RELATIONSHIP BETWEEN EXPORTERS AND THEIR FOREIGN SALES AND MARKETING INTERMEDIARIES

This special volume of Advances in International Marketing is focused on international marketing channels. Specifically, it explores substantive issues relating to the role of foreign intermediaries in export channels. Independent distributors or agents are commonly engaged by exporting manufacturers, yet academic research in this area is very limited. We are delighted to feature the latest research findings and insights on this topic contributed by authoritative colleagues from around the world. It is guest edited by Carl Author Solberg of BI Norwegian School of Management. The idea for devoting a separate volume on foreign intermediaries originated from Professor Solberg. We issued a call for papers, which then attracted a variety of submissions of high quality. We owe gratitude to him for screening and evaluating these submissions, and for preparing the final set of chapters. We are also indebted to many colleagues who assisted in the review process. The resulting selections draw from a variety of perspectives and offer rich insights on foreign intermediaries. Our thanks go to Professor Solberg for his efforts in creating this volume. At Michigan State University, I would like to recognize the professional assistance of Ms. Kathy Waldie, Editorial Assistant for the Advances in International Marketing series. Kathy carries the responsibility of corre- sponding with the authors, guest editors, as well as the staff of Elsevier Science at various phases of the publication process. Finally, we express our appreciation to Ms. Hannah Collett and the other staff at JAI/Elsevier Science who saw the volume through the production process.

EXPORTERS AND THEIR FOREIGN

SALES AND MARKETING

INTERMEDIARIES

i

Series Editor: S Tamer Cavusgil

Recent volumes:

Volume 5: Industrial Networks

Volume 6: Export Marketing: International Perspectives Volume 7: Marketing in Asia Pacific and Beyond

Volume 8: Parts I & II

Volume 9: International Marketing and Purchasing

Volume 10: Globalization, the Multinational Firm, and

Emerging Economies Volume 11: Reassessing the Internationalization of the Firm Volume 12: New Directions in International Advertising

Research Volume 13: Study Abroad: Perspectives and Experiences

from Business Schools Volume 14: Reviving Traditions in Research on International

Market Entry Volume 15: Research on International Service Marketing:

A State of the Art

ii

BETWEEN EXPORTERS AND THEIR FOREIGN SALES AND MARKETING

INTERMEDIARIES

GUEST EDITED BY

CARL ARTHUR SOLBERG

BI Norwegian School of Management, Norway

Amsterdam – Boston – Heidelberg – London – New York – Oxford Paris – San Diego – San Francisco – Singapore – Sydney – Tokyo

iii

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iv

FACTORS AFFECTING SME EXPORT CHANNEL

CHOICE IN FOREIGN MARKETS

Kent Eriksson, Jukka Hohenthal and Jessica Lindbergh 1

BEYOND TRANSACTION COST DETERMINANTS:

AN INTEGRATED FRAMEWORK FOR EXPORT

INTERMEDIARY SELECTION IN EMERGING

ECONOMIES

LEGAL VERSUS RELATIONAL ORDERING IN

CHANNEL GOVERNANCE: THE CASE OF THE

MANUFACTURER AND ITS FOREIGN

DISTRIBUTOR

Seyda Deligonul and S Tamer Cavusgil 49

RELATIONAL DRIVERS, CONTROLS AND

RELATIONSHIP QUALITY IN EXPORTER–FOREIGN

MIDDLEMAN RELATIONS

v

DELIVERING VALUE: MARKET ORIENTATION AND

DISTRIBUTOR SELECTION IN EXPORT MARKETS

Andre Beaujanot Q., Larry Lockshin and

Pascale Quester

107

THE EFFECT OF INFORMATION COLLECTION

BEHAVIOUR ON MARKET PERFORMANCE: THE

ROLE OF PARTNER RELATIONSHIPS

Geir Gripsrud, Carl Arthur Solberg and Arne M Ulvnes 135

UTILIZING RELATIONAL GOVERNANCE IN

EXPORT RELATIONSHIPS: LEVERAGING

LEARNING AND IMPROVING FLEXIBILITY AND

SATISFACTION

Anthony S Roath and Rudolf R Sinkovics 157

MANAGING CHANNEL RELATIONS IN CHINA: AN

EXPLORATORY STUDY

Paul Matthyssens and Wouter Faes 187

BUYER TOLERANCE OF CONFLICT IN

CROSS-NATIONAL BUSINESS RELATIONSHIPS: AN

EMPIRICAL STUDY

Inger Beate Pettersen and Aksel I Rokkan 213

IDENTIFYING DIFFERENCES IN FOREIGN

CUSTOMERS’ RELATIONAL BEHAVIOR: AN

EXPLORATORY STUDY USING

MULTIDIMENSIONAL SCALING

AN EXPLORATORY EXAMINATION OF THE

FACTORS INFLUENCING DISTRIBUTOR

SELF-PERCEIVED POWER IN CHANNEL RELATIONSHIPS:

A SEVEN-COUNTRY STUDY

Goksel Yalcinkaya and David A Griffith 267

TIMING AND SEQUENCING OF STRATEGIC

ACTIONS IN INTERNATIONALIZATION PROCESSES

INVOLVING INTERMEDIARIES: A NETWORK

PERSPECTIVE

Per Andersson and Lars-Gunnar Mattsson 287

THE TERMINATION DILEMMA OF FOREIGN

INTERMEDIARIES: PERFORMANCE,

ANTI-SHIRKING MEASURES AND HOLD-UP

SAFEGUARDS

Bent Petersen, Torben Pedersen and

Gabriel R.G Benito

317

EXPORTER GOVERNANCE OF INTEGRATED AND

INDEPENDENT MARKETING CHANNEL MEMBERS

IN INTERNATIONAL MARKETS: MODERATING

EFFECTS OF STAGE OF RELATIONSHIPS AND

OPERATION MODE

viii

Per Andersson Stockholm School of Economics, Stockholm,

Sweden Andre Beaujanot Q School of Marketing, University of South

Australia, Adelaide, Australia Gabriel R.G Benito Department of Strategy and Logistics, BI

Norwegian School of Management, Oslo, Norway and Department of International Economics and Management, Copenhagen Business School, Copenhagen, Denmark

S Tamer Cavusgil The Eli Broad Graduate School of

Management, Michigan State University, MI, USA

Seyda Deligonul Bittner School of Business, St John Fisher

College, USA Kent Eriksson CEFIN, the Centre for Banking and Finance,

School of Architecture and the Built Environment, KTH – The Royal Institute of Technology, Stockholm, Sweden

Wouter Faes Hasselt University (former Limburg University

Center), Belgium David A Griffith The Eli Broad Graduate School of

Management, Michigan State University, MI, USA

Geir Gripsrud Department of Marketing, BI Norwegian

School of Management, Sandvika, Norway

ix

Jukka Hohenthal Department of Business Studies, Uppsala

University, Uppsala, Sweden Bjo¨rn Sven Ivens Friedrich-Alexander-University, Erlangen-

Nuremberg, Germany Jessica Lindbergh CEFIN, the Centre for Banking and Finance,

School of Architecture and the Built Environment, KTH – The Royal Institute of Technology, Stockholm, Sweden

Larry Lockshin School of Marketing, University of South

Australia, Australia Xufei Ma Department of Business Policy, NUS Business

School, National University of Singapore, Singapore

Paul Matthyssens Department of Management, Antwerp

University, Belgium and Department of Marketing Management, Erasmus University, Rotterdam, The Netherlands

Lars-Gunnar

Mattsson

Stockholm School of Economics, Stockholm, Sweden

Torben Pedersen Department of International Economics and

Management, Copenhagen Business School, Frederiksberg, Denmark

Bent Petersen Department of International Economics and

Management, Copenhagen Business School, Frederiksberg, Denmark

Inger Beate

Pettersen

Institute for Research in Economics and Business Administration, Bergen, Norway Pascale Quester School of Commerce, The University of

Adelaide, Australia Anthony S Roath The University of Oklahoma, OK,

USA Aksel I Rokkan Bodø Graduate School of Business, Bodø

Regional University, Norway

Rudolf R Sinkovics The University of Manchester, Manchester

Business School, UK Carl Arthur Solberg Department of Marketing, BI Norwegian

School of Management, Sandvika, Norway Arne M Ulvnes Department of Marketing, BI Norwegian

School of Management, Sandvika, Norway Goksel Yalcinkaya The Eli Broad Graduate School of

Management, Michigan State University, MI, USA

xii

Gabriel R.G Benito BI Norwegian School of Management,

Norway

Harald Biong BI Norwegian School of Management,

Norway

S Tamer Cavusgil Michigan State University, USA

Seyda Deligonul St John Fisher College, USA

Francois Durrieu Bordeaux School of Management, France

David A Griffith Michigan State University, USA

Kjell Gro¨nhaug Norwegian School of Economics and Business

Administration, Norway

Ha˚kan Ha˚kanson BI Norwegian School of Management

Norway

Siv Marina Karlsen Oslo University College, Norway

Tibor Mandjak Bordeaux School of Management, France

Lars Gunnar

Mattson

Stockholm School of Economics, Sweden

Tore Mysen Oslo School of Management, Norway

Erik Nes BI Norwegian School of Management,

Norway

Bent Petersen Copenhagen Business School, Denmark

xiii

Ragnhild Silkoset BI Norwegian School of Management,

Norway

Carl Arthur Solberg BI Norwegian School of Management,

Norway

Barbara Sto¨ttinger Wirtschaftsuniversita¨t Wien, Austria

Chris Styles University of Sydney, Australia

Lawrence Welch Mt Eliza Business School, Australia

J Chris White Michigan State University, USA

This special volume of Advances in International Marketing is focused oninternational marketing channels Specifically, it explores substantive issuesrelating to the role of foreign intermediaries in export channels Independentdistributors or agents are commonly engaged by exporting manufacturers,yet academic research in this area is very limited We are delighted to featurethe latest research findings and insights on this topic contributed byauthoritative colleagues from around the world It is guest edited by CarlAuthor Solberg of BI Norwegian School of Management.

The idea for devoting a separate volume on foreign intermediariesoriginated from Professor Solberg We issued a call for papers, which thenattracted a variety of submissions of high quality We owe gratitude to himfor screening and evaluating these submissions, and for preparing the finalset of chapters We are also indebted to many colleagues who assisted in thereview process The resulting selections draw from a variety of perspectivesand offer rich insights on foreign intermediaries

Our thanks go to Professor Solberg for his efforts in creating this volume

At Michigan State University, I would like to recognize the professionalassistance of Ms Kathy Waldie, Editorial Assistant for the Advances inInternational Marketing series Kathy carries the responsibility of corre-sponding with the authors, guest editors, as well as the staff of ElsevierScience at various phases of the publication process Finally, we express ourappreciation to Ms Hannah Collett and the other staff at JAI/ElsevierScience who saw the volume through the production process

S Tamer CavusgilSeries Editor

xv

xvi

It has been said that choice of entry mode – or more broadly, operationmode – is one of the most important decisions made by international mar-keters (Young et al., 1989) This decision determines many other variables ofthe international marketing effort such as monitoring and control, use ofresources and financial risk Much of the focus of the international mar-keting literature well into the 1990s was directed primarily toward the entryand operation mode decision The main purpose of this line of research was

to explain integration of firms’ international operations From an tional marketing viewpoint, the decision to set up a sales subsidiary instead

interna-of using independent middlemen such as agents or distributors was critical.Two theoretical approaches dominated the discussion: Transaction CostEconomics (TCE) and the Internationalization Process model (IP) The ba-sic premise of TCE is that (in our context) a foreign middleman behavesopportunistically The costs of controlling such opportunistic behavior arehigher under conditions of high-asset specificity, uncertainty and volatility,leading the firm to integrate its market operations IP is based on the theory

of the growth of the firm (Penrose, 1959) and explains entry mode by theaccumulation of experience over the years Whereas TCE is concerned withstructure, IP studies the internal processes of the firm that lead to a build up

of resources allowing bolder steps in its international ventures

The issue of operation mode – however important it is – does not reallyexplain why certain ventures are doing better than others In fact a studyamong Norwegian exporters found no significant differences between op-eration modes concerning export performance (Solberg & Nes, 2002).Whatever operation mode, the international marketer needs to relate topeople in organizations, be it its own employees in a subsidiary or an in-dependent middleman – licensee, distributor, agent or other One couldtherefore claim that the success of the international marketing effort hingesmore on these relational factors than on the operation mode itself The

xvii

majority of the articles of this volume of AIM discuss different aspects ofthese relations.

In contrast to the IP model that explores the internal processes of the firm,the study of exporter–middleman relations treats bilateral processes betweentrading partners, and therefore extends the field of study beyond the ex-porting firm This field of study has only received attention the last 10 years

or so Indeed, research emanating from IMP1– scholars such as Ford andRosson did delve into different aspects of these relationships in the early1980s (Ford & Rosson, 1982), but a more thorough and rigid analysis ofexporter–middleman relations gained impetus only in the late 1990s withcontributions from writers such asAulakh, Kotabe, and Sahay (1996),Cellyand Frazier (1996), Bello and Gilliland (1997), de Mortanges and Vossen(1999) Since then several contributions have appeared (see for instance

Bello, Chelaru, & Li Zhang, 2003;Zhang, Tamer Cavusgil, & Roath, 2003).The main part of this volume of AIM could be seen as a continuation ofthis stream of literature, elaborating on different aspects of it, such as cul-tural and dynamic aspects of these relations, or delving more deeply intodetails concerning information capture and learning in international busi-ness relationships Deligounul and Cavusgil in this volume claim that find-ings and interpretations in empirical studies of channel governance arerather disparate, blaming lack of agreement on its characteristics and un-derlying mechanisms In particular, they assert that governance is conceived

as process or structure, but each approach is incomplete A focus on processoveremphasizes control aspects and fails to explain informal governancearrangements, whereas a structural view ignores behavioral norms andsanctions I believe that this sums up pretty neatly the issues at stake inexporter–intermediary relations

This volume is more concerned with the phenomena under study thanwith casting light on one particular theoretical perspective The contribu-tions represented here are therefore drawing on a number of different the-oretical streams: agency theory, transaction cost economics, network theory,economic sociology, resource base theory and its applied ‘‘offspring’’, In-ternationalisation Process school of thought I should also mention that thecontributions to this volume come from researchers from universities innine different countries: Australia, Belgium, Denmark, Germany, Norway,Singapore, Sweden, United Kingdom and the USA, representing both well-established and young academicians This I believe is a manifest indication

of the importance of this field of research In fact, it is my conviction thatsuccess in exporting goes primarily through well functioning relations withthe exporter’s trading partner(s) in its target market(s) It is therefore of

great interest to try and understand the underlying mechanisms of theserelations.

The volume is divided into four distinct parts, dealing with different aspects

of exporter–intermediary relations: (1) Channel choice, partner selection andgovernance in international markets; (2) information and learning aspects ofexporter–intermediary relations; (3) cultural aspects of exporter–intermediaryrelations; and (4) dynamics of exporter–intermediary relations The remain-der of this introduction will give a brief review of each contribution

CHANNEL CHOICE, PARTNER SELECTION AND GOVERNANCE IN INTERNATIONAL MARKETSThis part contains four papers Even though this volume of AIM primarilyconcerns exporter–intermediary relations, the first two contributions dealwith channel choice and partner selection The first chapter by Kent Eriksson,Jukka Hohenthal and Jessica Lindbergh, ‘‘SME export channel choice ininternational markets’’, tests some of the fundamental factors proposed bythe IP model explaining choice of entry mode (accumulation of know-ledge of foreign markets determining foreign operation modes) Later devel-opments of the model claim that experience and knowledge of local businessrelationships are also essential elements of the IP model Whereas the IPmodel has been found to hold well for incremental resource commitments, ithas – in contrast to transaction-cost theories – produced mixed results con-cerning its ability to explain operation modes The authors present findingsfrom research in 494 firms from Sweden, Denmark and New Zealand: factorsincluded in the initial explanation of the IP model explain choice of channel,but later developments of the model do not Implications are that the foreignmarket knowledge is, and that more incremental experiential knowledge ac-cumulation is not relevant for export channel choice as regards integrated ornon-integrated channel The results show that for Small and Medium SizedBusinesses (SMEs), expected market growth lead to use of integrated chan-nels Integrated channels make it possible to reap more of the profits from agrowing market and to learn faster about what is going on in the market.They also found that use of integrated channels is correlated with culturaldistance, contradicting the findings ofJohanson and Vahlne (1977)andKo-gut and Singh (1988) The IP model therefore offers a rather weak expla-nation of choice of integrated channel

The second chapter, ‘‘Beyond transaction cost determinants: an

integrat-ed framework for export intermintegrat-ediary selection in emerging economies’’, is

written by Xufei Ma He makes the pertinent remark that entry mode hasbeen studied from a range of different theoretical perspectives, whereaspartner selection has been given little attention Discussing different theo-retical approaches to partner selection – TCE, resource-based view, insti-tutional theory and network perspective – Xufei Ma proposes an integratedframework to investigate export intermediary selection in emerging econ-omies His choice of setting is pertinent in that emerging economies over-state some of the variables that go into these different strings of theory:uncertainty, volatility, institutional structures and access to key persons.The chapter highlights the unique resources associated with the intermedi-aries’ institutional traits, organizational forms and micro–macro links inemerging economies.

In their paper, ‘‘Legal versus relational ordering in channel governance:the case of the manufacturer and its foreign distributor’’, Seyda Deligounuland S Tamer Cavusgil present governance as a manifestation of needs forsafeguarding trust, adaptation, control and ability to predict In theirview, this explains a wide spectrum of governance issues, ranging from self-regulation to formal structural arrangements The empirical context is thetypical international distribution channel, in which the manufacturer part-ners with foreign distributors Their results suggest that, when contemplat-ing governance in a long-term relationship, an export manufacturer and itsforeign distributor are confronted with a tradeoff between the costs ofcrafting a more complete agreement and the inefficiencies associated withless exhaustive arrangements Also, the investigation suggests the role oforganizational trust in a cross-border context to be redefined since it is atodds with what is touted in the literature for the domestic case The studyreveals that trust is not an alternative to formal control mechanisms asassumed by some It can only serve to fill the gaps left by imperfect controlswith a certain leap of faith

Carl Arthur Solberg extends recent research in international exporter–intermediary relations in his contribution, ‘‘Relational drivers, controls andrelational quality in exporter–foreign middleman relations’’, by introducingrelationship quality as a key-mediating variable in explaining export per-formance He also broadens the repertoire of governance antecedents ininternational business relations to include power relations and social bondsbetween the relationship partners He furthermore introduces a distinctionbetween antecedents that are ‘‘easily’’ manipulated in the short term by thetrading partners (social interaction, investments in relations, informationexchange and flexibility) and more structural factors that are more difficult

to change in the short term such as power relations, cultural distance and

resource availability In a study of a cross section of Norwegian exporters hefinds that relationship quality is negatively affected by process control andpositively by clan control, suggesting that centrally controlled and moni-tored marketing programs need to be backed by flexibility and social re-lations Moreover, variance in export performance is to a large extentexplained (68%) by relationship quality.

INFORMATION AND LEARNING ASPECTS OF EXPORTER–INTERMEDIARY RELATIONS

This part consists of three contributions dealing with different aspects ofmarket information and learning The first chapter, ‘‘Delivering value:market orientation and distributor selection in export markets’’, is written

by Andre Beaujanot, Larry Lockshin and Pascale Quester They examinethe proposition that in export markets, market-oriented firms are better able

to capitalize on their market orientation if they do business with customers(overseas distributors) having business characteristics that are in accordancewith the firm’s market orientation Their investigation carried out among 77Australian wine exporters, proposes the exporter’s market orientation has adirect effect on the exporter’s required international distributor characte-ristics These characteristics are seen as a filter, as the exporter may use them

to select the most appropriate international clients They receive support forthe hypothesis that exporters who are market oriented and select interna-tional distributors having business characteristics that are linked to theirmarket orientation perform better as they can create and deliver superiorcustomer value

Geir Gripsrud, Carl Arthur Solberg and Arne Morten Ulvnes investigatethe role of partner relationships in market information collection behaviorfrom foreign markets They develop and test a conceptual model of theassociation between information collection from two different sources(the intermediary and ‘‘other’’) and performance in export relationships.The behavior of exporters in collecting information is posited to be influ-enced by the exporter’s trust in its foreign channel partner, and the asso-ciation between information collection and performance is argued to

be moderated by the length of experience with the trading partner Datafrom 285 Norwegian exporters in the ‘‘bio’’-industry (food and wood) ispresented The findings suggest that trust correlates positively with infor-mation collection from the representative and negatively with information

collection from other sources However, information from both thesesources contributes positively to market performance They finally concludethat the longer the relationship has lasted, the more positive effect infor-mation from other sources will have.

Anthony Roath and Rudolf Sinkovics examine two distinct relationalgovernance mechanisms in their contribution, ‘‘Utilizing relational govern-ance in export relationships: leveraging learning and improving flexibilityand satisfaction’’ They analyze 141 US exporting manufacturers to explorewhether the manufacturer’s utilization of relationship governance helps toleverage learning, establish flexibility in dealing with distributors from dis-parate environments, and eventually contribute to satisfactory relationshipoutcomes The empirical analysis provides support for the perspective ofrelational governance as a hybrid mechanism that both facilitates and aug-ments learning between cross-border organizations Flexibility is enhancedand relationship outcomes are more satisfactory The results suggest adirection for appropriate management of international distributors Thefundamental changes in the technological, social, political and economicenvironment have shaped the trend of relationship marketing to go beyondthe evolutionary stages of the idea to eventually evolve into a discipline.Initially, common conceptualization of relationship marketing involveddistinguishing between the ‘internal’ organizational perspective and the ‘ex-ternal’ (i.e., customer) perspective

CULTURAL ASPECTS OF EXPORTER–

INTERMEDIARY RELATIONSCulture is a particularly complex construct and is difficult to study(Shenkar, 2002) However, its obvious importance in cross-border businessrelationships makes it a ‘‘must’’ in a volume like the present one This partconsists of four contributions investigating different aspects of cultural fac-tors on cross-border exporter–intermediary relations and using differentmethodological approaches to the subject In the first article, ‘‘Managingchannel relations in China: an exploratory study’’, Paul Matthyssens andWouter Faes study channel leadership experiences by a number of Westernprincipals in China They introduce the reader to different levels of rela-tionships in Chinese business culture: renquin (human feelings), bao (giveand take) and the more commonly recognized guangxi (importance ofrelationships and networks) Based on depth interviews they report the

experiences of 14 companies suggesting the importance of a ‘dual approach’

in building trustful relations In this environment, managing channel tions require a balancing act of positive actions and monitoring, jointdecision making and guidance The basics of channel theory remain valid inChina, but the need for building deep trust (ren quin) in the relation withChinese intermediaries implies a holistic approach rather than – perhapsmore common in Western economies – an analytic approach only

rela-Inger Beate Pettersen and Aksel Rokkan suggest in their article, ‘‘Buyertolerance of conflict in cross national business relationships: an empiricalstudy’’, that boundary spanning personnel are required to invest heavily ineffort and adaptations in order to surmount cultural divergences Thischapter investigates how cultural knowledge and cultural adaptation effortsenhance the intermediaries’ capacity to communicate across cultures More-over, the study examines how intermediaries’ cultural knowledge, culturaladaptation and communication affect buyer tolerance of conflict in cross-national dyads The authors conduct a survey of cross-national buyer–supplier relationship within the French seafood industry The findings notonly corroborate the conventional wisdom that cultural knowledge andcultural adaptation enhance the capacity to communicate across cultures,but also that high levels of intermediary communication are found to in-crease buyers’ tolerance of conflict Moreover, the interaction effect betweencultural knowledge and cultural adaptation is shown to enhance buyertolerance of conflict

The extant literature suggests important differences between domestic andforeign business relationships, but ‘‘foreign relationships’’ is a broad cat-egory, and little is known about specific national relational behaviors In thearticle, ‘‘Identifying differences in foreign customers’ buying behavior: astudy using multidimensional scaling’’, Bjo¨rn Sven Ivens uses multidimen-sional scaling in order to analyze 121 business relationships betweenGerman firms and their trading partners in their home market and nineother countries: Sweden, Poland, Italy, France, USA, Brazil, South Africa,Japan and the People’s Republic of China Investigating export managers’perceptions of their foreign customers’ relational behavior he suggests thatnational business behaviors can be classified along two dimensions: ‘‘co-operation’’ and ‘‘social vs efficiency orientation’’ Eight factors were iden-tified and associated with the respective countries: Whereas USA and NorthEuropean countries are characterized by ‘‘time is money’’ and ‘‘improvi-sation’’, Latin countries are featured by ‘‘frequent contacts’’ and ‘‘individualdecision-taking’’ China is distinguished by three factors, ‘‘self assertion’’,

‘‘importance of context’’ and ‘‘private contacts’’ (corroborating some of the

findings by Matthyssens and Faes in Chapter 8), and finally Japan with onefactor, ‘‘formalization’’.

The final chapter in part three investigates how self-perceived power indifferent countries is affected by culture Research has found asset specificity,type of market and uncertainty to be important influencers of channel power.While these variables have been found to affect power in international chan-nel relationships they have been examined in isolation and have excluded theinfluence of culture Goksel Yalsinkaya and David A Griffith endeavor intheir article, ‘‘Factors influencing distributor self-perceived power in channelrelationships: a seven country study’’ to fill this gap Their study of rela-tionships between 228 US firms and their distributors in seven countries (US,Canada, Chile, Great Britain, Mexico, the Philippines and Singapore) – usingmultiple regression and stepwise regression analysis – identify culture as amain antecedent of self-perceived power along with uncertainty and assetspecificity (type of market does not affect self-perceived power in this study).Including culture increases explained variance from 13% to 24%

DYNAMICS OF EXPORTER–INTERMEDIARY

RELATIONSBuilding relations between trading partners takes time, and this aspect ofexporter–intermediary relationships has been given little attention in theliterature In this part we investigate different aspects of the dynamism thatlies in any relationship Per Andersson and Lars-Gunnar Mattsson explorethe importance of when an action is carried out during a firm’s interna-tionalization process in their article, ‘‘Timing and sequencing of strategicactions in internationalization processes involving intermediaries – a net-work perspective’’ This is important to study because opportunities andrestrictions change over time due to concurrent internationalization of otherfirms in its market context The analytical problems and purpose of thepaper are connected to this basic assumption They discuss the timing issue

in general and with reference to internationalization in a works perspective A case of internationalization of an intermediary in theelectronic components industry is used as an example of interdependentsequences in internationalization processes affecting an individual firm

markets-as-net-A conceptual framework for analysis of timing is developed, and majoraspects are identified in a number of propositions and some issues for fur-ther research is suggested

Bent Petersen, Torben Pedersen and Gabriel R.G Benito examine the

‘‘termination dilemma’’ phenomenon of foreign intermediaries operating inexport markets In their paper, ‘‘The termination dilemma of foreign in-termediaries: performance, anti-shirking measures and hold-up safeguards’’the general experience by practitioners that both low- and high-sales per-formances evoke risks of termination is studied The termination dilemmainduces foreign intermediaries to make no more than a mediocre sales effort,thereby imposing losses to exporters The paper investigates how anti-shirking measures (such as outcome-based remuneration and monitoringinstruments) and hold-up safeguards (e.g., severance payment) put in place

by exporters may mitigate such problems The empirical study is based on alongitudinal data set of 258 Danish exporting firms and their relations toforeign intermediaries in major export markets over a 5-year period Themain findings support the hypothesis of a termination dilemma, and thattermination is driven by factors such as difficulties of monitoring the in-termediary Contractual restrictions and severance payments hold back thedecision to terminate the relationship

The final chapter, ‘‘Export governance of integrated and independentmarketing channel members in international markets: the moderating effects

of stage of relationships and operation modes’’, is written by Carl ArthurSolberg This paper presents a model of exporter governance of marketingchannel members in foreign markets, introducing two contingencies: modes

of operation and stage of relationship between the middleman and the porter Based on the work byBello and Gilliland (1997) it investigates theeffects on performance of single and combined controls – output, processand clan control, and the moderating effects of the two contingency factors

ex-on the three modes of governance Using data from 171 Norwegian ing firms the author suggests that outcome controls are particularly effective

export-in the export-introduction and growth stage of exporter–export-intermediary relationshipsand that clan control yields the best results in the mature stages Outcomecontrol also outperforms the other control modes (clan and process controls)

in agent and distributor relations Process control, when carried out alonegives positive effects, but when combined with the other two (outcome andclan controls) adds little to the overall performance of the exporting venture

NOTES

1 IMP: International Marketing and Purchasing of goods is a loosely knit work of researchers dealing with relations between business partners

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Carl Arthur Solberg

EXPORT CHANNEL CHOICE

IN FOREIGN MARKETS

Kent Eriksson, Jukka Hohenthal and

Jessica Lindbergh 

INTRODUCTIONDetermining market channels is usually considered a discrete decision made

by the expanding firm (e.g.,Anderson & Coughlan, 1987;Bello & Gilliland,

1997; Solberg & Nes, 2002) In reality, this decision is often limited byknowledge constraints and customer demands We find an example of this inGamma’s attempt at entering the Italian market (Hohenthal, 2001)

Gamma is an export-oriented electronics company and has imately 150 employees To handle the service needs of its product,Gamma has established service subsidiaries in 13 of its markets Theproduct is manufactured to fit the specifications of the customer Everyproduct is different, and even small deviations from specifications cancreate big errors The main tasks of the subsidiaries include installing

approx-The listing of the authors is according to an alphabetical order and each of the authors have contributed equally to this paper.

Relationship between Exporters and their Foreign Sales and Marketing Intermediaries

Advances in International Marketing, Volume 16, 1–22

Copyright r 2006 by Elsevier Ltd.

All rights of reproduction in any form reserved

ISSN: 1474-7979/doi:10.1016/S1474-7979(05)16001-3

1

the equipment, training the customer, and ensuring that everythingworks Once in place, the service teams have to calibrate the productevery 4 months The subsidiaries also scan the market for new cus-tomers and competitors Gamma is working in a market where itknows most of its competitors and their products Gamma also has agood level of knowledge of potential customers around the world.This new deal was initiated by an Italian research institute Gammaoffered the Italian customer a standard system with a 5-year serviceagreement Specifications and price were considered acceptable to theItalian institute, but the service agreement was a source of dispute.Gamma wanted its French subsidiary to be responsible for providingservice, but the Italians wanted Gamma to establish a service unit innorthern Italy Gamma did not believe that the market was big enough

to merit a subsidiary, but it would have to establish one to gain access

to this new market Gamma’s options were thus limited to one possiblechannel, and it could either take that option or forget about marketentry at this point In the end, Gamma decided not to set up a sub-sidiary

Gamma’s attempted entry into Italy is not a unique situation facing ternationalizing small- and medium-sized enterprises (SMEs) The array ofpossible channels is usually rather limited A firm’s decision regarding whatchannel to use may be the result of the firm’s knowledge or indeed lack ofknowledge about a specific customer and the foreign market in general, such

in-as competitors or cultural differences The internationalization process (IP)model is a theoretical framework that recognizes how a firm’s knowledge of

a foreign market and the influence business relationships may have on thechoice of market channel (Johanson & Vahlne, 1977, 1990, 2003) Thisframework postulates that firms with increased experience will increase theircommitment in a market Because firms wish to avoid uncertainty and in-itially lack foreign market knowledge, the IP model claims that firms expandtheir operations in small sequential steps, starting with no regular exportactivities and gradually increasing their commitment to the market andfinally setting up a manufacturing subsidiary (Johanson & Vahlne, 1977;

Johanson & Wiedersheim-Paul, 1975) This outcome of sequential steps,also known as the establishment chain (Johanson & Wiedersheim-Paul,

1975), has been heavily criticized because empirical research has shown thatthe establishment patterns of firms are less restricted than proposed by the

model (Bjo¨rkman, 1989; Hedlund & Kverneland, 1985; Turnbull, 1987;

Welch & Loustarinen, 1988) Even though firms use a variety of ment patterns when internationalizing, a growing body of research showsthat firms gradually develop knowledge from their experiences (Barkema,Bell, & Pennings, 1996; Barkema, Shenkar, Vermeulen, & Bell, 1997;

establish-Barkema & Vermeulen, 1998; Delios & Beamish, 1999, 2001; Eriksson,Johanson, Majkga˚rd, & Sharma, 1997; Hitt, Dacin, Tyler, & Park, 1997;

Madhok, 1996; Zahra, Ireland, & Hitt, 2000) Thus, the model’s mental argument that knowledge is developed through experience is gen-erally supported in internationalization research

funda-Based on the critique of the establishment chain proposition, ering the explanatory power of the IP model may be warranted For ex-ample, it may be more appropriate to use the IP model to explain thesequential buildup of knowledge rather than discrete choices of mode ofestablishment The accumulation of experience occurs before, during, andafter the exact time when a decision to establish in a certain mode is made.Despite the extensive acceptance of behavioral-oriented arguments in for-eign-entry mode research (export, joint venture, and subsidiary modes),surprisingly few studies have been conducted on the determinants of inte-grated and non-integrated channels (see Aulakh & Kotabe, 1997, for no-table exception) Thus, a behavioral-oriented approach to the study of firms’choices of market channels in foreign markets may prove enlightening.Adopting this approach is of particular interest because transaction-costanalysis has proved effective in explaining why firms choose either inte-grated or non-integrated channels (Hennart, 1991) Therefore, the questionthat needs to be answered is whether or not the IP model can be used toexplain why firms choose integrated or non-integrated channels If the IPmodel cannot be applied in this case, it should be clarified that this modelcan be used to explain sequential knowledge accumulation through expe-rience but nothing else

reconsid-The purpose of this study is to test which IP-related antecedents lead tothe use of a specific channel in a foreign market The two alternatives testedhere are integrated and non-integrated channels To accomplish this objec-tive, we apply an IP approach to international business and then discusschannel choice from a knowledge perspective Several hypotheses are de-veloped concerning channel choice and tested on a sample of SMEs fromSweden, Denmark, and New Zealand We use logistic regression to analyzeour data Based on this analysis, we present a discussion of our results andsome managerial and research implications

CHANNEL CHOICE AND THE INTERNATIONALIZATION PROCESS

In furthering our understanding of the dynamics of the internationalization

of firms, process models have played a significant role (Bilkey & Tesar, 1977;

Cavusgil, 1980, 1984; Czinkota, 1982; Johanson & Vahlne, 1977, 1990;

Loustarinen, 1980;Reid, 1983) In a review of IP models,Andersen (1993)

distinguishes between the U-model (Uppsala) by Johanson and Vahlne(1977)and the I-models (Innovation) byBilkey and Tesar (1977),Cavusgil(1980, 1984), Czinkota (1982), and Reid (1981, 1983) The U-model by

Johanson and Vahlne (1977)was chosen as the basis for this study because it

is assumed to be valid for firms of any size, whereas the I-models may beapplied to only small firms (Andersen, 1993) However, these models doshare some similarities For example, the U-model and the I-model are allbehavioral in nature In addition, experiential knowledge plays a prominentrole in the IP of these models In this study, we use the term internation-alization process model to denote the U-model

The IP model has its roots in the behavioral theory of the firm (Cyert &March, 1963) and the theory of the growth of the firm (Penrose, 1959) As aconsequence, the IP model assumes that firms lacking knowledge of thecharacteristics of foreign markets will adopt an incremental behavior ap-proach to minimize risks and avoid uncertainty when internationalizing(Johanson & Wiedersheim-Paul, 1975) It is, therefore, argued that firms tend

to choose countries they perceive as having a similar institutional ment as their home markets (Johanson & Wiedersheim-Paul, 1975;Johanson

environ-& Vahlne, 1977) Each individual business activity conducted by a firm in aforeign market gradually contributes to the firm’s knowledge of that foreignmarket This method of overcoming cultural ignorance is a result of know-ledge developed from experience (Penrose, 1959;Johanson & Vahlne, 1977).However, the IP model has come under scrutiny Because firms wish toavoid uncertainty and initially lack foreign market knowledge, the IP modelpredicts that firms entering a new foreign market will expand their oper-ations in small sequential steps From a starting point of no regular exportactivities in a foreign market, firms gradually increase their commitment byestablishing agents, followed by joint ventures, then partially owned sub-sidiaries, and finally wholly owned subsidiaries (Johanson & Wiedersheim-Paul, 1975; Johanson & Vahlne, 1977) This outcome of sequential steps,also known as the establishment chain (Johanson & Wiedersheim-Paul,

1975), has been heavily criticized because empirical research has shown thatfirms’ establishment patterns are less restricted than proposed by the model

(Hedlund & Kverneland, 1985;Turnbull, 1987;Welch & Loustarinen, 1988;

Bjo¨rkman, 1989) Even though differences in the establishment patterns offirms exist, a growing body of research indicates that firms gradually acquireknowledge from experience (Barkema et al., 1996, 1997; Madhok, 1996;

Eriksson et al., 1997;Hitt et al., 1997;Barkema & Vermeulen, 1998;Delios

& Beamish, 1999, 2001; Zahra et al., 2000) Thus, it seems that these velopments of the IP model indicate that channel choice should be linked toexperiential knowledge development in a less deterministic and sequentialmanner than as previously proposed Channel choice will probably be af-fected by experiential knowledge but not in the same sequential way as theoriginal IP model suggests

de-Considerable development has occurred in the IP model regarding theimportance of business relationships A substantial body of literature sup-porting the perspective of international business conducted within networks

of business relationships has been generated (Chen & Chen, 1998;Coviello

& Munro, 1997;Blankenburg-Holm, Eriksson, & Johansson, 1996) Thesestudies have emerged as an answer to a call for the study of internationalbusiness exchange in international business (Toyne, 1989) Empirical ob-servations have also shown that market transactions often take place withinthe framework of lasting business relationships between business partners(Ford, 1990; Ha˚kansson, 1982; Turnbull & Valla, 1986) Market activitieshave been observed to consist of interactions within long-lasting businessrelationships (Anderson, & Narus, 1990; Halle´n, 1986) The activities inbusiness relationships are usually complex processes that comprise know-ledge not only of goods and services being transacted, but also of the wid-

er business context of the firms (Cunningham & Homse, 1986; Halle´n,Johanson, & Seyed-Mohamed, 1991) These business relationships arelinked to each other, resulting in the formation of networks of interde-pendent business relationships (Blankenburg-Holm et al., 1996) Studiesexamining business relationships can be partially related to studies of in-ternational joint ventures, licensing, management contracts, and strategicalliances (Beamish & Killings, 1997;Contractor & Lorange, 1988)

Taken together, recent studies investigating the IP model emphasize theimportance of experiential knowledge development and business relation-ships and networks (Eriksson et al., 1997;Johanson & Mattsson, 1987, 1988;

Johanson & Vahlne, 1990, 2003) We also need to consider seriously the role

of exploration in the IP (Madhok, 1997) Instead of ignoring the role ofthese factors for channel choice, we identify them as important and potentialfactors that that may explain channel choice In light of these recent de-velopments in the IP, we reexamine channel choice in the following section

CHANNEL CHOICE IN INTERNATIONAL

BUSINESS NETWORKSOur reasoning is based on the IP model’s argument that country knowledge,opportunity seeking, and cultural distance are the central concepts for ex-plaining the international expansion of firms (Johanson & Vahlne, 1977).The paper continues with the subsequent development of the IP model(Eriksson et al., 1997) that claims that internationalization knowledge is animportant factor in explaining internationalization, and the network aspects

of customer and competitor knowledge (Johanson & Mattsson, 1987, 1988;

Johanson & Vahlne, 1990, 2003) Building upon the theoretical frameworkdiscussed in the previous section, we propose six different hypotheses

Country Knowledge

In a similar way, the organizational forms (foreign market operation ods) that the IP takes represent a gradual resource commitment Initially,firms export incidentally and then systematically through local intermedi-aries; eventually, they establish a subsidiary Separate studies (Johanson &Wiedersheim-Paul, 1975;Davidson, 1980;Gatignon & Anderson, 1988) haveindicated that firms are more likely to select wholly owned subsidiaries astheir experiential knowledge of the market increases.Klein and Roth (1990)

meth-also claim that greater experience in a foreign market stimulates exporters tointegrate forward Therefore, we claim that firms with more country expe-rience tend to use integrated channels to capitalize on their knowledge.H1 Firms with more country experience tend to use integrated channels

Market GrowthAccording toPenrose (1959), the immediate determinant of a firm’s behavior

is its expectation of future outcomes, which is also a fundamental tenet of the

IP model A firm’s decision to commit to a market is based on its manager’sperceived ability to estimate the present and future outcomes of a market.Hence, if the expectation of a market’s potential for future growth is high,the estimated risk of adopting a high commitment mode is reduced,thus resulting in a firm’s increased tendency to use an integrated channel(Johanson & Vahlne, 1977).Calof and Beamish (1995)reported such a find-ing in their study of mode change patterns Based on their interviews withmanagers, Calof and Beamish found that increased resource commitments

occurred as a result of firms having managers with greater confidence in themarket (i.e., they perceive it as having the potential to be large enough).

Agarwal and Ramaswami (1992)also found that firms tend to use integratedchannels in markets with higher potential Therefore, we suggest that firmsexpecting high market growth will position themselves to handle the increase

in sales by using an integrated market channel

H2 Firms that expect a higher market growth tend to use integratedchannels

Cultural Distance

In the IP model (Bilkey & Tesar, 1977; Johanson & Vahlne, 1977), twodimensions of international expansion have been identified: geographicalexpansion and resource commitment expansion The process model postu-lates that as the geographical and cultural distance between the home andhost markets increase, the more difficult it becomes for firms to collect andinterpret incoming information properly This ‘‘psychic distance’’ betweenthe home and foreign markets affects the selection of the market as well asthe choice of foreign market operation method The cultural distance be-tween the home and host countries influences a firm’s knowledge about amarket; the greater the degree of dissimilarity between countries, the greaterthe degree of difficulty of assessing the risk of conducting business, which, inturn, increases managers’ uncertainty (Carlson, 1966) Studies based on thelogic of market uncertainty and organizational knowledge have shown that ahigh commitment mode, such as a subsidiary, is less preferable when thecultural distance between the home and host countries increases.Erramilli(1991) found that the choice of high commitment mode in service firmsdecreased as the distance increased Davidson (1980) and Brouthers andBrouthers (2001) showed that the usage of licensing and/or joint venturesincreased with cultural distance A similar type of reasoning is found in thetransaction-cost theory concerning the effect of cultural distance on themode of operation The degree of difficulty associated with managing anoperation increases with cultural distance, which results in higher transactioncosts (Hennart & Larimo, 1998) Therefore, multinational enterprises opt for

a lower degree of equity when the cultural distance increases With increasedcultural distance, it may be more difficult to establish and manage integratedchannels in markets because of cultural dissimilarities As a consequence, wepropose that firms prefer non-integrated establishment modes when the cul-tural distance increases

H3 Firms prefer non-integrated channels in markets at a greater culturaldistance.

International Experience

A recent development of the IP model (Eriksson et al., 1997) shows thatinternational experiences generate a firm-specific procedural knowledge ofhow to internationalize This type of knowledge is not specific to a par-ticular market but is applicable to all markets Thus,Eriksson et al (1997)

argue that international experience enhances a firm’s ability to search forand evaluate information about foreign markets Firms with little interna-tional experience may feel less confident in estimating the risk and futurereturns of a market and thus prefer to be less committed to a market initially(Johanson & Vahlne, 1977;Davidson, 1982) Firms with more experience ininternational markets will be in a better position to handle sales in a specificmarket, thus making integrated channels more probable That firms tend toopt for integrated channels at higher levels of international experiencehas also been supported by subsequent empirical findings (Gatignon &Anderson, 1988;Erramilli, 1991;Aulakh & Kotabe, 1997) We would thusexpect firms with more international business experience to use integratedmarket channels

H4 Firms with more international business experience tend to use tegrated channels

in-Customer Knowledge

A firm’s ability to work closely with customers in markets is usually sidered an integral part of market knowledge The market orientation liter-ature emphasizes that customer orientation (as a part of market orientation)involves not only selling to customers but also to organize the firm so a deeperunderstanding of their customers can be acquired As a result of becomingfamiliar with their customers’ context and needs, firms are better prepared toprovide the resources that customers need for long-term profitable growth(Hult & Ketchen, 2001) From a network perspective, becoming established

con-in a market is a question of startcon-ing a specific buscon-iness relationship with a newcustomer in that country We would therefore expect the firm’s knowledge ofthe customer to influence channel choice Initially, the firm’s knowledge con-cerning the other specific partner is naturally low However, if the relation-ship continues, the interaction between the two concerned parties will lead to

a situation where they learn the counterpart’s capabilities and needs, which,

in turn, develops trust and interdependence between the firms (Ha˚kansson &Snehota, 1995;Hohenthal, 2001;Ha˚kansson & Johansson, 2001) As a result,the internationalizing firm works in a market-oriented way A study onbusiness relationship development by Lindstrand (2003a,b) highlighted theimportance of the acquisition of knowledge and the subsequent development

of trust The study found that knowledge of the counterpart increased thewillingness to invest in the relationship and, thus, increased interdependence

in the relationship Indeed, if the firm has acquired knowledge about itscounterpart, we believe that considerable time and effort have been put intothe relationship, assuming that the need for coordination between the coun-terparts has increased (Johanson & Mattsson, 1987) Therefore, we suggestthat if a firm has customer knowledge, it will more likely use an integratedchannel when operating in the market

H5 Firms with a greater level of knowledge of the customer tend to useintegrated channels

Competitor KnowledgeCompetitors have not been the main focus within the network literature(Chetty & Wilson, 2003) However, they have been considered a part of afirm’s network, and ‘‘the development of cooperative relationships with cus-tomers, suppliers or other business partners may be critical for foreign mar-ket entry’’ (Blankenburg-Holm et al., 1996, p 1049), where one such otheractor is the competitor According toChetty and Wilson (2003), competitorsare an important source of complementary resources and also possess up-to-date information concerning the market If we assume an organizationalcapability view (Madhok, 1997) on the firm’s action, it does not differ on thebasic assumption of firm activities when it comes to internationalization.Both views recognize interaction activities as a way of accumulating value tothe firm, where competitors may be an important source of knowledge forthe firm (Teece, 1992;Blankenburg-Holm et al., 1996) An integrated channelwould increase the firm’s visibility and create a position within the network(Johanson & Mattsson, 1988) Based on this argument, we suggest that firmslacking knowledge of their competitors will choose an integrated channel as ameans of benefiting from the competitors’ knowledge

H6 Firms with less knowledge about competitors in a market tend to useintegrated channels

To test the hypotheses, a questionnaire was sent out to 1830 and medium-sized firms in three countries: Sweden, New Zealand, andDenmark These countries were chosen because they are small and, there-fore, depend on international business The respondents were CEOs or insome cases managers in charge of international operations in small- andmedium-sized New Zealand, Danish, and Swedish firms The samplingframe was the New Zealand, Danish, and Swedish Business Directories Allfirms that exported more than 10% of total sales and had between 50 and

small-200 employees were selected from these directories The net response ratewas 20% (112 firms) for New Zealand, 27% (208 firms) for Denmark, and35% (174 firms) for Sweden, giving a total response rate of 27% or 494respondents These firms, the average age of which was 41 years, had beeninvolved in international business on average for 25 years On average, thefirms had 100 employees and conducted international business in 17 coun-tries.Table 1presents some general background data on the firms, such asage and amount of domestic and international turnover The data inTable 1

show that the Swedish firms are in general older and have a larger turnoverthan the other firms whereas the New Zealand firms are the youngest andhave the smallest turnover, both domestically and internationally

On average, the Swedish firms have been involved in internationalbusiness longer than the Danish and the New Zealand firms (seeTable 2).The New Zealand firms are on average selling to fewer markets than theSwedish and Danish firms As for the managers’ international experience,all of the respondents reported having 15 years of international businessexperience

Table 1 General Background Data on Sample Firms

(years)

Domestic Turnover (EUR)a

International Turnover (EUR)b

Note: Median values were chosen because some outliers made mean values inappropriate.

a In EUR, translated by the exchange rate by 1998.12.31: 8.74 SEK/1 Euro, 4.7 SEK/1 NZL Dollar, 1.3 SEK/1 DK.

b In EUR, translated by the exchange rate by 1998.12.31: 8.74 SEK/1 Euro, 4.7 SEK/1 NZL Dollar, 1.3 SEK/1 DK.

The research design is a real-world scenario in which we asked the pondents to select an ongoing customer relationship The introductory text

res-in the survey res-instrument reads as follows:

‘‘We would like you to select a business assignment where your company(if you work in a firm that is divisionalized or in other ways divided intounits, answer for your business unit) is expanding internationally Prefer-ably, this assignment should be well underway so that you would havealready started doing business with the counterparts If this is not suitablefor you, then we would appreciate it if you could choose a recently finishedassignment Examples of this assignment could be:

 A contract with a new distributor or agent in a new country

 A considerable expansion of business with an existing customer

 Doing business with one or more new customers within an existing ket

mar- Entering new country markets with your existing customers

 Doing business with new customers within a new market

Choose a business assignment that is important to your firm Businessassignments can be long-term and hard to separate from ongoing businessactivities, but this investigation wants to capture a larger change in ongoingbusiness with a customer or distributor.’’

The questionnaire was developed based on our hypotheses and 10 depth case studies of foreign market entry that showed how prior knowledge

in-is connected to the success of an internationalization move (Hohenthal,

2001) The questionnaire was designed to capture knowledge development

in international business Ten test interviews were done to validate thequestionnaire An example of a real field scenario was a paint production

Table 2 Firms’ International Experience and Managers’ International

facility in China The firm had located an employee there 3 years prior tomaking its first sales In their 8th year of establishment there, they built afactory to service the car plant, which was their primary customer.

At the time of response to our questionnaire, the assignments had beencontinuing for an average of 3 years Half of the assignments had beenoperating for 2 years or less; but some assignments for more than 20 years.The median number of previous assignments in the host country was 1.5,and 75% of the sample had fewer than 7 assignments in their host country.Previous studies (Hohenthal, 2001; Lindbergh, 2005; Blomstermo &Sharma, 2003; Lindstrand, 2003b) have analyzed the country differencespresent in this sample These analyses performed a number of checks oncountry differences and found that the variables involved in this study hadlittle or no effect

MEASURESCountry experience: Using a 7-point Likert scale, country experience wasmeasured based on the respondent’s assessment of whether the country isnew or well known to the firm (1 ¼ new and 7 ¼ well known)

Market growth: The expected market growth was determined by the spondent’s estimation of future market growth The respondents were asked toestimate on a 7-point Likert scale, ranging from 1 ¼ none to 7 ¼ very positive.Cultural distance: LikeBarkema et al (1996), we created a cultural simi-larity/dissimilarity scale or a ‘‘cultural distance’’ measurement based on

re-Ronen and Shenkar’s (1985)sociocultural clustering of countries (countriesdisplaying similarity in religion, language, and geography) The scale con-tains 12 cultural clusters: Nordic, Germanic (including Holland), Anglo-Saxon (including South Africa), Latin European (including Belgium), East-ern European, Independent (Brazil, Japan, India, Israel), Latin American,Far Eastern, Arab, Middle Eastern (Turkey, Iran, Greece), African, andOthers (the respondent was asked to specify the country in question) Theclusters were evaluated on a scale from 1 to 12 (adapted to the context ofDanish, Swedish, and New Zealand firms), where a value of 1 was assigned

to the focal firm’s home cultural cluster and a value of 12 was assigned to thecluster farthest away.1 The advantage of this measure is that it does notassume that the four factors identified by Hofstede accurately portray na-tional culture, nor does it assume linearity, additivity or normal distribution

of the factors’ scores Denmark, New Zealand, and Sweden were each cluded from the scale, depending on the origin of the respondent

ex-International experience: ex-International experience was measured based onduration (the number of years a firm has been conducting business outsidethe home country) and variation (the number of countries to which a firmsells) values.

Customer knowledge: We measured customer knowledge by letting the firmestimate to what extent a lack of customer knowledge is an obstacle whenexecuting the business assignment The respondents were asked to indicate on

a 7-point scale (1 ¼ serious obstacle; 7 ¼ no obstacle) to what extent a lack ofthe following types of knowledge was an obstacle: (a) lack of knowledgeabout the customer’s product, (b) lack of knowledge about the customer’sway of doing business, (c) lack of knowledge about the customer’s productionprocess, and (d) lack of knowledge about the customer’s cooperativeness.Competitor knowledge: We measured competitor knowledge by letting thefirm estimate to what extent a lack of knowledge about its competitors is anobstacle when executing the business assignment The respondents wereasked to indicate on a 7-point scale (1 ¼ serious obstacle; 7 ¼ no obstacle)

to what extent a lack of the following types of knowledge was an obstacle:(a) lack of knowledge about your competitors’ products, (b) lack of know-ledge about your competitors’ way of doing business, (c) lack of knowledgeabout your competitors’ production, and (d) lack of knowledge about yourcompetitors’ cooperativeness

Three control variables were included in this study: firm size, firm age,and power distance in the country of origin Firm size was measured as thenumber of employees The larger the investing firm, the greater its ability tohandle the risks and costs of activities in a foreign market by itself (Buckley

& Casson, 1976;Kogut & Singh, 1988) Thus, we predicted that bigger firmstend to use more integrated channels Because older firms have a largersource of experiential knowledge from which to choose when internation-alizing, they may also be more likely to use integrated channels The culturalcharacteristics of the home market have also been argued to influencechannel choice (Kogut & Singh, 1988) Firms originating in countries with

a high-power distance are characterized by considerable dependence ofsubordinates on managers (Hofstede, 1991) To cope with subordinates’dependence on them, managers will be more inclined to use managementtools that allow them considerable control over subordinates We would,therefore, expect firms from countries with a higher power distance tochoose integrated channels whenever possible Power distance was measuredaccording to Hofstede’s index of power distance, where Sweden is indexed at

31 (out of a maximum of 100), New Zealand is indexed at 22 (22/100), andDenmark is indexed at 18 (18/100) (Hofstede, 1991, p 28)