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International Journal of Logistics Management, The

Supply chain integration, information technology, market orientation and firm performance in container
shipping firms:
Po-Hsing Tseng Chun-Hsiung Liao
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Po-Hsing Tseng Chun-Hsiung Liao , (2015),"Supply chain integration, information technology, market orientation and firm
performance in container shipping firms", International Journal of Logistics Management, The, Vol. 26 Iss 1 pp. -
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1
1. INTRODUCTION

Container shipping is the main actor for enhancing international trade in merchandise

unfinished goods. In particular, in the case of Taiwan, which is an island country, in terms

total volumes as measured by tons, sea transportation accounted for more than 99% of total

international physical distribution in 2011 (Ministry of Transportation and

Communications, 2012). Global trade liberalization has facilitated the development of

maritime logistics. However, supply chain integration has rarely been studied in the

container shipping industry, despite the fact that this industry has two unique
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characteristics that differentiate it from manufacturing industries and therefore make a

separate study of its supply chain integration indispensable. First, while studies of the

supply chain integration in manufacturing industries have concentrated on only supplier

integration, in a service operation (e.g. container shipping), partner integration (e.g.

terminal operator) is also an important issue that can affect organizational performance.

Second, the container shipping environment is more complex than manufacturing

industries in terms of its global service characteristics. The container shipping industry has

faced both supply uncertainty and acceleration in customer service demand due to a

turbulent and competitive global economy. Customer need for a wider array of global

services necessitates a better integrated container shipping service. Within a dynamic

environment, container shipping firms play a key role with regard to satisfying the

requirements from shippers and consignees through effectively deploying fleets and

selecting ports. Within this atmosphere, container shipping firms need to make strategic

efforts to be competitive in the supply chain by reducing logistics costs and satisfying the

needs of customers (Lam, 2011; Lam and Voorde, 2011; Lam, 2013a; Lam, 2013b).

Basically, the customers of container shipping firms include shippers, consignees and

forwarders and offer regular services for cargo consignments. These containerized

2
transport network services (links in shipping routes and ports) are provided by many

participants, such as intermodal transport agencies, port operators, container terminal

operators (stevedores), and customs, among others.

A firm can not only achieve competitive advantage and enhance performance through

inter-organizational relationships, such as strategic alliances, merges and acquisitions

(Wanger and Frankel, 2000), but its supply chain integration should also be more

market-oriented in order to effectively respond to customer demands since the container

shipping industry is becoming increasingly market-driven (Wilmsmeier and Notteboom,


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2009).

Previous studies have examined the relationship between supply chain integration and

firm performance (Droge et al., 2004), market orientation and performance (Hult et al.,

2005), IT and firm performance (Byrd and Davidson, 2003), IT application and supply

chain coordination (Hill and Scudder, 2002), and IT and market orientation (Borges et al.,

2009). While prior studies have indicated supply chain integration or coordination to be

positively associated with firm performance (Droge et al., 2004) and supply chain

integration to be influenced by IT (Hill and Scudder, 2002) and market orientation (Min et

al., 2007), no study has examined simultaneously the interactions between supply chain

integration, market orientation, IT application and firm performance. In order to fill this

gap, the objective of this paper is to examine the relationships between the above

referenced four constructs in the container shipping context. The findings can be used by

the management of container shipping companies to provide alternative supply chain

integration and marketing strategies in order to strengthen performance.

In this study, supply chain integration is investigated along with logistics functionality

through an empirical survey intended to explore managerial implications. Several

logistics-based activities (e.g. information exchange and supplier-customer coordination)


3
are involved in the supply chain in the context of the container shipping field. The efforts

for this research are not only intended to answer questions related to empirical logistics and

the supply chain, but also to verify their theoretical relationship through hypothesis testing.

The research findings will provide theoretical contributions and strategic suggestions for

researchers and practitioners. This paper is organized into five sections. The second section

reviews previous literature. The third section describes the development of the research

methodology. Section four presents the research findings. Conclusions and implications are

discussed in Section five.


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2. THEORETICAL BACKGROUNHD AND HYPOTHESES

2.1 Supply Chain Integration

The supply chain is known as the connected series of activities concerned with planning,

coordinating and controlling material, parts and finished goods from the raw materials

stage to end users (Stevens, 1989). These activities include system management, sourcing

and procurement, inventory management, transportation, warehousing, and customer

service. Cooper et al. (1997) and Lambert et al. (1998) referred to supply chain

management as the integration of key business processes from end users through original

suppliers that provide products, services and information that add value for customers and

other stakeholders. The development of an integrated supply chain usually takes three

perspectives into consideration: strategic, tactical and operational. According to Zailani and

Rajagopal (2005), supply chain integration refers to the formation of networks

encompassing elements of the supply chain, which are the suppliers, customers, and the

companies involved. In addition, supply chain collaboration (horizontal collaboration) in

the area of container shipping provides its members with easy access to services at a

relatively low cost and allows them to share terminals (or slot sharing, vessel chartering,

joint-scheduling) to co-operate in many areas both at sea and ashore, thereby ultimately
4
achieving cost reductions (Notteboom, 2004). While several studies have proposed a

framework for supply chain integration, most of them have focused on the manufacturing

and logistics industry context (Bagchi et al., 2005; Fabbe-Costes et al., 2009; Jayaram and

Tan, 2010).

When constructing a global supply chain, manufacturers and traders must depend on an

effective maritime supply chain to integrate cargo and information flows. Thus, the

partnerships within the maritime industry (e.g., shippers, carriers and port/terminal

operators) have become important, and integrated operation experience can be learned
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from the manufacturing and logistics industry even in a regional shipping operation. In the

U.K., the integration of ports and terminals has been emphasized in maritime container

transport (Panayides and Song, 2008; Song and Panayides, 2008). Also, port industry and

terminal operators can strengthen service competitiveness through integrating maritime

and hinterland transportation chains (Franc and Horst, 2010; Langen and Chouly, 2009).

Today, several large container shipping lines, including Maersk and Orient Overseas

Container Line (OOCL), have developed dedicated terminals to maintain effective

operations in response to the arrival and departure of ships. Firms such as China Ocean

Shipping Company (COSCO), Hanjin/Senator, K Line and Yang Ming have forged

long-term contract relationships to reduce operation costs. Further, shipping agencies use

the name of clients (e.g., shipping companies) to help and manage transportation and

freight handling services and to obtain rewards. These roles can help enhance shipping

firm’s market responsiveness and reduce administrative and operational costs in certain

shipping regions (e.g., where market scale is limited). Shipping agencies also can serve as

bridges to link with shipping firms and terminal operators in order to obtain more

guaranteed sources of cargo from shippers. Accordingly, supply chain integration not only

considers supplier integration, but this paper argues that partner integration is also an

5
important determinant of supply chain integration in container shipping operations.

2.2 Market Orientation

The market orientation concept has its origin in a management philosophy known as the

marketing concept (Raaij and Stoelhorst, 2008). It is defined as “the organization wide

generation of market intelligence pertaining to current and future customer needs,

dissemination of the intelligence across departments, and organization wide responsiveness

to it” (Kohli and Jaworski, 1990, p.6). Several studies have also defined and refined the

concept and measurement of market orientation (Jaworski and Kohli, 1996; Harris, 1999;
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Matsuno et al., 2005; Liao et al., 2011; Gheysari et al., 2012). Generally, the

conceptualizations of market orientation have been derived from four complementary

perspectives: behavior perspective (Kohli and Jaworski, 1990), cultural perspective

(Narver and Slater, 1990), decision-making perspective (Glazer, 1991; Shapiro, 1988) and

customer orientation perspective (Deshpandé et al., 1993; Ruekert, 1992). In words, market

oriented organizations act as sensitive sensors to access customer needs and competitor

information via the process of collecting, sharing, and answering market knowledge with

inter-functional coordination. Market orientation has seldom been discussed in studies of

shipping services, but it does play a key role in this industry particularly under conditions

of dynamic and fierce competition. Increasing the integration of transport services and

responding to changes in consumer demand are important factors that container shipping

companies should consider. For example, efficient information dissemination is necessary

to effectively compete in a competitive maritime market (Panayides, 2006). Access to

up-to-date information enables shipping firms to stay ahead of competing shipping firms.

Thus, shipping companies need to remain in constant touch with their customers,

competitors, other stakeholders and the broad environment in which they operate, so as to

be able to formulate a quick response to any market turbulence.


6
2.3 Information Technology (IT) Application

With the development of technology, adopting IT applications for the purpose of moving

messages and fostering a greater degree of seamlessness in transport service has become

common in container shipping due to the institutional pressure exerted by supply chain

partners (Lun et al., 2008; Makris et al., 2008; Wong et al., 2009). Notably, several studies

(e.g. Mokhtarian, 2004) on the development of e-shipping revealed important implications

of this growing activity; for example, it has been shown that e-commerce and

e-collaboration can provide companies with a far more flexible and comprehensive means
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of interaction and communication with supply chain partners at a lower financial cost. Also,

with regard to RFID (radio frequency identification) application, Rizzo et al. (2011)

indicated that using an innovative active FRID system help improve security in

commercial transportation system. The application of web databases has been used for

reviewing past transport records and performance and for arranging and predicting future

container flow for supply chain partners. Service attributes of a web site in liner shipping

companies have been separated into four categories: tracing, customer response, vessel

schedules and electronic document services (Lu et al., 2005). Internet connection provides

online transaction services, market information services, support services, and performance

and equipment information. Container shipping companies provide freight rates and transit

time on website platforms from which shippers and consignees can find the information

they require about consignments. Clients can enquire about sailing schedules, track

containers and can access online auctions through a carrier’s website (Lu et al., 2007). Lun

et al. (2011) examined the relationship between firm size and the use of electronic

commerce (EC) by container transport operators in Hong Kong and the result found that

sale growth is positively related to the use of EC and firm size.

2.4 Firm Performance


7
Firm performance is a broad concept that encompasses various dimensions of the

operational, management and competitive excellence of a firm and its activities. Apart

from financial performance, some nonfinancial performance indicators have been noted in

past studies to enhance understanding of firm performance, such as customer satisfaction

and market performance (Chen and Quester, 2006). Both Akyuz and Erkan (2010) and

Gopal and Thakkar (2012) reviewed critical literature on supply chain performance and

indicated that this issue is still a fruitful research opportunity. Cuthbertson and Piotrowicz

(2011) recommended that performance measurement should be viewed as a


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context-dependent process, tailored to specific supply chain requirements. Brooks (2000)

contended that firm performance assessment should include process reviews, customer

satisfaction surveys, and the measurement of customer complaint levels. Studies on

performance measurement reflect two main perspectives. The first is the subjective concept,

which is primarily concerned with the performance of a business relative to that of its

competitors (Golden, 1992). The second is the objective perspective, which is based on

absolute measures of performance (Chakravarthy, 1986).

2.5 Research Hypotheses

2.5.1 Supply chain integration and firm performance

Previous studies have indicated that supply chain integration has a positive influence on

performance outcomes (Wu, 2009). For example, Esper and Williams (2003) found that

increased collaboration between shippers and carriers leads to reduced transaction

costs/risks, improved service performance, and a more streamlined supply chain.

Integrated supply chains provide operational visibility and a streamlined flow of goods that

compress the time interval between a customer’s request for a service and its delivery (Hult

et al., 2004). Based on the above studies, it is reasonable to believe that a high degree of

supply chain integration helps container shipping lines to flexibly provide integrated
8
logistics services that will satisfy customer needs and deploy suitable space for containers.

These strategies will, in turn, heighten firm performance.

Hypothesis 1: Supply chain integration is positively related to firm performance.

2.5.2 Market orientation and firm performance

The relationship between market orientation and firm performance has been explored

through a number of methodologies, contexts, and measures of market orientation. Kohli

and Jaworski (1990) and Jaworski and Kohli (1993) sought to confirm that market

orientation is positively related to overall firm performance in their study of the strategic
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business units of 230 US firms. Recent studies also have pointed to a positive link between

market orientation and various firm performance variables, such as profitability, market

size, market share and growth rate (Kim, 2009; Morgan et al., 2009). Studies have also

been undertaken to examine the relationship of market orientation and firm performance in

different types of firms, for example, manufacturers, wholesalers, and industrial service

firms (Martin and Grbac, 2003), and maritime logistics and logistics service provider firms

(Panayides, 2006; Ellinger et al., 2008). Kumar et al. (2011), used nine-year period data of

firms in the retailing, distribution, and manufacturing sectors and found market orientation

to have a positive effect on business performance in both the short and the long run.

Hypothesis 2: Market orientation is positively related to firm performance.

2.5.3 IT application and firm performance

The definition of market orientation emphasizes the ability of a firm to learn about

customers and competitors in order to more clearly determine the best responses to retain

or attract customers. A market-oriented firm will produce and store market information that

is needed to build, maintain, and enhance a systems approach to cooperative relationships

with other supply chain partners. Lai (2003) empirically showed that the relationship

9
between market orientation and business performance is positive in quality-oriented firms.

Min et al. (2007) found market orientation to have a strong, positive impact on supply

chain orientation and supply chain management. Supply chain orientation means the

supply chain is implemented within a firm, while supply chain management means the

supply chain is implemented by multiple firms within a supply chain. Thus, it is reasonable

to infer that effective market orientation helps to integrate various supply chain activities

among different firms.

Hypothesis 3: IT application is positively related to firm performance.


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2.5.4 IT application and firm performance

The implementation of IT in the supply chain enables a firm to develop and accumulate

knowledge stores about its customers, suppliers, and market demands, which, in turn,

influences firm performance (Lambrou et al., 2008; Lun and Quaddus, 2011). Wong et al.

(2009) found that trading firms that adopted IT-enabled transport logistics could improve

cost performance, particularly when firms faced environmental uncertainty. Other

advantages of IT application are reducing supply chain complexities and enabling a firm to

optimize global supply chain strategies in order to maximize performance outcomes

(Angeles, 2009). Tongzon et al. (2009) reported that an investment of advanced IT in

shipping lines reduces turnaround time for ships, which is then passed onto shippers in

terms of lower freight rates. A firm is thereby able to manage its own container supply

chain with the aid of IT application and also offer high quality services to its customers.

The electronic operation process directly/indirectly helps a firm to increase revenues,

reduce administration costs, achieve better asset utilization at a lower cost, and improve

customer service performance.

Hypothesis 4: Market orientation is positively related to supply chain integration.

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2.5.5 IT application and supply chain integration

IT application is arguably an essential ingredient for business survival and creates a

seamless integration of entities in a supply chain because it helps firms to transmit and

process necessary information for synchronous decision-making (Li et al., 2009).

Nikitakos and Lambrou (2007) indicated that information communication technology (ICT)

is becoming increasingly important for efficient and timely container processing (e.g.,

tracking and tracing) throughout the shipping value-chain. ICT adoption facilitates the

following benefits: quicker access to information, improved communication between


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supply chain partners, reduced operation cost and better service quality. Moreover, the

automatic exchange of information helps maritime supply chain partners to become better

informed and allows them to make earlier decisions (Lambrou et al., 2008).

Hypothesis 5: IT application is positively related to supply chain integration.

2.5.6 IT application and market orientation

According to Day (1999), technology adoption is an essential condition for success that

needs to be an ally to market orientation. Min et al. (2002) reported that Internet

technologies are able to transform a traditional market orientation into a more efficient and

effective one. Recent advances in IT applications have improved information

dissemination in the maritime market and enabled many stakeholders, not only to keep

track of the market, but also to look for the best offer and fix the best available contract

(Alizadeh and Nomikos, 2002). Overby et al. (2006) found IT utilization to positively

influence market orientation by supporting marketing activities. The Internet is therefore

vital for gathering information on environmental changes, for sharing information and

knowledge, for developing market focused responses, and for supporting market

orientation behavior (Min et al., 2002).

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Hypothesis 6: IT application is positively related to market orientation.

The conceptual model is presented in Figure 1.

X7
X1 X2 X3 X9 X10 X11
IT Application
X8

Supply Chain
Firm Performance
Integration

X5
Market Orientation
X6
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Figure 1 Research Model

3. METHODOLOGY

3.1 Measures

This paper’s survey instrument was developed based on previous research, and in-depth

personal interviews were carried out with practicing experts in the container shipping

industry and academic units. The objectives of the preliminary fieldwork were two-fold.

The first objective was to explore whether there were valuable constructs that have

previously been unnoticed by the past literature and can further be applicable in practice.

The second objective was to determine if the interviews could help improve the construct

validity of the measurement instrument (Churchill, 1979). The questionnaire development

followed the framework proposed by Churchill and Iacobucci (2005). To test the

hypotheses, a preliminary questionnaire was developed composed of items of all constructs

adopted by existing literature taking into consideration specific service characteristics of

the container shipping industry. The questionnaire consisted of two parts. The first part,

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using a nominal scale, included the demographic profiles of the respondents (e.g., age, job

title, working experience in the current firm), and firm characteristics (e.g., business type,

number of full-time employees, firm revenue, and container volume). The second part

included the measurement constructs of the research model, which were supply chain

integration, information technology, market orientation and firm performance. The

indicators of the four constructs were all measured using a five-point Likert scale ranging

from ‘strongly disagree=1’ to ‘strongly agree=5’.

To measure supply chain integration, nine items were used from previous research
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(Braunscheidel and Suresh, 2009; Kim, 2009; Tongzon et al., 2009; Flynn et al., 2010).

Based on Jaworski and Kohli (1993) and Min et al. (2007), 13 items were used to measure

market orientation. IT application was measured using a nine-item scale measure adapted

from past studies (Lu et al., 2005; Lu et al., 2006; Lu et al., 2007; Davaraj et al., 2007;

Panayides and Song, 2008; Hsu et al., 2009; Chang et al., 2010; Kros et al., 2011; Yang et

al., 2009). Finally, using a subjective rating relative to their major competitors in the past

three years, 13 items measuring firm performance were adapted based on past studies (Kim,

2009; Richey et al., 2009; Sodhi and Son, 2009;Yang et al., 2009; Jayaram and Tan, 2010;

Li et al., 2010).

Before sending the questionnaires for data collection, a pilot test was conducted. The

CEOs, directors, or managers of thirty container shipping companies (agencies) and four

professors in the shipping management field were solicited for suggestions to improve and

revise the items in the questionnaire (Dillman, 2007).

3.2 Sampling and Data Collection

Postal surveys have been the main quantitative data collection device in the supply chain,

13
marketing and IT literature due to scientific underpinnings and wide adoption (e.g.,

Bayraktar et al., 2009; Olavarrieta and Friedmann, 2008). The data were collected from a

single respondent per company. The study sample was comprised of container shipping

companies and agencies. The Directory of the National Association of Shipping Agencies

and Companies in Taiwan in 2009 was used as a source for the study’s survey.1 During

data collection, we contacted these companies by phone to determine whether or not they

were container shipping companies or agencies since bulk companies were excluded from

the research sample. Finally, key informants employed by 250 container shipping
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companies and agencies were selected from the directory referenced above and contacted

by telephone to ascertain their willingness to participate in the survey. 16 container

shipping companies’ managers declined to participate. Thus, key informants who agreed to

participate were employed by 234 companies, comprised of 14 container shipping

companies and 220 container shipping agencies. Survey questionnaires were mailed to key

informants in the 234 companies with a postage paid return envelope on 21 September,

2010. Follow-up telephone calls were made to improve the response rate. By 2 November,

2010, a total of 124 responses had been received, with a total usable response rate of

52.99%.2

To assess non-response bias (Amstrong and Overton, 1977), all responses received

within the first three weeks were treated as early responses, and the rest were treated as late

responses. The usable responses obtained from the first mailing (n=77) and second mailing

(n=47) were compared. The second mailing was sent out three weeks after the first mailing

and was considered to be representative of non-respondents. Using the analysis of variance

(ANOVA) test, the two groups were compared on the attributes of four constructs. No

significant difference was found at the 0.05 level between the two groups.
1
Based on directory in 2009, the whole population (including container shipping companies and agencies) in
Taiwan is 250.
2
8 samples were discarded because the firms did not complete the survey instrument.
14
3.3 Respondents’ Profiles

Table 1 shows the company profiles for the respondents. With regard to business type,

88.7% of respondents’ employing companies were container shipping agencies, and 11.3%

were container shipping companies. Just under half of the respondents were

managers/assistant managers (45.2%); 20.2% were directors/vice directors; 19.3% were

vice presidents or above, while the remaining 15.3% were clerks. As regards the number of

employees, over a third (34.7%) of respondents’ employing companies had 51-100


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employees, and 21%, 19.3% and 10.5% had 101-500, 21-50, and 1,001 employees or more,

respectively. The remaining 8.1% had 20 employees or less. Respondents’ employing

companies’ revenue also varied, with 28.2% having an annual revenues between 101-1,000

million NT dollars and 18.6% and 16.9% having an annual revenue of 50 million or less

NT dollars and 1,001-5,000 million NT dollars, respectively.3

Table 1. Profiles of Respondents (n=124)


Frequency %
Container shipping 14 11.3
Business type4 company
Container shipping agency 110 88.7
Vice president or above 24 19.3
Manager/assistant 56 45.2
Job title manager
Director/vice director 25 20.2
Clerk 19 15.3
20 people or less 10 8.1
21-50 people 24 19.3
Number of 51-100 people 43 34.7
employee 101-500 people 26 21.0
501-1,000 people 8 6.4
1,000 people or more 13 10.5
Annual revenue 50 or less 23 18.6
(NT$ million) 51-100 20 16.1

3
US$1 is equivalent to NT$32.
4
The agency is the agent of a container shipping company at the local market. They are close stakeholders in
slot allocations, while the company delivers containers from one port to another, and the agency helps seek
the source of cargo.
15
101-1,000 35 28.2
1,001-5,000 21 16.9
5,001-50,000 7 5.7
50,000 or more 14 11.3
Missing data 4 3.2

4. RESULTS

In this paper, before the structural equation model (SEM) was analyzed, exploratory

factor analysis (EFA) and confirmatory factor analysis (CFA) were conducted sequentially.

Each of the constructs in the current model was adapted from the measurement of two or

more previous studies. The purpose of EFA is to reduce the pool of items to a smaller, more
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manageable set of underlying factors. The CFA is used to verify the reliability of each

construct in the structural equation model. Such an analytical approach is helpful to test the

properties of measurement constructs and can be found in recent top management journal

papers (Lu et al., 2007; Josiassen, 2011; Kohn et al., 2011).

4.1 Reliability and Discriminant Validity

Exploratory factor analysis (EFA), using principal components extraction with varimax

rotation, was employed to derive the underlying dimensions of supply chain integration,

market orientation, IT application and firm performance since measurement items were

adopted from different sources. The results revealed that all measurement items had strong

loadings on the constructs based on the criterion of an eigenvalue greater than one (Table

2~Table 5). EFA of supply chain integration yielded three factors based on the item

loadings, labeled as partner integration, internal integration, and customer integration. The

item “firm follows up customers for feedback” was deleted due to the corrected item-total

correlation value being less than 0.5. The Cronbach’s alpha values of reliability for the

underlying factors ranged from 0.914 to 0.927 (Table 2). The market orientation EFA

produced a set of three factors which were designated as information generation,

information dissemination, and market responsiveness. The Cronbach’s alpha values for
16
the underlying factors ranged from 0.898 through 0.940 (Table 3). The IT application EFA

construct yielded two factors, which were website service and technology adoption. The

Cronbach’s alpha values for these two factors were 0.892 and 0.914, respectively (Table 4).

The firm performance construct was separated into three factors based on EFA, namely:

market performance, finance performance, and customer service. The Cronbach’s alpha

values for firm performance factors ranged from 0.884 to 0.943 (Table 5). Thus, all the

Cronbach’s alpha values were more than 0.7, and the corrected item-total correlation

(CITC) was more than 0.5, indicating that the constructs were reliable (see Table 6).
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Table 2. Factor Analysis for Supply Chain Integration


Supply chain integration Factor 1 Factor 2 Factor 3
My firm exchanges information with supply chain 0.876 0.227 0.244
partners (e.g. terminal operators) through IT.
Our firm has a good strategic collaboration with 0.851 0.269 0.261
our supply chain partners.
Our relationship with supply chain partners is based 0.887 0.235 0.185
mutual trust.
Data integration among internal departments in our 0.269 0.869 0.153
firm is through networks.
My firm has periodic interdepartmental meetings. 0.217 0.901 0.070
Within our firm, employees from different 0.186 0.889 0.160
departments are encouraged to collaborate together.
My firm follows up with customers for feedback. 0.108 0.155 0.846
My firm shares market information with customers. 0.313 0.010 0.878
My firm has periodic contact with customers. 0.233 0.131 0.891
Eigenvalue 4.84 1.70 1.13
Variance explained (%) 53.82 18.93 12.56

Table 3. Factor Analysis for Market Orientation


Market orientation Factor 1 Factor 2 Factor 3
Firm representatives meet with customers to find out 0.254 0.159 0.850
what services they will need in the future.
My firm frequently surveys customers to evaluate 0.179 0.174 0.890
quality.
My firm frequently collects and evaluates general 0.187 0.220 0.862
macroeconomic information.
My firm periodically has interdepartmental meetings 0.303 0.827 0.243
to discuss market trends and developments.
When something important happens to a major 0.253 0.823 0.237
customer, the firm quickly knows about it.
Data on customer satisfaction are disseminated at all 0.282 0.854 0.121
levels in this firm on a regular basis.

17
My firm periodically circulates documents that 0.257 0.821 0.140
provide information on our customers.
My firm is quick to start business with new supply 0.731 0.320 0.356
chain partners whenever we think they are better than
existing ones.
If a major competitor were to launch an intensive 0.788 0.253 0.247
campaign targeted at our customers, my firm would
implement a response immediately.
When my firm finds that customers would like us to 0.898 0.290 0.122
modify a service, the departments involved make
concerted efforts to do so.
My firm tends to take longer than our competitors to 0.876 0.196 0.165
respond to a change in regulatory policy.
My firm is quick to respond to significant changes in 0.842 0.321 0.179
our competitors’ pricing structures.
Eigenvalue 6.827 1.585 1.384
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Percentage variance 56.89 13.21 11.53

Table 4. Factor Analysis for IT Application


IT application Factor 1 Factor 2
My firm actively instructs customers about how to use electronic 0.835 0.273
commerce websites.
Customers frequently use my firm’s website to enquire about 0.861 0.298
sailing schedules online.
Customers frequently use my firm’s website to book space for 0.866 0.031
containers online.
Customers frequently use my firm’s website to check container 0.834 0.342
tracking and tracing online.
My firm’s website system can help integrate our supply chain 0.692 0.413
partners.
My firm adopts advanced IT to control container flow. 0.329 0.795
My firm adopts electronic data interchange (EDI) to improve 0.203 0.830
transport operation efficiency.
My firm adopts a customer relationship management (CRM) 0.199 0.845
system to collect market information and analyze it.
My firm adopts online transactions to reduce operational costs. 0.220 0.868
Eigenvalue 3.60 3.24
Percentage variance 39.99 36.02
Table 5. Factor Analysis for Firm Performance
Firm performance Factor 1 Factor 2 Factor 3
My firm’s sales growth is better than that of our major 0.462 0.066 0.766
competitors.
My firm’s market share growth is higher than that of 0.291 0.157 0.870
our major competitors.
My firm’s new market development strategy is better 0.273 0.244 0.822
than that of our major competitors.
My firm’s total cost reduction is better than that of our 0.095 0.911 0.132
major competitors.
My firm’s return on investment is higher than that of 0.212 0.881 0.141
our major competitors.
18
My firm’s return on assets is higher than that of our 0.226 0.850 0.138
major competitors.
My firm’s customer service attitude is better than that 0.813 0.204 0.263
of our major competitors.
My firm’s ability to answer customer questions is 0.858 0.155 0.215
faster than that of our major competitors.
My firm’s response time for customer complaints is 0.880 0.172 0.248
faster than that of our major competitors.
My firm’s customer satisfaction is better than that of 0.866 0.116 0.237
our major competitors.
Our customer loyalty is better than that of our major 0.759 0.137 0.256
competitors.
My firm has a better reputation than that of our major 0.781 0.242 0.329
competitors.
Eigenvalue 6.717 1.848 1.105
Percentage variance 55.97 15.40 9.21
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19
Table 6. Scale Reliabilities after Purification
CITC range
Number of Cronbach’s of the
Construct Scale
items alpha underlying
items
Partner Integration 3 0.927 0.891-0.897
Supply chain
Internal Integration 3 0.914 0.872-0.880
integration
Customer Integration 2 0.922 0.855
Information
3 0.898 0.832-0.869
generation
Information
Market orientation* 4 0.914 0.877-0.901
dissemination
Market
5 0.940 0.913-0.934
responsiveness
Website service 5 0.914 0.883-0.910
IT application
Technology adoption 4 0.892 0.847-0.869
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Market performance 3 0.884 0.800-0.855


Firm performance Finance performance 3 0.893 0.829-0.875
Customer service 6 0.943 0.824-0.943
Note: Based on the meanings of the measurement items used in this paper, the three factors
labeled market responsiveness, information dissemination and information
generation slightly differed in name from the dimensions postulated by Kohli and
Jaworski (1990) and Kohli et al. (1993), namely: responsiveness, intelligence
dissemination and intelligence generation.

Confirmatory factor analysis (CFA) was conducted to examine the uni-dimensionality

and the convergent and discriminant validity of the measurement items. The results

revealed a good fit with the model fit indices of χ2/d.f.=1.88, GFI=0.91, AGFI=0.84,

CFI=0.95, NFI=0.89, IFI=0.95, RMR=0.03, RMSEA5=0.08. The convergent validity was

assessed by examining the factor loading of each item. A value exceeding 0.50 was

considered to be acceptable (Kline, 2010). The results indicated that the model was

acceptable, and uni-dimensionality and reliability were confirmed.

In order to assess discriminant validity, pairs of constructs involving all possible scale

combinations were assessed in a series of two-factor CFA models using AMOS 6.0. For

each test, the differences in χ2 values and the degree of freedom between the two models

was calculated. In the first model, the estimated correlation parameter between the two

5
Based on Hair et al. (2006, p. 748), “The question of what is a ‘good’ RMSEA value is debatable but
typically values are below 0.10 for most acceptable models”.
20
constructs was fixed at 1.0. In the second model, the correlation was estimated freely. The

results were found to be of a satisfactory level ( ∆ χ2 >3.84) for all measures in this study.

All average variance extracted (AVE) and composite reliability indices were higher than

0.70 and 0.50, respectively.

4.2 Relationships between Constructs

Structural equation modeling (SEM) analysis incorporates four latent variables and their

constituents. The four latent variables and their constituents were as follows in this study:

supply chain integration (three observed variables), market orientation (three observed
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variables), IT application (two observed variables), and firm performance (three observed

variables). SEM, using AMOS 6.0, was used to test the hypotheses in the model.

To increase the construct validity of the original model, the following diagnostic method

was applied: any measure(s) that had low squared multiple correlations and high

standardized residuals were eliminated from other measures of the same latent construct

(Joreskog and Sorbom, 1993). This diagnostic method revealed that item X4 had a squared

multiple correlation of 0.45 and standardized residuals of 2.6, and therefore met the

aforementioned criteria. Consequently, X4 was removed and a revised model was

proposed.

The revised model fit indices were: χ2 statistics=45.452, χ2/d.f.= 1.602, p=0.06. With

regard to fit indices of the measurement model (Table 7), CFI (=0.972) and RMSEA

(=0.070) met the requirements of Hair et al. (2006) and Browne and Cudeck (1993).6 GFI

(=0.930) and AGFI (=0.868) are in acceptable level based on Byrne (2009) and Lu (2003).7

6
Some recent and related studies even adopted less restricted criteria for the value of RMSEA. Cao and
Zhang (2010), which investigated the relationship of supply chain and firm performance, adopted a value
of 0.09 for RMSEA in SEM analysis (See page 173, Figure 2). Zeng et al. (2013) also adopted a RMSEA
value of 0.091 to explain supply chain quality management practices and performance.
7
See Lu (2003, p410), GIF and AGFI are 0.854 and 0.802, respectively. Also, a similar value of GFI (=0.923)
and AGFI (=0.886) are adopted in Lu et al. (2007, p860).
21
NFI (=0.930) is above the recommended value of 0.800 by Chakraborty et al. (2008) and

Reyes et al. (2012).8 RMR (=0.026) met the requirements of Anderson and Gerbing

(1984).

Table 7. Selected fit measures for the final model.


Criteria Current level Accepted level Reference
CFI 0.972 ≥ 0.970 Hair et al. (2006)
GFI 0.930 ≥ 0.900 Byrne (2009)
AGFI 0.868 ≥ 0.800 Lu (2003)
NFI 0.930 ≥ 0.900 Bentler (1992); Chakraborty et al.
(2008); Reyes et al. (2012)
RMR 0.026 ≤ 0.050 Anderson and Gerbing (1984)
RMSEA 0.070 ≤ 0.080 Hair et al. (2006);
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Browne and Cudeck (1993)

The figures demonstrated a relatively good model fit. The model was therefore

acceptable, and the path analysis result provided strong support for all hypotheses (p<0.05),

except for H3, which is expressed as a dashed line in Figure 2.

X7 0.881
X1 X2 X3 X9 X10 X11
IT Application 0.661 0.654
X8 0.975 0.696 (-0.119) 0.749 0.618 0.768
(0.348)*
(0.623)*
(0.655)* Supply Chain
Firm Performance
Integration
(0.514)*

X5 0.713 (0.544)*
Market Orientation
X6 0.856

Figure 2. Estimated results of the model.


Note: (a)e1-e2 are errors for indicators of exogenous variable; e3-e10 are errors for indicators of endogenous
variables; (b)*significance level of 0.05 (c) X1: Partner integration; X2: Internal integration; X3: Customer
integration; X5: Information dissemination; X6: Market responsiveness; X7: Website service; X8:

8
Many other related studies adopted a similar range of NFI values for CFA and SEM analysis. In the firm
performance studies of Mustafa et al. (2012), the value of NFI is 0.862 above the suggested one of 0.8 (see
Page 902). In the relationship among information technology, supply chain capabilities and firm
performance of Wu et al. (2006), the value of NFI is 0.931 (see Page 501). In this study, NFI (=0.89 and
0.93) scored a little bit below 0.9 and 0.95 for the levels of higher criteria suggested in some studies.
Nevertheless, the model fits sufficiently well with data and thus is acceptable while considering other
model fit indices using a comprehensive assessment.
22
Technology adoption; X9: Market performance; X10: Financial performance; X11: Customer service

Table 8 shows the hypotheses testing results. Five of the six hypotheses were supported.

Supply chain integration and market orientation were found to have a positive influence on

firm performance (β1=0.623, p<0.05 and β2=0.544, p<0.05); however, there was no

statistical support for IT application having a positive influence on firm performance

(β3=-0.119, p=0.334). Thus, where H1 and H2 were supported, H3 was not. In addition,

this research indicated that market orientation and IT application have positive effects on

supply chain integration (β4=0.514, p<0.05 and β5=0.348, p<0.05), thus supporting H4
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and H5. Finally, IT application was shown to have a positive effect on market orientation

( γ 1 =0.655, p<0.05), supporting H6.

Table 8. Path Results


Results
Paths
Estimate S.E.a C.R.b p
H1: Supply chain integration  firm performance (β1) 0.623 0.2419 2.967 0.003
H2: Market orientation  firm performance (β2) 0.544 0.152 3.024 0.002
H3: IT application  firm performance (β3) -0.119 0.106 -0.967 0.334
H4: Market orientation  supply chain integration 0.514 0.110 3.440 0.000
(β4)
H5: IT application  supply chain integration (β5) 0.348 0.105 2.490 0.013
H6: IT application  market orientation ( γ 1 ) 0.655 0.094 7.094 0.000
a
S.E. is an estimate of the standard error of the covariance.
b
C.R. is obtained by dividing the covariance estimate by its standard error.

This paper also measured the effects of all relationships, as shown in Table 9. Although a

direct effect of supply chain integration and market orientation on firm performance was

identified, the former (β1 =0.623) was greater than the latter (β2 =0.544). No direct effect of

IT application on firm performance was found. The factor that most directly affected

9
Although the path between the supply chain integration and firm performance (H1) exhibits high
standardized estimates (S.E.=0.241), this link has not been removed from the illustration of the model due to
two reasons. First, the C.R. value (=2.967 > 1.600) and the p value (=0.003 < 0.05) are significant. The
statistical evidence supports the positive path relationship. Second, the higher S.E. may be caused by high
variance scope of respondent’s opinions on survey constructs due to differences in selected company scales
(e.g. the scale of container shipping companies is always larger than container shipping agencies in Taiwan).
Also, since this path provides an important research relationship for this paper in order to compare the results
of past studies, we reserved this path.
23
supply chain integration was market orientation (β4 = 0.514), followed by IT application

(β5 = 0.348).

With regard to indirect effects, market orientation’s effect on firm performance was

partially mediated by supply chain integration, hence resulting in a total effect of 0.846.

Additionally, the greatest mediator between IT application and firm performance was

market orientation, with a total effect of 0.356. Finally, IT application was shown to have a

direct effect (0.348) as well as an indirect effect (0.337) on firm performance mediated by

market orientation.
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Table 9. Path Effects


Direct Indirect Total
Paths
effect effect effect
Supply chain integration  firm performance 0.623 0.623
Market orientation  Firm performance (through supply
0.544 0.302 0.846
chain integration)
IT application  Firm performance
0.217 0.217
(through supply chain integration)
IT application  Firm performance
0.356 0.356
(through market orientation)
IT application  Firm performance
(through market orientation and supply chain 0.210 0.210
integration)
IT application  Supply chain integration
0.348 0.337 0.685
(through market orientation)
Market orientation  Supply chain integration 0.514 0.514
IT application  Market orientation 0.655 0.655

5. DISCUSSION

The finding of this study aids in understanding the relationship between supply chain

integration, market orientation, IT application and firm performance. First, the empirical

results of this study suggest that supply chain is improved with better supply chain

integration. This result is in line with the findings of earlier research (Fronhlich and

Westbrook, 2001; Kim, 2009) and confirms integration within supply chain partners, firm’s

departments and customers will help to speed up the operation process and lead to

24
enhanced performance improvement. This finding agrees with Esper and Williams (2003),

who found a positive association between cooperation and logistics service performance

within shippers and carriers. Regarding the related practices that promoted the integration

of seaport container terminals in supply chains, Panayides and Song (2008) provided some

incentives and mechanisms to induce higher levels of integration, such as value-added

logistics and a multimodal transport system. These strategies provide container shipping

companies with a number of insights on how to maximize flexibility in container transport

operations and on how to develop a seamless integration service in a supply chain system.
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Second, in terms of the relationship between market orientation and firm performance,

appropriate strategies for market orientation in terms of information dissemination and

market responsiveness seem to be essential in order to achieve better market performance,

finance performance, and customer service. This result is similar to the results of previous

research (e.g., Ellinger et al., 2008; Kim, 2009; Morgan et al., 2009; Panayides, 2006),

which empirically supports the essential role of market orientation for enhancing firm

performance.

Third, the insignificant relationship between IT application and firm performance may

be driven by differences in the business scales of respondents in the studies on this topic.

This paper mainly deals with container shipping agencies that are small and medium

enterprises, but previous research has mostly focused on large firms (e.g., Davies et al.,

2007). IT investment may have a short term negative effect on firm performance, and thus,

the impact on a firm’s performance’s improvement should be evaluated from a long-term

perspective. This insignificant link in IT application-firm performance coincides with the

failure experiences that exist in some information services, such as CRM systems (see Bull,

2003; Corner and Hinton, 2002).

Fourth, the paper indicated that market orientation has positive effects on supply chain
25
integration. This finding agrees with Min et al. (2007), who found that market orientation

has a positive impact on supply chain orientation and supply chain management. This

means that highly market-oriented firms usually endeavor to collect information related to

the market environment and incorporate this information in their decision making. This

leads to cooperation and alliances among partners, departments and customers, and

resource integration in the future will be further initiated. Timely container information

enables firms to coordinate business processes more efficiently with supply chain partners

and to react flexibly to customer needs. These results were also confirmed in the automated
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industry by Vickery et al. (2003), who indicated that integrated IT helps to achieve supply

chain integration.

Fifth, with regard to the relationship between IT application and supply chain

integration, this paper is consistent with the container transport study of Venus Lun et al.

(2008), which found that significant benefits in container flow management existed when

adopting technology services.

Six, IT application was shown to have a positive effect on market orientation, and this

result is in line with the findings of earlier studies (Day, 1999; Min et al., 2002). It is clear

that increasingly high levels of IT applications in container shipping lines will enhance

firm market orientation strategies. This finding supports the view of Overby et al. (2006),

who showed evidence of the direct effect of IT applications on market activities by

utilizing Internet based technologies and e-commerce. Previous existing studies have

highlighted the importance of IT applications in achieving collections of market

information (Stank et al., 1999; Day, 1999) and in promoting the market orientation

strategies of firms in terms of intelligence dissemination and responsiveness. This arguably

explains why firms that adopt various website services and information technologies more

26
easily understand customer preferences and adapt their service attributes in order to

respond to quick changes in the market environment and customer needs.

Finally, contrary to Min et al. (2007), no direct effect of IT application on firm

performance was found in this paper; however, a non-significant direct relationship was

reported by Depning and Stratopoulos (2004). Such a finding implies that cost is an

important determinant in container shipping firms’ decisions related to investing in

advanced IT equipment and also suggests that they have not fully utilized the advantages

offered by IT applications. Importantly, the paper’s findings do not mean that IT


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application has no impact on improving firm performance since this paper also suggests

that IT has an indirect effect on firm performance via supply chain integration, which

suggests shipping companies can use IT applications such as information exchange (e.g.

arrangement of port callings, electronic document handling) with supply chain partners.

These operational systems not only increase the efficiency of container flow but also

reduce the response time of a supply chain. The benefits can be shared between users in the

electronic operation environment. It is therefore not surprising that IT-based firms

emphasize the enhancement of supply chain integration in order to improve firm

performance. This paper also indicates that supply chain integration plays a full mediating

role in the relationship between IT application and firm performance, but only a partial

mediating role in the relationship between market orientation and firm performance.

6. CONCLUSIONS

This paper presented an empirical study which examined supply chain integration,

market orientation and IT application in container shipping firms and their influence on

firm performance. Using data for 124 container shipping firms in Taiwan, SEM was

employed to test the research hypotheses. The findings indicated that IT application and
27
market orientation positively influence supply chain integration, and supply chain

integration and market orientation have a positive effect on firm performance. The results

also revealed that IT application influences market orientation.

6.1 Theoretical Contributions

The main theoretical contribution of this study was to develop scales in terms of supply

chain integration, market orientation, IT application and firm performance in order to

construct a relationship model. This is an integrated research model that provides two
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important theoretical contributions. First, this study seeks to redefine the supply chain

integration in container shipping firms. This phenomenon has not been highlighted in past

studies since only the integration related to ports and terminals have been focused on

(Panayides and Song, 2008; Song and Panayides, 2008), and this is different from

buyer-supplier relationships (Zailani and Rajagopal, 2005). Also, the internal (departmental)

integration within container shipping firms is a key part of supply chain integration, and

this has been previously defined only in terms of the relationship of purchasing and

logistics (Pagell, 2004).

Second, the theoretical construct of the supply chain indicated that the arcs of integration

should consider both supplier and customer (Frohlich and Westbrook, 2001). This study

provides a substantive empirical survey for both vertical and horizontal integration in

container shipping, and it adds a number of important insights to the antecedent (e.g.,

market orientation and IT application) and consequence (e.g., firm performance). While

analyzing supply chain integration in the maritime field, this study offers distinctive

performance evaluation criteria (e.g., market, finance and customer service), which are

significantly different from past port performance studies (Woo et al., 2011; Woo and Pettit,

28
2009).

6.2 Managerial Implications

The research findings have three important implications for container shipping firm

management. First, since the results indicated that supply chain integration is positively

associated with firm performance, container shipping firms should develop strategic

collaboration with their partners, such as terminal operators, freight forwarders, inland

transport operators, and shippers, in order to maintain reliable services and enhance

performance. Market and customer information can be shared within different departments
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(e.g., sales, transportation operation, IT departments, etc.) and periodic interdepartmental

meetings can be held to discuss customer’s needs and arrange supply chain operations.

Therefore, in order to realize a door-to-door service and provide efficient movements

within various transport operators (e.g., ocean transit and landside logistics), the container

shipping lines should make substantial investments in logistics assets or seek more

integrated possibility (e.g., providing value-added service through information sharing) to

achieve a fully end-to-end shipping linkage service. For example, the effective movement

of empty containers represents an important cost advantage in container shipping.

Alliances between the companies should be encouraged to interchange containers (e.g., one

way free use) to shorten the movement of empty container in the shortage area. These

strategies would enable the companies to respond to market fluctuation in terms of

eastern-western routes and seasonal demand.

Second, the results indicated that market orientation is a direct antecedent of supply

chain integration as well as a major factor influencing firm performance. This suggests that

prompt responses to customers’ requirements and collection of market information are

critical for container shipping firms to immediately respond to changes in the market and

competitors’ behavior. Container shipping companies should continually collect and


29
analyze market intelligence (i.e. exchange rates, oil prices), evaluate customers’ attitudes,

and endeavor to understand customers’ current and future needs through global

coordination and integrated services. In addition, in order to increase customer loyalty and

customer satisfaction, a personalized and customized service is necessary, such as (1)

providing dedicated warehousing and distribution service to increase operational flexibility

for the customers (2) arranging appropriate sailing routes in terms of frequency, punctuality,

reliability and geographical coverage to reduce transport cost (3) providing emergency

services in case of particular requirement (e.g., flexible container leasing contract during
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peak season, sea-based intermodal for door to door service).

Finally, IT application was not found to have a direct influence on firm performance;

however, research findings indicate that IT application is positively associated with market

orientation and supply chain integration and that it has an indirect influence on firm

performance via supply chain integration. This suggests that container shipping companies

should provide real time information and feedback via an information platform among

departments (e.g., sales and IT), partners and customers. Also, online transaction records

(e.g., cargo category and origin/destination) can generate useful information and to

remember customer’s characteristics and preferences (e.g., model usage, cargo’s origin and

destination). Firms will then be able to use the collected information to segment customers,

identify which ones are the most profitable, and further develop appropriate pricing

strategies. Further, an effective web-based service helps to increase efficient interaction

and communication with customers. The provision of maritime electronic services should

take into account user preferences, and friendly website interfaces should be so designed as

to appeal to customers so that, in turn, they can understand and easily use these services.

This would also help to reduce human costs when many transactions or services have been

transformed from manpower operations to electronic operations. Further, since investment

30
in advanced IT (e.g., ERP) is a financial burden in most container shipping agencies, IT

outsourcing (e.g., to a logistics information company) could be an alternative method to

help these companies access these IT systems and, in turn, strengthen their integration

capabilities and firm performance in the market.

6.3 Limitations and Future Research

Three limitations were identified. Future studies could serve to overcome these

limitations. First, other determinants of supply chain integration and firm performance

could be considered in future studies, including organizational climate and cultural factors
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(e.g. entrepreneurial and learning orientation) (Deshpande and Farley, 2004). Second, this

paper specifically focused on container shipping firms in Taiwan. A future study could

apply this conceptual model to other industries (e.g. the airline industry) or different

countries. It would be interesting to compare the influential level of supply chain

integration on firm performance in various industries or areas. Finally, future studies could

be conducted using a longitudinal approach to investigate both the short- and long-term

effects of supply chain integration, market orientation, and IT application on container ship

operations.

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Acknowledgements
The first author acknowledges the partial financial support from the project NSC 102-2410-H-424 -021 under
National Science Commission in Taiwan.
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