Governance of Export Channels to Eastern Europe: Impact of Market Characteristics on Business...
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Governance of Export Channels to Governance of Export Channels to Eastern Europe:Eastern Europe:
Impact of Market Characteristics on Impact of Market Characteristics on Business PerformanceBusiness Performance
Cristian Chelariu, York UniversityDaniel C. Bello, Georgia State UniversityDavid I. Gilliland, Colorado State University
Environment in Transitional EconomiesEnvironment in Transitional Economies
Central Central
Planning Planning MarketCompetition
Poor infrastructure
Obsolete production facilities
Need for institution building / law enforecment
Unstable political environment
Unethical business climate
Few local firms with Western business skills
Sampled Export Country-MarketsSampled Export Country-Markets
Russia Russia 40%40% PolandPoland 20%20% Czech RepublicCzech Republic 9%9% HungaryHungary 5%5% Less than 5% of sample:Less than 5% of sample:
RomaniaRomania BulgariaBulgaria Baltic (Estonia, Latvia, Lithuania)Baltic (Estonia, Latvia, Lithuania) Slovakia, SloveniaSlovakia, Slovenia Others from former Yugoslavia, Kazahstan, Others from former Yugoslavia, Kazahstan,
UkraineUkraine
EnvironmentalUncertainty
ExportChannelGovernance
Performance:MarketDevelopmentGoals
Environmental UncertaintyEnvironmental Uncertainty
Unanticipated changes in circumstances surrounding an exchange
Williamson 1981
Fundamental Facets:•Volatility•Munificence•Complexity
Sharfman and Dean 1991
Market Volatility Unexpected change reducing partners ability to predict outcomes, renders agreements incomplete
Demand Munificence Certainty that potential for product is & remains high
Regulatory Complexity Diversity of trade regulations & institutions implementing trade rules
Market DevelopmentMarket Development
Not just sporadic export salesNot just sporadic export sales
Systematically developing Eastern Systematically developing Eastern European market for exporter’s brandEuropean market for exporter’s brand
Increasing Operational InterdependenceIncreasing Operational Interdependence Increasing Non-market governanceIncreasing Non-market governance
Operational Integration Continuum
Discrete
Increasing Operational Interdependence
Joint Actionby exporter& importer
Operations interdependent and complex
Exporter Importer
Sets wholesale price
Designs products
Calls on F. customers
Attends Trade Fairs
Pre-sale market analysis & promotion
Modified product for local conditions
Salesforce training, Post-sale services
Joint Actions
Complexity requires GovernanceComplexity requires Governance
OperationalInterdependence
Non-marketGovernanceMechanisms
Governance resolves increasingly complex decisions
•Resource allocation
•Role responsibility
•Operational issues
GovernanceGovernance
““the approach employed by parties to the approach employed by parties to organize and regulate exchange conduct”organize and regulate exchange conduct”
Unilateral: One partner establishes rules & rewards to elicit compliance by target
Bilateral: Parties collaborate & share control based on mutual interests
Heide 1994
Gundlach 1994Gundlach 1994
Research QuestionsResearch Questions
Does intensified governance improve Does intensified governance improve business performance?business performance?
Do facets of uncertainty intensify Do facets of uncertainty intensify governance?governance?
Does governance mediate the UncertaintyDoes governance mediate the Uncertainty—Performance relationship?—Performance relationship?
MarketVolatility ξ1
DemandMunificence ξ2
RegulatoryComplexity ξ3
BilateralRelationalism η1
UnilateralIncentives η2
BusinessPerformance η3
MethodsMethods
USA export managers; from J. of USA export managers; from J. of Commerce & Dept. of Commerce listsCommerce & Dept. of Commerce lists
747 firms phoned; only 353 export to 747 firms phoned; only 353 export to Eastern EuropeEastern Europe
188 questionnaires back (180 useable, 188 questionnaires back (180 useable, 51% response rate)51% response rate)
Volatility1. Environment changes Slowly…changes Fast2. Stable Environment…Erratic Environment3. Certain Environment…Uncertain Environment(scale: 7-point Semantic Differential )
Demand Munificence1. In that country, there is a high potential for our products
2. The customer demand for our product category is increasing in that country
3. In that country, the demand in our industry is growing(scale: 1= Strongly Disagree to 7= Strongly Agree)
Regulatory Complexity1. Doing business is complex because many entities (agencies,
courts, bureaucrats) are involved in regulating business
2. Various government bodies with divergent agendas regulate business in that country
3. Doing business is subject to many approvals from a variety of officials at various levels
(scale: 1= Strongly Disagree to 7= Strongly Agree)
Bilateral Relationalism
1. Problems that arise in this relationship are treated by the parties as joint rather than as individual responsibilities
2. Both parties share in the problems that arise in the course of our dealings
3. When some unexpected situation arises, the parties would rather work out a new deal than hold each other to the original terms
4. Both parties are flexible in dealing with each other
Unilateral Incentives
1. When interacting with our partner, we provide incentives to motivate our partner to follow our suggestions
2. We offer specific incentives to our partner to encourage changes in its marketing and/or operating procedures
3. We emphasize what we will offer in return for their cooperation or participation
Business Performance
How effectively do you and your partneraccomplish your firm’s market developmentgoals in this Eastern European country:
1. Sales Goals 2. Profit Goals3. Growth Goals
(scale: 1= Very Poor to 7= Very Well)
Linkages in the Model Hypotheses Theoretical Model
Number Sign Parameter Estimate t-value
Exogenous Endogenous Variables Volatility Relationalism H1a γ 1,1 .28 2.58
Volatility Unilateral Incentives H1b γ 2,1.26 2.41
Demand Relationalism H2a γ 1,2 .13 1.55
Demand Unilateral Incentives H2b γ2,2 .17 2.02
Regulatory Relationalism H3a γ 1,3 .03 0.31
Regulatory Unilateral Incentives H3b γ 2,3 .26 2.46
Demand Business Performance .32 4.09
Between Endogenous Variables Relationalism Performance H4a 3,1 .31 4.12
Unilateral Incentives Performance
H4b 3,2 .16 2.06
χ2(140)= 299.09; GFI= .85; RMSEA= .073; RMR= .063; CFI= .94; TLI (NNFI)= .92
MarketVolatility ξ1
DemandMunificence ξ2
RegulatoryComplexity ξ3
BilateralRelationalism η1
UnilateralIncentives η2
BusinessPerformance η3
ImplicationsImplications
Channel management positively Channel management positively associated with performanceassociated with performance
Governance matters; has performance Governance matters; has performance consequencesconsequences
Both U, B contribute uniquelyBoth U, B contribute uniquely
ImplicationsImplications
Volatility weakens B (close collaboration), Volatility weakens B (close collaboration), U (mfg. incenting)U (mfg. incenting)
Uncertain, erratic environments are not Uncertain, erratic environments are not “overcome” by stronger channel “overcome” by stronger channel managementmanagement
Unpredictability a key public policy problemUnpredictability a key public policy problem
ImplicationsImplications
Exporter incentive-investing in E. Exporter incentive-investing in E. European partner:European partner:
Encouraged by demand potentialEncouraged by demand potential
Encouraged by regulatory complexityEncouraged by regulatory complexity• Do exporters rely more on local partner?Do exporters rely more on local partner?