Welcome to the presentation on

 How Market Orientation and Outsourcing

Create Capability and Improve Performance
in Emerging Markets

 Dr. Satyendra Singh

Director, Centre for Emerging Markets
Professor, Marketing and International Business
Editor, International Journal of Business and Emerging Markets

s.singh@uwinnipeg.ca
www.uwinnipeg.ca/~ssingh5
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Outline
 Introduction
 Objectives
 Definitions
 Conceptual Model, Hypotheses
 Methodology
 Analysis, Results
 Managerial Implications
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Introduction
 Why study this?
 Firms in Emerging Markets (EM) are
catching up with West
Costs – Tata, Nano; Chery, QQ
Quality – Indian leather, Chinese silk
Product development pace – Films
 Indicates ↓ in capability of West
 ↑ important in recession
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Objectives

 Firms need to be strategic and competitive

 If, Market Oriented - Outsourcing strategy 
Competitive Advantage
 If so, trade off?
 Competition vs. Cooperation
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What is Market Orientation (MO)?

 Narver and Slater (1990)

 Customer, competitor, co-ordinaiton
 Kohli and Jaworski (1990)
 Information generation/dissemination
 Greenley (1995)  Economic
 Cadagon et al. (1999)  Export
 Deshpande (1993)  Culture
 Pitt (1996)  European
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In general, MO strategy

 Meets customers’ needs

 Anticipates market conditions
 Explores and develops new products
 Develops more desirable products  $
 Takes long-term perspective, so viable
 MO may  firms capability
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But in EM, MO is different!

 Demand > Supply!?

 No feedback
 No culture of product return
 Shy, contamination by touch!
 Not obsessed with change
 Like permanence, memory, colony
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What is Outsourcing?

 Outsource activities despite its ability to

make in-house, so focus  core
capability (Deavers, 1997)
 Quick response to market turbulences
 On time delivery,  lead time
 Competitive, if benefits > costs
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If outsourced from EM

 Abundant skilled labor!

  Fixed costs and wages   BE point
 performance, if  firms’ capability
 OS may  existing capabilities, but 
borrowed capabilities
Masks the decline skills, as firms may
not learn
It is risky
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Trade-off between MO and OS

↑ Costs
OS

Performance
Time
Complex
Expertise  Costs
↑ Savings
MO Risks
Labor
Mrf.
Capability
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Conceptual Model

MO H2
H6a
H1

Capability H5 Bus Perf Risk

H4 H6b
H3
OS

Source-position-performance model
(Day, 1994; Day and Wensley, 1988)
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Competing Model - I

MO H2
H6a
H1

Capability H5 Bus Perf Risk

H4 H6b
H3
OS
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Competing Model - II

MO H2
H6a
H1

Capability H5 Bus Perf Risk

H4 H6b
H3
OS
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Theory -- Hypotheses

 H1: MO  ↑ Capability
 H2: MO  ↑ Business Performance
 H3: OS  ↑ Capability
 H4: OS  ↑ Business Performance
 H5: Capability  ↑ Business Performance
 H6a: MO-BP ↑, if risk ↓
 H6b: OS-BP ↑, if risk ↑
Methodology
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Market Orientation – Scale

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

 Core and Peripheral Outsourcing

(new scale developed by me)
 Ratio of outsourced production to in-house
production
 Ratio of outsourced products to manufactured
products
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Capability – Scale
 Adapted from (Atuahene-Gima, 2005)

 Speedy introduction of new products to markets

 Access to distribution network for products
 Creative marketing strategies for new products
 Secure resources for marketing new products
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Risk Aversion – Scale

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

 Adapted from (Kotabe and Murray, 1990)

 Pre-tax profitability
 Market Growth
 Market Share
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Data Collection
 Kompass directory  Delhi and Bombay
 Stratified quota sampling  PIN method
 Personally collected – 3 months period
 213 responses/1200 calls  18% response
 Multiple respondents  all 7-pt scales
 Respondents’ knowledgeable about the
concept (+6. on 7-pt scale)
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Sample Characteristics
Firms Foreign Indian
Total sample size (N=426) 221 205
Manufacturing products 104 (47%) 115 (56%)
Providing services 117 (53%) 90 (44%)
Turnover (<Rs. 99m) 69 (31%) 88 (43%)
Turnover (b/w Rs. 100 and 149m) 95 (43%) 74 (36%)
Turnover (> Rs 150m) 57 (26%) 43 (21%)
Turnover (<49) 64 (29%) 66 (32%)
Turnover (between 50 and 99) 104 (47%) 84 (41%)
Turnover (>100) 53 (24%) 55 (27%)
CEO/MD/Proprietor) 126 (57%) 125 (61%)
Senior manager) 77 (35%) 57 (28%)
Mid-level manager) 18 (8%) 23 (11%)
Proportion of outsourcing activities 62% 48%
Business experience (in years) 22.5 11.8
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Analysis
 Factor Analysis
 Confirmatory Factor Analysis
 AMOS 4.0
 Cross-group measurement validation
 Reliability > .7
 Fit indices > .9
 Multicollinearity < 4
 Non-response bias ok
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Results Model Fit Indices (Foreign/Indian):

X2 (392, 641.45/412, 745.63); RMSEA
(.05/.06), GFI (.88/.89), CFI (.95/.96)

H2 (.14/.07)
MO
H6a
H1 (.31**/.29*)
H5 (1.33**/1.31*)
Capability Bus Perf Risk

H4(.36**/.37**)
H6b
H3 (.19*/.21*)

OS

Unstandarised structural Ceffficients

(Foreign/Indian), * p< .05, ** p<.001
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Direct, Indirect, and Total Effects (Hair, 2006)

Direct indirect(Cap) Total Effects
Full sample For. Ind. For. Ind. For. Ind.
MOBP .14 .07 .41** .38** .55* .45*
OSBP .36 .37 .25* .28* .61** .65**

Low risk sample For. Ind. For. Ind. For. Ind.

MOBP .27* .31* .36* .21* .63** .52**
OSBP .13 -.02 .01 .18 .14 .16

High risk sample For. Ind. For. Ind. For. Ind.

MOBP -.02 .01 .14 .07 .12 .08
OSBP .39* .34* .33* .39* .72** .73**

Model Fit Indices: X2 (87, 97.43), GFI=.87,

AGFI=.82, NFI=.91, RMSEA=.05, NNFI=.93,
TLI=.95, CFI=.97); * p< .05; ** p<.001
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Implications for managers

 Firms need both—MO and OS

 MO because difficult to imitate
 Trade-off exists
OS needed, not to  costs but  MO
 No difference b/w Indian and foreign firms
Low-risk firm  MO, high-risk firm  OS
to build capability
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Conclusion: Competition vs. Cooperation

Comp/Coop? Comp/Coop?
Create value Manage risks
HI  Capability LO risk-taking firms   MO
I
 OS HI risk-taking firms   OS
II
MO
Initially  OS to be MO  MO
 MO Comp?
LO
Coop? IV III
LO OS HI

Future study: OS vs. Technology Transfer

Kenya, Africa
Acknowledgements
 The financial support from the Social Sciences and
Humanities Research Council (SSHRC 4A grant # 0-
40-8460-61000-000) is gratefully acknowledged.

 This presentation is based on

Singh (2009). How market orientation and outsourcing
create capability and impact business performance,
Thunderbird International Business Review 51(4): 457
471.
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Question?