MO and Enterpreneurship Orientation

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Ownership, strategic orientation and internationalization in emerging markets

Yi Liu a,1, Yuan Li a,*, Jiaqi Xue b,2

aAntai College of Economics & Management, Shanghai Jiaotong University, School of Management, Xian Jiaotong University, Xian 710049, Shaanxi, Chinab International Business School, University of International Business & Economics, Beijing 100029, China

1. Introduction

Thepast

ten

years

have

witnessed

rapid

growth

of

internation-

alization

in

firms

from

emerging

markets.

The

World

Investment

Report (UNCTAD, 2006) suggests that, as a group, firms from

emergingmarkets have emerged as significant outward investors,

and

scholars

have

therefore

recently

engaged

in

theoretical

inquires into

the

phenomenon

of

internationalization

by

such

firms. They argue that special institutional characteristics which

the transformation of the economic system engenders drive these

firms

to

pursue

distinctive

approaches

to

successful

internation-

alization

(Child

&

Rodrigues,

2005;

Luo

&

Tung,

2007;

Yamakawa,

Peng, & Deeds, 2008). From this perspective, institutional factors

andspecific

strategic

orientations

are

the

key

triggers

for

achieving

international goals

in

firms

which

operate

in

emerging

markets.

At first, strategic patterns of firms from emerging markets, such

as the former Soviet Union and China, followed centralized, state-

planned

business

approaches

that

are

not

appropriate

for

success

in a

global

economy

which

is

characterized

by

a

free

market

and

intense competition (Boisot & Meyer, 2008; Yamakawa et al.,

2008). As reform has been taking place in these economic systems,

emerging

economies

have

been

experiencing

massive

and

complex

changes in

institutions,

including

government,

economic

systems,

and enterprise ownership structures (Child & Tse, 2001; Peng, Tan,

& Tong, 2004). Privatization has encouraged more new entrants to

come into

the

market

as

entrepreneurial

startups

(Peng,

2003).

Firms which

are

inclined

to

pursue

new

opportunities,

initiate

changes and take risks have led to the prevalence of entrepreneur-

ial activities in emerging markets. The open and free market has

thus

fostered

a

competitive

business

environment.

Many

firms

have

realized

that

they

must

put

more

emphasis

on

customers needs and satisfaction in order to remain viable and

even to survive (Golden,Johnson, & Smith, 1995). Furthermore, an

open door

policy

leads

firms

from

emerging

economies

to

enter

international

markets

in

order

to

obtain

a

competitive

advantage

in the global economy (Boisot & Meyer, 2008). These changes as

well

as

the

results

they

lead

to

have

forced

firms

to

recognize

that

successful


cannot

be

achieved

using

the

means and approaches of the old economic system, but instead

require firms to learn new business approaches in a global market

andadopt

appropriate

strategic

orientations

(Li,

Liu,

&

Zhao,

2006;

Mathews,

2006).

Previous studies suggest that entrepreneurial orientation (EO)

andmarket orientation (MO) provide the foundations on which a

firm can

build

its

interactions

with

dynamic

foreign

markets.

These

orientations determine

the

firms

behavior

and

international

performance (e.g., Knight & Cavusgil, 2004; Luo, Sivakumar, &

Liu, 2005). Recently, research in strategy and marketing has shown

that EO and MO are crucial for superior performance by firms from

emerging markets

(Lau

&

Busenitz,

2001;

Li,

Liu

et

al.,

2006;

Liu,

Luo, & Shi, 2003; Subramanian & Gopalakrishna, 2001), and that EO

is especially helpful for achieving success in foreign markets (Luo &

Tung, 2007; Yamakawa et al., 2008; Zhou, 2007). However, until

now research

has

not

identified

the

different

roles

that

EO

and

MO

Journal of World Business 46 (2011) 381393

A R T I C L E I N F O

Article history:

Available online 31 August 2010

Keywords:

Internationalization

Ownership concentration

CEO ownership

Strategic orientation

Entrepreneurial orientation

Market orientation

A B S T R A C T

For firms from emerging economies, market orientation and entrepreneurial orientation are two of the

most important strategic orientations to consider when entering the global marketplace. This study

explores how, in emerging markets, ownership structure affects these strategic orientations and their

effectiveness in facilitating international business success. Our findings, based on survey data from

Chinese firms, suggest that ownership structure, specifically ownership concentration and CEO

ownership, can lead firms to choose different strategic orientations. Furthermore, we find that

entrepreneurial orientation directly promotes a firms internationalization activities, whereas market

orientation has an inverse U-shaped relationship

with internationalization

activities.

2010 Elsevier Inc. All rights reserved.

This study is supported by KPCEM (09JZD0030) and NSFC (70872090;

70741420172) and Program for Innovative Research Team in UIBE.

* Corresponding author. Tel.: +86 29 82665093; fax: +86 29 82668957.

E-mail addresses: [email protected] (Y. Liu), [email protected] (Y. Li),

[email protected] (J. Xue).1 Tel.: +86 29 82665029; fax: +86 29 82668382.2 Tel.: +86 10 64493511.

Contents

lists

available

at

ScienceDirect

Journal of World Business

journal homepage : www.elsev ier .com/loc ate / jwb

1090-9516/$ see front matter 2010 Elsevier Inc. All rights reserved.

doi:10.1016/j.jwb.2010.07.012
http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.sciencedirect.com/science/journal/10909516http://dx.doi.org/10.1016/j.jwb.2010.07.012http://dx.doi.org/10.1016/j.jwb.2010.07.012http://www.sciencedirect.com/science/journal/10909516mailto:[email protected]:[email protected]:[email protected]://dx.doi.org/10.1016/j.jwb.2010.07.012


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play in a firms internationalization, and has not explored the

specific driving effects of EO and MO on a firms internationaliza-

tion behavior.

More importantly, the constant changes taking place in

emergingmarkets have also caused institutional factors to become

important drivers of a firms choice of strategic postures

(Hoskisson, Eden, Lau, & Wright, 2000). One especially important

reform is that firms formerly owned only by the government in a

centrally planned economy have been allowed to have other

owners, including the CEOs (Filatotchev, Dyomina, Wright, & Buck,

2001; Young, Peng, Ahlstrom, Bruton, &Jiang, 2008). Such changes

in ownership structure may well influence the strategic posture of

firms (Peng, 2003) and may also change the progress of their

internationalization. However, precisely how these reforms in

ownership structure differently affect strategic orientations such

as EO and MO has been ignored in existing literature.

To fill these research gaps, this study attempts to address two

questions: What are the roles of (i) ownership structure and (ii)

particular strategic orientations, in the internationalization of

firms from emerging markets? The main contributions of this

study are the following.

From a theoretical viewpoint, by taking into account the

different characteristics of EO and MO, this article explains the

differences between the effects of ownership concentration andCEO ownership on both EO and MO, as well as the different effects

of EO and MO on the internationalization activities of firms. We

provide a theoretical explanation about how ownership concen-

tration and CEO ownership affect the internationalization activities

of firms from emerging markets through their choice of EO or MO.

From an empirical viewpoint, unlike existing studies which

have been conducted in developed economies, we here shift the

focus to the context of firms in emerging economies, and

investigate the case of firms in China. China, as the largest

emerging market in world, has a long history of a centrally planned

economy and state ownership of enterprises. Yet today, China is

changing from a centrally controlled society into a market-driven

economy. Many

Chinese

MNEs

are

emerging

and

posing

a

major

challenge to Western MNEs (Child & Tse, 2001; Young et al., 2008).During internationalization, these Chinese MNEs have to face not

only complex and competitive foreign markets but also turbulent

institutional and

economic

environments.

Thus

China

represents

a

unique opportunity

to

test


theory.

By

using

data painstakingly collected through face-to-face interviews with

senior executives in charge of 607 Chinese firms, we provide

evidence to

show

that

ownership

concentration

and

CEO

owner-

ship

have

different

effects

on

EO

and

MO.

Further,

this

study

examines the positive effect of EO on internationalization activities

and the inverse U-shaped relationship between MO and interna-

tionalization

activities.

2. Theoretical background and conceptual model

2.1. Internationalization

Internationalization, which is defined as a process of increasing

involvement in international operations across borders (Welch &

Luostarinen, 1988),

comprises

a

wide

variety

of

activities

including

exporting, licensing,

OEM,

and

direct

foreign

investment.

Here,

we

are interested in those substantive forms of outward internation-

alization associated with firms from emerging markets. Seeking

andselling

in

foreign

markets

are

the

most

common

and

important

outward activities

adopted

by

firms

from

emerging

markets

as

they begin to internationalize (Child & Rodrigues, 2005; Fila-

totchev et al., 2001; Zhou, Wu, & Luo, 2007). A majority of these

firms

are

still

in

the

early

stages

of

the


process,

with exporting

being

their

dominant

mode

of

foreign

market

participation (Aulakh, Kotable, & Teegen, 2000). FDI is another

important form of outward activity. FDI outflow from emerging

markets has increased from 3% of the worlds total FDI outflow

(19781980 average) to over 17% ($133 billion) in 2005, and is

projected to grow even further (Yamakawa et al., 2008). Previous

studies also suggest that FDI is the most effective way for firms

fromemerging markets to access and source strategic assets (Deng,

2009; Luo & Tung, 2007). Therefore, in this study, we view seeking

and selling in foreign markets and FDI as the most important

outward activities in the internationalization of firms from

emerging markets.

The big progress toward internationalization by firms from

emergingmarkets began after the reform of the economic system

(Child & Tse, 2001; Mathews, 2006). Firms in the old economy

followed centralized, state planning approaches which were not

appropriate for success in a global economy characterized by a

market-oriented system and intense competition (Boisot & Meyer,

2008; Yamakawa et al., 2008). As these economies reformed and

became transitional, firms had to develop more sophisticated

strategies and identify new approaches to make space for

themselves in markets that were already crowded with very

capable firms (Bonaglia, Goldstein, & Mathews, 2007; Wright,

Filatotchev, Hoskisson, & Peng, 2005). Luo and Tung (2007) show

that firms from emerging markets tend to use a series of aggressiveand risk-taking measures to compensate for their competitive

weaknesses in order to overcome their latecomer disadvantage on

the global stage. Firms based in emerging markets therefore need

to choose an effective strategic orientation for internationalization

to overcome their relatively limited resources and to improve their

performance (Mathews, 2006).

2.2. Strategic orientations of firms from emerging markets

The strategic orientation of firms is the deeply rooted set of

values that guide their strategy-making (Gatignon & Xuereb,

1997). It creates proper behaviors to interact with the marketplace

(Noble,

Sinha,

&

Kumar,

2002), and

provides

a

critical

mindset

for

firms to survive and prosper in the competitive global market(Knight & Cavusgil, 2004). Existing literature has shown that MO

and EO are important strategic orientations (Noble et al., 2002;

Zhou,

Yim,

&

Tse,

2005), because

they

provide

firms

with

capabilities

to

achieve

competitive

advantages

(Bhuian,

Menguc,

& Bell, 2005; Day, 1994), and success in internationalization

(Knight & Cavusgil, 2004; Weerawardena, Mort, Liesch, & Knight,

2007; Zhou,

2007).

From

a

resource-based

view,

distinctive

resources

or

capabilities

are

firm

specific,

difficult

to

imitate,

andthey generate a competitive edge in the market, particularly in

highly competitive or challenging environments, e.g. the global

market

(Barney,

1991;

Grant,

1996;

Teece,

Pisano,

&

Shuen,

1997).

These resources

or

capabilities

can

be

used

to

drive

subsequent

strategies and fund continued development of new capabilities

needed

for

international expansion

(Luo,

2000).

These

capabilitiescan

help

firms

identify

opportunities

and

respond

quickly

to

them

in

foreign

markets.

For

firms

based

in

emerging

markets,

resources

and capabilities are critical to the success of internationalization.

MO and EO build the firms learning capabilities (Slater & Narver,

1995)

and

accumulate

knowledge

resources

about

international

markets and

operations

(Autio,

Sapienza,

&

Almeida,

2000).

Since

most firms from emerging markets are young and tend to lack

substantial financial, human and physical resources, these

intangible

resources

are

especially

critical

in

the

entering

new

foreign markets.

Furthermore,

because

these

firms

may

deal

with

diverse environments across numerous foreign markets, they can,

by themselves, replicate market-based knowledge and innovation

capabilities

which

derive

from

MO

and

EO

across

varied

markets

(Luo,

2000).

Making

use

of

these

capabilities

offsets

the

weakness

Y. Liu et al./Journal of World Business 46 (2011) 381393382


3/13

due to poor tangible resources and supports international

expansion. MO and EO are particularly relevant for internationali-

zation of firms from emerging markets (Lau & Busenitz, 2001;

Subramanian & Gopalakrishna, 2001; Yamakawa et al., 2008).

Emergingmarkets have liberalized their economies by embark-

ing upon an economic reform program to move from a command

toward a more free-market economy. Such transformations tend to

break up oligopolistic control and create a shift to a buyers market,

which in turn fosters a competitive business environment

(Filatotchev et al., 2001). As a result, management attitudes

towardscustomers and markets have changed. Firms now not only

have to put strong emphasis on customer satisfaction through

enhancing quality in production and improving the responsiveness

of services offered and promoting, but also must increasingly rely

on market research to recognize changes in economic systems and

in the market environment (Golden et al., 1995).It is important for

firms from emerging markets to adopt a market orientation in

order to survive the competition and gain competitive advantages

during the transition to a market economy (Zhou, Yim et al., 2005).

Moreover,since governments have started to loosen restrictions on

the private sector, more new entrants have come into the market

as entrepreneurial startups (Peng, 2003). Because EO promotes the

renewal of existing practices and the pursuit of new opportunities

(Lumpkin & Dess, 1996), it is quite appealing to emerging-marketfirms that aim to rejuvenate themselves and distinguish them-

selves in a highly turbulent market. Therefore, firms from

emerging markets can emphasize either MO or EO or both in

order to adapt to the development of a market economy.

EO, which reflects a firms propensity to pursue new market

opportunities, is associated with innovativeness, managerial

vision, and proactive competitive posture (Covin & Slevin, 1989;

Lumpkin & Dess, 1996). Paying more attention to the intersection

of international business and EO, some scholars point out that

international EO implies that firms make the leap into interna-

tional markets by a posture of aggressiveness, innovativeness and

boldness because of unique entrepreneurial competencies and

outlook

(e.g.,

Autio

et

al.,

2000;

McDougall

&

Oviatt,

2000).

In

this

study, we use Millers (1983) conceptualization of EO and view EOas a multidimensional construct, consisting of dimensions of

innovativeness, proactiveness and risk-taking (Covin & Slevin,

1989;

Miller

&

Friesen,

1982;

Zahra,

1991).

A substantial

amount

of

research

has

emphasized

the

inherent

value in EO and the linkage between this strategic orientation and

desired organizational outcomes (Barringer & Bluedorn, 1999;

Jennings

&

Young,

1990;

Matsuno,

Mentzer,

&

Ozsome,

2002;

Miller

&

Friesen,

1982). Specifically,

EO

can

allow

a

firm

to

see

and

exploit opportunities in foreign markets, can enable it to

successfully enter the global market (Weerawardena et al.,

2007), and

can

provide

international

firms

with

dynamic

capabilities to

engage

in

cross-border

activities

and

trade

(Jones

&Coviello, 2005; McDougall & Oviatt, 2000; Zahra & George, 2002).

For instance,

Nummela,

Saarenketo,

and

Puumalainen

(2004)suggest

a

positive

relationship

between

a

managerial

global

mindset

(i.e.,

proactive

and

visionary

behavior)

and

the

degree

of

internationalization. Zhou (2007) finds that international en-

trepreneurial proclivity drives the pace of early internationaliza-

tion

in

internationalizing

firms

from

China.

In

emerging

markets,

EO

is

a

particularly

critical

force

for

pushing firms to enter foreign markets (Yamakawa et al., 2008;

Zhou, 2007). Fierce competitiveness in domestic markets forces

firms

to

identify

and

pursue

opportunities

in

international

markets

(Luo

&

Tung,

2007). When

expanding

internationally,

firms

from

emerging markets need to develop a posture that is innovative,

visionary, and proactive to pursue these new opportunities and

respond

quickly

to

them,

in

the

face

of

relatively

limited

resources

(Bonaglia

et

al.,

2007;

Yamakawa

et

al.,

2008). This

strategic

posture should make it easier for these firms to circumvent

environmental uncertainties, and therefore it constitutes a

potential source of competitive advantage in a foreign market.

Accordingly, EO should be instrumental in motivating firms from

emerging markets to enter onto the global stage, in spite of the

uncertainty and risk.

Unlike EO, MO places great emphasis on customer pull and

places the highest priority on the profitable creation and

maintenance of superior customer value (Kohli & Jaworski,

1990; Slater & Narver, 1995). Firms with a high degree of MO

focus on customers, competitors and internal coordination, based

on market demands (Narver & Slater, 1990). In this study, we view

MO as a strategic mindset that determines the priority placed on

seeking and using market information to create and deliver

superior customer value (Noble et al., 2002; Zhou, Yim et al., 2005).

Both academic scholars and business practitioners have pointed

out the importance of MO and activities related to it, in

organizational performance. They argue that a firm with a high

degree of MO aims to continuously provide superior buyer value

and attain superior performance (Baker & Sinkula, 1999; Kohli &

Jaworski, 1990; Narver & Slater, 1990). MO drives the firm to

expand and develop new markets, such as the international

marketplace. Knight and Cavusgil (2004) argue that MO provides

the foundation from which the firm interacts with diverse foreignmarkets. Firms with this strategic posture create specific market-

oriented activities aimed at overcoming challenges and maximiz-

ing performance.

In international markets, firms from emerging economies suffer

from some weaknesses, relative to global and local competitors,

because of their unfamiliarity with the foreign market (Child &

Rodrigues, 2005; Luo & Tung, 2007). These firms need to nurture

MO because it gives better results by taking into consideration

customer attitudes and benefits, analyzing information about

competitors, and providing the required products and services at

the right time and place. MO can make the firms focus on

knowledge derived from analyses of customers and competitors

and thereby

respond

more

appropriately

to

foreign

markets

(Narver & Slater, 1990). Market-oriented firms can recognizeevents and trends in a market ahead of their competitors,

assimilate it, and apply it to direct decision-making and operations

in

the

foreign

market

(Day,

1994). Thus,

MO

will

favorably

impact

decisions

made

by

emerging-market

firms

during

international

expansion.

2.3.

Ownership

structure

in

emerging

markets

In this study, we focus on two major types of ownership

structureownership concentration and CEO ownershipbecause

they are

salient

features

of

corporate

governance

in

firms

based

in

emerging markets

(Li,

Guo,

Liu,

&

Li,

2008;

Peng,

Wang,

&

Jiang,

2008; Young et al., 2008). Ownership concentration represents the

distribution of

the

size

of

stockholdings

(Hill

&

Snell,

1989).

Thelarger

the

proportion

is,

the

more

concentrated

the

ownership

is

(Coles,

McWilliams,

&

Sen,

2001;

Tuschke

&

Sanders,

2003).

Although firms from emerging markets struggle to transform

themselves into profitable modern corporations, a weak gover-

nance

environment

in

which

ineffective

formal

institutions

and

their

enforcement

have

led

to

concentrated

firm

ownership

is

more

common in emerging markets (Dharwadkar, George, & Brandes,

2000). Young et al. (2008) posit two reasons why dominant

ownership

is

more

prevalent

in

emerging

markets.

First,

because

institutions are

often

lacking

or

ineffective,

it

is

difficult

for

firms

fromemerging markets to trust professional managers and outside

investors and to share sensitive information with them, thus

making

crossing

the

threshold

from

dominant

to

dispersed

ownership

more

difficult.

Second,

as

boards

of

directors

lack

Y. Liu et al./Journal of World Business 46 (2011) 381393 383


4/13


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According to agency theory, CEO ownership is an incentive

mechanism which closely aligns executives interests with those of

other shareholders (Jensen & Meckling, 1976). A rational increase

of CEO ownership can promote managerial support for entrepre-

neurial orientation and lead the CEO to pursue entrepreneurial

projects (Jones & Butler, 1992). Since the wealth of executives and

that of their shareholders are closely aligned through CEO

ownership, the shareholders are willing to support innovative

and risky projects chosen by the CEO, thus helping to increase the

EO (Zahra et al., 2000). This result is especially apparent in

emerging markets which often have inefficient external gover-

nance mechanisms and therefore are not challenged by product

market competition, a managerial labor market, and the threat of

takeover. In this kind of situation, internal mechanisms such as

CEO ownership are relied on more heavily to substitute for or

complement external governance (Young et al., 2008). When CEO

ownershipnotably increases, the incentive effect on the innovation

and proactiveness of CEOs should be more significant (Jenkins &

Seiler, 1990), thereby strengthening the EO of emerging-market

firms. Therefore, we propose:

Hypothesis 2. In firms from emerging markets, an increase in CEO

ownership is positively related to EO.

3.2. Ownership structure and market orientation

The effect of ownership concentration on MO, as compared with

that on EO, is more complex. When ownership concentration is

very low, dispersed owners often lack the necessary internal

information and motivation to monitor managements actions and

decisions effectively (Hill & Snell, 1989). This is especially true in

emerging markets, because the market system is incomplete and

market monitoring of firms is weak. Shareholders cannot imple-

ment effective internal monitoring of the CEO and the CEO may

focus on short-term profit and not attend to the long-term benefit

of the firm (Xu & Wang, 1999; Young et al., 2008). Such

considerations can lead to CEO opportunism and can lead CEOs

to refrain from taking part in market competition and fromdevoting time and resources to meeting the needs of customers. As

ownership concentration increases, however, larger shareholders

have a stronger incentive to deal with information about the

market and the firms production, and to monitor the behavior of

top managers (Coles et al., 2001; Lee & ONell, 2003). The market

environment in emerging economies is highly uncertain and

therefore can cause a firms strategy to change rapidly (Li & Peng,

2008). Under such conditions, because power in control and

decision-making can be more efficiently balanced among a few

larger shareholders, top managers have to pay more attention to

changes in market competition and customers demands. They

need to continuously work to obtain benefits from the market

through greater efficiency in meeting the needs of customers. As a

result, the

MO

of

an

emerging-market

firm

will

be

strengthened.Further, when ownership concentration is at a moderate level,

some larger shareholders obtain more power in the firms board of

directors (BOD). If CEOs deviate from the firms interest and do not

manifest a long-term commitment to developing their markets,

the majority shareholders can re-direct them to place more

emphasis on market orientation. In this way, ownership concen-

tration will further strengthen the market orientation of the firm

(Jaworski & Kohli, 1993). Moreover, moderately concentrated

ownership implies that there is no shareholder who can absolutely

exercise control over the firm. If majority shareholders try to

compel management to adopt strategies which can maximize their

benefits

at

the

expense

of

the

firms

long-term

profits,

they

will

be

monitored by minority shareholders, who will instead encourage

behaviors

that

create

superior

customer

value

(Narver

&

Slater,

1990).In emerging markets, the demands of customers change fast

and therefore require that the CEO have more flexibility (Li, Liu

et al., 2006). Thus, moderately concentrated ownership can ensure

an increase of MO in emerging markets.

On the other hand when ownership is too highly concentrated

in a specific group, the largest shareholder may have excessive

control power over the BOD. Especially in emerging markets, the

BOD is controlled by major shareholders, such as family and state

(Cuervo-Cazurra, 2006; Young et al., 2008). These shareholders are

risk-averse, and prefer to choose low-risk projects which are less

responsive to the needs of potential customers and which slow the

speedof attending to customers. These behaviors to reduce the risk

of incurring the higher costs involved in responding promptly to

customer demands (Qu & Ennew, 2005). The CEO is motivated to

make decisions mainly based on the wishes of the largest

shareholder rather than on information about changes in market

competition and the demands of customers (Grosfeld & Tressel,

2002). As a result, the CEO does not pay enough attention to market

information and does not actively respond to customer demands,

and the MO of the firm becomes weak (Webster, 1988). Therefore,

we suggest:

Hypothesis

3.

In

firms

from

emerging

markets,

the

relationship

between

ownership

concentration

and

MO

is

an

inverse

U-shape.Existing literature reveals conflicting perspectives on the

relationship between CEO ownership and MO in developed

economies. For example, Donaldson and Lorsch (1983) assert that

executives are interested primarily in the financial health and

survival of their firms and therefore, when making decisions, do

not give much consideration to the impact on their personal

finances. Sanders (2001) disputes this argument and notes that

once executives have ownership, they will avoid investments that

donot

increase

the

wealth

of

shareholders.

In

this

study,

we

argue

that whether CEO ownership is or is not beneficial to the

improvement of MO in emerging markets mainly depends on

the level of CEO ownership.

When CEO

ownership

increases

from

a

low

to

a

moderate

level,

executives will engage in improving shareholders wealth becausedoingso will also improve their own wealth, and on the other hand,

MO which emphasizes customer value and helps to capture and

retain

customers

can

also

create

this

kind

of

wealth

for

other

owners

of

the

firm

(McNaughton,

Robert,

Morgan,

&

Kutwaroo,

2001). Hence, the CEOs have a motive to encourage individuals in

thefirms to track changing markets, share market intelligence with

others, and

be

responsive

to

market

needs,

thereby

strengthening

MO.

When ownership by executives exceeds a moderate level, the

firms market orientation may decrease. In such a case,

executives,

when making a

decision,

consider

not what they

might gain

but what they might lose, such as

the

value

of

their

stock (Sanders, 2001). Following this logic, when executives

hold

a

large amount

of

stock,

they may

pay

more

attention

to theprice

of

the

stock and cut

various

costs that could reduce

the

firms

short-term benefits.

Since

collecting and disseminating

market intelligence often require the commitment of consider-

able human and physical resources, and since the introduction

of new products, services

and programs

often runs a

high risk

of

failure (Jaworski &

Kohli, 1993), large stock ownership

is

likely

to cause executives to pursue stock valuewhich can add to their

wealth in the short term at the expense of the firms long-term

health.

Particularly, because

the threat

of

takeovers

is

virtually

absent

in

emerging markets

(Young

et

al.,

2008), CEOs are not

concerned about termination of employment even when doing

things which may damage long-term development. Thus CEOs

would

not adopt a

market-orientated

mindset. We

therefore

suggest:



6/13

Hypothesis

4.

In

firms

from

emerging

markets,

the

relationship

between CEO ownership and MO is an inverse U-shape.

3.3. Strategic orientation and internationalization of firms from

emerging markets

In accord

with

previous

sections

which

suggest

that

interna-

tionalization is certainly an act of entrepreneurship (Jones &

Coviello, 2005; Zahra & George, 2002),we argue that, in emergingmarkets,

entrepreneurially

oriented

firms

are

innovative,

risk

taking,

and

proactive

(Bhuian

et

al.,

2005). These

firms

should

have

a higher propensity to expand their cross-border activities.

While many firms from emerging markets cannot afford to

compete

on

tangible

resources

(e.g.

funds

and

equipment),

they

excel in

intangible

resourcefulness

(Yamakawa

et

al.,

2008), such

as new ideas, novelty, and creative processes. They generally

possess dynamic capabilities to integrate and synthesize internal

resources

and

external

learning

and

to

apply

both

to

the

competitive

environment

(Zhou,

2007). Such

ability

is

vital

to

a

firms survival and growth in a foreign market (Kogut & Zander,

1992). For example, some firms from emerging markets, like Mabe

(Mexico),

Arcelik

(Turkey)

and

Haier

(China),

have

invested

heavily

in R&D

and

innovation

in

order

to

generate

their

own

distinc-tiveness, as witnessed by numerous national and international

awards and registered patents (Bonaglia et al., 2007).

Decisions

with

regard

to

international

expansion

imply

a

high

level of

uncertainty

as

firms

enter

physically

or

culturally

distant

markets or become more dependent on revenues generated in

marketsdifferent from the more familiar domestic market (Calof &

Viviers, 1995).While

most

firms

from

emerging

markets

probably

will

stay

in

their

home

market,

a

relatively

small

number

of

entrepreneurially oriented firms which are willing to undertake

risky

decisions

(Lumpkin

&

Dess,

1996;

Miller,

1983). Entrepre-

neurially

orientated

firms

may

more

readily

accept

the

uncertainty

embedded in further increasing cross-border activity. One promi-

nent example of a firms internationalization offers a clue: Chinas

Lenovo

undertook

a

series

of

aggressive,

risk-taking

measures,such as

acquiring

IBMs

PC

division,

to

compensate

for

its

competitive disadvantages and to facilitate internationalization

(Biediger et al., 2005; Luo & Tung, 2007). Therefore we propose:

Hypothesis

5. In firms from emerging markets, EO is positively

related to the level of internationalization.

The generally positive performance influence of an MO is well

supported (Jaworski&Kohli, 1993; Matsuno etal.,2002)particularly

in international firms (Knight & Cavusgil, 2004; Luo, Zhou, & Liu,

2005).However, other researchershave contended that, formarket-

oriented firms, the tyranny of the served market can result in

overlooking potential markets (Slater & Narver, 1995) and may

increasingly prioritize the gathering and distribution of deficient

information

over

time (Baker

&

Sinkula,

1999).

Some

studiesconcerning the link between MO and performance in emerging

markets also report inconsistentfindings (e.g.Appiah-Adu, 1998; Li,

Sun, & Liu, 2006). Judging from these conflicting conclusions, we

surmise that the relationshipbetween MO and the internationaliza-

tion of firms from emerging markets is more complex.

As a firms MO increases from a low to a moderate level, its

degree of internationalization is likely to increase accordingly. In

an emerging market where the market is open and the business

environment is competitive, a market-oriented firm is likely to

take on a learning attitude. This attitude will lead it to an

increased understanding about how to operate in a free,

competitive marketplace and how to update its knowledge base

with regard to customers and competitors in the current market

(Appiah-Adu, 1998). Such an attitude involves a continuous search

for ways of adapting to new situations, and it encourages firms to

apply this knowledge to new conditions (e.g., foreign markets)

where similar problems probably exist.

When market orientation goes beyond a moderate level,

however, international involvement may decrease. Christensen

and Bower (1996) note that firms with a high level of MO tend to

listen toocarefully totheir currentcustomers andarethereforemore

sensitive to risks. Becauseofhigh transaction costs,firms areusually

cautious about committingfirm-specific resourceswhen perceiving

a highly uncertain environment (Williamson, 1985). This cautious-

ness is even more apparent for firms from emerging markets. It is

well known that firms need to have long-haul investments in the

process of international expansion, since it is costly to withdraw

invested resources (Luo, 2000).However, most firms from emerging

markets lack key resources and international experience (Child &

Rodrigues, 2005; Yamakawa et al., 2008). As a result, firms with a

high MO are more likely to operate in stable and predictable

environments. They tend to allocate more resources to the current

market to ensure safe adaptability, rather than to increase

investments in foreign markets where potential risks exist. Such

resource deployment does not help a firm take advantage of

emerging opportunities in an international market, and thus

impedes the firms internationalization. Therefore we propose:

Hypothesis 6. In firms from emerging markets, the relationship

between MO and internationalization is an inverse U-shape.

4. Methodology

4.1.

Sample

and

data

collection

To test these hypotheses, survey data were collected by means

of

a

questionnaire

administered

to

executives

from

a

sample

of

representative firms in the Shaanxi, Sichuan, Liaoning, Shanghai,

Guangdong, Shandong, Henan and Shanxi provinces of China.

These provinces (and the city) were selected because the firms in

these regions

reflect

economic

development

and

internationaliza-

tion practices in China. Additionally, these provinces and this cityshare cultural commonalities based on their history and geo-

graphic regions.

First, we

developed

a

set

of

questionnaires

following

the

research

literature.

Second,

after

consulting

extensively

with

several executives, we modified the instrument to accurately

reflect conditions that firms face in China. Using preliminary draft

questionnaires,

a

pilot

test

was

conducted

with

15

firms

from

the

Shaanxi,

Henan,

and

Shandong

provinces;

these

responses

were

excluded from the final study. The questionnaire was revised using

feedback from the pilot study and also in accordance with a sample

frame

provided

by

the

Economy

Commerce

Committee

(ECC,

a

special administrative

unit

of

the

government

for

managing

firms)

of the eight provinces, which was created by randomly selecting

various

types

of

enterprises.

The

sample

was

cross-sectional.

Theinstrument

was

administered

through

a

structured

interview.

In

addition

to

reading

the

background

references,

the

interviewers

had been briefed on the objectives of this study and trained in

interviewing techniques. These interviewers thoroughly explained

how

to

complete

the

questionnaire

and

assured

the

respondents

that

their

responses

would

be

confidential,

thus

minimizing

the

possibility of misinterpretation of the questions and concerns

about completing the survey.

A

total

of

850

enterprises

were

approached.

Unfortunately,

some firms

were

not

able

to

participate

for

reasons

that

included

company policy of non-participation in surveys or company

liquidation. Also, some firms data were discarded because of

inadequate

completion

of

the

survey

instrument.

A

total

of

607

enterprises

had

all

the

necessary

data.

The

effective

participation



7/13

rate thus was 71.4 percent (607 out of 850), which is excellent for

survey research of this type.

A common concern with survey methodology is non-response

bias. To check for non-response bias, we obtained information

about ownership type and sales of 171 non-responding firms, and

compared the responding and non-responding firms along these

major firm attributes using t-tests. All t-statistics were statistically

insignificant. Finally, we compared the responding firms with the

non-responding firms and found no significant differences in terms

of firm size. Along with the high response rate, these results

suggest that there is no non-response bias in this study.

4.2. Measurement

4.2.1.

Ownership

structure

Basing our work on prior research by Pedersen and Thomsen

(1999), together with consideration of Chinese firm ownership

reform (Li, Sun et al., 2006),we measured ownership concentration

asthe ownership share of the largest owner (%). Another variable of

ownership structure is CEO ownership. Using the criterion

developed by Tuschke and Sanders (2003), we measured CEO

ownership by the proportion of the firms shares owned by the

CEO. Because ownership structure, especially CEO ownership, is a

sensitive question in Chinese firms and most executives are notwilling to provide objective data directly, ownership concentration

and CEO ownership were scaled from 1 (015%) to 7 (91100%) for

the purpose of reducing the sensitivity of the questions and making

them easier to answer.

4.2.2. Entrepreneurial

orientation

Our entrepreneurial-orientation scale was modified from the

onesdeveloped by Khandwalla (1977) and Covin and Slevin (1989)

and adapted to the context at hand, with the addition of one item

used by Li, Liu et al. (2006). The final measure included six items, all

assessed on a seven-point Likert scale with the anchors 1 = totally

disagree, 7 = totally agree: (1) a strong emphasis on R&D,

technological

leadership

and

innovation;

(2)

a

strong

tendency

to seek high-risk high return innovation projects; (3) a strongtendency to adopt an active posture when facing uncertainty; (4) a

strong tendency to initiate action that competitors respond to; (5)

a strong

tendency

to

be

a

leader,

always

being

the

first

to

introduce

newproducts,

services

or

technology;

and

(6)

a

strong

tendency

to

adopt a competitive undo-the-competitors posture.

4.2.3.

Market

orientation

This scale

was

measured

on

fifteen

items

adapted

from

Kumar,

Subramaniam, and Yauger (1998) and assessed on a seven-point

scale, including customer orientation, competitor orientation, and

inter-functional

coordination.

The

items

of

customer

orientation

are the

following:

(1)

we

put

strong

emphasis

on

customer

satisfaction, (2) we put strong emphasis on understanding

customer needs,

(3)

we

make

use

of

frequent

and

systematicmeasures

of

customer

satisfaction,

(4)

we

pay

close

attention

to

after-sales

service,

(5)

we

frequently

increase

customer

value

or

reduce costs, and (6) we emphasize high quality of products. The

items of competitor orientation are as follows: (1) we respond

rapidly to

competitors

actions,

(2)

we

share

competitors

strategic

information

within

the

company,

(3)

top

managers

discuss

competitors strength and strategies frequently, and (4) we have

a competitive advantage in targeting customers. Inter-functional

coordination

consists

of

these

items:

(1)

we

share

customer

information among

functional

departments

efficiently,

(2)

we

respond to customer calls inter-functionally, (3) all functional

departments contribute to customer value, (4) all employees know

market information

well,

and

(5)

employees

in

the

marketing

department take

part

in

new

product

development.

4.2.4. Internationalization

Following Zahra et al. (2000) and Zhou et al. (2007), three items

were developed to measure internationalization specifically for

firms from emerging markets, evaluating the extent of the firms

actual outward activities along a seven-point scale (1 = very small

extent, 7 = very large extent): (1) aggressively seek foreign

markets; (2) sell products or services in foreign market; and (3)

enter into overseas locations funded by outward FDI. In this study,

the scale of internationalization indicates the intensity of outward

activities that a firm has undertaken.

4.2.5. Control variables

In all tests, we controlled for several variables that could

possibly affect strategic orientation and internationalization as

well. This group of variables includes the firms characteristics,

domestic market strategy, industrial factors, government interfer-

ence and policy influence. Firm size, measured by the number of

full-timeemployees, was controlled because of its potential impact

on entrepreneurial orientation (Luo, Zhou et al., 2005; Zahra et al.,

2000), market orientation (Liu & Eddie, 1995) and internationali-

zation (Zhou, 2007). Firm age, measured by the number of years in

business, is important in an emerging market, because older firms

are more risk-averse and inertial with respect to EO, MO, and

international activities (Yiu, Lau, & Bruton, 2007; Zhou, Gao, Yang,& Zhou, 2005). Domestic market strategy was measured with the

question How much effort does your firm make to enter into a new

domestic market? (1 = very little; 7 = very much). This variable

can impact EO and MO because it shows that the managers have a

favorable attitude toward change and innovation and therefore are

more likely to adopt EO and MO (Powpaka, 1998; Zahra, 1991).

Domestic market strategy also affects internationalization because

putting more resources into building a domestic power base and

competence, for the purpose of constraining activities in new

foreign settings, is not conducive to international growth (Autio

et al., 2000).3 Competitive intensity and industrial regulation have

beenconsidered as key determinants of market orientation (Li, Sun

et

al.,

2006;

Powpaka,

1998)

and

entrepreneurial

orientation

(Lee

&

Peterson, 2000; Luthans, Stajkovic, & Ibrayeva, 2000) in emergingmarkets, and propel firms to seek fortunes abroad (Luo & Tung,

2007; Yamakawa et al., 2008). Competition intensity was

measured

with

the

question

How

competitive

is

the

domestic

market

of

your

main

product/industry?

(1

=

not

competitive

at

all;

7 = very competitive), while industrial regulation was measured

with the question How great is the extent to which industrial

regulation

constrains

your

firms

development?

(1

=

does

not

constrain at

all;

7

=

constrains

to

a

large

extent).

Government

interference and policy influence are controlled because these two

institutional factors, which are typical characteristics of emerging

markets (Li,

Liu

et

al.,

2006;

Peng,

2000),

may

either

support

or

inhibit

a

firms

strategic

orientation

and

internationalization.

Government intervention, measured with the question How great

is the

extent

to

which

your

firm

independently

makes

decisions(1 =

completely

independent;

7

=

completely

controlled

by

gov-

ernment), can

weaken

entrepreneurial

actions

through

promoting

a conservative attitude (Child & Rodrigues, 2005), can reduce

initiative in developing market orientation due to excessive

protection

(Li,

Sun

et

al.,

2006), and

also

can

give

encouragement

3 In their study of early internationalization in the Finnish electronics industry,

Autio et al. (2000) argue that the more time managers put into developing domestic

competencies which focus on learning about domestic issues and building a

domestic power base, the more resistant they will be to shifting the major attention

of their firms to full-fledged efforts in foreign markets. Thus we consider strategic

choice of entry into new domestic market as a control variable influencing

internationalization, because this variable makes it difficult for firms to move away

from focusing exclusively on the domestic market in terms of resource constraints

and

organizational

inertia.



8/13

and support for overseas expansion through government-spon-

sored programs (Child & Rodrigues, 2005; Luo & Tung, 2007). Policy

influence

was

measured

with

the

question

How

do

policy

changes

affect your firms creative activities? (1 = completely adverseeffect; 7 = completely favorable effect). National policies in favor of

firms innovation will encourage market-oriented activities and

entrepreneurial

potential

(Lee

&

Peterson,

2000;

Qu

&

Ennew,

2005) and

are

very

likely

to

be

an

influential

force

in

MNE

decision-

making as to internationalization (Dikova & Witteloostuijn, 2007).

4.3. Reliability

and

validity

assessment

Table 1 reports estimates of construct reliability, factor

loadings, and average variance extracted. As detailed in the

following

sections,

the

five

latent

constructs,

involving

26

items,

were

found

to

be

reliable

and

valid

in

the

context

of

this

study.

We first diagnosed item-to-total correlations for each con-

struct.

None

were

below

0.4,

and

therefore

all

items

continued

toremain

in

the

study.

Although

the

construct

measures

used

in

this

study

are

based

primarily

on

previously

validated

measurement

items and are strongly grounded in the literature, they were

modified partly to fit the Chinese context. Inter-item consistency

was

assessed

by

Cronbach

alphas.

Typically,

reliability

coefficients

of

a =

0.70

or

higher

are

considered

adequate.

Nunnally

(1978)

further states that permissible alpha values can be slightly lower

(>a = 0.60) for newer scales. Therefore, an alpha value over a = 0.6

can

be

accepted

to

assess

reliability

in

our

study.

As

can

be

seen

from

Table

1,

Cronbach

alphas

values

of

all

factors

were

above

a = 0.65, which suggests that the theoretical constructs exhibit

good internal consistency.

To further

test

the

reliability

of

the

measures,

we

obtained

data

frompaired

informants

representing

270

of

the

607

sample

firms.

We categorized these informants into two groups: CEO/general

manager and senior managers (such as marketing or business

development

managers).

We found substantial congruence between answers to the samequestions by the two separate respondents for the same firms

(Pearson correlation coefficients were all statistically significant

and

ranged

from

0.36

to

0.79).

We

then

conducted

a

series

of

t-tests

to determine

if

there

were

any

differences

among

the

responses

of

the two groups on each of our constructs and found no statistically

significant differences. These data provide evidence that the

interviewees

responses

are

reliable.

We

subsequently

examined

the

convergent

validity

of

the

constructs with a CFA, using LISREL (Joreskog & Sorbom, 1993). The

fit indexes indicate that the model fits the data well (x2 = 192.85;

x2/df

=

2.26;

GFI

=

0.95;

AGFI

=

0.92;

NFI

=

0.96;

NNFI

=

0.97;

CFI

=

0.97;

RMSEA

=

0.07).

All

items

loaded

on

their

respective

constructs, and each loading was beyond 0.7 except for two items.

Considering

new

items

or

items

used

in

a

new

context,

this

valuecan be

reduced

to

0.4,

a

common

threshold

for

acceptance

(Atuahene-Gima

&

Li,

2004).

We

analyzed

the

explained

total

variance of the constructs, and average variance extracted

exceeded 42%. These results imply both the statistical significance

of relationships

between

the

items

and

constructs

and

the

reliability of

individual

items.

Furthermore, in order to test difference between a subjective

scale of internationalization and the objective indicator of a firms


using

multiple

secondary

data

sources,

we

succeeded in

obtaining

objective

indicators,

namely

international

sales as a percentage of total sales (Sullivan, 1994; Walters &

Samiee, 1990). We were able to obtain data concerning 155

overlapping

firms,

and

the

measurement

of


was

significantly

correlated

with

this

indicator

(r

=

0.245,

Table 1

Measurement validity assessment.

Constructs Items Factor loadings

Ownership concentration The ownership share of the largest owner

CEO ownership The proportion of firms shares owned by CEO

Entrepreneurial orientation (a= .86; AVE=0.52) 1. A strong emphasis on R&D, technological leadership and innovation .79

2. A strong tendency for high-risk high-return innovation projects .61

3. A strong tendency to adopt to an active posture when facing uncertainty .72

4. A strong tendency to initiate actions that competitors respond to .79

5. A

strong

tendency

to

be

a

leader,

always

introducing

new

products,

service

or

technology

first

.846. A strong tendency to adopt a competitive undo-the-competitors posture .84

Market orientation (a= .86; AVE=0.77; x2=244.15;GFI =0.95; AGFI=0.93; NFI=0.95; NNFI =0.96; CFI=0.97; RMSEA=0.06)

Customer orientation (a= .87; AVE=0.49) .87

1. Customer satisfaction objectives .84

2. Emphasis on understanding customer needs .85

3. Measure customer satisfaction .85

4. Give close attention to after-sale service .81

5. Frequently increase customer value or reduce costs .57

6. High quality of products .73

Competitor orientation (a= .87; AVE=0.55) .89

7. Respond rapidly to competitors actions .83

8. Share competitors strategic information in company .82

9. Top managers discuss competitors strength and strategies .85

10. Have competitive advantage in targeting customer .80

Interfunctional

coordination

(a=

.89

AVE

=

0.58)

.8911. Efficient sharing of customer information among functions .89

12. Inter-functional customer calls .83

13. All functions contribute to customer value .87

14. All employee knowing market information .76

15. Marketing employee taking part in new product development .76

Internationalization of firm (a= .68; AVE =0.45) 1. Aggressively seek foreign markets .70

2. Sell product/services in foreign market .84

3. Enter into overseas locations funded by outward FDI .75

Goodness-of-Fit Statistics (x2=192.85; x2/df =2.26; GFI=0.95; AGFI =0.92; NFI=0.96; NNFI =0.97; CFI=0.97; RMSEA =0.07)



9/13

p


10/13

0.18 to 0.25, and the change in the R2 between Model 3 and Model

4,were also statistically significant. Thus ownership concentration,

CEO ownership and their squared terms are significant predictors

of market orientation, providing support for H2 and H4.

Finally, we tested the effect of entrepreneurial orientation and

market orientation on the internationalization of a firm, after

introducing control variables in Model 5. Consistent with H5 and

H6, the results of Model 6 show that entrepreneurial orientation is

positively related to internationalization, and that the squared

term of market orientation is negatively related to internationali-

zation. The R2 increase from 0.18 to 0.22, and the change in the R2

between Model 5 and Model 6, were also statistically significant,

providing support for H5 and H6.

6. Discussion

This study focuses on the relationships between ownership

structure, strategic orientations and internationalization of firms

from emerging markets. Our results show that in emerging

markets, a difference in ownership structure can lead firms to

choose different strategic orientations, and further that different

strategic orientations affect the internationalization success. This

study extends the current literature in the following ways. First,

this study brings into sharper focus the differing impacts ofownership concentration and CEO ownership on both EO and MO,

the key antecedents affecting the internationalization of firms

fromemerging markets. If indeed EO and MO represent important

parts of a firms strategic orientation, the theoretical delineation

and empirical testing offer useful insights into factors contributing

to both EO and MO formation during internationalization in the

context of emerging markets. Second, by examining the different

effects of EO and MO on the internationalization of firms from

emerging markets,

this

study

provides

additional

richness

to

the

extant research. The positive effect of EO on the internationaliza-

tion of firms corroborates the entrepreneurial nature of younger

international firms in the context of emerging markets and thus

extends

the

international

entrepreneurship

literature.

The

inverse

U-shaped effect of MO on a firms internationalization challengesextant research and more effectively explains the complex

influenceof MO on the internationalization of firms from emerging

markets.

Thus,

our

study

provides

significant

insights

concerning

the

international

development

of

firms

based

in

emerging

markets

from the perspective of institutional ownership, thereby making a

contribution to the literature on international business. Major

findings

are

as

follows.

We

find

that

ownership

concentration

is

negatively

related

to

EO in firms from emerging markets. This result shows that high

ownership concentration is a disadvantageous factor which

impedes

entrepreneurial

activities

in

firms

from

emerging

markets. From

this

finding,

we

can

conclude

that

high

ownership

concentration definitely constrains top managers use of innova-

tion

and

proactiveness,

because

the

largest

shareholder

is

oftenaverse to

the

risks

involved

in

the


of

firms.

Further,

this

result

supports

and

further

extends

the

research

of

Peng et al. (2004), which asserts that firms from transitional

economies like China may not provide sufficient incentives to top

managers

to

undertake

entrepreneurial

activities.

We

also

find

that

CEO

ownership

is

consistently

and

positively

related

to

EO

in

firms

fromemerging markets. The result suggests that CEO ownership is

clearly relevant to a firms decision-making direction and process,

and that

it

can

be

used

to

provide

incentives

for

the

CEO

to

strengthen

the

firms

EO.

This

finding

is

consistent

with

the

study

by Zahra et al. (2000), who find that managers owning an equity

stake in a medium-sized firm promote entrepreneurial activities.

Obviously,

these

two

findings

clearly

describe

the

different

effects

of

ownership

structure

on

EO,

a

conclusion

which

further

enriches

the literature about how ownership and corporate governance

affect entrepreneurial activities.

The second group of findings concerns the association between

ownership structure and market orientation. As predicted owner-

ship concentration has an inverse U-shaped effect on market

orientation. This result shows that when ownership is moderately

concentrated among shareholders, the distribution of ownership

and control power not only can lead the main shareholders to

monitor the executives decision more efficiently, but also can

provide institutional space for top managers to identify and take

advantage of market demands more effectively. Meanwhile,

another finding is that the relationship between CEO ownership

and MO is an inverse U-shape. This result shows that lower and

higher levels of CEO ownership do not lead executives to increase

MO, but that a moderate level of CEO ownership can ensure

enhancement of MO. From this result, we can rationally explain

reason why there are conflicting opinions about the relationship

between CEO ownership and MO in the literature (Donaldson &

Lorsch, 1983; Sanders, 2001). When CEO ownership is higher,

share-holding executives will avoid investments that might

negatively influence the short-term increase of shareholders

wealth (Sanders, 2001), and therefore may make the firm lose

market opportunity and decrease its future market competitive-

ness. Yet when, at the opposite end of the spectrum, CEOownership is very low, the executives will again be interested

primarily in quick growth of the firms market share (Qu & Ennew,

2005), an emphasis which may lead the firm to enhance its

competitiveness but still ignore improvement in its return on

investment. This finding also explains the reason why stock

ownership sometimes does not motivate executives to support

certain strategic orientations, such as MO, and thus extends the

theory of corporate governance.

We find different effects of strategic orientation on the degree

of a firms internationalization. The results suggest that EO is

positively related to internationalization, but that MO has an

inverse U-shaped relationship with internationalization. The

former

result

provides

a

conclusion

similar

to

the

studies

of

Nummela et al. (2004), Knight and Cavusgil (2004) and Zhou(2007), who found that EO is important for born-globals and small

and medium-size enterprises. Our study further indicates that the


behavior

of

firms

from

emerging

markets,

whichhave

some

common

traits

with

born-globals

in

international

expansion, can also be described as entrepreneurial. This finding

corroborates the entrepreneurial nature of younger international

firms from

emerging

markets,

and

thus

extends

the

international

entrepreneurship literature.

However, differing from prior studies which suggest that MO is

positively related to a firms internationalization (Knight &

Cavusgil,

2004;

Luo,

Sivakumar

et

al.,

2005), our

findings

indicate

an

important

limitation

of

an

overly

strong

market

orientation

during the internationalization process in the context of emerging

markets.That

is,

firms

with

a

high

level

of

MO

listen

too

carefully

totheir

current

customers

(Christensen

&

Bower,

1996).

This

leads

managers

to

emphasize

current

customers

needs

and

not

to

spend

enough time and resources exploring the potential opportunities

in overseas markets. This is especially true because firms often do

not have

sufficient

resources

to

accomplish

these

two

tasks

at

the

same time.

How

to

meet

existing

demands

efficiently

in

the

domestic market becomes the main issue these firms focus on,

because the main customers of such firms are often located in the

domestic

market

at

the

early

stages

of

the


process.

Our results provide insights into the comparative effects of EO

and MO on internationalization of firms from emerging markets,

thereby

expanding

the

research

of

previous

scholars

who

found

that either

EO

or

MO

might

have

direct

or

indirect

positive



11/13

associations with a firms internationalization (e.g., Knight &

Cavusgil, 2004; Weerawardena et al., 2007). Our results make a

significant contribution to the literature on the internationaliza-

tion of firms.

Finally, accompanying the rise of the emerging economies to

become new global challengers, top firms from emerging markets

increasingly pose competitive challenges to companies from the

developed economies. A study by Boston Consulting Group (2006)

found 100 companies from emerging markets with total assets in

2006 of $520 billion, more than the worlds top 20 car companies

combined. Although these challengers possess several core

capabilities that drive them to develop into contenders for global

leadership, such as vision of their ambitions founders and the

ability to reach outside their home markets (Boston Consulting

Group, 2009; The Economist, 2008), many of them are still in the

early stages of globalization. For these firms in particular, it will be

important to move beyond opportunistic steps toward globaliza-

tion and develop appropriate and well-defined strategies. This

paper may offer the theoretical guidelines for new global

challengers in shaping the strategic postures which are helpful

to successful internationalization.

7. Managerial

relevance

Besides its theoretical contributions, this article has several

practicalmanagerial implications as well. First, our study suggests

that a stronger EO can improve an emerging-market firms

internationalization, and, with respect to antecedents, that CEO

ownership is beneficial for strengthening EO but that ownership

concentration decreases EO. Thus, when firms hope to increase EO

for the purpose of improving their internationalization, their BODs

should increase CEO ownership and reduce ownership concentra-

tion in

order

to

motivate

CEOs

to

take

more

innovative

measures

and to proactively grasp opportunities in the internationalmarket,

thereby helping firms from emerging markets to improve their

competitive position in global markets.

Second,

from

the

results

of

the

inverse

U-shaped

relationship

between ownership structure and MO, firms should understandthat either a very high or a very low level of ownership

concentration and CEO ownership is not helpful in improving

market

orientation.

Therefore,

when

firms

markets

want

to

improve

their

MO,

ownership

should

be

moderately

concentrated

in shareholders so that the governance mechanisms not only

ensure efficient monitoring of executives decision-making but

also

establish

a

suitable

constraint

system

among

shareholders.

Meanwhile,

the

BOD

should

require

the

CEO

to

hold

an

appropriate

level of ownership, since either too little or too much CEO

ownership can decrease a firms market-oriented activities.

Third,

because

of

the

different

effects

of

EO

and

MO

on

the

degree of

internationalization,

firms

from

emerging

markets

should increase their EO in the process of internationalization

and

rationally

balance

their

MO.

In

this

way,

these

firms

canimprove

the

development

of

their

internationalization,

because

top managers

will

be

encouraged

to

take

proactive

actions

in

international competition by introducing innovative products and

services and by taking more risks in the global market. Meanwhile,

firms from

emerging

markets

should

balance

the

demands

of

current

customers

in

the

domestic

market

with

those

of

potential

customers in international markets, and effectively allocate

resources, deploying them between current and new foreign

markets

when

implementing

their

market

orientation.

8. Limitations and future research directions

This study

has

the

following

limitations

which

should

be

addressed

in

future

research.

Clearly,

the

results

of

the

current

study are context-specific. Although it is theoretically feasible to

extend this study to other contexts, the specific differences

between China and other emerging economies may restrict the

generalizability of the findings. Therefore, a useful extension

would be to conduct this study in other emerging-market settings

such as eastern European countries. Further, in emerging markets,

internationalization may take many forms (e.g., licensing, OEM,

joint venture, and strategic alliance). In future research, it is

necessary to overcome any constraints in measuring this factor. A

more valid measure to describe the various situations in which

firms are internationalizing is needed. Moreover, the firms

experience, length of involvement internationally, international

sales ratio and or international profitability could influence the

relationships between governance mechanisms and strategic

orientations. For most firms from emerging markets, the progress

of internationalization can help them to adjust the influence of

governance mechanisms on the choice of strategic orientation, and

further influence the performance of their internationalization.

Future research should focus on the moderating effects of these

factors on the relationships between governance mechanisms and

strategic orientations, and/or the moderating effect of ownership

structure on the relationships between other strategic behaviors

and firm internationalization performance. Finally, in addition to

its contributions to an understanding of strategic orientation, wehopethat this article can provide an important first step for further

examination of key antecedents and consequences of the

internationalization of firms and thereby promote future studies

in this important area.

Acknowledgement

The

authors

would

like

to

thank

Professor

Peter

W.

Liesch

and

the two JWB reviewers for their insightful comments.

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MO and Enterpreneurship Orientation