strategy and hope you will find them useful. IJBS is sponsored by the California State University Channel Islands, California. IJBS is listed in the Cabell’s Directories of Refereed Publications 2005-11 Edition. The Journal is also listed in the Ulrich’s International Periodicals Directory since 2004. The IJBS has the ISSN (ISSN: 1553-9363) issued by the Library of Congress, Washington. International Journal of Business Strategy (IJBS) is a Registered Trademark of the International Academy of Business and Economics. IJBS is available online at EBSCO Publishing and at the Cengage/Gale Publishing. The academic foundations and real-world applications related to business and economics are rapidly changing. Globalization is accelerating. Challenges for everyone are increasing daily. IJBS presents an analytical perspective on these developments with a special focus on the strategic responses of organizations facing such developments. The response to this volume has been very gratifying. We wish to thank all authors who submitted such an excellent selection of papers. All submitted work to the Journal goes through a rigorous double blind review process of experts in the functional area. We wish to thank the scholars who contributed their time and expertise as reviewers for this issue. We are grateful to them and to our board members for donating their time for the cause of academics and research that makes this Journal possible. Our reviewers are a diverse group, from many academic areas and from many countries. We appreciate their dedication and especially for their work under very tight deadlines. This issue is dedicated to our contributors’ active participation in development of conceptual and applied work for the international arena of business and economy. We are indebted to California State University Channel-Islands for sponsoring this inaugural issue and providing the invaluable editorial support necessary to the successful birth of the IJBS. Our website, www.iabe.org, is completely redesigned for online paper submission, checking status of your paper, and more. We invite you to visit our website and create your member account. We welcome your comments and suggestions on this issue. We look forward to your paper submissions for future issues. Best regards, William P. Cordeiro, Ph.D and Tahi J. Gnepa, Ph.D. Managing Editors

International Journal of Business Strategy, Volume 10, Number 1, 2010 iv

International Journal of Business Strategy Volume 10, Number 1, 2010; ISSN: 1553-9363

Page EFFECTS OF ALLIANCE EXPERIENCE, RESOURCE EXCHANGE AND TRUST ON COMPETITIVE ADVANTAGE AND PERFORMANCE OF GOVERNMENT PROMOTED INVESTMENT FIRMS IN THAILAND

Phapruke Ussahawanitchakit, Mahasarakham University, Thailand Phaithun Intakhan, Lampang Rajabhat University, Thailand Nantana Ooncharoen, Mahasarakham University, Thailand

1

COOPERATIVE TECHNOLOGY MANAGEMENT FOR CONSENSUS STANDARDIZATION: DRAM STANDARDS AND IPRS

Masashi Arai, Rikkyo University, Japan

16

AN INTRA-ORGANIZATIONAL COMMUNICATION STRATEGY, ITS ANTECEDENTS AND CONSEQUENCES: AN EMPIRICAL EXAMINATION OF COMPUTER BUSINESS IN THAILAND

Nuanlaong Attharangsun, Mahasarakham University, Thailand Phapruke Ussahawanitchakit, Mahasarakham University, Thailand

30

MEASURING THE IMPORTANCE OF ROE AND MARKET CAPITALIZATION: EVIDENCE FROM THAILAND’S STOCK MARKET

PANU CHAOPRICHA, RATTANA BUNDIT UNIVERSITY, BANGKOK, THAILAND Peng Chan, California State University-Fullerton, USA

56

SEEING THE INVISIBLE: USE OF COMPENSATION INFORMATION IN MARKET-BASED VALUATION OF HUMAN CAPITAL

John Darcy, The University of Texas-Pan American, Edinburg, Texas, USA

63

STANDARDIZATION/ADAPTATION STRATEGIES OF SOUTH KOREAN FOOD PRODUCT COMPANIES

Richard T. Hise, Texas A&M University-College Station, USA Youngtae Choi, University of North Florida, Jacksonville, USA Jongkuk Shin, Pusan National University, Geumjeong, Busan, Korea Minsook Park, Pusan National University, Geumjeong, Busan, Korea

78

THE SOUTH KOREAN AUTOMOBILES AND SPARE PARTS EXPORT MARKET: AN ASSESSMENT OF THE LEBANESE MARKET FOR THE KOREAN PRODUCTS AND CONSUMER PREFERENCES

Nouri Beyrouti, Ph.D. Lebanese American University, Beirut, Lebanon

94

SYSTEMATIC LINKING OF ORGANIZATIONAL STRATEGY, HR STRATEGY AND TRAINING STRATEGY ACROSS OLC

Hai-Ming Chen, Tamkang University, Tamsui, Taiwan Shu-Tzu Hung, Tamkang University, Tamsui, Taiwan

104

THE ATTRACTION OF STUDENTS TO THE UNDERGRADUATE COURSE IN MANAGEMENT: MULTICASE STUDY ON THE FACTORS ATTRACTING STUDENTS IN JOINVILLE, SC

Emerson Wagner Mainardes –University of Beira Interior (UBI), Covilhã, Portugal Helena Alves –University of Beira Interior (UBI), Covilhã, Portugal Maria José Domingues – Regional Univ Regional of Blumenau (FURB), Blumenau, Brazil

115

COMPARATIVE STUDY OF KNOWLEDGE MANAGEMENT SUCCESS IN PUBLIC ADMINISTRATION

Yong S. Choi, California State University, Bakersfield, California, USA Seunghee Wie, California State University, Sacramento, California, USA

127

SURVIVAL STRATEGIES OF ASIAN EXPORTERS DURING ECONOMIC DOWNTURN: CASE OF THAILAND

Lugkana Worasinchai, Bangkok University, Thailand Dechanan Thanapob, Bangkok University, Thailand Farhad Daneshgar, University of New South Wales, Australia

135

TABLE OF CONTENTS

EFFECTS OF ALLIANCE EXPERIENCE, RESOURCE EXCHANGE AND TRUST ON COMPETITIVE ADVANTAGE AND PERFORMANCE OF GOVERNMENT

PROMOTED INVESTMENT FIRMS IN THAILAND

Phapruke Ussahawanitchakit, Mahasarakham University, Thailand Phaithun Intakhan, Lampang Rajabhat University, Thailand Nantana Ooncharoen, Mahasarakham University, Thailand

ABSTRACT This study aims at investigating the impacts of alliance experience, resource exchange and trust on competitive advantage and performance via moderating influences of interorganizational relationship and learning capability. Government promoted investment firms in the Thailand Board of Investment (BOI) were chosen as the sample. The results indicate that alliance experience has a significant positive association with both resource exchange and trust. Also, resource exchange is positively related to competitive advantage and performance. Similarly, competitive advantage has an important effect on performance. Surprisingly, both interorganizational relationship and learning capability are not moderators of the aforementioned relationships. Then, alliance experience definitely affects competitive advantage and performance via resource exchange as a moderator. Giving potential discussion with the research results is effectively implemented in the study. Theoretical and managerial contributions are explicitly provided. Conclusion and suggestions and directions of the future research are described. Keywords: Government Promoted Investment Firms, Alliance Experience, Resource Exchange, Trust, Interorganizational Relationship, Learning Capability, Competitive Advantage, Performance 1. INTRODUCTION In the past two decades, interfirm collaboration has been an important issue which researchers and executives have played more attention with it. Its forms most commonly pursued in practice include joint venture, network, consortia, trade association, interlocking directorate, and alliance (Barringer and Harrison, 2000). Alliance is one form of the interfirm collaboration. It has been an important strategy for firms in order to operate, succeed and sustain in the competitive markets and environments and helps them share knowledge and learning, acquire new opportunities and achieve business excellence. Also, alliance is a competitive strategy for successively creative new product development (Takayama et al., 2002) and a source of early-stage seed capital in new technology-based firms (Carayannis et al., 2000). Firms can maintain originality as a core competence in ongoing new product development by utilizing a licensed alliance product as a tool for maintaining and injecting this originality. Likewise, alliance effectively establishes technology-based new ventures through processes of alliance formation, benefits accruing from alliance formation, alternative market roles to forming an alliance, governance processes of alliances, alternative sources of funding to forming alliance, and critical success and failure factors in alliance formation. For the alliance operations, firms can learn unique competencies, valuable capabilities and potential strategies, and gain successful knowledge from their own experiences and the experience of others in order to survive in the future. Thus, more alliance experience tends to promote firms to achieve competitive advantage, have superior performance, gain growth, and receive sustainability. Hence, alliance experience becomes a main determinant of competitive advantage and performance in the business environments. With the alliance activities, alliance experience is the lessons learned as well as the know-how generated through firms’ former alliances (Heimeriks and Duysters, 2007). It is an efficient way to alleviate coordination challenges and a key factor that enhances firms’ alliance performance. Firms have exploited alliance experience in order to improve their business practices and operations and develop their expertises via identifying good partners, negotiation, alliance formation, interfirm control, knowledge acquisition, and alliance modification (McCutchen et al., 2008). High alliance experience is likely to enhance firms’ succeeding resource exchange, gaining valuable trust of alliance operations, having unique competitive advantage, and achieving superior performance. To clearly understand firms’ alliance experience, alliance experience is a core factor explaining alliance excellence and performance (deMan, 2005). It enhances firms to understand any partner’s behaviors, competencies, and cultures, attempt to

INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 10, Number 1, 2010 1

establish appropriate strategies and operations in doing businesses with the competitive markets, and gain competitive advantage, good performance, and sustainability from their alliance activities. Thus, alliance experience promotes better value creations, enhances higher competitiveness, has greater organizational performance, and builds higher wealths of the firms. Likewise, firms with great interorganizational relationship and high learning capability seem to explicitly succeed in their alliance operations, practices and activities. In this study, the relationships among alliance experience, resource exchange, trust, competitive advantage, performance, interorganizational relationship, and learning capability are investigated. To clearly verify the aforementioned relationships, government promoted investment firms in the Thailand Board of Investment (BOI) are the sample of the study. These firms have achieved several supports from Thai Government, namely, tax advantages in income taxes, material, supplies, and machines imported taxes, and others. The owners of these firms are both foreigners and Thai people as joint venture businesses. Then, government promoted investment firms are appropriate in this study. Alliance experience tends to have an impact on competitive advantage and performance, and competitive advantage is likely related to performance. Resource exchange and trust are proposed to become mediators of the aforementioned relationships. Likewise, interorganizational relationship seems to moderate the alliance experience-resource exchange association and the alliance experience-trust association, and learning capability is proposed to moderate the resource exchange-performance association and the trust-performance association. Accordingly, alliance experience plays a significant role in explaining competitive advantage and performance through resource exchange and trust as mediators and interorganizational relationship and learning capability as moderators. Hence, the objective of this study is to test the effects of alliance experience on competitive advantage and performance via mediating influences of resource exchange and trust and moderating impacts of interorganizational relationship and learning capability of government promoted investment firms in the Thailand Board of Investment (BOI). In this study, the key research questions are: (1) how alliance experience has a significant effect on resource exchange and trust, (2) how resource exchange and trust have an impact on competitive advantage and performance, (3) how competitive advantage has a relationship with performance, (4) does interorganizational relationship moderate the alliance experience-resource exchange associations, (5) does interorganizational relationship moderate the alliance experience-trust associations, (6) does learning capability moderate the resource exchange-performance associations, (7) does learning capability moderate the trust-performance associations, and (8) are the aforementioned relationships positive. This study is outlined as follows. The first section reviews existing significant literature in the areas and streams of alliance experience, resource exchange, trust, interorganizational relationship, learning capability, competitive advantage, and performance, links between the concepts of the aforementioned variables, and develops the key research hypotheses of those relationships. The second section explicitly describes the details of research methods, including data collection, measurements, and statistics. The third section gives the analysis results of the current study and corresponding discussion with some of the reasons and explanations. The final section summarizes the findings of the study and points both theoretical and managerial contributions, and presents suggestions for further research and the limitations of the study. 2. RELATIONSHIP MODEL AND HYPOTHESES DEVELOPMENT Interestingly, this study aims at investigating the associations among alliance experience, resource exchange, trust, competitive advantage, and performance of government promoted investment firms in the Thailand Board of Investment. Also, interorganizational relationship and learning capability are hypothesized to become moderators of the aforementioned associations. Thus, the conceptual, linkage, and research model presents the associations among alliance experience, resource exchange, trust, competitive advantage, performance, interorganizational relationship, and learning capability, as shown in Figure 1 on next page.


FIGURE 1 RELATIONSHIP MODEL OF ALLIANCE EXPERIENCE, COMPETITIVE ADVANTAGE AND

PERFORMANCE, AND THEIR MODERATORS AND MEDIATORS H10

H1

H8 H4 H3

H7 H5 H9 H6 H2 H11 2.1 Alliance Experience Alliance experience is defined as the lessons learned as well as the know-how generated through firms’ former alliances (Heimeriks and Duysters, 2007). It can occur from their owning experiences and the experience of others. Firms with great alliance experience have learned how to manage alliances through transferring capabilities and repeating engagements in these hybrid organizational forms with diverse partners (Hoang and Rothaermel, 2005). They definitely gain performance in the competitive markets. Thus, alliance experience tends to enhance them for providing organizational routines with respect to performing certain tasks and activities in order to have better competitive advantage and achieve superior alliance performance. Also, alliance experience refers to the extent to which a firm acquires, analyzes, and appropriates experiential learning throughout the organization (Emden et al., 2005). It is an efficient way to alleviate coordination challenges and a key factor that enhances firms’ alliance performance. Firms have exploited alliance experience in order to improve their business practices and operations and develop their expertises via identifying good partners, negotiation, alliance formation, interfirm control, knowledge acquisition, and alliance modification (McCutchen et al., 2008). Likewise, alliance experience is a core factor explaining alliance excellence and performance (deMan, 2005). It enhances firms to understand any partner’s behaviors, competencies, and cultures, attempt to establish appropriate strategies and operations in doing businesses with the competitive markets, and gain competitive advantage, good performance, and sustainability from their alliance activities. Hence, alliance experience tends to promote better value creations, enhance higher competitiveness, have greater organizational performance, and build higher wealths of the firms. With the interest of the alliance activities, alliance experience is a critical predictor of alliance outcomes and an important factor for creating superior organizational performance through facilitating interfirm know-how transfer (Emden et al., 2005). In the alliance operations, firms have effectively utilized exchanges of experiences, knowledges, capabilities, and resources within alliance partners in order to establish valuable operational strategies and improve outstanding business excellence. They have also exchanged financial and managerial resources. Thus, unique resource exchange becomes a significant outcome of firms’ alliance experience. Similarly, alliance experience has potentially supported firms to access resources of other partners for achieving overall performance (Kale et al., 2002). Firms are likely to receive competitive advantage and gain more performance under the alliance perspectives via

Resource Exchange

Trust

Alliance Experience Performance

Competitive Advantage

Interorganizational Relationship

Learning Capability


implementing resource exchanges of external sources, such as technologies, production systems, and others. While firms with alliance experience seem to succeed their resource exchange, trust is another outcome of alliance experience that links to their competitive advantage and performance. They need to trust other partners because they have exploited the partners’ experiences, knowledges, capabilities, and resources, and transferred these resources to them. Then, firms with greater alliance experience tend to encourage them for building and maintaining more trust. Hence, alliance experience has an important influence on firms’ resource exchange and trust. Therefore, the aforementioned relationships are hypothesized as shown below. Hypothesis 1: Alliance experience has a positive influence on resource exchange. Hypothesis 2: Alliance experience has a positive influence on trust. 2.2 Resource Exchange Resource exchange is an outcome of alliance operations and activities. Firms with joining alliance strategies need to utilize and exploit other partners’ resources and capabilities. Thus, resource exchange becomes a significant consideration of firms in the collaborations of alliance. Resource exchange refers to the mutual application of partners’ ideas, knowledge, technology, and other resources to promote each other’s goals (Wong et al., 2007). It is a key driver of establishing and improving firms’ innovation success and operational improvement via combining each other’s ideas and abilities. It supports them to achieve unique and valuable resources, competencies, capabilities, and strategies from the alliance environments in order to fulfill customer needs and market requirements and gain competitive advantage and business success. Also, resource exchange between partners is important because it helps effectively allocate appropriate resources for promoting and responding business type with each other (Hyder and Eriksson, 2005). Under the alliance formation, each firm needs to involve with other partners’ activities, practices, and operations, and open and access to another partner’ resources, competences, and interests, such as technology, production know-how, market knowledge, and contact with customers and manpower. Thus, resource exchange is necessary for participating alliance activities, receiving competitiveness and good performance in the markets and reaching sustainable business operations. With alliance experience, alliance firms can definitely gain more success of resource exchange with the business environments. They seem to enhance value creation through the benefits from leveraging knowledge and discovering complementarities among technologies and partners’ activities (Hermens, 2001). Then, efficiency and effectiveness of resource exchange potentially fosters firms to perform well, survive, and sustain in the competitive markets. Accordingly, tangible and intangible resource exchanges are able to determine the direction and magnitude of value creation, competitive advantage, organizational performance, and business excellence of firms with interfirm partners of alliance activities. Hence, resource exchange with alliance operations is likely to enhance firms in order to exploit valuable resources and capabilities, respond customer expectations well, have outstanding competitive advantage, and achieve superior corporate performance. It effectively has a significant influence on alliance firms’ competitive advantage and organizational performance in the current and future operations. Therefore, the aforementioned relationships are hypothesized as shown below. Hypothesis 3: Resource exchange has a positive influence on competitive advantage. Hypothesis 4: Resource exchange has a positive influence on performance. 2.3 Trust Trust is a significant determinant of alliance success. It refers to the degree to which the focal firm believes the partner firm is reliable (the belief of the partner honoring its obligations as agreed) and possesses integrity (the belief of the partner being honest and doing what is right) (Perry et al., 2004). Firms with great trust tend to motivate more alliance activities and operations and enhance alliance competitiveness and performance. Likewise, trust is based in beliefs about how an alliance partner will behave in the relationships (Cullen et al., 2000). It consists of credibility trust (the confidence of the partner having the intent and ability to meet its obligations and make its promised contributions to the alliance) and benevolent trust (the belief of the partner behaving with goodwill toward the alliance and the


partner). It effectively plays an important role in determining mutual adjustments of alliance partners and promoting competitive advantage and alliance performance. Similarly, trust includes goodwill trust (the expectation that the partner intends to fulfill its role in the relationship) and competence trust (the expectation that the partners has the ability to fulfill its role (Lui and Ngo, 2004). Then, trust is an important mechanism for enhancing alliance outcomes. Trust among partners is a substitute for formal control mechanisms, reduces transaction costs, facilitate dispute resolution, and allow more flexibility in an alliance (Bierly and Gallagher, 2007). Firms with higher trust are likely to have more confidence in each other through the existence of social and economic governance mechanisms and promote greater competitive advantage and better organizational performance in the alliance activities. In the interest of trust in the alliance operations, trust is defined as the expectation of another’s reliability, predictability and fairness (Lui et al., 2006). It definitely plays an important mediator in the relationships of firm similarity and partner reputation with coercive strategy in the interfirm cooperations. Thus, firms have utilized trust creation between partners in order to enhance business excellence and alliance profitability. Moreover, trust is a key to valuable competitive advantage and successful international alliance (Parkhe, 1998). It can be generated from process-based, characteristic-based and institutional-based mechanisms that are significant for achieving alliance success. It also has an effect on inward knowledge transfer in intra- and inter-organizational relationships (Li, 2005). Hence, trust has a potential impact on firms’ competitive advantage and performance in the alliance practices. It is likely to promote successful business operations, more competitiveness and superior outcomes. Therefore, the aforementioned relationships are hypothesized as shown below. Hypothesis 5: Trust has a positive influence on competitive advantage. Hypothesis 6: Trust has a positive influence on performance. 2.4 Competitive Advantage Competitive advantage is an outcome of firms’ successful strategy implementation. It can be obtained by offering superior value to the customer through either unique benefits that offset a higher price or lower prices than competitors for equivalent benefits (Wagner, 2006). For achieving a competitive advantage, firms need to create positive value which equals or exceeds their competitors and outperforms other competitors. They have taken their competitive advantages for supporting excellent business performance. Building the competitive advantage, both low cost competition strategy and product differentiation strategy (Tien et al., 2005). They become valuable strategies that help firms succeed in business operations and gain better firm performance and growth. Similarly, competitive advantage is a firm’s perceived competitive strength relative to competitors in markets (Navarro et al., 2010). It is a direct antecedent of performance through the relative superiority of the firm’s value offered determines target customers’ buying behaviors and the outcomes of this behavior for the performance. Accordingly, firms can create competitive advantage by conceiving new ways to conduct activities in the value chain for delivering superior value to customers (Weerawardena and O’Cass, 2004). Thus, competitive advantage becomes a main driver for determining organizational performance. Hence, it is likely to enhance firms’ performance. Therefore, the aforementioned relationship is hypothesized as shown below. Hypothesis 7: Competitive advantage has a positive influence on performance. 2.5 Interorganizational Relationship To achieve more contributions of the relationships among alliance experience, resource exchange and trust, interorganizational relationship is proposed as a moderator of the aforementioned relationships. It is a key driver for moderating the alliance experience-resource exchange relationship and the alliance experience-trust relationship. Here, interorganizational relationship refers to the combined efforts of two or more organizations that join business activities and operations together very well. It is integral to the operations of firms as a strategy to decrease environmental uncertainty, to gain access to much-needed resources, and to better serve clients (Babiak, 2009). Also, interorganizational relationship effectively helps firms create value by combining resources, sharing knowledge, increasing speed to market, and gaining access to markets (Barringer and Harrison, 2000) and succeed in building online interorganizational exchange (Pavlou, 2002) and implementing enterprise resource planning systems


(ERPs) (Nicolaou, 2008). They have potentially worked together well through transaction costs, resource dependency, strategic choice, stakeholder concerns, organizational learning, and institutional environments. Likewise, interorganizational relationship is the power-dependence relationship which exists between the firms via the state of cooperation and overall closeness of the relationship with a congruence of their mutual expectations (Ritter and Gemunden, 2003). Firms with great interorganizational relationship efficiently achieve more competencies in competitive markets. Hence, interorganizational relationship seems to become a main determinant of promoting the alliance experience-resource exchange relationship and the alliance experience-trust relationship. Thus, it tends to explicitly moderate the relationships. Therefore, the aforementioned relationships are hypothesized as shown below. Hypothesis 8: Interorganizational relationship positively moderates the alliance experience-resource exchange associations. Hypothesis 9: Interorganizational relationship positively moderates the alliance experience-trust associations. 2.6 Learning Capability Similar to the roles of interorganizational relationship as the moderating effects, learning capability is proposed to become an important moderator of the resource exchange-performance relationship and the trust-performance relationship. It is defined as the ability of the organization to implement the appropriate management practices, structures and procedures that facilitate and encourage learning (Bhatnagar, 2006). It is the capacity of managers within an organization to generate and generalize ideas with impact through learning commitment, systems thinking, knowledge transfer and integration, and openness and experimentation. Firms with more learning capability definitely have greater competitive advantage and enhance greater organizational performance. Likewise, learning capability refers to an organization’s ability to absorb and transform new knowledge and apply it to new product development with competitive advantage and high production speed (Hsu and Fang, 2009). High learning capability has a significant positive influence on new product development performance. Accordingly, firms have utilized their learning capabilities in order to achieve product innovation performance via experimentation, risk taking, interaction with the external environment, and dialogue and participative decision making (Alegre and Chiva, 2008). Furthermore, learning capability is the ability of an organization to learn the lesson of its experience and to pass those lessons across boundaries and time (Ingelgard et el., 2002). It enhances the capacity to generate ideas with impact across multiple boundaries through specific management initiatives. Hence, learning capability is the ability of organizations to promote, continuously develop and sustain abilities to learn and create new actionable knowledge (Prieto and Revilla, 2006). It is an important antecedent of business performance. While learning capability is a significant determinant of competitive advantage and organizational performance, it then seems to become a valuable moderator of the relationships between performance and other antecedents. Thus, learning capability is likely to moderate the resource exchange-performance relationship and the trust-performance relationship. Therefore, the aforementioned relationships are hypothesized as shown below. Hypothesis 10: Learning capability positively moderates the resource exchange-performance associations. Hypothesis 11: Learning capability positively moderates the trust-performance associations. 3. RESEARCH METHODS 3.1 Sample Selection and Data Collection Procedure Here, government promoted investment firms in the Thailand Board of Investment (BOI) are the samples of the study. They got several supports from Thai Government, namely, tax advantages in income taxes, material, supplies, and machines imported taxes, and others. The owners of these firms are both


foreigners and Thai people as joint venture businesses. Also, the joint ventures are one type of alliances (deMan, 2005). Thus, the government promoted investment firms is appropriate for this study. In this study, 1008 firms were randomly chosen from the list. A mail survey procedure via the questionnaire was used for data collection. The key participants in this study were managing directors or managing executives of government promoted investment firms in the BOI. With regards to the questionnaire mailing, 129 surveys were undeliverable because some firms were no longer in business or had moved to unknown locations. Deducting the undeliverable from the original 1008 mailed, the valid mailing was 879 surveys, from which 316 responses were received. Of the surveys completed and returned, only 294 were usable. The effective response rate was approximately 33.44%. According to Aaker, Kumar and Day (2001), the response rate for a mail survey, without an appropriate follow-up procedure, is less than 20%. Thus, the response rate of this study is considered acceptable. To test potential and non-response bias and to detect and consider possible problems with non-response errors, the assessment and investigation of non-response-bias was centered on two different procedures: (1) a comparison of sample statistics and known values of the population, such as number of employees, number of years in doing business, and amount of capital funding, and (2) a comparison of first wave and second wave data recommended by Armstrong and Overton (1977). Neither procedure showed significant differences. 3.2 Variables All variables were obtained from the survey. Performance is a dependent variable and it is defined as an outcome of business operations, practices and activities. Four scale items were developed to evaluate firms that achieve the level and degree of non-financial performance. Alliance experience is an independent variable of the study and it refers to the extent to which a firm acquires, analyzes, and appropriates experiential learning throughout the organization (Emden et al., 2005). Four scale items were developed to assess the degree to which firms acquire, analyze, and appropriate experiential learning throughout the partners in the alliance activities. Mediating variables include resource exchange, trust and competitive advantage. First, resource exchange refers to the mutual application of partners’ ideas, knowledge, technology, and other resources to promote each other’s goals (Wong et al., 2007). Four scale items were utilized to measure the degree to which firms apply partners’ ideas, knowledge, technology, and other resources to promote each other’s goals. Second, trust refers to the degree to which the focal firm believes the partner firm is reliable and possesses integrity (Perry et al., 2004). Four scale items were implemented to evaluate the degree to which firms believe the partner firm is reliable and possesses integrity. Third, competitive advantage refers to offering superior value to the customer through either unique benefits that offset a higher price or lower prices than competitors for equivalent benefits (Wagner, 2006). Four scale items were adapted to assess the degree to which firms offer superior value to the customer through either unique benefits that offset a higher price or lower prices than competitors for equivalent benefits. For the moderating influences of the research relationships, interorganizational relationship is defined as the combined efforts of two or more organizations that join business activities and operations together very well. Three scale items were implemented to gauge the degree to which firms join business activities and operations together with others. Also, learning capability is defined as the ability of the organization to implement the appropriate management practices, structures and procedures that facilitate and encourage learning (Bhatnagar, 2006). Three scale items were developed to assess the degree to which firms implement the appropriate management practices, structures and procedures that facilitate and encourage learning. Likewise, the control variables were also likely to affect the relationships, including firm experience, firm size, and firm capital. Firm experience (FE) may influence a firm’s technological learning capacity, international business activities, and the profitability of foreign operations (Zahra, Ireland, and Hitt, 2000). It was measured by the number of years a firm has been in existence. Firm size (FS) may affect the ability to learn and diversify operations, and to survive in the markets (Arora and Fosfuri, 2000). It was


measured by the number of employees in a firm. Finally, firm capital (FC) may impact the capacity of a firm to implement business strategies in order to achieve superior performance (Ussahawanitchakit, 2007). It was measured by the amount of money a firm has invested in doing business. 3.3 Methods First, factor analysis was utilized to examine, measure, investigate, and assess the underlying relationships of a large number of items and to determine whether they can be reduced to a smaller set of factors. The factor analyses conducted were done separately on each set of the items representing a particular scale due to limited observations. With respect to the confirmatory factor analysis, this analysis has a high potential to inflate the component loadings. Thus, a higher rule-of-thumb, a cut-off value of 0.40, was adopted (Nunnally and Bernstein, 1994). All factor loadings are greater than the 0.40 cut-off and are statistically significant. Second, the reliability of the measurements was evaluated by Cronbach alpha coefficients. In the scale reliability, Cronbach alpha coefficients are greater than 0.70 (Nunnally and Bernstein, 1994). The scales of all measures appear to produce internally consistent results; thus, these measures are deemed appropriate for further analysis because they express an accepted validity and reliability in this study. Table 1 presents the results for both factor loadings and Cronbach alpha for multiple-item scales used in this study.

TABLE 1 RESULTS OF MEASURE VALIDATION

Items Factor Loadings Cronbach Alpha

Performance (PF) .76-.85 0.81 Alliance Experience (AE) .77-.86 0.84

Resource Exchange (RE) .84-.92 0.90

Trust (TR) .90-.92 0.80

Competitive Advantage (CA) .71-.83 0.79

Interorganizational Relationship (IR) .75-.89 0.96

Learning Capability (LC) .95-.97 0.79 The ordinary least squares (OLS) regression analysis is used to test and examine the hypothesized relationships of alliance capability and its consequences, including moderating effects. Because all dependent variable, independent variables, and control variables in this study were neither nominal data nor categorical data, OLS is an appropriate method for examining the hypothesized relationships (Aulakh, Kotabe and Teegen, 2000). With the need to understand the relationships in this study, the research model of the aforementioned relationships is as follows.

Equation 1: RE = 01 + 1AE + 2IR + 3AE*IR + 4FE + 5FS + 6FC + Equation 2: TR = 02 + 7AE + 8IR + 9AE*IR + 10FE + 11FS + 12FC + Equation 3: CA = 03 + 13RE + 14TR + 15FE + 16FS + 17FC +

Equation 4: PF = 04 + 18RE + 19TR + 20LC + 21RE*LC + 22RE*LC + 23FE + 24FS

+ 25FC +

Equation 5: PF = 05 + 26CA + 27FE + 28FS + 29FC +


4. RESULTS AND DISCUSSION Table 2 shows the descriptive statistics and correlation matrix for all variables. With respect to potential problems relating to multicollinearity, variance inflation factors (VIF) were used to provide information on the extent to which non-orthogonality among independent variables inflates standard errors. The VIFs range from 1.00 to 1.54, well below the cut-off value of 10 recommended by Neter, Wasserman and Kutner (1985), meaning that the independent variables are not correlated with each other. Therefore, there are no substantial multicollinearity problems encountered in this study. Table 3 presents the results of OLS regression analysis of the relationships among alliance experience, resource exchange, trust, and interorganizational relationship. In this study, alliance excellence has a significant positive impact on resource exchange (b1a = 0.56, p < 0.01; b1b = 0.40, p < 0.01) and also has an important positive effect on trust (b7a = 0.59, p < 0.01; b2b = 0.59, p < 0.01). According to Heimeriks and Duysters (2007), alliance experience is the lessons learned as well as the know-how generated through firms’ former alliances. It can occur from their owning experiences and the experience of others. Firms with great alliance experience have learned how to manage alliances through transferring capabilities and repeating engagements in these hybrid organizational forms with diverse partners. In the alliance operations, firms have effectively utilized exchanges of experiences, knowledges, capabilities, and resources within alliance partners in order to establish valuable operational strategies and improve outstanding business excellence. Similarly, firms need to trust other partners because they have exploited the partners’ experiences, know ledges, capabilities, and resources, and transferred these resources to them. Then, firms with greater alliance experience tend to encourage them for building and maintaining more trust. Thus, Hypotheses 1-2 are supported. Surprisingly, interorganizational relationship does not moderate the alliance experience-resource exchange (b3 = -0.07, p < 0.29) and the alliance experience-trust (b9 = -0.01, p < 0.84). With the existing literatures, interorganizational relationship is the combined effort of two or more organizations that join business activities and operations together very well. It is integral to the operations of firms as a strategy to decrease environmental uncertainty, to gain access to much-needed resources, and to better serve clients (Babiak, 2009). It effectively helps firms create value by combining resources, sharing knowledge, increasing speed to market, and gaining access to markets and succeed in building online interorganizational exchange, and implementing enterprise resource planning systems. They have potentially worked together well through transaction costs, resource dependency, strategic choice, stakeholder concerns, organizational learning, and institutional environments. Thus, interorganizational relationship similarly has a direct influence on resource exchange (b2 = 0.40, p < 0.01) and trust (b8 = 0.43, p < 0.01). Hence, it has no impact on the alliance experience-resource exchange association and the alliance experience-trust association. Thus, Hypotheses 8-9 are not supported.

TABLE 2 DESCRIPTIVE STATISTICS AND CORRELATION MATRIX

Variables PF AE RE TR CA IR LC FE FS FC

Mean 3.68 3.84 3.93 3.99 3.57 3.94 3.89 10.60 143.00 92.00 Standard Deviation 0.60 0.57 0.58 0.81 0.63 0.57 0.67 5.65 115.00 58.00 Performance (PF) Alliance Experience (AE) 0.37***

Resource Exchange (RE) 0.46*** 0.57*** Trust (TR) 0.42*** 0.59*** 0.79*** Competitive Advantage (CA) 0.31*** 0.31*** 0.46*** 0.42*** Interorganizational Relationship (IR) 0.59*** 0.40*** 0.58*** 0.45*** 0.48*** Learning Capability (LC) 0.56*** 0.45*** 0.60*** 0.55*** 0.65*** 0.61*** Firm Experience (FE) 0.26*** 0.04 0.18** 0.15 0.16 0.15 0.24*** Firm Size (FS) 0.21** 0.07 0.09 0.04 0.14 0.13 0.22*** 0.46*** Firm Capital (FC) 0.20** 0.03 0.08 0.07 0.15 0.15 0.16 0.36*** 0.49*** *** p<.01, ** p<.05


TABLE 3 RESULTS OF OLS REGRESSION ANALYSISa

Independent Dependent Variable

Variables RE RE RE TR TR TR AE 0.56*** 0.40*** 0.59*** 0.59***

(0.07) (0.07) (0.07) (0.07) IR 0.40*** 0.43*** (0.07) (0.09)

AE*IR -0.07 -0.01 (0.05) (0.06)

FE 0.17* 0.16** 0.13* 0.17* 0.16** 0.16** (0.08) (0.07) (0.06) (0.08) (0.07) (0.07)

FS -0.01 -0.04 -0.06 -0.06 -0.09 -0.10 (0.08) (0.06) (0.06) (0.08) (0.06) (0.06)

FC 0.02 0.03 -0.02 0.03 0.07 0.04 (0.08) (0.07) (0.06) (0.08) (0.07) (0.07)

Adjusted R2 0.01 0.33 0.46 0.01 0.35 0.35 *p<.10, **p<.05, ***p<.01, a Beta coefficients with standard errors in parenthesis. Table 4 shows the results of OLS regression analysis of the relationships among resource exchange, trust, competitive advantage, performance, and learning capability. Resource exchange has a significant positive impact on competitive advantage (b13 = 0.32, p < 0.01) and performance (b18 = 0.31, p < 0.01).Resource exchange is the mutual application of partners’ ideas, knowledge, technology, and other resources to promote each other’s goals (Wong et al., 2007). It is a key driver of establishing and improving firms’ innovation success and operational improvement via combining each other’s ideas and abilities. It supports them to achieve unique and valuable resources, competencies, capabilities, and strategies from the alliance environments in order to fulfill customer needs and market requirements and gain competitive advantage and business success. Therefore, resource exchange is necessary for participating alliance activities, receiving competitiveness and good performance in the markets and reaching sustainable business operations. Accordingly, greater resource exchange is related to higher competitive advantage and better performance. Thus, Hypotheses 3-4 are supported. In contrast, trust has no effects on competitive advantage (b14 = 0.16, p < 0.19) and performance (b19a = 0.16, p < 0.19; b19b = 0.08, p < 0.47). In the trust literatures, trust is the degree to which the focal firm believes the partner firm is reliable (the belief of the partner honoring its obligations as agreed) and possesses integrity (the belief of the partner being honest and doing what is right) (Perry et al., 2004). Firms with great trust tend to motivate more alliance activities and operations and enhance alliance competitiveness and performance. Likewise, trust effectively plays an important role in determining mutual adjustments of alliance partners and promoting competitive advantage and alliance performance. It includes goodwill trust (the expectation that the partner intends to fulfill its role in the relationship) and competence trust (the expectation that the partners has the ability to fulfill its role. Then, trust is an important mechanism for enhancing alliance outcomes. However, trust has no relationships with competitive advantage and performance because it is a requirement of interfirm collaboration and alliance activities. Before a firm establishes the interfirm collaboration operations, practices, and activities, it needs to definitely trust other partners. Thus, the interfirm collaboration is successful. Thus, Hypotheses 5-6 are not supported. For the competitive advantage effect, competitive advantage has an important influence on performance (b26 = 0.65, p < 0.01). It is obtained by offering superior value to the customer through either unique benefits that offset a higher price or lower prices than competitors for equivalent benefits (Wagner, 2006). For achieving a competitive advantage, firms need to create positive value which equals or exceeds their competitors and outperforms other competitors. They have taken their competitive advantages for supporting excellent business performance and become valuable strategies that help firms succeed in business operations and gain better firm performance and growth. Similarly, competitive advantage is a firm’s perceived competitive strength relative to competitors in markets (Navarro et al., 2010). It is a direct


antecedent of performance through the relative superiority of the firm’s value offered determines target customers’ buying behaviors and the outcomes of this behavior for the performance. Thus, Hypothesis 7 is supported. With the interest of learning capability, learning capability does not moderate the resource exchange-performance relationship (b21 = -0.07, p < 0.64) and the trust-performance relationship (b22 = -0.06, p < 0.66). It is the ability of the organization to implement the appropriate management practices, structures and procedures that facilitate and encourage learning (Bhatnagar, 2006). It is also the capacity of managers within an organization to generate and generalize ideas with impact through learning commitment, systems thinking, knowledge transfer and integration, and openness and experimentation. Firms with more learning capability definitely have greater competitive advantage and enhance greater organizational performance. Likewise, it is an organization’s ability to absorb and transform new knowledge and apply it to new product development with competitive advantage and high production speed (Hsu and Fang, 2009). High learning capability has a significant positive influence on new product development performance. Accordingly, firms have utilized their learning capabilities in order to achieve product innovation performance via experimentation, risk taking, interaction with the external environment, and dialogue and participative decision making (Alegre and Chiva, 2008). Thus, learning capability has a direct impact on resource performance (b20 = 0.36, p < 0.01). Hence, it has no effects on the resource exchange-performance association and the trust-performance association. Thus, Hypotheses 10-11 are not supported.

TABLE 4 RESULTS OF OLS REGRESSION ANALYSISa

Independent Dependent Variable

Variables CA CA PF PF PF PF RE 0.32*** 0.31*** 0.12

(0.12) (0.12) (0.12) TR 0.16 0.16 0.08

(0.12) (0.12) (0.11) CA 0.65***

(0.06) LC 0.36***

(0.09) RE*LC -0.07

(0.09) TR*LC -0.06

(0.10) FE 0.11 0.03 0.19** 0.11 0.09 0.12*

(0.08) (0.08) (0.08) (0.07) (0.07) (0.06) FS 0.05 0.06 0.07 0.08 0.01 0.04

(0.08) (0.07) (0.08) (0.07) (0.07) (0.06) FC 0.08 0.07 0.10 0.09 0.09 0.05

(0.08) (0.07) (0.08) (0.07) (0.07) (0.06) Adjusted R2 0.02 0.21 0.06 0.24 0.34 0.47

*p<.10, **p<.05, ***p<.01, a Beta coefficients with standard errors in parenthesis. 5. CONTRIBUTIONS AND FUTURE DIRECTIONS FOR RESEARCH 5.1 Theoretical Contributions and Future Directions for Research This study is intended to provide a clearer understanding of the relationships among alliance experience, resource exchange, trust, competitive advantage, performance, interorganizational relationship, and learning capability. The study provides unique theoretical contributions expanding on previous knowledge and literature of alliance experience, resource exchange, trust, competitive advantage, performance, interorganizational relationship, and learning capability. For advancing the field theoretically, this study is one of the first known studies to directly link alliance experience to competitive advantage and


performance via mediators of resource exchange and trust and moderators of interorganizational relationship and learning capability of government promoted investment firms in the Thailand Board of Investment (BOI). In addition, this study assesses the importance of alliance experience relative to competitive advantage and performance, and competitive advantage relative to performance of government promoted investment firms in the Thailand Board of Investment. According to the results of this study, the need for further research is apparent. Because this study finds that trust does not influence competitive advantage and performance, and both interorganizational relationship and learning capability are not the moderators of the aforementioned relationships, future research is needed to conceptualize the measurements of trust, interorganizational relationship and learning capability and find some explanations about why trust does not affect competitive advantage and performance, and interorganizational relationship and learning capability do not play moderating roles in the research model while the existing literatures find the different results. Likewise, while the importance of alliance experience still exists, this study finds that alliance experience can impact competitive advantage and performance via mediating influence of resource exchange. Future research is needed to collect data from other populations and/or a comparative population in order to increase the level of reliable results. 5.2 Managerial Contributions Another implication now exists for firm owners, executives, and managers. This study helps managers identify and justify key components that may be more critical in a rigorously competitive market. Managers should effectively understand, manage, and utilize alliance experience to improve competitive advantage and performance, sustain, and succeed in the present and future operations. These managers may put more emphasis on alliance experience than on other variations. In the challenge of alliance experience, managers can understand and exploit them within the organization, but they should also plan to expand their other strategies to include or graduate to an advanced business operation in order to continuously maintain and increase the levels of business excellence, competitive advantage, organizational growth, and sustainability. To maximize the benefits of alliance experience, managers should provide other resources to support their effectiveness and create new opportunities in the competitive markets and environments.

6. CONCLUSION This study examines the effects of alliance experience on competitive advantage and performance of government promoted investment firms in the Thailand Board of Investment. Resource exchange and trust are proposed as mediators of the relationships and interorganizational relationship and learning capability are moderators of the relationships. With the results of the study, alliance experience has a significant positive influence on resource exchange and trust. Resource exchange has an important impact on competitive advantage and performance. Also, competitive advantage is positively related to performance. However, interorganizational relationship does not moderate the alliance experience-resource exchange association and the alliance experience-trust association. Learning capability does not moderate the resource exchange-performance association and the trust-performance association. As growth and sustainability necessitates an increased excellent operation, research analyzing this methodology will contribute significantly toward understanding how government promoted investment firms in the Thailand Board of Investment identify and build alliance experience and exploit it to potentially gain business excellence, effectively enhance competitive advantage, distinguishably receive performance, success and growth, and critically achieve competitiveness in the competitive markets and environments.


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COOPERATIVE TECHNOLOGY MANAGEMENT FOR CONSENSUS STANDARDIZATION:

DRAM STANDARDS AND IPRS

Masashi Arai, Rikkyo University, Japan

ABSTRACT

This paper discusses the consensus standardization and technology management of companies.

Modern corporate environments embrace both competition and cooperation, and standardization is

regarded as an important competitive advantage for companies. Some high-tech industries establish

consortia and decide common standards for all companies in an industry. However, this

standardization process would not lead to competitive advantage for each company because

companies cannot take advantage of their own technologies and patents for differentiation.

Companies need to cooperate with competitors for using their IPRs (Intellectual Property Rights;

patents) to avoid patent litigation among competitors for time-to-market advantage. In the

semiconductor industry in particular, companies that acquire significant patents that become required

standards find themselves in the tragedy of the anti-commons. They choose consensus

standardization in industry consortia not only in order to speedily and reliably determine a standard but

also to manage members’ patents rights efficiently and reasonably. However, consensus

standardization impedes differentiation among competitors, even in high-tech industries. While

standardization is important for the commercialization of products, consensus standardization is a

means of cooperation.

Keywords: Consensus Standardization, Technology Management, IPRs, Competition and

Cooperation.

1. INTRODUCTION

Many scholars (Cargill, C. F., 1989; Jakobs, K., 2000) have studied standardization, but their main

interest is ‘de-facto standardization’ for competitive advantage in global competition. As a result,

standardization is considered an effective means of technology management for competitive

advantage. In fact, the importance of standardization increased for companies in the 21st century

because the ICT (Information and Communication Technology) revolution and modularity led to global

networks and request compatibilities. Recently, however, it has become difficult for a company to have

its own technologies set a global standard. Three reasons for this are as follows: first, the change in

the global business environment—shortening product life cycles and intensifying standardization


competition; second, the flattening of the world market, with developing countries’ R&D ability

increasing and catching up with that of developed countries; and, finally, excessive patents leading to

the tragedy of the anti-commons.

In recent years, we can observe a number of cases of consensus standardization, especially in global

high-tech industries. Consensus standardization is the process by which all the companies competing

in an industry agree to industry standards. This process requires that companies cooperatively discuss

a standard in consortia or similar organizations with global membership, in order to avoid

counter-productive competition among their technology candidates for a standard, infringing on others’

patents and delaying time-to-market while embroiled in standardization battles, particularly in this era

of shortening product life-cycles.

However, consensus standards have not been studied in sufficient detail. This paper reveals how

consensus standardization affects companies’ technology management.

2. LITERATURE REVIEW

The traditional multinational companies (MNCs) expand business overseas with superior technologies.

Technological advantage is an important factor in multinationalization because technologies are

critically important resources for companies (Vernon, R. [1966, 1971], Kindleberger, C.P. [1969], Caves,

R.E. [1971], Hymer, S.H. [1976], Casson, M. [2000]). The earlier studies defined competitive

advantage in terms of differentiation or cost reduction (Vernon, R. [1966, 1971], Kindleberger, C.P.

[1969], Caves, R.E. [1971], Hymer, S.H. [1976], Porter, M. E. [1983, 1986]), and in that context,

companies’ technology strategy affects product differentiation and cost reduction.

3. TWO NEW ASPECTS OF TECHNOLOGY MANAGEMENT

Two tactics of technology management lead to competitive advantage. One is the research and

development (R&D) that results in the invention and development of new technologies. The other is

patenting the technologies to protect the companies’ rights. According to prior studies, companies used

to be able to do R&D freely and control their patents independently for competitive advantage. In

recent studies, however, companies, especially those in high-tech industries, have difficulty in gaining

competitive advantage alone because of two new aspects of technology management: competition

and cooperation (Takeda, 2001, 2006, and 2008). The earlier studies did not sufficiently consider

technology cooperation between companies, although they did mention that companies might achieve

competitive advantage through independent technology management.

An environment composed of competition and cooperation is often demonstrated in high-tech


industries because they require compatibility in networks, modules and many other technologies.

Especially in high-tech industries, technologies are more complex, and products contain diverse

technologies. Nevertheless, because each company has generated many patents of their technologies

every year for the past few decades, different versions of the same technologies are dispersed among

many companies in the same industry. Thus, competitors must cooperate on standards for their

technologies if they hope to create a functioning product with a short time-to-market. In this business

model, companies compete against each other, but their technologies are partially common.

Consequently, as high-tech industries are very technology-oriented, companies are compelled to

differentiate their technologies against those of competitors on the non-standardized features of their

products.

4. THE TRAGEDY OF THE ANTI-COMMONS IN HIGH-TECH INDUSTRIES

Patents are one of the intellectual property rights that do not change in substance for a long period.

They have always been a popular resource for companies (Table 1). However, companies became

more focused on patents after 1985 because of the pro-patent policy in the United States. After that,

Japanese, European and U.S. companies as well as global MNCs applied aggressively for technology

patents. The purpose of patents is typically to protect the owner’s technologies from imitation and to

license them to other companies, but patents have increased markedly in certain technology areas.

Companies focusing on these technology areas find it difficult to develop technologies without

infringing upon others’ patent rights or encountering prohibitive development costs. This phenomenon,

the tragedy of the anti-commons (Heller and Eisenberg, 1998), has been pointed out by prior studies in

the case of chemical industries, but this phenomenon has also begun to occur of late in high-tech

industries.

Table 2 on next page shows the number of patents of companies with high numbers of patents

reported by the United States Patent and Trademark Office (USPTO) and the R&D expenditure of each

company. Companies that have the most patents in the U.S. are in the semiconductor industry, with

products such as DRAM, CPU and NAND-type flash memory. These companies include Intel, Micron,

Infineon, Texas Instruments, Renesas, AMD and Hynix; in addition, IBM, Samsung, Toshiba and other

companies have semiconductor divisions. The semiconductor patents column of Table 2 shows the

number of patents selected by keywords related to semiconductors from the USPTO database,

revealing that companies have obtained many patents related to semiconductors within one year

(2006).


TABLE 1: SEMICONDUCTOR PATENS OF U.S. COMPANIES (1952–1967)

1952 1955 1958 1961 1964 1967

Bell Lab. 34 27 51 67 41 41

RCA 14 10 57 33 41 63

GE 5 11 35 36 38 64

Westing House 2 4 21 21 23 46

Sylvania 1 1 19 7 9 12

Philco-Ford 0 1 7 13 8 9

Raytheon 0 1 10 6 3 4

Tung-Sol 0 1 3 2 2 4

Columbia Broadcasting System 0 2 1 0 0 0

IBM 1 1 15 37 47 46

Texas Instruments 0 0 9 13 16 52

Motorola 0 2 8 10 8 39

Hughes 0 3 18 9 9 16

Honeywell 0 0 5 12 15 9

Sperry Rand 0 1 5 6 11 15

GM 0 0 5 12 8 16

ITT 2 4 15 6 6 9

Clerite 0 3 3 7 17 2

Bendix 0 0 2 9 3 6

Thompson Ramo Wooldridge 0 0 3 18 2 0

Fairchild 0 0 0 4 6 11

Sprague 0 0 2 1 5 5

Others 1 0 16 12 7 10

Total 60 73 307 341 325 479

Source: Tilton, J. E. (1971), International Diffusion of Technology, p. 57

Patents are fruits of R&D, an investment from which companies expect innovation and new

technologies for which the companies can apply to the USPTO for patents. Therefore, companies incur

huge costs for patents, and this investment is higher for companies in the semiconductor industry than

those in other industries.


TABLE 2: U.S. PATENTS RANKING AND R&D INVESTMENTS (2006)

Number

of

Patents

Patents Related

to

Semiconductors

Granted

Patents,

Process

(Class:

438)

R&D

Expenditure

(millions $)

Net

Revenue

(millions

$)

R&D

Expenditure

/Net

Revenue

IBM 3621 938 232 6107 91424 6.7%

SAMSUNG 2451 951 244 6152 91954 6.7%

CANON 2367 833 20 2591 34931 7.4%

MATSUSHITA 2229 765 0 4899 77188 6.3%

HEWLETT-

PACKARD 2099 437 31 3611 104286 3.5%

INTEL 1959 704 143 5873 35382 16.6%

SONY 1771 770 62 4610 70303 6.6%

HITACHI 1732 841 37 3750 86847 4.3%

TOSHIBA 1672 1029 116 3339 60308 5.5%

MICRON 1610 1231 428 805 5688 14.2%

FUJITSU 1487 538 54 2153 43222 5.0%

SEIKO EPSON 1200 496 74 365 11995 3.0%

FUJI PHOTO FILM 906 289 3 1500 23581 6.4%

INFINEON 890 537 136 1662 10903 15.2%

TEXAS

INSTRUMENTS 880 370 129 2195 14255 15.4%

NEC 728 390 13 2836 39429 7.2%

RICOH 693 228 4 974 17533 5.6%

SHARP 665 391 25 1623 26733 6.1%

BROADCOM 660 218 2 1117 3668 30.5%

RENESAS 583 536 78 - - -

SANYO 516 187 36 1079 18775 5.7%

TSMC 471 424 169 493 9739 5.1%

AMD 439 331 137 1205 5649 21.3%

HYNIX 438 357 130 35 8148 0.4%

Source: USPTO (2007) and Annual Report of each company (2007)1.


5. CONSENSUS STANDARDIZATION

5.1 The Significance of Standards

Standards are an important factor in competition, because companies derive new technologies from

R&D activities but companies with nearly equal R&D capability have difficulty in differentiating their

own technologies and products from those of competitors (Farrell, J. and Saloner, G [1986, 1988],

Farrell, J. and Shapiro, C. [2000], Katz, M. L. and Shapiro, C. [1994], Shapiro, C. and Varian, H. R.

[1998], Bresnahan, T. F. and Greenstein, S. [1999], Shapiro, C. [2001]). Because industry standards

are not determined by de-facto standardization, no company in mature industries has recently

developed markedly superior technologies.

5.2 Consensus Standardization

The earlier studies of standardization focused mainly on de-facto standardization, which enables

companies to obtain strong competitive advantage because it creates large market share (merit of

scale) and differentiates their products from non-standard products. Although standardization does not

always lead companies to competitive advantage directly, the processes of standardization are more

important. Companies compete for a standard in the market, but in recent processes of standardization,

they avoid competing in the market; that is, they cooperate in consortia to determine a standard before

beginning market competition. This is known as consensus standardization, and it has several

benefits.

The first benefit is that companies can avoid competing against rivals to create and own the

standard—a competitive arena in which huge R&D expenditures are wasted if they lose the

standardization competition, rendering both their standard technology and all dependent products

unmarketable. Therefore, they prefer the efficiency gained from consensus standardization to de-facto

standardization. Second, companies strive to take their products and technologies to market as soon

as possible because of shortened product life cycles. Consensus standardization allows companies to

establish a standard speedily. Third, companies must examine patents to avoid infringement upon

those of other companies before using them. Consensus standardization prevents patent infringement

problems. Membership in a consortium for consensus standardization is generally free, but companies

must agree to the patent policy rules of the consortium. Patent policies set forth the rules for licensing

technologies to members, on the basis of reasonable and non-discriminatory (RAND) licensing. RAND

means that members holding essential technologies for establishing a standard declare ownership of

patented technologies related to a standard early and give them to members for a reasonable and

non-discriminatory fee—a form of collective agreement on patent management. An additional


advantage is that members do not have to examine patent technologies for possible infringements,

allowing them to take new products to the market speedily. Above all, the recent trend toward

consensus standardization reflects its value as a rational and efficient means of technology

management standardization.

However, member companies in consortia do have to compete within the standardized technologies

after establishing the consensus standard. This makes it difficult for companies to differentiate

products and technologies from those of competitors because of the common technological areas and

reduced spaces of differentiation among the technologies of products. For example, in Blu-ray DVD

standardization, the consortium members—Sony, Panasonic and Sharp—have to compete with very

similar Blu-ray standardized products, but they cannot afford to differentiate their products sufficiently

through cutting edge technologies.

6. THE DRAM INDUSTRY

6.1 DRAM Industry and Companies

Dynamic Random Access Memory (DRAM), a representative semiconductor, has a 40-year history in

the industry, so it is a suitable subject for studying industry changes over a long period. It is very

important for compatibility that semiconductor products such as DRAM are standardized; therefore,

companies cannot develop technologies for products independent of the industry standard. Because

the technology compatibility standards are so important in the industry, it is predisposed to the tragedy

of the anti-commons.

The DRAM industry has become an oligopoly, although there had previously been many companies in

the industry. Table 3 shows the market share of each company in DRAM industry in 2007: Samsung

and Hynix are Korean; Qimonda is German; Elpida is Japanese; Micron is U.S.; and PowerChip,

Nanya, ProMOS and Winbond are Taiwanese companies. The top five companies account for about

80 percent of the market.

TABLE 3: MARKET SHARE OF DRAM COMPANIES (2007)

Samsung Hynix Qimonda Elpida Micron Powerchip Nanya ProMOS Winbond other Total

Korea Korea Germany Japan U.S. Taiwan Taiwan Taiwan Taiwan — —

25.9% 22.4% 13.3% 12.1% 9.1% 5.5% 5.3% 4.1% 0.5% 1.8% 100%

Source: Nikkei Electronics (2007) 2007.11.5 p.57.

Table 4 shows amounts of sales and R&D expenditures of the top five companies, all of which, except

Samsung, specialize in the DRAM business. Each company invests heavily in R&D and holds many

patents.


TABLE 4: R&D EXPENDITURE AND THE NUMBER OF PATENTS (2006)

Micron Hynix Samsung Elpida Qimonda

Sales (in millions) $5,688 $8,358 $92,345 $4,151 $5,130

R&D Expenditure (in millions) $805 $35 $6,032 $246 $570

Ratio of R&D to Sales 14.2% 0.4% 6.5% 5.9% 11.1%

Number of Patents 1610 438 2451 49 890

Patents of Semicon. Process

Tech.

428 130 244 9 136

Ratio of Patents of Semicon.

Process Tech. to All Patents 26.6% 29.7% 10.0% 18.4% 15.3%

Source: each company’s annual report (2007) and USPTO (2007)2.

6.2 The Consortium for Standardization

Although the DRAM companies are competitors, they have formed a consortium called The JEDEC

Solid State Technology Association (JEDEC). This semiconductor standardization organization, which

is based in the U.S., includes about 300 companies from many countries. JEDEC determines the

current global DRAM industry standards, such as SDRAM, DDR and DDR2.

The members must agree to the patent policy of JEDEC when they join it. The JEDEC patent policy

defines RAND licensing and quickly discloses its own patents related to standards technologies3.

Because constructing a DRAM requires many patented technologies, companies require a standard

for the DRAM industry, which means that each company must make its products with the standardized

DRAM. As a result, although each of the companies acquires many patents every year, the patented

technologies are not used as a source of sufficient advantage of differentiation among competitors. In

other words, once a standard is established in an industry, companies cannot afford to differentiate

widely because changing the standardized technology specification individually would result in

products that deviate from the standard and are therefore useless. Particularly for technology-oriented

products such as DRAM, technologies are significant sources of differentiation for competitive

advantage. Core technology standardization, however, makes it difficult for them to add value beyond

superficial elements, such as colours, decorations and shapes. Therefore, although consensus

standardization hampers competitive advantage for each company, without consensus standardization,

they would suffer even worse consequences from the financial and time costs of competing for

standards and examining huge numbers of patents—that is, the ‘dilemma of standardization’.


6.3 Patents and Consensus Standardization

Table 5 shows the number of patents related to DRAM technologies by year and the total number of

patents issued till 2006. According to this data, first, patents related to DRAM technologies began to

increase around 1985. As previous mentioned, 1985 was the year that U.S. established the pro-patent

policy and strengthened the patent law. Second, DRAM patents increased sharply each year. Third,

companies have been accumulating DRAM technology patents each year from 1985 to 2006, and

those patents have been dispersed among many companies.

Before 2000, some DRAM standards existed, and the competition was very keen because each of the

DRAM companies developed an original standard, promoted it and supported only a few standards.

For example, Direct RDRAM was promoted by Rambus and Intel; SLDRAM was promoted by the

SLDRAM consortium; VC SDRAM was supported by NEC, Siemens and Hyundai; and DDR SDRAM

was JEDEC’s standard. In that era, the SDRAM standard established by the JEDEC consortium in the

mid-1990s, its first major DRAM standard, coexisted with other standards and was supported by only a

few companies. Then, as Table 6 shows, the number of patents related to the SDRAM technologies

from 1994 to 2000 in the USPTO grew quickly, with each of the companies aggressively acquiring

many SDRAM technology patents at a growing annual rate. Thus, it appears that in that period the

DRAM companies competed to invent new technologies and become the ‘de-facto standard’ in the

market.

In the late 1990s, JEDEC set a new DRAM standard, DDR SDRAM (Figure 1) as the next generation

DRAM standard. Table 7 shows the number of patents related to DDR SDRAM technologies from 1998

to 2005 in the USPTO, illustrating the fact that some of the companies did not aggressively acquire an

increasing number of patents related to DDR SDRAM compared with SDRAM technologies (Table 6).

This means that the competition in DRAM technologies for standards declined and disbursement of

technologies among companies also decreased. In this manner, consensus standardization for

technology cooperation among the companies in an industry can avert the tragedy of the

anti-commons, and companies can engage in competition within the standardized technologies early

on.


TABLE 5: DRAM PATENTS AND ACCUMULATED DRAM PATENTS

Source: Author from USPTO4

FIGURE １: STANDARDS COMPETITION IN THE DRAM INDUSTRY

Source: Author

Early

DRAM

FPM

DRAM

EDO

DRAM

SDRAM

(JEDEC)

DDR SDRAM

(JEDEC)

DDR2

SDRAM

(JEDEC)

BEDO DRAM

(Micron)

Direct RDRAM

(Rambus, Intel)

SL DRAM

(SLDRAM

consortium)

VC SDRAM

(NEC, Siemens,

Hyundai)

Time 2000 1990s 1970s 1980s


TABLE 6: NUMBER OF PATENTS RELATED TO SDRAM TECHNOLOGIES

Source: USPTO database5.

TABLE 7: NUMBER OF PATENTS RELATED TO DDR SDRAM TECHNOLOGIES

Source: USPTO database6.


7. CONCLUSIONS AND IMPLICATIONS

This paper discussed technology management in high-tech industries. Prior studies had focused on

technology management’s function of performing R&D and patenting technologies, and they thought

that companies could perform these functions freely to gain competitive advantages. However, our

study observed that current technology management environments include two new aspects:

competition and cooperation. In high-tech industries, technologies are decentralized because many

companies obtain exclusive patent rights every year. Notably, in the semiconductor industry,

companies acquire a large number of patents; at the same time, the industry standards need to be set

early in order to bring acceptable products to market. One reason for this situation is that, because

they are in the tragedy of the anti-commons, it is difficult for them to examine each other’s patents

related to a certain standard technology carefully, causing an increase in patent violations and patent

litigations in recent years. Therefore, they choose consensus standardization through industry

standardization consortia as a means for determining cooperative standards early and managing

members’ patents rights efficiently and rationally to facilitate competition. Thus, cooperative technology

management is essential in the current environment.

However, because consensus standardization makes it difficult for companies to differentiate

technologies among the standardization members, the sources of competitive advantage might shift to

cost reduction. As a result, patented technologies would not always support differentiation for

competitive advantage. Standardization is important for the commercialization of products in some

industries, but consensus standardization is the most effective means of coping with the aspect of

cooperation. Global companies must cooperate in technology management, but competitive

advantage in high-tech industries requires the companies to reduce cost and time-to-market.

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AUTHOR PROFILE:

Dr. Masashi Arai is Assistant Professor at Rikkyo University College of Economics in Japan. He

received his Ph.D in business administration from Rikkyo university in 2009. He has research interests

on the international business, strategic management, and innovation management. His recent

research topics are the global standardizations and intellectual property rights management for global

competitive and cooperative advantage in high-tech industries.

1 USPTO Patent Full-Text and Image Database [http://patft.uspto.gov/] (searched 15 June 2007). The search

formula is below. [an/"the name of company" and ISD/$/$/2006 and (aclm/semiconductor or spec/semiconductor)] 2 Source: USPTO (2007) ‘Patenting In Technology Classes, Breakout By Organization, Count of 2002–2006 Utility Patent Grants, By Calendar Year of Grant With Patent Counts Based on Primary Patent Classification’ [http://www.uspto.gov/web/offices/ac/ido/oeip/taf/tecasg/all_tor.htm]. 3 The patent policy has two key elements—early disclosure and written assurance. Let us look at each element in turn. Early disclosure means that all participants in the standards process, including patent owners, have an obligation to disclose the existence of known patents and patent applications that are, or may be, relevant to the work of the formulating committee. Individual participants have no obligation to research their companies’ patent portfolios. The obligation to disclose applies only to those patents and patent applications of which they have actual knowledge; this knowledge triggers the duty to disclose. The second element of the patent policy is the assurance by the patent owner to license the patented technology without charge or, more commonly, on terms that are reasonable and non-discriminatory. The assurance must be in writing, signed by the patent owner. It must repeat the language of the patent policy verbatim with no substantive modifications. It should be given to the committee chairman (Cited by JEDEC Patent Policy). 4 The search formula is as follows: ISD/$/$/1976 and ((aclm/"dynamic RAM memory" or "dynamic random access memory" or (DRAM and memory)) or (spec/"dynamic RAM memory" or "dynamic random access memory" or (DRAM and memory))) (accessed on 11 June 2008). 5 The search formula is as follows: [an/micron and ISD/$/$/1996 and ((aclm/"synchronous DRAM" or "synchronous dynamic RAM memory" or "synchronous dynamic random access memory" or SDRAM) or (spec/"synchronous DRAM" or "synchronous dynamic RAM memory" or "synchronous dynamic random access memory" or SDRAM))] (Accessed on 13 June 2008). 6 The search formula is as follows: [an/micron and ISD/$/$/1996 and ((aclm/"double data rate SDRAM" or "double data rate synchronous dynamic random access memory" or "DDR synchronous dynamic random access memory" or "DDR SDRAM") or (spec/"double data rate SDRAM" or "double data rate synchronous dynamic random access memory" or "DDR synchronous dynamic random access memory" or "DDR SDRAM"))] (Accessed on 13 June 2008).


AN INTRA-ORGANIZATIONAL COMMUNICATION STRATEGY, ITS ANTECEDENTS AND CONSEQUENCES: AN EMPIRICAL EXAMINATION OF COMPUTER BUSINESS IN THAILAND

Nuanlaong Attharangsun, Mahasarakham University, Thailand

Phapruke Ussahawanitchakit, Mahasarakham University, Thailand

ABSTRACT The purpose of this research is to analyze how the intra-organizational communication strategy (diverse communication implementation, openness communication effectiveness, flexible communication channel and media utilization efficiency) has an effect on organizational effectiveness through success of team relationship, excellence of working coordination, and establishment of task creativity. Also, this research examines the moderating role of all of information technology competency and share vision climate. Likewise, this research investigates the antecedents of intra-organizational communication strategy. Computer business in Thailand is sample and questionnaire is used as a tool. Results reveal that diverse communication implementation and media utilization efficiency have a positive influence on success of team relationship and excellence of working coordination. Media utilization efficiency only affects establishment of task creativity. Share vision climate is partial moderating relationship between media utilization efficiency-success of team relationship and media utilization efficiency-excellence of working coordination. In addition, establishment of task creativity has a positive effect on organizational effectiveness. Competitive orientation has a positive association with diverse communication implementation, while, horizontal organizational characteristics and executive supportiveness have a positive relationship with openness communication effectiveness and flexible communication channel. Furthermore, executive supportiveness only affects media utilization efficiency. Information technology competency moderates the relationship between horizontal organizational characteristics-diverse communication implementation, horizontal organizational characteristics-flexible communication channel, horizontal organizational characteristics-media utilization efficiency and executive supportiveness-diverse communication implementation. Theoretical and managerial contributions are explicitly elaborated. Conclusion and suggestions and directions for the future research are highlighted accordingly. Keywords: Intra-organizational communication strategy, Diverse communication implementation, Openness communication effectiveness, Flexible communication channel, Media utilization efficiency Success of team relationship, Excellence of working coordination, Establishment of task creativity, Organizational effectiveness, Horizontal organizational characteristics, Competitive orientation, Executive supportiveness, Share vision climate, and Information technology competency 1. INTRODUCTION The world economy crisis during 2008-2009 affected all businesses worldwide such as financial institution, service business, and industry business causing many companies to go out of business, to layoff employees so as to reduce expenses and responsibility in operation, or lay plans to reconstruct the strategy so that the organization can survive. Like other countries, Thailand suffers the impact tremendously especially in economy. Many companies faced with the problem of employee strikes are out of business because companies lack communication with employees to understand the current situation. So the executive have to negotiate and reconcile within their own organization to improve the recession. Byrne and Lemay (2006) explained that high quality organizational communication reduced number of employee strikes, lowered absenteeism which increased the overall quality of services. Organizational communications is a key element that affects the ability of organizations to achieve the goals, organizational success and effectiveness (Byrne and LeMay, 2006). Communication is the core process of organizing which individual activity is coordinated to devise, disseminate, and pursue organizational goals (Gardner et al., 2001). At the same time, Byrne and Lemay (2006) explained that organizations have a need to communicate with employees, both positively and negatively, about major changes in business that affect the organization and/or the employees directly. Consequentrly, communication provides a basis for understanding in the organizations; it also provides a basis for viewing the activities of the individuals who are employed by these organizations. Furthermore, previous study found that a manager spends nearly three-quarters of his/her time engaging in communication. Carlson and Davis (1998) explained that communication activities account for a


significant portion of the working time of managers. Furthermore, they suggest that 75 percent of mangers’ time was spent in communication activities. Therefore, the organizational communication is likely to be rapid in workflow, and consequently reduces the time needed for work completion. Previous researches suggested about the organizational communication and other variables. Penley and Hawkins (1985) explained that female subordinates differentially perceived organizational communication. Price and Mueller (1981) found that the influence of communication is on turnover. Jablin (1987), Ferris (1985), and Vancouver and Schmitt (1991) describe relationships between organizational communication and intent to turnover. While, Penley and Hawkins (1985) focus attention on interpersonal communication between supervisor and subordinate which are both relational and content-oriented. According to Orpen (1997) described the quality of communication in organization as associated with employee job satisfaction and motivation. Furthermore, Rodwell, Kienzle, and Shadur (1998) suggested that communication was a significant positive relationship to enhancing job satisfaction and organizational commitment. Akkirman and Hariss (2005) compared the level of communication satisfaction between virtual work place and traditional workplace employee. Moreover, Nakra (2006) studied to take a preliminary look at the relationship between communication and organizational identification. Before, the organizational communications and communication strategy literature review reveal that organizational communication variables are related to other variables. Organizational characteristic had been examined by previous researchers that have related patterns of interaction, and coordination (Steers, 1977). According to Hage et al. (1971) organizational characteristics are assumed to determine the communication process. These characteristics are represented by several organizational constructs that impact the communication practices operating within a firm. Moreover, Santra and Giri (2008) investigate about organizational characteristics found that organizational characteristics have an effect on communication. Corresponded with Hage et al. (1971), the organizational characteristics affected interdepartmental communication. This research assumes that horizontal organizational characteristics affect intra-organizational communication strategy. The executives have related organizational communication. Previous researchers describe that communication is a core competence activity in performance management. Barnard (1938) suggested that the first function of an executive develop and maintain a system of communication. Relationship between firm and its members, the manager and the workers, the leader and the led, good communication is sorely needed. Previous research about directions of communication flow found that the communication upwards in the organizational hierarchy can help executives understand and quantify organizational capability and performance (Harrop and Varey, 1998). Communication is an activity that is necessary in the organization. James et al. (1986) explained that the significance of organizational communication is considered important for two reasons. Firstly, communication makes the planning, organizing, guiding, and controlling functions of management possible. Secondly, communication is an important part of the administrative process on which executives spend a significant amount of their time for coordination purposes. Furthermore, Boone and Kurtz (1978) suggested that the significance of organizational communication requires an efficient use of management techniques. Communication provides various departments with information to enable them to guide, plan, organize, motivate, and control. Efficient communication is essential for the successful running of administrative and organizational activities (Altinoz, 2008). Russ et al. (1990) explain media selection and managerial characteristics in organizational communications. They found that managers select the face-to-face medium for highly equivocal communication and written media for clear, objective communication. Correspondingly, Allen and Brady (1997) suggest that manager efforts are important in creating the internal cooperation. Moreover, managers are instructed to support superior-subordinate relationships (Allen and Brady, 1997). In addition, the role of senior managers used communication to develop the organization unique (Jones et al., 2004). Therefore, the management communicates more effectively depend on executives. In addition, this research also shows that communication leads to teamwork. Gayeski (1993) has given reasons to communicate in organization. Communication is the primary activity of an organization, and communication is processed to reduce uncertainty and to coordinate actions in order to achieve goals (Varey and Mounter, 1997). Therefore, the organization has an intra-organizational communication strategy that is assumed to bring success of team relationship and excellence of working coordination to organizational effectiveness in the future. Information mentioned above indicates that the organization will be effective. The organizations need use intra-organizational communications


strategy for employees at all levels to understand the obligations and operational functions so as to achieve the goals of the organization. Therefore, information mentioned above indicates that the literatures related to intra-organizational communications strategy are less direct, which previous researches found that they are so according to organizational communication and communication strategy. This research focuses on the intra-organization communication strategy which consists of four dimensions: diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilized efficiency. Furthermore, this research emphasizes the relationship between antecedents (i.e. horizontal organizational characteristics, competitive orientation, and executive supportiveness) and consequences (success of team relationship, excellence of working coordination, establishment of task creativity, and organizational effectiveness) of intra-organization communication strategy. In addition, this research puts stresses on moderator variables (i.e. information technology competency and share vision climate). The objectives of this research are: 1) to examine the relationship among intra-organizational communication strategies composed of diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency that have an effect on success of team relationship, excellence of working coordination, and establishment of task creativity; 2) to examine the relationship among the success of team relationship, excellence of working coordination and establishment of task creativity that have an influence on organizational effectiveness; 3) to investigate the antecedents of intra-organizational communication strategy including horizontal organizational characteristics, competitive orientation, and executive supportiveness; 4) to investigate the influence of moderating effects including: 4.1) share vision climate that moderates the effect on the relationship among dimension of intra-organizational communication strategy (e.g. diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency) and success of team relationship, excellence of working coordination, and establishment of task creativity; and 4.2) information technology competency that moderates the effects on the relationship among horizontal organizational characteristics, competitive orientation, executive supportiveness, and intra-organizational communication strategy. Furthermore, the research questions of this study are: 1) how does the intra-organizational communication strategy affect success of team relationship, excellence of working coordination, and establishment of task creativity? 2) how do the success of team relationship, excellence of working coordination, and establishment of task creativity influence the organizational effectiveness? 3) how do the horizontal organizational characteristics, competitive orientation, and executive supportiveness affect intra-organizational communication strategy? 4) how does the share vision climate moderate the relationship among the intra-organizational communication strategy and success of team relationship, excellence of working coordination, and establishment of task creativity? and 5) how does the information technology competency moderate the relationship among the horizontal organizational characteristics, competitive orientation, executive supportiveness, and intra-organizational communication strategy? The remainder of this study is organized as follows. Firstly, the relevant literature and the theoretical framework are reviewed to describe the conceptual model and develop the related hypotheses for testing. Secondly, the research methods including sample and data collection procedure, the variable measurements of construct, the instrumental verification, the statistics, and equations to test the hypotheses are provided. Thirdly, the empirical results and discussion are demonstrated. Finally, the theoretical, practical, and institutional implications, limitations and suggestions for future research, and conclusion are provided. 2. THEORETICAL FOUNATION This research integrates many theoretical perspectives to supporting how intra-organizational communication strategy consists of the communication theory, the media richness theory, and resource-based view of the firm (RBV) theory. Firstly, the communication theory explains what happens when a communication occurs between two or more people. Berlo (1960) explains that the basic element of communication model consists of information source, encoder, message, channel, information receiver, decoder, and noise. Lewis and Slade (2000) explain that process models of communication are models which identify the communication as a series, loops, of transmitted, received, interpreted messages, to which the receiver responds, and to which the sender may then in


Intra-organizational

Communication Strategy

Diverse Communication Implementation Openness Communication Effectiveness Flexible Communication Channel Media Utilization Efficiency

turn respond with feedback. Communication in organization is a process consisting of two way communication. Therefore, the presentation of communications theory demonstrates communication processes within the organization and will lead to various forms of communication and communication channels that lead to understanding, working coordination, creativity and efficiency in organization. Secondly, the media richness theory explains that the media is used to select the appropriate communication for effective communication. Daft and Lengel (1986) defined media richness as a medium’s capacity for cues and feedback. Managers use different communication method of appropriate degrees of richness to deal with situations that differ in equivocality and uncertainty (Daft and Lengel, 1986). Hence, different communication media needs to be used for different types of organizational task (Hollingshead and Contractor, 2006). Russ et al. (1990) explained that a media richness hierarchy which incorporates four media classifications; face-to-face, telephone, addressed documents, and unaddressed documents. The richness of each media is based on the blend of four criteria; the availability of instant feedback, the capacity of the medium to transmit multiple cues such as body language, voice tone, and inflection, the use of natural language, and the personal focus of the medium. The media richness theory explains that effective managers make rational choices matching a particular communication medium to a specific task or objective and to the degree of richness required by that task (Rice and Shook, 1990; Trevino et al., 1990). Using media theory to describe the media that each media has the ability to communicate is actually different, but if users understand the capabilities of each media type and then to use the media properly that will make communication efficiently. So if the organizational members use the appropriate communication method, it would allow the organization to work effectively. Finally, the resource-based view of the firm (RBV) theory explains that the resource-based view of the firm consists of two components: resource and capabilities that are source of competitive advantage (Ussahawanitchakit, 2005). Firm resources are defined as anything which could be thought of as a strength or weakness of a firm (Warnerfelt, 1984). Capabilities refer to the ability to deploy resources and to continuously improve the effectiveness of firm operation and performance (Moingeon et al., 1998). Firms attempt to exploit valuable, heterogeneous, rare, and inimitable in order to develop and sustain competitive advantages through their capabilities (Ussahawanitchakit, 2005). So, resource-based view explains that an organization has capability that effect to competitive advantage. Therefore, the organization is driven by strategy. Organization is to provide a powerful competitive advantage. In this research, the intra-organizational communication strategy is assumed as the capability of firm that affects effectiveness of organization. 3. RELEVANT LITERATURE REVIEW AND RESEARCH HYPOTHESES

Figure 1 An Intra-organizational Communication Strategy, Its Antecedents and Consequences:

An Empirical Examination of Computer Business in Thailand

As elaborated above, this research investigates the relationship between intra-organizational communication strategy and consequences (i.e. success of team relationship, excellence of working coordination, and establishment of task creativity). In addition, this research explores the relationship

Competitive Orientation

Horizontal Organizational Characteristics

Executive Supportiveness

Information Technology Competency

Share Vision Climate

Organizational Effectiveness

Success of Team

Relationship

Excellence of Working

Coordination

Establishment of Task Creativity

H1a-c H2a-c H3a-c H4a-c

H5a-c, H6a-c, H7a-c, H8a-c

H9

H10

H11

H12a-d

H13 a-d

H14a-d

H15a-d, H16a-d, H17a-d


among success of team relationship, excellence of working coordination, and establishment of task creativity and organizational effectiveness. Furthermore, this research examines relationship among antecedents (horizontal organizational characteristics, competitive orientation, and executive supportiveness) and intra-organizational communication strategy. Finally, this research investigates relationship the both moderator as share vision climate and information technology. Below is a description of the conceptual framework as shown in Figure 1 on previous page. 3.1 Intra-organizational Communication Strategy In coordinating the work of departments, the organization uses communication as a tool for understanding between members of the organization. Daft (1997) explains that intra-organizational communication is the process by which information is exchanged and understood by two or more people, usually with the intent to motivate or influence behavior. The literature review found that most researches examine intra-organization communications. But research about intra-organization communications strategy has found very little. So, this research is to learn more about the strategies that the past researchers explain about a large number of meanings of strategy. Drucker (1954) defined strategy as an indication of the organization’s positioning for the future. The strategy is more important to do the right thing than to do things right. Finkelstein (2005) described that the strategy is just as much about what organizations decide not to do, as it is what they decide to do. Furthermore, Grunig and Repper (1992) explain strategy as an approach, design, or scheme that directs the course of action in a specific situation it is the means to achieve the ends (Narayanan and Nath, 1993). Moreover, strategy is one type of capabilities of firms (Das and Teng, 2000; Grant, 1991; Makadok, 2001). The strategy refers to the ability of to analyze situations and determine directions in doing business and is a unique approach which the firms lean to gain competitive advantages (Ussahawanitchakit, 2004). In this study, intra-organizational communication strategy refers to the ability of to analyze situations and determine directions in communication in organization that leads to understand among the members, motivate to operate in the same trend for an effective organization. The intra-organizational communication strategy has four dimensions that consist of the diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency. 3.1.1 Diverse Communication Implementation Diverse communication implementation is defined as a direction variety and multichannel of communication which can be useful from channels. Actually, the diverse communication as providing communication in a way that’s most appropriate for the receivers (Roberts, 2008). All organizations have the communication among personal, group, and department. Therefore, direction of communication and channel of communication are important to send massage appropriate for personal, group, and department. Direction of communication has including upward communication to superiors, downward communication to subordinates, and horizontal or lateral communication among peers or across functions. Furthermore, hierarchical or bureaucratic organizations, communication for control appears to flow downward, while communication which supports decision making appears to flow upward. Lateral communication appears to serve coordination and emotive functions in all types of organizations (Culnan and Bair, 1983). Channel of communication consists of traditional communication which includes face-to-face, telephone, written, and electronic (telex and facsimile) and new communication channel which includes electronic messaging and computerized conferencing. Therefore, the organization has diverse communication implementation showing that organizations have the ability to use direction variety and multichannel of communication to build a team relationship, coordination of work and led to the creation of organizations. 3.1.2 Openness Communication Effectiveness Openness communication effectiveness is defined as an ability of encourages disclosing, information exchange and the trustworthiness of communication and bringing to share perceptions. The openness as a quality of interpersonal effectiveness include a willingness to interact openly with others, to self-disclose as appropriate; a willingness to react honestly to incoming stimuli; and a willingness to own your feelings and thoughts (DeVito, 2008). Furthermore, the openness is behaviors that convey willingness to experience novelty, whether in interests, people, situations, values, or ideas, and a sense of divergent, creative thinking (Moberg, 2001). Therefore, the organizations have openness


communication effectiveness to show that membership in organizations has a relationship behavior, trust in the communication between each other. Leuthesser (1997) suggests that open communication is the disclosing behavior. Open communication between workers and management promotes shared perceptions about the importance of safety and increases worker commitment (Clarke, 1999; Hofmann and Morgeson, 1999). The open of communication is one where a high degree of information sharing occurs (Troy et al., 2001). At the same time, freely sharing information within an organization can increase the value of the information exponentially when members use it to generate new ideas (Glazer, 1991; Quinn, 1992; Slater and Narver, 1995; Troy et al., 2001), which may result in mutual understanding leads to cooperation in the work. 3.1.3 Flexible Communication Channel Flexible communication channel is defined as the ability in using way the communication appropriate to the situation and time. DeVito (2008) defined communication channel as the vehicle or medium through which message passes. Furthermore, DeVito explained that types of channels compose of face-to-face contact, telephones, e-mail, movies, television, and telegraph. Previous researchers, Lind and Zmud (1991) suggest that organizational employees exchange information through a variety of communication channels, because these channels differ in their capability to convey information, when to choose any channel of communication is determined by type of communication channel used. 3.1.4 Media Utilization Efficiency Media utilization efficiency is defined as an ability of media to communicate quickly in time, and is born the accuracy in data acknowledgement. Researchers in the past research discussed the media includes multiple ideas for example Rice et al. (1990) suggest that communication media can alter the effectiveness and survival of organizations. Santra and Giri (2008) revealed that the effectiveness of the medium lies in its ability to transmit the message successfully to its receiver. Hambley et al. (2007) suggested that the media through which teams communicate has been found to significantly affect their interaction styles. Furthermore, media differs in their potential for communicating understanding. Media can be low or high in richness depending on the capacity to facilitate shared meaning (Daft et al., 1987). Hollingshead et al. (1993) suggest that face-to-face communication is the most effective medium for team interaction. 3.2 success of team relationship Success of team relationship is defined as a relation of group of people who have been chosen to work together to do a particular job, shared skills and ideas, cognitive ability. As mentioned earlier, team as a distinguishable set of two or more people who interact, dynamically, interdependently, and adaptively toward a common and valued goal/objective/mission, who have been assigned specific roles or functions to perform, and who have a limited life-span of membership (O’neil and Drilling, 1994). Ussahawanitchakit (2004) defined team as two or more employees that are concerned with commitment, longevity, flexibility and shared skills and ideas. While McKinney et al. (2004) defined team as a way of life, constantly working with others to share their technical knowledge. Greenberg et al. (2007) suggest that members of team have the opportunity to easily develop relationships, which members can discuss each other’s work and their reactions can be conveyed communication. The communication into the workplace has brought to the importance of teamwork in day-to-day activities. It has also exhibited the need for increased understanding of what makes teamwork effective. One of the key aspects of effective teamwork is the ability of individuals to share knowledge within and between teams (Coakes et al., 2008). In the review of literature, the work team literature found that the organizational communication has an effect on team building (Preston, 2005), at in time, communication is essential to effective team performance (McKinney et al., 2004). Ancona and Caldwell (1992) found that communication was positively related to team member ratings of performance. 3.3 Excellence of working coordination Excellence of working coordination is defined as the activities that can be integrated among members of organization, managing resource effectively, working together to accomplish task, and to achieve goals. As mentioned earlier, coordination as the extent to which activities, people, routines, and assignments work together to accomplish overall objects (Sivadas and Dwyer, 2000). Sabherwal


(2003) explains coordination as integrating or linking together of different parts of an organization to accomplish a collective set of tasks. Avadikyan et al. (2001) suggest that the aim of the coordination is to provide compatibility and coherence to individual actions. Lai, Wong, and Cheng (2008) suggest the coordination that leads to working together towards common goals. The coordination will result in action to the goals of the organizations and will bring organization success (Mohr and Spekman, 1994). 3.4 Establishment of task creativity Establishment of task creativity is defined as an ability to activate creative ideas to do things that are new and useful in working all the time. Based on previous research evidences, creativity as the production of novel and useful ideas, and innovation is the successful implementation of creative ideas within an organization (Gumusluoglu and Arzu Ilsev, 2009). Findlay and Lumsden (1988) argued that creativity refers to a group of personality and intellectual traits shown by individuals. Furthermore, the other researchers defined creativity as a cognitive process of producing different ideas (Drazin et al., 1999). Therefore, the creativity is the requirement for activities of working together. Consequently, this study assumes that the influence to organizational effectiveness consists of diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency has a positive influence on the success of team relationship, excellence of working coordination and establishment of task creativity. Therefore, base on literature above, it leads to hypotheses as follows: Hypothesis 1a: Diverse communication implementation is likely to have a positive influence on the success of team relationship. Hypothesis 1b: Diverse communication implementation is likely to have a positive influence on the excellence of working coordination. Hypothesis 1c: Diverse communication implementation is likely to have a positive influence on the establishment of task creativity. Hypothesis 2a: Openness communication effectiveness is likely to have a positive influence on the success of team relationship. Hypothesis 2b: Openness communication effectiveness is likely to have a positive influence on the excellence of working coordination. Hypothesis 2c: Openness communication effectiveness is likely to have a positive influence on the establishment of task creativity. Hypothesis 3a: Flexible communication channel is likely to have a positive influence on success of the team relationship. Hypothesis 3b: Flexible communication channel is likely to have a positive influence on excellence of the working coordination. Hypothesis 3c: Flexible communication channel is likely to have a positive influence on the establishment of task creativity. Hypothesis 4a: Media utilization efficiency is likely to have a positive influence on the success of team relationship. Hypothesis 4b: Media utilization efficiency is likely to have a positive influence on the excellence of working coordination. Hypothesis 4c: Media utilization efficiency is likely to have a positive influence on the establishment of task creativity. 3.5 Share vision climate


Share vision climate is defined as the perception of members in organization in exchanging their ideas, vision of organization, and to increase the level of interpersonal attraction that communicate with others within the organization. Based on previous research evidences, a shared vision is essential as it brings about consistency in critical beliefs and assumptions and internal stability to the firm (Henderson and Sifonis, 1988). Tsai and Ghoshal (1998) defined shared vision as a bonding mechanism that helps different parts of an organization to integrate or to combine resources. In addition, the shared vision embodies the collective goals and aspirations of the members of an organization. When organization members have the same perceptions about how to interact with one another, they can avoid possible misunderstandings in their communications and have more opportunities to exchange their ideas or resources freely. The common goals or interests they share help them to see the potential value of their resource exchange and combination. As a result, organization members who share a vision will be more likely to become partners sharing or exchanging their resources. In general, climate is viewed as a representation of the organizational member’s perceptions of the work environment (Mohr and Nevin, 1990). Reichers and Schneider (1990) defined that climate as perceptions of the way things are around here. While, Reynolds and Johnson (1982) suggested that organizational climate with a focus on communication relationships can improve some of these conceptual difficulties, because communication linkages describe more concretely the vehicle by which perceptions are shared among organizational members and reflect more specifically possible impacts of the organization on the individual. As a result, this study assumes that share vision climate increases the relationship between dimension of intra-organizational communication strategy and success of team relationship relationships, excellence of working coordination relationships, and establishment of task creativity relationships. Thus, hypotheses are proposed as follows: Hypothesis 5: Share vision climate will positively moderate (a) the diverse communication implementation-success of team relationship relationships, (b) the diverse communication implementation-excellence of working coordination relationships, and (c) the diverse communication implementation-establishment of task creativity relationships. Hypothesis 6: Share vision climate will positively moderate (a) the openness communication effectiveness-success of team relationship relationships, (b) the openness communication effectiveness-excellence of working coordination relationships, and (c) the openness communication effectiveness-establishment of task creativity relationships. Hypothesis 7: Share vision climate will positively moderate (a) the flexible communication channel-success of team relationship relationships, (b) the flexible communication channel-excellence of working coordination relationships, and (c) the flexible communication channel-establishment of task creativity relationships. Hypothesis 8: Share vision climate will positively moderate (a) the media utilization efficiency-success of team relationship relationships, (b) the media utilization efficiency-excellence of working coordination relationships, and (c) the media utilization efficiency-establishment of task creativity relationships. 3.6 Organizational effectiveness Organizational effectiveness is defined as the degree to which an organization realizes that its goals will bring the overall success, market share, profitability, and growth rate of the organization. Previous study suggests that organizational effectiveness is the degree to which a firm realizes its goals (Daft, 1995). Argote and Ingram (2000) suggests that organizational effectiveness is what the organization comes to know that explains its performance. Armistead et al. (1999) examine that the organization improves efficiency, and part of the reorganization to include effective coordination in the organization. Furthermore, Allen and Brady (1997) suggest that teams must be kept informed and must communicate effectively to achieve and modify their goals, as well as continually improve performance.


Consequently, this study assumes that the success of team relationship, excellence of working coordination and establishment of task creativity has positive influence on organizational effectiveness. Therefore, based on literature above, it leads to hypotheses as follows: Hypothesis 9: Success of team relationship is positively related to organizational effectiveness. Hypothesis 10: Excellence of working coordination is positively related to organizational effectiveness. Hypothesis 11: Establishment of task creativity is positively related to organizational effectiveness. 3.7 Horizontal organizational characteristics Horizontal organizational characteristics is defined as the feature emphasizes to share tasks and empowerment, a more relaxed hierarchy with fewer rules, more terms, and decentralized decision-making. Previous study, Zheng, Yang and Mclean (2009) suggest that decentralized structure encourages communication because in less centralized environments, free flow of lateral and vertical communication is encouraged. Furthermore, organizational structure has influenced frequencies of communication among organizational members. As a result, this study assumes that horizontal organizational characteristics have a positive influence on diverse communication implementation, openness communication effectiveness, flexible communication channel and media utilization efficiency. Thus, hypotheses are proposed as follows: Hypothesis 12a: Horizontal organizational characteristics are positively related to diverse communication implementation. Hypothesis 12b: Horizontal organizational characteristics are positively related to openness communication effectiveness. Hypothesis 12c: Horizontal organizational characteristics are positively related to flexible communication channel. Hypothesis 12d: Horizontal organizational characteristics are positively related to media utilization efficiency. 3.8 Competitive orientation Competitive orientation is defined as the nature of the competitive advantage sought by firm. Previous researches investigated about competitive orientation by Porter (1980, 1985) suggest that competitive effects play an important role in the strategy of firm and more specifically in performance. A firm’s strategic orientation reflects the strategic directions implemented by firm to create the proper behaviors for the continuous superior performance of the business (Narver and Slater, 1990). Furthermore, Narver and Slater (1990) describe a competitive orientation as the ability and a company’s will identify, analyze, and respond to competitors’ actions. Firm with competitive orientations must continually be evaluating their positions in relation to their competitors in order to discover areas of strength and weakness, and to identify new ways of strengthening their competitive advantage (Aaker, 1989; Narver and Slater, 1990). Marion (1998) explained that many strategic levers that the CEO of strategic changed have at their disposal, communication is particularly important: setting out and conveying a strategic ‘vision’ of the firm, building a representation of the firm and having it shared by all its members. Therefore, this study assumes that competitive orientation has a positive influence on diverse communication implementation, openness communication effectiveness, flexible communication channel and media utilization efficiency. Thus, the hypotheses are proposes as follows: Hypothesis 13a: Competitive orientation is positively related to diverse communication implementation. Hypothesis 13b: Competitive orientation is positively related to openness communication effectiveness. Hypothesis 13c: Competitive orientation is positively related to flexible communication channel.


Hypothesis 13d: Competitive orientation is positively related to media utilization efficiency. 3.9 Executive supportiveness Executive supportiveness is defined as the support that expressed for the work achieved toward goal which consists of professional development, reasonableness, encourages autonomy, and task guidance and assistance. Prior research suggests that the communication is related to the management of organizational because it is clear and taken to be the transference and understanding of meaning between employers, workers, and supervisor when they are to carry out their tasks effectively (Robbins et al., 1994). Varey and Mounter (1997) suggest that the US chief executive decided to spend a full 50 percent of his time communicating with his staff at all levels of the firm, creating time to listen, finding out what they were thinking, and addressing the issues. As a direct result, he is held in high esteem by his staff because, while they might not like what is happening, they know the reasons for the changes. The effective communication is essential for attaining organizational goals (Gardner and Winder, 1998). Moreover, Hargie and Tourish (1996) describe managers as a key role to play to promote the appropriate organizational climate conducive to innovation by communicated to all members. Organizations that do not support open communication, good ideas may not be channeled successfully to those in management who have the responsibility and power to promote and implement employee. Consequently, this study assumes that executive supportiveness has a positive influence on diverse communication implementation, openness communication effectiveness, flexible communication channel and media utilization efficiency. This research, based on these reviews, proposes hypotheses as follows: Hypothesis 14a: Executive supportiveness is positively related to diverse communication implementation. Hypothesis 14b: Executive supportiveness is positively related to openness communication effectiveness. Hypothesis 14c: Executive supportiveness is positively related to flexible communication channel. Hypothesis 14d: Executive supportiveness is positively related to media utilization efficiency. 3.10 Information technology competency Information technology competency is defined as the capacity of IT management to organize, mobilize, coordinate and integrate IT resources and IT competencies to create value and competitive advantage (Foss & Christensen, 1996). Prior Information technology literature has investigated relationship between Information technology and organizational communication. Croteau and Raymond (2004) suggest that information technologies that can allow organizations to achieve a competitive advantage and enhance business performance. Furthermore, a strategic alignment perspective, these competencies are meant to support the organization’s strategic competencies through the effective use and management of IT. Yazici (2002) described that information technology enhance communication. The manufacturing companies have investment 50 percent of capital budget about information technology (Kathuria et al., 1999). In addition, results from research of Yazici (2002) indicated information technology as an influencing factor for effective organizational communication. Furthermore, information technologies also enable professionals to use and access electronic media at almost any time from any place and to communicate information in almost any form (Bock and Applegate, 1995; Jarvenpaa and Ives, 1994). While Igbaria, (1990); Igbaria and Tan, (1997); Millman and Hartwick, (1987) show that information technology increases personal effectiveness, improves the decision making process for middle managers (Buchanan and McCalman, 1988), and enhances communication processes and the work performed (Good and Stone, 1995). As a result, this study assumes that information technology competency increases the relationship between horizontal organizational characteristics, competitive orientation and executive


supportiveness and dimension of intra-organizational communication strategy. Thus, hypotheses are proposed as follows: Hypothesis 15: Information technology competency will positively moderate (a) the horizontal organizational characteristics-diverse communication implementation relationships, (b) the horizontal organizational characteristics-openness communication effectiveness relationships, and (c) the horizontal organizational characteristics-flexible communication channel relationships, and (d) the horizontal organizational characteristics-media utilization efficiency relationships. Hypothesis 16: Information technology competency will positively moderate (a) the competitive orientation-diverse communication implementation relationships, (b) the competitive orientation-openness communication effectiveness relationships, and (c) the competitive orientation-flexible communication channel relationships, and (d) the competitive orientation-media utilization efficiency relationships. Hypothesis 17: Information technology competency will positively moderate (a) the executive supportiveness-diverse communication implementation relationships, (b) the executive supportiveness-openness communication effectiveness relationships, and (c) the executive supportiveness-flexible communication channel relationships, and (d) the executive supportiveness-media utilization efficiency relationships. 4. RESEARCH METHODS 4.1 Sample and Data Collection Procedure The sample in this research is computer business in Thailand. The computer businesses in Thailand are chosen because computer business plays an important part in Thailand economy. From Export Financial report of Suvarnabhumi Airport Cargo Clearance Customs Bureau data showing the Customs Department statistics show the highest export during the year 2007-2009. Top five exports includes computers and devices, integrated circuits and micro wireless sector UTAC, gold and gold plated with platinum, jewelry and sections, and machinery and equipment (order of the highest export) (http://www.customs-ccs.com/). Data October to December 2009 found that the export value reached the amount of 101,093,388,164 Baht. Hence, the computer business is highly competitive. Therefore, organizations should have a strategy to build competitive advantage of organizations. This research shows an interest in learning about the computer business to use that intra-organizational communication strategy to improve organizational effectiveness. This study collected data from the database of website such as the department of business development, Thai industrial standards institute, Ministry of Industry, and companies in Thailand. A mail survey procedure via the questionnaire was used for data collection. The questionnaires were sent to 1,181 firms in December, 2009. The key participants in this study were CEO’s computer business in Thailand. The CEO group is considered an appropriate key respondent of this research because he or she can provide data in overall of firm leading to confidence and reliability in data collected. Later, 1,181 questionnaires were sent to managing director or managing partner to provide data for this study via mail. However, 152 surveys were undeliverable because some firms were no longer in business or had moved to unknown locations. Deducting the undeliverable from original 1,181 mailed, the valid mail was 1025 surveys, from which 175 responses were received, but 4 questionnaires found incomplete. Thus, the response rate is 17.07 %. Non-response bias was calculated by comparison of early and late respondents (Armstrong and Overton, 1997). To examine for non-response error, the responses from the first 50% of respondents were defined as the early respondents and the last 50% as late respondents. Both sets were test response difference between the two groups. This research compared the means of demographic variables, firm size, and two groups were tested by t-test whether the means are different, but its result was not statistically significant. Hence, non-response bias does not appear to be a problem in the study for on an overall basis. 4.2 Questionnaire Development and Variables Measurement 4.2.1 Questionnaire Development


The questionnaires were separated into seven parts. The first part asks for demographic data of executive information such as gender, age, marital status, and education level, working experiences, average monthly income at present and working position at present. The second part asks about general data about computer business such as form of business, period of time in management, number of company employees, capital of operations, and business income of average per year. The third parts relates to evaluating main construct consist of four dimensions as diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency in the conceptual model. In addition, the fourth part includes the consequence of intra-organizational communication strategy consisting of success of team relationship, excellence of working coordination, and establishment of task creativity. The fifth part asks about antecedents of intra-organizational communication strategy which consist of horizontal organizational characteristics, competitive orientation, and executive supportiveness. In the sixth parts, information technology competency and share vision climate are asked. Finally, an open-ended question for executive suggestions and opinions is included in the seven part. 4.2.2 Variables Measurement To measure each construct in the conceptual model, all variables were measured by five-point Likert-type scale, ranging from 1 (strongly disagree) to 5 (strongly agree). Most items are derived from the literature and face validity by two experts in the related fields in the Faculty of Accountancy and Management. The pilot study is conducted in a 30 samples. The pilot sample responses were used to measure and provide evidence of the validity and reliability of scale items. Therefore, the variables measurements of main construct, consequences, antecedents, moderators, and control variables are described as follows: 4.2.2.1 Independent Variables Intra-organizational communications strategy is the main variables of this research that consist of four dimensions: 1) Diverse communication implementation is measured by firm’s perception about a direction variety and multichannel of communication which can be useful from channels. This variable is developed in a new scale from the related literatures and its definition. Five items are used to estimate the diverse communication implementation. 2) Openness communication effectiveness is measured by firm’s perception about an ability of encourages disclosing, information exchange and the trustworthiness of communication and bringing to share perceptions. This variable is developed in a new scale from the related literatures and its definition. Five items are used to estimate the openness communication effectiveness. 3) Flexible communication channel is measured by firm’s perception about the ability in using way the communication that is appropriate the situation and time. This variable is developed in a new scale from the related literatures and its definition. Four items are used to estimate the flexible communication channel. 4) Media utilization efficiency is measured by firm’s perception about an ability of media of communicates quickly in time, and is born the accuracy in data acknowledgement. This variable is developed in a new scale from the related literatures and its definition. Three items are used to estimate the media utilization efficiency. 4.2.2.2 Dependent Variables Success of team relationship is measured by firm’s perception about the relation of group of people who have been chosen to work together to do a particular job, shared skills and ideas, cognitive ability. This variable is developed in a new scale from the related literatures and its definition. Five items are used to estimate the success of team relationship. Excellence of working coordination is measured by firm’s perception about the activities that can be integrated among members of organization, manage resource effectively, working together to accomplish task, and to achieve goals. This variable is developed in a new scale from the related literatures and its definition. Five items are used to estimate the excellence of working coordination.


Establishment of task creativity is measured by firm’s perception about the ability to activate creative ideas, to do things that are new and useful in working all the time. This variable is developed in a new scale from the related literatures and its definition. Five items are used to estimate the establishment of task creativity. Organizational effectiveness is measured by firm’s perception about the degree to which an organization realizes its goals bring to the overall success, market share, profitability, and growth rate of the organization. This variable is developed in a new scale from the related literatures and its definition. Five items are used to estimate the organizational effectiveness 4.2.2.3 Antecedent Variables Horizontal organizational characteristics is measured by firm’s perception about the feature emphasizes sharing tasks and empowerment, a more relaxed hierarchy with fewer rules, more terms, and decentralized decision-making. This variable is developed in a new scale from the related literatures and its definition. Five items are used to estimate the horizontal organizational characteristics. Competitive orientation is measured by firm’s perception about the nature of the competitive advantage sought by firm. This variable is developed in a new scale from the related literatures and its definition. Four items are used to estimate the competitive orientation. Executive supportiveness is measured by firm’s perception about the support to express for the work achieved toward goal which consists of professional development, reasonableness, encourages autonomy, and task guidance and assistance. This variable is developed in a new scale from the related literatures and its definition. Four items are used to estimate the executive supportiveness. 4.2.2.4 Moderating Variables Share vision climate is measured by firm’s perception about the perception of members in organization about exchange their ideas, vision of organization, and increase the level of interpersonal attraction that communicate with others in the organization. This variable is developed in a new scale from the related literatures and its definition. Three items are used to estimate the share vision climate. Information technology competency is measured by firm’s perception about its the capacity of IT management to organize, mobilize, coordinate and integrate IT resources and IT competencies to create value and competitive advantage. This variable is developed from Foss and Christensen (1996). Three items are used to estimate the information technology competency. 4.2.2.5 Control Variables Also, there are two control variables that influence the relationship between antecedent and consequence of intra-organizational communications strategy. The control variables include firm size and firm age. Firm size was measured by the number of employees in firm. Likewise, firm age was measured by the number of years of a firm in business. 4.3 Reliability and Validity In this study, all items in the questionnaire are developed from definitions of constructs and literature reviews and use pre-test method to appropriately conducted to assert validity and reliability of questionnaire. In this study, thirty firms are randomly chosen from a population frame that must not be included in a sampling frame. The rational of pre-test is proving clearly and accurately understanding of a questionnaire before using real data collection. Furthermore, the questionnaire is modified and improved to increase an effective instrument. Validity is an instrument’s validity that includes content and constructs validity. Content validity is the assessment of the degree of correspondence between the items selected to constitute a summated scale and its conceptual definition. Face validity is a survey instrument and tests used in the extent to which a psychological test appears to measure what it is intended to measure. The face validity is a qualitative measure of validity. Construct validity is the


extent to which a set of measured items actually reflects the theoretical latent construct those items are designed to measure. Thus, it deals with the accuracy of measurement. Evidence of construct validity provides confidence that item measures taken from a sample represent the actual true score that exists in the population (Hair et al., 2006). This research uses a confirmatory factor analysis (CFA) to examine the construct validity of instrument by investigating the underlying relationships of a large number of items and determining whether they can be reduced to a smaller set of factors. The validity of contents in the questionnaire was checked by factor analysis (Kerlinger, 1964). Factor analysis is employed to test the validity of contents in the questionnaire. Because multi-item constructs measure each variable, factor analysis was employed to check unidimensionality among the items. Table 1 shows the results for both factor loadings and Cronbach Alpha for multiple items scales used in this study.

TABLE 1 RESULTS OF MEASURE VALIDATION

Measurement Model Range of Standardized

Factor Loadings Cronbach Alpha

Intra-organizational Communications Strategy (ICS) Diverse Communication Implementation (DCI) Openness Communication Effectiveness (OCE) Flexible Communication Channel (FCC) Media utilization Efficiency (MUE) Success of Team Relationship (STR) Excellence of Working Coordination (EWC) Establishment of Task Creativity (ETC) Organizational Effectiveness (OE) Horizontal Organizational Characteristics (HOC) Competitive Orientation (CO) Executive Supportiveness (ES) Share Vision Climate (SVC) Information Technology Competency (ITC)

.687-.837 .652-.917 .782-.926 .871-.926 .810-.899 .825-.953 .752-.903 .709-.921 .665-.866 .922-.943 .895-.942 .915-.966 .921-.962

.813 .764 .872 .861 .917 .934 .905 .894 .835 .947 .930 .936 .936

This study used confirmatory factor analysis (CFA) shown in Table 1 to examine the validity of each construct. Factor loading of each construct presents a value higher than 0.5. All factor loadings are .652-.966 as being greater than the 0.4 cut-off and are statistically significance level (Hair et al., 2006). That is, factor loading of each construct should not be less than 0.4. The internal consistency reliability was assessed by calculating Cronbach’s alpha values for all items in the questionnaire. The reliability results of the constructs are summarized in Table 1. Cronbach’s alpha of the construct ranged from .764 (for Openness Communication Effectiveness) to .947 (for Competitive Orientation), which were above the acceptable threshold (0.70) (Nunnally and Bernstein, 1994). Furthermore, the internal consistency of the measures used in this study can be considered acceptable for all constructs. 4.4 Statistic Test The Ordinary Least Squares (OLS) was used to test the hypothesis relationships among intra-organizational communications strategy and consequence and among antecedent of intra-organizational communications strategy, because this research shows neither nominal data nor categorical data. In this study, the models of the aforementioned relationships are as follows:- Equation 1: STR = β01+β1DCI+β2OCE +β3FCC+β4MUE+β5FA+β6FS+ε Equation 2: EWC = β02+β7DCI+β8OCE +β9FCC+β10MUE+β11FA+β12FS+ε Equation 3: ETC = β03+β13DCI+β14OCE+β15FCC+β16MUE+β17FA+β18FS+ε Equation 4: STR = β04+β19DCI+β20OCE+β21FCC+β22MUE+β23SVC+β24(DCIxSVC) +β25(OCExSVC)+β26(FCCxSVC)+β27(MUExSVC)+β28FA+β29FS+ε Equation 5: EWC = β05+ β30DCI+β31OCE+β32FCC+β33MUE+β34SVC+β35(DCIxSVC) +β36(OCExSVC)+β37(FCCxSVC)+β38(MUExSVC)+β39FA+β40FS+ε Equation 6: ETC = β06+ β41DCI+β42OCE+β43FCC+β44MUE+β45SVC+β46(DCIxSVC) +β47(OCExSVC)+β48(FCCxSVC)+β49(MUExSVC)+β50FA+β51FS+ε Equation 7: OE = β07+β52STR+β53EWC+β54ETC+β55FA+β56FS+ ε


Equation 8: DCI = β08+β57HOC+β58CO+β59ES+β60FA+β61FS+ε Equation 9: OCE = β09+β62HOC+β63CO+β64ES+β65FA+β66FS+ε Equation 10: FCC = β10+β67HOC+β68CO+β69ES+β70FA+β71FS+ε Equation 11: MUE = β11+β72HOC+β73CO+β74ES+β75FA+β76FS+ ε Equation 12: DCI = β12+β77HOC+β78CO+β79ES+β80ITC+β81(HOCxITC)+β82(COxITC)

+β83(ESxITC)+β84FA+β85FS+ε Equation 13: OCE = β13+β86HOC+β87CO+β88ES+β89ITC+β90(HOCxITC)+β91(COxITC)

+β92(ESxITC)+β93FA+β94FS+ε Equation 14: FCC = β16+β95HOC+β96CO+β97ES+β98ITC+β99(HOCxITC)+β100(COxITC)

+β101(ESxITC)+β102FA+β103FS+ε Equation 15: MUE = β17+β104HOC+β105CO+β106ES+β107ITC+β108(HOCxITC)+β109(COxITC)

+β110(ESxITC)+β111FA+β112FS+ε Where; DCI = Diverse Communication Implementation OCE = Openness Communication Effectiveness FCC = Flexible Communication Channel MUE = Media utilization Efficiency ST R = Success of Team Relationship EWC = Excellence of Working Coordination ETC = Establishment of Task Creativity OE = Organizational Effectiveness HOC = Horizontal Organizational Characteristics CO = Competitive Orientation ES = Executive Supportiveness SVC = Share Vision Climate ITC = Information Technology Competency FA = Firm Age FS = Firm Size ε = Error 4. RESULTS AND DISCUSSION

TABLE 2 DESCRIPTIVE STATISTICS AND CORRELATION MATRIX

Variables DCI OCE FCC MUE STR EWC ETC OE HOC CO ES SVC ITC

Mean 4.322 4.150 4.212 4.298 4.122 3.940 3.998 3.810 3.956 4.092 4.040 4.056 4.078

SD. 0.461 0.553 0.479 0.536 0.551 0.615 0.639 0.682 0.580 0.637 0.618 0.667 0.640

DCI 1.000

OCE .444** 1.000

FCC .535** .517** 1.000**

MUE .417** .426** .577** 1.000

STR .498** .382** .488** .484** 1.000

EWC .400** .363** .406** .409** .704** 1.000

ETC .337** .339** .369** .421** .725** .771** 1.000

OE .325** .245** .275** .339** .540** .592** .696** 1.000

HOC .386** .415** .432** .274** .595** .637** .651** .462** 1.000

CO .486** .330** .388** .371** .656** .654** .706** .641** .555** 1.000

ES .426** .377** .441** .482** .564** .579** .610** .503** .501** .697** 1.000

SVC .432** .231** .289** .250** .605** .598** .689** .580** .598** .734** .698** 1.000

ITC .308** .187** .294** .270** .351** .567** .470** .403** .447** .464** .581** .536** 1.000

** p < .01, *p < .05 This research proposes the total of 3 tables. Table 2 shows the descriptive statistics and correlations matrix of all construct. Table 3 shows the result of effect of intra-organizational communications


strategy on consequence and the hypotheses 1-11 are estimated. Table 4 shows the results of effect of antecedent on intra-organizational communications strategy and the hypotheses 12-17 are estimated. Table 2 shows the correlation matrix for all constructs. Furthermore, with respect to possible problem relating to multicolinearity, all the correlation coefficients of independent variables are smaller than 0.8, and all the VIF values are smaller than 10. Hair et al., (2006) suggest that the problem of multicolinearity of independent variables in this mode is therefore not significant. Moreover, variance inflation factor (VIF) was used to check multicolinearity problem among independent variables. In this study, the VIF is ranged from 1.278 to 9.488, this research shows the cut-off value of 10 as recommended by Neter et al. (1985), meaning that the independent variables are not correlated with each other. Hence, there are no substantial multicollonearity problems encountered in this study. As expected, control variables, firm age and firm size are not significantly correlated to each model equation. Figure 1 exhibits the relationship between intra-organizational communications strategy (diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency) and success of team relationship, excellence of working coordination, and establishment of task creativity base on hypotheses 1a-c, 2a-c, 3a-c, and 4a-c. This research proposes that intra-organizational communications strategy is positively associated with success of team relationship, excellence of working coordination, and establishment of task creativity. These hypotheses are analyzed from the regression equation in Models 1-3. The results of OLS regression analysis of the relationships between intra-organizational communications strategy and success of team relationship, excellence of working coordination, and establishment of task creativity are provided in Table 3 below. These results show that model 1 illustrates the results of the relationships among diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency on success of team relationship. The results show that the diverse communication implementation (1 = .260, p < .01), flexible communication channel (2 = .171, p < .05), and media utilization efficiency (4 = .253, p < .01) have significant positive effects on success of team relationship. Corresponding with McKinney et al. (2004) suggest that communication is essential to effective team performance. Ancona and Caldwell (1992) found that communication was positively related to team member ratings of performance. Further, members of team have the opportunity to easily develop relationships, which members can discuss each other’s work and their reactions can be conveyed through communication (Greenberg et al., 2007). Moreover, communication media based on the expectation that richer media will allow for communicating greater verbal and non-verbal cues, and will lead to more effective team interactions (Hambley et al., 2007). While, the openness communication effectiveness found that has insignificant. Thus, Hypotheses 1a, 3a and 4a are supported, but Hypothesis 2a is not. Model 2 illustrates the results of the relationships among diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency on excellence of working coordination. The results show that the diverse communication implementation (7 = .191, p < .05), and media utilization efficiency (10 = .202, p < .05) have significant positive effects on excellence of working coordination. These results are corresponding with Altinoz (2008) who suggests that organizational communication ensures the interaction in the organization. While, the openness communication effectiveness and flexible communication channel found that it is insignificant. Thus, Hypotheses 3b and 4b are supported, but Hypotheses 1b and 2b are not.

TABLE 3 RESULTS OF THE INTRA-ORGANIZATIONAL COMMUNICATIONS STRATEGY EFFECTS

Independent Variables

Dependent Variables

STR (1)

EWC(2)

ETC(3)

STR4

EWC(5)

ETC (6)

OE(7)

DCI .260*** (.076)

.191** (.083)

.113 (.083)

.100 (.069)

0.0135 (.071)

-.119 (.066)

OCE 0.0525 (.076)

.135(.083)

.148(.084)

0.0617(.066)

.156**(.069)

.155** (.063)

FCC .171** .124 0.0965 .129 0.0468 0.0356


(.086) (.094) (.094) (.076) (.079) (.073) MUE .253***

(.077) .202** (.085)

.257*** (.085)

.253*** (.069)

.214*** (.072)

.238*** (.066)

SVC .372*** (.066)

.382*** (.069)

.580*** (.064)

DCIXSVC -0.0709(.060)

-.122(.062)

-0.0844 (.057)

OCEXSVC -0.0496(.072)

-0.0915(.075)

0.0119 (.069)

FCCXSVC -0.0106 (.088)

0.0796 (.092)

0.0690 (.085)

MUEXSVC .150** (.074)

.257** (.077)

0.0880 (.071)

STR 0.0335 (.088)

EWC .136 (.093)

ETC .556*** (.097)

FS 0.0477 (.196)

-.132(.215)

-.435**(.216)

0.0613(.172)

-.100(.179)

-.390** (.165)

-.159(.177)

FA .283** (.142)

0.0918(.156)

.294(.157)

.212(.123)

0.0349(.128)

.190 (.119)

.164(.130)

Adjusted R square .362 .233 .226 .525 .488 .562 .482 ***p < .01, **p < .05, *p < .10 aBata coefficients with standard errors in parenthesis In addition, model 3 illustrates the results of the relationships among diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency on establishment of task creativity. The results show that the media utilization efficiency (16 = .257, p < .01) has significant positive effects on establishment of task creativity. These results are corresponding with Ebadi and Utterback (1984) who suggest that communication helps a research with idea generation, stimulates personal creativity, and results in improved problem solving. Wiesenfeld et al. (1999) suggest that communication helps create shared meaning because it provides social context cues, and creates a shared interpretive context among organization members. Further, the communication builds creativity in the work such as products new which it is brought to organizational effectiveness. While, the diverse communication implementation, openness communication effectiveness and flexible communication channel found that it is insignificant. Thus, Hypothesis 4c is supported, but Hypotheses 1c, 2c and 3c are not. To test the moderating role of share vision climate on the relation among intra-organizational communication strategy and success of team relationship, excellence of working coordination, and establishment of task creativity. This research hypothesizes that share vision climate increases the relation among intra-organizational communication strategy and success of team relationship, excellence of working coordination, and establishment of task creativity. Based on the regression equation in Models 4, 5, and 6, the relationship among intra-organizational communication strategy and success of team relationship, excellence of working coordination, and establishment of task creativity is also tested in Table 3. This result shows that model 4 illustrates the results of the moderating role of share vision climate on the relation among diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency and success of team relationship. The results show that the interaction between share vision climate and media utilization efficiency (27 = .150, p < .05) has a significant positive relationship with success of team relationship. Thus, Hypothesis 8a is supported, but Hypothesis 5a, 6a and 7a are not. Additionally, model 5 illustrates the results of the moderating role of share vision climate on the relation among diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency and excellence of working coordination. The results show that the interaction between share vision climate and media utilization efficiency (38 = .257, p < .01) has a significant positive relationship with excellence of working coordination. Thus, Hypothesis 8b is supported, but Hypothesis 5b, 6b and 7b are not. Therefore, the share vision climate is partial moderator on the relation between media utilization efficiency-success of team relationship and media utilization efficiency-excellence of working coordination.


Model 6 illustrates the results of the moderating role of share vision climate on the relation among diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency and establishment of task creativity. The results show that the interaction between share vision climate and diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency has an insignificant positive relationship with establishment of task creativity. Thus, Hypotheses 5c, 6c, 7c and 8c are not supported. Furthermore, Figure 1 exhibits the relationship between success of team relationship, excellence of working coordination, and establishment of task creativity and organizational effectiveness base on hypotheses 5, 6, and 7. This research proposes that success of team relationship, excellence of working coordination, and establishment of task creativity is positively associated with organizational effectiveness. These hypotheses are analyzed from the regression equation Model 7. The results of OLS regression analysis of the relationships between success of team relationship, excellence of working coordination, and establishment of task creativity and organizational effectiveness are provided in Table 3. Model 7 illustrates the results of the relationships among success of team relationship, excellence of working coordination, and establishment of task creativity on organizational effectiveness. The results show that the establishment of task creativity (54 = .556, p < .01) has significant positive effects on organizational effectiveness while the success of team relationship and excellence of working coordination found that it is insignificant. Thus, Hypothesis 11 is supported, but Hypotheses 9 and 10 are not. Figure 1 exhibits the relationship between horizontal organizational characteristics, competitive orientation, and executive supportiveness and intra-organizational communications strategy (diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency) based on hypotheses 12a-d, 13a-d, and 14a-d. This research proposes that horizontal organizational characteristics, competitive orientation, and executive supportiveness are positively associated with intra-organizational communications strategy. These hypotheses are analyzed from the regression equation in Models 8-11. The results of OLS regression analysis of the relationships among horizontal organizational characteristics, competitive orientation, and executive supportiveness are significant and positively correlated to diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency is provided in Table 4 below. This result shows that model 8 illustrates the results of the relationships among horizontal organizational characteristics, competitive orientation, and executive supportiveness on diverse communication implementation. The results show that the competitive orientation (58 = .309, p < .01) has significant positive effects on diverse communication implementation. While, the horizontal organizational characteristics and executive supportiveness found that has insignificant. Thus, Hypothesis 13a is supported, but Hypotheses 12a and 14a are not. Model 9 illustrates the results of the relationships among horizontal organizational characteristics, competitive orientation, and executive supportiveness on openness communication effectiveness. The results show that the horizontal organizational characteristics (62 = .282, p < .01), and executive supportiveness (64 = .213, p < .05) have significant positive effects on openness communication effectiveness while the competitive orientation found that it is insignificant. Thus, hypotheses 12b and 14b are supported, but Hypothesis 13b is not.

TABLE 4 RESULTS OF THE EFFECTS ON INTRA-ORGANIZATIONAL COMMUNICATIONS STRATEGY

Independent Variables

Dependent Variables DCI (8)

OCE (9)

FCC (10)

MUE (11)

DCI (12)

OCE (13)

FCC (14)

MUE (15)

HOC .136 (.082)

.282*** (.084)

.257*** (.082)

0.0242 (.084)

.147 (.084)

.304*** (.087)

.265*** (.083)

0.0179 (.084)

CO .309*** (.099)

0.0210 (.101)

0.0595 (.100)

0.0615 (.101)

.243** (.107)

0.0299 (.110)

0.0586 (.105)

0.0817 (.107)

ES .138 (.095)

.213** (.097)

.271*** (.095)

.430*** (.097)

0.0914 (.103)

.238** (.106)

.230** (.101)

.433*** (.103)

ITC .213**(.096)

0.0170 (.099)

.184 (.094)

.143(.096)


HOC x ITC .117** (.057)

.110 (.059)

.179*** (.057)

.122** (.058)

CO x ITC -.218** (.100)

-0.0288 (.104)

-0.0463 (.099)

-0.0785 (.101)

ES x ITC .221** (.105)

0.0505 (.109)

0.0610 (.104)

.155 (.106)

FS .170 (.209)

.526**(.213)

.232(.210)

0.0252(.214)

.129(.205)

.471** (.211)

.191 (.202)

-0.0271(.206)

FA 0.0541 (.155)

-0.0479(.158)

-.105(.156)

-0.0671(.159)

0.0650(.151)

-0.0427 (.156)

-.109 (.149)

-0.0507(.152)

Adjusted R square .249 .219 .238 .213 .290 .247 .310 .288 ***p < .01, **p < .05, *p < .10 a Bata coefficients with standard errors in parenthesis Furthermore, Model 10 illustrates the results of the relationships among horizontal organizational characteristics, competitive orientation, and executive supportiveness on flexible communication channel. The results show that the horizontal organizational characteristics (67 = .257, p < .01), and executive supportiveness (69 = .271, p < .01) have significant positive effects on flexible communication channel while the competitive orientation found that is it insignificant. Thus, Hypotheses 12c and 14c are supported, but Hypothesis 13c is not. And, Model 11 illustrates the results of the relationships among horizontal organizational characteristics, competitive orientation, and executive supportiveness on media utilization efficiency. The results show that the executive supportiveness (74 = .430, p < .01) has significant positive effects on media utilization efficiency while the horizontal organizational characteristics and competitive orientation found that it is insignificant. Thus, Hypothesis 14d is supported, but Hypotheses 12d and 13d are not.

This research has tested moderating role of information technology competency on the relation among horizontal organizational characteristics, competitive orientation and executive supportiveness and diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency. This research hypothesizes that information technology competency increases the relation among horizontal organizational characteristics, competitive orientation and executive supportiveness and diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency. Based on the regression equation in Models 12, 13, 14 and 15, the relationship among horizontal organizational characteristics, competitive orientation and executive supportiveness and diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency is also tested in Table 4. This result shows that model 12 illustrates the results of the moderating role of information technology competency on the relation among horizontal organizational characteristics, competitive orientation and executive supportiveness and diverse communication implementation. The results show that the interaction between information technology competency and horizontal organizational characteristics (81 = .117, p < .05) has a significant positive relationship with diverse communication implementation. Furthermore, interaction between information technology competency and executive supportiveness (83 = .221, p < .05) has a significant positive relationship with diverse communication implementation while interaction between information technology competency and competitive orientation has a significant negative relationship with diverse communication implementation. However, this research proposes a positive hypothesis. There are also reasons for that support. This research is in context of Thailand computer business, which some businesses may not have focused on information technology, furthermore, reasons from the respondents to the questionnaire suggest that current technology is changing so rapidly that organizations will use technology in firm’s communications. Firm cost must be very high, so this technology is not available in some companies. Thus, Hypotheses 15a and 17a are supported, but Hypothesis 16a is not. Therefore, the information technology competency is partial moderator on the relation between horizontal organizational characteristics-diverse communication implementation and executive supportiveness-diverse communication implementation. Additionally, model 13 illustrates the results of the moderating role of information technology competency on the relation among horizontal organizational characteristics, competitive orientation and executive supportiveness and openness communication effectiveness. The results show that it has no positive relationship. Therefore, Hypotheses 15b, 16b, and 17b are not supported.


Furthermore, model 14 illustrates the results of the moderating role of information technology competency on the relation among horizontal organizational characteristics, competitive orientation and executive supportiveness and flexible communication channel. The results show that the interaction between information technology competency and horizontal organizational characteristics (99 = .179, p < .01) has a significant positive relationship with flexible communication channel. Thus, Hypothesis 15c is supported, but Hypotheses 16c and 17c are not. Therefore, the information technology competency is full moderator on the relation between horizontal organizational characteristics and flexible communication channel. Finally, Model 15 illustrates the results of the moderating role of information technology competency on the relation among horizontal organizational characteristics, competitive orientation and executive supportiveness and media utilization efficiency. The results show that the interaction between information technology competency and horizontal organizational characteristics (108 = .122, p < .05) has a significant positive relationship with media utilization efficiency. Thus, Hypothesis 15d is supported, but Hypotheses 16d and 17d are not. Therefore, the information technology competency is full moderator on the relation between horizontal organizational characteristics and media utilization efficiency. 6. CONTRIBUTIONS AND FUTURE RESEARCH 6.1 Theoretical Contributions This research shows a clear understanding of the relationship between antecedents and consequences of intra-organizational communication strategy. In addition, this study also expands three principal theoretical frameworks including communication theory, media richness theory and resource-based view of the firm (RBV) on the existing knowledge and literature of intra-organizational communication strategy. Issues of interest in this study is one of the first known investigations to directly link intra-organizational communication strategy to organizational effectiveness via success of team relationship, excellence of working coordination, and establishment of task creativity in the case of computer business in Thailand and the horizontal organizational characteristics, competitive orientation and executive supportiveness affect intra-organizational communication strategy relational model. Furthermore, this study focuses on four dimensions of intra-organizational communication strategy including diverse communication implementation, openness communication effectiveness, flexible communication channel, and media utilization efficiency. While, most previous empirical evidences examine organizational communication affect success of team relationship, excellence of working coordination, and establishment of task creativity. Although, this research found that diverse communication implementation, flexible communication channel, and media utilization efficiency were positive influence to dependent variables, openness communication effectiveness found that no relationships with all other variables. It is possible that in the context of computer business in Thailand, openness communication effectiveness of the corporate members of the computer may also be less. Therefore, future studies should change the sample, for example to the hospital or business services, to compare study results that matched or different. Furthermore, the context may shift to study abroad in order to confirm that the results are different from the context of the study in Thailand. Moreover, this research also tests the moderating effects of share vision climate and information technology competency found that share vision climate is a partial moderator on the relation between media utilization efficiency and success of team relationship and excellence of working coordination, at the same time, information technology competency is partial moderator on the relation between horizontal organizational characteristics-diverse communication implementation and executive supportiveness-diverse communication implementation. Furthermore, information technology competency is a full moderator on the relation between horizontal organizational characteristics-flexible communication channel and horizontal organizational characteristics-media utilization efficiency. Previous empirical evidences examine information technology enhance communication, exchange of ideas, involvement and work performed in organization (Good and Stone, 1995; Yazici, 2002). 6.2 Managerial Contributions This study provides practical and managerial contributions to firms’ executives. This research contributes to executives of firms understanding intra-organizational communication strategy, which is important to appropriate selected dimension of intra-organizational communication strategy lead to


success of team relationship, excellence of working coordination, and establishment of task creativity in the firms. In addition, firms should support the use of information technology to facilitate communication between managers and employees work together and use technology to communicate more easily in time and geographic location to communicate with greater accuracy in the target (Ahearne, Hughes, and Schillewaert, 2007). 6.3 Limitations and Future Research Directions The findings from this research have some limitations. This research relied on perceptual data collected from only single industry of computer firms in Thailand. The response rate is lower which may affect the power of statistics. Therefore, future research should collect data from other population in order to increase that level of reliable result. The result of this research, share vision climate, is partial statistically significant. As a result, the need for future research is to seek more appropriate moderating variables to enhance the intra-organizational communication strategy and consequences. Additionally, future research may add other factors affect intra-organizational communication strategy as organizational culture, culture of cooperation. Future research should study a longitudinal approach in order to provide greater confidence in these relationships. And future research should be tested by other statistics such as Structure Equation Model (SEM). Moreover, future research increases review literature for more reasonable contributions, and benefit advantage. 7. CONCLUSION This research found that dimension of intra-organizational communication strategy consists of diverse communication implementation and media utilization efficiency were positive influence to success of team relationship and excellence of working coordination. At the same time, media utilization efficiency is only affecting establishment of task creativity. Furthermore, this research found that share vision climate is moderating relationship between media utilization efficiency-success of team relationship and media utilization efficiency-excellence of working coordination. In addition, establishment of task creativity was positively influenced by organizational effectiveness. Antecedent of intra-organizational communication strategy in this research showed that competitive orientation was positive influence to diverse communication implementation, while, horizontal organizational characteristics and executive supportiveness were positively influenced by openness communication effectiveness and flexible communication channel. Furthermore, executive supportiveness is only affecting media utilization efficiency. Information technology competency is moderating relationship among horizontal organizational characteristics-diverse communication implementation, horizontal organizational characteristics-flexible communication channel, horizontal organizational characteristics-media utilization efficiency and executive supportiveness-diverse communication implementation. Thus, this research will provide an empirical foundation for better understanding of antecedents and consequences of intra-organizational communication strategy. REFERENCES: Aaker, D. 1989. Managing assets and skills: The key to sustainable competitive advantage.

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AUTHOR PROFILES: Nuanlaong Atthatrangsun earned M.A. at Khonkaen University, Thailand in 2000. Currently she is a Ph.D. (Candidate) in Management at the Faculty of Accountancy and Management, Mahasarakham University, Thailand. Dr. Phapruke Ussahawanitchakit earned is Ph.D. at Washington State University in 2002. Currently he is an associate professor of accounting and a dean of the Faculty of Accounting and Management, Mahasarakham University, Thailand.


MEASURING THE IMPORTANCE OF ROE AND MARKET CAPITALIZATION: EVIDENCE FROM THAILAND’S STOCK MARKET

Panu Chaopricha, Rattana Bundit University, Bangkok, Thailand

Peng Chan, California State University-Fullerton, USA ABSTRACT Current research is undertaken to demonstrate the importance of Return on Equity (ROE) and market capitalization by analyzing the similarities and differences of the returns of SET 50 (large market capitalization) portfolios and non SET50 (small market capitalization) portfolios. In doing so, the current research reveals that during 2004-2006, ROE is negatively related to stock return for SET50 Index portfolios while positively related to stock return for non SET50 equity portfolios. When ROE is set aside, market capitalization is found to be positively related with stock return. Interaction between market capitalization and ROE and its relationship with stock return is examined. Finally, the current research suggests that negative relationship between ROE and stock return for SET50 Index portfolios could be caused by market adjustment after market index surge by more than double in 2003. Keywords: Thailand Stock Market; SET50 Index; Return on Investment; Market Capitalization; Financial Strategies 1. INTRODUCTION Investors have been seeking to increase wealth via stock market for decades, whether they are value investors or speculators. Large variety of concepts and techniques has been applied to gain the most out of stock market. Fundamental and technical analyses are perhaps the most straightforward thoughts in this field. Fundamental analysis involves analyzing the business facts around the company ranging from financial statements, management, competitive advantages, market, competitors and etc. All these factors can be processed in various ways to assess company’s stock valuation. The aim is to identify undervalue stock or growth stock. In market with no restriction on short selling, overvalue stock could also be sought after. On the other hand, technical analysis deals with forecasting of price using historical price behavior. It is done primarily through the use of charts. Then, buy/sell decisions are made based on the predictive trend, assuming past repeats itself. Although being questioned for its lack of hard evidence, technical analysis continues to be used widely by investors in various markets nowadays. This research relies on the fundamental analysis as it aims to provide comprehensive analysis to readers with basic knowledge in business and stock market. The main focus of this research is on the firm’s characteristics that determine stock returns. The two major characteristics are the status of the firm as a member of SET 50 index, and Return on Equity (ROE). 1.1 SET 50 Index The Index Committee, appointed by Stock Exchange of Thailand, selects 50 stocks to form the index based on the fact that they are ranked in the top 200 on the SET's main board in terms of average daily market capitalization for the past 12 months, are actively traded and meet other certain criteria. This research notices that SET 50 index stocks receive more attention from investors than non SET50 index as witnessed by their higher trading volume. Besides, several funds states in their policies to invest mainly in SET 50 index stocks. Thus, SET 50 index stocks could be considered blue chip, large market capitalization or high volume stocks. 1.2 Return on Equity (ROE) ROE is one of the financial ratios that frequently are considered by investors and analysts. There is a perception that the higher return on equity, the better the performance of the company. But historically, high ROE does not lead to high stock return. However, no empirical evidence has been available to support either hypothesis.


Based on these two main characteristics, this research screens stocks and forms portfolios using Markowitz’s Modern Portfolio Theory. Trading data from 2001-2003 are used to compute covariances that require weight of each stock in portfolios. Investment period covers 2004-2006. Then returns of portfolios are compared to prove the importance of both market capitalization and ROE. An integral tool to this research is software called QuantAnalysis developed by Fundsformation Inc., USA. The program can form portfolios using different conditions that include buy and sell limits, screening criteria (price strength, coefficient of variation, return, standard deviation, dividend yield, average return-risk free rate/beta, daily volume) and optimization process (modern portfolio theory, equal weights, minimum variance and risk-adjusted model-driven portfolio). 2. PURPOSE OF STUDY This study aims to establish relationship between stock return and two firm’s characteristics, which are the status as a member of SET 50 index and Return on Equity (ROE). When the relationships are proven to exist, two main findings would add to current market knowledge. Firstly, the question on whether SET50 portfolio (large market capitalization) or NON SET50 portfolio (small market capitalization) yields higher return will become apparent to all investors. Secondly, ROE, as a simple and readily available financial ratio, will have a new implication as stock return predictor. 3. THEORETICAL FRAMEWORK Several firm’s characteristics have been established to have explanatory power for stock returns. Some of the frequently researched characteristics include price-to-book value ratio (P/BV), price-to-sales ratio, price/earning ratio (P/E), market capitalization and debt/equity ratio (D/E) for example. Their directions of relationship with stock returns are provided in figure 1. Figure 1 - Relationship of various firm’s characteristics and stock returns.

Market-to-book Ratio is negatively related to stock returns as proven by Aggarwal et al. (1992), Capaul, Rowley and Sharp (1993) (as cited in Harris and Marston (1994) p. 18-19) for example. Price to Sales ratio is negatively related to stock returns as proven by Barbee, Mukherji and Raines (1996). P/E ratio is negatively related to stock returns as proven by Ander (1982) (as cited in Keown et al. (1987) p. 188) for example. Size is proven to have negative relationship with stock returns as established by Banz (1981), Basu (1977) (as cited in Maroney and Protopapadakis (2002) p.189) for example. Notice that all variables on the left hand side have market price, which reflects how investors value each particular stock, as a numerator (except for size which has market price as a factor). Since stock return consists of capital gain and dividend gain, and market price is associated with capital gain, these four variables are in effect associated with stock return. Conclusion can be drawn that the higher the relative market price, the lower the stock return.

Stock Returns

Price/Sales ROE

Size + ROE

MV/BV

P/E

Market Capitalization

D/E

?

?

+-

-

-

-


On the top right hand side of the figure, D/E ratio is positively related to stock returns as proven by Bhandari (1998). This relationship can be expected since shareholders earn higher operating returns when a firm leverages more. Then, it subsequently leads to higher stock returns. ROE, although not proven by previous researches, can be hypothesized to have positive relationship with stock returns since both ROE and stock returns are “return on investment” ratio. Besides, based on analysis of its components, return or company earning and stockholder’s equity, this research found that company earning has positive relationship with stock returns as evidenced by negative relationship between P/E ratio and stock returns. At the same time, shareholder’s equity has inverse relationship with stock returns as observed in positive relationship between D/E ratio and stock returns. When the two components are combined in ROE, they support the hypothesis that the higher the ROE, the greater the stock return. However, this deduction depends on relationship between the two variables in the ratio. In other ratios, this reasoning might not apply. 4. METHODOLOGY This research uses Markowitz’s Modern Portfolio Theory to form 7 portfolios which are SET50 Portfolio, SET50 High ROE Portfolio, SET50 Low ROE Portfolio, Non SET50 Portfolio, Non SET50 High ROE Portfolio, Non SET50 Low ROE Portfolio and Market Portfolio (of which market index is used for return calculation). Subsequently, returns of each portfolio are compared against one another and statistically tested with t-test assuming unequal variance to measure the significance of market capitalization and ROE. 4.1 Data Collection Daily trading data of every stocks from 2001 – 2006 are purchased from Fundtecon Co., Ltd., a data dealer of Stock Exchange of Thailand. The data include open, high, low, volume and price (close). Dividend data are retrieved from http://www.siamfn.com by Adkinson Securities Co., Ltd. All dividend data are adjusted for par change, stock split and name/symbol change. Stock dividend is assumed to be sold out upon receipt at close price and hence treated as cash dividend. Trading data together with dividend data will be used later on to create input file for QuantAnalysis after stocks are screened and classified under specific stock pools. Data for stock screening i.e. average daily trading value, ROE, classification of stocks (under specific sector and specific quarter) and sector ROE are obtain from 3-month subscription to www.setsmart.com, a service by SETTRADE Co., Ltd., a subsidiary of Stock Exchange of Thailand. The web site provides 5 years of information back from first login period (From January 2002 – January 2007). The lists of SET50 from 2004-2006, which is used as a cut-off for small market capitalization stocks, are available from http://www.set.or.th/en/listed/download/list_p1.html, an official web site of Stock Exchange of Thailand. 4.2 Data Screening First of all, this research includes every stock that ever exists during 2001 – 2006 to avoid survivorship bias, a bias caused by excluding stocks that became defaulted during the period studied. All stocks are screened and invested as if this research does not know whether it would survive later on. This provides stronger degree of generalizablity for future application. Then, this research screens out any stocks that have average daily trading value less than 10 million Baht in each of the past 4 quarters before investment quarter. The purpose is to screen out stocks with low liquidity because if these stocks are included and the results turn out that these low liquidity stocks yield higher return, investors might find the result impractical because they cannot buy or sell at their desired times. There are 12 investment quarters which are 04Q1, 04Q2, 04Q3, 04Q4, 05Q1, 05Q2, 05Q3, 05Q4, 06Q1, 06Q2, 06Q3 and 06Q4. This research experiments with different thresholds i.e. 1, 5, 10 and 15 million Baht to see how many stocks pass the threshold in each quarter. Then, average number of stocks during 12 quarters is identified and it turns out that 10 million Baht threshold renders the average of 92 stocks per quarter. This is the closet number to 100. Since this research studies SET50 and non SET50 portfolios, it is assumed that around half of the stocks that pass this criterion should be listed in SET50 index and the rest could be classified as non SET50 stock with enough liquidity. Therefore 10 million Baht


threshold gives balanced numbers between these groups. However, a small numbers of SET50 stocks do not pass the criterion but they are still included in this research. Then, quarterly ROE of each stock is compared with quarterly average ROE of the sector under which the stock is classified. This process is done because sometimes companies can be classified under different sectors in different quarters. Although this does not occur frequently, this research needs to take the changes into consideration. Usually, the reclassification is done at the end of each quarter. When, company ROE is higher than sector’s average ROE, it is labeled “high ROE” and when company ROE is equal to or lower than sector’s average ROE, it is labeled “low ROE”. During the investment quarters, companies classified under REHAB (rehabilitation) sector and companies that are not classified under any specific sector are excluded. The classification of high or low ROE groups will be used as investment criterion in the next 2 quarters. For example, a company that has higher ROE than sector’s average in quarter 1 is classified as high ROE stock. When, this research considers stock to form a portfolio for investment in quarter 3, the classification in quarter 1 is used and so on. The rational behind this lag is that in real life situation, ROE is announced after the quarter has ended. Therefore, it is impossible to invest from the beginning of quarter 2 based on ROE performance in quarter 1. ROE of quarter 1 is announced in the first month of quarter 2 and it will take some to for investors to digest the information. This is how this research claims to have unbiased use of database. Furthermore, this research classifies stock into SET50 and non SET50 stocks based on SET50 index listings announced by Stock Exchange of Thailand every 6 months. Since the listing is usually announced before it is applied, this classification is straightforward. 4.3 Data Analysis Method As Modern Portfolio Theory is concerned with returns and variances and no other characteristics of stocks, this research prepares pools of stocks based on characteristics of interest for QuantAnalysis to form portfolios and generate returns according to the theory. In order to know how many pools of stocks need to be prepared, rebalancing policy must be determined. 4.4 Rebalancing Policy Although the ROE is announced on a quarterly basis and SET50 list is announced every 6 months, stock returns change on a daily basis. In order to create up-to-date portfolios, rebalancing is employed to change investment weighs of stocks according to their most recent covariance. Rebalancing schedule has an effect on portfolio return. Frequent rebalancing such as weekly or bi-weekly not only requires more work, but also incurs more cost such as trading commission. Longer period of rebalancing is more convenient but there is a risk of opportunity loss. After all, the result is historical and cannot apply with 100% confidence that it will work in different setting or timeframe. This research opts to rebalance portfolio on a weekly basis to reflect behavior of active investors. 4.5 Numbers of stock pools required for QuantAnalysis Lists of SET50 Index stocks are announced every six months. Therefore, during 2004-2006, there must be 6 pools of stocks for SET50 portfolio. But to make portfolio returns comparable, these pools are further divided into 12 pools as other pools with ROE change on quarterly basis. For pools of SET50 High ROE stocks and SET50 Low ROE, 12 pools of stocks (4 quarters for 3 years) are needed for each of them because of the reason provided previously. For non SET50 portfolio, non SET50 High ROE portfolio and non SET50 Low portfolio, 12 pools of stocks are needed for each of them, totaling 36 stock pools. For the two portfolios that are associated with ROE, reason is the quarterly announcement of ROE. For non SET50 with no specific ROE portfolio, it is screened using average daily trading value that is calculated based on quarterly trading value. Therefore, all stocks passing the criterion stay in a pool for a quarter.


4.51 Application of QuantAnalysis In total, 72 stock pools are needed in this research. They are results of average daily trading value, ROE and size screening processes as described in previous section. Once each pool is analyzed by QuantAnalysis, its trading data and returns is used for its according period. In this stage, QuantAnalysis is programmed to rebalance portfolio every week for all lives of stock pools. In rebalancing, only weight is changed according to variance and covariance of stock during the last 36 months. Stocks that will be included in January, 2004 must have existed from January 1, 2001 - December 31, 2003. To be invested in February 2004, screened stocks must have existed from February 1, 2001 – January 31, 2004, and so on. Consequently, even though some stocks have passed all required screening criteria, they are finally excluded from the portfolio because of incomplete trading data. Each of 72 stock pools is prepared in EXCEL format and has its own trading data and returns worksheet with dates as column and screened stock names as row. Each stock pool is used by QuantAnalysis for its according period. Then, returns of all periods are combined to make up 3 years return for that portfolio. Finally, 3 years returns of 7 portfolios i.e. SET50, SET50 High ROE, SET50 Low ROE, non SET50, non SET50 High ROE, non SET50 Low ROE and market portfolios are compared against one another. 4.52 Statistical Technique Used Statistical technique to be used in this research is t-test of two samples, which can prove if population difference of mean return of two portfolios would be significantly different from zero. In this study, since stock market is dynamic, normal distribution cannot be assumed for mean returns. At the same time, variance of the resulting returns from all portfolios cannot be assumed equal either. However, during 3 years of investment, the number of weekly return for each portfolio totals 148. Therefore, with this sample size larger than 30, the central limit theorem ensures that parametric tests work well if the populations are not normally distributed. 5. METHODOLOGY Mean capital gains, dividend gains, total profits, returns and standard deviations of all portfolios during 148 investment weeks are provided in Table 1. Results of 1-tailed t-test two samples assuming unequal variances with α = 0.05 are provided in Table 2. Table 1: Summary of returns from each portfolio

SET50 SETHI SETLO NON NONHI NONLO MKT

Capital Gain -967,113 -2,345,567 1,047,728 -3,526,632 -407,431 -7,417,194

Dividend Gain 682,101 1,070,490 653,929 388,582 1,263,186 193,562

Total Profit -285,012 -1,275,076 1,701,658 -3,138,050 855,755 -7,223,632

Returns -0.19% -0.86% 1.15% -2.12% 0.58% -4.88% 0.18%

Std Dev(%) 5.76% 6.38% 6.89% 8.62% 6.61% 9.29% 5.74%


Table 2: Results of 1-tailed t-test two samples assuming unequal variances with α = 0.05

Average Return SETLO NON HI MKT SET 50 SET HI NON NON LO

SETLO 1.15% 0.2335 0.0950 0.0351* 0.0048* 0.0002* 0.0000*

NON HI 0.58% 0.2906 0.1428 0.0288* 0.0014* 0.0000*

MKT 0.18% 0.2884 0.0704 0.0037* 0.0000*

SET 50 -0.19% 0.1724 0.0123* 0.0000*

SET HI -0.86% 0.0772 0.0000*

NON -2.12% 0.0042*

NON LO -4.88% Note: Cells highlighted in grey are significant at α = 0.05

6. DISCUSSION AND CONCLUSION In general, the results of this research are contrary to several researches which establish that on average, small-size firms yield higher stock returns than large-size firms. See Banz (1981), Basu (1983) (as cited in Maroney and Protopapadakis (2002) p.189) and Loeb (1991) for example. Besides, this current research is contrary to previous research conducted in Thailand by Chui and Wei (1998), who report negative relationship between size and stock returns. Their sampling period was from July 1984 – June 1993 with commercial banks interbank lending rate as risk free rate. Chui and Wei (1998) assign stocks to three equal sized-sorted groups (from small to large) based on market equity at the end of each June and then form value-weighted portfolios. They disregard stocks with no trading record longer than 3 months. Apparently, the setting of this current research is different from all others. This research uses SET 50 listing as a border between large and small market capitalization, disregards stocks that have daily average trading value less than 10,000,000 Baht in each of the four quarters before investment quarter, avoids survivorship bias, rebalances portfolios weekly and uses Markowitz’s Modern Portfolio Theory to form portfolio. Additionally, sampling period is 10 years after that of Chui and Wei (1998). Once, the major financial crisis in 1997 is taken into account, sampling period of this research can be considered recovering period while that of Chui and Wei (1998) can be labeled pre-crisis. On the other hand, this research is consistent with the research by Dhatt, Kim and Mukherji (1999) who explore stock returns among small size stocks in Russell 2000 index (which is used to measure the performance of US small size stocks) and find that large-stocks provide higher average stock returns with less risk than small-size stocks. On risk aspect, this current research also discovers the same trend as Dhatt, Kim and Mukherji (1999) that SET 50 portfolio has lower risk than non SET 50 portfolio, using standard deviation of stock return as a proxy for risk (5.76% vs. 8.62%). Another aspect this current research is similar to but different from the research by Dhatt, Kim and Mukherji (1999) at the same time is that their work focuses on small stocks in a well established market while this research focuses on large stocks in an emerging market. In this obvious difference, the similarities are that both researches focus on their segment of interest in their respective market and that the market capitalization gap between well established market and emerging market becomes smaller when one researches bottom of the large and while the other researches the top of the small. This smaller gap might be one of the reasons results of these two researches are similar. Another finding is that ROE has a positive relationship with dividend. Although this finding does not come up to prove against any of hypothesis previously set, it is worth noting here because at first this finding might seem predictable for investors but in fact ROE is a separate issue from dividend payout. High ROE could mean high earning per share but not necessarily high dividend payout. This finding reveals that


during 2004-2006, Thai listed companies pay out more dividends when they achieve ROE higher than their sectors’ averages. Another main finding of this research is the significance of ROE in predicting stock returns, which has not been explored in any prior known research. However, results are inconsistent for SET 50 port folio and non SET 50 portfolio. High ROE, which should lead to higher shareholder value, does not function as expected for SET 50 portfolio but works well for non SET 50 portfolio. At the same time, low ROE results in higher stock returns for SET 50 portfolio but lower stock returns for non SET 50 portfolio. One possible reason is that ROE implies risk for SET 50 stocks. Low ROE means higher risk for investors, therefore, SET 50 low ROE portfolio yields higher stock returns to compensate with the increased risk. On the other hand, ROE implies potential for non SET 50 stocks. This leads to significantly better performance of non SET 50 high ROE portfolio when compared with non SET 50 low ROE portfolio. The other possible reason is that large market capitalization stocks might be in transition from overvaluation to more realistic valuation because the market index surged by more than 100% in 2003 while our investment period covers from 2004 to 2006. The application of these findings is that once aiming for investment in Stock Exchange of Thailand, investors should consider stocks listed in SET 50 index, especially the low ROE ones, as their first alternative. If investors expect the returns of non SET 50 high ROE stocks to overtake that of non SET 50 low ROE in their investment horizon, investing in SET 50 portfolio (regardless of ROE) is still not significantly different from investing in market portfolio, although not as high as investing solely in SET 50 low ROE portfolio. However, investing in SET 50 high ROE is not recommended since its returns are not significantly different from non SET 50 portfolio. Additionally, aside from SET 50 stocks, investors can invest in non SET 50 high ROE portfolio, which is inferior only to SET 50 low ROE portfolio while having similar risk (as measured by standard deviation), and its returns are comparable to that of SET 50 portfolio and market portfolio. Non SET 50 portfolio and non SET 50 low ROE portfolio should be avoided since they yields negative and worst returns among all portfolios. REFERENCES: Aggarwal, R., Hiraki, T., & Rao, R. P. (1992, November). Price/Book value ratios and equity returns on

the Tokyo stock exchange: Empirical evidence of an anomalous regularity. The Financial Review, 27(4), 589-604.

Banz, R. W. (1981, March). The relationship between return and market value of common stocks. Journal of Financial Economics, 9(1), 3-18.

Barbee, W. C., Mukherji, S., & Raines, G. A. (1996, March/April). Do sales-price and debt-equity explain stock returns better than book-market and firm size?. Financial Analysts Journal, 52(2), 56-60

Bhandari, L. C. (1988). Debt/equity ratio and expected common stock returns; empirical evidence. Journal of Finance, 43(2), 507-528.

Chui, A. C. W., & Wei, K. C. J. (1998). Book-to-market, firm size, and the turn-of-the-year effect: Evidence from Pacific basin emerging markets. Pacific Basin Finance Journal, 6, 275-293.

Dhatt, M. S., Kim, Y. H., & Mukherji, S. (1999, September/October). The value premium for small-capitalization stocks. Financial Analyst Journal, 55(5), 60-68.

Harris, R. S., & Marston, F. C. (1994, September/October). Value versus growth stocks: book-to-market, growth, and beta. Financial Analysts Journal, 50(5), 18-24.

Keown, A. J., Pinkerton, J. M., & Chen, S. N. (1987, Summer). Portfolio selection based upon P/E ratios: Diversification, risk decomposition and implication. Journal of Business Finance and Accounting, 14(2), 187-198.

Loeb, T. F. (1991, January/February). Is there a give from small-stock investing. Financial Analyst Journal, 47(1), 39-44

Maroney, N., & Protopapadakis, A. (2002).The book-to-market and size effects in a general asset pricing model: Evidence from seven national markets. European Finance Review, 6(2), 189-221.


SEEING THE INVISIBLE: USE OF COMPENSATION INFORMATION IN MARKET-BASED VALUATION OF HUMAN CAPITAL

John Darcy, The University of Texas-Pan American, Edinburg, Texas, USA

ABSTRACT This paper uses time-series and valuation tests to examine the use of compensation information in market-based valuation of human capital in the United States, the United Kingdom, Germany and Japan. The time series test examines the incremental contribution of the wages component of changes in income to future changes in earnings. The valuation test examines whether changes in wages provide incremental value relevance to market values beyond changes in earnings. Multi-country samples enable comparisons across differing business cultures. Keywords: Human capital, value relevance of earnings, intangible firm value, income components 1. INTRODUCTION Stein (1989: 657) describes expenditures for intangibles as creating "invisible assets" which are not easily identified and cannot be accurately disentangled from increased operating costs. Many researchers believe that this invisibility biases the markets away from companies that invest in intangibles because investors fixate on earnings (Blair 1996: 12, 1995: 327, Levine 1995: 87, Porter 1992: 44, Jacobs 1991: 36). But there is also a widely held assumption in the economics literature that even if the costs of creating an asset are expensed for accounting purposes, in an efficient market the value of an intangible may be expected to be included in the market value of a firm (Hirschey and Wichern 1984, Ross 1983, Lindenberg and Ross 1981, Ben-Zion 1978, Thomadakis 1977). In accounting research, this efficient markets assumption underlies the market-based approach to the study of the associations between accounting measures of intangibles and firm value (e.g., Lev and Sougiannis 1996, Amir and Lev 1996, Sougiannis 1994, Bublitz and Ettredge 1989, Hirschey and Weygandt 1985).

This paper tests use of compensation information in market-based valuation of human capital. Two tests are used. The first examines the incremental contribution of the wages component of changes in income to future changes in earnings (the time-series test). The second is a test of whether changes in wages provide incremental value relevance to market values beyond changes in earnings (the valuation test).

Lipe (1986) showed that income components demonstrate greater value relevance than earnings alone and that this value relevance is positively associated with the persistence of the components. But there is also evidence that investors tend to fixate on earnings and do not fully use information regarding the relative persistence of the cash flow and accrual components of income (Sloan 1996) and the domestic and foreign components of income (Thomas 1999). It is possible that similar mispricing may occur for wages and the other components of income.

It is increasingly accepted in the literature that a portion of the compensation to employees is in the nature of an investment (Ballester et al. 1999), and a measurement approach toward human capital in financial statements has long been proposed (Lev and Schwartz 1971). This provides the basis for the hypothesis that wages have implications for future earnings that differ from the average persistence of the other components of income. If the persistence of wages differs from that of the average levels of persistence in the other components of earnings changes, then in an efficient market the wage component would have incremental ability to explain current returns.

Data from U.S., U.K., German and Japanese firms are used in the tests conducted in this paper. Because only a small percentage of U.S. firms report the compensation information necessary to be included in the study, the sample of U.S. companies is likely to be subject to self-selection bias, and the results from the U.S. sample may not be generalizable. To expand the number of U.S. companies in the


sample, exploratory tests are conducted using the growth rate of employees as a proxy for changes in wages. In contrast to the U.S., virtually all large companies from the U.K., Germany, and Japan report compensation information and are included in their country samples. Separate country tests, therefore, should provide richer samples than would be possible if only U.S. companies were used. The multi-country sample also enables informal comparisons of differences across the business cultures. But cross-country significance tests are not contemplated due to the difficulties of making international comparisons of financial information (Ballester et al. 1999: 7 n. 1).

Aoki (1988: 166) provides a basis for expecting different results across countries. In his model of the firm, employees with strong bargaining power may cause firms to grow beyond levels consistent with share price maximization, and this diverts value away from the shareholders in the form of excess wages. Among the sample countries in this study, only employees in Germany have this kind of strong bargaining power. Unlike employees of U.S., U.K., or Japanese firms, German employees have the legal right to participate directly in decision-making on the board of directors. Wage information was, therefore, expected to have greater positive (or less negative) associations with future earnings and with equity value in the U.S., the U.K., and Japan than in Germany. Although Japan is more like the U.S. and U.K. regarding the bargaining power of employees, the relationship between key investors and Japanese firms is more similar to German firms than to firms in the U.S. or U.K. In both Germany and Japan, there are higher levels of insider trading and informal information exchanges between key investors and the company than in either the U.S. or U.K. (Blair 1995: 282, Porter 1992: 47-48, 70). Because of these information flows, it is possible that fixation on earnings might be less in Japan and Germany than in the U.S. or U.K.

2. THE EARNINGS IMPLICATIONS OF WAGES Companies invest in human capital in order to generate future profits (capital surplus) for the shareholders. Wages contain an investment in human capital when companies incur the cost of formal education and training of employees (Ross 1983). Bassi et al. (2000) and Bassi and McMurrer (1998) provide evidence that measures of human capital such as spending on training per employee and the percentage of employees receiving training are positively associated stock market measures. Economist Robert Topel (1991) at the University of Chicago estimates that as much as 10 to 15 percent of the total compensation of employees of large corporations represents compensation for firm-specific skills rather than payments for generic skills. This is similar to the results obtained by Ballester et al. (1999), who used time-series data to estimate that about 16 percent of the compensation paid by U.S. firms which disclose labor costs is valued by the market as investments in human capital. Ballester et al. (1999) also find that this investment amortizes at a rate of 34% a year. Using cross-sectional data, Darcy (2006) found a similar amortization rate (35%) for the human capital asset of U.K. companies.

Wages can also have adverse implications for future earnings power. Where non-equity stakeholders have strong bargaining power over the disposition of firm resources, the non-equity stakeholders tend to demand overinvestment in firm growth, including excess investment in human resources (Blair 1995: 269, Porter 1992: 67, Kester 1992: 94). Aoki (1988: 166) demonstrates how employee stakeholders with strong bargaining power may cause firms to grow beyond levels consistent with share price maximization. In such cases, the incremental value relevance of wages and the intangible value of human capital may be impacted. Two-sided tests are, therefore, appropriate in testing hypotheses regarding the time-series characteristics and value relevance of employee compensation.

The time-series properties of changes in income and the incremental contribution of the wages component of changes in income are represented by the following equations (WAGE is defined as a negative amount and firm subscripts are suppressed):

NIt+1 = 0 + 1NIt + t+1 (1) NIt+1 = 0 + 1NIt + 2WAGEt + t+1 (2)

where, NIit = the change in net income before extraordinary items of firm i in

year t deflated by the market value of equity at the beginning of


the year, WAGEit = the change in employee compensation expense (defined as a negative number) of firm i

in year t deflated by the market value of equity at the beginning of the year, and t+1 = error term, assumed normally distributed with mean zero.

H10: 2 = 0. H1A: Changes in wages have different implications for future earnings

changes than the average effect of the changes in the other components of earnings. H10 is tested separately for each country sample using two-tail t-tests. Separate tests are performed on regressions of pooled samples of data from 1994 through 2000 for each country (1992 through 1997 for Japan) and on annual regressions for each separate year for the samples from the U.K., U.S., and Germany. (Due to data limitations, only results from the pooled regressions are reported for Japan.) Because of the possibility that the standard errors of the regression coefficients in the annual regressions may be biased due to cross-sectional correlation, I focus primarily on cross-temporal two-tail t-tests of the means of the separate yearly coefficients (Fama and McBeth 1973) in evaluating the significance of the annual regression coefficients.

Aoki's (1988) bargaining power model provides a basis for predicting differences in the time-series characteristics of wage information across countries. Firms in the U.S. and U.K. generally use a compensation-based system with few guarantees to employees of employment security and little employee power over corporate governance. Japanese companies are typified by a system incorporating incentive compensation and employment security, but little employee power over corporate governance. In Germany, employees have extensive ownership and control rights guaranteed to them under the postwar legal structure which established a codetermination system with workers’ participation in management. There is greater potential in Germany for excess growth and for employees to divert future wealth away from the shareholders. Therefore, the coefficient of changes in wages is expected to be more positive (or less negative) relation with future earnings changes in Germany than in the low employee bargaining power countries, the U.S., U.K. and Japan. 3. INCREMENTAL VALUE RELEVANCE OF WAGES

Incremental value relevance tests are conducted using a valuation model, equation (3), which is a variation of a basic returns-net income model using annual data. As above, WAGE is defined as a negative amount and firm subscripts are suppressed.

ARt = 0 + 1NIt + 2 WAGEt + t (3)

where, ARt = the abnormal return in year t, calculated as the twelve-month buy-and-hold return for the

stock less the buy-and-hold return for a value weighted comparison portfolio, with weightings based on beginning market value of equity. Comparison portfolios are formed by dividing the sample into quartiles based on firm size, defined as the beginning market value of the firm's equity. Because of the small number of observations, separate quartile portfolios are not used in the German yearly samples.

NIt = the change in net income before extraordinary items of firm i during year t deflated by the market value of equity at the beginning of the year, and WAGEit = the change in employee compensation expense (defined as a negative number) of firm i in

year t deflated by the market value of equity at the beginning of the year, and t+1 = error term, assumed normally distributed with mean zero.


The regression coefficient for changes in wages (2) represents the difference between the valuation information in the wage component versus the average effect of the other components of earnings. A negative coefficient on the wages expense component means that the market responds less to changes in that component than to the average effect of the other components of income (recall that WAGE is defined as a negative amount). A negative coefficient is consistent with a portion of the wages expense component representing an investment with future benefits (Amir and Lev 1996, Lev and Sougiannis 1996). A positive coefficient means that the market expects incremental future detriments. If the response coefficient for changes in wages expense is not significantly different from zero, then investors do not appear to view the item differently from the average effect of the other components of income.

H20: 2 = 0. H2A: Changes in employee compensation are incrementally value relevant beyond changes in

net income.

Equity owners in the U.K., U.S., and Japan have greater control over wage policy than owners in Germany. According to Aoki's (1988) bargaining power model, higher degrees of control over wage policy enable equity owners to use wages to increase equity value, while lower degrees of owners' control over wages provide opportunities for the benefits of wages to be diverted away from the equity holders. In that case, the coefficient of the wage variable in equation (3) might be expected to be significantly negative in the U.K., U.S., and Japanese samples, but less negative or positive in the German sample. H20 is tested separately for each country using two-tail t-tests of the significance of the coefficients for regressions of pooled samples of data from 1994 through 2000 (1992 through 1997 for Japan). Significance tests based on two-tail t-tests employing the Fama-MacBeth procedure are used to evaluate the significance of the mean coefficients of yearly regressions from those years for the U.K., U.S., and Germany. 4. DATA SAMPLE AND ECONOMETRIC ISSUES Annual firm data for the years 1992-2000 for each variable in this study are collected from the Worldscope Global Access database in the case of firms from the U.K. and Germany and from Research Insight (Compustat) for U.S. firms. Japanese returns and market value data is from the Worldscope Global Access database and other Japanese data is from the Nikkei NEEDS database. Japanese data covers the years 1992 to 1997 only. 1992 is selected as the starting point because it is the year the Worldscope Global Access database begins to report employee compensation information for large numbers of German and U.K. companies. Results of the tests in this paper are generally reported based on pooled samples containing data from each sample year for each country and for separate annual regressions for each year in the country sample. Two-tailed t-tests are used to evaluate the significance of coefficients in the pooled regressions for the time-series and valuation tests Chi-square likelihood ratio statistics are used to evaluate the significance of coefficients for the pooled regressions in the rational expectations tests. The results of the annual regressions in each of the tables in this paper are evaluated using cross-temporal t-statistics based on the mean value of the separate yearly coefficients divided by their standard errors (Fama and McBeth 1973). The Fama-McBeth procedure provides the benefit of controlling for cross-sectional correlations in the residuals, but is limited by small number of years for which wage information is available in the data samples. Due to the limited number of annual samples for Japanese companies, only results from the pooled regressions are reported for Japan.

Earnings in this study are defined as net income before extraordinary items. Wages in the U.S. samples consist of Research Insight (Compustat) data item A 42, labor and related expense. Included in this item are costs of wages and benefits allocated to continuing operations, including salaries and wages, incentive compensation, other benefit plans, payroll taxes, pension costs, and profit sharing. The comparable data item for wages and related benefits in the Worldscope Global Access database is designated as "staff costs," and in the Nikkei NEEDS database as ningenhi-rodohi (employee and labor expense). In each database, the wages expense item includes amounts included in cost of goods sold expense, sales, general and administration expense, and officers salary expense.


Abnormal returns are calculated as the twelve-month buy-and-hold return for the stock less the buy-and-hold return for a value-weighted comparison portfolio, with weightings based on beginning market value of equity. Comparison portfolios are formed by dividing the sample into quartiles based on firm size, defined as the beginning market value of the firm's equity. Because of the small number of observations, separate quartile portfolios are not used in the German yearly samples.

The returns models used in this paper are estimated using ordinary least squares (OLS) under the assumptions of normally distributed, homoscedastic error variances with mean zero, and the absence of cross-sectional correlation. In the presence of heteroscedasticity, ordinary least squares estimation is inefficient relative to generalized least squares. Heteroscedasticity arising from variations in the scale of variables in the models is addressed by deflating the explanatory variables by the beginning market value of equity. The presence of heteroscedasticity in the models is tested using White’s general heteroscedasticity test (White 1980) employing a statistic following the chi-square distribution. In the returns regressions in this study, chi-square statistics significant at the 5% level (indicating possible heteroscedasticity) were observed in two of the 21 sample years and in the time-series regressions in eight of the 21 sample years. In cases where heteroscedasticity was detected at the 5% significance level, standard errors of the regression coefficients are reported using White’s consistent estimator. Cross-sectional dependencies among the security return residuals may cause bias in the standard errors used for significance testing in this research, although OLS coefficients remain unbiased. Cross-sectional correlation is mitigated where samples of firms with varying measurement dates are taken from a large number of industries (Bernard 1987, Bowen et al. 1987). In this research, about 60% of the U.K. firms and 21% of the German firms have non-December 31 year ends. However, Japanese firms tend to report financial information uniformly as of March 31. Approximately 50 two-digit SIC (or equivalent) industries are represented in each country sample, resulting in a sample which is highly diverse across industries (Chaney and Jeter 1994). These factors should tend to mitigate bias in standard errors attributable to cross-sectional correlation. In the annual regressions in this paper, conclusions are based on an unbiased cross-temporal t-statistic obtained from the mean value of the separate yearly coefficients divided by its standard error (Chaney and Jeter 1994, Ali 1994, Easton and Harris 1991, Rayburn 1986). Collinearity among the explanatory variables can affect the ability to interpret the significance of individual coefficients in incremental information studies (Christie et al. 1984). A table of correlations of the explanatory variables used in the regressions is provided. The condition index procedure is used to detect collinearity (Belsley et al. 1980) and results of the condition index tests are reported in the table of correlations.

Both yearly and pooled regressions are estimated for the models used in this paper. Pooled regressions may give rise to serial correlation in the residuals because multiple observations are included for each firm. Serial correlation is tested for using the Durbin-Watson test and a table of Durbin-Watson d statistics is provided for each of the pooled regressions based on models (2) and (3).

5. DESCRIPTIVE STATISTICS, COLLINEARITY, AND SERIAL CORRELATION The hypotheses in this paper are concerned with differences between the persistence and value relevance of changes in wages compared to the other components of earnings. Descriptive statistics for the main variables in this study, abnormal returns, changes in earnings, and changes in wages, are provided in Table 1. These descriptive statistics are based on samples for the years from 1994 through 2000 for the U.K., U.S., and Germany and the years from 1993 to 1997 for Japan.


TABLE 1:

DESCRIPTIVE STATISTICS

Size of Pooled Standard Minimum Maximum

Country / Variable Sample Mean Deviation Observation Observation

U.K. 4867

-0.06292 0.408 -1.195 2.359 0.00464 0.163 -1.433 1.201

-0.02414 0.155 -3.467 2.022

U.S. 5800

-0.09228 0.360 -1.190 1.149 0.00768 0.225 -2.554 6.967

-0.01940 0.184 -3.480 5.349

GERMANY 1727

-0.09461 0.294 -1.052 0.957 0.00843 0.130 -2.002 1.117

-0.01830 0.194 -2.617 1.466

JAPAN 8988

-0.04058 0.193 -0.691 0.765

-0.00030 0.027 -0.139 0.154

-0.00084 0.023 -0.949 0.315

Descriptive statistics are based on samples for the years from 1994 through 2000 for the U.K., U.S., and Germany. For Japan, they are based on the years from 1993 to 1997. Expenses are defined as negative numbers.

Collinearity among changes in wages and earnings could affect the ability to interpret the significance of the individual coefficients of these variables (Christie et al. 1984). Table 2 presents the average Pearson correlations between the earnings changes and wages changes variables for each of the country/year samples used in this study. The average correlation across sample years is 4.8% for the U.K. samples, 8.5% for the U.S. samples, 2.1% for the German samples, and -2.4% for the Japanese samples. The condition index procedure (Belsley et al. 1980) was used as a diagnostic for collinearity in the yearly cross-sectional time-series and valuation model regressions in this paper. The average condition indexes for separate year regressions of the time-series properties of changes in earnings and wages (based on equation (2)) are 1.54 for the U.K. samples, 1.60 for the U.S. samples, 1.21 for the German samples, and 1.32 for the Japanese samples. In separate year regressions of changes in earnings and wages on abnormal returns (based on equation (3)) the average condition indexes for the U.K., U.S., German, and Japanese samples are 1.27, 1.32, 1.24 and 1.28 respectively. Overall, collinearity does not seem to pose a problem.

ARt

WAGEit

NIit

ARt

WAGEit

NIit

ARt

WAGEit

NIit

ARt

WAGEit

NIit


TABLE 2

CORRELATIONS BETWEEN EARNINGS AND WAGES

Average Correlations Average Durbin-Watson

between

Condition Indexes d Statistic

Year n Time-

Series ValuationTime-Series Valuation

U.K. 4867 0.048 1.540 1.269 2.054 1.829

U.S. 5800 0.085 1.599 1.316 2.067 1.845

Germany 1727 0.021 1.208 1.239 1.923 1.808

Japan 8988 -0.024 1.316 1.278 1.926 1.782

Condition index and Durbin-Watson statistics are derived from the time-series regressions based on equation (2) and valuation regressions based on equation (3). A value of the Durbin-Watson d statistic of less than 1.748 indicates evidence of positive serial correlation. A d statistic value greater than 2.252 indicates evidence of negative serial correlation.

Serial correlation in the residuals was tested using the Durbin-Watson test (Durbin and Watson 1951). For these samples, a value of the Durbin-Watson d statistic of less than 1.748 indicates evidence of positive serial correlation, while a d statistic value greater than 2.252 indicates evidence of negative serial correlation. Table 2 presents the Durbin-Watson d statistics for the pooled time-series and valuation models used in this study. The values range from a low of 1.782 to a high of 2.067, indicating that the null hypotheses of no positive or negative serial correlation are not rejected.

6. THE EARNINGS IMPLICATIONS OF WAGES The examination into the valuation implications of wages begins by testing how changes in current wages are associated with changes in future earnings relative to the other components of earnings. Changes in earnings (net income before extraordinary items) and changes in wages are deflated in this study by the market value of equity at the beginning of the year and represent accounting rates of return on equity. Accounting rates of return are generally believed to be mean reverting (Beaver 1970). Mean reverting coefficients of changes in earnings may be may be expected to be less than zero, but more than -1, which is the coefficient for earnings that are purely transitory. Permanent changes in earnings are

NIt, WAGEt

NIit = the change in net income before extraordinary items of firm i in year t, deflated bythe market value of equity of firm i at the beginning of year t.WAGEit = the change in employee compensation expense of firm i in year t, deflated bythe market value of equity of firm i at the beginning of year t.


indicative of a random walk process, in which case zero coefficients would occur. Positive coefficients represent an association between current earnings changes and growth in future earnings changes. To provide a context within which to interpret the time-series properties of wages and other components of earnings, a preliminary step is to look at the time series properties of earnings from which wages have been deducted. This is represented by model (1).

NIt+1 = 0 + 1NIt + t+1 (1) Panel A of Table 3 presents the results for the model (1) regressions of the time-series properties of earnings for the pooled samples. The negative coefficients on the earnings variable (1) for the U.S., U.K., and German samples indicates that changes in earnings demonstrates mean-reverting time-series behavior in each of the three country samples. The positive coefficient for the earnings variable in the Japanese sample indicates that changes in current earnings are positively associated with changes in future earnings. The lowest level of mean-reversion occurs in the U.K. samples (1 = -.072), followed by the U.S. (1 = -.235), with Germany showing the highest level of mean reversion (1 = -.320). Coefficients for the earnings variable are significant in the pooled regressions at the 1% level for all four countries. Similar results are found in the annual regressions, except that the significance of the earnings variable drops to 8.1% in the U.K. sample.

TABLE 3 – PANELS A AND B THE TIME-SERIES PROPERTIES OF EARNINGS

Panel A Panel B Pooled regressions Annual regressions

U.K. U.K. Estimated Coefficient 0.007 -0.072 Mean 0.009 -0.093Standard Error 0.002 0.007 Standard Error 0.006 0.043Significance Level 0.004 0.000 Significance Level 0.184 0.081 n =4867 n =4867

U.S. U.S. Estimated Coefficient 0.012 -0.235 Mean 0.011 -0.153Standard Error 0.003 0.011 Standard Error 0.002 0.045Significance Level 0.000 0.000 Significance Level 0.002 0.019n =5800 n =5800

Germany Germany Estimated Coefficient 0.014 -0.320 Mean 0.012 -0.334Standard Error 0.003 0.014 Standard Error 0.004 0.063Significance Level 0.000 0.000 Significance Level 0.038 0.003n =1727 n =1727

Japan Estimated Coefficient 0.000 0.034Standard Error 0.000 0.008Significance Level 0.278 0.000n =8988

NIt+1 = 0 + 1NIt + t+1 (1)

0 1 0 1


Expenses are defined as negative numbers. Results are reported for sample years 1994-2000 (1993-1997 for Japan). The pooled regressions are based on samples which combine all sample years for each country. The annual regressions employ the Fama-MacBeth procedure to evaluate the significance of the mean of the yearly regression coefficients from 1994 to 2000. Reported significance levels of coefficient estimates are based on two-tail t-tests that the coefficient equals zero.

The first hypothesis is that changes in wages have different implications for future earnings changes than the average effect of the changes in the other components of earnings. This is tested using model (2).

NIt+1 = 0 + 1NIt + 2WAGEt + t+1 (2) H10: 2 = 0.

The null hypothesis is that the associations between changes in wages and period-ahead changes in earnings do not differ incrementally from that of the average of the other components of earnings . The results of tests of this hypothesis are shown in panel C of Table 3 for the pooled regressions. The wage variable coefficients (2) in panel C of Table 3 are positive and significant at the 1% level in the pooled regressions for the U.K. (2 = .109, p = .000), U.S. ( 2 = .165, p = .000), and Japan ( 2 = .220, p = .000). Similar are found for annual regressions, except the significance level of the wage coefficient drops to 5.4% in the U.K. sample. In these three country samples, changes in wages appear to have measurably different implications for future earnings changes than the average effect of the changes in the other components of earnings.1 The wage coefficient is not significant at conventional levels for the German sample in either the pooled regression (2 = -.011, p = .402) or the annual regressions (2 = .013, p = .705), and the null hypothesis of no incremental information content for the wage variable cannot be rejected for the German sample.

TABLE 3 – PANEL C

THE EARNINGS IMPLICATIONS OF WAGES – POOLED REGRESSIONS

U.K. Estimated Coefficient 0.010 -0.094 0.109Standard Error 0.002 0.007 0.012Significance Level 0.000 0.000 0.000n =4867

1 In separate tests, not reported in Table 3, dummy slope variables based on single-digit SIC industry codes were employed to account for industry effects on the regression models. The results reported in Table 3 were relatively insensitive to the use of dummy slope variables. Sensitivity tests incorporating variables representing the interaction of the industry dummy variables and the explanatory variables failed to show significant interactions.

NIit = the change in net income before extraordinary items of firm i in year t, deflated by themarket value of equity of firm i at the beginning of year t.

NIt+1 = 0 + 1NIt + 2WAGEt + t+1 (2)

0 1 2


U.S. Estimated Coefficient 0.018 -0.290 0.165Standard Error 0.003 0.012 0.015Significance Level 0.000 0.000 0.000n =5800

Germany Estimated Coefficient 0.014 -0.319 -0.011Standard Error 0.003 0.014 0.013Significance Level 0.000 0.000 0.402n =1727

Japan Estimated Coefficient 0.000 0.031 0.220Standard Error 0.000 0.008 0.014Significance Level 0.968 0.000 0.000n =8988

Expenses are defined as negative numbers. Results are reported for sample years 1994-2000 (1993-1997 for Japan). The pooled regressions are based on samples which combine all sample years for each country.

Reported significance levels of coefficient estimates are based on two-tail t-tests that the coefficient equals zero.

The coefficients on the wage variable in the U.K., U.S., and Japanese regressions indicate that changes in wages have greater persistence than the average levels of persistence in the other components of earnings. In the U.K. pooled regression, the coefficient of changes in wages (2) is a positive .109. If changes in wages had the same association with period ahead earnings changes as the average of the other components, the coefficient on wages would be zero. The positive .109 coefficient indicates that an increase (decrease) in the wage variable in the current year is associated with a greater decrease (increase) in income changes in the following year than a current year decrease (increase) in the earnings variable attributable to non-wage components. The full association between the wage variable and next period earnings changes is observed by adding the coefficient of the wage variable (which represents its incremental information content), 0.109, to the coefficient of the earnings variable, -0.094. The result, .015, is more persistent than the coefficient applicable to the earnings variable, -.094.

For example, in the case of the U.K., 9.4% of a $1 shock in the earnings variable does not persist into the next period, while 90.6% (1 - .094) does persist. For the wage variable 101.5% (1 + 0.109 -.094) of a $1 shock persists into the next period. Therefore, a $1 increase in wages expense is associated with a greater decrease in next period earnings changes than a commensurate $1 reduction in the earnings variable attributable to non-wage components. Similar relationships as those discussed for the U.K. sample results are seen in the results for the U.S. and Japanese pooled regressions. The significant

NIit = the change in net income before extraordinary items of firm i in year t,deflated by the market value of equity of firm i at the beginning of year t.WAGEit = the change in employee compensation expense of firm i in year t,deflated by the market value of equity of firm i at the beginning of year t.


positive coefficients for the wage variables in the U.K., U.S., and Japanese samples seem to be more consistent with diversion of value away from the shareholders in the form of excess wages than the creation of intangible value by employees.

The first hypothesis (H1A) is supported by the significant coefficients for the 2 coefficient in the U.K., U.S., and Japanese samples. It was anticipated that the greater bargaining power of employees in Germany might cause the association between changes in wages and period-ahead earnings changes to be reflected by a 2 coefficient that is more positive (or less negative) in Germany than in either the U.K. or U.S. or Japan. The lack of statistically significant coefficients for the wage variable indicates that, unlike in the U.S., U.K., and Japan, German wages do not seem to have incremental information for future earnings.

In this paper, the dependent variable in the time-series model (equation (2)) is the change in net income before extraordinary items and after deducting wages. It thus represents the net incremental benefit at time t from a dollar invested in wages at time t-1. The significant positive coefficients for the wage variables (which are expressed as negative numbers) in the U.K., U.S., and Japanese samples seem inconsistent with the creation of intangible value by employees and are generally inconsistent with the results of my valuation tests discussed in the next section. 7. INCREMENTAL VALUE RELEVANCE OF WAGES The results of the time-series tests of the earnings implications of wages demonstrate that changes in wages are more persistent than the average levels of persistence in the other components of earnings changes for the U.K., U.S., and Japanese samples. In an efficient market, these differing associations with earnings persistence should correspond to incremental information content in wages. The second hypothesis examines this proposition using regressions based on model (3).

ARt = 0 + 1NIt + 2 WAGEt + t (3) H20: 2 = 0.

The null hypothesis is that the coefficient on the wage variable (2) is equal to zero and the information content in wages does not differ from that of the average of the other components of earnings. Table 4 presents the results of pooled regressions for each country based on model (3). In the pooled regressions the null hypothesis can be rejected at the 1% level of significance for the U.K. (2 = -.340, p = .000), U.S. (2 = -.195, p = .000) and Japanese samples (2 = -.469, p = .000). Similar results are found for annual regressions (p = .004 for the U.K. sample; p = .017 for the U.S. sample). As in the time-series tests, the coefficient on the wage variable is not significant at conventional levels for the German sample in either the pooled (2 = -.049, p = .174) or annual (2 = -.214, p = .169) regressions.

TABLE 4

THE INCREMENTAL VALUE RELEVANCE OF WAGES- POOLED REGRESSIONS

U.K. Estimated Coefficient -0.073 0.414 -0.340 Standard Error 0.006 0.035 0.037 Significance Level 0.000 0.000 0.000 n =4867

U.S. Estimated Coefficient -0.098 0.216 -0.195

0 1 2


Standard Error 0.005 0.021 0.026 Significance Level 0.000 0.000 0.000 n =5800

Germany Estimated Coefficient -0.097 0.126 -0.049 Standard Error 0.007 0.054 0.036 Significance Level 0.000 0.021 0.174 n =1727

Japan Estimated Coefficient -0.040 1.988 -0.469 Standard Error 0.002 0.073 0.084 Significance Level 0.000 0.000 0.000 n = 8988

Expenses are defined as negative numbers. Results are reported for sample years 1994-2000 (1993-1997 for Japan). The pooled regressions are based on samples which combine all sample years for each country. Reported significance levels of coefficient estimates are based on two-tail t-tests that the coefficient equals zero.

The significant negative coefficients for the wage variable in the U.K., U.S. and Japanese regressions indicates that the market responds less to changes in wages than to the other components of income and provides support for the proposition that a portion of the wages expense is valued as an investment with future benefits. However, in the time-series tests, changes in wages were found to have greater persistence than the average levels of persistence in the other components of earnings in each of these three countries.

If long-lived intangible value included in wages was part of the class of "invisible assets" described by Stein, any unique characteristics of wages should not be reflected in the valuation tests reported in panels A and B of Table 4. Except in the case of Germany, the results of the value relevance tests suggest that investors are able to disentangle the characteristics of changes in wages from that in other operating costs. This provides some evidence contrary to the theories of Blair (1996, 1995), Levine (1995), Porter (1992) and Jacobs (1991) that markets are biased against companies that invest in intangibles because investors fixate on earnings.

8. CONCLUSION This paper investigated the relation between employee compensation and intangible firm value from the perspective of the observed time-series relationship between wages and earnings persistence, and the relation between wages and value perceived by markets. Testing the consistency of these associations provides evidence whether the contribution of wages expense toward the development of intangible human capital is an "invisible asset" as suggested by Stein (1989: 657) and whether any such invisibility biases the markets away from companies that invest in intangibles because investors fixate on earnings as suggested by Blair (1996: 12, 1995: 327), Levine (1995: 87), Porter (1992: 44) and Jacobs (1991: 36).

Contrary to predictions, the results of the time-series tests indicate that wage changes are more persistent than the average levels of persistence in the other components of earnings changes in the


U.K., U.S., and Japan. Unlike in the U.S., U.K., and Japanese samples, for the German sample incremental information content was not observed for the wage variable in either the time-series or valuation tests.

The results for the U.K., U.S., and Japan in the time-series tests seem to be more consistent with diversion of value away from the shareholders in the form of excess wages than the creation of intangible value by employees. However, the results of the valuation tests are more consistent with the creation of intangible value by employees. The significant negative coefficients for the wage variable in the U.K., U.S. and Japanese valuation regressions indicates that the market responds less to changes in wages than to the other components of income and provides support for the proposition that a portion of the wages expense is valued as an investment with future benefits.

The argument that the value relevance of wage information and human capital is invisible to investors is not supported by the results of testing for U.S. companies. Valuation tests indicate that the market responds less to changes in wages than to the other components of income and provides support for the proposition that a portion of the wages expense is valued as an investment with future benefits. The argument that the value relevance of wage information is invisible to investors finds mixed support in the results for the sample countries other than the U.S. Invisibility of human capital for German companies seems to be supported by statistically insignificant coefficients for the wage variable in both the time-series and valuation tests. Tests samples of firms from the U.K. and Japan indicate that, while markets in those countries appear to recognize incremental value relevance of the wage variable, that information does not seem to be used as efficiently as in the U.S.

Because the U.S. markets are using wage information efficiently in making valuation decisions, a case can be made for changing the disclosure rules in the United States to require disclosure of employee compensation information. Such disclosures would be useful to investors in making valuation decisions and would enable additional research into the relationship between wages and value. Although firms in the U.K., Germany, and Japan generally disclose information regarding employee compensation, and some U.S. firms report this information on a voluntary basis, differences in the items included in the disclosure detract from its usefulness in decision making and research. Even where companies are currently disclosing employee compensation information, that disclosure could be improved through harmonization of the disclosure of employee compensation across firms and countries. The coefficient of the wage variable in Germany was expected to have a more positive (or less negative) relation with future earnings changes in Germany than in the U.K., U.S. or Japan due to the greater potential in Germany for excess growth and wealth diversion by employees. The lack of statistically significant coefficients for the wage variables in the German tests provides only tacit support for this concept.

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Jacobs, M.T., Short-Term America: The Causes and Cures of Our Business Myopia, Harvard Business School Press, Boston, MA, 1991. Kester, W.C., “Governance, Contracting, and Investment Horizons: A Look at Japan and Germany”, The Continental Bank Journal of Applied Corporate Finance, Vol. 5 (Summer), 1992, 83-98. Lev, B. and A. Schwartz, “On the Use of the Economic Concept of Human Capital in Financial Statements”, The Accounting Review, Vol. 46 (January), 1971, 103-112. _____, and T. Sougiannis, “The Capitalization, Amortization and Value-Relevance of R&D”, Journal of Accounting and Economics, Vol. 12, 1996, 25-46. Levine, D., Reinventing the Workplace: How Business and Employees Can Both Win. The Brookings Institution, Washington, D.C., 1995. Lindenberg, E.B., and S.A. Ross, “Tobin's q Ratio and Industrial Organization”, Journal of Business (January), 1981, 1-32. Lipe, R.C., “The Information Contained in the Components of Earnings”, Journal of Accounting Research, Vol. 24 (Supplement), 1986, 37-64. Porter, M. E., Capital Choices: Changing the Way America Invests in Industry, Council on Competitiveness and Harvard Business School, Washington, D.C., 1992. Rayburn, J., “The Association of Operating Cash Flow and Accruals with Security Returns”, Journal of Accounting Research, Vol. 24 (Supplement), 1986, 112-133. Ross, S.A., “Accounting and Economics”, The Accounting Review, Vol. 58 (April), 1983, 375-380. Sloan, R.G., “Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings?”, The Accounting Review, Vol. 71 (July), 1996, 289-315. Sougiannis, T., “The Accounting Based Valuation of Corporate R&D”, The Accounting Review, Vol. 69, 1994, 131-156. Stein, J.C., “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior”, The Quarterly Journal of Economics, Vol. 104 (November), 1989, 655-669. Thomadakis, S.B., “A Value-Based Test of Profitability and Market Structure”, The Review of Economics and Statistics, Vol. 59 (May), 1977, 179-185. Thomas, W.B., “A Test of the Market's Mispricing of Domestic and Foreign Earnings”, Journal of Accounting and Economics, Vol. 28 (December), 1999, 243-67. Topel, R.C., “Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority”, Journal of Political Economy, Vol. 99 (February), 1991, 145-76. White, H., “A Heteroscedasticity Consistent Covariance Matrix Estimator and a Direct Test of Heteroscedasticity”, Econometrica, Vol. 48 (May), 1980, 817-838. AUTHOR PROFILE: Dr. John Darcy earned a J.D. from the University of San Francisco in 1987 and a Ph.D. in Accounting in 2002 from the University of Oklahoma. He is currently an associate professor of accounting at the University of Texas-Pan American where he serves as the Associate Dean for Undergraduate Education.


STANDARDIZATION/ADAPTATION STRATEGIES OF SOUTH KOREAN

FOOD PRODUCT COMPANIES

Richard T. Hise, Texas A&M University-College Station, USA Youngtae Choi, University of North Florida, Jacksonville, USA

Jongkuk Shin, Pusan National University, Geumjeong, Busan, Korea Minsook Park, Pusan National University, Geumjeong, Busan, Korea

ABSTRACT Whether to standardize or adapt marketing operations in international markets is the major decision companies need to make. Despite significant research on this topic, there are significant knowledge gaps that still persist: (1) do companies operating internationally favor a standardized or adaptive strategy, (2) is the level of standardization or adaptation consistent across the various elements of firms’ marketing mixes and (3) what are the internal and external factors that drive companies’ standardization/adaptation decisions? The study is based on a mail survey from 82 Korean food companies engaged in international marketing. The survey asks about the deployment of the firms’ marketing standardization/adaptation strategies and the factors supposedly related to the decision for the firms marketing products internationally. Possible explanations for findings and recommendations for future research are suggested. Keywords: standardization, adaptation, marketing strategy, consumer goods

1. INTRODUCTION Perhaps the most important (and usually the first) decision facing companies beginning to operate in overseas markets is the extent to which those operations will be the same (standardization) or different (adaptation) from their domestic ones. These decisions also must be made by firms currently plying international waters which want to expand into additional markets, but with another dimension: will the operations mirror those currently in play in the firm’s already existing foreign markets, or will they deviate from them? Cavusgil and Zou (1994) state that “in international marketing, the key consideration is whether the marketing strategy should be standardized or adapted to the conditions of the foreign market.” Cavusgil (1995) identifies standardization vs. adaptation as one of the four “special challenges in international marketing,” along with market/customer assessment and selection, methods for getting close to international customers, and branding, labeling and packaging. The literature dealing with this topic has generally taken three approaches: developing arguments for whether standardization or adaptation, or some combination thereof, would be most appropriate; the conditions or factors that impact the standardization/adaptation decision; and the extent to which standardization or adaptation is, in practice, being deployed by companies in their overseas operations.

2. ARGUMENTS FOR STANDARDIZATION AND ADAPTATION Wang (1996), in reviewing the literature, states that “the decades-long debate about standardization and adaptation has recently reached the general consensus that the real issue is not whether to standardize but rather to what degree of standardization….” Buzzell (1968) writers, “management should not automatically dismiss the idea of standardizing some parts of the marketing strategy….” Several advantages of standardization are offered by Carpano and Chrisman (1995), including economies of scale, increased learning, and cost savings from “making a uniform product.” Walters (1986) cites cost savings as a major benefit of uniformity (standardization). Schuh (2000) advances cost advantages due to scale economies and product standardization. Theodosiu and Katsikeas (2001) cite several advantages of standardization: economies of scale, consistency and reduced managerial complexity.


Levitt (1983) developed the most comprehensive and compelling arguments for standardization, making his case on the basis of improved technology, increased worldwide communications, and homogenization of cultural preferences and tastes. According to Levitt, “the global competitor will seek constantly to standardize his offering everywhere…He will never assume that the customer is a king who knows his own wishes.” Levitt’s article elicited several critical responses, most notably Douglas and Wind (1987), Boddewyn, Soehl and Picard (1986) and Walters (1986). Douglas and Wind rejected Levitt’s premise on a number of bases, such as, lack of homogenization in world markets, greater levels of heterogeneity within countries, the reluctance of consumers to trade off product features for lower prices, economies of scale able to be obtained at lower levels of output, the existence of various external obstacles to standardization (governmental and trade restrictions, different marketing infrastructures, and competition), and such internal factors as inability to standardize current international operations which are adaptive and represent management’s disposition against standardized strategies. Boddewyn et al. (1986) fault Levitt for the lack of empirical evidence to support his assertions. Walters (1986) cites the lack of expected benefits as a reason not to embrace full-scale standardization. Chung and Wang (2006) refer to previous studies whose results suggest that a product adaptation strategy is likely to result in better financial and strategic performance, especially export performance (Cavusgil and Zou, 1994; Chung, 2003).

3. FACTORS AFFECTING THE STANDARDIZATION/ADAPTATION DECISION Various factors related to the standardization/adaptation decision have been identified in the literature as being important. These include such performance measures as percentage of international sales to total sales (Cavusgil and Zou, 1994), the number of years of international experience and size (Yip, 1996). Non-performance factors which have been examined include laws and regulations (Buzzell, 1968; Theodosiou and Katsikeas, 2001; Theodosiou and Leonidou, 2003; Yorio, 1983), competition (Alashban, Hayes, Zinkhan, and Balazs, 2002; Boddewyn et al., 1986; Chung and Wang, 2006), physical infrastructure (Barker and Aydin, 1991), marketing infrastructure (Alashban et al., 2002; Chung and Wang, 2006; Levitt, 1983; Theodosiou and Leoido,u 2003), culture (Alabashan et al., 2002; Dunn, 1976; Yorio, 1983), and customer issues (Theodosiou and Katsikeas ,2001; Theodosiou and Leonidou, 2003). Extent of Standardization/Adaptation in Companies’ Overseas Operations Ward (1973) reported that two-thirds of Europeans firms adapted their product for the U.S. market. However, the adaptations were mainly low-cost modifications. Kacker (1972, 1976) concluded that 45% of U.S. companies reported significant changes in products marketed in India. Weinrauch and Rau (1974) discovered that about half of exporters claimed that product modifications were required. Boddewyn et al. (1986) provided a longitudinal analysis (1973, 1978, 1983, and 1988 projected) of standardization/adaptation strategies of U.S. manufacturers of consumer nondurables, consumer durables, and industrial products doing business in the European Community. The major findings for 1988 compared to 1973 were:

1. For consumer nondurable products (1988 projected), 42% of the respondents reported “very substantial product standardization.” This compared to 25% for 1973.

2. For consumer durable products, 38% of the respondents reported “very substantial product standardization” for 1988 (projected), up slightly from 33% in 1973.

3. For industrial goods, the 33% figure in 1988 was down from the 50% figure found in 1973.

Douglas and Wind (1987) believe that few companies “pursue the extreme position of complete standardization with regard to all elements of the marketing mix…Rather, some degree of adaptation is likely to occur relative to certain aspects of the firm’s operations or in certain geographic areas.” Several researchers (Hult, Cavusgil, Deligonul, and Lagerstrom, 2007; Theodosiou and Leonidou, 2003) assert that standardization/adaptation is not usually found at the extremes of the concept but, rather, companies generally pursue a mid-point strategy, a middle-of-the road approach.


Sorenson and Wiechmann (1975) found that three-fourths of companies employed highly standardized national advertising. Martenson (1987) concluded that consumer products were becoming more standardized, as did Walters (1986). Ryans and Donnelly (1969) found that 90% of the companies surveyed made some use of uniform advertising policies, but only one-sixth did so for more than 50% of their international advertisements, and Britt (1974) concluded that little standardization for international advertising was occurring. Dunn (1976) reported that the percentage of companies using similar advertisements in international markets had declined between 1964 and 1973. Schuh (2000), in analyzing the marketing operations of eight western companies doing business in central and eastern Europe found that six cases showed a high degree of marketing program standardization.” Hise and Gabel (1995) concluded that 151 U.S. companies with international operations in at least five foreign markets were using the same customer service strategies in those markets as they were employing domestically. Limitations The limitations of earlier research on standardization/adaptation have been promulgated by various authors, especially Alshban et al., (2002), Cloninger and Swaidan (2007), Hult et al., (2007), O’Donnell and Jeong (2000), Theodosiou and Katsikeas (2001), Theodosiou and Leonidou (2003), and Subramaniam and Hewett (2004). The most significant of these shortcomings include:

*Most of the standardization/adaptation literature involves U.S. MNCs operating in foreign markets. Few studies deal with companies located in other regions of the world, especially Asia and the Middle East. *Little attention has been devoted to the pricing and distribution elements of the marketing mix. *Most of the previous studies are concerned with only one segment of the marketing mix. Few address the broader spectrum of the entire marketing mix. *Most studies elicit information from headquarters personnel instead of seeking input of personnel located at overseas, subsidiary levels. *Almost all analyses of the standardization/issue are cross sectional, rather than longitudinal. *Many studies involved comparisons of companies in multiple industries, instead of focusing on firms located in the same industry. *Relatively few independent, associative variables have been scrutinized. *When independent, associative variables were examined, variables external to firms were usually emphasized to the virtual exclusion of internal factors.

Because of these limitations, we lack sufficient information to fully answer the following questions: Do companies operating internationally favor a standardized or adaptation strategy? Is the level of standardization or adaptation consistent across the various elements of the marketing mix? If not, which aspects exhibit a standardized strategy and which show an adaptation pattern? What are the factors that are associated with a company’s standardization/adaptation strategy? Are some more or less important?

This article will deal with these questions by reporting the results of a study of 82 South Korean firms doing business in international markets.

THE STUDY Based on the standardization/adaptation literature, a three-part questionnaire was developed. The first part requested information about the company, such as, annual sales, percentage of sales from international operations and location of international operations. The second segment required respondents to indicate the extent to which 33 marketing mix elements deployed in their international markets are similar to or different those used in their domestic markets. The response alternatives were “very different,” “somewhat different,” “somewhat similar,” and “very similar.” Part III asked the executives to identify the extent to which 15 factors (external and internal) were considered important in determining the similarity or differences of their international marketing mixes from their domestic ones. The response options available were “not important,” “somewhat important,” and “very important.” An analysis of the relevant literature prompted the formulation of 16 hypotheses which were believed to be helpful in answering the questions posed above. Are Companies Employing a Standardized or Adaptation Strategy?


The type of product is a strong determinant of whether a standardized or adaptive strategy will be in place. High tech products are more likely to be associated with a standardized strategy than an adaptive one (Cavusgil and Zou, 1994; Duprez, Diamanto, Poulos, and Schlegelmich, 1994; Wang, 1996). Industrial products are more likely to be marketed through a standardized strategy than through an adaptive approach according to Boddewyn et al. (1986), Quelch and Hoff (1986), and Samiee and Roth (1992). However, Theodosiou and Leonidou (2003) and Solberg (2003) do not concur. Consumer products will usually be marketed through an adaptive strategy (Quelch and Hoff, 1986; Samiee and Roth, 1992). Among consumer goods, non-durables are less likely to be marketed via standardized means that are consumer durables (Boddewyn et al., 1986; Wang, 1996; Whitelock and Pimblett, 1997). Within the consumer non-durable sector, adaptive strategies are generally believed to be more appropriate (Chakravarthi and Perlmutter, 1985; Rau and Preble, 1987), with food offerings particularly constrained to an adaptive strategy (Barker and Aydin, 1991; Boddewyn et al., 1986; Martenson, 1987; Rau and Preble, 1987; Subramaniam and Hewett, 2004; Wang, 1996; Whitelock and Pimblett,1977) because the purchase of such items is strongly driven by cultural factors, consumer tastes, habits, and incomes (Martenson, 1987). Therefore, because this study involves companies selling food products, the first hypothesis is: H1: The marketing mixes of the respondent companies will exhibit a pattern of adaptation. Is The Level of Standardization or Adaptation Consistent Across the Various Elements of the Marketing Mix? There is a strong consensus in the literature that there will not be homogeneity in the level of standardization/adaptation in companies’ marketing mixes (Boddewyn et al., 1986, Douglas and Wind, 1987; Quelch and Hoff, 1986; Rau and Preble, 1987; Yip, 1996). In other words, different levels of standardization/adaptation will exist for the various components of the marketing mix. Thus, the second hypothesis is:

H2: Respondent companies’ standardization/adaptation strategies will not be consistent across their marketing mixes. A number of researchers have examined the standardization/adaptation question within the context of specific marketing mix elements. Based on their analyses, they have identified those marketing mix components that are likely to be standardized and which are likely to be adapted. Advertising is likely to be adapted (Boddewyn et al., 1986; Britt, 1974; Harris, 1994; Walters, 1986). The product dimension is considered to be the element most likely to be standardized. As far as specific elements of a products are considered, Theodosiou and Leonidou (2003) conclude that quality, design, features, and branding are the least likely to be adapted. Packaging was slightly more likely to be adapted. Some level of adaption was discovered for labeling and warranties. Customer service is likely to be standardized (Buzzell, 1968; Hise and Gabel, 1995; Theodosiou and Leonidou, 2003). Pricing strategies are likely to be adapted (Barker and Aydin, 1991; Douglas and Wind, 1987; Martenson, 1986; Theodosiou and Leonidou, 2003; Walters, 1986) as are channels of distribution (Barker and Aydin, 1991; Martenson, 1987; Rau and Preble, 1987; Theodosiou and Leonidou, 2003; Walters, 1986). Theodosiou and Leonidou (2003) concluded that physical distribution was likely to be adapted. Two major elements of the promotion mix—sales promotion (Barker and Aydin, 1991; Kashani and Quelch, 1990; Theodosiou and Leonidou, 2003) and personal selling (Barker and Aydin, 1991; Theodosiou and Leonidou, 2003) are also likely to be adapted.

Based on the above findings, the following nine hypotheses were suggested: H3: The respondent companies’ advertising mixes will exhibit an adaptive pattern. H4: The respondent companies’ sales promotion mixes will exhibit an adaptive pattern.

H5: The respondent companies’ personal selling mixes will exhibit an adaptive pattern. H6: The respondent companies’ product mixes will exhibit a standardized pattern. H7: The respondent companies’ channels of distribution will exhibit an adaptation strategy. H8: The respondent companies’ logistics mixes will exhibit an adaptation pattern. H9: The respondent companies’ pricing mixes will exhibit an adaptation pattern. H10: The respondent companies’ credit policies will exhibit an adaptation pattern. H11: The respondent companies’ after-the-sale service policies will exhibit an adaptation

pattern.


What Factors Are Associated With Companies Standardization/Adaptation Strategies? Several performance factors which are likely to be associated with companies’ standardization/adaptation strategies have been the concerns of various researchers and are incorporated into Hypotheses H12 through H14:

H12: Companies with higher percentages of international sales to total sales are more likely to be pursuing an adaptation strategy than those with lower percentages of international sales to total sales (Cavusgil and Zou, 1994):

H13: The greater the number of years of international experience for respondent firms, the more likely they will be pursuing an adaptation strategy (Cavusgil and Zou, 1994; Chung and Wang, 2006).

H14: Smaller respondent companies are more likely to be pursuing a standardized strategy than are larger ones (Yip, 1996).

A wide array of non-performance, external factors have been hypothesized as being important in formulating standardization/adaptation strategies. These have been incorporated into hypothesis H15. (In addition, the authors believed that physical distance of firms’ international markets from their domestic location should also be included as one of the external factors). H15: Laws and regulations (Buzzell, 1968; Theodosiou and Katsikeas, 2001; Theodosiou and Leonidou, 2003; Yorio, 1983), competition (Alashban et al., 2002; Boddewyn et al,. 1986; Chung and Wang, 2006), physical infrastructure (Barker and Aydin, 1991), marketing infrastructure (Chung and Wang, 2006; Levitt, 1983; Theodisiou and Leonidou, 2003), culture (Dunn, 1976; Yorio, 1983), customer issues (Theodosiou and Katsikeas, 2001; Theodosiou and Leonidou, 2003), and physical location will be perceived by the Korean firms as being important in formulating their standardization/adaptation strategies. Internal, non-performance factors are captured in hypothesis H16: H16: Economies of scale, resource availabilities, strategic goals and objectives, level and type of training provided their sales forces, company financial condition, and availability of competent personnel to staff international marketing positions will be perceived by the Korean firm as being important in formulating their standardization/adaptation strategies. Survey Procedure The original survey questionnaire was constructed in English. The survey was translated into Korean by one of the authors, who is bilingual, for Korean respondents. The translated Korean survey questionnaire was checked by the other two Korean authors to ensure the correct meaning and wording of the original survey for Korean respondents. Their comments were incorporated into the final Korean survey questionnaire.

The food industry in Korea was chosen for the survey because the importance of the Korean food industry has been increasing in recent years. The proportion of value added by the food industry’s agro-food sector improved from 38.7% to 47.9% in 2005. Food exports in 2005 were slightly over $2 billion, compared to $6.97 billion import (Hwang, 2005). The increasing level of exported food products may help to reduce this trade disparity (Lee, 2001).

The mail survey questionnaire was sent to the 450 companies on the list of the Korean International Trade Association and the Korean Food Industry Association. The first mailing was sent to the person who was responsible for international marketing and sales. After the first mailing, a phone call was made to those who did not complete the mail survey. A total of 87 surveys were returned. However, five of the surveys were not used because of missing information. The final number of the surveys used was 82, resulting in an 18.2% response rate. In order to check for non-response bias, t-tests were conducted to compare the early returns (those who responded to the first mailing) with the late returns (those who responded to the phone call) on annual sales, percentage of sales from international operations, and years of international experience (Armstrong and Overton 1977). The tests showed that there were no significant differences on the three variables (p=.69, p=.26, and p=.93, respectively) between the two groups. Thus, non-response bias was not a concern.


4. RESULTS Respondent Profiles Table 1 provides profile information about the 82 South Korean companies that participated in the study. Their mean annual sales were $179 million, with a median of $30 million. The mean value for the percentage of sales accounted for by their international operations was 38.5% compared to a median of 31.0. The mean years of international experience was 8.4; 7.0 was the median figure. Four was the median number of foreign countries in which these companies operated; the mean was 4.55. Exporting (96.3% of the firms) was the preferred type of international operation, followed closely by importing (90.2%). International joint ventures (58.5%) and strategic alliances (48.8%) were the next favored options. Overseas sales and marketing offices (39.5), licensing (34.1%) and franchising (31.7%) were employed by about one-third of the respondent firms. Less than 10% indicated the use of manufacturing facilities. Level of Standardization/Adaptation on the 33 Marketing Mix Variables Table 2 presents the findings regarding the extent to which the South Korean companies were employing a standardization or adaptation strategy for the 33 marketing mix variables, the seven marketing mix clusters and the two stand-alone elements (credit policies and after-the-sales service). In computing the mean scores to be subsequently discussed, a value of 1 was assigned to the “very different” response, 2 to the “somewhat different response, a 3 to the “somewhat similar” response, and a 4 to the “very similar response.” Advertising On the advertising cluster, respondent companies pursued a middle-ground strategy. Advertising copy, advertising appeal and advertising media had means only slightly above 2.50 and, for advertising as a whole, the mean was 2.60. For each element of the advertising mix, the percentages of “very similar” were, however, about twice those of “very different” responses. Sales Promotion. For sales promotion, similar results to those found for advertising existed. The mean for all sales promotion elements combined was 2.63. The highest means occurred for premiums (2.74) and contests (2.70); the lowest means of 2.49 and 2.55 were found for sponsorships and point-of-purchase displays, respectively. For each component of sales promotion, the percentages of “very similar” responses exceeded those of “very different,” responses. Personal Selling. The mean score for personal selling was 2.66. They were 2.63, 2.66 and 2.71, respectively, for level and type of training provided the sales force, background and experience of the sales force and compensation and support provided the sales force. For each element of personal selling and personal selling as a whole, the percentages of “very similar” responses were about twice those found for “very different,” responses. Product. The combined mean score for the product cluster was 2.60. The highest mean scores for elements of the product mix occurred for product quality (2.73), product line (2.68), and product brand names (2.66). Product design and product warranties were the two elements of the product mix (out of nine) for which the percentages of “very different” responses exceeded the “very similar” responses. Channels of Distribution. The mean score for the channels of distribution cluster was 2.55. In regard to the components of the channels of distribution mix, the mean scores were 2.62, 2.44 and 2.60 for types of channels of distribution used, incentives provided channels to carry our product and aggressively market them, and dealer margins, respectively. The percentage of “very similar” responses exceeded those of “very different” responses for two of the channels of distribution mix; incentives provided channels to carry our products and aggressively market them was the lone exception. Logistics. A mean score of 2.55 was found for the logistics mix. Transportation mode was the only element of the logistics mix to which the Korean executives assigned a mean score of less than 2.50


(2.46). Whereas the percentage of “very similar” responses exceeded those of the “very different responses (about a 2-1 ratio) for order cycle, inventory policies and warehousing strategies, the percentage of “very different” indications for transportation modes was greater than that found for the “very different” category (19.5% to 14.6). Pricing. The pricing mix had one of the highest mean scores (2.68) of the marketing mix clusters examined in this study. The mean scores for prices and pricing objectives were 2.65 and 2.71, respectively. And their percentages of “very similar” responses, as well as that for the pricing mix as a whole, exceeded those of “very different” responses by about a 2-1 margin. Credit Policies. The highest mean score (2.77) for any marketing mix element existed for credit policies and the percentage of “very similar” responses exceeded that found for “very different” responses by more than a 2-1 ratio (19.5%-7.3%). After-the-Sale Service. The mean score for after-the-sale service was 2.72 and the ratio of “very similar” responses to “very different” responses was 2-1 (14.6% to 7.3%). Given the results indicated above, it is hardly surprising that the mean (2.62) for the 33 marketing mix variables combined demonstrated a compromise standardization/adaptation strategy. The percentage of respondents (16.6%) revealing a “very similar” strategy exceeded the percentage (10.6%) existing for the “very different” approach to operating in overseas markets. Based on the above findings, it is not possible to accept Hypotheses H1 and H3-H9. This conclusion is based on the fact that none of the mean scores was greater than 3.0 (an indication of standardization) or lower than 2.0 (an indication of an adaptation strategy). It should be noted, however, that since all of the mean scores for the major marketing mix areas exceeded 2.50, it could be argued that these respondent firms are pursuing an international strategy that leaned toward standardization. This same conclusion appears relevant for the majority of marketing mix sub-areas (29 out of 33), the exceptions being sponsorship, product warranties, incentives provided channels to carry our products and aggressively market them, and transportation modes. In regard to Hypothesis H2, that the level of respondent companies’ standardization/adaptation would not be consistent across the elements of the marketing mix, it should be pointed out that the mean scores are different but do not appear to be meaningfully so. The means for the major clusters of the marketing mix (advertising, 2.60; promotion, 2.62; personal selling, 2.66; product, 2.60; channels of distribution, 2.55; logistics, 2.55; and pricing, 2.68) were tightly grouped. The same conclusion can be applied to the components within each of the marketing mix clusters and across the 31 marketing mix elements included in the seven marketing mix clusters, that is, little dispersion among the mean scores occurring. The mean scores for credit policies (2.77) and after-the sale services (2.72) were higher than those found for the seven marketing mix clusters, but it should be pointed out that, unlike the seven marketing mix clusters, the mean scores for these aspects of the marketing mix were based on only one component.

In sum, Hypothesis H2 could be only partially accepted.

Independent Variables Table 3 contains the findings involving the effect of companies’ percentage of sales attributed to their international operations, years of international operations and annual sales (i.e., performance variables) on their standardization/adaptation practices. Hypothesis H12, that companies with higher percentages of international sales to total sales would be more likely than those with lower percentages of international sales to total sales to be pursuing an adaptation strategy was partially accepted. The mean score on the 33 marketing mix variables combined for companies with percentages of international sales below the median was 2.67, compared to 2.59 for those respondents with percentages of international sales to total sales above the median. However, the 2.59 mean score, although closer to an adaptation strategy than the 2.67 mean, did not achieve the 2.0 or


lower threshold. The results for the nine major marketing mix variables showed that firms with higher percentages of international sales to total sales were closest to implementing an adaptation strategy only for promotion (mean=2.45). On the 33 individual marketing mix variables, respondent companies were found to be pursing a strategy approaching standardization for 29 of the 33 marketing mix variables. Hypothesis H13, that firms with greater number of years of international experience, would be more likely than those with fewer years of international experience to be pursing an adaptation strategy could not be accepted. Companies with years of international experience exceeding the median showed a mean score on the 33 marketing variables combined of 2.64, virtually the same (mean=2.63) as those with fewer years of international experience. Because the mean score of 2.64 exceeded 2.50, there is some justification for concluding that there is, if anything, slight evidence that there is at least a modicum of accommodation toward a standardization strategy. The same conclusion exists for the 33 marketing mix variables because on only 10 of the 33 marketing mix variables was a lower mean score found for more experienced companies as opposed to less experienced ones. Hypothesis H14, that smaller companies (based on annual sales) would be more likely to be pursuing a standardization strategy than larger ones, could be partially accepted. Companies with annual sales less than the median were found to have a mean score of 2.68, compared to 2.58 for larger companies. For all elements of the marketing mix combined, however, the 2.68 score does not exceed the threshold mean of 3.00 or higher to qualify as a standardization strategy. Personal selling (mean=2.76) and pricing (mean=2.74) were the two major marketing mix categories closest to the 3.00 cut-off figure. Of the 33 individual marketing mix variables, credit policies (mean=2.88), premiums (mean=2.88), and pricing objectives (mean=2.85) were closest to the 3.00 figure. Table 4 contains the perceptions of the 82 South Korean executives regarding non-performance factors hypothesized to impact their standardization/adaptation decisions. If the criterion to decide whether Hypotheses H15 and H16 can be accepted is a majority of “very important” responses, then Hypothesis H15 (dealing with external variables) can be accepted and Hypothesis H16 (internal variables) must be rejected. All factors external to the firm were indicated by a majority of the respondents as being “very important” in crafting their standardization/adaptation strategies. Only one internal variable (availability of competent personnel to staff your company’s international marketing positions at 54.9%), however, was cited by a majority of respondents as being “very important.”

5. DISCUSSION What would explain these Korean firms’ reluctance to pursue either a standardization or adaptation strategy but, rather, put into play a compromise effort? One of the reasons may be that they are not able to be assured that either extreme position would benefit them and so they have elected to pursue this compromise strategy with the understanding that if either standardization or adaptation would eventually emerge as more desirable than the compromise approach as they gained more experience in international markets, they could jettison the former and institute either a standardization or adaptation strategy. The companies’ attitudes toward risk may be an explanatory factor. If these Korean firms are risk averse, they might ply a middle-of-the road approach, believing that a consistent adaptation or standardization approach might incur more risk than they are willing to accept. That risk may be an important consideration in these companies’ standardization/adaptation decision is supported by their executives placing a higher level of importance on external rather than internal variables. External variables involve more risk than do internal ones because companies are forced into a reactive, rather than a proactive, mode in coping with the magnitudes, timing and direction of events occurring outside the firm. The authors intuitively believe that the standardization/adaptation decision may be approached from a modeling perspective. Trade-off analysis appears to be particularly germane in helping companies to decide which standardization/adaptation strategy to employ. This analysis should be based on the movement of costs and revenues along the standardization/adaptation continuum, that is, costs increase


but revenues increase as a standardization strategy is forsaken in favor of an adaptation strategy, and vice versa. The modeler would seek that point on the continuum that would maximize profit. Perhaps these Korean firms conducted such analysis and found that the compromise strategy employed by them is the one that maximizes their profits. The methods of operating in international markets favored by the respondent firms may provide a clue as to why the compromise standardization/adaptation strategy is employed. The most widely deployed forms of operating overseas were exporting and importing. These operations are usually employed by companies just beginning to ply international waters; one of their major downsides is that learning and experience are stunted because these operations (especially indirect or “piggyback” exporting) are usually performed by some outside entity which may be recommending a compromise standardization/adaptation strategy. Export management companies and export trading companies (the latter very prevalent in South Korea) are two such options which essentially act in a consultative capacity for exporters and importers and offer advice across a wide spectrum of international decisions, such as , entry strategies, product development, advertising and promotion, selecting agents and distributors, and providing information about foreign markets. The next most important operating option evidenced by these firms—joint ventures and strategic alliances—involve a partnership arrangement wherein the partners to the Korean firms may be giving advice as to how the Korean firms should operate overseas; franchising and licensing (used by about two-thirds of these respondent firms) often involve franchisees and licensees making recommendations as to what strategies franchisors and licensors should institute in foreign markets. The median number of years these South Korean firms have been marketing their products overseas was 7.0. Given the longer-term perspective of Asian firms in operating internationally, as compared to U.S. firms, it may very well be that they are still in the process of finalizing their adaptation/standardization decisions. Perhaps these Korean firms are pursuing a “glocalization” strategy which follows the mantra of “standardize where possible, adapt where necessary.” The opportunities for standardizing their marketing mixes may be viewed as marginally only more effective than an adaptation strategy, which would convert into the coalescence position this research found (with a slight bent toward standardization). It is hardly surprising that external-to-the firm environmental factors would be perceived by respondents as being more important for developing their standardization/adaptation strategies in international markets than variables internal to the firm. The external variables examined in this study are essentially beyond the control of these firms; thus, they have to be accepted “as is”. On the other hand, since the internal factors can be manipulated, they may be viewed as being of lesser importance than the external variables. The authors believe that the little variation in the standardization/adaptation strategies existing for the 33 marketing mix variables, and within and among the nine marketing mix categories, is an important finding. Perhaps the rationale for this finding is that the Korean firms view marketing mix elements homogeneously and believe that little would be gained by varying the standardization/adaptation strategy across the marketing mix. Or, an unvarying strategy strategy may have resulted from companies’ failure to investigate the impact of a differential approach on performance in international markets.

6. RECOMMENDATIONS Given the large number and significance of the deficiencies existing in the standardization/adaptation literature, it is certainly advisable that additional studies of this highly important dimension of companies’ international operations be forthcoming. This study addressed the issues of the paucity of studies concerning non-U.S. firms, little attention being devoted to the pricing and distribution aspects of the marketing mix, failure to deal with a broad spectrum of marketing mix aspects, the problems existing when standardization/adaptation practices from companies in two or more industries are compared in the same study, analyzing only a small number of independent variables, and focusing almost entirely on the significance of external environmental factors to the virtual exclusion of internal-to-the-firm variables. However, future replicative studies are certainly in order and should not only cope with the deficiencies our paper covered, but deal also with the failure to conduct longitudinal studies and ignoring input from expatriate personnel in favor of almost total reliance on data provided by headquarters personnel located in domestic offices.


While some studies—ours did not do/so except tangentially by dealing with the percentage of firm revenues accounted for by their international operations—have examined the effect on performance of the level of standardization or adaptation employed, the authors would like to see more analyses of this type. Hard-core performance measures, such as, market shares, profits, profit margins, and returns-on-investment should be emphasized and comparisons to domestic performance would be informative, as well. Most of the standardization/adaptation literature is concerned with the “what is” question, rather than the “what should be” question. While the former is a useful and necessary first step, the emphasis of future studies should be on answering the latter query. The ultimate objective of this orientation must be to provide international executives with guidance as to where their firms should position themselves on the standardization/adaptation continuum. Such recommendations cannot be merely anecdotal or descriptive but, rather, must be based on more rigorous and sophisticated methodologies, including trade-off modeling mentioned earlier in this paper.

Table 1 Profile Information on 82 South Korean Food and Kindred Products Companies

Factor Annual Sales

o x = $179 million o Median = $30 million

Percentage of Annual Sales from International Operations

o x = 38.5% o Median = 31.0%

Years of International Experience

o x = 8.4 o Median = 7.0

Number of Foreign Countries in Which Operations Exist

o x = 4.55 o Median = 4.00

Percentage of Firms Using a Specific Type of International Operation

o Exporting – 96.3% o Importing – 90.2% o International Joint Venture – 58.5% o Strategic Alliance – 48.8% o Licensing – 34.1% o Franchising – 31.7% o Overseas Sales/Marketing Office – 39.0% o Overseas Manufacturing Facility – 9.8%


Table 2 Level of Standardization/Adaptation

Indicated by 82 South Korean Firms on 33 Marketing Mix Dimensions Percentage of Respondents Citing

Various Different/Similar Perceptions

Marketing Dimension Very

Different Somewhat Different

Somewhat Similar

Very Similar

X

1.) Advertising Copy 11.1% 38.3% 29.6% 21.0% 2.57 2.) Advertising Appeal 9.8% 36.6% 32.9% 20.7% 2.65 3.) Advertising Media 8.5% 37.8% 36.6% 17.1% 2.57

Total advertising 9.8% 37.6% 33.0% 19.6% 2.60 4.) Sampling 9.8% 36.6% 34.1% 19.5% 2.63 5.) Trade Shows 12.2% 25.6% 43.9% 18.3% 2.68 6.) Point-of-Purchase Displays 14.6% 31.7% 37.8% 15.9% 2.55 7.) Contests 11.0% 28.0% 41.5% 19.5% 2.7 8.) Coupons 8.5% 37.8% 36.6% 17.0% 2.62 9.) Premiums 8.5% 28.0% 43.9% 19.5% 2.74 10.) Sponsorships 12.2% 41.5% 31.7% 14.6% 2.49

Total Sales Promotion 11.0% 32.8% 38.7% 17.8% 2.63

11.) Level and Type of Training Provided to Sales Force

8.5% 34.1% 42.7% 14.6% 2.63

12. Background and Experience of Sales Force 9.8% 34.1% 36.6% 19.5% 2.66

13.) Compensation and Support Provided to Sales Force

9.8% 28%% 43.9% 18.3% 2.71

Total Personal Selling 9.4% 32.1% 41.0% 17.5% 2.66 14.) Product Quality 8.5% 31.7% 37.8% 22.0% 2.73 15.) Product Line Width 7.3% 35.4% 39.0% 18.3% 2.68 16.) Product Line Depth 7.3% 42.8% 35.3% 14.6% 2.57 17.) Product Packaging 12.2% 30.5% 43.9% 13.4% 2.56 18.) Product Brand Names 12.2% 28.0% 41.5% 18.3% 2.66 19.) Product Labels 12.2% 31.7% 42.7% 13.4% 2.57 20.) Target Market Segments for Products 8.5% 31.7% 43.9% 15.9% 2.67 21.) Product Design 12.2% 37.8% 37.8% 12.2% 2.5 22.) Product Warranties 15.9% 35.4% 36.6% 12.2% 2.45

Total Product 10.8% 33.9% 39.6% 15.6% 2.6 23.) Types of Channels of Distribution Used 13.4% 30.5% 36.6% 19.5% 2.62 24.) Incentives Provided Channels to Carry Our Product and Aggressively Market Them

19.5% 34.1% 29.3% 17.1% 2.44

25.) Dealer Margins 6.1% 34.1% 51.2% 8.5% 2.6 Total Channels 13.0% 32.9% 39.0% 15.0% 2.55

26.) Transportation Modes 19.5% 29.3% 36.6% 14.6% 2.46 27.) Order Cycle Lengths 12.2% 37.8% 30.5% 19.5% 2.57 28.) Inventory Policies 9.8% 36.6% 34.1% 19.5% 2.63 29.) Warehousing Strategies 8.5% 36.6% 37.8% 17.1% 2.63

Total Logistics 12.5% 35.1% 34.8% 17.7% 2.55 30.) Prices 7.3% 32.9% 47.6% 12.2% 2.65


31.) Pricing Objectives 7.3% 32.9% 41.5% 18.3% 2.71 Total Pricing 7.3% 32.9% 44.5% 15.3% 2.68

32.) Credit Policies 7.3% 28.0% 45.1% 19.5% 2.77 33.) After-the-sale service 7.3% 28.0% 50.0% 14.6% 2.72 Totals 10.6% 33.5% 39.3% 16.6% 2.62

Table 3

Effect of Various Independent Variables on Elements of the Marketing Mix (Criterion Used: x's for Marketing Mix Element)

Annual Sales % Sales

Int. Yrs Int.

Experience

# VARIABLE DESCRIPTION < 30 ≥ 30 < 31 ≥ 31 < 7.0 ≥ 7.0

1 Advertising copy 2.53 2.63 2.62 2.23 2.60 2.58 2 Advertising appeal 2.62 2.70 2.65 2.56 2.62 2.68 3 Advertising media 2.53 2.58 2.50 2.33 2.50 2.65 Total Advertising 2.56 2.64 2.59 2.34 2.57 2.64

4 Sampling 2.53 2.67 2.71 2.10 2.57 2.70 5 Trade shows 2.56 2.72 2.76 2.38 2.55 2.83 6 Point-of-Purchase displays 2.50 2.57 2.57 2.66 2.40 2.70 7 Contests 2.76 2.64 2.83 2.35 2.54 2.86 8 Coupons 2.76 2.49 2.57 2.72 2.57 2.68 9 Premiums 2.85 2.62 2.93 2.44 2.79 2.70

10 Sponsorships 2.59 2.72 2.62 2.83 2.62 2.35 Total Sales Promotion 2.69 2.63 2.71 2.50 2.58 2.69

11 Level and type of training provided sales force 2.76 2.49 2.57 2.85 2.65 2.62

12 Background and experience of sales personnel 2.76 2.54 2.76 2.44 2.66 2.65

13 Compensation and support provided sales personnel 2.76 2.64 2.62 2.65 2.60 2.83

Total Personal Selling 2.76 2.56 2.65 2.65 2.04 2.70

14 Product Quality 2.76 2.71 2.71 2.77 2.57 2.90

15 Product line width 2.71 2.62 2.74 2.41 2.67 2.70

16 Product line depth 2.47 2.64 2.64 2.49 2.50 2.65

17 Product packaging 2.65 2.43 2.62 2.72 2.50 2.63

18 Product brand names 2.62 2.68 2.62 2.72 2.62 2.70

19 Product labels 2.71 2.36 2.69 2.46 2.62 2.53

20 Target market segments for product 2.65 2.67 2.67 2.67 2.62 2.72

21 Product design 2.64 2.31 2.50 2.49 2.50 2.50

22 Product Warranties 2.74 2.18 2.38 2.51 2.52 2.38

Total Product 2.66 2.53 2.62 2.58 2.67 2.63

23 Types of channels of distribution used 2.77 2.36 2.64 2.61 2.62 2.62

24 Incentives provided channels to carry our products and aggressively market them 2.52 2.33 2.44 2.45 2.35 2.52

25 Dealer margins 2.65 2.53 2.64 2.54 2.64 2.55

Total Channels 2.65 2.40 2.58 2.53 2.54 2.57

26 Transportation modes 2.53 2.38 2.55 2.36 2.41 2.53


27 Order cycle lengths 2.56 2.57 2.57 2.56 2.60 2.55

28 Inventory policies 2.50 2.63 2.57 2.69 2.50 2.78

29 Warehousing strategies 2.66 2.61 2.67 2.56 2.53 2.75

Total Logistics 2.56 2.55 2.59 2.54 2.56 2.65

30 Prices 2.65 2.61 2.71 2.53 2.55 2.70

31 Pricing Objectives 2.82 2.54 2.73 2.69 2.74 2.68

Total Pricing 2.74 2.58 2.72 2.61 2.65 2.69

32 Credit policies 2.88 2.62 2.79 2.73 2.86 2.68

33 After-the-sale service 2.62 2.77 2.77 2.65 2.64 2.80

Totals 2.68 2.59 2.67 2.57 2.64 2.67

Table-4 Extent to Which Various Factors Affect Companies Standardization/Adaptation

Factor Not Important Somewhat Important Very Important

Laws and regulations in international markets 2.5%

34.6% 62.9%

Competition in international markets 2.4%

36.6% 61.0%

Needs and wants of consumers in international markets

0.0% 43.9% 56.1%

Cultural dimensions of international markets 1.2%

39.0% 59.8%

Physical distance of international markets from your company's domestic location(s)

1.2% 46.3% 52.4%

Physical infrastructure (roads, bridges, electrical power, etc.) in international markets

1.2% 45.1% 53.7%

Marketing infrastructure (banks, marketing research firms, advertising agencies, telephone service, etc.) in international markets

3.7% 46.3% 50.0%

Economic conditions in foreign markets 2.4%

50.0% 47.6%

Your company's strategic goals and objectives 3.7%

50.0% 46.3%

Your company's desire to obtain economies of scale 4.9%

51.1% 43.9%

Level and type of training provided sales force 4.9%

52.4% 42.8%

Your company's financial condition 3.7% 47.6% 48.7%

Availability of resources in your company to support its international opportunities

3.7% 47.6% 48.7%

Availability of competent personnel to staff your company's international marketing positions

0.0% 45.1% 54.9%

Tax considerations 1.2% 37.8% 61.0%


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THE SOUTH KOREAN AUTOMOBILES AND SPARE PARTS EXPORT MARKET: AN ASSESSMENT OF THE LEBANESE MARKET FOR THE KOREAN PRODUCTS AND

CONSUMER PREFERENCES

Nouri Beyrouti, Ph.D. Lebanese American University, Beirut, Lebanon

ABSTRACT The relationship between Lebanon and South Korea is a recent one, due to the remote geographical location of both countries with respect to each other. Lebanese knowledge of South Korea is limited relative to other countries in the Far East such as Japan and China; however, the bond is becoming stronger with time due to the efforts of both governments and the recognized booming economy of Korea. South Korea recognizes Lebanon as an experimental field for its products to be tested before offering them in the Middle Eastern Market. The main goods Lebanon imports from South Korea are automobiles and motor vehicles, car parts, electronics, plastics and others. Although the market share of the South Korean products is not that significant for the Koreans, a lot of opportunities are recognized for the future. South Korean brand names became so popular in the Lebanese market such as Samsung, LG, Kia, Daewoo and Hyundai. However quality is still associated with European, American and Japanese products. The purpose of this paper is to examine the importance of the Lebanese car market witch is characterized by its diversity, consumer preferences, and competitiveness in relation to South Korea automobiles brands and spare parts export market. Keywords: South Korea, Lebanon, Automobiles and Spare Parts, Imports-Exports, Korean Products, Consumer Preferences 1. INTRODUCTION After the civil war, Lebanon has borrowed heavily to rebuild the nation. The debt constitutes around 170 %( 2005) of the GDP. The government has failed until today to manage its debt through proper measures which indicate the danger of an economic crisis in the future. The government depends basically on administrative and economical reforms through privatization and more efficient government efforts to resolve the economical situation; however, every attempt up-to-date was a complete failure (www.cia.gov). Lebanese GDP is around 20 billion dollars (2005) with a yearly growth of 0.5% (12% agriculture, 21%industry, 67% services). Unemployment rate is around 18% and inflation is 2.4% (www.cia.gov).The total debt is more than 35 billion dollars (estimates end March, 2005) (www.Finance.gov.lb). Lebanon major industries are banking, tourism, food processing, jewelry, cement, and textiles. The main exports partners are Syria, UAE, Turkey, Switzerland and KSA, while the main imports partners are Italy, France, Syria, Germany, China, USA, and the UK (www.cia.gov). 2. BACKGROUND ON SOUTH KOREA After the armistice signed in 1953, splitting South Korea from its North, South Korea achieved high economical growth. The government has followed all stages in liberalization of its economy. It emphasized the import of materials and technology in favor of other consumer goods to boost its ability to reach a stage of exporting quality approved and competitive goods. This development was driven by high saving rates and investment on education. From 1953 to 1996, GNP increased from 2.3 billion dollars to 480.2 billion dollars. Its legislation system was updated to meet its economical needs and ability to be competitive and flexible (www.cia.gov)


Korea shifted from the inward-looking (import substitution) to the outward-looking strategy (export promotion). This started in the 1960s were South Korea promoted its light manufactured goods, given its cheap labor cost advantage. This was accomplished with foreign capital promotion to encourage the inflow of investment; tariff rebates on imported materials for re-export use, and simplified customs procedures. Then South Korea promoted its heavy and chemical industries in the 1970s followed by the rationalization and liberalization of the economy in the 1980s. South Korea proved to be successful in its globalization in the 1990s through joining the WTO, Asia-Pacific Economic Cooperation, and OECD (www.asianinfo.org) South Korea GDP is around 965 billion dollars with a yearly growth of 3.9% (6.4% agriculture, 26.4% industry, 67.2% services). Unemployment rate is around 3.7% and inflation is 2.6%) The public debt is 30.1% of GDP. Its main industries are electronics, telecommunication, automobile, production, chemicals, shipbuilding and steel. The main exports are semiconductors, wireless telecommunication equipment, motor vehicles, computers, steel, ships and petrochemicals. The main exports partners are China, USA, Japan, and Hong Kong, while the main imports partners are Japan, China, USA, and KSA (www.cia.gov). Korea ranks the thirteenth in GDP, thirty sixth in per capital GNI and the fifth in term of foreign exchange reserves (www.kn.KoreaHerald.co.kr) 3. LEBANON AND SOUTH KOREA ECONOMIC RELATIONSHIP Lebanon and Korea established diplomatic relations in 1981; moreover, diplomatic and economic ties between the two countries have developed swiftly since then. The volume of trade is increasing throughout the years, however in a unilateral way (McCrossan, 2006). The relationship between Lebanon and the South Korea is a recent one due to the remote geographical location of both countries with respect to each other. Lebanese knowledge of South Korea is limited relative to other countries in the Far East such as Japan and China; however, the bond is becoming stronger with time due to the efforts of both governments and the recognized booming economy of Korea. South Korea recognizes Lebanon as an experimental field for its products to be tested before offering them in the Middle Eastern Market, for example LG has opened its regional office in Lebanon because of its importance as a market indicator for the region (Younes, 2005). Although the market share of the South Korean products is not that significant for the Koreans, a lot of opportunities are recognized for the future. South Korean brand names became so popular in the Lebanese market such as Samsung, LG, Kia, Daewoo and Hyundai. However quality is still associated with European, American and Japanese products. At the beginning of year 2006 an agreement was signed between the government of the Republic of Korea and the government of Lebanon on Trade and Economic Cooperation. The agreement contains 15 articles to “facilitate trade exchange between their respective countries according to the laws and regulations in force in the two countries”. Some of the issues offered in the agreement are granting each of the parties the most-favored-nation treatment in all matters relating to trade particularly with respect to: customs duties, taxes, methods of payment for imports and exports, rules and formalities, and other affecting legislation and treatments of concerning trade and facilitations (Agreement, 2006). The main goods Lebanon imports from South Korea are Motor vehicles, Car parts, electronics, plastics and others. Table 1 mentions the first 20 categories imported and the money value of the goods.


Rank Item $ value in 2005

1 Motor cars and other vehicles, especially the cars ranging between 1500 cc and 2500 cc $22,700,000

2 Plastics & Articles Thereof $11,100,000 3 Refrigerators and freezers $5,600,000 4 Color TVs and related reception apparatus $5,000,000 5 Transmission Apparatus for Radio-Telephony $2,700,000 6 Knitted or Crocheted Fabrics $2,400,000 7 Car parts $2,300,000 8 Household or Laundry-Type Washing Machines $2,200,000 9 Polyethylene Specific Gravity < 0.94 in Primary Form $2,000,000 10 Air Conditioners Window / Wall Types, Self-Controlled $1,700,000 11 Pneumatic Tires New of Rubber for Motor Cars $1,700,000 12 Parts and Accessories of Data Processing Equipment $867,000 13 Special Woven Fabrics: Tufted Textile Fabrics $846,000

14 Input or Output Units, Whether or Not Containing Storage Units in the Same Housing $706,000

10 Electric Instantaneous or Storage Water Heaters $275,000 8 Video Recording or Reproducing Apparatus $182,000 20 Electrical Apparatus For Line Telephony or Line $178,000 19 Electric Motors & Generators $168,000 7 Primary Cells and Batteries $59,000 13 Frames and Mountings for Spectacles, Goggles $8,000

As per the information provided by the Lebanese Customs (2005), Lebanon imports from Korea sums up to $113,023,000, and exports are around $15,436,000. As Lebanon is concerned, Korea rates 22nd highest import partner and 26th highest export partner. Korea resembles 1.21% of the Lebanese imports and 0.82% of the Lebanese exports (www.customs.gov.lb). Korean products are increasingly demanded by the Lebanese market especially when it comes to Cars and Car spear parts. Cars have a promising future in Lebanon due to the low cost and good quality. Korean car imports increased from $9.5 million in 2003 to $21.2 million in 2004 to $22.7 million in 2005. The demand on car spear parts I Lebanon will increase, since Korean cars have been in the Lebanese market since 1994, therefore, more Korean cars will need spare parts (www.customs.gov.lb). 4. THE AUTOMOBILE INDUSTRY IN SOUTH KOREA Although the demand for cars is decreasing domestically, the automobile industry is growing due to the exports factor (17.6% growth for 2005).This is due to the aggressive sales and marketing strategies of the Korean car makers especially in the European and American markets. The Korean cars have gained a good reputation in these markets; even some were ranked as “The Best Cars” by the Car Book and the Auto Safety in March, 10. Brand images are more enhanced and quality improvements are continuous to boost the likeness and sales of Korean cars (Kotra, 2005). South Korean cars have achieved the highest growth in 2005 among others, around 15.4%. USA, Japanese, and European cars have achieved -4.9%, 3.9%, and -3.1% growths respectively, keeping in mind that the overall growth in the automobile world market is -1.8%. In terms of produced units, the South Korean Companies have sold 35,000 more units at 2005; special


contribution was recognized by Kia Motor’s Picanto and Cerato. These achievements were due to the aggressive strategies of car makers and the strengthening of the Euro Currency (Kotra, 2005). 5. THE AUTO-PARTS INDUSTRY IN SOUTH KOREA The exports of Auto-Parts have been increased by 5.45 billion dollars around 8.4% on 2005. This increase is justified due to the boom the Korean Companies are achieving in the American and the European markets. Although some parts should technologically improve, most of the produced ones are on par with the global companies. Some examples of produced parts include: modules, engines, braking systems, and score of convenience devices for automobile makers. Many multinational auto parts companies such as BorgWarner, TRW, Lear Corp., Du Pont, Johnson Controls & Bosh, Delphi Corp., and others have the research and development or procurement centers in South Korea, due to its competitive production capability (Kotra, 2005). The auto-parts makers are taking advantage of the globalization trend by building plants abroad, following the path of the automobile makers. They are expanding in the USA, China, Turkey and India where the fast-growing automobile markets exist (Kotra, 2005). 6. KOREAN CARS IN THE LEBANESE MARKET There is no local production of vehicles in Lebanon. Lebanese people are among the highest car owners in the world, there is approximately one car for every three resident (General Overview, 2005). That is because Lebanese customers favor “the private automobile over the establishment of public transport systems” (Perry, 2000). “From 1974 to 1998 the total number of vehicles in Lebanon rose from 243,584 to 1,554,340, an increase of 538 per cent. Private cars were 88 per cent and 84 per cent of these figures, respectively” (Perry, 2000). Around 67% of households own one or more cars (General Overview, 2005). Lebanese car market is characterized by its diversity and competitiveness. Mainly the dealers are the importers, wholesalers and retailers, depending on the size of their operations. Used cars market is much wider than the new ones, because of the lower prices and the high depreciation cost incurred by the new purchased cars. Cars imported should be no more than eight years old. As for the Tariff rates applied in Lebanon on used and new cars they are as follows: Used Cars

up to LL 20 millions fixed rate of LL 5 millions + 10% VAT

over LL 20 millions

fixed rate of LL 5 millions for the first LL 20 millions and 50% for the remainder + 10% VAT

New Cars up to LL 20 millions 20% of the value + 10% VAT

over LL 20 millions 20% for the first LL 20 millions and 50% for the remainder + 10% VAT

Trucks, Vans, Pickups, Buses, Minivans All values 5% of the value + 10% VAT

Lebanese favor German, Japanese and French cars. German used cars are especially appreciated because of their traditionally perceived high quality, especially BMW and Mercedes brands. Japanese cars are viewed to be fuel efficient, while French ones are considered fashionable (General Overview, 2005).


As for Korean used vehicles, they were introduced to the Lebanese market during 1994 and 1995. They were a success especially that the Korean car dealers offered the vehicles at a low price with an attractive payment schemes. Nowadays it is estimated that the Korean cars make up fewer than 10% of the total cars in Lebanon (Kotra, 2005). In 1997 and 1998 Korean minibuses invaded the Lebanese market to be used for public transportation; their main advantage was that they were running on diesel rather than gasoline fuel. They were sold as new and used. Hyundai H100 was the most demanded model of Korean minibuses. In 2002, a ban of diesel-use vehicles by the Lebanese government caused a dramatic fall in minibuses sales (Kotra, 2005). Korean trucks are unavailable in the Lebanese market. This is mainly because of the lack of after-sales support. However, this is a great opportunity for the Korean vehicles to increase its share in the Lebanese market. The main brands demanded for the new cars market are: Nissan, Peugeot, Toyota, Renault and Kia, and Honda. As for the cars’ origins, Japanese cars are mostly demanded, followed by French cars, German, Korean and American cars. Demand for cars was increasing up to 2004, for the economical situation was sounding to be better; however, after the assassination of PM Rafic Al Hariri the car market deteriorated (Kotra, 2005). The car rental companies are the main purchasers for new cars. Car dealers at the end of 2005 launched extensive promotional campaigns to boost the sales of the year and to provide the cash flow for receiving the new models of 2006. Figures Released by the Association of Car Importers of Lebanon reveal that the total number of registered vehicles in 2005 amount to 16195 of which 15207 were passenger vehicles and 988 were commercial vehicles. The number of registered vehicles fell by 20.8% in 2005 from 20455 registered vehicles in 2004 due to political and economic uncertainties that prevailed throughout most of 2005. Nissan accounted for the highest number of registered vehicles with a total of 1853 in 2005, accounting for 11.4% of the total market. It was followed by Peugeot with 1770 cars (10.9%), Toyota with 1623 cars (10%), Kia 1341 cars (8.3%), and Renault 984 (6.47%). The breakdown of vehicles by dealer in 2005 reveals that Rasamny Younes Motor Co. (RYMCO) sal, agent of Nissan, GMC and Infiniti ranked first with 2143 units or 13.2% of total cars registered. It was followed by Bassoul Heneine sal, agent of Alfa Romeo, BMW, Dacia, Mini and Renault, with 1970 units (12.2% of total); and Sidia sal, agent of Peugeot and Tata brands, with 1770 units (10.9%). BUMC, agent of Toyota and Lexus, came in fourth position with 1704 units registered in 2005 (10.5%), followed by Natco sal, agent of Kia with 1341 units (8.3%) (Kotra-Lebanon, 2005). Major imports from Lebanon are from Germany. Japan comes second, then USA, France, UK and Korea. In 2005 German vehicles constituted 40% of all imports; Japan 26%, USA 14%, France 5%, UK 5%, Korea 4%, and other countries 6% (Kotra-Lebanon, 2005). 2003 2004 2005

Country Thousand USD

% Total Country

Thousand USD

% Total Country

Thousand USD

% Total

Germany 167,216 39% Germany 207,603 34% Germany 227,692 40% Japan 127,701 30% Japan 189,960 31% Japan 149,196 26% USA 35,445 8% USA 72,646 12% USA 76,165 14% France 31,167 8% France 40,211 7% France 25,979 5% UK 24,480 5% UK 25,645 4% UK 25,410 5% Korea 9,569 2% Korea 21,259 4% Korea 22,685 4% Others (30) 30,038 8%

Others (31) 45,671 8%

Other (28) 34,705 6%

Total 425,616 602,995 Total 561,832


JapaNese cars have the most market share in registered vehicles in Lebanon with an average of 39.25%. (Nissan 13.59%) French cars come second at 23.73% (Peugeot 13.08%), then German cars at 14.39% (VW 4.13%). Korean cars rank fourth at 10.74% (Kia 5.39%) (Kotra-Lebanon, 2005). Kia made a big leap in market share in registered vehicles, since it jumped from 3.21% in 2003 to 4.67% in 2004 to 8.28% in 2005. Hyundai remained more or less close to 5% of market share in during the past three years. Other Korean cars such as Samsung, Daewoo and Ssang Yong remained below 0.1% (Kotra-Lebanon, 2005).

2003 2004 2005 Total Years

Brand

% Market Share

Total % Market Share

% Market Share


% Market Share


Average % Market Share

Korea

Hyundai 4.20

7.83

5.70

10.73

5.09

13.66 10.74

Kia 3.21 4.67 8.28 Samsung 0.32 0.28 0.20 Daewoo 0.09 0.00 0.01 Sang Yang 0.00 0.08 0.09

As recognized the Korean car market is growing, 2% market share in 2003 as compared to 4% in 2004 and 2005. Year 2005 wasn’t successful economically because of political instability; however 2006 is expected to be a better one. Korean cars are becoming more recognized by the Lebanese customers and its brands images are more attractive than before. Their main characteristics are their competitive prices and acceptable quality. 7. KOREAN AUTO-PARTS IN THE LEBANESE MARKET As the cars market, the Auto- parts market is diverse and competitive. Dealers are mostly the importers, wholesaler, and retailer. Manufacturing of spare parts in Lebanon is limited to radiators and car breaks. The quality of the local manufactured auto parts is acceptable especially when it comes to the radiators. The number of cars on the Lebanese streets relative to the population is high and it is increasing annually. Due to the hard economical situation, residents are tending to keep their used cars, thus demanding more auto-parts than before. This gives a good potential for the spare parts market. Auto companies here re-export some motor parts and accessories to countries like Nigeria, Saudi Arabia, and the UAE. Businesses in this field are relatively small to medium. Competition between European, American and Asian brands is so fierce. Mainly spare parts for BMW and Mercedes are the highest demanded especially that most of the Taxis in Lebanon are of Mercedes Brand, but the trend is toward using Korean cars. Customs for auto parts is 5% plus 10% VAT (Autoparts-Kotra, 2005). As Korean cars market share increases the demand for their auto-parts increases. This is why many Lebanese companies are dealing in Korean Spare Parts. Some are even trading used spare parts. Some Korean companies have sole agents in Lebanon for their new cars as well as auto parts. Hyundai and Kia agents for example have their service garages and import from the manufacture directly (Autoparts-Kotra, 2005). Lebanon’s imports of auto parts ranges from bumpers, body parts and accessories, safety belts, brakes, brake linings, gear boxes, axles, transmissions, wheels and their accessories,


suspension shock absorbers, radiators, exhaust pipes and silencers, clutches, steering wheels, oil filters, car chassis, tires, and other parts (Autoparts-Kotra, 2005). In the previous years, Lebanon imported around US$ 101 million of the above mentioned auto part items in 2003, US$ 129 million in 2004, and US$ 121 million in 2005 (Autoparts-Kotra, 2005). The major three imports in the past three years were those bearing HS Code number 87.08.91 (US$ 42 million in 2005, US$ 44 million in 2004 and US$ 34 million in 2003); and HS Code number 40.11.10 [Tires] (US$ 25 million in 2005, US$ 27 million in 2004, and US$ 23 million in 2003); and HS Code number 87.08.29 (US$ 23 million in 2005, US$ 24 million in 2004, and US$ 18 million in 2003) (Autoparts Industry-Kotra, 2005). 2003 2004 2005

Country US$ Thousand Country

US$ Thousand Country

US$ Thousand

Germany 35,342 Germany 41,594 Germany 36,739 Japan 19,687 Japan 18,445 Japan 21,029 USA 8,082 China 10,466 China 11,416 France 6,997 USA 8,901 USA 8,461 Korea 6,361 France 6,432 France 6,150 Taiwan 5,682 Taiwan 6,138 Taiwan 5,006 Italy 4,142 Korea 4,810 Korea 4,416 China 4,603 Italy 4,560 Italy 3,042 Turkey 3,239 Turkey 4,297 UK 2,981

UK 3,166 UK 2,885 Turkey 2,124

As shown in the table above Korea ranked 5th in 2003 and 7th in 2004 and 2005 (Autoparts-Kotra, 2005). Germany and Japan scored the highest because most of the cars used in Lebanon are manufactured there. Lebanese customer preference for auto parts is for the manufacturing country of origin of the owned car. German and Japanese brands established a strong image because of their long existence in the market and their perceived quality. Korean cars recently existed in the Lebanese market, since 1994. Thus the demand started from that date. Lebanese customers are becoming more price conscious. They relate expensive spare parts to the European and Japanese products, while cheap ones to the Far Eastern. Korean spare parts are becoming more desirable because of their competitive prices, especially after the bad economical situation experienced in 2005 by the Lebanese purchasers. Dubai is playing a direct role in affecting the imports from Korea. It plays the role of the center of re exporting Far Eastern items. Also, China is competing with the Korean products because of its cheaper prices. The Chinese products have the same appearance and packaging. There are several companies also that shifted from Korean to Chinese products because many companies realized that the Korean companies are manufacturing their products in China (or through Chinese companies); this made Lebanese companies to directly switch their imports from Korean companies directly to the Chinese because in such cases the Lebanese companies found out that the products will be cheaper. For example, Est. Ray A. imported 900 thousand dollars worth of auto parts from Korea in 2004, but dropped to 60 thousand dollars in 2005 for the above reasons. In Lebanon, people accept the idea for Korean products to be slightly more expensive than other far eastern products. But if the Korean products are more expensive than the Far Eastern by 30%, Lebanese traders will prefer buying European or American brands rather than Korean.


On the other hand, Korean products are known to be much better than their Far Eastern counterparts. This is why many Lebanese still import Korean auto parts. For example, the same Lebanese traders still prefer to import the Korean shock absorbers Mando even though they are almost 50% more expensive than other far eastern shock absorbers. This also applies to car batteries, while contacting Lebanese auto part companies, they stated that the Korean car batteries are more expensive that others, but their life span is longer (3 to 5 years). This shows that price quality ratio still counts. Another problem that faces the Korean manufacturers is that the Lebanese market is very small, so the demand for some auto parts is not high. Some Korean companies cannot ship or supply a humble quantity of auto parts, whereas other Chinese and other companies might be able to do so. Also, many Lebanese companies have stated that this problem occurs because Chinese manufacturers are always full with stock, and as soon as an order is given, the supply is shipped. When contacting Hyundai in Beirut, they stated that their market share is US$ 5.5 million which is relatively small. This could be reflected on other Korean manufacturers. This market share is relatively small because Korean cars started operating in Lebanon since 1994. This is why Lebanon could from now on start demanding auto parts (demand of new and used auto parts are directly related to the cars’ age). According to Hyundai, imitated parts are taking 40% to 45% of the auto part market. As for commercial vehicles, imitated parts take 70% to 75% of the market share. The most parts demanded are parts used in service items, and the most expensive items are the suspension parts and parts related. Auto body parts in Lebanon are mainly being imported from China, Turkey and Thailand and are very cheap if compared to others, this is why they are taking the market share of the genuine parts. In addition to new auto parts, there exists a market for used auto parts. The major market for these products is old cars that are need too much maintenance and very costly to their owners; and people who still prefer to buy the original parts rather then imitation but cannot afford the new ones. In general, many of the buyers contacted are already dealing with Korean Companies and have traveled to Korea. According to importers of Korean auto parts, the following points should be taken into consideration when dealing with the Lebanese Market:

- Small Import quantities - Prices have to be in competition to other import countries like China & Malaysia

Another issue that was raised during the discussions was that Lebanese companies prefer to deal with a company that can provide diverse items. In the case where there is diversity they can place one order including all the various items needed. When discussed with buyers regarding the most consumable auto spare items they explained that there are parts that are rarely changed and are changed only in cases of accidents and there are parts that are constantly changed such as the spark plugs, fan belts, timing belt, brake discs, brake pads, wind shield wipers, etc. With respect to the prices: depends on the quality and how well known a brand is. One buyer gave the example of the brand name Mando which is a well known Korean Brand in the Lebanese market. He explained that the prices of Mando differ from those of other Korean Brand, but which are not as well known.


The main Korean auto parts brands found in Lebanon are:

Hyundai and Kia, Samsung and Daewoo original auto parts Hyundai and Kia, Samsung and Daewoo imitated auto parts Jumbol, Concorde, Hytek, Turbo, Dong AH, Volta, Sharp, Atlas,DJ batteries ASA wheels Hankook, Beautrak, Komo, Woosung tires Kook Il, MF, JHF filters Daewoo, Korea Beral brakes Valeo TH disks KBC, Rollimpex ball and roller bearings Mando auto parts 3L, Lightech, Musso lamps and bulbs Gaco oil seals Heun Ah, Beatrat inner tubes Hang Chag Belts Drew C&C (Current)

8. CONCLUSION Korean auto parts are known for their better quality; however, they relatively more expensive than other Far Eastern countries especially China. Korean products are trusted by importers and customers, yet prices should be revised to gain a competitive advantage. One of the obstacles informs of Lebanese importers is that Korean suppliers claim that the Lebanese dealers don’t have stocks, mainly because of the small quantities demanded. Nevertheless, Korean cars are in the country for more than 12 years, cars are getting older and parts are needed. Lebanese customers prefer to purchase the original parts, produced by the manufacturer of his car, which may boost the sales of Korean auto parts in the near future. So in order for Korean auto parts to have a bigger market share in Lebanon, Korean companies should rely on three major key points.

1. Number of Korean cars in Lebanon 2. Prices of Korean parts 3. Awareness of Lebanese towards Korea’s industry.

If the number of Korean cars increases in Lebanon, then the demand for Korean auto parts will definitely increase. The prices of the Korean auto parts should be lower in order for the Lebanese to demand more. Since some Korean manufacturing companies that are outsourcing their manufactures from China, Lebanese are more willing to buy from China than ever. This is why some might accept to buy an imitated product from China rather than Korea. There should be a strategy to allow Lebanese to be more aware of Korea’s industry. This awareness should increase through more aggressive marketing and promotion (exhibitions, brochures, TV commercials, etc.). Also, Korean products should be labeled so that no other manufacturing company could imitate Korean products. When awareness increases, people will know the true value of Korean products and only then they will be willing to pay more.


REFERENCES: www.finance.gov.lb www.cia.gov/cia/publications/factbook/geos/le.html www.cia.gov/cia/publications/factbook/geos/ks.html www.asianinfo.org/asianinfo/korea/economy.htm www.kn.koreaherald.co.kr/SITE/data/html_dir/2002/03/23/200203230009 Shady Younes, “Interview with the Korean Ambassador”, Annahar, December, 2005. “Agreement between the Government of the Republic of Korea and the Government of The Republic of Lebanon on Trade and Economic Cooperation”, 2006. Imports Ranking provided by Kotra-Lebanon available at (www.customs.gov.lb). “The Export Playing a Key Role in The Development of Korean Automobile Industry”, Korea Trade, Kotra, No 362, 2005. Mark Perry, "Car Dependency and Culture in Beirut: Effects of an American Transport Paradigm," Third World Planning Review (University of Liverpool), Vol. 22, No. 4 (November 2000), pp. 395-409. “General Overview of the Automobile Industry in Lebanon”, provided by Kotra-Lebanon, 2005. Peter McCrossan, “Lebanon and Korea Strengthen Ties”, the Seoul Times, May, 2006. “General Overview of the Auto Parts Industry in Lebanon”, provided by Kotra-Lebanon, 2005. AUTHOR PROFILE: Dr. Nouri Beyrouti, PhD. New York University. Currently an Associate Professor at the Lebanese American University, School of Business, Beirut-Lebanon. His area of interests includes: Marketing Management, Management Theories, Knowledge Management, E-Marketing, E-Learning, Marketing Communications, Virtual Organizations/Communities, Digital Economies, Digital Lifestyle, and Social Media.


SYSTEMATIC LINKING OF ORGANIZATIONAL STRATEGY, HR STRATEGY AND TRAINING STRATEGY ACROSS OLC

Hai-Ming Chen, Tamkang University, Tamsui, Taiwan Shu-Tzu Hung, Tamkang University, Tamsui, Taiwan

ABSTRACT

This study introduces an OLC perspective into SHRM, and develops a framework of strategic alliances of organizational strategy, HR strategy and training strategy across the organizational life cycle. To construct the framework, this study first reviews the literature of its core concepts, namely SHRM, strategic hierarchy and OLC. Then by underlying the appropriate organizational strategy in each stage for taking up the best competitive position, the corresponding HR and training strategies are inferred from the attributes and objective of its upper strategic tier. Finally, this study highlights the training target, training method and desired training outcome for each proposed training strategy across the OLC. The proposed framework suggests that linking the three tiers strategy contingently across OLC improves the efficiency, effectiveness and competence of workers in an organization.

Keywords: Human resource strategy, organizational life cycle, organizational strategy, strategic fit, training strategy, strategic human resource management.

1. INTRODUCTION

Training is crucial in maintaining and developing the knowledge and competence of both individuals and the organization as a whole, as well as in contributing to the vital process of organizational change. As organizations continuously reinvent themselves to stay competitive, continually aligning business goals with the learning to support them is a challenge. Through a slow and incremental process, appropriate training will result in a workforce that is socialized, integrated, committed to a firm’s culture and provide the organization with a competitive advantage difficult to imitate by competitors. Tharenou, Saks and Moore (2007) undertook a meta-analysis from 67 studies, and found that training appears to be most strongly linked to organizational outcomes when it is matched with key contextual factors such as organization capital intensity and business strategy.

Training processes can be explored from either of two perspectives, internal or external (Dolan and Schuler, 1994). The first approach is centered on the various elements involved in the development of training process, such as training type, for whom, when, and how; the second approach, also called the strategic fit approach, determines the orientation given to the training function within the company, in conjunction with its philosophy, and in particular with its strategic focus.

Many studies on strategic fit in HRM have been performed in the past two decades (Ginsberg and Venkatraman, 1985; Milliman, Glinow, and Nathan, 1991; Wright and Snell, 1998; Zajac, Kraatz, and Bresser, 2000). Examples of the related research include HR systems fitting with organizational strategies (Bird and Beechler, 1995; Miles and Snow, 1984; Schuler and Jackson, 1987), linkages between organizational strategies and a specific HR function (e.g. recruiting, selection, and retention; training; compensation systems) (Erdener, 1993; Galosy, 1983; Migliore, 1982). Some previous studies have built the strategic framework from various HR functional viewpoint across organizational life cycle (OLC), for example, performance appraisal across OLC (Chen and Kuo, 2004), incentive reward across OLC (Chen and Hsieh, 2005), salesforce incentive across OLC (Liao, 2007). However, little work on building a framework among organizational strategy, HR strategy and training strategy from the viewpoint of strategic fit across OLC. The purpose of this study is to examine this missing link.

The literature of the core concepts that underlie the proposed framework are first reviewed. A novel framework of training design across OLC is then presented and analyzed from a strategic alignment perspective. Finally, conclusions are drawn.


2. LITERATURE REVIEW

2.1 Strategic Human Resource Management The field of strategic human resource management (SHRM) has been widely investigated during the past two decades (e.g. Arthur and Boyles, 2007; Colbert, 2004; Delery, 1998; Kepes and Delery, 2006; Lepak and Snell, 1999; Ostroff and Bowen, 2000; Schuler, 1992). SHRM is defined as “the pattern of planned human resource deployments and activities intended to enable an organization to attain its goals” (Wright and McMahan, 1992). It implies that employees are a source of strategic value, and that their development contributes to a firm’s performance and sustainability. (Mayson and Barrett, 2006).

Partly originated from resource-based view which regards human resource as a potential source of sustained competitive advantage (Barney, 1991; Barney and Wright, 1998; Wright, McMahan, and McWilliams, 1994), SHRM research focuses primarily on evaluating the linkages among organizational strategies, HRM functions and activities and organizational effectiveness (Chadwick and Cappelli, 1999; Wright and Boswell 2002; Wright and Sherman, 1999). SHRM represents a new focus on HR as having value creation role, separate from its traditional cost minimizing role (Becker and Gerhart, 1996). Many studies claimed that consistency between business strategy and HRM practices was an important component in the success of organization (Buffa, 1984; Fine and Hax, 1985; Kotha and Orne, 1989; Miller and Roth, 1994; Wheelwright, 1984). Some empirical studies also confirmed the contingency effect of strategic fit and organizational performance through both direct and interactive effects( e.g. Delery and Doty, 1996; Guest and Hoque, 1994; Smith and Reece, 1999; Wang and Shyu, 2008). Consequently, an “integrative link” or “best-fit” is assumed among different levels of strategy, playing an integral role in a firm’s competitive advantage (Huang, 2001; Lengnick-Hall and Lengnick-Hall, 1988; Wright et al., 1998).

2.2 Strategic hierarchy Training strategy formation has a three-tier strategic hierarchy. Organizational strategy should be the starting point followed by HR strategy that guides all training and development plans (Hussey, 1985). Following the guidelines of an organization’s specific missions and objectives, the strategy sets the priority of resource allocation, and decides the sequence of implementing action plans (Shih and Chiang, 2003). The guiding principles for strategic choice and planning that are accepted in the main body of an organization are also relevant and apply to the development of new training programs (Roffe, 1998) of HR strategy.

2.2.1 Organizational strategy Organizational strategy can be defined as the determination of the fundamental long-term goals and objectives of an organization, and the adoption of courses of action and the allocation of resources necessary to attain these goals (Chandler, 1962). It is designed to give a firm a competitive edge over its rivals in the same industry.

Various typologies of organizational strategy have been proposed. Two of the most widely accepted typology for generic competitive strategy are those of Miles & Snow and of Porter taxonomy (Douglas and Rhee, 1989). The Miles & Snow taxonomy emphasizes organizational strategic orientation, and classifies generic business strategies into four types, namely reactors, defenders, prospectors and analyzers (Miles and Snow, 1984). The Porter taxonomy focuses on achieving competitive advantage, and categorizes strategies types as overall cost leadership, differentiation and focus. The focus strategy, in which the organization concentrates on a specific market or buyer group, is further classified into focused low cost and focused differentiation (Porter, 1980).

Many empirical studies have applied Miles and Snow’s defender-prospector-analyzer scheme for explaining general strategic orientation at the organizational level (e.g. Baird, Griffin, and Henderson, 2003; Gupta and Govindarajan, 1986; Laugen, Boer and Acur, 2006; Slater and Narver, 1993; Shoham, Evangelista and Albaum, 2001). This study also adopts their method of classification, since their typology provides convenient labels that describe a complex phenomenon of both strategic attributes and strategic missions.

The defender strategy emphasizes creating a secure market share through moderate and steady growth,


and thus focuses on high quality, superior service and low prices. The prospector strategy searches for product and market opportunities through technological innovation, and thus focuses on product and market innovation. Finally, the analyzer strategy is a combination of these two strategies; it defends positions in its stable product-market domain and attempts to be the “second-but-better” in its innovation areas.

2.2.2 Human resource strategies HR strategy can be defined as the ongoing efforts to link HR activities with organizational strategies in order to maximize “human advantage”, namely the contribution made by HR makes towards adding value to customers and managing cost, by accelerating operational and management processes, and by challenging the status quo through innovation and change (Grundy, 1998).

Several classification approaches for HR strategies have been presented. For instance, Miles and Snow (1984) developed building-acquiring-allocating HR strategies from the input point of view, i.e., to emphasize acquiring HR, while Dowling and Schuler (1990) and Tompkins (2002) derived their accumulating-utilizing-facilitating HR strategies from the output perspective, which first addresses the desired behavior and abilities.

This study incorporates an OLC perspective into SHRM, and therefore takes a life process approach, and reclassify HR strategies as: (1) sowing strategy, which stresses the acquisition of talent to emulate the planting process of finding good seeds and disperse them to the field (i.e. organization); (2) growing strategy, emphasizing the accumulation of intellectual capital, which is inspired by weeding and nourishing efforts in farming, and (3) propagating strategy underscoring the diffusion of internal knowledge through managerial practices that simulate the proliferating process of plants (i.e. “human advantage”).

2.2.3 Training strategies

Training is part of human resource management (HRM) practices. It is essential for raising the firm-specific knowledge and competence of the workforce of an organization. The ultimate training goal is to speed the flow of both codified and tacit knowledge into the stock of human capital (Hatch and Dyer, 2004). From the strategic perspective, training is employed not only to improve an employee’s current skills, but also to prepare each employee for future responsibilities. In the process of learning within an organization, human capital becomes increasingly firm-specific and cannot readily be reproduced by its competitors. Hence, emphasis on training is instrumental for attaining a sustainable competitive advantage by converting short-term gains into long-term competitive advantage (Arthur, DeFillippi, and Jones, 2001; Johannessen and Olsen, 2003).

Training strategies are also classified in terms of different viewpoints. For example, Talbot (1993) classified them as adaptive change, adoptive change and innovative feedback strategies, based on the change management perspective. Baird, Griffin and Henderson (2003) categorized the training and development methods into three types that span time: (1) learning from the past; (2) learning from the present, and (3) learning from the future.

This study considers organizations as organisms that proceed in a life cycle, and considers training to play a fundamental role in vitalizing them across each life stage. Thus from the viewpoint of strengthening vitality of human resources, training strategies are classified as: (1) inspiring strategy focusing on uniqueness creation; (2) upgrading strategy accenting quality of skills, and (3) shaping strategy stressing on normalization of behavior.

2.3 Organizational life cycle

The OLC is a model based on the proposition that firms move through a fairly predictable sequence of developmental stages over the course of time. Based on a biological metaphor, this model regards organizational growth as a consistent and predictable process, similar to the human life cycle of birth, maturity, aging and death. Therefore, an organization faces different problems in different stages, and therefore needs to have different management skills, make different decisions and have a different structure during each stage (Adizes, 1989; Greiner, 1972; Quinn and Cameron, 1983).


OLC is an important model because of its premise and its prescription. The model’s premise is that requirements, opportunities and threats both inside and outside the business firm vary according to the stage of development of the firm finds. Its prescription is that the firm's managers must adjust the goals, strategies, and strategy implementation devices of the business to fit each new set of issues. Thus, different stages of the company's life cycle involve changes in the firm's objectives, strategies, managerial processes (planning, organizing, staffing, directing, controlling), technology, culture and decision-making.

Many models of organization growth stages have been proposed over the past years. Some analysts have delineated as many as ten different stages of an organizational life cycle, while others have flattened it to as few as three stages (Adizes, 1989; Churchill and Lewis, 1983; Dodge and Robbins, 1992; Galbraith, 1982; Greiner, 1972; Gupta and Chin, 1994; Hanks and Watson, 1993; Kazanjian, 1988; Kazanjian and Drazin, 1989; Kimberly and Miles, 1980; Miller and Friesen, 1984; Quinn and Cameron, 1983; Smith, Mitchell, and Summer, 1985). The life cycle model of organizational growth has considerable empirical support (Dodge and Robbins, 1992; Hanks and Chandler, 1994; Kazanjian, 1988; Kazanjian and Drazin, 1989). Although individual approaches have different taxonomies, they all incorporate four identifiable but overlapping stages of inception, growth, maturity and revival. Since the revival stage is the inception of another OLC, this study only discusses the first three stages.

3. TRAINING DESIGN ACROSS ORGANIZATIONAL LIFE CYCLE

Contingency in competitive strategies does not follow a fixed pattern, but rather depends on the internal and external circumstance facing an organization. Training strategies must be integrated with specific HR strategies and organizational strategies if they are to generate organizational competitive advantage. Strategic alignment has many advantages, of which three are especially significant. First, it enables the HR decision makers to prioritize their decisions based on their perceived effect on the business. Second, prioritizing the operational decisions also prioritizes the resources stipulated to implement these decisions. Third, HR decision makers can affect the adoption of high-performance work practices by aligning these with organizational objectives and current HR practices (Subramony, 2006).

The first stage of training begins when decision-makers assess of the firm’s strategic objectives obtained from its specific mission and far-reaching vision. They then analyze of both the environmental conditions, including competitors, consumers, society and structure, and the organizational conditions, including market breadth, internal strength and weakness and available resources. Once the external and internal conditions are scrutinized, decision-makers adjust the appropriate organizational strategy so that internal resources can meet the external environment and the future organizational objectives can be attained. They then set the HR strategy to adhere to the organizational objectives, and finally the training strategy is determined to reach the HR objectives. Since the strategic orientations at each level are dependent on the organizational and environmental conditions, the strategic fit needs to be periodically and continually monitored in order to determine their suitability for their intended target. Table 1 on next page presents the proposed training strategy design framework in OLC based on this reasoning.

3.1 Inception stage

Firms strive for existence and organizational development during the inception stage. Their main concerns in this stage are those issues that are integral to establishing and maintaining a viable firm, such as securing funding, establishing relationships with vendors and clients, and preparing physical locations for business operations. Firms are looking for solutions in circumstances without reference coordinates, and need to focus on effectiveness rather than efficiency. A firm needs to invent and development a product or technology in a domain, and introducing them on time, thus demonstrating the characteristics of a prospector.


TABLE 1: A FRAMEWORK OF TRAINING STRATEGY DESIGN IN ORGANIZATIONAL LIFE CYCLE

OLC Stage Inception Growth Maturity

Organizational strategy

Prospector Analyzer Defender

Properties A developing domain

Search for novel products and markets

Second-but-better in innovative area

Secure a niche in stable area

A narrow and stable domain

Defend the niche

Objective First-to-market Seek both flexibility and stability

Secure market share

HR strategy Sowing Growing Propagating

Characteristics Recruit employees and provide them with satisfactory conditions

Redeploy or dismiss the unqualified, and nurture core workers to raise each employee’s potential contribution

Replicate success through formalization and control

Objective Attract valuable knowledge workers

Accumulate intellectual capital

Retain core workers and diffuse knowledge

Training strategy Inspiring Upgrading Shaping

Characteristics Informal, casual, creativity-based training

Scheduled, modular, competency-based training

Informal on-the-job training for managerial level, and formal, cognition-based training for general workers

Objective Generate uniqueness Good to better Fit in the frame

Organizations in the inception stage adopt this prospector strategy, emphasizing their ability to make design changes and to introduce new products quickly, in order to be first-to-market. Start-up firms at this stage are typically run by people who are key experts in their firms, and have to deal with shortages in both capital and skilled employees. Accordingly, the aim of the HR strategy at this stage is to attract valuable knowledge workers who are required to be creative and cooperative. Moreover, they need to be able to pursue long-term objectives; pay attention to the quality and quantity of products and services provided, take risks, and manage ambiguity and uncertainty (Huang, 2001). This HR strategy is called the sowing strategy, since it involves recruiting talented workers and providing them with satisfactory conditions to encourage them to join and become loyal to the start-up venture. The financially constrained nature of firms at this stage means that they frequently attract individuals with high potential but little experience. Those people tend to focus on seeking out an occupation in which they can hope to succeed and grow. They take entry level positions, with only a vague idea about the necessary skills and abilities stipulated for the job. They are precious seeds to those start-up firms.

Organizations that follow a sowing strategy seek to foster creativity among their new employees, since the success of the first mover depends on its ability to develop new products or services effectively. Furthermore, start-up firms need effective personnel policies, particularly because each employee


comprises a larger percentage of the workforce in the business (Field and Gatewood, 1987). The goal of training is to invoke strong capabilities of innovation. Therefore, the inspiring strategy best fits the HR requirements by generating solutions through bottom-up, innovative feedback. The efforts should be set to (1) construct a distinctive core competency for survival and market-access, and (2) cultivate a positive working climate to gain the commitment of employees. Training within an inspiring strategy tends to be informal, ad hoc and opportunistic. The training is mostly on-the-job, work-based and self-taught through e-mail, meeting, observation or trial and error. The inspiring strategy begins with stimulating innovation of novel practices that can become a dominant design through trial and error, with an ultimate goal of creating uniqueness.

3.2 Growth stage

Firms that move into the growth stage rise significantly in both sales and number of employees, and must establish their own distinctive competencies by creating structures and task systems beyond product development. As sales activity steadily rises, firms must take more thoughtful steps that avert risks of losing a niche in a stable market, while also becoming second-but-better in innovative market. Therefore a firm is likely to adopt an analyzer strategy at this stage.

Firms that adopt an analyzer strategy seek both flexibility and stability. As the number of employees expands in this stage, firms must endeavor to control and elevate the quality of HR, in a way that is analogical to the process of growing plants, which involves “weeding” and “nourishing”. A “weeding” strategy means controlling HR quality by redeploying or dismissing unqualified staff and nurturing the core workers. The “nourishing” strategy involves continuously cultivating employees to raise their potential contribution. The aim of a growing strategy is to accumulate internal intellectual capital. Firms strive to construct maximum involvement and skilled execution, and concentrate on providing skill development in an evolutionary fashion. They search for employees who are perceived to possess a large latent potential. Once latent potential is acquired by recruitment or cultivation, the attention turns to providing extensive training to develop potential over time (Bird and Beechler, 1995). The upgrading training strategy is consistent this type of HR strategy, since it increases the skills of employees.

An upgrading strategy first identifies the focus of training based on current work process is, and then provides extensive and continuous training to attain the joint professional development of employees. Meanwhile, new demands of skills, techniques and management are likely to arise along the growth stage and the fast-changing work environment. Therefore, training courses must be carefully scheduled and modularized based on the existing skills level and the external competitive environment. Business owners, are likely to consider long-term investment in employee development at this stage, because they have sound finances. The training efforts aim to improve employee the skill levels. Training is targeted at both fundamental and intermediate levels to link best practices and meet individual and organizational needs. Training orientation tends to be competency-based, and trainees learn materials independently of each other. Rapidly growth firms are likely to adopt many trainers and training methods, and to train staff and management in a wide range of fields (Jones, 2004). Because adults typically learn best when they can develop skills and abilities through experiential or application-type training, methods that are particularly suitable for this state include multimedia lectures (including slides, movies or handouts), case studies, role playing, panel discussions and programmed self-paced learning with computers.

3.3 Maturity stage

The maturity stage represents an organizational form where formalization and control through bureaucracy are the norm (Quinn and Cameron, 1983). Job descriptions, policies and procedures and hierarchical reporting relationships are highly formal. Such organizations have passed the survival test, growing to a point that they may seek to protect what they have achieved rather than targeting new territory. Organizations at this stage have steady product-market domains, and consequently rarely need to change their technology, structure or methods of operation significantly. They are likely to frame their resource allocation decisions in a gained domain to defend their niche. The major business aim at this stage is to secure market share, which is a typical defender strategy.

With a defender strategy in the maturity stage, firms are primarily concerned with stability rather than


taking risks or seeking new opportunities for innovation and growth. As the number of employees rises with the scale of business, the HR strategy focuses on replicating successful patterns by enforcing employee compliance with specified rules and procedures and blending into organizational culture, demonstrating the characteristics of the propagating HR strategy. The aim of the propagating HR strategy is to retain talented, experienced, productive, and knowledgeable employees, and to diffuse their established knowledge via formalization and control. The HR department focuses on the managerial level, and is responsible for managing employees to fit the work frame. Employees normally perform routine tasks under close supervision to match specific task requirement, and are not empowered to make decisions or take action on their own (Daft, 2001; Dowling and Schuler, 1990).

In the maturity stage, firms are expected to be operating at their most profitable level, and demand teamwork outcome over individual performance. The purpose of training is to elevate the individual expertise required for each role, as well as the integral performance, by intensifying the knowledge and skills of staff to comply with specified rules and procedures. This HR strategy, called the shaping strategy, seeks to mold the competence of employees to fit the organization’s present performance demands. A shaping strategy involves two main training streams, one for the managerial level and the other for general workers. The former focuses on managerial and supervisory training to link the employer and employees in a collaborative long-term relationship (Balkin and Richebé, 2007). The increasing size of firms in the maturity stage brings increased complexity, necessitating a professional approach towards management, and therefore inducing training requirements at the managerial level. Considering their tense daily schedule, appropriate training methods include informal on-the-job training such as assistance from experienced associates and supervisors, back-to-school classes at night and in-service programs. The other stream for general workers aims to raise employee commitment and learning ability. Organizations should attempt to give personalized training, while much of the learning is embedded in work. Training orientation should be cognition-based to fit each individual employee into the successful frame. Thus, trainees not only learn the expectations and rules designed to present the established knowledge based on past experience, but also enhance co-operation and mutual assistance through training. Appropriate methods for this purpose include case study, role playing, in-basket exercises, work simulation at a mock-up work site (either realistic or simulated), business games and even a connection with an expert in the field that is the focus of a current project.

4. CONCLUSION

Despite the identified general people/HRM problems in previous research on the OLC, training and development practices have tended to lag behind in strategy to tap the full complement of human capabilities. Therefore, the search for strategic fit of training efforts across the OLC has become increasingly important for organizational sustainability.

This study proposes a systematic link of organizational strategy, HR strategy and training strategy across OLC, that employs the concept of strategic fit and follows the formation flow of training strategy,. The following propositions can be deduced from the proposed framework:

(a) For each OLC stage, firms that achieve strategic links among organizational strategy, human resource strategy and training strategy have superior “human advantage” to firms that do not accomplish such linkage.

(b) Organizations in different OLC stages, tend to employ specific strategic orientations, namely a prospector in the inception stage, an analyzer in the growth stage, and a defender in the maturity stage.

(c) The sowing strategy, which focuses on attracting talent, is congruent with prospector strategy; a growing strategy, which emphasizes weeding the unqualified and nourishing the core workers, is congruent with the analyzer strategy, and the propagating strategy, which stresses replicating the paradigm, is congruent with the defender strategy.

(d) The inspiring strategy, which emphasizes generating uniqueness, is congruent with the sowing strategy; the upgrading strategy, which stresses promoting skill levels, is congruent with the growing strategy, and the shaping strategy, which focuses on fitting personnel in organizational norms, is congruent with the propagating strategy.


Organizations in the modern business environment have to be multifaceted in their operations to pursue their competitive advantage. The proposed strategy for each tier in different stage is not mutually exclusive, since an organization may pursue multiple strategies in varying degrees at the same time. However, an organization should emphasize the most appropriate strategy to obtain competitive advantage.

The proposed scheme has both practical and theoretical relevance. The first implication of this study is that firms should not adopt an invariable training strategy to develop the human resources across OLC. Training practices are closely linked to organizational competencies and competitiveness, and should be tailored to the organizational strategy at each stage to search for organizational sustainability. Second, the organizational human resources group should develop its ability to diagnose current organizational life stage, and then take the appropriate steps to generate organizational value. Finally, the value of human resources owned by an organization should be based on its contribution to the organizational strategic aims, and thus need to be developed accordingly.

While conceptual model building should adhere to principles of scope, reasonable boundaries and appropriate parsimony, it must also be testable. Therefore, future work should focus on finding support for the effect of the strategic alignment on organization-level performance, and on examining the universality of the proposed model. The attempt to clarify linkages of organizational, HR and training also reflects an important field for future HR research. The proposed life cycle model is a logical one, but allows alternative developments (for example, skipping stages). We hope that this work will provide the impetus for further similar research to include other HR practices such as recruiting, staffing and compensation.

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AUTHOR PROFILES:

Dr. Hai-Ming Chen is a professor at Graduate Institute of Management Sciences and she also is the Director of Personnel Office, Tamkang University. She holds a PhD degree of management sciences from National Chiao Tung University, Taipei, Taiwan. Her research interests include strategic management, human resource management, and management theory.

Shu-Tzu Hung is a senior executive officer at the Trainee Service Department of the National Civil Service Institute in Taiwan. She is also currently pursuing her doctoral degree of management sciences at Tamkang University, Taiwan. Her research interests focus on human resource management, especially training and development strategy and practice.


THE ATTRACTION OF STUDENTS TO THE UNDERGRADUATE COURSE IN MANAGEMENT: MULTICASE STUDY ON THE FACTORS ATTRACTING STUDENTS IN JOINVILLE, SC

Emerson Wagner Mainardes – NECE1/University of Beira Interior (UBI), Covilhã, Portugal

Helena Alves – NECE/University of Beira Interior (UBI), Covilhã, Portugal Maria José Domingues – Regional University Regional of Blumenau (FURB), Blumenau, Brazil

ABSTRACT In a competitive higher education market, such as the one in Brazil, offering the kind of education that meets the expectations of both the students and the labour market has been fundamental for attracting and maintaining students at higher education institution (HEIs). Taking for base the attributes of students' attraction found in the literature, this study had for objective to determine the factors of the new students' attraction for the administration courses offered by HEIs of Joinville, SC. A questionnaire was applied to 409 students recently entered in four HEIs. The results show that the most important factors to choose a degree or a HEI are the potential employability of the course and the high quality image of the institution. The results obtained in this investigation can help HEIs managers to delineate strategic actions in order to attract future and retain current students. Keywords: Students' attraction; Degree in Administration; Educational marketing 1. INTRODUCTION The constant need of professionals to update their knowledge in the labor market (Melo and Borges, 2005 and Mantovani, 1995) led to an increase in the number of educational institutions in Brazil, especially in higher education. Reinert and Reinert (2005) refer that this scenario has led to the growth of the education sector in primary, secondary and higher education. However, it is the latter in particular in the Brazilian education that is gaining considerable space: the growing number of private institutions was high and rising, on average, more than one private establishment a day. Especially, the degree in management has grown significantly. Thus, despite the government regulation, "the education market is approaching more and more of a market where quality service and customer satisfaction are critical to the survival of HEI" (Walter, Tontini and Domingues, 2005: 1). This scenario has led higher education institutions to make an effort to improve their efficiency and effectiveness, seeking to satisfy their ever more demanding clients. Such pressure has resulted in changes in HEIs and has led to the implementation of various strategies (Tari, 2006). However, students are not in the same position as a common consumer. Many of those who buy a product of any kind do so in order to satisfy an immediate need, but the needs that are to be provided by higher education are long-term ones and will only really be known after many years. So, higher education works in a very imperfect market, a market in which consumers have no knowledge of the prevailing market conditions. Or, in other words, the success that can be achieved by applying the philosophy of consumerism to higher education is a very limited one (Michael, 1997). The current level of competition is forcing universities to find and adopt more innovative and practical strategies. HEIs have been implementing these new strategies and tactics with the aim of defending, and sometimes increasing, their share of the market. Thus, capturing, conquering and maintaining clients is becoming a fairly common procedure in today’s world of higher education, with marketing concepts being regularly used (Seaman and O'Hara, 2006). It was precisely this context that gave rise to the present study. Applying marketing strategies in higher education, with the aim of attracting new students, may be beneficial for all those involved: HEIs, students, the labour market and other stakeholders. The relevance of this theme has led various researchers to look for ways in which to use marketing to meet not only the needs of the

1 This research was supported by the Portuguese Science Foundation through NECE – Núcleo de Investigação em Ciências Empresariais (Programa de Financiamento Plurianual das Unidades de I&D da FCT - Fundação para a Ciência e Tecnologia, Ministério da Ciência, Tecnologia e Ensino Superior/Portugal)


higher education institutions themselves, but also those of the students, the labour market and the teachers. Thus, in view of the lack of studies in Brazil identifying the factors of attractiveness for students seeking to enter undergraduate degree courses in administration, given the increase in supply, the aim of this research was to identify the factors that attracted new students to undergraduate courses in management from the private higher education institutions in Joinville, SC. In this way, the present research seeks to contribute towards an increase in knowledge in the area of educational marketing, by empirically testing the attributes of attractiveness of courses for undergraduate students, which have already been identified in international research studies, together with those attributes that were previously assessed in national studies, which still remain few in number despite the relevance of the subject. This research was designed to increase our knowledge about the HEIs that were investigated and the other HEIs offering undergraduate courses in administration, for its aim is to show the attributes of the course that attract students to this particular degree. This work also sought to increase knowledge about the students, for it seeks to show what the undergraduate degree courses can offer to attract them and thereby improve their teaching in a general way. Finally, this study sought to increase knowledge about higher education as a whole, offering the factors that lead students to seek out the degree course in question, thereby increasing knowledge of the theme studied. 2. FACTORS THAT INFLUENCE STUDENTS ATTRACTION In the current context of the higher education market, attracting students has been instrumental in the growth and survival of HEI. In this sense, HEI have been using different strategies to bring more and more students for its various courses. Dornbusch, Glasgow, and Lin (1996) identified the educational credentials as being increasingly important for achieving professional and personal success. They referred that higher education and even advanced degrees have become a prerequisite for many occupations in the labor market. In this sense, one of the strategies observed in the uptake of students is directly linked to educational credentials that higher education institutions can offer to their graduates. This variable was also reported by Webb (1993). Palacio, Meneses and Perez (2002) reported another attribute that influence students attraction, the HEI image. The influence of the image in increasing sales and strengthening loyalty to the brand is well known. The image attracts internal, external and potential audiences. Therefore, today, branding is very important in companies that seek or not profit. Thus, those responsible for the HEI should give more attention to these attributes in their policies as the perceived image can perpetuate the HEI. Another concept closely associated to the image and that has also been pointed out by several authors as a factor that influence students attraction (Murphy, 1981; Webb, 1993; Chapman, 1993; Kallio, 1995; Soutar and Turner, 2002; Alfinito and Granemman, 2003, Seaman and O'Hara, 2006), is the concept of academic reputation. Still another one is the word of mouth transmitted by current students (Palácio, Meneses and Perez, 2002; Alves, 2003; Shanka, Quintal and Taylor, 2005, Seeman and O'Hara, 2006), and the quality of the service which builds this word of mouth. The word of mouth is also influenced by customer satisfaction, reputation, level of commitment to customer service and visibility in the market (Rowley, 2003). The image is often built from service excellence. Hides, Davies and Jackson (2004) refer that excellence goes also for having the best practices (teaching and administrative), a commitment to the community, a consistent cost, satisfying customers and stakeholders, and quality of teaching (Hides, Davies, Jackson, 2004); Anderson (2005) adds, saying that excellence in higher education is to establish the best teaching practices that increase student performance. This author stated that simulation activities in the classroom can be an opportunity for the teacher to bring potential benefits to students and is an excellent factor of attraction for the HEI.


Another factor of student’s attraction, proposed by Mavondo, Chimhanzi and Stewart (2005), is innovation. According to the authors, one basic requisite for an organization to move towards the market is innovation. The authors refer that innovation is defined as the creation, acceptance and implementation of new ideas, processes, products or services. Innovation is considered vital to business performance. And this attribute applies to a large extent to the HEI which want to build an excellent image in the market that attracts students. Other researchers pointed out, as factors of attraction, aspects such as proximity to home (Webb, 1993; Kallio, 1995; Donnellan, 2002; Alfinito and Granemann, 2003; Shanka, Quintal and Taylor, 2005; Holdsworth and Nind, 2005) equipments and facilities (Lin, 1997; Alfinito and Granemann, 2003), cost (Murphy, 1981, Webb 1993; Javalgi and Coccaro, 1995; Alfinito and Granemann, 2003, Holdsworth and Nind, 2005; Shanka, Quintal and Taylor, 2005) and courses offered (and Alfinito Granemann, 2003; Javalgi and Coccaro, 1995; Kallio, 1995; Donnellan, 2002; Shanka, Quintal and Taylor, 2005; Holdsworth and Nind, 2005) Ciurana and Leal Filho (2006) state that including the subject of sustainable development into the courses curricula can attract more students and provide a competitive differential by improving the quality of content offered. It was observed that most universities have already developed strategic plans and action plans that put the focus on the universities actions sustainability. The inclusion of guidelines for sustainability in teaching and research reflects on image improvement which attracts new students. Other factors considered important in attracting students are those cited by Seeman and O'Hara (2006), which considered variety of choices, performance indicators, rates of approval, the student satisfaction with education, and the percentage of graduate students who find employment. In short, it is apparent that there are several factors that have been studied as affecting the attractiveness of a student to a higher education institution. These factors can be grouped into personal factors, such as the influence of friends or relatives, proximity to home or the costs, factors related to the institution, namely variety of courses offered, teaching quality, reputation or facilities; factors related to the labor market and course employability and also course specific factors, such as its innovation, simulations practices or the teachers themselves. 3. RESEARCH DESIGN In this study, descriptive, transversal and quantitative research was used, involving the gathering of primary data through the application of a questionnaire with predominantly closed questions (HAIR et al, 2005). In the research that was undertaken, all the HEIs of Joinville, SC, offering undergraduate degree courses in administration were considered. According to the data available from INEP (2007), there are five HEIs offering a total of twelve undergraduate degree courses in administration. These are: University of Region of Joinville (UNIVILLE); Cenecista University of Joinville (FCJ); College of Joinville (IESVILLE); Institute of Technology (IST) and Community College St. Anthony (INESA). To identify the most important attributes of the undergraduate degree course at these HEIs in terms of their attractiveness for students, it was decided to focus attention on the newly enrolled students in the undergraduate degree course in administration (key respondents). The explanation for this choice was that these students had only recently chosen their course and the HEI at which to study, so that the reasons for their choice would still be fresh in their memory. For this reason, the first-year students in administration at UNIVILLE, FCJ, IESVILLE, IST and INESA were chosen as key respondents. According to the information obtained from the Administrative Offices of the HEIs participating in the study, 915 students were identified as being in the first year or semester of 2007. Using the formula devised by Barbetta (2003, p. 60) to calculate the proportional stratified sample, this was fixed at 278 undergraduate students at the five HEIs considered for the study. Or, in other words, in order to be valid, this research had to interview at least a minimum of 278 students (5% error). If more students were interviewed, the sample error would be reduced. It was therefore decided to apply 450


questionnaires, possibly guaranteeing, at the very least, 278 questionnaires that had been properly completed. The questionnaire comprised two parts. The first part was designed to provide a characterisation of the student who had answered the questionnaire, by means of one open question (age) and six closed questions (gender, marital status, number of children, place of employment, job and area of professional occupation). The second part of the questionnaire sought to identify the attributes of the course that were considered important in attracting students to the degree course and HEI that had been chosen. The questionnaires were constructed in accordance with the following steps: Step 1 – Identification of the Attributes: Bibliographical review Step 2 - Identification and Grouping of Attributes: It were identified 42 attributes, these attributes

together underwent an exploratory study with 192 students of an HEI, after data collection, a factor analysis was performed grouping the 42 attributes in 4 groups: 19 attributes related to the HEI, 10 attributes related to the labor market, 7 attributes related to personal reasons, 6 attributes related to the course;

Step 3 - Strategies: Once the attributes had been duly identified, work began on the development of strategies (Table 1).

Table 1 – Data measurement strategies

DATA MEASUREMENT STRATEGIES

Strategy 1 – Individual measurement of the importance of each attribute: a semantic differential scalogram was used for each attribute with a scale ranging from 1 to 7 (from least important to most important); Strategy 2 – General measurement of the importance of all the attributes together: at the end of the group of attributes, the respondent was asked to make a general assessment of all the attributes mentioned taken together, in the same way as in the individual measurement, or, in other words, on a semantic differential scalogram, with a scale ranging from 1 to 7 (from least important to most important); this question measured the overall attractiveness of the course.

Source: Own elaboration The months of February and March 2007 were chosen for the application of the questionnaire because this was the time when the largest number of students would be found attending classes (beginning of the semester/year). The authors of this study were personally present in each classroom for the application of the questionnaire. This took place at the HEIs of UNIVILLE, FCJ, IST and INESA. The HEI of IESVILLE did not give permission for the research to be undertaken on its premises. 450 questionnaires were distributed at the four HEIs. Of these, 428 were returned completed. After analysis by the researchers, 409 questionnaires were validated, which was a far higher number than the 278 required for the statistical validation of the research (5% error). The sample error was recalculated at 3.7%. In the process of analysing the data the multivariate analysis of multiple linear regression was used. This multivariate analysis technique has as main purpose to find which independent variables most influence the dependent variable (Hair et al, 2005). In order to classify the attributes of this research, the method proposed by Garver (2003) was used. These authors showed a way of assessing importance by using the results of both the importance that was directly stated by the respondents and the importance calculated statistically via multiple linear regression (using the general score as the dependent variable and the scores given to the attributes as independent variables). Attributes that were given high scores by the two methods are considered to be “key” attributes. Similarly, attributes given low scores by the two methods are considered to be secondary. Those given high scores using the method of direct statement and low scores using the statistical method are considered “basic”. And finally those given low scores using the method of direct statement and high scores using the statistical method are considered “amplifiers”.


4. DATA ANALYSIS Initially, the characteristics of those students newly enrolled in the degree course of administration at the HEIs of Joinville, SC, were analysed. Next, an analysis was made of the importance of each attribute of the undergraduate degree course in administration in terms of its attractiveness for new students. The most important and least important attributes were identified and then, after this, the attributes of the course attended by the respondents that most contributed to attracting new students. 4.1. Characterisation of Interviewed Students In the first phase, an attempt was made to obtain the profile of the students choosing to begin the undergraduate degree course in administration, which, in this way, represented relevant data for the managers of the HEIs. Of the 409 students interviewed, 36% belonged to UNIVILLE, 4% to IST, 9% to INESA and 51% to FCJ. The average age of the respondents is 20.95 years and 58% of students are female. 75% of surveyed students work, although 49% are in operational jobs, 4% active in supervision positions, 11% are mid-level managers, 3% worked in management positions and / or directors, and 5% are company owners; These results showed that the students were more mature, already at work and seeking to obtain a degree in order to develop professionally, an attitude that had already been observed by such researchers as Michael (1997), Alves (2003), Navarro, Iglesias and Torres (2005), Melo and Borges (2005) and Lima (2006). It was therefore confirmed that present-day students are different from those of the past, the vast majority of whom previously went straight to college fresh out of secondary education Continuing with the analyses of the collected data, an assessment was made of the results of the attributes found in the literature. This procedure was carried out in order to find the most important and the least important attributes in the undergraduate course that led students to choose that particular course and HEI, followed by an identification of the course attributes that most contributed to its attractiveness for these students.

4.2. Key Attributes in Attracting Students In a second analysis the forty-two attributes for student’s attractiveness were analysed. In order for their results to be included in this section, respondents had to give a score for each attribute, ranging from 1 (which corresponded to “of very little importance for my choice of course and institution”) to 7 (which corresponded to “highly important for my choice of course and institution”). Table 2 present this results. Table 2 - Results from questions A1 to A42

QU

ES

TIO

NS

DESCRIPTION

GR

OU

P

IND

IVID

UA

L

SC

OR

E

PO

SIIT

ION

IN

TH

E R

AN

KIN

G

A1 Democratic participation of students in the HEI HEI 3,92 39 A2 Administrative services rendered by the HEI employees HEI 4,22 38 A3 HEI Positive atmosphere and environment HEI 4,95 24

A4 Course evaluation by MEC (Ministry of Education and Culture)

HEI 5,33 13

A5 HEI Marketing Campaign HEI 4,73 31 A6 Commitment of the HEI with the educational service HEI 5,70 5A7 Commitment of HEI with the community and nature HEI 4,74 30 A8 Courses offered by the HEI HEI 5,60 7 A9 New ideas, processes, products or services of the HEI HEI 5,19 18

A10 Image of the institution for current students of the HEI HEI 5,48 11 A11 Equipments and facilities of the HEI HEI 6,00 1 A12 HEI Administrative practice HEI 5,22 16 A13 Pedagogical practices of the HEI HEI 4,82 28


A14 The HEI Concern with the students HEI 5,26 14 A15 Propensity to innovation HEI 5,25 15 A16 facilities of the HEI for use by students, staff and community HEI 5,06 22 A17 HEI Security HEI 4,78 29 A18 Quality of the educational Service HEI 5,70 6 A19 HEI monthly fees HEI 3,65 40 A20 HEI Acceptance on the labor market Job Market 5,51 9 A21 Employability of the course Job Market 5,98 2 A22 Community’s opinion about the HEI Job Market 4,89 27 A23 Participation of the HEI in current topics Job Market 5,07 21 A24 Course and HEI reputation Job Market 5,76 4A25 Rate of students approved Job Market 4,45 36 A26 Tradition and status of the HEI Job Market 5,21 17 A27 Value of the diploma in the job market Job Market 5,57 8 A28 Overview of the HEI on sustainable development Job Market 5,19 19 A29 Visibility and recognition of the HEI within the society Job Market 5,50 10 A30 Schedule of classes Personal reasons 5,08 20 A31 HEI Image Personal reasons 5,46 12 A32 HEI location Personal reasons 4,49 35 A33 Relatives ´satisfaction with the HEI Personal reasons 4,90 26 A34 Influence of relatives in choosing the course and the HEI Personal reasons 4,30 37 A35 Affective connection with the HEI Personal reasons 3,34 41 A36 Previous experience in HEIs Personal reasons 2,99 42 A37 Activities of real life simulation Course 4,59 34 A38 Coherence and interaction between theory and practice Course 5,03 23 A39 Comments by graduated students Course 4,73 32 A40 Faculty Course 4,61 33 A41 Satisfaction of graduated students with the HEI Course 4,91 25 A42 Quality of teaching Course 5,89 3 Source: LHStat

Looking at table 2, it is possible to see that the top-ranked attributes were also the most important attributes in their groups: A11 (equipments and facilities of the HEI) was ranked first in the individual average, followed by the attributes A21 (course employability), A42 (respondent's perception about the quality of the education in progress), A24 (reputation and status of the course and the HEI) and A6 (HEI's commitment to the educational service provided by the university itself). Individually, these five attributes were also fundamental in attracting students to a degree in management It is also worth mentioning that of the 42 attributes tested, 23 were with average grades greater than 5, i.e., were considered very important by the respondents. This result tends to hinder any marketing action by the HEI managers surveyed, as there are many attributes to manage. In this case it is important to focus efforts. Looking in more detail in Table 1, one can observe higher ratings for the attributes related to the job market (employability of the course, reputation and status of the course and of the HEI; value of the HEI course in the labor market, acceptance of the HEI in the labor market, visibility and recognition of the HEI and degree to society). This result shows a tendency for students to value many attributes related to the labor market when choosing the course and the HEI, confirming what was found by Dornbusch, Glasgow, Lin (1996), Alves (1999), Alves (2000), Franco (2000 ), Carvalho (2001); Mund, Tontini and Durieux (2001), Alves (2003); Alfinito and Granemann (2003), Rowley (2003); Bronemann and Silveira (2004), Caetano and Silva (2004), Silva (2005); Holland Jr., Farias and Gomes (2006), Seeman and O'Hara (2006). Regarding the worsted ranked attributes, both individually and when weighted, it is possible to observe that A1 (HEI opening to students democratic participation), A2 (Administrative service rendered by the HEI employees), A19 (monthly fees), A34 (Relatives influence in course and HEI choice), A35 (Affective connection to the HEI) and A36 (previous experience in HEIs) were


considered as having low influence since they scored less than the mean (4). Particularly striking is the low scores obtained by two attributes in particular, the administrative service rendered by HEI employees, which may somehow indicate that at the beginning the student does not require much from service rendered or that they take it as an obvious item; and the course fees. These two items did not influence the student's HEI choice suggesting that students prefer quality rather than prices. The remaining items showed that other people or even past experience in HEIs have little influence on students’ choice. Question A43 asked students to assess all the attributes in a general score in the same manner as the previous assessment (scores from 1 to 7). The results are presented in Table 3. Table 3 - Results of question A43

BASIC STATISTICS

VARIABLE A43

Average 5,70416 Mode 6(173 cases)

Variance 1,08628 Standard deviation 1,04225

Score general average 5,70

Source: LHStat

An analysis of the results of Table 3 shows that overall score average was 5.70 (81.4% of the maximum score), with value 6 meaning that the courses on the survey attract students. However, they also show that all the attributes, in general, directly influence students’ choices. This result could already be expected for two reasons: the high number of variables tested and the by tendency of the surveyed respondents to consider it very important when purchasing a product or service (Garver, 2003). Considering these two issues, it is necessary to analyze the individual contribution from each attribute within the overall context, this is, to discover what really makes a difference when an individual chooses a degree course in management in a particular HEI. To find these key attributes a multivariate linear regression was used. First data was validated. With valid and reliable data (Cronbach's alpha= 0, 9473), multiple linear regression was used to find out the individual influence each item, from A1 to A42, has on the global score (A43). The results are shown in Table 4. Table 4 - Multiple linear regression of the items A1 to A43

Coef. correlation R 0,6677 Coef. determination R2 0,4458

Significance Yes Standard error 0,819191 Observations 409

Coefficients

Var. Description Coefficient Stan.

Deviation Stat. t Sign.

Const. +2, 33467 0, 293907 +7,94357 Yes

A1 Democratic participation of students in the HEI

-0,0642557 0,0283424 -2,26712 Yes

A2 Administrative services rendered by the HEI employees

+0,0132566 0,0313316 +0,423107 No

A3 HEI Positive atmosphere and environment +0,0308378 0,0332037 +0,928744 No

A4 Course evaluation by MEC +0,0105234 0,0257046 +0,409397 No

A5 HEI Marketing Campaign +0,0518251 0,0261308 +1,9833 Yes

A6 Commitment of the HEI with the educational service

+0,00657734 0,0357438 +0,184013 No

A7 Commitment of HEI with the community +0,012244 0,0323898 +0,378019 No


and nature

A8 Courses offered by the HEI -0,025933 0,0302068 -0,858515 No

A9 New ideas, processes, products or services of the HEI

+0,071984 0,0368548 +1,95318 No

A10 Image of the institution for current students of the HEI

-0,0428401 0,0321346 -1,33314 No

A11 Equipments and facilities of the HEI -0,0614023 0,0381317 -1,61027 No

A12 HEI Administrative practice +0,0396543 0,0327593 +1,21048 No

A13 Pedagogical practices of the HEI -0,0094971 0,0344185 -0,27593 No

A14 The HEI Concern with the students +0,0382736 0,041822 +0,915155 No

A15 Propensity to innovation -0,0261727 0,0442938 -0,590889 No

A16 facilities of the HEI for use by students, staff and community

+0,0241574 0,0386031 +0,625788 No

A17 HEI Security +0,0481598 0,0335159 +1,43692 No

A18 Quality of the educational Service -0,00786183 0,0389703 -0,201739 No

A19 HEI monthly fees -0,00980841 0,0223959 -0,437955 No

A20 HEI Acceptance on the labor market -0,0138401 0,0347425 -0,398362 No

A21 Employability of the course +0,0776783 0,0381598 +2,0356 Yes

A22 Community’s opinion about the HEI -0,0510958 0,0339191 -1,5064 No

A23 Participation of the HEI in current topics +0,00589352 0,040083 +0,147033 No

A24 Course and HEI reputation +0,00731566 0,0423453 +0,172762 No

A25 Rate of students approved -0,0591025 0,0303036 -1,95034 No

A26 Tradition and status of the HEI +0,0519862 0,0365509 +1,42229 No

A27 Value of the diploma in the job market +0,011132 0,0338716 +0,328654 No

A28 Overview of the HEI on sustainable development

+0,016126 0,0434293 +0,371316 No

A29 Visibility and recognition of the HEI within the society

-0,0424186 0,0438181 -0,968062 No

A30 Schedule of classes -0,0108762 0,023744 -0,458061 No

A31 HEI Image +0,0352471 0,0334609 +1,05338 No

A32 HEI location +0,0303292 0,019691 +1,54026 No

A33 Relatives ´satisfaction with the HEI +0,0238567 0,0292033 +0,816918 No

A34 Influence of relatives in choosing the course and the HEI

-0,0261375 0,0275419 -0,949008 No

A35 Affective connection with the HEI +0,0220344 0,0286916 +0,767974 No

A36 Previous experience in HEIs -0,00721511 0,0264824 -0,272449 No

A37 Activities of real life simulation +0,0373727 0,0312658 +1,19532 No

A38 Coherence and interaction between theory and practice

+0,0573286 0,0351226 +1,63225 No

A39 Comments by graduated students +0,0678811 0,0294107 +2,30804 Yes

A40 Faculty +0,00902906 0,0299795 +0,301175 No

A41 Satisfaction of graduated students with the HEI

+0,0502447 0,032819 +1,53096 No

A42 Quality of teaching +0,231482 0,0414733 +5,58146 Yes

t critic (Signific. coefficients) = 1,96647 Excluding the non-significant attributes, one builds the regression equation with only the significant attributes:


Regression equation: A43 = 2,5036 -0,00612353 * A1 +0,0791577 * A5 +0,0813561 * A21 +0,111989 * A39 +0,311429 * A42 Residual analysis Level of signif. = 5% Standard deviation = 0,775882 (a) OUTLIERS (residual more than +/- 3 deviations)

OBSERVATION RESIDUAL DESVIATIONS 91 -2,44042 -3,145 280 -2,36139 -3,043

(b) Randomization test: n = 409; median = 0, 010571; repetitions = 232; z = 2, 67669; z critic = -1, 64485. Accepts the hypothesis of randomness

(c) KOLMOGOROV-SMIRNOV TEST: D large = 0,030; D critic = 0,067; Accepts the hypothesis of adherence to a normal distribution

(d) HOMOCEDASTICITY TEST: t Levene = -0,0409973; t critic = -/+1,96581; Accepts the hypothesis of Homoscedasticity

Source: LHStat Analyzing the results presented in Table 3, it can be seen that items A1 (HEI opening for students’ democratic participation), A5 (marketing campaign conducted by HEI), A21 (employability of the course), A39 (comments of graduated students about the course), A42 (student perceived quality of the course), make a significant contribution when the overall assessment is made by the interviewees of the attributes of attractiveness of the course. In this way, the attributes can be classified according to the model proposed by Garver (2003), adapted for the educational service: • Key attributes (high stated importance and high importance calculated statistically) – attributes that, if they exist or have a high performance, attract students, and, if they do not exist or have a low performance, tend to dissuade possible students:

A21 (employability of the course); A42 (student perceived quality of the course);

• Amplifying attributes (low stated importance and low importance calculated statistically) – attributes that, if they exist or have a high performance, increase the attractiveness of the course for students, but, if they do not exist or have a low performance, do not affect the attractiveness of the course for students:

A1 (HEI opening to students democratic participation); A5 (marketing campaign conducted by the HEI); A39 (comments by graduated students about the course).

By observing the classification that was made, we can see that the attraction of students for a management course in a particular HEI is based on two factors: employability of the course and perceived quality of the course (image). These two attributes were also fundamental for students to choose a course and a HEI. The results show to HEI’s managers ways of attracting new students. To increase the students’ attraction a HEI should use the amplifiers attributes, this is, the HEI should give voice to students and show it to the community, should have a clear communication and demonstrate to potential students what the course and the HEI can offer to them, and make use of the comments made by graduated students about the course (satisfaction and loyalty of current students are very important factors in attracting new students). This set of key attributes mostly amplifiers can help the HEI managers in carrying out actions that increase the course and the HEI attractiveness. 5. CONCLUSIONS AND RECOMMENDATIONS At the end of this study, it can be concluded that the main factors attracting students to the undergraduate degree course in administration at the HEIs of Joinville, SC, are related to course potential employability and its high-quality image. These can be considered key factors, and must be monitored and managed by the HEIs managers involved in the research. As amplifiers factors it was found stimulation of student participation, effective and transparent marketing campaigns, and the


satisfaction and loyalty of current and former students. Thus, reports on the graduates’ success in this management courses, for example, can contribute positively to attracting new students for this degree in the HEIs of Joinville, SC. Other important factors were equipments and facilities, the HEI and course reputation to society, and the HEI demonstration of commitment to educational service offered to students. They are important factors reported by students which deserve special attention from the HEI’s management. An important piece of information generated in this study was the profile of the newest students enrolling in the undergraduate degree courses in administration in Joinville, SC. They are students who are still young, mostly female, single, without children, who are already working, mainly in private enterprise, and performing operational jobs in administrative sectors at the organisations where they work. This is the profile of the typical student choosing to enrol for an undergraduate degree in administration at the HEIs in the city where the research was undertaken. Such characterisation is important in regard to several aspects: there is a growing trend towards a majority of female students in administration courses, something that had already been discovered by Mainardes, Deschamps and Domingues (2006); many of them are working in operational jobs and see the obtaining of a degree as a way of ensuring their professional growth, making it possible for them to perform leadership functions at companies operating in this market. The profile that has been described may serve as a guideline for the marketing activities of the HEIs of Joinville, SC, helping them to direct their communication to this particular audience. As limitations on the research that was carried out, it is important to stress that the study only involved one city. Its generalisation to other regions calls for some care to be taken in relation to the characteristics of the local culture. Another limiting factor is that, of the five HEIs offering undergraduate degree courses in administration, one HEI did not give permission for the research to be carried out there, and this was precisely the HEI that currently has the most aggressive prices and advertising. With the inclusion of this HEI, it is possible that some changes may need to be made in relation to the results presented here. In this way, the contribution that this study seeks to make is related to the identification of the attributes that lead new students to be attracted to the course in question. The results presented may be important indicators for the managers of other HEIs, in helping them to understand the factors that lead to the attraction of potential students. It is therefore recommended that the same research presented here should be replicated in other regions and at other HEIs in order to allow for a comparison of results, making it possible to chart the factors of attractiveness for students in the different courses and HEIs.

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COMPARATIVE STUDY OF KNOWLEDGE MANAGEMENT SUCCESS IN PUBLIC ADMINISTRATION

Yong S. Choi, California State University, Bakersfield, California, USA Seunghee Wie, California State University, Sacramento, California, USA

ABSTRACT Knowledge management (KM) has been emerged as a significant organizational and management challenge in public administration. KM can help a public organization's technological and organizational innovations for a more effective operation. However, there are different views among practitioners and researchers on how a knowledge management program for public organizations can be successfully designed and implemented in western and eastern hemispheres. Thus, the objective of this study is empirically examining whether KM success attributes for public organizations in USA (western hemisphere) would be different than S. Korea (eastern hemisphere). From the results of statistical analysis, the differences success attributes for KM in USA and S. Korea were analyzed. The greatest differences exist in KM supportive culture and information systems capability while the least difference is in performance measurement. Key Word: knowledge management, innovation, KM success 1. INTRODUCTION Knowledge is a critical asset in public administration. KM practices are important in order to leverage knowledge to produce effective outcomes. This assumption has been the driving force behind the KM movement in the private sector and it is also being adopted to the public sector. However, KM is a very difficult mechanism to define as academicians and practitioners tend to perceive differently about organizational knowledge based on their interests and disciplines. Researchers in the Management Information Systems (MIS) discipline tend to define information technology (IT) enabled KM as a system component that can be stored and utilized, while those in Strategy and Management disciplines view KM as a collection of processes that can be created and managed based on individual and organizational' core competencies such as skills and know-how. Even though there has been a set of widely recognized criteria useful for evaluating the success of KM. There has been very little investigation whether KM success factors in western hemisphere would be different than eastern hemisphere. Thus, the objective of this study is to identify KM success factors for public organizations in two different hemispheres. 2. LITERATURE REVIEW Various KM studies have identified several key attributes for the success of KM. The findings by leading KM researchers are major sources that can be used to identify the success variables of KM. First of all, creating and sharing knowledge are intangible activities that cannot be forced. Only when a culture of trust and openness is formed and felt by organizational members, KM can give birth to core competencies. Thus, the participation, cooperation, coordination, and empowered teamwork of employees should be supported as standard attitudes in the KM environment. Second, successful knowledge creation and sharing activities and processes would be impossible without appropriate education. Timely and appropriate KM education is one of the key ingredients for the KM success. Third, knowledge should be measured because an organization's intellectual capital includes the brains of its employees, their know-how, and the processes and customer knowledge that they create. Fourth, it is impossible to make satisfactory progress without strong top-management leadership and commitment. Thus, the visible leadership and commitment of top management must be sustained throughout a KM effort so that organizational constraints for the KM success can be minimized. Fifth, the distinct difference between organizational learning and KM is that KM utilizes information systems (IS) as an enabling tool while organizational learning views information systems as a technical tool. To develop an effective KM program, information systems must be reliable, user-friendly, compatible with other platforms, and


accurate. Sixth, benchmarking determines how leading organizations achieve their performance levels and uses the information as a basis for establishing the organization's targets, strategies, and processes. Thus, benchmarking can be one of the most effective tools for developing and improving KM and measuring organizational KM performance. Once an organization has benchmarked best practices, it becomes easier to apply the useful knowledge in the organization. Finally, reliable, useful, up-to-date, and timely knowledge can be created and shared not only internally but also externally. Specifically, useful knowledge can be captured and created by sharing knowledge with other members of work groups, suppliers, and customers. In other words, there should be a strong knowledge sharing capability in an organization, which includes knowledge about internal and external customers, suppliers as well as organizational work groups in order to implement KM successfully (Alavi et al., 2006; Choi 2000; Chong 2005; Davenport & Grover, 2001; Dess & Picken, 2000; Hung et al., 2005; Moffett et al., 2003; Salleh & Goh, 2002). 3. ANALYSIS AND RESULTS 142 responses from S. Korea and 34 responses from USA were used for the data analysis. Four questionnaires from S. Korea were unusable due to incomplete answers. The questionnaire consisted of three sections. The first section asked about the respondent’s overall perception of KM in general. In the second section, widely recognized KM related items were presented to identify the key success attributes of KM. The final section asked for respondents’ demographic and organizational information. 3.1 Overall Perception and Planning of KM The respondents were asked to rate the degree of their agreement with six statements about KM on a five-point Likert scale (5 = Strongly Agree, 1 = Strongly Disagree). The respondents’ perception for the statements ranged from 2.42 to 4.38. Perception statements about KM and means are shown in Table 1. Both countries’ respondents indicated somewhat strong degrees of agreement to most statements while the least agreed perception agreement from USA was “A knowledge management specialist, such as Chief Knowledge Officer (CKO) or an external consultant, is needed for effective management of knowledge,” with mean rating of 2.59 and from S. Korea was “Knowledge management has a negative impact on job security of employees,” with mean rating of 2.42.

TABLE 1. COMPARISON OF OVERALL KM PERCEPTION a

Statement USAb S. Koreac

Mean SD Mean SD

It would be possible, through more effective management, to leverage the knowledge existing in my organization. 4.38 0.60 4.09 0.64

Our organization is considered to be in the “knowledge-intensive” business. 4.26 0.83 4.13 0.76

Since organizational knowledge assets have become more important, we will see greater emphasis on knowledge management in the future. 4.06 0.74 4.35 0.66

Knowledge management has a negative impact on job security of employeesd. 3.06 0.75 2.42 0.71

Knowledge management will emerge primarily through pre-built applications for specific business processes and problem areas. 2.85 0.89 3.09 0.96

A knowledge management specialist, such as Chief Knowledge Officer (CKO) or an external consultant, is needed for effective management of knowledge.

2.59 1.13 3.55 0.83

a 5 = Strongly Agree, 4 = Agree, 3 = Undecided, 2 = Disagree, 1 = Strongly Disagree b N = 34 c N = 142 d Original 1.94 was reverse coded to 3.06 due to a negative statement.


Table 2 illustrates the percentage of both USA and S. Korea in terms of KM implementation plan and technologies of KM applications. More than 50% of organizations in both countries have implemented or are planning to implement in near future. Particularly, every respondent’s organization from S. Korea has implemented or is going to implement KM. In terms of technology for KM, over 50% of organizations in USA think that “Internet access,” “Document management,” and “Intranet” contribute significantly along with “Web site content management,” “Data Warehouse,” “Decision support tools,” and “Directories of resident experts.” However, S. Korea’s responses are very much diversified. That is, no specific technologies would make significant contributions.

TABLE 2. IMPLEMENTATION PLAN AND TECHNOLOGY OF KM

USAa S. Koreab

Frequency % Frequency % When is your organization most likely to make a significant investment in knowledge management? Have already

Within the next two years from now 2 to 4 years from now More than 4 years from now Never

13 5 3 5 5

42 16 10 16 16

62 16 10 42 0

44 11 7 30 0

What component technologies are most significant in contribution to knowledge management applications?c

Internet access Document management Intranet Web site content management Data Warehouse Decision support tools Directories of resident experts Groupware Others

21 18 17 10 8 7 6 5 4

62 53 50 29 24 21 18 15 12

4 4 24 6 11 22 8 36 1

2 2 12 3 6 11 4 18 1

a N = 34 b N = 142 c Total number and percent values do not equal N and 100, respectively, as multiple responses were given. 3.2 Differences of Perceived KM Success between USA and South Korea Table 3 illustrates the mean scores of both USA and S. Korea. The success attributes from USA held by respondents for all attributes of KM ranged from 3.50 to 4.74. The highest rated attribute of KM was "A spirit of cooperation and teamwork,” with a mean rating of 4.74. Other attributes that received higher perception of importance included "Efficiency of information systems,” “Supporting team-based approaches to problem solving,” and “Sharing knowledge with other members of a work group" with mean ratings of 4.71, 4.59, and 4.53, respectively. The lowest rated attribute was "Sharing knowledge with suppliers," with a mean rating of 3.50; however, this still lies between important and neutral. Other attributes receiving lower ratings were "Encouraging knowledge creating teams such as knowledge task force, the future group, or learning group (M = 3.72)," "Supporting utilization of a knowledge-related measurement mechanism (M = 3.77)," and "Encouraging knowledge creating teams such as knowledge task force, the future group, or learning group (M = 3.78)." All 38 attributes from USA scored higher than 3.50 out of a five-point Likert-type scale; that is, all attributes were perceived as important or very important for KM.


TABLE 3. COMPARISON OF KM ATTRIBUTE MEAN SCORES

Attributesa USAb S. Koreac Mean Differences Mean SD Mean SD

A spirit of cooperation and teamwork 4.74 0.57 3.91 0.69 0.83 Efficiency of information systems 4.71 0.52 3.86 0.72 0.85 User friendliness of information systems 4.65 0.69 4.00 0.70 0.65 Usability and understandability of output 4.65 0.65 3.91 0.68 0.74 Effectiveness of information systems 4.59 0.61 3.77 0.72 0.82 Supporting team-based approaches to problem solving 4.59 0.70 3.68 0.74 0.91 Promote ongoing employee contributions 4.59 0.82 3.90 0.78 0.69 Sharing knowledge with other members of a work group 4.53 0.83 4.01 0.71 0.52

Top management leadership and commitment toward knowledge management 4.47 0.71 4.29 0.66 0.18

Data sharing among different applications 4.44 0.71 3.60 0.84 0.84 Promote employee ownership and workmanship 4.44 0.80 3.94 0.74 0.5 Sharing knowledge with members of other work groups within my organization 4.41 0.82 4.03 0.73 0.38

Organizational commitment to empower people 4.41 0.93 3.17 0.84 1.24 Actively encourage employee involvement in decision processes 4.41 1.05 3.94 0.69 0.47

Encouraging employees to participate in internal and external new learning opportunities such as conferences, training seminar, university courses, etc.

4.38 0.78 3.85 0.71 0.53

Top management encouragement toward formal/informal communication 4.35 0.88 3.85 0.71 0.5

Reward and recognition for actual performance improvement 4.35 0.85 4.11 0.68 0.24

Access to the majority of knowledge within my organization 4.32 0.73 3.83 0.76 0.49

Current corporate hardware and operating systems rules and standards to support future computer platform compatibility

4.32 0.68 3.64 0.78 0.68

Gaining knowledge about customers, own competencies and capabilities 4.27 0.94 4.10 0.62 0.17

Policies to improve the quality of work life 4.24 0.96 4.00 0.69 0.24 Organizational support to seek human values of employees 4.21 0.95 4.08 0.57 0.13

Fairness of individual or team-based performance measurement 4.18 1.14 3.94 0.76 0.24

Top management encouragement toward utilization of the knowledge management system

4.12 0.84 3.96 0.82 0.16

Adequate budgeting or funding to support knowledge management projects 4.06 0.65 4.02 0.71 0.04 Effectiveness of performance measurement 4.03 1.08 3.99 0.68 0.04 A formal system that allows for contribution of every employee's opinions or suggestion 4.03 0.97 3.94 0.63 0.09

a 5 = Very Important, 4 = Important, 3 = Neutral, 2 = Less Important, 1 = Not Important b N = 34 c N = 142


TABLE 3. (Continued)

Attributesa USAb S. Koreac Mean Differences Mean SD Mean SD

Providing guidelines to operate a benchmarking 4.00 1.06 3.66 0.73 0.34 Knowledge management awareness training to non-supervisory employees 4.00 1.02 3.77 0.69 0.23 Encouraging employees to benchmark other organizations' best practices 3.97 0.92 4.00 0.72 -0.03 Analysis of job performance data and information 3.94 1.03 3.87 0.78 0.07

Minimization of hierarchical and bureaucratic procedures for effective knowledge management 3.91 1.06 3.73 0.87 0.18

Supporting utilization of a knowledge-related measurement mechanism 3.91 1.21 3.62 0.72 0.29 Documentation of the most operating rules, policies, and procedures for knowledge management implementation processes

3.85 0.97 3.56 0.81 0.29

Reformulation of any rules (Le., personnel policies) that obstruct the implementation of knowledge management

3.82 0.97 3.73 0.72 0.09

The complexity and limitation of current applications software to develop interactive knowledge management applications

3.82 0.97 3.66 0.70 0.16

Encouraging knowledge creating teams such as knowledge task force, the future group, or learning group

3.82 1.11 3.41 0.82 0.41

Sharing knowledge with suppliers 3.50 1.34 3.74 0.82 -0.24 a 5 = Very Important, 4 = Important, 3 = Neutral, 2 = Less Important, 1 = Not Important b N = 34 c N = 142 On the other hand, the success attributes from S. Korea ranged from 3.17 to 4.29. The highest rated attribute of KM was "Top management leadership and commitment toward knowledge management," with a mean rating of 4.29. Other attributes that received higher perception of importance included "Reward and recognition for actual performance improvement," "Gaining knowledge about customers, own competencies and capabilities,” and “Organizational support to seek human values of employees” with mean ratings of 4.11, 4.10, and 4.08, respectively. The lowest rated attribute was "Organizational commitment to empower people," with a mean rating of 3.17; again, this also lies between moderately important and important. Other attributes receiving lower ratings were " Encouraging knowledge creating teams such as knowledge task force, the future group, or learning group (M = 3.41)," "Documentation of the most operating rules, policies, and procedures for knowledge management implementation processes (M = 3.56)," and "Data sharing among different applications (M = 3.60)." All 38 attributes from S. Korea scored higher than 3.17 out of a five-point Likert-type scale; that is, all attributes were perceived as neutral or important for KM. Table 4 illustrates the greatest and least mean differences between USA and S. Korea. “Organizational commitment to empower people” is the greatest difference between USA and S. Korea with a mean difference of 1.24. The mean score of USA is 4.41 and S. Korea is 3.17. On the other hand, “Encouraging employees to benchmark other organizations' best practices” is the least differences between USA and S. Korea with a mean difference of 0.3. The mean scores of USA and S. Korea are 3.97 and 4.00, respectively.


TABLE 4. THE GREATEST AND LEAST MEAN DIFFERENCES BETWEEN USA AND S. KOREA

Attributes Mean

Differences

5 attributes with the greatest differences Organizational commitment to empower people 1.24 Supporting team-based approaches to problem solving 0.91

Efficiency of information systems 0.85 Data sharing among different applications 0.84 A spirit of cooperation and teamwork 0.83

5 attributes with the least differences Encouraging employees to benchmark other organizations' best practices 0.03 Adequate budgeting or funding to support knowledge management projects 0.04 Effectiveness of performance measurement 0.04 Analysis of job performance data and information 0.07 A formal system that allows for contribution of every employee's opinions or

suggestion 0.09

4. DISCUSSION AND CONCLUSION The overall respondents’ attitudes toward KM were summarized in Table 1. The results indicated that the respondents from both USA and S. Korea seemed to aware of the importance of KM in terms of their organizations’ current and future performance. Most respondents from both viewed their organization’s business as knowledge intensive. Also, most respondents from both thought of KM as a way to promote more effective management. Unlike other innovation tools such as Business Process Reengineering (BPR), most respondents had a positive perception about KM in terms of a job security because KM has not been publicized as a way to eliminate jobs at all by academic journals as well as industry literature. However, the respondents from USA did not believe that a KM specialist such as a Chief Knowledge Officer (CKO) or an external consultant is needed for effective management of knowledge. Only a few leading organizations had CKOs or external KM consultants to promote effective KM. It appears that managers do not have a good understanding of the exact role and impact of CKO or external KM consultant. On the other hand, most respondents from S. Korea believed that a KM specialist is needed for effective management of knowledge. S. Korea became one of the leading countries in a short period of time because of implementation of management innovations with various industrial specialists. That is, public organizations in S. Korea might not be afraid of accepting a specialist for a management innovation. That’s why most respondents from S. Korea seemed to think that it is necessary to have a KM specialist for effective management of knowledge. According to Table 2, there were not many differences between USA and S. Korea in terms of KM implementation plan. It makes sense because both are leading countries in the world. That is, they are aware of effectiveness of innovative management tool like KM and capability of infrastructure of their public organizations are strong enough to support successful implementation of KM. However, in terms of technology for KM, responses from S. Korea were very much diversified that none of technology would make a significant contribution. This implies that respondents of S. Korea might not recognize the impact of information systems on KM because the respondent's job is not related to information technology. Table 3 showed perceived perception of both countries. In terms of the highest rated attribute, USA seems to focus on “collaboration perspectives of KM” because the attribute of KM is "A spirit of cooperation and teamwork.” Public organizations in USA have been changed. Nowadays, most public organizations look very similar to Drucker's notion of information-based organizations: characteristics of the new organizations are a flatter structure and an organization of specialists of all kinds (Drucker, 1988). And the information-based organizations tend to use more and more small self-governing teams. Thus, it


is a very reasonable result. On the other hand, the lowest rated attribute was "Sharing knowledge with suppliers.” This result is also reasonable. Whether it is private or public organization, it would be difficult to share mission critical knowledge with suppliers. Moreover, it might be violation or even against law of sharing knowledge with suppliers for some particular public organizations. The highest rated attribute from S. Korea seems to focus on “organizational perspectives of KM” because the attribute is "Top management leadership and commitment toward knowledge management." It is still true that organizational structure and decision-making of leading Asian countries (e.g., Japan) is not as decentralized as western counterpart. Thus, it is not a surprise result. On the other hand, the lowest rated attribute is "Organizational commitment to empower people." Empowerment is almost impossible without decentralization of organizational structure and decision-making. This result is consistent with the result of the highest perceived attribute. The differences of KM success attribute between USA and S. Korea had examined and was summarized in Table 4. Five attributes with the greatest differences can be divided into following two categories: KM supportive culture (“Organizational commitment to empower people,” “Supporting team-based approaches to problem solving,” and “A spirit of cooperation and teamwork") and information systems capability (“Efficiency of information systems” and “Data sharing among different applications”). Public administration in USA believed that organizational support and information systems capability are important for successful KM implementation. That means USA understands that KM cannot be developed and implemented without KM supportive culture. That is, transformation to a knowledge-centered organization is possible only when organizational culture becomes conducive for KM because the basic assumptions, norms, and values that guide employees’ behavior are encompassed by the culture of an organization. Also, USA thought information systems (IS) as an enabling tool for successful implementation of KM. These results are consistent with previous and current research of KM that has been conducted in western hemisphere. On the other hand, S. Korea did not strongly believe that KM supportive culture is not important as USA believes. Considering the culture of eastern hemisphere, this is not surprise result. In terms of successful implementation of innovation in organization, organization in almost every Asian country has relied on top management and it is especially strong in public administration. Five attributes with the least differences can be categorized as measurement with organizational support and reward. Many empirical studies about innovations like, BPR (Business Process Reengineering) and TQM (Total Quality Management) have confirmed that appropriate measurement with organizational support and reward might be one of the most common formulas to succeed from the initiation to implementation. KM is another innovation, and it shares very similar success attributes with BPR and TQM in terms of the perspectives of appropriate measurement, organizational support, and reward. 5. CONTRIBUTIONS AND LIMITATIONS This study has implications for the body of KM in general and for practitioners. First, this study extended the current knowledge of KM in public administration and served as an addition to build a cumulative tradition of research on KM implementation. This study might be one of the early studies that examined the success attributes that affect the KM systematically and statistically in public administration in two different cultures. Second, this study attempted to identify success attributes based on a structured questionnaire. This may be one of the earliest studies that developed and employed a structured questionnaire to investigate KM success attributes based on various public organizations in USA and S. Korea. Several studies have attempted to investigate the impact of KM in public administration, and these studies focused only on one country. Finally, this study may provide a basic framework for the development of an instrument for KM implementation in various cultures. Thus, the measurement scales and questions utilized in this study can serve as the starting point to refine the instrument for future studies in KM in various cultures.


There are some major limitations to this study. The possibility of a biased perception of KM implementation should be considered. As a means of organizational performance improvement, KM has been publicized as a major tool or technique through the mass media as well as various academic writings, including reports by major consulting companies. As a result, KM has been viewed as a major catalyst for performance improvement without any assessment of the actual impact of its implementation. Consequently, this exaggeration of circumstances may affect respondents’ perception of KM principles and the actual usage of those principles. Second, only small numbers of responses, 34 responses, from USA were used for the data analysis and 142 responses from S. Korea were collected only from one city in S. Korea. Thus, it is limited to generalize the result of study. Finally, this study is a cross-sectional research. Because a cross-sectional study addresses issues at only one point in time, it does not capture the complex interrelationships between variables that come into effect over time. A longitudinal study is more appropriate to capture such details. REFERENCES Alavi, M., Kayworth, T., and Leidner, E., “An Empirical Examination of the Influence of Organizational

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AUTHOR PROFILES: Dr. Yong S. Choi earned his Ph.D. at the University of Nebraska, Lincoln. Currently he is an associate professor of Management and Marketing at California State University, Bakersfield. Dr. Seunghee Wie earned her Ph.D. at Kansas State University. Currently she is an associate professor of Family and Consumer Sciences at California State University, Sacramento.


SURVIVAL STRATEGIES OF ASIAN EXPORTERS DURING ECONOMIC DOWNTURN: CASE OF THAILAND

Lugkana Worasinchai, Bangkok University, Thailand Dechanan Thanapob, Bangkok University, Thailand

Farhad Daneshgar, University of New South Wales, Australia ABSTRACT

The recent global economic downturn has greatly affected Thai export sector in various ways. In particular, fluctuations in exchange rates as a result of this economic downturn have forced many Thai exporters to review both their short term as well as the long term strategies in order to survive the crisis. The main objective of this research is to investigate the strategic adaptation by Thai exporters in managing risks associated with exchange rate fluctuations during the recent economic downturn. A positivistic research approach has been adopted using interviews and survey questionnaire instruments. Data were collected from financial managers of export companies across various industries in Thailand. Results indicate that Thai export companies have mostly emphasized on adopting four strategies including cost-cutting, value added product development, penetration of new markets, and expanding of domestic markets in order to combat adverse effects of exchange rate fluctuations during economic downturn. Results also indicate that various business characteristics affected such strategic adaptation. Keywords: global economic crisis, exchange rate strategy, exchange rate management, exports companies, Thai exporters. 1. INTRODUCTION The global financial crisis, also known as the ‘Hamburger Crisis’ has affected the world economy in a variety of ways. One major undesirable outcome of this crisis for international business community has been sharp fluctuations in various business variables. One such fluctuation is in the value of foreign exchange. Exchange rate fluctuations have particularly affected exporters and this study mainly focuses on Thai export companies. Furthermore, Thailand’s economy is heavily dependent on the export sector which constitutes 76% of country’s GDP in 2008 and an average of 73% of country’s GDP during 2001-2008 (Bank of Thailand, 2008). The Thai export sector is composed of a variety of industries with different business characteristics. Compared with other economies, the value of Thai Baht has been fluctuating relatively sharper during 2007-2009. This has heavily impacted Thai exporters both in short term and in long term in their battle for survival. During this period, the number of registered export companies in Thailand has reduced by 20% during the period 2006 - 2008 (Department of Export Promotion, 2008). Generally speaking, foreign exchange risk management requires appropriate financial and management strategies and the present research aims to investigate strategic adaptation of Thai exporters during the recent sharp exchange rate fluctuations. The results of the current study are expected to provide benefits to the following stakeholders:

1. Government and policy makers: These are the main players in development and implementation of policies for control of exchange rate. An understanding of strategies adopted by individual Thai exporters who managed to survive the recent economic downturn will assist this group to incorporate such knowledge in their future policy development and implementation.

2. Present and future exporters: This group will benefit from the current study by learning from best practices. This in turn will create further trust in the internal and external supply chain partners towards Thai exporters, which in turn can potentially benefit both parties.

3. Research community: The current study also fills a vast gap in academic knowledge in the field by providing explicit knowledge about the nature of strategies that Thai exporters have implemented that brought them out of a very strong global crisis.

The remaining parts of the article are structured as follow: a focused review of the current literature is presented in order to explore existing strategies that exporters in general have used in the past for managing their risk of foreign exchange fluctuations given their various business characteristics. This is followed by a discussion on the research methodology of the study. Next, the results are presented and analyzed, followed concluding remarks and future work.


2. LITERATURE REVIEW Kedia and Chokar (1986) found that business characteristics are essential factors in conducting successful businesses. Naidu and Rao (1993) found that essential business characteristics that can potentially affect export promotion are: business size; period of operation; and investment characteristics. Kaleka and Katsikeas (1995) found that export problems are related to the business size as well as the export experience. This is similar to the findings by Crick and Chaudhry (2000) who claim that export problems were caused by late payment, fluctuations of exchange rates, pricing to meet competition, and the lack of government backing. Rujithamrongkul (2005) examined the impact of potential competition on Thailand’s exporters and found that the key elements were: risk management of foreign exchange rate, cost reduction, finding new markets, and value-added product development. Cadogan et al (2006) showed that exporters adjust themselves in different ways depending on their business characteristics. Mar and Spender (2004) found that the periods of operations affected the financial hedging policy of exporters. The current study adopts an integrated approach in the sense that it synthesizes the above factors in order to construct an initial theoretical model to serve as foundation for the current investigation. This synthesized model is then validated for Thailand through a pilot study and appropriate modifications will be made and a final model is developed. This final model will then be used for designing the main survey questionnaire for the study.

3. RESEARCH HYPOTHESES ANF METHODOLOGY 3.1 Research Questions and Hypotheses: The major research questions (RQs) for the present study are:

RQ1: what strategies the Thai exporters adopt for managing their exchange rate fluctuations during economic downturn?

RQ2: What are the relationships between the Thai exporters’ various business characteristics and their strategic adaptation for managing exchange rate fluctuations? The above research questions are answered by testing the following hypotheses:

H1: During economic downturn and subsequent sharp exchange rate fluctuations, Thai exporters adjust their exchange rate strategies in order to survive in the business.

H2: Business characteristics of the Thai export companies affect the strategies that these companies implement during the periods of sharp fluctuations in the exchange rates in order to avoid the adverse effects of these fluctuations. This overarching hypothesis has been split into four sub-hypotheses each corresponding to one of the following four business characteristics: industrial type (H2.1), period of operation (H2.2), annual sales (H2.3), and export proportion per total sales (H2.4).

3.2 Overview of the Research Methodology: The philosophical approach adopted in the current study is positivistic approach which assumes that the goal of knowledge is simply to describe the phenomena that the researcher experiences, and emphasizes the creation of data through measurement and its capture and storage (Mar and Spender, 2004). The adoption of a positivistic approach normally mandates the use of quantitative methods and this is the method that the current study uses for designing, measuring, and analyzing the main survey. On the other hand, due to the novelty of the problem a qualitative pilot study in the form of in-depth interviews has been conducted prior to administration of the main survey in order to uncover deeper factors specific to the Thai export sector that may have been overlooked in the survey questions. Results of these interviews are used to refine both the synthesized theoretical model as well as the related survey instrument. To develop the theoretical model of the study a focused review of the current literature was conducted and a set of factors were identified from the relevant studies in the field of international business in order to derive an initial set of constructs for the study. The pilot study consisted of ten in-depth exploratory interviews ranging from 60 to 90 minutes in duration in order to further validate the initial set of factors for the study before their measures are defined and used in the main survey questionnaire. The population from which the sample for both the pilot and main studies was selected is Thailand’s exporters who were members of the Department of Export Promotion during (Department of export Promotion, 2009). The samples size was calculated according to the guidelines provided by Toro Yamane with the test reliability of 95% and error less than 5%. The methods used for distribution of the questionnaire were e-mail and face-to-face distribution. Due to the space limitation the complete questionnaire is not presented in the present article however interested readers may approach the


authors for a copy of the questionnaire in Thai language. The questionnaire was divided into 2 parts. In part 1 demographic data of general nature were collected. The major items in this part include company information such as ‘period of operation’, ‘sales value per year’, ‘export proportion per total sales’ and relevant demographic data. In part two of the questionnaire data were collected about the specific strategy adopted and implemented by the company during the period of sharp fluctuations in the exchange rate. Based on the current literature as well as the pilot study results, ten such strategies were identified and were included in the survey questionnaire. Each question was presented using a five-point Likert Scale, ranging from 1= strongly disagree, to 5 = strongly agree. 3.3 Validity and Reliability Testing: The validity and reliability of the questionnaire were assessed by using a panel of experts consisting of five exporters who were long time members of the Department of Export Promotion in Thailand. These experts assessed both the content validity as well as the construct validity of the survey questionnaire. They provided specific suggestions about clarity and suitability of both the content as well as the presentation. The reliability of the questionnaire was tested in accordance with the Cronbach test of reliability (Cronbach, 1951). The reliability of the questionnaire was 0.783 which is above the acceptable level of 0.7 (Nunnally, 1978).

4. ANALYSIS OF RESULTS OF THE PILOT STUDY The ten interviews revealed unique nature of the factors that specifically affect strategic adaptation of the Thai exporters. One major finding was that Thai exporters in general are not well-versed (or, do not believe) in the classical financial hedging methods of managing the risk of strong exchange rate fluctuations; and instead they opt for non-financial, managerial methods. This finding in turn motivated the authors to mainly focus on the latter factors when designing the survey questionnaire. More specifically, results from the interviews revealed that for Thai exporters it is important to consider the export proportion to total sales instead of total sales. Companies which have export proportion more than 50% are considered active exporters by both Thai government and business communities. The export companies implement different strategies towards the exchange rate fluctuations depending on how active they are in the export business. Second major finding was that most Thai export companies are small and medium size firms and using financial hedging tools is not a favorable approach to adopt by most of them; these tools are more practical among the few large exporter firms. The majority of Thai exporters mainly use simple financial tools such as forward rate. The exporters seek financial hedging advice from the bank. Third, Thai exporters find that the fluctuation of exchange rate is something totally out of their control. This may explain why they do not take seriously hedging against fluctuations through financial tools. Fourth, most Thai export firms prefer to implement non-financial strategies to hedge against the exchange rate fluctuations because it facilitates the process of selecting approaches that match their business practice such as pricing strategy, differentiate products, or cost and operation controls.

5. ANALYSIS OF THE RESULTS OF THE QUESTIONNAIRE The following statistical methods have been used for analyzing the questionnaire data: 1. Descriptive statistics including frequency distribution, percentage analysis, mean and standard deviation. 2. Inferential statistics was used for testing the hypotheses using one way analysis of variance. The Scheffe’s method (Maxwell and Delaney, 2004; Milliken and Johnson, 1993) was used for pairwise comparisons. Overall the results proves H1 as true as these results indicate that the majority of Thai exporters who survived the recent economic crises have adjusted themselves to the fluctuation of exchange rate by implementing a variety of strategies. A summary of the results is shown in Table 1. For obtaining these results, respondents were asked to chose, from a list of ten strategies, the ones that they adopted during the economic downturn in order to combat adverse effects of the exchange rate fluctuations during the recent economic downturn. Based on the results of Table 1, the two most frequently used strategies adopted (with mean = 3-4) are ‘reducing cost and increasing level of production efficiency control’ and ‘Value Added’ strategies respectively. The lowest preference (with mean = 1-2) was given to the ‘no adjustment’ strategy. The preference levels of the remaining strategies fall in between the above two values.


TABLE 1: STRATEGIC ADAPTATON BY THAI EXPORTERS

Adaptation Strategies

X

(S.D.)

Level of strategicpreference*

1. Reducing Cost and Increasing Level of Production Efficiency Control

4.37 (0.818)

HIGH

2. Value Added Strategy 4.17 (0.813)

HIGH

3. Price Adjustment 3.81 (1.046)

ABOVE AVERAGE

4. Financial Hedging 3.73 (1.078)

ABOVE AVERAGE

5. Decreasing export volume per sales value (Sell more Domestic)

3.62 (1.112)

ABOVE AVERAGE

6. Penetrate new markets which have stable exchange rate

3.57 (1.043)

ABOVE AVERAGE

7. Decreasing import volume 3.44 (1.068)

ABOVE AVERAGE

8. Shift Exchange Rate Choice 3.38 (1.078)

ABOVE AVERAGE

9. Decreasing foreign Borrowing 2.88 (1.179)

BELOW AVERAGE

10. Decreasing foreign Investment 2.81 (1.123)

BELOW AVERAGE

11. No adjustments 1.64 LOW

* Strategic preferences of the Thai exporters from LOW (=1-2) to High (=4-5)

Table 2 shows strategic adaptation of the Thai export companies by industrial type which is related to the H2.1. It shows statistically significant strategies in descending order. From the ten candidate strategies provided to the respondents, only six of them were considered by the respondents as preferred strategies. Also, no significant differences were found in the firms’ adaptation strategies based on the industrial type. There are six strategiest that firms with different industrial types consider to adopt. Perhaps this can be explained by the fact that firms in different industrial type will most probably adjust their price (the most preferred strategy in the Table 2) because it depends on the intensity of the competition. In the presence of intense competition in selling similar products in the same market, adjusting product price by increasing the price will not be an option as the firm will lose its market share. On the other hand, when comparing pairs of industry types, results show no significant differences in strategic adaptation except for the ‘Decreasing Foreign Borrowing’ strategy. This suggests that in general, differnt industrial types do not significantly change the firms’ strategies, or, such differences do not impact the strategic choice of the firms.


TABLE 2: RELATIVE IMPORTANCE OF ADAPTATION STRATEGIES BY INDUSTRIALTYPES

Adaptation Strategy in

Mean

F

Sig.

Post Hoc Tests**

(using Scheffe test)

Foo

d an

d H

ealth

Res

iden

ce a

nd

furn

ishi

ng

Fas

hion

Ele

ctro

nic

Fitt

ing

Tra

de a

nd

Ser

vice

Oth

er

Price Adjustment 4.11 3.98 3.81 3.86 3.52 3.63 2.264 .048* no significant differences

Value Added strategy

4.07 4.35 4.23 4.43 4.02 3.87 2.829 .016* no significant differences

Decreasing Export Volume per Sale Value


Decreasing Foreign Borrowing

2.77 2.68 2.77 3.06 2.81 3.57 2.803 .017* Others > Residence and furnishing

Decreasing Foreign Investment


No Adjustment 1.64 1.60 1.49 1.46 1.98 1.47 2.770 .018* no significant differences

* The statistically significant difference was set at .05. ** Scheffé was used to pair compare

Table 3 shows the relative differences between the adaptation strategies of Thai exporters by periods of operation (H2.2). Again, six strategies received significant preferences from the respondents. However in this case, there have been some differences in strategic adaptation among the firms with different periods in business, as shown in the last column. TABLE 3: RELATIVE IMPORTANCE OF STRATEGIC ADAPTATION BY PERIOD OF OPERATION Adaptation Strategy

Mean F

Sig.

Post Hoc Tests**

Le

ss th

an

5 y

ea

rs

5 –

10

ye

ars

11

– 1

5

yea

rs

Mor

e th

an

15

yea

rs

Price Adjustment 3.88 3.94 4.00 3.43 4.299 .006* 11 – 15 years > 15 years5-10 years > 15 years

Value Added strategy 4.19 4.29 4.24 3.93 2.920 .034* 5-10 years > More than 15years

Penetrate New Markets which have Stable Exchange Rate

3.17 3.74 3.70 3.65 4.738 .003* 5-10 years > Less than 5 years 11 – 15 years > Less than 5 years

Decreasing Export Volume per Sales Value (Sell More Domestic)

3.13 3.55 3.67 3.43 3.132 .026* No significant differences

Decreasing Foreign Borrowing 2.75 2.67 2.89 3.28 3.872 .010* More than 15 years > 5-10years


Financial Hedging 3.49 3.55 3.93 4.04 4.650 .003* More than 15 years > 5-10years More than 15 years > Less than 5 years

* The statistically significant difference was set at .05. ** Scheffé was used to pair compare Table 4 demonstrates relative importance of adaptation strategy by sales value, as well as the pairwise comparative analyses for the firms with different sales value (H2.3). Results in Table 4 show that different sales values led to adoption of different strategies. TABLE 4: RELATIVE IMPORTANCE OF STRATEGIC ADAPTATION BY SALES VALUE

Adaptation Strategy

Mean

F Sig. Post Hoc Tests**

Less

than

50

mill

ion

baht

50 –

500

mill

ion

baht

501

– 1,

000

mill

ion

baht

Mor

e th

an 1

,000

mill

ion

baht

Penetrate new markets which have stable exchange rate

3.32 3.66 4.00 3.81 4.997 .002* 501-1,000 million baht > Less than 50 million baht

Decreasing Export Volume per Sales Value (Sell more Domestic)

3.32 3.93 3.73 3.70 5.617 .001* 50 – 500 million baht > Less than 50 million baht

Decreasing Import Volume

3.28 3.45 4.03 3.49 4.207 .006* 501 – 1,000 million baht > Less than 50 million baht

Decreasing Foreign Borrowing

2.60 2.93 3.07 3.54 6.827 .000* More than 1,000 million baht > Less than 50 million baht

Decreasing Foreign Investment

2.52 2.96 3.10 3.16 5.393 .001* More than 1,000 million baht > Less than 50 million baht, 50 – 500 million baht > Less than 50 million baht

Financial Hedging 3.32 3.86 4.30 4.24 13.24 .000* More than 1,000 million baht > Less than 50 million baht, 50 – 500 million baht > Less than 50 million baht, 5501 – 1,000 million baht > Less than 50 million baht

* The statistically significant difference was set at .05. ** Scheffé was used to pair compare Table 5 shows relative importance of adaptation strategy by export proportion per total sales value as well as the pairwise comparative analyses for the firms with different export proportion per total sales (H2.4). It shows that different proportions led to adoption of different strategies.


TABLE 5 COMPARE THE RELATIVE IMORTANCE OF ADAPTATION STRATEGIES BY EXPORT PROPOTION PER TOTAL SALES

Adaptation Strategies

Mean

F Sig. Post Hoc Tests**

1 –

20%

21 –

40%

41 –

60%

61 –

80%

80

– 10

0%

Decreasing Export Volume per Sales Value

3.05 3.45 3.66 4.21 3.92 9.910 .000* 61-80%>1-20% 81-100%>1-20% 41-60%>1-20% 61-80%>21-40%

Reducing Cost and Increasing Level of Production Efficiency Control

3.95 4.45 4.48 4.55 4.49 5.843 .000* 61-80%>1-20% 81-100%>1-20% 41-60%>1-20% 21-40%>1-20%

No Adjustment 2.06 1.62 1.55 1.50 1.38 5.719 .000* 1-20%>41-60% 1-20%>61-80% 1-20%>81-100%

Penetrate New Markets which have Stable Exchange Rate

3.15 3.51 3.71 3.79 3.79 4.240 .002* 61-80%>1-20% 81-100%>1-20%

Financial Hedging 3.51 3.57 3.62 3.98 4.03 3.012 .019* no significant differences

Pricing Adjustment 3.48 3.94 3.79 4.12 3.87 2.917 .022* 61-80%>1-20%

* The statistically significant difference was set at .05. ** Scheffé was used to pair compare

6. CONCLUSION The results of this study lead to some important conclusions. The exporters adjust themselves in different ways depending on their business characteristics which is consistent with the study of Cadogan et al (2006). However, cost reduction strategies and increasing level of production efficiency control are the most widely used strategies among Thai exporters in order to hedge themselves against the exchange rate fluctuations during economic downturn. The latter conclusion is also consistent with results obtained by Rujithamrongkul (2005). And finally, results suggest that export proportion per total sales is the most significant factor for impacting the strategic adaptation among Thai exporters. The companies which have shorter periods of operation tend to use pricing strategy and value added strategy, whereas those with longer periods of operations tend to implement strategies based on new market penetration and using formal financial methods. This is consistent with the results obtained by Mar&Spender (2004), who found that the periods of operations affected the financial hedging policy. The companies with high sales value per year focused more on new market penetration, increasing sale volume in domestic market, and the use of financial tools to hedge against exchange rate risk. These results support arguments made by Kasikorn (2008) who advises Thai entrepreneurs to distribute their export markets to other countries, place more emphasis on the domestic market, and make more transactions in currencies other than the dollar. Results also support Christian and


Jeronimo (2009) findings in that smaller firms benefit more from export promotion actions and government support. Export companies which had higher export proportion per sales value preferred to use the cost reduction and new markets penetration strategies.

REFERENCES: Bank of Thailand. (2008). Export Data. Retrieve on 10-07-2009 from the website http://www.bot.or.th Christian V. M. and Jeronimo C. (2009). Beyond the average effects: The distributional impacts of export promotion programs in developing countries. Journal of Development Economics (2009), pp. 14-30. Crick, D. and S. Chaudhry. (2000). UK Agricultural Exporters’ Perceived Barriers and Government Assistance Requirements. Marketing Intelligence and Planning, 18(1), pp. 30-38 Cronbach, L. (1951). Coefficient alpha and the internal structure of tests. Psychometrica, 16(3), pp. 297-334. Department of Export Promotion (2008). Exporter Lists. Retrieve by 05-05-2009 from the website http://www.depthai.or.th John W. Cadogan, Charles C. Cui, Robert E. Morgan, Vicky M.Story (2006). Factors Facilitating and impeding the development of export market-oriented behavior: A Study of Hongkong Manufacturing exporters. Industrial Marketing Management, 35, pp. 634-647 Kasikorn Bank (2008). Industrial Analysis Report. Retrived on 05-10-2009 from the website http://www.kbank.or.th Kaleka, A. And C. S. Katsikeas. (1995). Exporting problems: the relevance of export development. Journal of Marketing Management, 11(5), pp.499-515 Kedia, B.L. and M.R. Chokar. (1986). Factors Inhibiting Export Performance of Firms: An Empirical Investigation. Management International Review, 26(4) pp. 33–43 Marr, B. and Spender, J.C. (2004) Measuring knowledge assets – implications of the knowledge economy for performance measurement, Measuring Business Excellence, 8(1), pp.18-27 Maxwell, S. E. and Delaney, H. D. (2004). Designing Experiments and Analyzing Data: A Model Comparison. Lawrence Erlbaum Associates, pp. 217–218 Milliken, G. A. and Johnson, D. E. (1993) Analysis of Messy Data. CRC Press, pp. 35–36. Naidu, G.M. and Rao, T.R. (1993) Public sector promotion of exports: a needs-based approach, Journal of Business Research, vol. 27 No.1, pp.85-101 Nunnally, J.C. (1978) Psychometric Theory, McGraw-Hill, New York. Rujithamrongkul K. (2005) Growth Strategy of Small and Medium Clothing Export Industry. Doctoral Thesis, Department of Philosophy Program in Business Administration, Ramkhamhang University, Thailand. AUTHOR PROFILES: Assistant Professor Dr. Lugkana Worasinchai is currently the Director of the Institute for Research Promotion and Innovation Development, Bangkok University, Thailand. Her expertise and area of interests are on business strategies, exchange rate management, and knowledge management strategy. At present she is also the Co-founder and Co-Managing Director of the Institute for Knowledge and innovation South-East Asia (IKI-SEA) Mr. Dechanan Thanapob earned his MBA (Finance) from Bangkok University, Thailand. He has been working with many financial institutions. Currently, he is a post graduate candidate at Bangkok University, Thailand. His research interests are in international finance and investment. Dr. Farhad Daneshgar is a Senior Lecturer at the Australian School of Business, University of New South Wales in Sydney, Australia. Farhad is a member of the editorial board in several IS/KM Journals, and is the creator of the awareness net modeling language. His current research interests include eLearning, KM, and e-Collaboration, and has published extensively in these areas.


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