University ofSouth Australia

A Retrospective Analysis of Marketing Strategy and InnovationManagement in the Thai Export Manufacturing Industry

Tanompong Best Panich

B.BA. (Industrial Management),B.A. (Communication Arts),

PGDipArts (Mass Communication),M.A. (Media Studies)

International Graduate School of BusinessDivision of Business

University of South Australia'UNIVERSITY OF SOUTH AuSTRAL1A

LIBRARY

Submitted on this 1st of April in the year 2008 for the partial requirements

of the degree ofDoctor of Business Administration

DOCTOR OF BUSINESS ADMINISTRATION

DISSERTATION SUBMISSIONSUPERVISOR APPROVAL DECLARATION

Candidate Name: Tanompong Best Panich

UniSA Candidate ID Number: 100053239

Dear Sir/Madam,

To the best of my knowledge, the dissertation contains all of the candidate's own workcompleted under my supervision, and is worthy of examination.

I have approved for submission the dissertation that is being submitted for examination.

Dr. He-Principal Su rvisor, School of Marketing

Supported by:

1 April 2008Date

1 April 2008Dr. Marguerite Kolar DateChair, IGSB Doctoral Academic Review Committee

"I hereby declare that this paper submitted in partial fulfilment of the DBA

degree is my own work and that all contributions from any other persons or sources areproperly and duly cited. I further declare that it does not constitute any previous workwhether published or otherwise. In making this declaration I understand andacknowledge any breaches of the declaration constitute academic misconduct, whichmay result in my expulsion from the program and/or exclusion from the award of thedegree."

Name of candidate:

Signature of candidate:

Date:

Declaration

Tanompong Best Panich

1 April 2008

Acknowledgements

I wish to express my wholehearted appreciation to my research supervisor, Dr.Herve Remaud, for his time, guidance, advice and caring supervision throughout this

research. I would also like to offer my everlasting gratitude to Ms Sue Warman whocontributed her time and editing skills.

My sincere thanks go to Ms Chou Tea and all administrative staff at theUniversity of South Australia for their assistance and support.

I am grateful for the strong cooperation of the Thai Chamber of Commerce, The

Federation of Thai Industries, Department of Thai Export Promotion Ministry ofCommerce, Thai Gems & Jewellery Traders Association, Thai Garment ManufacturersAssociation, Thai Frozen Foods Association and Thai Food Processors' Association.Many thanks go to the numerous exporting company respondents and 12 highly

organised interviewers in Thailand for participating in and collecting data for thecompletion of this research.

Special thanks also go to all friends in Australia and Thailand who haveencouraged me during the challenging period of this study.

Finally, I would like to dedicate this dissertation to my father who passed awayin 1990. He is forever in my mind. Without him, I would not have come this far.

Table of Contents

Page

DeclarationAcknowledgementsTable of Contents ivList of Figures viiList of Tables viiiAbstract

Chapter 1 Introduction 1Introduction 1

Marketing Innovation 2Resource-Based View of the Firm 4Understanding Export Performance 5Exporting in Thailand 8

Statement of the Problems 9Research Questions 11Objectives of the Research 11Scope of the Research 12Contributions of the Research 12Structure of the Dissertation 13

Chapter 2 Literature Review, Research Hypotheses and Models 15Section 1: Export Performance and Firm Characteristics 15

Export Performance 15Limitations of Past Exporting Research 18Firm Characteristics 18

Section 2: Firm Resources A Resource-Based Theory of the Firm 20Section 3: Innovation 22

Dimensions of Innovation 24Benefits of Innovation 27

Section 4: External Environment 29Section 5: The Role of Exporting in Thailand 31

Export Promotion Programs 33

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Page

Section 6: Research Hypotheses 34Section 7: Research Models 38

The Conceptual Model of Marketing Innovation 38Operational Definitions of the Constructs in Marketing Innovation Model 40The Proposed Full Model of Export Performance 40Operational Definitions of the Constructs in Export Performance Model 43

Summary 43

Chapter 3 Research Methodology 45Section 1: Research Design 45

Selecting Industries 45Sampling and the Sample Size 46Instruments 47

Section 2: Measurement 48Marketing Innovation Model 48The Extended Model of Export Performance 49

Section 3: Data Collection Method 50Section 4: Validity and Reliability 51Section 5: Data Analysis 51

The Concept behind LISREL 52Notation Used in LISREL 53Model Estimation 54General Interpretation of the Fit of LISREL 56Data Analysis Process 58Criteria in Selecting and Adjusting the Fitted Model 59

Summary 60

Chapter 4 Research Analysis and Findings 62Section 1: Data Analysis 63

Demographics of Exporting Companies 63Opinions of the Respondents upon Various Issues 66Export Performance 78

Page

Section .2: Model Analysis 83Model Estimation 84Marketing Innovation Model 84Estimation of the Full Model of the Export Performance 88The Best Fitted Model of Export Performance 89Hypotheses Testing 95Structural Paths 96Interpretations 98

Summary 99

Chapter 5 Discussions, Implications and Conclusion 101Introduction 101

Marketing Innovation Model 101Export Performance Model 102

Section 1: Discussions 103Respondents' Suggestions for the Development of Marketing Innovation

in Exporting Companies 109Section 2: Implications 111

Empirical Implications of Marketing Innovation on Export Performance 111Theoretical Implications 118

Section 3: Limitations 120Section 4: Suggestions 121Section 5: Conclusion 123

References 125Appendices 140

Appendix A: Questionnaire 141Appendix B: List of the 12 Top Executives 148Appendix C: List of Organisations and Associations that cooperated in this

research 149Appendix D: Conclusion on Executive Interviews 150Appendix E: Participant Information Sheet 153Appendix F: Consent Form 155Appendix G: Table of Bivariate Correlation, Mean and Standard Deviation 156

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List of Figures

Figure Page

1.1 Capabilities and Competitive Advantages 11.2 A General Model for Assessing Export Performance and Variable 61.3 Conceptual Framework of a Proposed Model of the Export Marketing Strategy

and Innovation Management Capabilities in the Thai Manufacturing Industry 112.1 Marketing Innovation Model: Constructs, Measurement and Variables 392.2 The Proposed Full Model of Export Performance: Constructs, Measurement,

and Variables 414.1 Marketing Innovation Model 874.2 Modified Competing Models 904.3 Model I 914.4 Model II 924.5 Model III 924.6 The Best Fitted Model of Export Performance 945.1 Export Performance Model 102

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List of Tables

Table Page

2.1 Export Performance Measures Used in Previous Research 162.2 Major Export Markets of Thailand 2002-2006 322.3 Ratio of Export Goods from Thailand in World Markets 2002-2006 322.4 Factors Affecting Export Performance: Latent and Observed Variables 423.1 The Population and the Sample Size 464.1 Demographic Data of Firms 634.2 Number of Markets and Regions of Key Exports for Company's Products 654.3 Respondents' Opinions on Technology and Research and Development

Budget 664.4 Respondents' Opinions on Firm's Marketing Strategy 674.5 Respondents' Opinions on their Firm's Management Styles 684.6 Respondents' Opinions on the Importance of Different Modes of Firm's

International Involvement to Marketing Innovation 694.7 Respondents' Opinions on the Influence of their Firm Characteristics to

Marketing Innovation 714.8 Respondents' Opinions on the Influence of Firm Resources to

Marketing Innovation 724.9 Respondents' Opinions on the Agreement of Characteristics of their Firms'

Product Innovation during 2004-2006 734.10 Respondents' Opinions on the Level of Changes of their Firms' Working

Process Innovation during 2004-2006 744.11 Respondents' Opinions on the Level of Changes of their Firms' Export

Market Innovation during 2004-2006 754.12 Respondents' Opinions on Various External Factors' Impact upon Export

Performance 764.13 Respondents' Opinions on Strategic Objectives of their Companies 784.14 Respondents' Report on Achievement of Strategic Objectives' of Company 794.15 Respondents' Report on Sales Growth of the Company during 2003-2006 804.16 Respondents' Report on Profit due to Marketing Innovation during 2003-2006 814.17 Respondents' Opinions on the Success of Marketing Innovation Classified by

New Product, New Working Process, and New Market 82

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Table Page

4.18 Respondents' Opinions on Overall Company's Performance due to theAdoption of Marketing Innovation 83

4.19 Second-Order Measurement Model of Marketing Innovation 864.20 Descriptive Information and Reliability of the Scales Used 894.21 LISREL Analysis Results of Three Competing Models in Searching for the

Best Fitted and the Most Parsimonious Model of Export Performance 934.22 Summary of the Results in Hypotheses Testing 964.23 Estimated Parameters from the Structural Model 'The Best Fitted Model of

Export Performance' 974.24 Direct, Indirect, and Total Effects of Independent Variables on Export

Performance 98

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Abstract

The objectives of this research project are threefold: (1) to identify the keymarketing innovation factors which drive successful export marketing strategy in Thaimanufacturing companies, (2) to test the proposed model 'The Full Model of ExportPerformance' on Thai export manufacturing companies, and (3) to suggestrecommendations to Thai export manufacturing companies in order to improve their

export performance. The conceptual framework in this study was developed from Aaby& Slater (1989) and Chetty & Hamilton (1993)'s concept, and incorporates theresources-based theory in analysing the performance of exporting firms. The modelwas analysed empirically by using 249 questionnaires that were collected from topexecutives in 4 high growth export sectors in Thailand (food processing, gems andjewellery, garments, and electronic and electrical products). The Linear StructuralRelationship Model (LISREL) was employed to test the model.

The study shows that the marketing innovation of exporting companies inThailand includes of 3 constructs: new product innovations (unique features, customers'needs, high quality), new working processes (using computers, applying internationalstandards, re-engineering, using new technology), and new markets (access to newmarkets, new packaging, new promotional approaches, new support provided to foreigndistributors).

The best fitted model of export performance is composed of 4 latent constructs:(1) export performance (profitability, market penetration, sales growth, buildingawareness/image overseas), (2) marketing innovation (new products, new workingprocesses, new markets), (3) firm resources (executives' marketing knowledge,executives or managers who take responsibility for exports in particular, exportmarketing department dependability, good relationship with others related to the

business), and (4) firm characteristics (number of full-time employees).

The findings of this study lead to the suggestion that the success of exporting

companies in Thailand depends on several efforts in marketing activities. The mostimportant are that exporting companies should concentrate on: creating new products,

developing their own national brand names; improving new working process by

employing marketing information systems and new technology; and penetrating newmarkets by concentrating on a niche market. Enhancing marketing innovation strategyneeds multi-cooperation from many parties such as government agencies, trade

associations and educational institutions. In addition, vision, knowledge in internationalmarketing, and good relationships with customers and the top executives and middlemanagers of related exporting companies are considered to be valuable resources offirms in creating marketing innovation in Thailand.

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Chapter 1Introduction

Introduction

Globalisation and stronger international competition are some of the majorchallenges in international marketing that require changes, adaptation in competitivepostures and development of strategies matched to the changing environment (Porter,1986; Douglas & Craig, 1999). Marketing strategies widely used include introductionof new products to markets, penetrating new markets, creating more intensive newdistribution channels, better production facilities, increased marketing expenditures,price reductions and acquisitions of other companies (Bradley, 2001). Thesestrategies can help a company to better compete with its rivals during a given periodof time, but competitors can always, at least at one stage, imitate them. Therefore, acompany has to prepare medium to long-term strategies that will create a sustainablecompetitive advantage. Slater (1996) proposed six key sources of competitiveadvantage ranging from easier to imitate to difficult to imitate: quality, services, lowcost, speed, innovation and learning. (See Figure 1.1)

Figure 1.1: Capabilities and Competitive Advantages

Competitive Parity and Sustainable Competitive AdvantageAverage Performance and Superior PerformanceEasier to Imitate Difficult to Imitate

Quality Services Low-cost Speed Innovation Learning

Source: Slater, SF 1996, 'The challenge of sustaining competitive advantage', IndustrialMarketing Management, vol. 25, pp. 79-86.

According to Slater (1996), sustainable competitive advantage for superiorperformance is a result of innovation and learning that are capabilities difficult to

imitate.

Unlike purely domestic firms, those firms engaged in international marketing

are exposed to more diverse and complex environmental contexts at both the level of

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the industry and the firm, as well as in their home and host country markets (Miller,2003; Huszagh, 2002). Exporting firms often have to modify their marketingactivities in a variety of ways to adjust to changes in environmental hostility in theirdomestic market (Rao, Kreighbaum & Hawes, 2003) as well as in overseas markets(Green, 1987). For instance, various obstacles for exporting are perceived to exist inboth home and overseas markets, requiring adjustments in export marketing strategies(Axinn, 1998; Bauerschmidt et al., 2005).

In the marketing field, Drucker (1954) was one of the first scholars tocomment about this concept;

"There is only one valid definition of business purpose; to create a customer.(..) It is the customer who determines what the business is (..). Because it isits purpose to create a customer, any business enterprise has two and onlythose two basic functions; marketing and innovation."

Though an increased interest has emerged in conceptualising and measuringthe marketing concept, little attention has been devoted to Drucker's second basicfunction, innovation (Deshpande et al., 2003). In a separate branch of literature,which is the diffusion of innovations, scholars have noted the importance of

organisations being innovative (Rogers, 2003). Much of this literature focuses oninnovativeness as a dependent variable, presuming it to be important and worthy ofstudy. Increasingly, however, scholars have linked innovativeness to organisationalperformance, suggesting that a firm needs to be innovative to gain a competitive edgein order to survive and grow (Gronhaug & Kaufmann, 1998). This issue is importantbecause the relationship between organisational factors such as irmovativeness andbusiness performance has not been studied adequately (Capon, Farley & Hoening,2000).

Marketing innovation is a complex phenomenon that can be operationalised invarious ways. It will become an important part of the research in this research.

Marketing Innovation

There are many studies and research materials on marketing in terms of ideas,

knowledge and measurements. However, the concept of innovation attracts lessinterest from marketing researchers. There is only limited research in this field

adopting a marketing perspective, though innovation is very important in enabling acompany to develop a sustainable competitive advantage.

The reason for this limited interest in innovation may be linked to thepioneering period for innovative ideas, knowledge and scientific development. Itcould also be the result of the various and complicated meanings of the word itself.

This makes the concept of innovation difficult to study and measure, since the workwill be based on different theories, different contexts and definitions.

In general, interpretation of innovation is linked to new technological

developments. However, many academics have suggested that innovation should notbe attached particularly to technology. It should have wider meanings to encompassany new ideas initiated by a company for the purpose of its own business profits.

Porter (2000) placed great importance on innovation. He gave a widedefinition of the word 'innovation' as an act of perceiving or discovering new andbetter ways to compete in an industry and bringing them to market (Porter, 2000, p.22).

Innovation has so much value and usefulness, academics and researchers fromdifferent areas agree, since it acts as a catalyst in industry and commerce. Itinvigorates efforts and brings new opportunities for profitable expansion (Chisnal,2005); creates competitive advantage (Porter, 2000; Foxall & Johnston, 2004); andespecially may create sustainable competitive advantage (Slater, 1996). Companiescan achieve competitive advantage through the creation and exploitation of innovativeproducts and services that are more appealing to their customers, more profitable than

those produced by their rivals (Foxall & Johnston, 2004), and more difficult to imitate(Slater, 1996).

Lee & Brasch (1998) and also Kotabe et al. (2000) linked the ideas andimportance of innovation to an organisation's performance by suggesting that an

organisation has to have innovation to gain competitive advantage, survive and grow.After studying various researches on innovation, many academics mentioned the

importance of organisation and innovation (Rogers, 2003). Most of this researchemphasised innovation as important and valuable to study, but unfortunately there arestill few studies in the marketing field of the relationship between innovation and

organisational performance.

Studies of organisational performance can be divided into macro-economic,industrial sector, and micro-economic organisations. Most of the case studies came

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from developed countries such as the United States, Canada and countries in theEuropean Union (EU). There are only a few studies from developing and lessdeveloped countries. The effects of globalisation have caused many countries to facetrade imbalances and inequalities (Douglas & Craig, 1999). How these situations aresolved will depend on the appropriate reactions and abilities to adjust on the part ofeach country and each company.

In term of the study on marketing innovation needs to have the supported

theory. The following topic is a discussion of resource-based view of the firm andhow it relates to export performance.

Resource-Based View of the Firm

The key to a resource-based approach to strategy formulation is to understandthe relationships between resources, capabilities, competitive advantage andprofitability (Hofer & Schendel, 1998). Resources are defined as those tangible andintangible assets that are tied semi-permanently to a firm (Caves, 1990). Examples ofresources include brand names, in-house knowledge of technology, employment ofskilled personnel, trade contracts, machinery, efficient procedures, capital, etc. Oneof the most influential lists of conditions that underlie sustainable competitive

advantages was provided by Barney (2001), who stated four conditions; (1) valuable,(2) rare, (3) imperfectly imitable, and (4) imperfectly substitutable. The resources andcapabilities of a firm are the central considerations in formulating its strategy: they arethe primary constants upon which a firm can establish its identity and frame itsstrategy, and they are the primary sources of the firm's profitability. This requires thedesign of strategies which exploit to maximum effect each firm's uniquecharacteristics.

Before the 1990s, the principal developments in firm strategy analysis focusedupon the link between strategy and the external environment. By contrast, the link

between strategy and the firm's resources and skills has suffered comparative neglect(Grant, 2001). More recently there has been an interest in the role of the firm'sresources as the foundation for firm strategy. At the corporate strategy level,

theoretical interest in economies of scope and transaction costs have focused attentionon the role of corporate resources in determining the industrial and geographical

boundaries of the firm's activities. At the business strategy level, explorations of the

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relationships between resources, competition and profitability include the analysis of

competitive imitation, the appropriability of returns to innovations, the role of

imperfect information in creating profitability differences between competing firms,and the means by which the process of resource accumulation can sustain competitive

advantage. Together, these contributions amount to what has been termed 'theresource-based view of the firm'.

In this research, the main theme is export performance. The following topic is

to understand the export performance and how the export performance related to theresearch.

Understanding Export Performance

In the past 30 years, studies on the determinants of export performance havebeen an important stream of international marketing research (Aaby & Slater, 1989).However, these studies are adapted for practical purposes and to show the linksbetween different variables and the success of exports.

Bilkey (1982) was the first to study and synthesise export research in'Variables Associated with Export Profitability'. He reviewed 43 studies on theexport behaviour of firms from 11 countries. He found consistency among thefindings regarding several dimensions of export behaviour, such as obstacles toexporting (insufficient finances, insufficient knowledge about foreign salesopportunities) and management systems of exporters and non-exporters. He alsofound some conflict among some factors that act as determinants of export

performance, such as the stage, the company, the size of business and motivation.Apart from Bilkey's research, a work on 'Management Influences on Export

Performance: A Review of the Empirical Literature 1978-88' by Aaby & Slater(1989) also showed the relationship of various variables to export performance for thefirst time in the 'Strategic Export Model' or 'A General Model for Assessing ExportPerformance and Variables' as shown in Figure 1.2. This major study led to a conciseidea of internal variables that would affect export performance.

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Figure 1.2: A General Model for Assessing Export Performance and Variable

Firm Competencies'

- Technology*- Export/ Market Knowledge*- Planning- Export Policy- Management control- Quality- Communication

Environment

Firm Charactenstics

Firm size*- Management commitment*- Management perceptions toward*

- financial incentives- competition- marketing potential- distribution, delivery, and service- govemment incentives- nsk- profit*

- Market selection*- Use of intemiedianes- Product mix*- Product development- Promotion- Pnang*- Staffing

*significant variables from study of Chetty & Hamilton (1993)

Source: Adapted from Aaby & Slater (1989) and Chetty & Hamilton (1993)

Strategy

A,

Performance

- Propensity to export- Export sales- Export problems- Exporters versus non-exporters- Level of export- Perceptions towards export- Export growth intensity- Bamers to export

4

6

The major internal variables consist of 3 factors that can be controlled throughmanagement. These are firm characteristics, firm competencies, and film strategies:

Firm characteristics include the firm's size, consensus in management andacknowledgement from management.

Firm competencies are composed of technology, knowledge of marketingand exporting, planning, export policy, quality control management andcommunication.

Firm strategies include major variables such as market selection strategy,sales representative selection, product mixture, product development, sales promotion,pricing and personnel.

The Strategic Export Model of Aaby & Slater illustrates how the relationshipsamong major factors in organisational variables affect a company's exportperformance. However, Glass (1993) criticized the model as having a defect in termsof the way reviews of research works were used, when the researchers presented theirvariables' analyses based on situational assessment. Glass's comment aside, themodel is widely referred to in many export studies. It also drew a frame of referencefor ideas used in export research.

Chetty & Hamilton (1993) experimented with the relationship between variousvariables that have an impact on export performance as described in Aaby & Slater'smodel. Their experiment was based on a statistical method called meta-analyticalanalysis, which uses a vote-counting process. They also studied other export researchand extended the study period for another three years. So Chetty & Hamilton'sliterature review covered 1978 to 1991. The result of their study is consistent withAaby & Slater's in terms of variables. They also found variables in each factorhaving significant statistical impact on a company's performance. These variables area firm's characteristics (size, management, attitude to profitability); competencies(technology, marketing knowledge, export analysis); and export strategy (marketselection, product mix, prices).

Chetty & Hamilton (1993) commented that only a few research works onexport performance yielded clear conclusions and were strong enough in terms of

research models. This may be due to simplified relationship linkages in terms ofquestioning, measurement and research model design. Moreover, most of the studies

are survey research of innovation concerned with two aspects of exports; entering

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foreign markets (since the entry of a foreign market by a domestic company isdeemed trading innovation), and studying innovation in the aspect of technology only.

Most of the export performance researches came from the developed countriessuch as the United States, Canada and countries in the European Union (EU). Thisresearch concerned in the export performance in Thailand. The following topic is theexporting in Thailand.

Exporting in Thailand

Exporting is one of the key factors in economic development, particularly indeveloping countries like Thailand. It is widely accepted that international marketingis vital to Thailand's economic development. Development in both the public andprivate sector, particular in improving efficiency and quality in exports to gain a

greater inflow of foreign currencies, is deemed the key factor in allowing the countryto achieve its goal as stated in the National Economic and Social Development Plan(Wechasara, 2005). Since the beginning of the 1990s, Thailand has been welladvanced in its transition from an agricultural to an industrial and services-basedeconomy. Three-quarters of the country's exports consist of manufactured items.Thailand's exports have changed from agricultural product-oriented to industrialproduct-oriented.

The 1997 economic crisis in South East Asian countries posed a highlyturbulent and continuously changing environment. In Thailand, immediately after theeconomic crisis, the business environment was characterised by a large drop in theexchange rate of Thai currency in relation to US dollar (Johri & Ngamkroeckjoti,2003). To mitigate the adverse impact of the 1997 economic crisis, Thai governmentimplemented a number of measures to revive domestic consumption and stimulatenew investments for exporting.

Thailand has a diverse economy, with high growth in nearly all sectors. Thereis much new investment, including extensive public sector infrastructure

development. The manufacturing industry is growing rapidly. The dramatic shift wasassociated with the relocation of industries to Thailand from Japan and the newlyindustrialising economies (NIEs) of East Asia, namely South Korea, Taiwan andHong Kong. With this movement of foreign investment, Thailand's exporting hasshifted from traditional manufactured exports of textile products, canned food, sugar

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and jewellery to computer components, integrated circuits, footwear, plastic products,travel goods and electrical appliances. The study of Thailand's exports shows thatexport growth rates of many products have tended to decline since 2002 (Kakwani,2004). Exports of technology-intensive products grew by 11.73%, while traditionalagricultural product exports grew by only 2.94%. Industrial product exports rose by2.10% and those of labour-intensive industrial products by 3.31%. Among these,

garments and footwear have faced serious problems. The decline is due to the entryof new competitors in both labour and capital-intensive sectors in the Asian market.

Thailand's major competitors include China, India, Indonesia and Malaysia.Jirapaeth (2003) stated that higher labour costs, with the five-year average

growth rate of 14.04% (1998-2002) and the problem of labour shortages are thecauses of higher production costs. Production of export goods in Thailand has to relyextensively on imported capital goods and raw materials. This is considered themajor obstacle to the development of the country's export production.

Statement of the Problems

In Thailand, a declining trend in exports (KakWani, 2004), more competitorsin the world export markets (Jirapaeth, 2003) and lower competitiveness in productionand management (Lueprasithskul, 2004) are all considered negative aspects ofeconomic development. Systematic research is needed to understand a country'sexport business, especially international marketing which will enable exporters to setup sustainable businesses and to make great strides in management development forhigher competitive efficiency and effectiveness.

In the export marketing strategy, export growth and other types of exportperformance are functionally dependent on a country's demand for goods and services

(Reid, 1986). While export performance and innovation management are frequentlyviewed as interlinked, with technology considered the major factor, no retrospectiveanalysis views the innovation in other aspects beyond the technological framework.However, a number of researchers have suggested that the use of innovation

management for organisations and countries is considered a sustainable leap-forwarddevelopment.

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This research empirically examines the role of innovation management in the

meaning of product changes, working process changes, and new approaches to

marketing. As Porter (2000) points out, innovation management includes bothimprovements in technology and better methods of doing things Innovationmanagement shifts competitive advantage when rivals either fail to perceive a newway of competing or are unwilling or unable to respond.

In this research, the conceptual frameworks of 'A Strategic Export Model' ofAaby & Slater (1989), and 'Firm-Level Determinants of Export Performance: AMeta-Analysis' of Chetty & Hamilton (1993) are used as the basic framework inbuilding 'The Proposed Model of the Export Marketing Strategy and InnovationManagement Capabilities in the Thai Manufacturing Industry'. In addition, thisresearch proposes that firm characteristics might be influenced by businessmanagement. Therefore, the construct of firm characteristics is included in businessmanagement. Environment variables are also included, as shown in the conceptualmodel of this research in Figure 1.3;

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Figure 1.3: Conceptual Framework of a Proposed Model of the Export Marketing Strategyand Innovation Management Capabilities in the Thai Manufacturing Industry

Export Strategy Model

- Firm charactensbcs- Firm resources- Export performance- Export strategy

Research Questions

What are the key marketing innovation factors that can be identified insuccessful Thai export manufacturing companies?

What are the determinants of export performance in the Thai exportmanufacturing companies?

Objectives of the Research

1. To identify the key marketing innovation factors which drive successful

export marketing strategy in Thai manufacturing companies.

Resource-Based Theory

- Barney (2001)- Wemerfelt (1984)

Environment

EXpOiiPerfainithice

Innovation

- Porter (2006) -Slater (1996)

Marketing Innovation

Product innovation- Process innovation- Marketing innovation

Int'l Marketing Strategy

- Carroad & Carroad (2002)

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Export Performance &Firm Characteristics

Aaby & Slater (1989)- Redding (1995)Weidenbaum (1996)

- Chetty & Hamilton (1993)- Cavusgil & Zou (1994)

To test the proposed model 'The Full Model of Export Performance' onThai export manufacturing companies.

To suggest recommendations to Thai export manufacturing companies inorder to improve their export performance.

Scope of the Research

Three distinctive features should be noted at the outset of the researchframework;

The study is conducted by selecting industries from exporting companieslocated in Thailand.

The conceptual framework of this research assumes that performance of anexporting company can be directly affected by marketing innovation strategy.

The study concentrates on the variables affecting the performance ofexporting company suggested by Aaby & Slater (1989) and Chetty & Hamilton(1993). These variables are firm characteristics, firm resources and firm strategy.

Contributions of the Research

The research contributions will develop an extended export performancemodel titled 'The Full Model of Export Performance'. An analytical procedure whichfacilitates the simultaneous examination of the interrelationship among four

theoretical components; export performance, marketing innovation, firm resources

and firm characteristics, will be performed using the Linear Structural Relationship

Model (LISREL). Major contributions to this research are three-fold;

1. Empirical and managerial contributions

Identify the key marketing innovation factors that affect the export

performance of export manufacturing companies in Thailand.Thai export manufacturing companies will be able to use the findings

to better understand the determinants of export performance.

Government agencies such as the Department of Export Promotion in

Thailand can use the research findings to better assist exportingcompanies.

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Theoretical contribution

Enhancing and testing an extended model of export performance by

adding the marketing innovation components into the existingempirical model of Aaby & Slater (1989) and Chetty & Hamilton(1993).

Methodological contributionThe use of the Linear Structural Relationship (LISREL) statistic modelfor data analysis will systematically test the relationship of firm

resources, firm characteristics and marketing innovation on exportperformance.

Structure of the Dissertation

Following the current Chapter 1 (Introduction), the dissertation is structured asfollows;

Chapter 2: Literature Review, Research Hypotheses and Models. Thischapter is divided into seven sections and covers a review of some empirical researchand the theoretical framework mostly adopted by researchers. Literature streamsconcern export performance, firm characteristics, firm resources, innovation andexternal environment. Preliminary information about Thailand and the role ofexporting are included. Research hypotheses and models make up the last twosections.

Chapter 3: Research Methodology. Chapter 3 explains the researchdesign, including selecting industries, population and sample size, instruments, themeasurements, the data collection method, validity and reliability, and the data

analysis including definition of the Linear Structural Relationship Model (LISREL).Chapter 4: Research Analysis and Findings. Chapter 4 is presented in two

sections. The first one describes some demographics of the exporting companies aswell as the opinions of respondents to export performance, marketing innovation, firm

resources, firm characteristics and environment. And the second section is the modelestimation and the fitting of the model to the data. The Linear Structural RelationshipModel (LISREL) is used as the statistical tool to discover the model which best

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represented the data. All eight hypotheses stated in Chapter 2 are tested and resultsare reported.

Chapter 5: Discussions, Implications and Conclusion. The purpose of thisresearch was to develop 'The Full Model of Export Performance' which enhances theempirical model of Aaby & Slater (1989) and Chetty & Hamilton (1993) by includingthe marketing innovation component. This study has demonstrated that marketinginnovation comprises three main factors which are new product, neW working processand new market. Each factor consists of variables that can best explain thephenomenon of exporting firms in Thailand, especially working process innovation

and new market innovation. The cause and effect of each variable are examined.An analytical procedure which facilitated the simultaneous examination of

the interrelationship among the theoretical components of export performance,marketing innovation, firm resources and firm characteristics was performed by using

LISREL. The implications which can be inferred from the best fitted model arediscussed in details.

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Chapter 2Literature Review, Research Hypotheses and Models

The purpose of this chapter is to present conceptual definitions of the majorconstructs included in this study, the research hypotheses and the proposed extendedmodel of export performance. The relevant literature was reviewed and analysed.The research hypotheses are based on the theories discussed and incorporated in 'The

Full Model of Export Performance'. The model is presented in the form of LinearStructural Relationship Model (LISREL).

This chapter is divided into seven sections and covers a review of some

empirical research and the theoretical framework mostly adopted by researchers.Literature streams concern export performance, firm characteristics, firm resources,

innovation and external environment. Preliminary information about Thailand andthe role of exporting are included. Research hypotheses and models make up the lasttwo sections.

Section 1: Export Performance and Firm Characteristics

Export Performance

Lee & Brasch (1998) defined exporting as the process of marketing to foreigncountries other than the home country. They mentioned that export distribution canbe carried out by three methods; through an export representative (such as a combinedexport management firm) or other types of agents to which the firm in questiondelegates foreign sales responsibility, by dealing directly with customers in a foreign

country, or by selling through a merchant middleman who buys for his own account

and exports at least a part of his purchases.

Cavusgil & Nevin (2001) offered a comprehensive conceptual definition thatthis study will adopt. Exporting is 'the marketing-related decisions and activities offirms which are engaged in international businesses'. (Cavusgil & Nevin, 2001, p.115)

The term 'Export Performance' has been used in different ways based on thespecific objective(s) of researchers. Thus, there is no uniform definition of export

15

performance in the literature (Cavusgil & Zou, 1994; Zou & Stan, 1998; Morgan,Kaleka & Katsikeas 2004). Table 2.1 illustrates a variety of export performancemeasures adopted by previous researchers, as well as the criteria employed by'government agencies.

Table 2.1: Export Performance Measures Used in Previous Research

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Performance Measure StudiesExport sales level Bello & Willamson (1995); Bilkey (1985); Cavusgil

(2004a); Cavusgil & Zou (1994); Cooper & Kleinschmidt(1995); Fenwick & Amine (1979); Kaleka (2002); Madsen(1989); McGuinness & Little (2001); Piercy et al. (1998);Sood & Adams (1984); United Kingdom Awards (U.K.Awards)

Export profits Bilkey (1982, 1985); Madsen (1989); U.K. AwardsExport sales growth Cavusgil & Zou (1994); Cooper & Kleinschmidt (1995);

Kirpalani & MacIntosh (2000); Madsen (1989); U.K.Awards

Ratio of export sales to

total salesAxinn (1988); Chetty (2006); Gomez-Mejia & Luis(1998); U.K. Awards

Ratio of export profits to

total profitsU.K. Awards

Increase of importance

of export to total

business

U.K. Awards

Overcoming barriers toexport

Bauersclunidt et al. (2005); Sullivan & Bauerschmidt(1987); U.K. Awards

Propensity to export Bilkey (1985); Cavusgil (2004b); Denis & Depelteau(1985); Kaynak & Kothari (1984); Piercy (1981a); Reid(1986); Rosson (2001)

Export involvement Diamantopoulos & Inglis (1998)Exporter

internationalisation

Piercy (1981b)

Source: Adapted from Cavusgil & Zou (1994)

The most frequently used performance measures appear to be economic innature such as export sales, export growth and profits from exports.

Cameron (1996) identified five common themes in strategy research onperformance. Shoham (2003) discussed these themes underlying the exportperformance perspective as follows;

Performance is a central concept in export assessment. It is related tomultiple issues in exporting. For example, an exporter's choice of marketing mix andthe form of market entry (such as direct exporting or use of middlemen) might lead todiffering performance levels.

Export performance is organisation-specific. In other words, organisationsthat use profit ratios to measure performance will tend to use similar ratios forexports.

Export performance is defined differently by individuals in an organisation.Stakeholder groups that interact in the internal and external environments of the firm

introduce further diversity. Some measures of performance are needed to evaluateand reconcile their differences.

The usefulness of any definition depends on the purpose of the research,and more than one definition might exist.

Performance in exporting is problem-driven in many cases. Appropriatedefinitions might differ across problems. The measures of performance depend on theobjectives of an individual exporter.

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Performance Measure StudiesAttitudes toward export Brady & Bearden (1979); Johnston & Czinkota (1992);

Rosson (2001); Saminee & Walters (2001)Acceptance of productby export distributors

Angelmar & Pras (1984)

Limitations of Past Exporting Research

Despite the contributions of previous research on exporting, a few limitationscan be highlighted.

Most of the studies are based on the assumption that exporting can be

differentiated from domestic business operations and viewed as a unique alternative(Bilkey, 1978; Reid, 1981). Known as a single-activity assumption, that approachfacilitates concentration on the post-export behaviour of firms (Mintz, 1967).However, for most of the firms which export, resources are shared between domestic

and export-oriented business units. Distinctions between domestic and exportoperations become even less clear when firms view exporting as simply anotherexpansion alternative for example, when firms regard Mexico and Canada as simpleextensions of the U.S. market (Czinkota & Johnston, 1993). In short, many factorsthought to be related to export expansion appear to be related also to domesticexpansion, and vice versa.

Another limitation is about the 'born global' companies. These companiesdo not think the export market as an extension of the domestic market but directlyhave a global or international vision of the market.

Also the methodological limitations of past research warrant discussion,where almost all of the data were gathered from a single state (Gomez-Mejia & Luis,1998) or a single developed country. In other words, what would happen whenstudying the case of a less developed country.

Firm Characteristics

Export marketing researchers have often given particular attention to various

firm characteristics. Among those most commonly examined within the spectrum ofthe exporting field are firm size (Bonaccorsi, 1992; Culpan, 1999; Cavusgil & Naor,1997; Czinkota & Johnston, 1993; Reid, 1982), the level of export involvement(Cavusgil, 2004a; Diamantopoulos & Inglis, 1998; Fraser & Hite, 2000), companyexperience with exporting activities (Erramilli, 2001; Madsen, 1989; Moon & Lee,2000), and attitudes toward future exports (Gripsrud, 1990).

18

Firm size. In a critique of the Czinkota & Johnson (1993) study, Reid(1985) raised several methodological issues that may confound the results from astudy concerning organisation size. These include lack of a conceptual base forpredicting the relationship between a firm's size and export performance.

Management commitment. Export goal consistency among management isimportant for export success, while lack of willingness by management to commit

resources to exporting has a negative influence on performance (Cavusgil & Nevin,2001). Gronhaug & Lorenzen (2002) found a high positive correlation betweenmanagement involvement and export performance among Norwegian exporters. So, apositive relationship between management commitment and export performance canbe suggested.

Management perceptions. Aaby & Slater (1999) concluded that knowledgeof the nature of management attitudes, (mis) perceptions and dispositions towardexporting are important to enhance export performance. Successful export

performance has been related to the management's positive expectations concerningthe effects of exporting on the business's profitability (Cavusgil & Nevin, 2001;Cavusgil et al., 2003). Furthermore, based on a survey of 473 firms, Cavusgil (1994)concluded that management's attitudes toward risk-taking are positively related toexport performance.

Business management. Susanta (2006) argued that business andmanagerial behaviour is strongly influenced by culture such as shared value systemsor attitudes. Culture has been defined as (Hofstede, 1980, p. 54): "...the collectiveprogramming of the mind which distinguishes the members of one human group fromanother."

The word 'culture' is reserved for societies as a whole or nations, whereas'subculture' is used for the level of an organisation, profession or family. Thus,cultural or societal values at the national level can be traditionally expected toinfluence organisation and management style. Most notably, the Japanese businessmanagement style has been delineated as an alternative, contrasting and highly

effective approach (Pascale & Athos, 2001; Ouchi, 2001). Undoubtedly, businessculture in Asian countries differs from business culture in Western countries.

The network of family and personal contacts is the principal channel

through which Chinese entrepreneurs obtain and test information crucial for the

development of their companies, and for the forging of new business alliances

19

(Weidenbaum, 1996). In addition, the leadership of firms tends to be long-lasting andstable, allowing for the accumulation of deep knowledge about an industry and the

building of strong networks (Redding, 1995). With a lean and mean structure, theChinese firm can react very quickly.

Vadhanasindhu (2005) examined common factors of management practicesamong successful companies in Thailand and compared them with those of excellentAmerican companies. The results revealed that the differences were the utilisation ofa matrix organisation, utilisation of peer-review performance appraisal and theencouragement of employees' entrepreneurial and innovation skills.

In conclusion, a review of previous studies conducted by Western researchersidentified a wide range of firm characteristics associated with a firm's success inexporting. Nevertheless, there is a dearth of systematic research focusing on theanalysis of a firm's competitive advantages in export markets in relation to suchprominent organisational features as business culture (Katsikeas, 2004).

Section 2: Firm Resources A Resource-Based Theory of the Firm

The resource-based theory of the firm complements and integratescontributions from many perspectives, notably industrial organisation and transactioncost theory (Conner, 2001; Mahoney & Pandian, 2002; Peteraf, 2003). Withhindsight, the resource-based theory of the firm is said to encompass well-establishedtheories of firm's growth and profit, implying that a long list of classic contributionsto economic and strategy research such as Ricardo (1817), Schumpeter (1934),Penrose (1959), Ansoff (1965) and Andrews (1971) can be claimed to reflectresource-based arguments avant la lettre.

What differentiates the resource-based view from industrial organisationtheory is the focal level of analysis. The resource-based approach emphasises thefirm level, while industrial organisation theory focuses on the industry or market.

Resources are defined as those tangible and intangible assets that are tied

semi-permanently to a firm (Caves, 1990). Examples of resources include brandnames, in-house knowledge of technology, employment of skilled personnel, trade

20

contracts, machinery, efficient procedures, capital, etc. (Wernerfelt, 1984). Sinceresources are located or produced inside the firm, theories of organisational behaviour

and structure point to major sources of sustainable competitive advantage (Powell,2002). One of the most influential lists of conditions that underlie sustainablecompetitive advantages was provided by Barney (2001), who stated four conditions;(1) valuable, (2) rare, (3) imperfectly imitable, and (4) imperfectly substitutable.These characteristics follow from a number of underlying mechanisms such as unique

historicity, causal ambiguity, social complexity, tacit knowledge, future uncertainty

and variable rationality (Lippman & Rumelt, 1992; Barney, 1996a, 1996b; Dierickx &Cool, 1989; Schoemaker, 2000).

There are three factors to consider within firm resources as follows;

R&D. Chow et al. (1997) agree that research and development provide thefoundation for an organisation's offerings. Although the benefit of R&D may not beobvious in the short term, it is an absolutely crucial activity for maintaining one's

competitive position. Technological innovations must be integrated with themarketer's understanding of his potential customers' needs. R&D is an importantactivity for the export industry. In 2005 private organisations in the United Statesspent almost $100 billion on R&D on average about 3.4% of total sales and 46.8%of total profits (Business Week, 2006). In a comparison of company performance in2002 with R&D spending from 1999 through 2001, (Business Week, 2003) thereappeared to be a significant correlation between R&D spending per employee andreturn on assets.

Human resources. In their resource-based empirical studies, Hansen &Wernerfelt (1989) and Powell & Dent-Micallef (1997) found that human resourcefactors explained greater proportions of performance variance than strategy and

market share factors. Powell (1996) found that behavioural factors such as an openculture and CEO commitment, explained significantly greater total quality

management (TQM) performance variances than process factors e.g., defect reductionand traditional quality control methodologies.

Technology resources. Technology is an asset of the firm. Technologyintensiveness is consistently found to be related to propensity to export (Cavusgil &Nevin, 2001; McGuinness & Little, 2001; Cavusgil, 1994; Cooper & Kleinschmidt,

1995; Daniels & Robles, 1995; Joynt, 2002). One study concludes that technology is

21

best applied as a standard in all markets (Christensen et al., 1997), however contextualfactors could explain this relationship. If the respondents in these studies primarilymarketed their products in developed countries, technology could be an importantsource of competitive advantage over local producers. In less developed countries,

though, other sources of competitive advantage such as low cost could be moreimportant.

In the study of eighty-nine Canadian indigenous enterprises, Reid (1986)found very little relationship between technology and export performance beyond

encouraging a firm to make an early entry into an export market. He argued thatpossession of more specialised knowledge did not create a competitive advantage. Itdepended on how the firm took advantage of it, in other words; the problem is totransfer the resource into a capability. He criticised current research supporting thetheory that technology was related to export performance, because associations with

export performance were based on research in industries where exports includedsignificant intra-company trading. Consequently, he concluded that current researchon technology did not reflect true export performance. The evidence on technologyand export performance was thus mixed.

Section 3: Innovation

Innovation is a complex phenomenon that can be operationalised in variousways. According to Webster (1994), innovation is a new idea, a new method ordevice.

Drucker (1996) stated that innovation was an economic or social rather than atechnical term. It can be defined in demand terms rather than in supply terms; that is,as changing the value and satisfaction obtained from resources by consumers.

Schumpeter (1934) was primarily an innovator who developed newcombinations of productive means. He proposed the concept of innovation in fivecategories as follows;

The introduction of a new good; that is, one with which consumers are notyet familiar or a new quality of good.

The introduction of a new method of production; that is, one not yet tested

by experience in the branch of manufacture concerned, which needs by no means to

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be based on a discovery that is scientifically new, and can also exist as a new way ofhandling a commodity commercially.

The opening of a new market; that is, a market into which the particular

branch of manufacture of the country in question has not previously entered, whetheror not this market has existed before.

The conquest of a new source of supply of raw materials or half-

manufactured goods, again irrespective of whether this source already exists orwhether it first has to be created.

The emerging of the new organisation of any industry, like the creation of amonopoly position (for example, through transification) or the breaking up of amonopoly position.

Kuczmarski (2006) viewed innovation as a mindset, a pervasive attitude, or away of focusing market thinking beyond the present into the future. Marketinginnovation is a pervasive spirit that stimulates individuals, as well as teams, toholistically endorse a belief in creating newness across all dimensions of thecompany, such as new markets, new product ideas, new manufacturing approaches,

new customer segments, new selling methods, new ways to deliver old products, newservices, etc.

A more behaviour-oriented view of innovation was offered by Zaltman,Duncan & Holbek (2003). They defined innovation as any idea, practice, or materialartifact perceived to be new by the relevant unit of adoption. This view had beenearlier defined by Rogers & Schoemaker (2001). Porter (2000), whose concept isemployed in this study, defined innovation in a broader sense of strategic terms. Heincluded not only technologies but also new methods or ways of doing things that

sometimes appeared quite mundane. For instance, innovation can be manifested in anew product design, a new production process, a new approach to marketing, or a newway of training or organising.

Redding (1995) proposed that with an emphasis on network relationships, acompany can bring in technology and create market access more easily. In contrast,Weidenbaum (1996) argued that a family-run business always keeps control within

23

the family, which may be an obstacle for high-tech companies which requireinnovative experts.

In conclusion, innovation has been studied by groups of researchers as diverseas economists, management technologists, organisational sociologists and strategytheorists. While economists (Acs & Audretsch, 2000; Scherer, 2004) and somemanagement technologists (Utterback & Abernathy, 2005) have studied innovation atthe level of the industry, organisational sociologists (Kimberly & Evanisko, 1991;Damanpour & Evan, 2004) and strategy theorists (Zahra & Covin, 2004; Lengnick-Hall, 2002) have looked at innovation at the level of the firm. Each group has adifferent research focus and consequently has emphasized different levels of analysisand different dimensions of innovation (Gopalakrishnan & Damanpour, 2004).

Dimensions of Innovation

Dimensions that have been used frequently to understand innovation include;type of innovation (Utterback & Abernathy, 2005; Daft, 1998; Damanpour & Evan,2004; Kotabe, 2000), source of the innovation (Burgelrnan & Sayles, 1996; Maidique& Patch, 1998; Zahra & Covin, 2004); intensity of the innovation (Capon & Glazer,1997; Maidique & Patch, 1998); timing of innovation (Ansoff & Stewart, 1997;Rogers, 2003; Lieberman & Montgomery, 1998; Smith, Grimm & Gannon, 1999;Abrahamson, 2001); magnitude of innovation (Kimberly & Evanisko, 1991;Damanpour & Evan, 2004). Some studies use a combination of dimensions such astype and magnitude (Damanpour & Evan, 2004; Ettlie, Bridges & O'Keefe, 1994).

An innovation type at the firm level is characterised as the adoption of new

products, new processes and new markets (Aiken & Hage, 1971; Kimberly &Evanisko, 1991; Carroad & Carroad, 2002; Porter, 2000).

1. Product innovations are output innovations which customers of anorganization come into contact with. There are many types of product innovationsthrough new technological methods that change existing assets and facilities of firms,

which Porter (2000) mentioned in his study. For instance, Japanese firms have gainedadvantages in many industries through emphasis on smaller, compact, lower-capacity

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product varieties that foreign competitors disdained as less important and less

profitable. Korean firms have matched the ability of Japanese firms to mass-producestandard colour TV sets and VCRs. Brazilian firms have technology and designscomparable to Italy's in casual leather footwear.

New products can have a favourable effect on market share to the extent thatthey satisfy customer needs better than the existing goods (Davidson, 2006), andprevent competitors from taking away a business's customers with their own newproducts (Hayes & Abernathy, 2000). Though new products can cannibalise the salesof existing products and consume the marketing resources that would otherwise go tothem (Hambrick & Schecter, 2003), continuous and constant innovation arecompetitive imperatives for maintaining and/or building share. Hence, in theaggregate, market share at the strategic business unit (SBU) level can be expected tovary positively with the rate of new product introductions.

The relationship between new product introductions and profits, however, isequivocal. There is evidence to suggest that new product introductions could hurtbusiness profits in the short run. Developing and introducing new products canrequire large investments in R&D, plant and equipment, and in advertising andpromotion to build consumer awareness. Yet, evidence from studies on 'excellent'companies suggests that new products and profits are positively related in the long run(Peters & Waterman, 2002; Maidique & Hayes, 2004). Other evidence suggests thatnew products and profits are positively related when consumers are willing to pay aprice premium for superior new products that cannot be readily duplicated bycompetitors (Booz & Hamilton, 2001; Cooper, 1996).

2. Process innovations are tools, outputs, devices and knowledge inthroughput technology which mediate between inputs and outputs (Utterback &Abenathy, 2005; Ettlie & Reza, 2002). A successful new-process developmentrequires creative inputs and analytical disciplines. These new ideas are refined in thedesign phase to address customers' needs.

Urban & Hauser (2003) proposed that the analytical discipline was used tominimize risks in the phase of design evaluation, pre-testing, test-market forecasting,

controlling the national launch, and transition to maturity. Among the most famous

studies, Cooper & Kleinschmidt (1997) and De Brentani (1999) found that innovationwas found to correlate with the new-product process. Innovation is addressed in idea

25

generation (opportunity identification), competitive analyses (design) andtechnological superiority Innovation is addressed by identifying gaps in the market(perceptual mapping, design) and coordinating marketing, R&D, and engineering(e.g., total quality procedures, design).

In the 2000s quality is a necessary requirement for success in the export

industry. Clark & Fujimoto (2001) studied the auto industry globally and found thattotal product quality was critical to attracting and satisfying customers. Buildingquality products requires qualified engineers and marketers, R&D excellence (e.g.,superior quality and reliability, competent engineering, good project management),and technical performance, according to Zirger & Maidique (2000) in a study of themost important determinants of success or failure in new electronic products.

3. Market innovations are new markets in foreign countries which are

different from a firm's existing markets. Creating new markets may arise when a firm(1) perceives an entirely new buyer; (2) serves a market segment that rivals haveignored; (3) develops an after-sale service (Carroad & Carroad, 2002; Porter, 2000).

Roberts (1999) studied the evolution of successful high-tech firms and foundthat a critical factor in the successful ones was an orientation toward marketing. In

the study of 21 greater Boston high-tech firms, which had survived more than fiveyears and had sales of more than $5 million, a market-oriented transformation(importance of marketing, market-oriented control of new products, and new-market-oriented chief executive officers) characterised the higher performers. In anothersimilar study of 114 technology-based firms, Roberts (2000) found an evolution insurviving firms toward marketing with less emphasis on engineering. He also foundthe best opportunities for rapid growth come from building an internal critical mass ofengineering talent in a focused technological area, with products targeted to a focused

set of customer needs, sold to gradually broadening groups of end users throughsingle channels of sales and distribution (Robbers & Meyer, 2001).

The importance of market orientation has been found in more mundaneindustries. Naver & Slater (2000) found in a commodity product business such aslumber and building supplies, which based on 140 products, there was a substantial

positive effect from market orientation on profit. Some studies (Robinson, 1997;Day, 1996; Tessler, 1987; Attiyeh & Wenner, 2001) recommended a market

26

concentration strategy based on the traditional notion that larger market shares in afew key markets are associated with higher profitability in the long run (BostonConsulting Group, 1998 and Buzzel et al., 2005).

Others (Hamermesh, 1998 and Piercy, 1982) recommended a marketdiversification strategy based on the rationale that taking low market shares in widelydispersed markets may be more profitable than concentrating on a few key markets.From the contradictory empirical results, either export market concentration or market

diversification leads to better export performance (Lee & Yang, 2001).

While product innovations have a market focus and are mostly driven bycustomer need, process innovations have an internal focus and are efficiency-driven

(Utterback & Abernathy, 2005). The appropriateness of each of these two types froma performance viewpoint varies significantly based on the organisation's environment(Utterback & Abernathy, 2005), and the competitive strategy (Zahra & Covin, 2003).Economists, management technologists, strategy theorists and sociologistsacknowledge the differences between product and process innovation because of their

distinct characteristics and the different types of skills required to manage their

generation and adoption (Gapaladrishnan & Damanpour, 2004). However, only a fewstudies (Utterback & Abernathy, 2005; Floyd & Wooldridge, 2000; Zahra & Covin,2004) have compared and contrasted the relative effectiveness of both types.

Benefits of Innovation

There are two key power roles in which innovation can benefit a company; (1)competitive advantage protection, which stems from competitive marketing

innovation, and (2) shareholder, employee and customer satisfaction (Kuczmarski,2006).

Competitive advantage protection provides to a company a long-termcompetitive 'insurance' policy (Slater, 1996). Kuszmarski (2006) definedcompetitive advantage protection as a strategic approach for pre-empting, protectingagainst, or jumping ahead of competition. Competitive advantage protection enablesa company to accelerate growth, experience incremental margin enhancement, and

build additional core competency, which bolsters competitive advantage.

27

Kuczmarski (2006) described the role of innovation in improving competitiveadvantage by shaping business strategy in four ways as follows:

Radical leapfrogging. A company aims to develop new products that willleapfrog competition. The end outputs of this strategy usually are products or servicesthat bring totally new consumer-perceived benefits. They are radically different fromanything currently offered in the market. Consumers or end-users will clearlyperceive the functional, emotional, psychological, or performance benefits of thesenew products as better or as greater than those offered by any competitive product.

Benefit differentiation. Competitive innovation can play a major role inadding new benefits to an existing product. By focusing on new benefits, the existingor newly developed product will provide a new source for competitive advantage.The degree of uniqueness and benefit differentiation will most likely determine theduration and strength of the competitive advantage.

Market share stimulation. There are many different approaches for

stimulating market share, ranging from advertising and promotions to distributionchannel diversification and pricing. However, competitive innovation can also beused to build market share by launching line extensions, flankers, and new-and-improved products. This approach offers end-users new reasons to purchase acompany's product line rather than competitors' products.

Value-engineering or cost-reduced. New products and processes can alsobe achieved through competitive innovation. Sometimes the lower cost benefit can bepassed on directly to consumers, resulting in a price reduction. Alternatively, the costsavings can be applied internally to boost gross profit margins This incrementalmargin revenue can then be used to build awareness or stimulate trial throughincreased marketing.

The second power role shareholder, employee and customer satisfactionprovides a means of increasing the satisfaction level of companies' three key

constituencies. If satisfaction can be increased for these constituencies with increasedprofitability, it is quite safe to assume that senior management will be rewarded.

Innovation can serve both competitive advantage protection and satisfaction

roles concurrently. The more innovation-oriented a company is, the faster it achievesboth roles.

28

This study uses innovation types; product, process and market as an approach

and analyses the relationship with export performance. It analyses innovation as astrategy or a stream of decisions patterned at the firm level.

Marketing innovation can be developed in many ways depending on a

company's resource management, (Bradley, 2001) Innovation has so much value andusefulness, academics and researchers from different branches agree, since it acts as acatalyst in industry and commerce. It invigorates efforts and brings new opportunitiesfor profitable expansion (Chisnal, 2005); creates competitive advantage (Porter, 2000;Foxall & Johnston, 2004); and especially creates sustainable competitive advantage(Slater, 1996). Companies can achieve competitive advantage through the creationand exploitation of innovative products and services that are more appealing to theircustomers and more profitable than those produced by their rivals (Foxall & Johnston,2004).

Management must integrate the strategies of various functions, includingmarketing, finance, production and R&D, in order to achieve consistency. The

marketing innovation strategy must begin with a designation of the target segment andthe specific needs to be met by the firm. The subsequent development of product,price, promotion and distribution strategies will obviously have implications for theother functional areas.

Section 4: External Environment

The external environment has been conceptualised in a variety of ways. It canbe conceptualised in terms of its level of hostility, heterogeneity and dynamism

(Miller, 2003), turbulence (Davis et al., 2001), or volatility (McKee, 1999). Severalstudies have focused on the hostility level of the environment, making a distinctionbetween hostile and benign environments (Covin, 1999; Khandwalla, 1997). Ahostile environment was characterised by precarious industry settings, intense

competition, harsh, overwhelming business climates, and the relative lack ofexploitable opportunities (Yeoh & Jeong, 2005).

29

While some earlier studies have acknowledged the importance of the externalenvironment in exporting (Walters, 2003; Cooper, 1996; Green, 1987; Cavusgil,1994), a review of the literature reveals that the majority of exporting studies haveessentially adopted a reactive stance with respect to the external environment, which

is often described as 'uncontrollable' or 'given'. The external factors beyond thefirm's control are the lack of macro-level incentives, unfavourable exchange rates,

and the absence of a stimulating national export policy (Gomez-Mejia & Luis, 1998).

Cavusgil (1994) concluded that external factors, such as exchange rate, levelsof domestic and foreign demand, relative rates of price-level increases, andcommercial policy proved to be poor predictors of firms' export behaviour. Similarconclusions were reached in a 2006 report commissioned by the Congressional JointEconomic study, done by a Washington international consulting firm 'Quick, Financeand Associates' (Greenberg, 2006).

Earlier research that has considered the impact of the environment oftenconceptualises the external environment in terms of perceived obstacles to exporting,

or in terms of problems associated with exporting itself (Bauerschmidt et al., 2005;Gripsrud, 1990). Such a reactive approach, unfortunately, ignores the fact that firmsmay view uncertainties arising in their environment as opportunities and, hence, mayproactively take advantage of changes in the environment through innovative and

aggressive marketing activities such as development of new products and/or markets(Yeoh & Jeong, 2005). As such, while the importance of the external environmenthas been acknowledged, such key issues as how firms deal with environmentalchanges albeit favourable or unfavourable and their subsequent performanceimplications, have not received much scholarly attention.

In conclusion, empirical results of determinants of exports concerned withexternal factors are mixed.

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Section 5: The Role of Exporting in Thailand

At the end of World War II, Thailand was basically an agrarian economy.

Heavily dependent on rice, which accounted for some 25 %of GDP and about one-half of exports, Thailand had only a very small manufacturing sector and limited basic

infrastructure. Over the ensuing 40 years, real annual GDP growth has averagedsome 7%. Output and exports have become increasingly diversified. By thebeginning of the 1990s, Thailand was well advanced in its transition from anagricultural to an industrial and services-based economy. The dramatic shift wasassociated with the relocation of industries to Thailand from Japan and the NIEs ofEast Asia, namely, South Korea, Taiwan and Hong Kong. With this movement offoreign investment, Thailand's exporting has shifted from traditional manufacturedexports of textile products, canned food, sugar and jewellery, to computercomponents, integrated circuits, footwear, plastic products, travel goods and electricalappliances. The 1997 economic crisis in South East Asian countries posed a highlyturbulent and continuously changing environment. In Thailand, immediately after theeconomic crisis, the business environment was characterised by a large drop in theexchange rate of Thai currency in relation to US dollar (Johri & NgamIcroeckjoti,2003). To mitigate the adverse impact of the 1997 economic crisis, Thai governmentimplemented a number of measures to revive domestic consumption and stimulatenew investments for exporting. In the 2000s, the scale and degree ofinternationalisation of the Thai economy had reached a level where it could now be

considered a global player (Department of Export Promotion, 2003).

From 1987, Thailand attained a double-digit real growth rate for threeconsecutive years and emerged as one of the world's fastest growing economies.

Although growth was forecast to be slower throughout the 1990s, and it did indeedslow after 1990, the economy still expanded at an average annual rate of 7-8 %a yearthrough the 2000s, even after the impact of the 1997 economic crisis. The agricultural

sector, which was Thailand's engine of growth in the 1970s, was replaced bymanufacturing in the 1990s. Since 2000, the manufacturing sector accounted formore than three-quarters of Thailand's export earnings.

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In 2003, key factors that brought about high growth rates included growth of

the export sector, investment and tourism, all of which had expanded considerablyfaster than the projected rates (Svasti & Mephokee, 2004). Table 2.2 presentsThailand's major markets of exporting during 2002-2006. Table 2.3 shows the ratioof export goods from Thailand in various world markets.

Table 2.2: Major Export Markets of Thailand 2002-2006

(Unit: Million Thai Baht)

Source: Business Economics Department (2007)

Table 2.3: Ratio of Export Goods from Thailand in World Markets 2002-2006

(Unit: Percent)

Source: Business Economics Department (2007)

32

EconomicZone 2002 2003 2004 2005 2006

1. ASEAN 553,141 18.8% 606,949 19.3% 679,845 19.9% 759,060 19.9% 810,686 20.2%2. USA 602,228 20.5% 639,100 20.4% 650,685 19.1% 733,800 19.3% 795,736 19.8%3. Japan 559,480 19.0% 594,276 19.0% 636,099 18.7% 717,524 18.8% 760,231 18.8%4. EU 563,702 19.2% 577,770 18.4% 612,203 18.0% 704,907 18.5% 756,984 18.8%5. Other 662,312 22.5% 719,507 22.9% 827,478 24.3% 895,749 23.5% 900,812 22.4%

Total 2,940,863 100.0% 3,137,602 100.0% 3,406,310 100.0% 3,811,039 100.0% 4,024,448 100.0%

Economic Zone 2002 2003 2004 2005 20061. ASEAN 16.3 18.2 19.9 19.8 20.62. USA 21.5 21.0 17.8 18.0 19.13. Japan 17.0 17.1 16.8 16.8 15.64. EU 17.4 15.6 15.1 15.9 15.35. Other 27.9 28.1 30.4 29.5 29.4

Total 100.0 100.0 100.0 100.0 100.0

Export Promotion Programs

The trade promotion and assistance provided by the Thai government play anincreasingly important role in today's growing international trade (Kotler, Jatusripitak& Maesincee, 2005) especially in an exporting sector.

Seringhaus & Rosson (2000) classified two approaches that the governmentshould use to promote exports: direct and indirect programs. Direct programs

concentrate on the demand side while indirect programs focus on the supply side.They proposed four interesting major types of government initiative andimplementation activities as follows:

Encouraging non-exporters with strong competitive products to considerfirst-time exporting. Non-exporting firms may require motivational programs.

Government can do this by providing information on the benefits of exporting or casehistories of successful exporters.

Helping first-time exporters through the early, difficult phases ofinternational marketing. These exporters need extensive information on 'how' and'where' to export.

Promoting the idea of renewed exporting to failed exporters who mightsucceed in the next try.

Supporting continuing exporters as they attempt to improve theirperformance. This group of exporters may need help to publicize, advertise, andexhibit their products abroad and for meeting directly with foreign buyers (Cavusgil,1990).

They also distinguish five types of company situations in relation to exportingas follows:

Non-exporters: these are companies that have no exporting experience andare currently not considering exporting.

Failed exporters: these are companies that have some experience in foreignmarketing but have decided to withdraw from these activities.

First-time exporters: these are companies that have decided to export in thenear future.

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Expanding exporters: these are companies that plan to penetrate theirproducts into one or more new foreign markets.

Continuing exporters: these are companies that plan no major changes butwant to fine-tune their present export operations.

The indirect programs aim to improve the exporter's competitiveness and

performance through structural and process changes. They include productivity,research and development, technology and innovation, manpower planning, regional

and sectored development, and fiscal measures such as tax and investment incentivepolicies, at both the industry and firm levels.

Section 6: Research Hypotheses

This study uses innovation type, product and process, and innovation source asan approach and analyses the relationship with performance. It analyses innovation asa strategy or a stream of decisions patterns at the firm level. All other constructs aremainly based on resource-based theory. There are eight hypotheses related to theexport performance. The objective is to examine whether the hypotheses can berejected in 'Thai exporting context'. The elaboration of the theoretical rationale forthese hypotheses follows;

1. Marketing innovation

Marketing innovation in this study consists of three variables; newproduct, new working process and new market.

New products can have a favourable effect on market share to the extentthat they satisfy customer needs better than the existing goods (Davidson, 2006) andprevent competitors from taking away a business's customers with their own newproducts (Hayes & Abernathy, 2000). They can cannibalise the sales of existingproducts and consume marketing resources (Hambrick & Schecter, 2003).Continuous and constant innovations are competitive imperatives of maintaining

and/or building share (Szymanski, 2003). Evidence from studies on 'excellentcompanies' suggests that new products and profits are positively related in the longrun (Peters & Waterman, 2002; Maidique & Hayes, 2004). Successful new product

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development requires creative inputs and analytical disciplines. Cooper &Kleinschmidt (1995) and De Brentani (1999) found that innovation was found tocorrelate with the new product process. In penetrating a new market, previous studies(Robinson, 1997; Day, 1996; Tessler, 1987; Attiyeh & Wenner, 2001) recommendeda market concentration strategy. The traditional view stated that larger market sharesin a few key markets are associated with higher profitability in the long run (BostonConsulting Group, 1998; Buzzel et al., 2005). Other researchers (Hamermesh et al.,1998; Piercy, 1982) recommended a market diversification strategy based on therationale that taking low market shares in widely dispersed markets may be moreprofitable than concentrating on a few key markets. From the contradictory empiricalresults, either export market concentration or market diversification lead to betterexport performance (Lee & Yang, 2001). In addition, Bello & Williamson (1995) andRosson (2001) found that there was a positive relationship between exportperformance and a firm's support to distributors. Other studies by Christensen et al.(1997) and Kirpalni & MacIntosh (2000) reported a positive relationship betweenexport performance and competitive pricing. Therefore, the first hypothesis for thisparticular study is stated as follows;

Hi: The greater the degree of marketing innovation, the higher thelevel of export performance.

2. Firm resourcesFirm resources in this study consist of five variables; finance, R&D

budget, technology, human resources and marketing knowledge.

Firm resources enable firms to select better export markets, formulatesuitable marketing strategies and effectively implement them (Douglas & Craig,1999; 'Terpstra, 1997). Chow et al. (1997) found that intense competition amongfirms required great financial commitments, especially for survival. They also foundthat R&D provides the foundation for an organization's offerings. Although thebenefit of R&D may not be obvious in the short term, it is an absolutely crucial

activity for maintaining a firm's competitive position. Technology intensiveness is

consistently found to be related to propensity to export (Cavusgil & Nevin, 2001;McGuinness & Little, 2001; Cavusgil, 1994; Cooper & Kleinschmidt, 1995; Daniels& Robles, 1995; Joynt, 2002). From the human resources aspect, Hansen &

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Wernerfelt (1989) and before them Powell & Dent-Micallef (1997) found that humanresource factors such as organisational climate and goal directedness explained

greater proportions of performance variance than strategy and market share factors.Reid (1982) suggested that firms' export expansion was influenced by financial andhuman resources such as sales, assets and number of employees. Zirger & Maidique

(2000) found that when an electronics company built a quality product it requiredqualified engineers, marketers and R&D. They concluded that a firm's resources hadan influence on the success or failure of the firm's performance.

In conclusion, a company's resources have an association to many aspectsof organisational factors and firm performance. There are few empirical studieswhich have employed a resource-based view of export ventures. Consequently, thisarea has a limited store of past research findings. The following hypotheses are statedand empirically tested.

112: The greater the degree of firm's resources, the higher the level ofexport performance.

1:13: Firm resources have a positive relationship to marketinginnovation.

3. Firm characteristics

Firm characteristics in this study consist of five variables; firm size,management commitment toward exporting, management perception toward profit,number of export product lines and business culture.

There is inconclusive evidence on export success based on firm size (Aaby& Slater, 1989). Cooper & Kleinschmidt (1995) established a negative relationshipbetween size and export intensity, while McGuinness & Little (2001), Czinkota &Johnston (1993); Diamantopoulos & Inglis (1998) concluded that there was norelationship. However, some empirical evidence supported the positive relationshipbetween export performance and a firm's management commitment (Bilkey 1982;Daniels & Robles, 1995; Czinkota & Johnston, 1993; Rosson, 2001). For example,Gronhaug & Lorenzen (2002) found a high positive correlation between managementinvolvement and export performance among Norwegian exporters. Furthermore,

Aaby & Slater (1989) concluded that knowledge of the nature of management

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attitudes, (mis) perceptions and disposition towards exports was important to enhanceexport performance.

Based on the traditional belief that firm characteristics are influenced by

national culture, firm characteristics in a particular country should have some uniquecharacteristics. This study assumes that Asian business management variables shouldbe included in measuring firm characteristics. It is expected that the five variables offirm characteristics proposed in this study can be verified and can explain the

relationship between and among export performance and marketing innovation ofexporting companies in Thailand. The two hypotheses are stated as follows;

The greater the levels of firm's characteristics, the higher thelevel of export performance.Firm characteristics have a positive relationship to marketinginnovation.

H6: Firm characteristics have a positive relationship to firm resources.

4. EnvironmentSocial, economic and demographic change results from factors far beyond

the control of any individual firm. Even in governmental policy making, where

business has a clear responsibility to participate, the individual firm is unlikely tohave a significant influence on decisions (Price, 1996). Porter (2000) stated that ininternational markets, innovations that yield competitive advantage anticipated bothdomestic and foreign needs.

Previous studies have suggested that export performance is enhanced when

exporting firms match their marketing strategies with changes in their external

environment (Ansoff, 1997; Kaynak & Kuan, 1993). Indeed, depending on the levelof environmental hostility, firms may modify their target markets (Green & Allaway,2005), standardise or adapt product offerings (Cavusgil, Zou & Naidu, 1998), adjustother marketing mix variables (Cooper, Hartley & Harvey, 2000), or intensify theirexports (Rao, Kreighbaum & Hawes, 2003).

The environment in this study consists of nine variables; (1) politics, (2)economy, (3) society, (4) Thailand's membership in the WTO, APEC and otherinternational organisations, (5) public laws, regulations, (6) Culture, religion,

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traditions, (7) environment reserves, (8) foreign currency exchanges,