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Impact of size, industry structure and strategy on marketing challenges of globalization.


One of the most compelling reasons to examine the attitude of firms to the marketing challenges of globalization relates to the diversity of firm's size, industry environments and strategy. Since organizations vary in terms of size, industry membership and competitive strategy, and their executives vary in terms of their characteristics, different organizations may perceive and respond to the same marketing environmental stimuli differently thus posing serious implications and challenges for organizational actions and performance. Furthermore, existing literature supports the view that top managers need to deal with the impact of the industry environment and of globalization.

The purpose of this study is to examine the extent to which Nigerian indigenous MNEs are aware of and are responding to the challenges of global market and customer analysis, product and marketing innovation, and international marketing orientation. The study also seeks to examine the influence of firm size, the industry or market structure and firm competitive strategy on the differences in the attitudes of firms to these critical global marketing challenges. The study seeks to find out which of these variables is a greater predictor of a firm's responsiveness to the marketing challenges of globalization.

Literature Review

The Industry Structure and Firm Size

As argued earlier, we may expect that the attitudes of firms concerning their marketing challenges are likely to be a function of the structure of the industry in which a firm is operating. For instance, in the study of wage variation (Groshen, 1988; Gomez-Mejia, Balkin and Milkovich, 1990), competitive strategy (Porter, 1981), and executive perceptions (Sutcliffe and Huber, 1998), the structure of the industry in which a firm operates was found to be a crucial determinant of its practices and performance.

The first element of the structural 1/0 model relevant to the marketing activity and practice of a company is the existence of barriers to entry (Bain, 1956, Porter 1981). To the extent that entry barriers are low and competition is intense, firms will attempt to pursue innovative marketing practices that can enable them gain a competitive advantage in their industries and possibly erect barriers to prevent other companies from gaining entry. As noted by Porter (1990), the intensity of rivalry in an industry is a key determinant of the competitiveness of firms in the industry. Where the degree of rivalry is low, the urge for innovative practices that lead to competitive advantage will be low.

A second element of the structural model relevant to marketing is the number of companies in an industry. The greater the number of firms, the greater is the need for a firm to exercise some discretion to differentiate its marketing approach in order to be competitive. The third element in the 1/0 model is that smaller firms in a given market have a competitive disadvantage relative to larger companies in that market. Small firms are less likely to enjoy the economies of scale and slack resources as do larger firms (Gomez--Mejia and Balkin, 1992). In other words, as a firm grows in size, it also becomes more complex in terms of management structure, product and market differentiation and geographical dispersion so that new management and marketing approaches become more difficult to design, implement and control. In a study of differences in large and small firm responses to environmental context, it was found that small businesses possess certain resources that allow them to overcome some barriers which create greater difficulties for their large counterparts as well as allow small businesses to exploit certain industry opportunities more readily than larger ones (Dean et al., 1998).

The fourth element of an industry's structure that can influence the attitude of its members to the challenges of marketing is the overall elasticity of demand for its product. In general, the greater the elasticity of demand, the greater the volatility of performance for firms in that industry.

Competitive Business Strategy

The best known and most widely used SBU typology was developed by Miles and Snow (1978) and Miller and Friesen (1982). The typology has proven to be very robust and adaptable judging by its very successful application to the study of a wide variety of strategic issues. Empirical results also provide strong support for its reliability and validity (Shortell and Zajec, 1990). Using results of three studies in four industries, Miles and Snow (1978) concluded that viable SBU strategies can be categorized into four basic types namely, defender, prospector, anxious analyzer, and reluctant reactor.

Theoretical Background

The global convergence and the industry evolution perspectives of globalization explain the rationale behind the effort of firms to handle the marketing challenges of globalization. According to the proponents of the global convergence perspective, the growing similarity and integration of the world can be argued by pointing to extensive economic statistics showing significant rises in foreign direct investment and international trade (de Wit and Meyer, 2002; Hill, 2003, Levitt, 1983). The industry evolution perspective which has its academic root in Darwin's biological evolution theory explains why firms, especially those in a rapidly changing environment might take steps to adapt themselves to the changes taking place in their environments. The survival instinct provides the basis for such adaptive behavior. According to the industry evolution perspective, it is in the best interest of a firm to make a sense of its environment and to adapt to it in order to survive and flourish. In an environment in which there is a continuous struggle among firms, only the fittest i.e. those with a high adaptive capacity survive while others die naturally. According to this perspective, the survival and growth of entities depends on their fit with the environment. Within each environment, variations to a successful theme might come about. These new entities will thrive as long as they suit the existing circumstances, but as the environment changes, only those that meet the new demands will not be selected out. Darwin's well-known principle of 'survival of the fittest' is based on a cycle of variation and environmental selection.

Organizations vary purposefully, and they possess the ability to adapt to selection pressures during the evolution process (Nelson and Winter, 1982; Baum and Singh, 1994). The upshot of the industry evolution perspective is that a firm can only score above the industry average in performance by adapting better and anticipating changes better than its competitors (de Wit and Meyer, 1998) since changes in an industry are uncontrollable and a firm's success is due to fitness to changing industry demands.


From a review of the literature on industry structure and SBU strategy and the theory of globalization, we propose the following general hypothesis:

The attitude of an indigenous MNE to the marketing challenges of globalization will tend to be influenced by the organization's size, the firm's market structure and its strategic orientation.

Specifically, we hypothesize as follows:

H1: Because of their relatively larger resource base, large indigenous MNEs will tend to be more responsive to the marketing challenges of globalization than small indigenous MNEs.

H2: A higher responsiveness to the marketing challenges of globalization will be displayed by indigenous MNEs that are in highly fragmented industries than those firms that are in highly concentrated/consolidated industries/markets

H3: Indigenous MNEs that pursue an entrepreneurial, prospector strategy will be more responsive to the marketing challenges of globalization than those firms that pursue a defender strategy.

Measurement of Variables

The first critical consideration in studying firms' attitudes to the marketing challenges of globalization is to have a workable definition of marketing challenge and what constitutes a marketing challenge of globalization in operational terms. The second consideration is to develop valid and reliable measures for the constructs used in the study of attitudes to the marketing challenges of globalization. Following Doole and Lowe, (2004) defined the marketing challenges of globalization as the challenge or need to carry out market and customer analysis, to develop an international marketing orientation, and to develop an innovation culture consistent with global customer requirements.

Market and customer analysis (MCA) is defined as the scanning of international markets to identify and analyze opportunities, build marketing information systems and carry out detailed studies for input into the development of marketing strategies and the testing of the feasibility of the possible marketing mix options (Doole and Lowe 2004).

A 15--item six point Likert psychometric scale was developed to measure the intensity of market and customer analysis (alpha = 0.89). The intensity of market and customer analysis was conceptualized as the amount of effort devoted towards MCA, the comprehensiveness of the MCA process, the amount of budget for MCA activities, the MCA organization index and MCA coverage. Eight items were used to measure the first sub-dimension of MCA while six items were used to measure the second sub-dimension of MCA. The first set of six items used to measure MCA effort were derived and modified from Miller and Friesen (1982) and had been used by Barringer and Bluedorn, (1998) in the study of the relationship between corporate entrepreneurship and strategic management. The remaining two items are original. The second set of six items which were used to measure the comprehensiveness of the MCA process are original and followed a similar approach used by Barringer and Bluedorn (1999). The third set of four items which cover MCA budget, MCA organization and MCA coverage are original and were included to further measure the formality dimension and intensity of the MCA process. All the items asked the respondents to assess how thoroughly their firms scan the elements of the firm's international marketing task environment. The proportion of MCA employees in the total workforce was used as a measure of MCA intensity. The mean score, averaged across the 15 items, evaluates the extent of the MCA effort of a firm on a low to sophisticated continuum. The higher the score of a firm, the more the firm demonstrates a greater MCA intensity.

Innovation is defined in this study as the successful development and introduction of new products, markets and technologies (Thompson, 1999).

For this study, we developed a five item 6--point Likert scale to measure innovatory marketing behavior (alpha = 0.87) following a similar scale developed and validated by Covin and Slevin (1986) based on previous scale development work by Khandwalla (1977) and Miller and Friesen (1983). The scale asked the respondents to evaluate the marketing practices of their companies in both local and foreign markets in terms of their innovativeness or conservativeness. The mean score on the scale, averaged across the five items assesses a firm's level of continuing commitment to innovation. The higher the score of a firm, the more the firm demonstrates an innovatory orientation.

Although how international marketing is defined and interpreted depends on the level of involvement of a company in the international market place, (Doole and Lowe, 2004), in this paper, international marketing orientation is defined as the development and implementation of a marketing strategy which commits a firm to operate across two or more markets with a wide range of responsibilities for pricing, promotion, distribution and product and market development. For this study, we developed specifically a seven item 5-point multipart Likert scale to measure international marketing orientation (alpha = 0.90). The scale is straight forward and asked the respondents to assess the international marketing practices of their firms. Specifically, the scale asked the respondents to assess the degree of emphasis his or her firm places on foreign operations (whether the revenue derived from foreign operations is high or low), the development of new products or modification of home-focused products for foreign markets, the extent of collaboration with partners, distributors or suppliers in foreign markets, the extent of the use of foreign sourced ideas to improve local products, the number of foreign markets covered with the firm's products and the number of years the firm has been operating in the foreign market. The mean score on the scale averaged across the six items assesses a firm's degree of international marketing orientation.

Organizational size was measured by capital base, sales turnover, and number of employees. Although sales turnover is a performance variable, it nevertheless indicates how large an organization is. The management literature commonly uses the log of employees as a measure of firm size (Li and Simerly, 1998; Grinyer and McKiernan, 1988). A firm's industry or market structure was operationalised in terms of industry characteristics. The variables that were used to measure industry characteristics (or structure of the market environment) are entry barriers, number of firms in the industry, elasticity of demand, buyers' power, market share, degree of competition, R & D intensity, degree of product differentiation, and economy of scale. Since this study is concerned with assessing the influence of industry characteristics on firm attitude to the marketing challenges created by changes in the global marketing environment, we decided to adopt the use of the perceptual measures of industry characteristics instead of the archival-based approach suggested by some researchers (e.g. Bourgeois, 1980; Boyd, 1995). Covering the nine industry characteristics selected, ten questions were devised using a 5-point Likert scale to measure this construct (alpha = 0.84). Respondents were asked their perception of the nine characteristics. The mean score on the scale averaged across the three items assesses a firm's industry structure.

We used a dimensionality approach (Miller and Friesman, 1983; Venkatraman, 1989), to assess strategic orientation in this study. The five dimensions used to operationalize strategic orientation i.e. analysis, propensity for risk taking, futurity, proactiveness and defensiveness, were conceptualized with their measures as validated by Venkatraman (1989). Fifteen questions based on Tan and Litschert (1994) and five additional questions specifically prepared for this study were used to approximate these five dimensions. The questions used a 5-point response format. The mean score on the scale averaged across the five dimensions assesses a firm's strategic orientation. This approach was considered better than the methodology utilized by some researchers which entail giving descriptive paragraphs to respondents and asking them to select the paragraph that best described the strategy their firms used (Brouthers et al., 1998).

Research Design

Sample and Data Collection

The sample of firms that participated in the study included 16 indigenous multinational manufacturing firms located in Lagos, Ogun and Oyo States of the Southwestern axis of Nigeria. We used two criteria: homogeneity and spread (generalizability) to determine the population from which our sample was drawn. To ensure at least some homogeneity among the respondents, we restricted the firms included in the sample to manufacturing firms. To reduce the confounding and obfuscating effects of concentration and enhance data generalibility, we selected three firms each from the sectors of the economy covered. The manufacturing sectors covered included foods and beverages, paints and chemicals, wire and cable, plastics, soaps and detergents, writing instruments, industrial packaging, animal feeds, and lighting bulbs. We considered these industries as exhibiting considerably different types of characteristics in terms of entry barriers, number of firms, elasticity of demand etc. Sufficient number of firms also existed for our analysis.

In this study, an indigenous MNE is defined as an MNE formed and with its international headquarters in Nigeria. A self-report mail survey was used to collect our data. The administration of the mail survey was preceded by a pilot study involving the marketing managers of five indigenous multinational manufacturing firms based in Lagos and Ibadan. The pilot study was carried out to enable us assess the face validity and the reliability of the psychometric measures used in the survey. In the pilot study, semi-structured interviews lasting about two hours were conducted with the five marketing managers selected for the pretest. During the interviews, the managers were asked about the face validity of the questions. This panel completed a pretest of the survey instrument. In addition to completing the pretest, informants were asked to evaluate the clarity of the questions and to provide feed back regarding the meaningfulness of the language used in the questions. Based on the feedback obtained from the pilot study and analysis of the pretest data, we refined some of the measures and made them more theoretically meaningful. The measures, described above, met the standard criteria for scale development (Devellis, 1991; Mulaik, 1972).

Upon the completion of the pilot study, we prepared and mailed a revised survey instrument to the ten managers in each of 26 firms considered qualified to participate in the study. Three weeks later, we sent a second copy of the survey instrument to the non-respondents. Of the 26 firms contacted, a total of 16 firms returned usable survey instruments resulting in a response rate of 62%. This compares favorably with the response rates recorded in related previous studies that focused on perceptions and attitudes to environmental challenges.

The dependent attitudinal variables, which were defined and operationalised by using the intensity of a firm's MCA, the firm's innovatory behavior, the firm's international marketing orientation the firm's strategic planning orientation and the firm's ethical marketing behavior were assessed with questionnaire items. The data for the items were factor analyzed using exploratory factor analysis (EFA) to examine support for the a prior scales. Kaisers criterion with varimax rotation was applied. Three a prior factors--intensity of MCA, innovatory behavior and international marketing orientation--emerged from the data with 16 items loading unambiguously on the primary factor. We also conducted a confirmatory factor analysis (CFA) on the data using the maximum likelihood method and also found support for the prior scales. The estimated loadings showed expected positive sign, all are statistically significant at the P<0.05 level (two--tailed test) and the standardized factor loadings are large enough (>0.4) to provide confidence that the scales are indeed measuring the chosen latent constructs. In addition, the composite reliability of the measures falls above the generally acceptable criterion of 0.6.

Because bias in self-report data is a threat to validity, we conducted two tests to check for bias in the data including inter-rater reliability and non-response bias. Having collected the data, we sent an identical copy of the survey instrument to two additional marketing/sales managers in each of the 16 firms that responded to the first survey. All the 16 firms responded to the second survey. We used these data to conduct a check of inter-rater reliability using Barringer and Bluedorn's (1998) procedure for the 16 firms that responded to the two surveys. The results showed good inter-rater reliability with responses across the matched pair of raters differing by an average of 0.9 scale points on a 5 point Likert scale.

To assess the presence of non-response bias in our data, we compared the firms that responded to our survey with those that did not using two criteria: ownership (defined in terms of whether private limited or publicly quoted) and age of business. We did not find a significant difference between responding and non-responding firms on these characteristics.

As regards observational and theoretical meaningfulness of the measures used in our study, strong literature base exists to support the theoretical validity of innovation, MCA and international marketing orientation. As for organization size, industry structure, and strategic orientation, well developed streams of literature support these constructs. The measures used for the constructs have good reliability and they have performed well in previous studies (e.g. Nyong, 1991; Miles and Snow, 19).


IMO + MCA + MIB = f (SDO+IDS+OS + U)


SDO = Strategic Decision Orientation

IDS = Industry structure assessment

OS = Organization's Size

IMO = International marketing Orientation

MIB = Market Innovation Behavior

MCA = Market customer Analysis

U = Error Term

The dependent variables are IMO, MIB, and MCA while SDO, IDS and OS are independent Variable
Summary of Model Specification I

 [R.sup.2] [R.sup.2] [R.sup.2]
Variable Mean S.D (MCA) (IMO) (MIB)

SDO 96.9 2.6 26.5% 5.2% 50.6%
IDS 96.4 1.4 27.1% 8.1% 51.2%
OS 95.7 1.6 2.1% 7.4% 8.1%

Summary of model specifications II

 [R.sup.2] [R.sup.2] [R.sup.2]
Variable Mean S.D (MCA) (IMO) (MIB)

SDO 56.1 2.2 2.1 1.1 7.2
IDS 54.1 2.3 3.2 1.2 8.3
OS 55.4 1.7 2.2 1.11 5.6


Out of the 16 companies used for this study only 10 companies showed that were conscious of the implication of neglecting the companies strategic decision, organization size, orientation and their industrial structure on the average 96.9, 96.4 and 95.7 out of 100 respondent from 10 companies agreed that the companies strategic decision orientation, organizational size, and industrial structure are related to the organization's international marketing orientation, the marketing innovation behavior and market customer analysis. The standard deviation figures of 2.6, 1.4, and 1.6 in the model table show that the opinion of the respondent has little or no variance. This means that the mean of this distribution of opinion have a very high validity. However, the co-efficient of multiple determinants R2 shows that 50.6%, 5.2%, 26.5%, 51.2%, 8.1%, 27.1%, 8.1%, 7.4%, 2.1% accounted for the variance that occurs in the companies marketing innovation behavior, International market orientation and market customer analysis that could be traceable to the organization's strategic decision orientation, industrial structure and organizational size respectively. The implication of these results is that these companies are entrepreneurial and prospectors but the organizational size has a very low impact in the variance. The remaining six companies illustrated in the model specification two above showed that out of 60 respondents an average of 56.1, 54.1, 55.4 agreed that the organizations were not conscious of the implications of all variables highlighted in this study. This attitude accounted for the low percentage contribution to the changes that occurred in the market customer analysis, international market orientation and marketing innovation behavior. The implication of this is that the companies are likely to be defenders and reactors.

Discussion and Results

The globalization of markets and industries has radically changed the competitive conditions facing firms and created new marketing challenge for them. Yet how indigenous firms in developing countries are coping and responding to these challenges and the factors that are influencing their attitude is an issue largely overlooked in the business literature. This paper provides empirical evidence which shows that market structure and firm strategy are statistically significant factors explaining the attitude or responsiveness of firm to the marketing challenges of globalization thus effectively linking strategic orientation and market structure to aspects of firm attitude to these challenges. It was found that firm attitude to the marketing challenges of globalization measured by the intensity of market and custom analysis conducted, the extent of marketing innovative, and the degree of international market orientation varied as a direct function of the market structure and the strategic orientation continuum with the attitude or intensity of the variables increasing as the market becomes more fragmented and the organizational strategy becomes more entrepreneurial. The study found that prospectors and firms operating in fragmented markets scored much higher on several MCA thus than the defenders and firms operating in consolidated markets. It also found that marketing innovation and international marketing orientation were most important for prospectors followed by analyzer and then defenders and reactors. The study also found that more firms in fragmented markets tended to adopt a prospector entrepreneurial strategy whereas more firms in consolidated markets tended to adopt a reactor defender strategy. This suggests that environment of a firm influence the firms strategy and the firm's responsiveness to global challenges. The three indices of global market responsiveness where also found to be more important for firms operating in consolidated markets. No significant difference was found between large and moderate large firms in the way they respond to the challenges of globalization. In other words, organizational size was not found to be significantly affecting firm responsiveness to global marketing challenges. Market structure and firm strategy seem to explain and thus predict the difference between firms in the way they handle the challenges.

Theoretically, these finding supports the environmental-contingency perspective which argues that the nature of a firm's behavior and strategy is conditioned by the type of environment in which it is operating while organizations that operate in highly competitive and turbulent environments will tends to be proactive and entrepreneurial to survive, organizations that operate in placid randomized and uncompetitive environments will tends to be defensive and reactive without a serious threat to their prospects of survival. While radical innovation based strategies may be imperative in fragmented industries, incremental adaptation may suffice in consolidated industry environments.

Suggestions for Further Studies

Future research should find out whether the firms that respond better to these challenges gain a higher competitive advantage than those which respond less positively than those which do not respond positively.


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Corresponding Author

Oludare Tolulope Adeyemican be contacted at:

Ade Oyedijo (1), Olawale Ibrahim Olateju (1), Mustapha Abiodun Okunnu (2), and Oludare Tolulope Adeyemi (2),

(1) Lagos State University, Ojo, Nigeria

(2) Lagos State Polytechnic, Ikorodu, Nigeria
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Author:Oyedijo, Ade; Olateju, Olawale Ibrahim; Okunnu, Mustapha Abiodun; Adeyemi, Oludare Tolulope
Publication:Global Business and Management Research: An International Journal
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Geographic Code:6NIGR
Date:Jan 1, 2010
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