«VAN R. WOOD How Important Is Knowledge of the Culture Environment When Evaluating Potential Export Markets? Empirical Results from A Sample of ...»
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VAN R. WOOD
How Important Is Knowledge
of the Culture Environment
When Evaluating Potential Export
Markets? Empirical Results from
A Sample of Experienced
This article exams the importance of specific types of foreign environmental information to experienced exporters. More specifically, the relative importance of information concerning politics, market potential, economics, infrastructure, legal considerations and the culture surrounding export markets is empirically investigated. The commonly held notion that knowledge of a foreign market’s culture is first and foremost of importance in regard to exporting success and failure is explored. Results indicate that contrary to popular wisdom, information related to the cultural environment of an export market is rated as the least important when export managers are deciding on which markets to enter.
An explanation of these findings is offered and calls for future research put forth.
VAN R. WOOD, Ph.D. Professor of Marketing, Philip Morris Chair in International Business School of Business Department of Marketing Virginia Commonwealth University
• e-mail: vrwood@.vcu.edu LTA 4/00 • VAN R. WOOD
Selecting among alternative international markets, be it for exporting, licensing, joint ventures, strategic alliances or direct investment requires information. Likewise, the assessment of information across different types of markets determines, in large part, the degree of success (or failure) achieved in the international arena (Andersen and Strandskov 1998). In theory, decision makers’ perceptions of the importance of different types of foreign market information may be driven by a combination of factors (Hodgson and Uyterhoevern 1962, Stobaugh 1969, Harrell and Kiefer 1981, Carlisle 1996).
While the political climate in one country or region may be perceived as a key dimension to an international venture’s success (or failure), the level of economic development may be the key in another.Likewise, while an advanced infrastructure may place one foreign market more favorably ahead of another for one industry, the existence of a stable and transparent legal system might do the same for another industry. In theory, international business decision-makers may value certain types of information differently, depending upon the specific perceived impact of such information on their firm’s success (and/or failure).
One area of information related to international business success (and failure), where both scholars and practitioners have long shared the belief that ”knowledge of ” is universally critical is – culture (Dalgic and Heijblom 1996). Consumer needs, buyer behavior and the use/ misuse of global manager’s ”people skills” are largely driven by cultural norms (Johansson 1997). In order to grasp the intricacies of foreign markets, it is imperative to get a deep understanding of cultural differences and similarities. Knowledge of the cultural environment of any foreign market matters for two reasons. First, it is perhaps the most important factor in pinpointing market opportunities. And second, cultural forces represent the primary determinants of any given firm’s international marketing strategy and programs (Kotabe and Helsen 1998).
For the most part, common wisdom and often expounded theory has it that ”international marketing is a function of culture,” (Terpstra and Sarathy 1997, p. 143). Therefore, information concerning culture is the most important ingredient to international business decision making, including decisions as to which foreign markets a given firm should enter.
This paper, focusing on experienced exporters, examines this theory in an exploratory
HOW IMPORTANT IS KNOWLEDGE CULTURE ENVIRONMENT…OF THE fashion by addressing two fundamental questions. They are: a) what information is most valuable to established exporters when analyzing foreign markets?, b) how can we explain the hierarchical importance ordering of foreign environmental information as perceived by established exporters? We begin with a framework developed to assess exporter’s valuation of information.
An Export Environment Information Framework In order to examine the issues posed in the questions listed above, an extensive literature search focusing on foreign market information was undertaken. This was followed by a series of personal interviews and one focus group session that led to the development of a comprehensive information framework relevant to export market evaluation. In turn, survey research was employed to examine the perceived relative importance (rank order) of information contained within the framework as a whole.
To begin this study, existing literature, both empirical and theoretical, related to international marketing (e.g., Czinkota and Ronkainen, 1998; Terpstra and Sarathy, 1997; Maclayton, Smith, and Hair 1980; Werner, Brouthers, and Brouthers 1996), exporting (e.g., Albaum, Strandskov and Duerr 1998; Leonidou and Katsikeas 1998; Raven, McCullough, and Tansuhaj 1994), economic development (e.g., Adelman and Morris 1967; Sethi 1971, Mody and Wang 1997), and foreign direct investment (e.g., Kobrin 1976; Kobrin, Basek, Blank & La Pombara, 1980;
Nagy 1978; Aharoni, 1966, Harvey and Weidenbaum 1993) was reviewed to explore the myriad of information potentially useful to managers evaluating entry into export markets. Based upon this review, approximately 200 ”indicators” of a foreign environment relevant to analyzing export opportunity were identified. To qualify as an indicator, a specific piece of information (for example, ”import tariffs” in a given market) had to offer general insight into an export market’s potential for success (and/or failure). The 200 indicators manifest from the literature search were then further reviewed, reduced, and eventually refined into a comprehensive export environment information framework.
The reduction of the original 200 indicators was based upon sixteen personal interviews with representatives from government agencies charged with facilitating exports, international banking institutions, and private business with known exporting expertise. In total, eight export experts were interviewed independently, each twice. A final focus group session was then undertaken with all eight interviewees participating. The overall objective of this process was to aid identification of information variables both useful to, and utilized by, practicing managers concerned with the selection of export markets.
During the first set of interviews, each interviewee was asked to consider the pre-established 200 indicators and then assemble them into an information framework that, in theory, LTA 4/00 • VAN R. WOOD could guide the export market selection process. They were allowed to discard, combine, or alter the language of each indicator as they saw fit. During the second set of interviews, each interviewee was shown the initial framework developed by other interviewees. Each was then asked to reconsider his or her framework and alter it based on those aspects of other frameworks that would improve their efforts. This two step process resulted in a general consensus among the eight experts of what should and should not be included in the framework, and how each piece of information should be worded. A final focus group session, in which all eight experts participated, resulted in the agreed upon framework developed for this study.
The eventual framework included a set of sixty specific decision variables, seventeen subsidiary export dimensions, and six primary environmental dimensions, all potentially useful to export decision-makers (these labels, used to describe the various levels of the framework, were also agreed upon by interviewees).
As shown in the Appendix, the resulting framework is thought to capture the most important aspects of the political, economic, market, culture, infrastructure, and legal environments faced by exporters. Note that each specific decision variable included in the Appendix is associated with one of seventeen subsidiary export dimensions which, in turn, are associated with one of six primary environmental dimensions. Again, each part of the framework could have direct relevancy to the success or failure of a given export venture and, therefore, each is potentially useful as criteria to guide the export market selection process. In answering the two questions posed in this study a brief overview of the framework and its parts is in order.
The Export Environment Information Framework – An Overview Politics is the first primary dimension listed in the framework. Among the export experts interviewed in this study, interest in politics focused on the extent to which the government of an export market has the trust and backing of its people, and is sensitive toward the private sector of the economy. A key question is whether or not the politics that govern the export market generate conditions conductive to international business activities. The three main areas (subsidiary export dimensions) of interest here are: 1) the nature of present and future political stability in the export market as measured by the degree of centralization of political power, and the extent of representation and confidence of the people in their government, 2) the nature of diplomatic relations between the foreign government and home government and its effect on trade, and 3) the foreign government’s internal policies, attitudes, and actions toward private enterprise.
Market Potential is the second primary dimension listed in the framework. Here the central focus concerns whether the export market of interest has the necessary means to purchase imported products, and whether the needs of the market are being adequately satisfied. The
HOW IMPORTANT IS KNOWLEDGE CULTURE ENVIRONMENT…OF THE three main areas of interest here are: 1) opportunities for exporters due to the export market’s current and future demand for products or services, and that market’s ability to pay for such products or services, 2) adaptation costs associated with products or services in the export market, and 3) internal and external competition in the export market.
Dimension three of the framework is economics. The focus here is on an export market’s
industrial, consumer, and service evolution and development. Three areas of interest include:
1) the current position of the export market’s development as measured by broad economic performance standards, 2) the strength of the export market in terms of its production of goods and services, and 3) product consumption trends in the export market.
Dimension four of the framework is culture. The nature of internal and external shared lifestyles, customs, and social relationships are of primary interest here. Two areas of focus include: 1) the degree of cultural unity and national integration and the extent of ethnic and cultural differences in the export market, and 2) the cultural differences (distance and similarities) between the export market and the home market (in this case the U.S. domestic market).
Infrastructure is the fifth primary dimension listed in the framework. Hindrances and advantages to the realization of export operations due to fundamental business foundations are key here. The three main areas of interest include: 1) the extent and nature of the export market’s physical distribution infrastructure, 2) the extent and nature of the export market’s communications infrastructure, and 3) geography and climatic conditions that affect the business enterprise in the export market.
The sixth and final dimension of the framework is the legal environment of an export market and the degree to which it prevents or restrains business activities and imports. The three subsidiary dimensions here include: 1) tariffs and taxes in the export market, 2) non-tariff barriers of the export market and 3) other legal considerations besides tariff and non-tariff barriers (e.g., visa requirements, laws affecting agents, intellectual property protection).
As noted previously and shown in the Appendix, each of the six primary environmental dimensions, and related seventeen subsidiary export dimensions, are further defined and refined by sixty specific decision variables. As the study progressed, each of the specific decision variables was randomly sequenced in a questionnaire and associated with a five-point rating scale ranging from: (1) this information is extremely important to me in making a decision to export to a foreign market, to (5) this information is unimportant to me in making a decision to export to a foreign market. Additionally, a ”don’t know / no opinion” response category was provided for each specific decision variable.
was selected to represent established organizations whose managers face export market selection decisions. These companies were selected based upon the judgment of seven international business experts (three from the government sector and four from the international banking sector of the region) who worked closely with exporters in the area. Each company selected had an identifiable manager who was known to have direct responsibility for his or her company’s exporting activities. Selected companies represented 22 different Standard Industrial Codes (SIC).