Journal of Business Research 56 (2003) 227 239

Market orientation and business performance in a Chinese business environment

Alan C.B. Tsea,*, Leo Y.M. Sina, Oliver H.M. Yaub, Jenny S.Y. Leeb, Raymond Chowb
a

Department of Marketing, The Chinese University of Hong Kong, Shatin, Hong Kong, China b City University of Hong Kong, Hong Kong, China

Abstract Market orientation (MO) is the prerequisite for a successful business operation. To test the assertion empirically, this study looks into the nature of the correlational relationship between MO and company performance using sample data from firms engaging in China trade in Hong Kong. Narver and Slaters scale for measuring the extent of MO is tested and used. The results show that there is a significant positive correlation between MO and business performance. In other words, there is a significant difference in the performance of China trade companies that are market-oriented and those that are not market-oriented. D 2003 Elsevier Science Inc. All rights reserved.
Keywords: Market orientation; Business performance; Chinese environment

1. Introduction During the last decade, market orientation (MO) has received a great deal of attention from marketing scholars (e.g., Day and Wensley, 1988; Kohli and Jaworski, 1990; Narver and Slater, 1990; Ruekert, 1992; Wong and Saunders, 1993; Slater and Narver, 1994; Greenley, 1995; Kumar et al., 1998). Despite the continual assertion that MO is positively related to business performance (e.g., Webster, 1992; Slater and Narver, 1994; Hunt and Morgan, 1995), improved employee attitudes (Jaworski and Kohli, 1993), and more customer-oriented sales forces (Siguaw et al., 1994), systematic inquiries for a richer understanding of the construct have only recently begun, following the pioneer works of Kohli and Jaworski (1990) and Narver and Slater (1990). Subsequently, a number of empirical studies have attempted to assess the association of MO 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). Although the body of research related to MO is flourishing, most of the past studies on MO have been undertaken in
* Corresponding author. Tel.: +852-2609-7829; fax: +852-2603-5473. E-mail address: b102725@mailserv.cuhk.edu.hk (A.C.B. Tse).

the context of western countries like the US. Virtually no serious study has attempted to validate the MO model and its scale in a Chinese context. With this in mind, this study was undertaken to examine the applicability of Narver and Slaters (1990) MO model within a Chinese business environment. More specifically, this study has two objectives each designed to contribute to the emerging body of empirical literature on the MO and business performance relationship. The first objective is to reexamine the scale properties of the MO construct in a Chinese marketing environment. The second objective is to empirically test the hypothesized relationship between MO and business performance in such an environment.

2. Background and previous research 2.1. Marketing concept and market orientation The marketing concept was formally introduced in the writings of McKitterick (1957), Felton (1959), and Keith (1960). These authors defined the marketing concept as a corporate state of mind that insists on the integration and coordination of all the marketing functions that, in turn, are melded with all other corporate functions, for the basic purpose of producing maximum long-range corporate profits. McNamara (1972) regarded the marketing concept as a

0148-2963/03/$ see front matter D 2003 Elsevier Science Inc. All rights reserved. PII: S 0 1 4 8 - 2 9 6 3 ( 0 1 ) 0 0 2 3 0 - 2

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Table 1 Summary of empirical studies on the relationship between MO and business performance Study I. US studies Narver and Slater (1990) Ruekert (1992) Jaworski and Kohli (1993) Slater and Narver (1994) Raju et al. (1995) Pelham and Wilson (1996) Pelham (1997) Country USA USA USA Sample 113 SBUs in 1 corporation 5 SBUs in 1 company Sample 1: 222 SBUs from 102 companies Sample 2: 230 companies 81 SBUs in 1 forest company and 36 SBUs in 1 manufacturing company 176 hospitals 68 small firms MO instrument based on literature review Performance measure ROA MO/performance association ROA (+) sales growth (+), profitability (+) market share (0), organizational commitment (+), esprit de corps (+), overall performance (+) ROA (+), sales growth (+), new product success (+)

discussions with managers sales growth, profitability literature review market share, organizational commitment, esprit de corps, overall performance Narver and Slater (1990) Jaworski and Kohli (1993) Narver and Slater (1990) and Jaworski and Kohli (1993) Narver and Slater (1990), Jaworski and Kohli (1993), and other studies Narver and Slater (1990) ROA, sales growth, new product success

USA

USA USA

financial performance, market/product development, internal quality new product success, sales growth/market share, product quality, profitability firm effectiveness, sales growth/market share

financial performance (+), market/product development (+), internal quality (+) new product success (+), sales growth/market share (0), product quality (+), profitability (+) firm effectiveness (+), sales growth/market share (0)

USA

160 manufacturing firms

Kumar et al. (1998)

USA

159 hospitals

Van Egeren and OConnor (1998) II. Non-US studies Deshpande et al. (1993) Diamontopoulos and Hart (1993) Deng and Dart (1994)

USA

289 responses from 67 service firms

Narver and Slater (1990)

growth in revenue, return on capital, success of new services/facilities, success in retaining patients, success in controlling expenses organizational performance

growth in revenue (+), return on capital (+), success of new services/facilities (+), success in retaining patients (+), success in controlling expenses (+) organizational performance (+)

Japan

UK Canada

50 quadrads from public firms and their customers 87 manufacturing firms 248 companies

personal interviews and literature review

overall performance = profitability + size + market share + growth

Jaworski and Kohli (1993) sales growth and profit Narver and Slater (1990) marketing performance

overall performance (+) based on customers assessment, overall performance (0) based on mangers assessment sales growth and profit (weak association) marketing performance (+)

Atuahene-Gima (1995) Australia Hong Kong, New Zealand Greenley (1995) UK Atuahene-Gima (1996) Australia Pitt et al. (1996) Au and Tse (1995)

275 firms

Ruekert (1992) Kotler (1977) Narver and Slater (1990) Ruekert (1992)

Appiah-Adu (1997) Bhuian (1997) Appiah-Adu and Ranghhod (1998) Bhuian (1998) Chan and Ellis (1998) Gray et al. (1998)

41 Hong Kong hotels and 148 New Zealand hotels 240 companies 158 manufacturing and 117 services firms UK, Malta Sample 1: 161 UK-based service firms Sample 2: 193 firms in Malta UK 110 small firms Saudi Arabia 96 bank managers from 12 banks UK 62 biotechnology firms

new product market performance, project performance occupancy rate ROI, new product success rate, sales growth market success, project impact performance

new product market performance (+), project performance (+) occupancy rate (0) ROI (0), new product success rate (0), sales growth (0) market success (0), project impact performance (+) performance (+) for both countries

Jaworski and Kohli (1993) performance = ROCE + sales growth + overall performance Pelham and Wilson (1996) sales growth, new product success rate, ROI Jaworski and Kohli (1993) ROA, ROE, sales per employee Narver and Slater (1990) Jaworski and Kohli (1993) Narver and Slater (1990) new product success, growth in market share, profit margin, overall performance overall performance satisfaction with growth/share, satisfaction with profitability, relative growth/share, relative profitability ROI, brand awareness, customer satisfaction, customer loyalty

sales growth (+), new product success rate (+), ROI (+) ROA (0), ROE (0), sales per employee (0) new product success (0), growth in market share (+), profit margin (+), overall performance (+) overall performance (+) satisfaction with growth/share (+), satisfaction with profitability (+), relative growth/share (+), relative profitability (+) A.C.B. Tse et al. / Journal of Business Research 56 (2003) 227239

Saudi Arabia 115 companies Hong Kong 73 textile and garment companies

New Zealand 490 companies

Greenley and Foxall (1998) Horng and Chen (1998) Hooley et al. (1999)

UK

242 companies

Taiwan Hungary, Poland and Slovenia

76 small and medium companies 1619

Narver and Slater (1990), Jaworski and Kohli (1993), and Deng and Dart (1994) Narver and market share, new product success, ROI, Slater (1990) sales growth and literature review Jaworski and Kohli (1993) overall performance, organizational commitment, esprit de corps Narver and profit, ROI, sales volume, market share Slater (1990) and literature review

market share (0), new product success (0), ROI (weak association), sales growth (weak association) overall performance (+), organizational commitment (+), esprit de corps (+) aggregate performance (+)

229

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business philosophy, an ideal, or a policy statement. Houston (1986) defined the concept as a willingness to recognize and understand consumers needs and wants, and a willingness to adjust any of the marketing mix elements, including product, to satisfy those needs and wants. In sum, the marketing concept defines a distinct organizational culture that puts the customer in the center of the firms thinking about strategy and operations (Deshpande and Webster, 1989; Deshpande et al., 1993). Meanwhile, the concept has also been viewed as a philosophy of doing business or a culture that permeates every aspect of an organizations operation (Houston, 1986; Wong and Saunders, 1993; Baker et al., 1994; Hunt and Morgan, 1995). In spite of the fact that the marketing concept is a fundamental element of the marketing literature, very little has been done in terms of creating a valid measurement scale and testing the concept empirically. Only recently has scientific research begun in this area (Kohli and Jaworski, 1990; Narver and Slater, 1990; Ruekert, 1992). In response to the operationalization problem of the marketing concept, Kohli and Jaworski (1990) interviewed 62 managers in 47 organizations and developed the three pillars of the marketing concept: (1) customer philosophy identifying and satisfying customers wants and needs, (2) goal attainment focus on achieving an organizations goals while satisfying customer needs, and (3) integrated marketing organization integration of all functional areas of the organization to attain corporate goals by satisfying customers needs and wants. According to Kohli and Jaworski, while the marketing concept is commonly defined as a philosophy or a way of thinking that guides the allocation of resources and formulation of strategies for an organization, marketing orientation, or MO, is considered to be activities involved in the implementation of the marketing concept. With this definition, three sets of activities intelligence generation, intelligence dissemination, and responsiveness to market intelligence represent the operationalization of MO. Similar conceptualizations and scales, tested for reliability and validity were also reported by Narver and Slater (1990), as well as by Ruekert (1992). Following Slater and Narver (1994), the terms market orientation and marketing orientation are taken to be synonymous in meaning, and the term market orientation will be used instead of marketing orientation in this article. 2.2. The relationship between market orientation and performance Regarding the associative relationship between MO and business performance, there are two opposite sides of views. The positive side includes scholars like Keith (1960), Levitt (1975), Kotler (1977, 1991), Peters and Waterman (1982), Rogers (1985), and Day (1990), all of whom believe that MO is the key to successful business performance. A number of authors, on the other hand, have questioned the link between MO and business performance. For exam-

ple, Kaldor (1971) suggested that the marketing concept is an inadequate prescription of marketing strategy because it virtually ignores a vital input of marketing strategy the creative abilities of the firm. Kaldor noted that customers do not always know what is needed. An extreme example is the medical doctor patient relationship, where the patient cannot specify the treatment. It is the doctor who assesses the specific needs of the patient. Yet, it does not mean that the doctor is not addressing the needs and wants of his/her patient. Furthermore, critics such as Gerken (1990) pointed out that it is unrealistic to be marketing-oriented because firms are no longer able to keep up with erratic and constantly changing demand and market developments. Bennett and Cooper (1979) also suggested that few, if any, of the really significant product innovations that have been placed on the market to date were developed because the inventor sensed that a latent pool of needs was waiting to be satisfied. In fact, customers are not necessarily a good source of information about their needs. Also, the ability of the customers to verbalize what they need is limited by their knowledge, and that when they suggest modifications, they take into account the limits of technology. Consequently, a market-oriented firm may be preoccupied with line extension and product proliferation. As Tauber (1974) commented, the measurement of consumer need as well as of purchase interest may be valid for screening continuous innovations, but consumers may not recognize or admit they need products that are unusual. Hence, marketers sometimes need to anticipate the future needs and wants of consumers to be successful. In fact, Bennett and Cooper (1979) and Hayes and Abernathy (1980) argued that MO induces businesses into being interested in short-term and intermediate customer needs, which can be detrimental to innovation and long-term success of a company. In the past decade, a steady stream of research has focused on the impact of MO upon business performance. A summary of past empirical studies on the relationship between MO and business performance is presented in Table 1. As revealed by Table 1, 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 OConnor, 1998) found unequivocal support for a positive association between MO and performance. Performance measures used in these studies ranged from hard measures such as return on investment, sales growth, and market share to soft measures including organizational commitment and esprit de corps. However, mixed findings were found in nonUS studies. For example, Deng and Dart (1994) in a study on 248 Canadian companies reported a positive link between MO and performance, but a UK study by Diamantopoulos and Hart (1993) identified only a weak association, and Bhuians study (1997) involving Saudi Arabian banks found no relationship between the two variables. Given the inconsistency of findings among the non-US studies, there is a need to assess the hypothesized relation-

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ship between MO and business performance in other, particularly non-US, business environments. 2.3. Objectives Although some authors have studied the link between MO and business performance in a Chinese context, additional studies on the topic can be justified on the following grounds. First of all, previous studies of this kind used small samples from selected industries. Their results can hardly be generalized. Au and Tse (1995), for example, interviewed only 41 hotels in Hong Kong. Another Hong Kong study by Chan and Ellis (1998) had a restricted sample of just 73 textile firms. Finally, the Taiwanese study by Horng and Chen (1998) used only 76 small companies. More importantly, none of these studies tested properly the validity of the scales used for measuring MO. Thus far, no serious attempt has been made to validate the asserted link between MO and business performance, and the commonly used Narver and Slaters scale (1990) in a Chinese context. Hence, the objectives of this study are twofold. The first objective is to collect data in a Chinese context to determine if Narver and Slaters scale can be extended to a Chinese cultural context, and if the scale is found to be valid and reliable, the hypothesized positive association between MO and business performance can be tested. In addition to the contribution of validating the scale in a Chinese context, this study provides results of testing the asserted relationship between MO and business performance in another culture and other organization settings. The need for these kinds of replicative work was emphasized by Kohli et al. (1993) to be a fundamental requirement of the science of marketing. Easley et al. (1994) stressed that research is like concertos that are best understood by being played more than once. As Brown and Gaulden (1984) pointed out, replicative research adds valuable insights to the development of theory and is absolutely essential.

is regarded as very annoying in a Chinese community that stresses social harmony. In fact, Slater and Narver (2000) have recently dropped this item themselves. To provide further support for our decision to drop the item in this study, we conducted a follow-up study using a class of part-time students who enrolled in an MBA course. These students are all middle-level management personnel working full-time in companies that engage in China trade. Using data obtained from this study, we found that the corrected item-to-total correlation for the item in question is less than .30, thus justifying our decision to drop the item. After deleting this item, the 14 remaining items and the other questions were translated into Chinese and then backtranslated to ensure that the meanings of all items in the Chinese version of the questionnaire is about the same as the original English version. 3.1.2. The sample A sample of 4000 companies, having more than 50 employees located in Hong Kong and with operations in both Hong Kong and China, was randomly drawn from a database developed by the Hong Kong Trade Development Council (TDC). The Hong Kong TDC is a highly respectable statutory organization set up to promote Hong Kongs trade. With a global network of 50 branch offices, TDC serves as a resourceful center for business information and maintains a database of registered companies in Hong Kong. A questionnaire titled Business Practice Survey with a cover letter explaining the purpose of the survey was mailed to The Marketing Director/Manager of the selected organizations. The questionnaire contained questions on the following areas: (i) relationship marketing orientation (RMO) for assessing concurrent validity as described below (14 items), (ii) market orientation (14 items), (iii) present business performance (12 items), (iv) forecast of future business performance (12 items), (v) company background (9 items), and (vi) respondent background (6 items). Respondents were assured of their anonymity. Five weeks after the initial mailing, a follow-up letter with a questionnaire was mailed. Another week later, telephone follow-ups were used to ensure that the second mail had reached the target respondents. Up to three phone calls were made. If the target respondents could not be reached (not-in-office or out-of-town), the questionnaire would then be considered as nondelivered. A total of 287 replies were received in the first round and 286 in the second round, summing up to a total of 573 replies. The 573 replies represented a successful response rate of 14%. Since 1812 questionnaires failed to reach the sampled organizations (owing to failed mailings), the adjusted response rate is 26%. The reason that may account for the very high proportion of failed mailings is the Asian financial crisis of 1997 that has driven many companies out of business. For the surviving ones, many relocated to more economical office accommodation to stay in business. A lot of Japanese banks and big departmental stores, for example, have closed their branches in Hong

3. Results 3.1. Scale development in a Chinese context 3.1.1. Item generation MO was hypothesized as a one-dimensional construct consisting of three components customer orientation (CU), interfunctional coordination (IN), and competitive orientation (CO). It was measured by altogether 14 items selected from the 15-item scale developed by Narver and Slater (1990). One of the statements in Narver and Slaters original scale concerning interfunctional customer calls was deleted after several in-depth interviews with a number of target respondents. It was found that such calls are often perceived as stepping into another departments territory and would be considered as rocking the boat and stir up schism among staff in different departments. This kind of behavior

232 Table 2 Scale descriptions for MO Item

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Total sample Cronbachs a Item-to-total correlation .61 .61 .67 .59 .67 .71 .79 .58 .60 .57 .64 .88 .69 .75 .78 .74

ficient a) and item-to-total correlations are reported in Table 2. Reliability for the scales exceeds .70, the threshold Nunnally (1978) recommended for exploratory research. 3.1.4. Convergent validity Convergent validity refers to the degree of agreement in two or more measures of the same construct. Two methods were used in this study to assess the convergent validity of the MO measure. The first method is by examining the correlation matrix of the three components of MO. A strong correlation among these three components of MO would indicate that they are convergent on a common construct, thereby providing evidence of convergent validity. As shown in Table 3, all the correlation coefficients exceed .72 and are significant at P < .001. Another method to assess convergent validity of a measure is to use confirmatory factor analysis to gauge the fit of the proposed measurement model to the covariance or correlation data at hand (Bagozzi and Phillips, 1982; Phillips and Bagozzi, 1986). With AMOS (Arbuckle, 1997), the null model of independence (M0), which hypothesizes that the correlations among the three components of MO be zero, yielded c2 = 1686.03, df = 77, P =.000. This indicates a poor fit of the model with the data. The model that provides a better fit of the data is a model by hypothesizing three correlated scores underlying all measurements (M1). This is shown in Fig. 1. The relevant parameter estimates and test statistics can be found in Table 4. This model yielded c2 = 456.07, df = 74, P =.000. The improvement of M1 over M0 is significant at P < .001. In addition, M1 is also found to outperform M0 on other criteria, such as adjusted goodnessof-fit index (AGFI=.84 vs. .19), comparative fit index (CFI=.92 vs. .65), and root mean square error of approximation (RMSEA=.10 vs. .19). In sum, the evidence suggests that convergence has been achieved for measures of MO as a function of three components: CU, IN, and CO. 3.1.5. Discriminant validity Discriminant validity concerns the degree to which measures of conceptually distinct constructs differ. Traditionally, it has been assessed by the pattern of correlation across vs. within traits in the multitrait multimethod matrix (Campbell and Fiske, 1959). More recently, like convergent

Consumer orientation Measure customer satisfaction (X1) Create customer value (X2) Understanding customer needs (X3) Customer satisfaction objectives (X4) After-sales service (X5) Customer commitment (X6) CO Respond rapidly to competitors actions (X7) Salespeople share competitor information (X8) Target opportunities for competitive advantage (X9) Top managers discuss competitors strategy (X10) IN Functional integration in strategy (X11) Share resources with other business units (X12) Information shared among functions (X13) All functions contribute to customer value (X14)

.86

Kong to enable their mother company to deal better with the aftermath of the crisis at home. Another bias that might threaten the validity of our study is nonresponse bias. Two methods have been suggested to test for nonresponse bias in mail surveys (Armstrong and Overton, 1977). The first approach consists of interviewing a sample of nonrespondents to determine the presence and the extent of nonresponse bias. Such a sample was not taken owing to difficulties in maintaining confidentiality that was promised to respondents and the impracticability of such an endeavor. The second approach is based on the Interest Hypothesis that assumes nonrespondents are like the average respondents in the second wave. With this method, the respondents of the second wave were compared with those of the first wave along all the response items. The c2 test was employed for statistical analysis. No significant difference was found between the early and late respondents on demographic characteristics. Thus, nonresponse bias may not be a serious problem in this study. 3.1.3. Reliability analysis With the 573 responses from the mail survey, reliability analysis was conducted. The scale reliability values (coef-

Table 3 Correlation between the three components of MO CU CU CO IN 1.00 .81 .78 CO 1.00 .72 IN

1.00

All correlations are statistically significant at .01 level. CO = consumer orientation CU = competitor orientation IN = interfunctional coordination

A.C.B. Tse et al. / Journal of Business Research 56 (2003) 227239 Table 4 Parameter estimates and test statistics for the model hypothesizing three true scores underlying measurements of MO (N = 573) Parameters l1 l2 l3 l4 l5 l6 l7 l8 l9 l10 l11 l12 l13 l14 f1,2 f1,3 f2,3 Parameter estimates 0.87 0.85 0.84 0.74 0.83 1.00 0.87 0.80 0.69 1.00 0.90 0.97 1.08 1.00 0.77 0.71 0.75 t value * 16.34 18.03 19.75 15.33 18.20 16.53 15.72 16.26 20.84 21.01 21.87 12.91 12.05 12.95

233

* All are significant beyond the .01 level.

MO scale has achieved a satisfying concurrent validity. In this study, RMO was measured by a 14-item scale developed and validated by Yau et al. (1999). The RMO scale is shown in Table 5. As seen in Table 5, all items to total correlation coefficients range from .55 to .84, and the Cronbachs as for the four components vary from .76 to .91, which are regarded as acceptable for basic research (Nunnally, 1978). The Narver Slater MO scale scores were then correlated with scores of the RMO scale. The correlation coefficient between MO and RMO is .51, which is significant at P < .001. The other concurrent validity coefficients between the MO subscales and RMO range from .37 to .48, and are all significant at P < .001. Hence, all the coefficients appear to be very acceptable, as they tend to be much larger than zero, but significantly smaller than convergent coefficients among MO subscales. This indicates that MO has concurrent validity with, but is good enough to be distinctive as independent from, the RMO scale.
Table 5 Scale descriptions for RMO Item Total sample Cronbachs a Bonding My enterprise achievement builds on our reliance on each other We keep in touch constantly We work in close cooperation We both try very hard to establish a L T relationship Empathy We know how each other feels We always see things from each others view We care for each others feeling Reciprocity If anyone helps my company to solve difficulties, I am responsible to repay his/her kindness We always regard never forget a good turn as our business motto We keep our promise Trust He/she is trustworthy on important things I trust him/her We trust each other According to our past business relationship, I think he/she is a trustworthy person .85 .62 Item-to-total correlation

validity, it has been assessed by analyzing the covariance structure of the data. A modified version of the procedure recommended by Burnkrant and Page (1982) was used to assess discriminant validity. This is done by comparing the goodness-of-fit statistics for two measurement models, one modeling the three related dimensions of MO CU, CO, and IN as perfectly correlated (the constrained model, Mc), and the other without such a constraint (the unconstrained model, Mu). The c2 difference statistic for the degree to which the unconstrained model improves over the constrained model would indicate whether the three dimensions achieve discriminant validity. The c2 difference values for the constrained and unconstrained model was found to be 17.03 with 3 df, which is significant at the 5% level. This finding implies that the unconstrained model has a significantly better fit than the constrained model. In sum, the above analysis clearly suggests that the MO scale developed in this study has acceptable discriminant validity. 3.1.6. Concurrent validity Internal consistency is a necessary but insufficient condition for validity. The three dimensions of MO may all relate to the same construct, but that does not prove they relate to the specific construct MO. It is necessary to show that the measure behaves as expected in relation to other constructs. Thus, this section would try to assess how well the scale scores correlate with some other related measures. The concurrent validity of the MO instrument was assessed by examining its correlation with RMO. RMO measures the extent to which the company engages in developing a long-term relationship with its customers. High correlation between these scales may imply that the

.73 .72 .73

.76 .55 .60

.65 .78 .65

.75

.65 .91 .82 .84 .77 .75

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Fig. 1. Confirmatory factor analysis: convergent.

3.2. The effect of MO on business performance Having demonstrated that the MO scale possesses all the desirable psychometric properties of a valid scale, this section reports the results of the correlational study between MO and business performance. Two types of business performance were measured: current business performance and future business performance. Current business performance was operationalized by 12 items. Each respondent in this study was asked to evaluate his/her companys current business performance relative to its major competitors with respect to the following items: (1) growth rate of sales, (2) customer retention, (3) ROI, (4) market share, (5) getting important and valuable information, (6) ability to obtain loan, (7) ability to obtain better terms in loan, (8) ability to obtain governmental approval, (9) shortening the time required for governmental approval,

(10) contact with important persons, (11) ability to secure local resources, like electricity and/or human resources, and (12) motivating employee. Responses were made on a seven-point scale ranging from better than to worse than major competitors. The reliability of the 12-item current business performance scale is .91, an acceptable level as suggested by Nunnally (1978). Subjective measures of performance like those described above were commonly used in research of similar topics. However, many of these studies used only a few measures to operationalize the construct. For example, Slater and Narver (1994) used only ROA, sales growth, and new product success to proxy market performance. In this study, on top of the usual financial indicators used to measure current business performance, variables related to the ability to secure information, and resources that would enhance the firms performance were also included. Access

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Fig. 2. The impact of MO on current business performance.

to many of these resources cannot be taken for granted for firms operating in China and may serve as indicators of business performance. The hypothesized positive impact of MO on business performance was assessed by examining the impact of MO on current business performance (see Fig. 2) using AMOS. With AMOS, the model involving current business performance yielded a c2 of 448.08 with 248 df ( P=.000). Although analysis of covariance structure has traditionally relied on c2 likelihood ratio test to assess model fit, it is very sensitive to sample size, number of items, and number of factors in the model. Therefore, other fit indices, including c2/df, Steigers (1990) RMSEA, and Bentlers (1990) CFI, were used to assess overall model fit. The value of c2/df was found to be less than 2; the RMSEA, .04, and the CFI, .98. All indices indicate a good fit between the hypothesized model and the data. Moreover,

the t test of the causal path from MO to current business performance is significant (t = 9.47), providing further support for the hypothesized relationship. Examining the impact of MO on future business performance assessed the predictive validity of the MO instrument and provides further support to the asserted positive relationship between the two constructs (see Fig. 3). Future business performance was operationalized in this study by the same 12 seven-point items used to measure current business performance. In this case, respondents were asked to forecast his/her companys future business performance in the coming 3 to 5 years relative to its major competitors with respect to each of the 12 items. The reliability of the 12-item future business performance scale is .95, an acceptable level as suggested by Nunnally (1978). With AMOS, the model yielded a c2 of 525.65 (df = 243, P =.000), an AGFI of .90, an RMSEA of .05, and a CFI

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Fig. 3. The impact of MO on future business performance.

of .97, indicating an acceptable fit between the hypothesized model and the data. In addition, the t test of the causal path from MO to future business performance is significant (t = 9.30). Based on the AMOS results, we can conclude that MO has achieved a satisfactory level of predictive validity, and the result provides further support for the asserted positive relationship between MO and business performance.

4. Discussion Responding to the call for more research in divergent settings (e.g., Appiah-Adu, 1997; Bhuian, 1997; Kohli et al., 1993), we suggest that a Chinese business environment represents a new empirical context that allows for an in-

depth inquiry of the link between MO and business performance. This study provides a direct test of the applicability of a western paradigm to an Asian country with a different cultural and economic system. The MO model and the measures of MO available for data collection (Kohli and Jaworski, 1990; Narver and Slater, 1990; Ruekert, 1992) were developed in the context of the US cultural setting. Even though the continued internationalization of business operations 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 MO to subjects from another culture without any validation might create a category fallacy as suggested by Kleinman (1977). Moreover, an uncritical emulation and extrapolation from the experiences of the US marketing practices to countries with different

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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 (for example, Weinshall, 1977). To enhance our overall understanding of the concept of MO, therefore, we believe that an investigation of MO in a Chinese business environment is deemed necessary. Our findings suggest that Narver and Slaters scale with slight modification is a reliable and valid scale that can be used in a Chinese business environment. Although the scale was originally developed in the US at the strategic business unit (SBU) level, our findings suggest that the scale appears to capture well the construct of MO in a Chinese cultural context. Results of this study support the asserted correlational relationship between MO and company performance. Evidence provided by this research further strengthens the positive link between MO and company performance, a result obtained by previous studies of the same nature in the US and some other countries. The results of this study are not only relevant to academicians. From the point of view of a marketing practitioner engaging in China trade, the results obtained from our study should be helpful to them in collaborating or competing against Chinese enterprises. Up to now, no serious study has been conducted in a Chinese environment about the best business strategy despite the phenomenal growth of many Chinese economies like China, Hong Kong, and Taiwan, which have caught worldwide attention in recent years. Consequently, there are a lot of marketing myths in China marketing that are not founded on solid empirical evidence. For example, many firms hold the belief that Chinese economy and business life is preoccupied with good personal network of relationships or guanxi, therefore the best strategy for firms in China is to spend resources on cultivating personal relationships with their business partners, particularly government officials who are involved in a business transaction. In fact, many firms are willing to invest in relationship building at the expense of customer orientation. The reasons are as follows. Firstly, personal relationships in China are influenced by the Confucian ideology. According to Confucianism, an individual is fundamentally a social or relational being. Social order and stability depend on properly differentiated role relationships between particular individuals. Because of the emphasis on differentiated relationships, Chinese have a much stronger tendency to divide people into categories and treat them accordingly. That tendency to treat people differentially on the basis of ones relationship with them explains why having close relationship is of such importance in Chinese societies. Secondly, although the Chinese government has enacted thousands of laws, rules, and regulations for impersonal business dealings, many of them are not adequately enforced, and personal interpretations are often used in lieu of legal interpretation. Therefore,

good relationship appears to be very helpful in dealing with the Chinese bureaucracy. The Chinese people traditionally prefer to rely on their contacts with those in power to get things done. Personal relationships and connections are often more important than legal obligation. Thirdly, information market imperfection in an uncertain environment, like China, also requires the emergence of personal relationship. Information passed through reliable sources is far more trustworthy, useful, and updated, thus saving search costs and allowing one to make faster decisions. Finally, pooling and coordinating resources from personal connections may act as a barrier hindering outsiders from penetrating the market. Despite the importance of relationship building, our findings suggest that a total relationship orientation without due regard given to MO may not be a sensible strategic orientation, high levels of MO were found to be associated with high levels of business performance. In other words, MO may still be a critical success factor for companies operating in China. Like their counterparts in the US, highly market-oriented firms in a Chinese business environment would outperform those with low level of MO. Currently, we know very little about the marketing practices of firms in Chinese economies. It is hoped that our study can stimulate more studies on the strategic behaviors of firms in these economies, as well as to make more potential and relevant contributions to the business literature.

5. Limitations and future research Although this study has provided relevant and interesting insights to the understanding of the impacts of MO on business performance in a Chinese business environment, it is important to recognize the limitations associated with this study. Since cross-sectional data were used in this study, the time sequence of the relationships between MO and business performance could not be determined unambiguously. The results, therefore, 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 MO relationship with business performance in a longitudinal framework would provide more insight into probable causation. Another limitation of our study is that we have not differentiated the different major Chinese economies like China, Hong Kong, and Taiwan. Admittedly, it is an oversimplification of the complex relationship between MO and business performance in these economies. Hence, future research should address the subtle differences in business environments and social relationships in these Chinese economies for a better understanding of the relationship between MO and performance. As far as future research direction is concerned, further studies should also investigate the relative importance of MO and guanxi in a Chinese business environment. Guanxi is a

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complicated construct in Chinese culture that is deeply rooted in Chinese social and business relationships. In addition to mean a rich network of personal acquaintances, guanxi also embraces such complex concepts as face-saving, empathy, bonding, reciprocity, and trust. More study is required to build a valid and reliable measure of guanxi before its importance can be compared with MO. How the extent of MO would be affected by antecedent factors such as company attributes and attributes of top management personnel is also another interesting topic for future study. Factors that moderate the relationship between MO and business performance should also be examined. These factors include variables such as market turbulence, technological turbulence, and degree of competition. These variables could interact in a complex manner that affects the relationship between MO and company performance. Finally, data for this study were collected by the key informant approach. Although senior managers as key informants are adequate for reliable and valid data (Tan and Litschert, 1994), future studies on MO in a Chinese business environment should attempt to use the multiple informants approach.

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