Adaptation of International Marketing Strategy Components, Competitive Advantage, Andfirm Performance: A Study of Hong Kong Exporters

Adaptation of International Marketing Strategy Components, Competitive Advantage, and
Firm Performance: A Study of Hong Kong Exporters

Author(s): Gerald Albaum and David K. Tse
Source: Journal of International Marketing, Vol. 9, No. 4 (2001), pp. 59-81
Published by: American Marketing Association
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Adaptation of International Marketing

Strategy Components, Competitive
Advantage, and Firm Performance:
A Study of Hong Kong Exporters
The authors examine how firms adapt different components of
their marketing strategies in foreign markets compared with
ABSTRACT
their domestic market and how such adaptation decisions in
fluence the firms' competitive positions and performance in for
eign markets. The authors conceptualize that adaptation of a

marketing-mix component is a purposeful process that is influ
enced by a firm's past adaptation strategy, and they investigate
the importance ofthat marketing-mix component to the firm's
success. The authors propose that the adaptation process helps
define a firm's competitive advantage, which in turn affects its
performance in the foreign market. The authors develop hy

potheses and propositions and test them with a sample of 183
export firms in Hong Kong.
Recent international marketing studies have made significant

breakthroughs in the understanding of how multinational
firms behave and perform in overseas markets. Taken as a
whole, they provide for the first time the links between a
firm's market environment, its international marketing strat
egy, and its performance. On the basis of a contingency ap
Gerald Albaum and
David K. Tse
proach, frameworks by Cavusgil and Zou (1994) and
Szymanski, Bharadwaj, and Varadarajan (1993) have success

fully modeled how a firm interacts with the foreign market
environment in deciding its international marketing strategy.
Researchers (Cavusgil, Zou, and Naidu 1993; Samiee and
Roth 1992; Szymanski, Bharadwaj, and Varadarajan 1993)

have postulated and confirmed links between a firm's adap
tation strategy in its international marketing program and the

firm's performance. Their findings suggest that in the era of
globalization, adaptation can still be a powerful strategy. In
short, the fundamental relationship among structure, con
duct, and performance has now been established. This repre
sents a dramatic development since Douglas and Craig's

(1992) review of international marketing studies.
This article extends these developments to delineate how a

firm develops its adaptation strategy, how this adaptation
strategy relates to the firm's competitive position in an over
seas market, and how this position determines the firm's per
formance in overseas markets. An adaptation strategy
involves changing the elements or components of the market

ing mix to fit needs, real or perceived, in particular country
Submitted March 1999

Revised August 2001
? Journal of International Marketing
Vol. 9, No. 4, 2001, pp. 59-61
ISSN 1069-03IX
59
markets (Keegan and Green 2000, pp. 395-402). In short, spe

cific activities are performed differently across foreign mar
kets. This article contributes to existing literature by

conceptualizing and testing the propositions that (1) a firm's
adaptation strategy is a purposeful process, (2) a firm's adap
tation decision helps it develop its competitive position in its
overseas market, and (3) a firm's competitive position medi
ates between its adaptation strategy and performance.
The study is designed with three distinctive features. First,

we investigate a firm's adaptation strategy after it enters the
market as well as at the point of market entry (Douglas and
Wind 1987). Second, we examine how a firm's internal

processes affect its adaptation decision process (Walters
1986). Third, we assess the effect of a firm's resultant interna
tional marketing strategy in a broadened strategic orienta

tion, as suggested by Douglas and Craig (1989).
In the following section, we describe adaptation strategy as a
process. Specifically, we view this process as being change

from what is being done in the home/domestic market. We
then propose and discuss the relationships among a firm's
adaptation strategy, its competitive advantage, and its perfor
mance. This discussion is followed by the study design and
its results. We discuss future research directions and man
agerial implications at the end of the article.
Strategy Adaptation
as a Process
According to the internationalization argument (Dunning

1988; Rugman 1981), a firm survives in its home market be
cause it possesses specific ownership advantages over its

competitors. It seeks to exploit its advantages in overseas
markets by exporting its products to, licensing its production
technology in, or investing in foreign markets. As the firm ex
pands its international operations, it chooses the expansion
path and strategy that gives it optimal risk and return. This
internationalization process has been verified in prior stud
ies (e.g., Johanson and Vahlne 1977,1990).
Previous discussion on globalization versus adaptation has

focused on the firm's choice when it enters an overseas mar
ket. The literature has discussed the impacts of a firm's cost

factors (such as scale economies in production and market
ing), marketing strategy considerations (benefits of uniform
global image), host market environments (characteristics of
segments across nations), and other host country factors

(public policies and regulations) on adaptation versus global
ization decisions. As Douglas and Craig (1989) note, few
studies have attempted to explain what firms face after they

enter their overseas markets. Jain (1989) argues that when a
firm enters a foreign market, local competition will inspire
the firm to adapt its strategies to the local market. Executive
interviews (Harris 1994) have confirmed that such pressure
60 Gerald Albaum and David K. Tse

exists when executives consider their advertising strategies.

Indeed, increased knowledge of the local market motivates a
firm to develop products that better fit the local needs
(Cavusgil, Zou, and Naidu 1993). Often, the decisions
whether to adapt and how much to adapt is a trade-off be

tween the costs of a localized strategy and the benefits of bet
ter serving the local market. In their article, Douglas and

Craig (1989) conceptualize adaptation decisions as part of a
firm's evolution in developing its global marketing strategy.

They suggest that at the time of entering a new market, a firm
seeks to leverage its domestic position internationally to
achieve scale economies. After a firm successfully enters a

foreign market, it faces different strategic options. As famil
iarity with the local market environment increases and its
marketing and distribution infrastructure develops, the firm
will be able to leverage more options across a broad range of
products and services to maximize its return. Walters and
Toyne (1989) postulate that some firms anticipate such needs
to adapt to local markets and establish a range of flexible
product designs and options to meet the changes in the mar
ket. Szymanski, Bharadwaj, and Varadarajan (1993) propose
that multinational companies will refine their marketing
strategies in overseas markets on the basis of their past per
formance. In short, previous discussions are unequivocal in
suggesting that adaptation is inevitable after a firm success
fully enters its foreign market. Yet what determines this
adaptation process remains unexplained.
In Figure 1 we propose a contingency-based framework in
which strategy adoption plays a sequential role in determin
ing firm performance. The contingency view of strategy as
sumes that no universal set of strategic choices is optimal for
all organizations and circumstances (Ginsberg and Venkatra
man 1985) but that optimal strategy is subject to a certain set
Factors Affecting the

Strategy Adaptation
Process and Performance
of organizational and environmental conditions (Harvey

1982). Researchers have attached a broader meaning to con
tingency by considering factors that are responsible for differ
ences in strategy outcomes as contingency variables (Ekeldo

and Sivakumar 1998, p. 277). Consequently, we argue that our
model can be considered a contingency model because it in
cludes factors that can lead to variations in performance.
We propose that two factors are fundamental to a firm's strat

egy adaptation process: the firm's adaptation strategy at entry
(along each marketing-mix component: product, promotion,
pricing, and distribution) and the perceived instrumentality
of success ofthat component (i.e., how much a firm perceives
that each marketing-mix component contributes to its suc
cess) in the overseas market.
The first factor that affects a firm's current adaptation strat
egy in a foreign market is the strategy the firm uses when it
Adaptation Strategy at Entry
Adaptation of International Marketing Strategy 61

Figure 1.
Strategy Adaptation,
Competitive Advantage,
and Firm Performance
Perceived
Instrumentality
to Success
Current
Degree of
Adaptation
Competitive
Firm
Advantage
Performance
first enters that market. Literature on foreign market entry

suggests that firms formulate their entry strategy through a
conscious consideration of their objectives, their resources,

and the host country environment to determine the entry
mode, the entry alliance strategy, and the timing of the entry.
Researchers have found that firm-specific factors (produc

tion and other transaction costs; see Erramilli and Rao 1993),
host country variables (location choice, nature of host gov
ernment; see Pan and Tse 1996), and intercultural variables
(cultural distance as in Tse, Pan, and Au 1997) are salient
when a firm designs its entry strategy. Cavusgil and Zou

(1994) note that firms carefully plan their entry, allocating
sufficient managerial and financial resources to the venture.
Such careful planning is intended to ensure that the market
ing strategies can be effectively implemented (Aaby and
Slater 1989). In addition, considerations of the host environ

ment are critical. Douglas and Craig (1989) stress that entry
strategy reflects the firm's response to the legal and technical
regulations that are often mandated.
Adaptation at entry may be influenced by the decision-mak
ing orientation of the firm, and such orientation can be
viewed as an antecedent variable. Whether a firm has an eth
nocentric, polycentric, regiocentric, or geocentric (EPRG) ori
entation in its international decision making is relevant

(Perlmutter 1969; Wind, Douglas, and Perlmutter 1973).
Decision-making orientation refers to how a decision maker

plans a firm's strategy in foreign markets within the context
of "geographic" concern. An ethnocentric firm focuses its op
eration in a particular market on the basis not of what is best
for that market area but of what is best for the home market or
for headquarters. In contrast, polycentric firms make deci
sions on the basis of what is best for each market. A regiocen

tric firm will anchor its decisions on the basis of the region in
which the firm is operating, and a geocentric firm will direct
its operation to fulfilling its global goals. In their study of 456
Danish companies, Shoham, Rose, and Albaum (1995) report
that decision-making orientation is positively related to
the standardization of marketing strategies, particularly for

advertising, distribution, and market research. Because the

theory that would underlie any possible relationship
between orientation and adaptation at entry is limited and

empirical research almost nonexistent, we formulate the fol
lowing proposition (not hypothesis) for examination:
Pa: A firm's adaptation strategy when it first enters a
foreign market is related to the decision-making ori
entation of the firm.
A firm's entry strategy represents its optimal attempt to cap

ture its target risk and return. For many firms, entry strategies
result from an extensive internal decision-making process

(Anderson and Gatignon 1986). Although a firm will likely
change its strategy after it enters the foreign market, we pos
tulate that the initial strategy works as the anchor for future
modification. In other words, firms will learn to adapt to the
new host environment. Therefore, we propose the following:
Ha: A firm's current adaptation strategy (i.e., strategy at

a point in time after first entry), defined in terms of
marketing-mix components (product, positioning,
pricing, and distribution), is positively related to its
adaptation strategy when it first entered the market.
The central theme of the globalization argument specifies that
social trends in many markets show signs of convergence.

Perceived Instrumentality
With anticipated growth in telecommunication technology to Success and Adaptation
and international travels, interaction among markets would Strategy
increase, making globalized strategies possible and profitable
(Levitt 1983). Opponents to globalized strategies have pointed
out that though socioeconomic trends in some market seg
ments may be converging, national cultures, local market con
ditions, and consumer reactions to globalized strategies may
be diverging (Buzzell 1968; Sheth 1978). It has also been sug
gested that, in many cases, public policies and regulations
across markets will make strategy globalization almost impos

sible (Douglas and Wind 1987). In short, strategy globalization
is more likely to be an exception than a norm. This will be the
case for overall marketing programs but may not hold for spe
cific components of strategy, such as pricing.
Recent discussion on globalization (e.g., Cavusgil and Zou

1994) has shifted the attention to a more fundamental issue:
the underlying motives of the firm. Jain (1989) hints that
strategy adaptation (versus globalization) is the means to an
end?the establishment of a firm's economic assets and com
petitive position in the marketplace. Researchers are asking,

"When a firm operates in an overseas market, what are its ul
timate objectives?" The need to broaden the discussion to in
clude the firm's strategic perspective in this debate has also
been articulated by several authors (Douglas and Craig 1989;
Szymanski, Bharadwaj, and Varadarajan 1993; Walters 1986).

Let us turn to the discussion on the motivation process

within a firm. For more than two decades, organizational sci
entists have applied expectancy theory to elucidate the moti
vation process within organizations (Pinder 1984). Drawing
insights from Vroom's (1964) classic work on motivation,
they postulate that three key components?valence, instru
mentality, and expectancy?motivate and direct a firm's be
havior. Valence refers to the affective orientation people hold
toward the outcome, instrumentality refers to the link be
tween an act and the outcome (or between an instrumental
outcome to a higher-level outcome), and expectancy refers to
the probability of attaining that outcome (Pinder 1984). Prior
studies have verified the application of the expectancy the
ory to motivations in organizations.
In the context of a firm's strategy adaptation process, the ex
ecutives would find the success of the firm a desirable out
come. The executives would evaluate the strength of the

relationship between the firm's success and their effort (that
is, their marketing strategy) and act accordingly. Therefore,
we propose that perceived instrumentality to success is a dri
ving motivation when a firm evaluates whether and how
much to adapt. The more a firm perceives that a particular

marketing-mix component is instrumental to its success (i.e.,
the greater the perceived importance of the component), the
more the firm will ensure that the marketing-mix component
serves its customers, and accordingly, the more the firm will
adapt that marketing-mix component to the local market. We
hypothesize the following:
H2: Perceived instrumentality of a marketing-mix com
ponent to the firm's success in the overseas market
is positively related to the degree of adaptation in
that marketing-mix component after market entry.
Adaptation Strategy and

Competitive Advantage
Until recently, studies have treated a firm's choice of its glob

alized or localized strategy as the outcome variable, the result
of a firm's marketing plan. Recent studies have expanded this
limited scope to study how globalized or localized strategies
affect the overall position of the firm. Douglas and Wind

(1987) and Jain (1989) point out that one key payoff of the de
cision on globalization and adaptation is the competitive ad

vantage of the firm. In discussing alternative product policy
options for firms, Walters and Toyne (1989) emphasize the
need to evaluate such options in the context of the competi
tive strategy of the firm.
The preceding argument agrees with the fundamental eco
nomic assumption that a firm's goal is to survive, secure its

assets, and grow (Bradley 1984). Whether to adapt and how
much to adapt are instrumental strategies servicing this goal.
Whatever the firm must do to be successful, it will do, glob
alized or not. In their three-phase evolution framework, Dou

glas and Craig (1989) postulate that firms entering an over
seas market seek to maximize their locational advantages

(including scale economies and market expansion). Simi
larly, Dunning's (1988) eclectic paradigm argues that firms

leverage their ownership and locational advantages as they
expand into overseas markets to gain a competitive advan
tage position in the marketplace. In short, prior studies argue
that strategy adaptation (versus globalization) serves a firm's
attempt to gain success in the marketplace.
Extending from these arguments, we conceptualize that how
much a firm decides to globalize or adapt contributes to de
veloping (or maintaining) its competitive advantage in its
overseas markets. Therefore, we postulate a causal link be
tween the current degree of adaptation and the competitive
advantage of the firm along each of its marketing-mix compo
nents. That is, the major consideration in deciding whether

to globalize or adapt locally rests on how effective the firm
regards the adaptation strategy (i.e., what it does at a point in
time after entry) as leading to its competitive advantage (at
the same time) in the overseas market. Accordingly, we hy
pothesize the following:
H3: There is a positive relationship between the current
level of adaptation and the competitive advantage
of a firm along each of the marketing-mix compo
nents.
Perceived instrumentality to success measures how impor

tant the firm perceives a marketing-mix component to be to
the firm's success in the overseas market. This construct af
fects a firm's competitive advantage in two ways: through its
influence on resource allocation and its influence on the
Perceived Instrumentality
to Success and Competitive
Advantage
firm's fine-tuning of its strategy.
When a firm perceives a marketing-mix component to be in

strumental to its success in the overseas market, it will support
that component. Such support may include financial commit

ments, technology investments, and/or human capital. The ex
ecutives may also develop sensitive feedback systems to
carefully monitor how competitive each marketing-mix com

ponent is when compared with that of its competitors.
As discussed, firm executives will pay more attention to mar

keting-mix components that are instrumental to building its
competitive advantage and less attention to components that
might be viewed as "benign." The more attention a firm pays
toward a particular marketing-mix component?for example,
product strategy?the more likely it is that the firm will be
able to fine-tune that component to match the market de
mand. As a result, the firm will learn how to acquire more

competitive advantages in its product strategy. This learning

process will provide the firm with a competitive advantage
needed to succeed in its market.
In addition to the rational economic argument, there are in
ternal processes within firms that must be considered (Wal
ters 1986). Shoham and Albaum (1994) point out that a firm's
adaptation decision involves intensive organization discus
sion and often faces resistance from headquarters. By engag
ing in goal-oriented discussion?that is, by considering how
instrumental a marketing-mix component is to achieving a
firm's competitive advantage?firms can resolve differences
between headquarters and subsidiaries. Consistent with this
argument, which has not much theory behind it, we propose
the following:
P2: The perceived instrumentality to success of a mar

keting-mix component is positively related to the
competitive advantage of the firm in that market
ing-mix component.
Competitive Advantages
and Firm Performance
The results of previous studies point to an uncomfortable

conclusion: that there is no consistent relationship between
strategy adaptation and firm performance. For example,
Samiee and Roth (1992) find no performance difference be
tween firms that adapt their strategies and those that choose
not to. This finding raises a fundamental issue: Does strategy
adaptation or globalization really matter?
The results of Cavusgil and Zou's (1994) study raise the same
question. The authors find a positive relationship between
export performance and product adaptation but also an
unanticipated inverse relationship between performance and

promotion adaptation. These findings suggest that strategy
adaptation works for some but not all components of a firm's
marketing strategy. Taken together, these findings make it dif
ficult to draw a definitive conclusion on strategy adaptation

and firm performance.
We conceptualize that by evaluating which component to

adapt and how much to adapt it, a firm continues to refine its
marketing strategy until it attains competitive advantage in

its market. In turn, the firm's competitive advantage deter
mines its performance. That is, we propose that competitive
advantage is the link between strategy adaptation and firm
performance. This idea was first hinted by Szymanski,

Bharadwaj, and Varadarajan (1993), who suggest that more
effort is needed to link strategy standardization and a firm's

strategic advantages. Until now, their suggestion has not been
followed. As a final link in our contingency model, we hy
pothesize the following:

H4: A firm's performance is positively related to the

firm's competitive advantage in marketing strategy.
To test our hypotheses and examine our propositions, we

conducted a survey of exporters in Hong Kong. Despite its
small population, Hong Kong has been consistently ranked
among the world's top 15 trading economies in the past
Research Design and

Methodology
decade. Hong Kong firms actively export a wide spectrum of

products to all the world's top regional markets (i.e., Main
land China, North America, Japan, and Western European
countries). A survey of Hong Kong exporters provides a data
set with diversities in products and markets that is adequate
to test the hypotheses and examine the propositions.
We contacted the Trade Development Council, an organization
set up by the Hong Kong Special Administrative Region Gov
ernment that facilitates Hong Kong's external trade activities,
and we asked its research department to select 600 firms ran
domly from its database of all exporters (approximately 1500)
that are actively involved in Hong Kong's top six export prod
uct categories (clothing and textile, electronics, watches and

clocks, jewelleries, plastic products, and printed materials).
The council's database contained the address, the full name of
the firm's senior executive (owner, chief operating executive,
or general manager), the contact telephone number, and the

number of employees in the firm. Firms that were very small
(fewer than five people in the firm) were deleted, which re

sulted in an original sample of 400 firms. We believed that the
small firms would be less likely to have the diversity of expe
rience in adaptation issues that larger firms have. Also, the

small firms account for a small share of exports.
Knowing that surveys targeting senior executives generally

yield poor responses, we designed the following four-step
process to ensure a good response rate:
1. We sent a letter to the firm owner or the senior executive.
It informed them of the upcoming survey, its purpose, and
its length. The letter asked them to call or fax back if they
did not want to participate in the survey. The letter also

informed them that a member of the research team would
telephone them within a few days to confirm their partici
pation in the survey.
2. Within a week, a research team member called the senior

executive to solicit his or her verbal agreement to help in
the survey. The telephone contact also ensured that the
address, the name, and the contact person were correct as
provided in the database.
3. We subsequently sent a six-page questionnaire to execu

tives who were willing to participate together with a sou

venir pen from the university to reinforce the researchers'

identity and the academic nature of the project.
4. After two weeks, we sent a second questionnaire to the

nonrespondents.
This four-step process resulted in 196 responses, represent
ing a 49% response rate. Of these, 13 responses were from ex
ecutives in the middle management level (as rated by the
respondents) and were not included in our analyses, which
resulted in an obtained sample of 183 firms and an effective
response rate of 45.8%. This response rate is high compared
with prior studies on similar populations (Samiee and Roth
1992; Shoham and Albaum 1994). Early and late responders'
scores on the key variables were compared, and no signifi
cant difference between the two groups was detected, which
suggested that delay response bias was not operative.
Measurement
To ensure that the survey covered company activities in a range
of foreign markets, we used a split-ballot approach. The re

search task would be too cumbersome to ask respondents to
provide data for more than one market area. We developed four
versions of the questionnaire, each corresponding to a particu
lar regional market (mainland China, United States/Canada,

Western European countries, Asia other than mainland China).
We randomly assigned the respondents to one of the four ver
sions of the questionnaire. If a company did not have any oper
ations in the assigned market area, the company was asked to
choose a regional market in which it had operations and re
spond to the questionnaire on the basis ofthat regional market.
Aside from background information, such as the firm size, year
of establishment, and so forth, and personal information on the
respondent, the following questions and scales on strategy
adaptation, competitive advantage, and firm performance were
all specific to the regional market. The regional markets used
were all major markets for Hong Kong exporters. Although
business is done in Latin America and Africa, it is relatively
small compared with the areas included in the study.
We used ten marketing activities covering the four typical ar
eas in marketing strategies (product, positioning, pricing, and
distribution; as in Cavusgil and Zou [1994]) and additional
strategic components such as service and marketing research

to measure how firms globalize their marketing activities in
their markets. We measured the degree of adaptation at entry

on each of the ten marketing activities by asking the respon
dents to rate how much change (compared with activities in

the Hong Kong market) they made at the time when the firm
first entered that market (remember that the respondents were
assigned to respond about only one regional market) using

five-point scales that ranged from "very significant change,
that is, high degree of adaptation" to "no change at all, no

adaptation." Similar retrospective measures were used by
Cavusgil, Zou, and Naidu (1993) and Schwenk (1985).
We measured the current degree of adaptation on each of the

same ten activities by asking the respondents to rate the dif
ference in each item currently (at the time of data collection)
between the foreign market and the domestic Hong Kong

market using five-point scales that ranged from "very signifi
cant difference, that is, high adaptation" to "no difference, no
adaptation." The same scales were used by Shoham and Al
baum (1994).
Perceived instrumentality to success was measured along

each of the ten activities. Respondents were asked to rate
how important each activity is in the success of the com
pany's operations in the specific regional market using five
point scales that range from "not important at all to success"
to "very significant to success." Examples of adaptation and
importance to success measures are shown in the Appendix.
The competitive advantage of the firm in the specific market

was measured in terms of each of the four conventional mar
keting-mix components (product, positioning, pricing, and

distribution) together with service and marketing research,
plus two firm characteristics: quickness to respond to market
changes and flexibility in responding to market changes (see
Fiegenbaum and Karnani 1991). Quickness refers to speed of
response, and flexibility covers diversity, creativeness, and
so forth of response. The respondents were asked to rate how
the company performed in each of these activities compared
with the competitors in the regional market using five-point
scales that ranged from "much worse" to "much better" than
their competitors.
There has been some debate in the literature on how an ex
porting firm's performance should be measured. Benefiting
from previous discussion (Aaby and Slater 1989; Madesen

1987), we operationalized firm performance along two di
mensions: (1) market share and (2) operating profit. In each of

the two dimensions, we measured firm performance using
both the comparative approach (i.e., compared with competi
tors) and the expectation approach (i.e., compared with a
firm's expectation) using five-point scales that ranged from

"much worse than" to "much better than." For example, the
market share comparative approach asked the respondents to
rate how the firm performed in market share ("much worse"
to "much better" than competitors).
We measured a firm's decision-making orientation by asking
the respondents to identify what particular region would be of
primary concern when they made a decision about business

activities in the specific regional market about which they

were responding. The respondent was asked to choose one of

the following: Hong Kong (i.e., ethnocentric), the specific mar
ket involved (polycentric), a group of foreign markets (i.e., re
giocentric), and all markets involved (geocentric). This is
Perlmutter's (1969) EPRG schema. Thus, each respondent self

determined what category characterized decision making.
In addition, the questionnaire contained some firm-specific

questions on the year the firm was established, its size, the
importance of different regional markets to the firm, existing
activities in overseas markets, and some statements on al

liance formation. The questionnaire took approximately 25
minutes to finish.
Obtained Sample
Characteristics
Table 1.
Characteristics of
Responding Companies
Characteristics of the responding companies are presented in

Table 1. The companies show a wide range in size: 23% have
less than 10 employees, and 8.3% have more than 1000 em
Number of
Company
Characteristic
Companies
Number of Employees
Less than 10 42
10-49 56
50-99 18
100-249 30
250-999 20
1000 and above 17
Percent
Distribution
23.0
30.6
9.8
16.4
10.9
9.3
Percentage of Employment in Foreign Markets
None 86
l%-20% 12
21%-50% 14
51%-75% 12
76%-100% 59
Age of Company
Less than 5 years 21
47.0
6.6
7.6
6.6
32.2
5-9 years 68
10-14 years 31
15-24 years 33
11.5
37.1
17.0
18.0
16.4
Subsidiary of Hong Kong 14

Subsidiary of foreign 16
Joint venture of Hong Kong and foreign 5
78.7
7.7
8.7
2.7
2.2
25 years and above 30

Ownership of Company
Independent-owned Hong Kong 144
Others 4
Decision-Making Orientation
Hong Kong 58
Foreign market involved 43

Group of foreign markets 14
All markets 52
Market Area Responded For
China 50
Asia other than China 35
United States/Canada 36
Western Europe 55
34.7
25.7
8.4
31.2
28.4
19.9
20.5
31.2

ployees. Despite the request made to the Trade Development

Council, some firms having less than five employees were in
cluded in the sample, and their responses were retained for
analysis. Almost one-half the companies have no employees
in foreign markets, whereas 41% have more than one-half
their employees thus employed. Their ages range from 5 years
to more than 100 years, and the mean is 12.7 years. More than
80% of them are Hong Kong based; 78.7% of them are inde
pendent Hong Kong companies, and 7.7% of them are sub
sidiaries of Hong Kong firms. For the firms' geographic
orientation in their decisions, approximately two-thirds of the
responding firms (65.3%) focus on the benefits to markets

other than Hong Kong when they make decisions. The vast
majority (65%) of respondents reported that at least one-half
their exports represented re-exports, and most come origi
nally from China (these data are not included in Table 1). This
orientation is consistent with the nature of an externally ori
ented city like Hong Kong and reflects its role as an entrep?t.
We grouped the marketing activities as follows into four

more general marketing-mix activities to test the four hy
potheses and examine the two propositions. These groups
are shown in Table 2, which also shows that the Cronbach's

alpha measure of internal consistency for the three compos
ite measures ranged from .66 to .92. Because service strategy
correlated highly with distribution strategy, it was added to
the distribution items to form a distribution/service dimen
sion for subsequent analysis. The marketing research activity

had low correlations with other marketing activities, and in
further analysis, findings with regard to this marketing activ
ity offered no additional insights, so it was dropped from

subsequent discussion.
_Coefficient Alpha_
Initial Current Importance

Entry Practice to Success
Table 2.
Grouped Marketing Activities
Product Strategy .86 .92 .82

Product strategy
Product design
Product quality
Product function
Positioning .67 .76 .66

Advertising/promotion
Brand name
Distribution/Service .81 .86 .76

Distribution
Personal selling
Service
Pricing
Pricing n.a. n.a. n.a.
Notes: n.a. = not applicable.

Findings and Discussion
In reporting findings, we report in the order in which a propo

sition or hypothesis has been discussed within the context of
the conceptual framework rather than discuss all hypotheses
together and all propositions together. Whether a relationship
has been presented as a hypothesis or a proposition is depen

dent primarily on the extent of underlying theory and re
ported empirical evidence to support the relationship.
P-L asserts that a firm's adaptation strategy when it first enters
a foreign market will be related to the firm's decision-making
orientation. In short, orientation is viewed as antecedent to

adaptation at time of entry. Using the EPRG schema, initial
market entry difference varied significantly by decision
making orientation only for distribution/service; the statisti
cal significance was p < .08. When we used the Scheff? post
hoc test, no pair of orientations differed significantly. There
fore, Pa is not supported.
Current Level of Adaptation
To test Ha and H2, we regressed the current level of adapta

tion against the degree of adaptation at entry and perceived
instrumentality to success for each of the four marketing-mix
components. We also included firm characteristics such as
firm size, age, and the relative importance of regional
markets to the firms in the regression equations as control

variables. Table 3 reports the ordinary least squares (OLS) re
gression results. In all four equations, all the firm characteris
tics are insignificant, which suggests that firms' current level
of adaptation in their marketing strategies is not affected by
the institutional factors. This implies that prior bivariate

studies that have found significant correlation between firm
characteristics and standardization strategies need to be re
assessed, as Cavusgil and Zou (1994) also point out.
We next examined how strategic variables affect the firms'
choice of their current level of adaptation in their marketing
strategies. As shown in Table 3, all regression coefficients with
respect to the degree of adaptation at entry are positive and

significant. This suggests that firms developed the current
level of adaptation on the basis of their chosen level of adapta
tion when they first entered the overseas market (Ha). The
more adapted the strategic component was at the point of en
try, the more adapted was the current marketing-mix compo
nent. That all four marketing-mix components report the same
results provides a solid empirical support for the hypothesis.
For perceived instrumentality to success, all coefficients are

positive, and three of four coefficients are significant at the p <
.05 level. The only exception is product strategy, for which the
coefficient is positive but not significant. This finding sup
ports H2, which states that the more instrumental the market
ing-mix component is to the success of the firm in that market,
the higher is the adaptation for that marketing-mix compo
Table 3.
Independent Variables
Degree of
Adaptation
at Entry
Dependent Variable
Current Degree of Adaptation
Product strategy . 74 * *
Positioning strategy .63**
Service and distribution strategy .67**

Pricing strategy .51*
Perceived
OLS Regression Results for

Current Degree of Adaptation
Instrumentality
to Success
.04
.18*
.16*
.16**
.55
.57
.62
.38
*p<.05.
**p< .01.
Notes: The table reports the beta coefficients.
nent. This suggests that when a firm regards a particular mar
keting-mix component as salient to its success, the firm will

emphasize that component; as a result, the firm will further
tailor the strategy to meet the local market demand. Pressure
from competitors in the overseas market may also help push
firms to localize their marketing strategies when the firms per
ceive that component as salient to their success.
Next, we examined the relationship between the level of
strategy adaptation of the four marketing-mix components

and a firm's competitive advantage. Our basic premise is that
a firm's strategy adaptation is not an end but a means to a
higher goal. We propose that whether through globalization
or adaptation, the firm's aim is to establish its competitive
advantage in an overseas market. Some firms may find glob
alization strategies crucial to establishing their competitive
positions, whereas others may find adaptation necessary in
establishing their competitive advantage. We regressed the
competitive advantages along each of the four marketing-mix
components against the current level of standardization and
Firms' Competitive Advantage
perceived instrumentality to success. In addition, we in

cluded firm characteristics as control variables.
The OLS regression results are reported in Table 4. Again, all

the firm characteristics (e.g., size, age) are insignificant in all
equations. More important, the relations between current de

gree of adaptation and competitive advantage are either weak
(as in pricing and positioning) or nonexistent (as in product
and service and distribution). This confirms our belief that
globalization or localization is not a panacea for all firms.

Blindly following either adaptation or globalization strate
gies does not guarantee a firm's competitive advantage in an
overseas market. Therefore, H3 is not supported.
In contrast, perceived instrumentality to success shows a

more consistent and significant impact on a firm's competi
tive advantage. These findings support P2. Simply put, the
more important the firm regards the marketing-mix compo

Table 4.
Independent Variables
Degree of

Competitive Advantage in Dependent Variable
Marketing Components
Adaptation
at Entry
Competitive Advantage
Product strategy .02
Positioning strategy -.17*
Service and distribution strategy .01

Pricing strategy .17**
Perceived
Instrumentality
to Success
.31***
.32***
.16*
.06
.09
.07
.02
.03
*p<.10.
**p< .05.
***p< .01.
nent to be for the firm's success, the more the firm will con
centrate on making sure it has a competitive edge over its

competitors in that marketing-mix component. The insignifi
cant coefficient for pricing strategy is not totally unexpected.
Firms marketing name-brand products are known to purpose
fully adopt a premium pricing strategy as a way to establish a
high-class name-brand image. These firms' pricing strategy is
therefore not competitive but instrumental to their success.
Firm Performance
Prior studies have failed to find a definitive relation between

adaptation and firm performance. We first examined the rela
tionship between firm performance (measured in four ways:
market share compared with competitors', market share com
pared with expectation, profit compared with competitors',
and profit compared with expectation) and current level of
strategy adaptation.
In accordance with the hypotheses and propositions put
forth, the four performance variables were regressed against

(1) the current level of strategy adaptation in each of the four
marketing-mix components, (2) the firm's competitive advan
tages in each of the four marketing-mix components, (3) the
decision-making orientation of the firm, and (4) the firm's
strategic variables (quickness to respond and flexibility to
meet market demand). Firm characteristics were also in

cluded in the equations.
Table 5 reports the OLS results. Again, the firm characteris

tics (e.g., size, age) are insignificant, which suggests that
firm type does not determine firm performance. Most impor
tant of all, all four current level of adaptation variables (in

each marketing-mix component) are insignificant. This re
sult agrees with previous findings that there is no significant
relationship between the current level of adaptation along

any of the marketing-mix components and any of the four
performance measures.
_Competitive Advantages_
Dependent Product Positioning Service and Pricing Firm

Variable Strategy Strategy Distribution Strategy Strategy r2
Table 5.
Firm Performance
Market share
compared with
competitors' .22***
.29*** .15* -.04 .11 .23
Market share
compared with
.16* .01 .01 .16* .17
expectation .21***
Profit compared
with competitors' .05
Profit compared
with expectation .11
.23*** .04 .01 .12 .13
.02 .08 .06 .19** .04
*p< .10.
**p< .05.
***p< .01.
However, H4, which specifies that the firm's advantages in

marketing-mix components affect the firm's performance,
finds support. As would be expected, the influence of the
marketing-mix components is stronger in the two market
share performance measures (which directly relate to market
ing activities) than in the two profit measures. Among the
four strategic components, competitive advantages in prod
uct strategy and positioning strategy exert significant effects
on both market share measures. Service and distribution
strategy registers a marginal effect on market share compared

with competitors only, and pricing strategy does not register
any significant effect on the performance measures.
Profit measures, which are known to be affected by other

functions within firms, such as production costs, were found
to be less affected by the firm's advantages in marketing-mix
components. Only competitive advantages in positioning

strategy registered a positive, significant effect on profit com
pared with competitors'.

Last, the firm strategy variable (composed of quickness to re
spond and flexibility in responding to market changes) regis
tered significant effects on both expected measures but not
the comparative measures. Although our study focuses on

marketing-mix components, the significance of these firm
specific strategic variables reiterates the need for marketing
research to broaden its scope to include firm-specific advan
tages in further research.
This study is based on two tenets: (1) Firms adapt their mar
keting strategies in overseas markets through purposeful
processes, and (2) firms' strategy adaptation needs to be stud

ied in the context of their strategic positions in the overseas
Implications and
Conclusion
market. The article proposes and supports a model that
builds on ideas from recent international marketing studies.

Several points warrant further discussion.

The proposed model proves useful in elucidating how firms

adapt their marketing strategies. The key hypotheses and
propositions derived from the model are supported by the re
sults of a survey that covers firms of different sizes and histo
ries that market a diverse range of products to major world

markets. The model seems to apply to all four components of
a firm's marketing strategy. A summary is shown in Table 6.
In the proposed model, perceived instrumentality to success

proves to be a critical factor that links a firm's adaptation
strategy to its competitive advantage in the market it serves.
Perceived instrumentality can be thought of as a proxy that

captures the motivation of an organization toward its goal. In
expectancy value theories, perceived instrumentality has
long been used to conceptualize the directional guidance for

an organization or individual in achieving its goal. Thus, by
its nature, this variable captures part of a firm's internal
process as it develops its globalized or customized strategies.
Applying Jain's (1989) framework that distinguishes market
ing process versus marketing program, perceived instrumen
tality is a variable that targets the process component of a
firm's international marketing strategy.
We attempt to establish a relationship between adaptation

and firm performance by conceptualizing that adaptation
first leads to competitive advantage. The link is conceptually
sound and is supported in this study. As in prior research,
the study finds no direct relationship between a firm's adap
tation strategy and its performance, but it confirms the links
between adaptation and competitive advantage and between

competitive advantage and firm performance. Through these
links, the relationship between adaptation and performance
is better defined and therefore is validated.
Table 6.
Summary of Hypotheses
and Propositions
Result
Hypotheses/Propositions
H2 A firm's current adaptation strategy is positively
related to its adaptation strategy at entry. Supported
H2 Perceived instrumentality of a marketing-mix

component to the firm's success is positively
related to adaptation after market entry. Supported
H3 There is a positive relationship between the current

level of adaptation and competitive advantage
along each marketing-mix component. Not supported
H4 A firm's performance is positively related to its
competitive advantage in marketing strategy. Supported

Adaptation strategy at time of initial market entry is
related to the decision-making orientation of the firm. Not supported
The perceived instrumentality to success of a

marketing-mix component is positively related to
competitive advantage in that component.
Supported
The study reported two unexpected findings. First, firm de
mographic characteristics (e.g., size, age) proved insignifi

cant in determining firms' strategies and performance. This
may reflect that as markets become competitive, there is little
guarantee of success, and competitively advantageous posi
tions can be earned by firms of all types?big or small, young

or old. At the same time, the finding implies that further re
search on firm performance needs to go beyond firm demo
graphics and investigate strategic elements within a firm.
Second, the study found that there is no significant relation
ship between decision-making orientation and adaptation
strategy at entry. A priori, polycentric firms would be expected

to be more inclined to adapt than nonpolycentric firms. It may
be that other motivations, such as tax reduction or ease of ob
taining financial resources, may be operative, which suggests

that the impact of decision-making orientation on firm perfor
mance needs to be broadened to include the business environ
ments in which the firm operates. Recent studies have adopted

a contingency approach to model how environmental factors
affect firm behavior and performance (Cavusgil and Zou 1994;
Szymanski, Bharadwaj, and Varadarajan 1993). They set good
examples for further research to follow.
The study opens several future research directions. First, it

reinforces the need to assume a broad strategic orientation in
attempts to understand firms' international marketing strate
gies. As pointed out in previous studies (Cavusgil, Zou, and
Naidu 1993; Douglas and Craig 1989), international market
ing strategy is part of a firm's strategic plan and should be
studied accordingly. In this regard, this study attempts to
start building this crucial link. Future research efforts are
needed to understand how marketing strategies complement
firms' other functional strategies, such as global production
plans, human resources policies, and financial strategies, in
developing their competitive positions in overseas market,
especially if researchers are to understand what determines
firm performance, such as firm profitability. Recent discus
sion on the theories of firm competition (Deligonul and

Cavusgil 1997) in the marketing literature may offer the
needed paradigms in this direction.
Second, this study attempts to investigate internal organiza
tional processes that underlie firms' strategic formation
process. More effort is needed to delineate further the com

plex internal processes, including (1) how firms incorporate
changes in overseas markets, (2) how firms respond to com
petition in their local markets, and (3) how strategic deci
sions in subsidiaries are established in coordination with
firms' overall global plans. In this regard, the in-depth inter
view approach adopted by Cavusgil and Zou (1994) is an ap
propriate method to generate the needed insights.

This study provides several implications for managers. Of

paramount importance is the recognition that globalized or
customized strategies aie means rather than ends of interna

tional marketing strategy. Executives need to appreciate fully
the eminence of their marketing strategies in contributing to
a firm's competitive advantage. There is no simple panacea

for success. Whether a firm follows a global or customized
marketing strategy is contingent on its environment. No mat
ter how powerful the arguments of the proponents of global
ization or adaptation are, the necessity to achieve a higher
level goal (competitive position) is a more meaningful goal.
In building a firm's competitive advantage, this study empha
sizes the need for marketing managers to pay particular at
tention to marketing-mix components that have the greatest
impact on the firm's success in the overseas market. They
need to assess how foreign markets respond to different com
ponents of their strategies. In the future, the marketing man
ager's job will become more demanding. When a firm
establishes competitive advantage over its competitors, suc

cess will follow.
The study is designed to understand how firms operate and

perform after they enter overseas markets. No matter how
carefully executives plan their strategies at the time of entry,
the findings in this study suggest that subsequent modifica

tion and adaptation are inevitable to maintain their firms'
competitive advantage. As global social, economic, and tech
nological forces offer strong influence to the global markets,
the ability to acquire competitive advantage through continu
ous adaptation may decide a firm's survival and success.
Appendix
Examples of Items used to
Measure Changes in
N_a__keting Variables
This question concerns the extent to which your company

changes marketing strategies when you sell in the foreign
markets indicated above.
a. In Column I, please indicate the extent to which you
changed each listed marketing variable when selling ini

tially in the specified foreign market, compared with the
domestic market (Hong Kong), by circling a number from
lto5.
b. In Column II, indicate the extent to which you perform

each listed marketing variable differently in the specified
market area today, compared with the domestic market
(Hong Kong) by circling a number from 1 to 5.
c. In Column III, indicate how important each activity is in

the success of your operations in the specified foreign
market by circling a number from 1 to 5.

Extent of
Change
II
fr ? S ? S
> w w S 2
II
III
Extent of
Difference
?? -M
op g
fr ? g
> W CO
12 3 4 5
Product strategy 12 3 4 5
12 3 4 5
Pricing strategy 12 3 4 5
Advertising/promotion strategy 12 3 4 5
Personal selling practices
and strategy 12 3 4 5
Marketing research 12 3 4 5
Importance to
Your Success
12 3 4 5
> w cfl 2 Z
12 3 4 5
12 3 4 5
12 3 4 5
12 3 4 5
12 3 4 5
12 3 4 5
12 3 4 5
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Adaptation of International Marketing Strategy Components, Competitive Advantage, and

Firm Performance: A Study of Hong Kong Exporters

Adaptation of International Marketing

their domestic market and how such adaptation decisions in

fluence the firms' competitive positions and performance in for

eign markets. The authors conceptualize that adaptation of a

performance in the foreign market. The authors develop hy

Recent international marketing studies have made significant

Gerald Albaum and

proach, frameworks by Cavusgil and Zou (1994) and

Szymanski, Bharadwaj, and Varadarajan (1993) have success

environment in deciding its international marketing strategy.

Researchers (Cavusgil, Zou, and Naidu 1993; Samiee and

Roth 1992; Szymanski, Bharadwaj, and Varadarajan 1993)

tation strategy in its international marketing program and the

sents a dramatic development since Douglas and Craig's

This article extends these developments to delineate how a

formance in overseas markets. An adaptation strategy

involves changing the elements or components of the market

Submitted March 1999

markets (Keegan and Green 2000, pp. 395-402). In short, spe

kets. This article contributes to existing literature by

The study is designed with three distinctive features. First,

Wind 1987). Second, we examine how a firm's internal

tional marketing strategy in a broadened strategic orienta

process. Specifically, we view this process as being change

According to the internationalization argument (Dunning

cause it possesses specific ownership advantages over its

Previous discussion on globalization versus adaptation has

ket. The literature has discussed the impacts of a firm's cost

segments across nations), and other host country factors

studies have attempted to explain what firms face after they

60 Gerald Albaum and David K. Tse

exists when executives consider their advertising strategies.

firm to develop products that better fit the local needs

(Cavusgil, Zou, and Naidu 1993). Often, the decisions

whether to adapt and how much to adapt is a trade-off be

ter serving the local market. In their article, Douglas and

firm's evolution in developing its global marketing strategy.

seeks to leverage its domestic position internationally to

achieve scale economies. After a firm successfully enters a

Factors Affecting the

of organizational and environmental conditions (Harvey

tingency by considering factors that are responsible for differ

ences in strategy outcomes as contingency variables (Ekeldo

We propose that two factors are fundamental to a firm's strat

Adaptation Strategy at Entry

Adaptation of International Marketing Strategy 61

first enters that market. Literature on foreign market entry

conscious consideration of their objectives, their resources,

Researchers have found that firm-specific factors (produc

when a firm designs its entry strategy. Cavusgil and Zou

ing strategies can be effectively implemented (Aaby and

Slater 1989). In addition, considerations of the host environ

Adaptation at entry may be influenced by the decision-mak

ing orientation of the firm, and such orientation can be

viewed as an antecedent variable. Whether a firm has an eth

nocentric, polycentric, regiocentric, or geocentric (EPRG) ori

entation in its international decision making is relevant

Decision-making orientation refers to how a decision maker

for headquarters. In contrast, polycentric firms make deci

sions on the basis of what is best for each market. A regiocen

Danish companies, Shoham, Rose, and Albaum (1995) report