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Market Orientation and Business Performance

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DOI: 10.1300/J042v14n03_02

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Market Orientation and

Business Performance
a a
Leo Y. M. Sin PhD , Alan C. B. Tse , Oliver H. M.
b b b
Yau , Jenny S. Y. Lee , Raymond Chow & Lorett
c
B. Y. Lau
a
Chinese University of Hong Kong , USA
b
City University of Hong Kong , USA
c
Hong Kong Polytechnic University , USA
Published online: 11 Oct 2008.

To cite this article: Leo Y. M. Sin PhD , Alan C. B. Tse , Oliver H. M. Yau , Jenny S.
Y. Lee , Raymond Chow & Lorett B. Y. Lau (2000) Market Orientation and Business
Performance, Journal of Global Marketing, 14:3, 5-29, DOI: 10.1300/J042v14n03_02

To link to this article: http://dx.doi.org/10.1300/J042v14n03_02

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Market Orientation
and Business Performance:
An Empirical Study in Mainland China
Leo Y. M. Sin
Alan C. B. Tse
Oliver H. M. Yau
Jenny S. Y. Lee
Raymond Chow
Lorett B. Y. Lau

ABSTRACT. The purpose of this study was to conduct an investigation

into the link between market orientation and business performance using
sample data from firms operating in Mainland China, a communist coun-
try undergoing economic transformation from a planned economy to a
market economy. The study found that market orientation was positively
and significantly associated with sales growth, customer retention and
overall performance. Implications of our findings were discussed and
limitations of the study as well as future research directions were
addressed. [Article copies available for a fee from The Haworth Document
Delivery Service: 1-800-342-9678. E-mail address: <getinfo@haworthpressinc.
com> Website: <http://www.HaworthPress.com>]

KEYWORDS. Market orientation, mainland, China, business perfor-

mance, economic transformation

Leo Y. M. Sin and Alan C. B. Tse are affiliated with the Chinese University of
Hong Kong. Oliver H. M. Yau, Jenny S. Y. Lee, and Raymond Chow are affiliated
with the City University of Hong Kong. Lorett B. Y. Lau is affiliated with the Hong
Kong Polytechnic University.
Address correspondence to: Leo Y. M. Sin, PhD, Associate Professor, Department
of Marketing, The Chinese University of Hong Kong, Shatin, Hong Kong (E-mail:
leo@baf.msmail.cuhk.edu.hk).
Journal of Global Marketing, Vol. 14(3) 2000
E 2000 by The Haworth Press, Inc. All rights reserved. 5
 6 JOURNAL OF GLOBAL MARKETING
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During the last decade, the term ‘‘market orientation’’ has received much
attention in the marketing and strategic management literature (Day and
Wensley, 1988; Greenley, 1995; Kumar et al., 1998; Jaworski and Kohli,
1993; Narver and Slater, 1990; Ruekert, 1992; Wong and Saunders, 1993). It
has often been assumed that market orientation is positively related to busi-
ness performance. Despite the importance of market orientation to business
success, systematic inquires for a richer understanding of the construct have
only recently begun, following the pioneering works of Kohli and Jaworski
(1990) and Narver and Slater (1990). Subsequently, a number of empirical
studies have attempted to assess the association of market orientation with
profitability (e.g., Bhuian, 1997; Greenley, 1995; Raju et al., 1995; Ruekert,
1992), market share (e.g., Deshpande et al., 1993; Pelham and Wilson, 1996),
new product success (e.g., Appiah-Adu, 1997; Atuahene-Gima, 1995), and
customer satisfaction (e.g., Gray et al., 1998).
What is noteworthy is that although research on market orientation is abun-
dant, most of the past studies on market orientation have been undertaken in
the context of western countries, which are mainly market-driven or free-enter-
prise economies. Virtually no study has attempted to validate the market orien-
tation model and its scale in a communist or command economy. Unlike firms
in a free-enterprise economy that are mainly market- or customer-driven, firms
or state-owned enterprises in a command economy generally produce under
the direction of government planning rather than market demand. As a result,
market or customer needs are neglected, and there is little need for firms to
manipulate the marketing mix for their products. The lack of free competition
and the fact that demand generally exceeds supply (Shama, 1992) make prod-
uct differentiation and promotion unimportant. In addition, activities such as
market research, branding and advertising usually are neglected or not done at
all (McCarthy and Perreault, 1990). All these factors lead to the following
question: Does the market orientation-performance link occurring in free-en-
terprise economies also hold in a command or communist economy?
To fill in the existing gap in the literature, this study examines the applica-
bility of Narver and Slater’s (1990) market orientation model within Main-
land China. This context is particularly ideal because China in the late 1990s
is a communist country undergoing economic transformation from a planned
economy to a market economy. From 1949 until at least late 1978, China
functioned as a very rigid, planned economy. Under this system, state enter-
prises played a dominant role in China’s economy, leaving little room for
collectively owned organizations and virtually excluding private firms (Deng
and Dart, 1995). In addition, all fundamental marketing decisions concerning
product lines, pricing and distribution channels were appropriated by govern-
ment officials (Deng and Dart, 1999; Holton, 1985; Mahatoo, 1990). In short,
all marketing activities, except distribution, were considered totally unimpor-
 Sin et al. 7
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tant or a waste by the Chinese government. Since 1979, China has embarked
on one of the most unprecedented economic reforms in human history.
Among all the changes in China, the most important one is the transformation
of its centrally planned economy into a market-oriented one. This trans-
formation has led to a remarkable growth in GNP, averaging about 10 percent
annually over the past two decades. The rapid pace of economic development
has brought prosperity to the Chinese population and has enhanced their
purchasing power. In 1997, the retail spending of the 1.2 billion Chinese
consumers reached US$312 billion (China Statistical Handbook, 1998). This
burgeoning consumer market has attracted companies from all over the world
to promote their products and services in China. As the market becomes more
competitive, one would expect to see companies adopt a more active role in
soliciting and satisfying customers. In fact, the extent to which the marketing
concept has been adopted and is now practiced by enterprises in China is
unknown. The purpose of this paper is to examine the current status of market
orientation in China. More specifically, this study has two objectives, each
designed to contribute to the emerging body of empirical literature on the
relationship between market orientation and business performance. The first
objective is to assess the scale properties of the market orientation construct
in the context of Mainland China. The second objective of this study is to test
empirically the hypothesized relationship between market orientation and
business performance in Mainland China.

BACKGROUND AND PREVIOUS RESEARCH

Marketing Concept and Market Orientation

Throughout the marketing literature, the adoption of the marketing con-

cept is seen to be a foundation for successful performance. The marketing
concept was formally introduced in the writings of McKitterick (1957), Fel-
ton (1959), and Keith (1960). It defines a distinct organizational culture that
puts the customer in the center of the firm’s thinking about strategy and
operations (Deshpande, Farley and Frederick, 1993; Deshpande and Webster
1989). It can also be viewed as a philosophy of doing business or as a culture
that permeates every aspect of an organization’s operation (Houston, 1986;
Wong and Saunders, 1993; Baker, Back and Hart, 1994; Hunt and Morgan,
1995). The marketing concept is generally considered to be made up of the
following three pillars (Cravens,1994; Dalrymple and Parsons 1990; Hous-
ton, 1986; Lusch and Lusch, 1987; McCarthy and Perreault 1990): (1) cus-
tomer philosophy--identifying and satisfying customers’ wants and needs;
(2) goal attainment--focus on achieving an organization’s goals while satisfying
customer needs; and (3) integrated marketing organization--integration of all
 8 JOURNAL OF GLOBAL MARKETING
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functional areas of the organization to attain corporate goals by satisfying

customer needs and wants.
In spite of the fact that the marketing concept has been central to the
marketing literature, very little has been done in terms of creating a valid
measurement scale and testing the construct empirically. Only recently has
scientific research begun in this area (Kohli and Jaworski, 1990; Narver and
Slater, 1990; Ruekert, 1992). In response to the operational problem of the
marketing concept, Kohli and Jaworski (1990) develop the three ‘‘pillars’’ of
the marketing concept into precise aspects (manifestations) of what they call
a ‘‘market orientation’’ based on interviews with 62 managers in 47 organiza-
tions,. According to Kohli and Jaworski (1990), while the marketing concept
is commonly defined as a philosophy or way of thinking that guides the
allocation of resources and the formulation of strategies for an organization,
market(ing)1 orientation is considered to be the activities involved in imple-
mentation of the marketing concept. With this definition, three sets of activi-
ties--intelligence generation, intelligence dissemination and responsiveness to
market intelligence--represent the operationalization of market orientation.
Similar conceptualizations and scales, tested for reliability and validity are
also reported by Narver and Slater (1990) as well as by Ruekert (1992).

Market Orientation and Business Performance

During the decade of the 1990s, a steady stream of research has focused on
the impact of market orientation upon business performance. A summary of
past empirical studies on the relationship between market orientation and
business performance is presented in Table 1. As revealed by this table,
studies using samples of US companies (Jaworski and Kohli, 1993; Kumar et
al., 1998; Narver and Slater, 1990; Pelham, 1997; Pelham and Wilson, 1996;
Raju et al., 1995; Ruekert, 1992; Slater and Narver, 1994; Van Egeren and
O’Connor, 1998) found unequivocal support for a positive association be-
tween market orientation and performance. Performance measures used in
these studies ranged from hard measures such as return on investment (ROI),
sales growth and market share to soft measures including organizational
commitment and esprit de corps. However, mixed findings were found in
non-US studies. For example, Deng and Dart (1994), in a study on 248
Canadian companies, reported a positive link between market orientation and
performance, while Diamantopoulos and Hart (1993) identified a weak asso-
ciation between market orientation and performance for UK companies, and
Bhuian (1997) found no link between market orientation and performance for
Saudi Arabian banks.
Given the inconsistency of findings among the non-US studies, many
researchers have echoed the call for a need to assess the hypothesized rela-
tionship between market orientation and business performance in other, par-
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TABLE 1. Summary of Empirical Studies on the Relationship Between Market Orientation and Business Performance

Study Country Sample MO instrument based on Performance measure MO/Performance association

(I) US Studies

Narver and Slater USA 113 SBUs in 1 Literature review ROA ROA (+)
(1990) corporation

Ruekert (1992) USA 5 SBUs in 1 company Discussions with managers Sales growth, profitability Sales growth (+), profitability (+)

Jaworski and Kohli USA Sample 1: 222 SBUs Literature review Market share, organizational Market share (0),
(1993) from 102 companies commitment, esprit de corps, organizational commitment (+),
Sample 2:230 overall performance esprit de corps (+),
companies overall performance (+)

Slater and Narver USA 81 SBUs in 1 forest Narver and Slater (1990) ROA, sales growth, new product ROA (+),
(1994) company and 36 SBU success Sales growth (+),
in 1 manufacturing new product success (+)
company

Raju et al. (1995) USA 176 hospitals Jaworski and Kohli (1993) Financial performance, Financial performance (+),
market/product development, market/product development (+), internal
internal quality quality (+)

Pelham and Wilson USA 68 small firms Narver and Slater (1990), New product success, New product success (+),
(1996) Jaworski and Kohli (1993) sales growth/market share, sales growth/market share (0), product quality
product quality, profitability (+), profitability (+)

Pelham (1997) USA 160 manufacturing Narver and Slater (1990), Firm effectiveness, sales growth/ Firm effectiveness (+), sales growth/market
firms Jaworski and Kohli (1993), market share share (0)
and other studies

Kumar et al. (1998) USA 159 hospitals Narver & Slater (1990) Growth in revenue, return on
capital, success of new services/
facilities, success in retaining
patients, success in controlling
expenses
Growth in revenue (+), return on capital (+),
success of new services/ facilities (+), success
in retaining patients (+), success in controlling
expenses (+)

Van Egeren and USA 289 responses from 67 Narver & Slater (1990) Organizational performance Organizational performance (+)
O’Connor (1998) service firms

9
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10
TABLE 1 (continued)

Study Country Sample MO instrument based on Performance measure MO/Performance association

(II) Non-US Studies

Deshpande et al. Japan 50 ‘‘quadrads’’ from Personal interviews and Overall performance = Overall performance (+) based on customers’
(1993) public firms and their literature review profitability + size + market assessment, overall performance (0) based on
customers share + growth managers’ assessment

Diamantopoulos and UK 87 manufacturing Jaworski and Kohli (1993) Sales growth and profit Sales growth and profit (weak association)
Hart (1993) firms

Deng and Dart Canada 248 companies Narver and Slater (1990) Marketing performance Marketing performance (+)
(1994)
Atuahene-Gima Australia 275 firms Ruekert (1992) New product market New product market performance (+), project
(1995) performance, project performance (+)
performance

Au and Tse (1995) Hong 41 HK hotels and 148 Kotler Occupancy rate Occupancy rate (0)
Kong, NZ hotels
New
Zealand

Greenley (1995) UK 240 companies Narver and Slater (1990) ROI, new product success rate, ROI (+), new product success rate (+), sales
sales growth growth (0)

Atuahene-Gima Australia 158 manufacturing Ruekert (1992) Market success, Market success (0),
(1996) and 117 services firms project impact performance project impact performance (+)

Pitt et al. (1996) UK, Sample 1:161 UK- Jaworski and Kohli (1993) Performance = ROCE + sales Performance (+) for both countries
Malta based service firms growth + overall performance
Sample 2:193 firms
in Malta

Appiah-Adu (1997) UK 110 small firms Pelham and Wilson (1996) Sales growth, new product Sales growth (+),
success rate, ROI new product success rate (+),
ROI (+)
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Study Country Sample MO instrument based on Performance measure MO/ Performance association

Bhuian (1997) Saudi 92 bank managers Jaworski and Kohli (1993) ROA, ROE, sales per employee ROA (0), ROE (0), sales per employee (0)
Arabia from 12 banks
Appiah-Adu and UK 62 biotechnology Narver and Slater (1990) New product success, New product success (0),
Ranchhod (1998) firms growth in market share, growth in market share (+),
profit margin, overall profit margin (+),
performance overall performance (+)

Bhuian (1998) Saudi 115 companies Jaworski and Kohli (1993) Overall performance Overall performance (+)
Arabia
Chan and Ellis Hong 73 textile and garment Narver & Slater (1990) Satisfaction with growth/share, Satisfaction with growth/share (+), satisfaction
(1998) Kong companies satisfaction with profitability, with profitability (+),
relative growth/share, relative growth/share (+),
relative profitability relative profitability (+)

Gray et al. (1998) New 490 companies Narver & Slater (1990), ROI, brand awareness, customer
Zealand Jaworski & Kohli (1993), satisfaction, customer loyalty
Deng and Dart (1994)

Greenley and Foxall UK 242 companies Narver & Slater (1990) Market share, new product Market share (0),
(1998) and literature review success, ROI, sales growth new product success (0),
ROI (weak association),
sales growth (weak association)

Horng and Chen Taiwan 76 small and medium Jawoski and Kohli (1993) Overall performance, Overall performance (+), organizational
(1998) companies organizational commitment, commitment (+),
esprit de corps esprit de corps (+)

11
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ticularly non-US, business environments (e.g., Appiah-Adu, 1997; Bhuian,

1997; Kohli et al., 1993). In this study, the market orientation of firms in
Mainland China is examined.

CHINA AS A TEST CASE

Responding to the call for more research in divergent settings (e.g., Ap-
piah-Adu, 1997; Bhuian, 1997; Kohli et al., 1993), we suggest that China’s
transitional economy represents a new empirical context that allows for an
in-depth inquiry of the link between market orientation and business perfor-
mance. On the one hand, studies on the marketing practices of Chinese
enterprises introduce challenges to existing marketing theories that are large-
ly derived from research in the West. On the other hand, such research offers
fascinating grounds on which to test and refine the boundaries of existing
theories and develop new ones.
More specifically, this study provides a direct test of the applicability of a
western paradigm to an Asian country with a different culture and economic
system. The market orientation model and the measures of market orientation
available for data collection (Kohli and Jaworski, 1990; Narver and Slater,
1990; Ruekert, 1992) were developed in the context of the U.S. cultural
setting. Even though the continued internationalization of business opera-
tions has led to the conjecture that marketing theories and models might well
be transportable across national and cultural borders (Buzzell, 1966), the
direct application of these models and measures of market orientation to
subjects from another culture without any validation might create a ‘‘catego-
ry fallacy’’ as suggested by Kleinman (1977). Moreover, an uncritical emula-
tion and extrapolation from the experiences of U.S. marketing practices to
countries with different cultural and economic environments can lead to
inefficient and ineffective performances of organizations in those countries
(Agarwal, 1993; Kanumgo and Jaeger, 1990). Several researchers have,
therefore, called for empirical work distinguishing ‘‘culture-bound’’ behavior
from ‘‘universal’’ behavior (Weinshall, 1977). Without a controlled experi-
ment, China’s transitional economy can be regarded as a ‘‘viable research
laboratory’’ in which to examine the relationship between market orientation
and business performance. It is believed that an investigation of market
orientation in Mainland China can help to enhance our overall understanding
of the concept of market orientation.

METHODOLOGY
Scale and Measurement
Market Orientation. The market orientation construct was measured by
the market orientation scale developed by Narver and Slater (1990) with
 Sin et al. 13
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minor modification.2 The instrument consisted of three subscales used to

measure customer orientation, competitor orientation and inter-functional
coordination. This instrument has received widespread support in the litera-
ture for its reliability and validity (e.g., Chan and Ellis, 1998; Greenley, 1995;
Kumar et al., 1998; Slater and Narver, 1994; Van Egeren and O’Connor,
1988). Although the work of Kohli and Jaworski (1990) was similar, Ocz-
kowski and Farrell (1998) showed that Narver and Slater’s scale, in general,
is superior to Kohli and Jaworski’s scale in explaining variations in measures
of business performance. In addition, in another study with respondents from
New Zealand, Matear et al. (1997) found that Narver and Slater’s (1990)
model outperformed Jaworski and Kohli’s (1993) model in regards to NCP,
GFI and ECVI fit statistics in model fitting with confirmatory factor analysis.
Moreover, the scale developed by Ruekert (1992) was also not adopted in this
study, as its focus is on organizational issues (see Greenley, 1995). To mea-
sure market orientation with Narver and Slater’s scale, a 7-point scoring
format (1 = strongly disagree; 7 = strongly agree) was employed for all 14
items.
Business Performance. Although performance can have a variety of mean-
ings (e.g., short- or long-term, financial or organizational benefits), it is
broadly viewed from two perspectives in the previous literature. First, there is
the subjective concept, which is primarily concerned with performance of
firms relative to that of their competitors (Golden, 1992). The second method
is the objective concept, which is based on absolute measures of performance
(Chakravarthy, 1986; Cronin and Page, 1988). For this study, a subjective
rather than an objective approach was used for the following two reasons.
First, company information is usually classified as highly confidential in
Chinese societies, especially in Mainland China. Respondents may be reluc-
tant to provide hard financial data. Second, past studies have reported a
strong association between objective measures and subjective responses
(Dawes, 1999; Jaworski and Kohli, 1993; Pearce, Robbins and Robinson,
1987; Robinson and Pearce, 1988; Venkatraman and Ramanujam, 1986).
To measure business performance, each respondent in this study was
asked to evaluate his/her company’s current business performance relative to
its major competitors with respect to the following four items: (1) sales
growth, (2) customer retention, (3) ROI, and (4) market share. Responses
were made on a seven-point scale ranging from ‘‘better than’’ to ‘‘worse
than’’ major competitors. The reliability of the 4-item business performance
scale is .872, an acceptable level as suggested by Nunnally (1978).

Sample and Data Collection

The data for the study was collected from companies located in Beijing,
the national capital of Mainland China. With the help of a major university in
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Beijing, 1,200 companies were randomly selected from the Beijing Yellow
Pages Commercial/Industrial Telephone Directory. Telephone calls were
made to the top administrator of each company to explain the purpose of the
study, as well as to solicit agreement for survey participation. Out of the
1,200 companies, 300 companies agreed to participate. Then, a total of 300
questionnaires were hand delivered to the top administrator of each of the
companies. The questionnaire entitled ‘‘Business Practice Survey’’ with a
cover letter explaining the purpose of the survey contained questions on the
following areas: (i) market orientation (14 items), (ii) business performance
(4 items), (iii) company background (4 items), and (iv) respondent back-
ground (4 items). The questionnaire was administered in Chinese. To ensure
the meanings of all items in the Chinese version of the questionnaire were the
same as the original English version, all the questions in the questionnaire
were translated into Chinese and then back translated into English. Altogeth-
er, 210 completed questionnaires were returned, representing a successful
response rate of 17.5% (210/1200). The profile of the respondents and their
companies is shown in Table 2.

RESULTS

Reliability and Validity of Market Orientation Scale

Reliability Analysis. Table 3 reports the reliability of the market orienta-

tion scale using Cronbach’s coefficient alpha (Churchill, 1979; Nunnally,
1978). The overall coefficient alpha for the scale is 0.857, which is greater
than 0.7 as suggested by Nunnally (1978). Table 3 also shows alpha figures
on removal of each item. Considering the small differences between individ-
ual item alpha values and the overall construct alpha score, it can be con-
cluded that the alpha will not be increased by omitting any of the items. This
further augments the case for scale reliability. As far as individual subscales
are concerned, the reliability coefficient of the customer orientation scale met
that standard of 0.7. However, the scale of competitor orientation and inter-
functional co-ordination produced Cronbach’s alpha values of 0.62 and 0.69,
respectively, which were slightly lower than 0.7. This suggests that the reli-
ability of these two subscales is only marginally acceptable.
Construct Validity. For determining construct validity, the market orienta-
tion scale was tested for both convergent and discriminant validity. Conver-
gent validity refers to the degree of agreement in two or more measures of the
same construct. Evidence of convergent validity of the market orientation
scale was examined through simple correlations among the three components
of the scale. Results reported in Table 4 show that correlations among the
three components of market orientation ranged from .61 to .66, and all cor-
 Sin et al. 15
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TABLE 2. Characteristics of Firms/Respondents

(I) Firm
Industry Number Percent
Mining, quarrying 1 0.5
Manufacturing 63 31.5
Electricity, gas 2 1.0
Construction 30 15.0
Transport, storage, communications 6 3.0
Wholesaling, retailing, trading, 33 16.5
catering, hotel industry
Finance, insurance, real estate, 13 6.5
business services
Community, social, personal 8 4.0
services
Others 44 22.0
Number of Employees Number Percent
100 or less 60 29.4
101-500 33 16.2
501-1000 20 9.8
1001-5000 55 27.0
5001 or above 36 17.6
Business Type Number Percent
Joint venture 23 11.0
State-owned enterprise 99 47.1
Foreign wholly-owned enterprise 23 11.0
Sole proprietorship 33 15.7
Collectively-owned enterprise 13 6.2
Share-owned 12 5.7
No response 7 3.3
Majority Ownership of Company Asset Number Percent
China 176 83.8
Hong Kong 7 3.3
Japan 3 1.4
USA 1 0.5
Others 10 4.8
No response 12 5.7
(II) Personal
Age (years) Number Percent
20-29 63 30.4
30-39 55 26.6
40-49 62 30.0
50-59 26 12.6
60 or above 1 0.5
Gender Number Percent
Male 166 80.2
Female 41 19.8
Educational Level Number Percent
Grade school 4 1.9
High school 15 7.2
Some post-secondary 108 51.9
Bachelor’s degree or above 81 38.9
Respondent’s Job Title Number Percent
CEO or Senior Manager 26 12.4
Section Manager 66 31.4
Engineer/Accountant/Economist 22 10.5
Others 70 33.3
No response 26 12.4
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16 JOURNAL OF GLOBAL MARKETING

TABLE 3. Reliability Analysis

Total Sample
Item-to- Alpha If
Cronbach Total Items
Item Alpha Subscale Deleted

Customer Orientation .7150

1. Measure customer satisfaction .5108 .8470
2. Create customer value .3578 .8560
3. Understand customer needs .4146 .8480
4. Customer satisfaction objectives .4033 .8528
5. After sales service .4656 .8488
6. Customer commitment .5741 .8412

Competitor Orientation .6267

7. Respond rapidly to competitors’ actions .3712 .8493
8. Salespeople share competitor information .3940 .8505
9. Target opportunities for competitive .4259 .8466
advantage
10. Top managers discuss competitors’ .4527 .8477
strategies

Inter-Functional Coordination .6987

11. Functional integration in strategy .4481 .8443
12. Share resources with other business units .4960 .8485
13. Information shared among functions .5629 .8428
14. All functions contribute to customer value .4293 .8512

Alpha Coefficient for Whole Scale .8575

TABLE 4. Correlations Among the Three Components of Market Orientation

Customer Competitor Inter-Functional Market

Orientation Orientation Coordination Orientation

Customer 1.000
Orientation

Competitor .663a 1.000

Orientation

Inter-Functional .628a .618a 1.000

Coordination

Market .899a .852a .856a 1.000

Orientation

a: Statistically significant at .01 level.

 Sin et al. 17
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relations were significant at p < .01. Each of the components was also highly
correlated (.85 and above) with the overall measure of market orientation.
The pattern of correlations indicates that the three components are conver-
gent on a common construct, thereby providing evidence of convergent va-
lidity.
Discriminant validity concerns the degree to which measures of conceptu-
ally distinct constructs differ. In order to test for discriminant validity, a
simple factor test was performed on the data collected in this study (see
Podsakoff and Organ, 1986). The market orientation subscales and business
performance variables were factor analyzed together, using principal compo-
nent analysis. As shown in Table 5, the analysis produced two factors with
eigenvalues greater than unity, which account for a total of 73.8 percent of the
variance. A very clean solution results as the business performance variables
loaded on one factor and the market orientation subscales loaded on another
factor. Therefore, the results suggest that the respondents discriminated be-
tween the market orientation and business performance constructs, suggest-
ing discriminant validity within the measures.
The Impact of Market Orientation on Business Performance
In order to test the relationship between two sets of variables, namely,
market orientation and business performance, a multiple regression analysis
was conducted after controlling for industry type, firm size, business type and
company ownership. Table 6 presents the regression results for five depen-
dent variables, viz., overall performance, sales growth, customer retention,
ROI and market share.
Table 6 shows that market orientation has a significant association with
three of the five performance variables employed. The non-significant rela-
tionships were between market orientation and ROI and between market orien-

TABLE 5. Results of Single-Factor Test for Discriminant Validity

Variables Factor 1 Factor 2

Sales growth .844

Customer retention .840
ROI .839
Market share .817
Competitor orientation .889
Inter-functional coordination .859
Customer orientation .859
Eigenvalue 3.263 1.904
Percentage of variance 46.61 27.19
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TABLE 6. Effects of Market Orientation: Estimated Standardized Regression

Coefficients

Dependent Variables
Sales Customer Market Overall
Independent Variables Growth Retention ROI Share Performance**

Market Orientation .195b .213a .156 .140 .210b

Industry Type: I1* .021 .017 .086 .061 .004

I2* .053 .094 .066 .069 .085

Firm Size: S1* .126 .114 .070 .163 .076

S2* .114 .035 .094 .129 .115

Business Type: B1* .127 .020 .159 .155 .141

B2* .003 .113 .009 .001 .021
B3* .152 .116 .066 .044 .070
B4* .070 .141 .136 .000 .015
B5* .015 .131 .071 .004 .063

Company Ownership C1* .011 .110 .163 .053 .035

R2 .073 .111 .115 .075 .138

** Overall performance is the average of the four individual performance measures.

* I1, I2, S1, S2, B1, B2, B3, B4, B5 and C1 are dummy variables
I1: Manufacturing
I2: Transport, storage, communications, wholesaling, retailing, trading, catering, hotel, finance, insurance, real estate, business services
and community, social, personal services
S1: Firms with 100 or less than 100 employees
S2: Firms with 101--1000 employees
B1: Joint venture
B2: State-owned enterprise
B3: Foreign wholly-owned enterprise
B4: Sole proprietorship
B5: Collectively-owned enterprise
C1: China’s ownership
a: p < .01
b: p < .05

tation and market share. In other words, there is no distinction between high
and low market-oriented firms in Mainland China in terms of ROI and market
share. However, a significant positive relationship was found between market
orientation with sales growth (b = .195; R2 = .073; p < .05), customer retention
(b = .213; R2 = .111; p < .01), and overall performance (b = .210; R2 = .138;
p < .05). These results suggest that market orientation has a positive impact
on sales growth, customer retention and overall performance. These findings
are not surprising since the concept of market orientation is the heart of
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marketing theory (Levitt, 1960). This drive to create superior value for cus-
tomers and attain a sustainable competitive advantages creates an organiza-
tional culture that fosters and sustains a high degree of market orientation,
which in turn produces superior performance (Kumar et al., 1998).
To identify the relative importance of various components of market orien-
tation (customer orientation, competitor orientation and inter-functional
coordination) in explaining the variation in the performance measures, addi-
tional analysis was conducted with multiple regression analysis. As shown in
Table 7, customer orientation is the only variable that has a consistent, posi-
tive and significant association with sales growth, customer retention, ROI,
market share and overall performance. These results imply that customer
orientation is the most important factor among the three factors of market
orientation in determining business performance in Mainland China. On the
other hand, competitor orientation was found to have a negative association,
although most of regression coefficients were non-significant, with four of
the five performance measures. These results are inconsistent with the find-
ings of previous studies on market orientation. For example, in a study on
242 UK companies, Greenley and Foxall (1998) found a positive association
between competitor orientation and ROI and sales growth. In another study
conducted by Gray et al. (1998), highly competitor-oriented firms in New
Zealand were found to outperform those with low levels of competitor orien-
tation in terms of customer satisfaction.

DISCUSSION AND IMPLICATIONS

Contribution

This study sought, first, to validate Narver and Slater’s scale (1990) in an
Asian culture and, second, to examine whether or not the market orientation-
performance link established in studies on market economies also holds in
Mainland China, a country undergoing transitions from a planned economy
to a market economy.
In order to contribute further to knowledge regarding market orientation,
this study first validated Narver and Slater’s market orientation scales in a
Chinese context based upon data obtained from marketing decision makers at
the corporate level. Although the scale was originally developed in the US at
the strategic business unit (SBU) level, findings suggests that the scale ap-
pears to capture well the construct of market orientation in Mainland China, a
country with different economic and cultural environments. It may be con-
cluded confidently that Narver and Slater’s market orientation scale is a valid
and reliable scale that can be used across a variety of boundaries--companies,
industries and cultures.
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TABLE 7. Effects of Customer Orientation, Competitor Orientation and Inter-

Functional Coordination: Estimated Standardized Regression Coefficients

Dependent Variables
Sales Customer Market Overall
Independent Variables Growth Retention ROI Share Performance**

Customer Orientation .292b .271b .252b .368a .360a

Competitor Orientation .094 .019 .152 .155 .131
Inter-Functional Coordination .022 0.47 .076 .056 .009

Industry Type: I1* .020 .056 .120 .000 .057

I2* .027 .074 .040 .032 .052

Firm Size: Sl* .113 .117 .056 .149 .063

S2* .115 .031 .099 .128 .119

Business Type: B1* .189 .070 .219 .242 .222

B2* .085 .046 .095 .122 .092
B3* .217 .162 .001 .133 .155
B4* .143 .087 .212 .103 .110
B5* .032 .094 .025 .061 .002

Company Ownership C1* .030 .120 .142 .027 .001

R2 .098 .130 .141 .122 .138

** Overall performance is the average of the four individual performance measures.

* I1, I2, S1, S2, B1, B2, B3, B4, B5 and C1 are dummy variables
I1: Manufacturing
I2: Transport, storage, communications, wholesaling, retalling, trading, catering, hotel, finance, insurance, real estate, business services
and community, social, personal services
S1: Firms with 100 or less than 100 employees
S2: Firms with 101-1000 employees
B1: Joint venture
B2: State-owned enterprise
B3: Foreign wholly-owned enterprise
B4: Sole proprietorship
B5: Collectively-owned enterprise
C1: China’s ownership
a: p < .01
b: p < .05

With respect to the market orientation-performance link, the findings indi-

cate that the firm’s degree of market orientation is positively associated with
sales growth, customer retention and overall performance in Mainland China.
These findings support prior empirical research suggesting that market orien-
tation is a factor in determining organizational effectiveness. The implication
is that firms in Mainland China can improve their performance in sales
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growth and customer retention through the adoption of market orientation.

This suggests that the relationship between market orientation and business
performance occurring in free-enterprise economies also holds in a commu-
nist economy undergoing transformation, such as Mainland China. However,
a further inspection reveals that the R2 values of all regression analyses are
relatively low, ranging from 7 to 13 percent, implying that a significant
amount of the variance in each dependent variable may be explained by other
possible factors. These may include variables like guanxi (relationship mar-
keting orientation), strategy/structure fit, strategy implementation effective-
ness and others. To enhance further our understanding of business perfor-
mance in Mainland China, these potential variables have to be included in
subsequent research efforts.
As far as the relative impact of an individual component of market orienta-
tion on business performance is concerned, our findings suggest that custom-
er orientation is the only variable, among the three components of market
orientation, having a positive and significant association with sales growth,
customer retention, ROI, market share and overall performance. This result is
consistent with some pervious research (e.g., Peters and Austin, 1985; Peters
and Waterman, 1982). The implication of this finding is that firms in Main-
land China with a given magnitude of market orientation highly skewed to a
customer orientation would outperform those in which the three components
are more nearly equal.
An interesting and unexpected finding is that competitor orientation tends
to have a negative impact on business performance in Mainland China, al-
though not all the regression coefficients are statistically significant. This
finding may be surprising as compared to the results of previous studies in
other countries, but China has its own peculiarities and uniqueness. Two
possible explanations may account for this inconsistent but interesting find-
ing. First, the high correlations among the three components of market orien-
tation may bias the estimates of the regression parameter for the independent
variables. In order to assess the possible effect of mutlicollinearity, the three
components of market orientation were transformed by a principal compo-
nents analysis to achieve orthogonality among themselves. Then, similar
regression analyses were performed with overall performance, sales growth,
customer retention, ROI and market share as the dependent variables, and the
factor scores of the three components of market orientation as independent
variables were computed. Similar findings and patterns were obtained, sug-
gesting that multicollinearity is not a concern in the original regression analy-
ses. Second, the concept of harmony-with-other is a basic and important
dimension in the Chinese culture (Kindel, 1983; Yau, 1988), which manifests
itself in the Chinese aversion to situations that may be embarrassing or may
produce conflict with others. The application of this concept in business
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strategy may imply that, in order to maintain harmony-with-other, Chinese

managers would tend to avoid face-to-face confrontation or head-on com-
petition. This belief might further discourage the implementation of competi-
tor orientation in marketing. All in all, this suggests that competitor orienta-
tion does not tend to be an effective factor affecting business performance in
a collective society like Mainland China. Possibly, a relationship marketing
orientation or guanxi, which emphasizes reciprocation, empathy, personal
trust building, and the use of social bonds in dealing with business partners
and competitors would be a more appropriate or effective strategy in affect-
ing business performance in Mainland China (Yau et al., 1999). Of course,
this proposition needs to be confirmed by future empirical studies.

Research and Managerial Implications

For researchers, this study has important implications for the investigation
of the link between market orientation and business performance. Many
scholars have argued that transitional economies such as China ‘‘offer fasci-
nating grounds to refine and test existing theories and to develop new ones’’
for the following two major reasons (e.g., Peng and Heath, 1996; Nee and
Matthews, 1996). In the first place, China is undergoing economic transition
from a planned economy to a market economy. The increasingly competitive
pressures introduced during the reform period, together with increased mana-
gerial autonomy, have forced Chinese firms to adopt more marketing practic-
es. Moreover, the discontinuity in China’s business environment may be
regarded as a ‘‘quasi-experiment’’ that has resulted in a significant change of
firm behavior. Such a naturally occurring experiment-like setting makes it
possible to observe strategic changes in these firms. Secondly, because China
shares an important common legacy with other countries in the communist
regime or countries with central planning systems, the Chinese experiment
can help to shed light on the evolution of the market systems in the post-So-
viet republics and Eastern Europe. Of course, the generalizability of research
findings obtained in this study to these countries has to be tested in future
studies. We suggest that comparative research (e.g., firms in China versus
firms in Russia or Eastern Europe) may further enhance our understanding of
the relationship between market orientation and business performance inves-
tigated here. Currently, we know very little about the marketing practices of
firms in transitional economies, especially concerning the relationship be-
tween market orientation and business performance. It is hoped that our study
can stimulate more studies on the strategic behaviors of firms in transitional
economies, which can help move the market transition literature to the ‘‘cen-
ter stage’’ of business research, as well as to make more potential and rele-
vant contributions to the business literature.
For practitioners in China, our findings validate the long-held belief that
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market orientation is a critical success factor for business performance. At the

same time, the low R2 values in the regression analyses also suggest that
market orientation alone does not account for all the performance variations.
The implication is very clear: while market orientation is important, a firm may
also need to have other competences such as good personal networks (guanxi),
effective strategy implementation ability, good match of strategy and organiza-
tional structure and others, in order to perform well in China’s increasingly
competitive economy. In summary, market orientation is found to be a neces-
sary but not sufficient condition for good business performance in China.

Limitations and Future Research

Although this study has provided relevant and interesting insights to the
understanding of the impacts of market orientation on business performance
in Mainland China, it is important to recognize limitations associated with
this study. First, cross-sectional data were used in this study. Consequently,
the time sequence of the relationships between market orientation and busi-
ness performance cannot be determined unambiguously. The results, there-
fore, might not be interpreted as proof of a causal relationship, but rather as
lending support for a prior causal scheme. The development of a time-series
database and testing of the market orientation relationship with business
performance in a longitudinal framework would provide more insight into
probable causation.
Second, a subjective approach was used in this study to measure business
performance. Extensive use of similar measures in research on market orien-
tation (e.g., Appiah-Adu, 1997; Greenley, 1995; Slater and Narver, 1994) as
well as the practical difficulties associated with data collection in China
necessitated this approach (Luo and Chen, 1996; Tan and Litschert, 1994). In
addition, although past studies have reported a strong association between
objective and subjective measures of business performance (Dawes, 1999;
Jaworski and Kohli, 1993; Pearce, Robbins and Robinson, 1987; Robinson
and Pearce, 1988; Venkatraman and Ramanujam, 1986), no similar studies
could be found using data from Mainland China. Thus, future studies have to
be done in examining the generalizability of this relationship between these
two measures in a Chinese context. Furthermore, China is a society empha-
sizing ‘‘face saving,’’ which may have an inflated effect on reporting subjec-
tive measures of business performance. Since face saving is a cultural value
that is purported to affect every respondent (or respondent’s response) in the
sample, we may have systematic errors in the measurement of performance.
However, these errors would not contaminate the statistical relationships of
performance with market orientation. However, future studies including this
cultural value as a control variable may help improve the rigor of the results.
Third, data for this study were collected by the key informant approach.
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Although, senior managers as key informants are adequate for reliable and
valid data (Tan and Litschert, 1994), future study on market orientation in
Mainland China could attempt to use multiple informants.
Fourth, the respondents provided all the measures of the independent and
dependent variables, and these measures were obtained at the same time
using similar scaling procedures. Method variance, therefore, may have mag-
nified the strength of some of the relationships. Statistical analysis using
LISREL (Joreskog and Sorbom, 1984) may provide an appropriate approach
to handle this particular problem.
Fifth, this study focused only on the relationship between market orienta-
tion and business performance. Past studies have suggested that this relation-
ship might be moderated by some environmental variables, such as market
turbulence, competitive hostility and market growth (e.g., Atuahene-Gima,
1995; Greenley, 1995; Slater and Narver, 1994). Future research in Mainland
China can expand on the present study by including these variables.
Finally, the sample used for analysis was drawn only from Beijing, a city
in China, and the generalizability of the result remains to be tested. Future
research, therefore, can expand the present study by attempting a nationwide
sample in a Chinese context.

CONCLUSION

The phenomenal growth of the Chinese economy has caught worldwide

attention in recent years. Since the growth of the economy fundamentally has
boiled down to the growth of the firm, it is important to understand how
individual firms design and implement business strategies to improve busi-
ness performance. Understanding more about business strategies in China is
not only of academic significance, but it can also be enormously helpful for
foreign firms interested in collaborating and/or competing against Chinese
enterprises. This study represents the first of a series of studies investigating
the relationship between market orientation and business performance in a
Chinese context. Given the theoretical and managerial significance of this
research, it will not be the last.

NOTES
1. Following Slater and Narver (1994), market orientation and marketing orienta-
tion are taken to be synonymous in meaning, and the term market orientation will be
used instead of marketing orientation in this article.
2. One of the items in Narver and Slater’s (1990) original scale concerning inter-
functional customer calls was deleted after several in-depth interviews with a number
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of target respondents. It was found that such calls are often perceived as stepping into
another department’s territory and considered as rocking the boat and stirring up a
schism among staff in different departments. These kinds of behaviors would be re-
garded as very annoying in a Chinese community that stresses social harmony.

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SUBMITTED: JULY 1999

FIRST REVISION: NOVEMBER 1999
SECOND REVISION: DECEMBER 1999
ACCEPTED: JANUARY 2000

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