A Causal Study of Relationships between Firm Characteristics, International Marketing Strategies, and Export Performance

Introduction Like many other small countries, New Zealand's economic prosperity depends primarily on international trade, particularly exporting. For some historical reasons, New Zealand's export trade has been reliant on a limited range of primary products and foreign markets (until a few decades ago, over half of New Zealand's exports went to the UK). This narrow dependency and the stiff regulations imposed by the government to protect the domestic market have hampered the nation to cope with the rapid changes in the global market environment. As a result, the New Zealand economy rapidly deteriorated, dropping from the world's highest standard of living to twenty-third in less than three decades (Crocombe et al. 1991). In recent years, considerable effort has been made by the government and private industry to rectify this economic-structural problem. As a result, an open economic policy has been adopted, and market and product diversification has become a major objective in the nation's international trade policy. This drastic shift of economic policy has however, posed considerable challenges for New Zealand's international firms which have customarily relied on government protection and have limited experience in international operations. In addition, they are exceedingly small compared with their counterparts in other countries. To what extent these factors affect the performance of these firms in the international arena would, therefore, be of interest in the present study. Specifically, this study examines the causal relationship between firm characteristics, international marketing strategies, and export performance of New Zealand manufacturing export firms. The study postulates that export performance is affected by a firm's characteristics as well as its adoption of international marketing strategies. The implementation of such strategies is, in turn, determined by the firm's attributes. International Marketing Strategy The reason why firms succeed or fail in international operations has been a central question in international marketing strategy. To shed light on this issue, various contingent theories have been developed and numerous empirical research has been carried out. These efforts, in many ways, have increased immensely the awareness of international business operations. Their attempts, however, have been undermined considerably due to the frequent conflicting report findings. To enhance further theory building in this field, the present study adopts a different approach - a full structure analysis - to examine the causal relationship of the variables in question. International Expansion International expansion is a critical process in today's business operations. It is especially important to New Zealand firms which, due to extremely small home-market size, have to rely on export sales for growth and survival. The process of international expansion often encompasses several marketing activity, including: market selection, market segmentation, and rate of entry. One of the first concerns of firms attempting to expand into foreign markets is to decide which market or markets to target. Selecting a "right" market for expansion is critical because the choice can have a major implication on a firm's market performance (Ayal/Zif 1979, Denis/Depleteau 1985, Christensen et al. 1987, Akoorie/Enderwick 1993). However, studies have found that small firms often venture into the international arena by reacting to unsolicited orders rather than planned (Bilkey 1978). When selecting foreign markets, these firms tend to opt for those that are "psychically closed" to their home markets. Clearly, this selection criterion is not the most effective one because it tends to overloop the potential of other markets. Market segmentation is often used to uncover market opportunities and to identify potential markets for infiltration. The approach is particularly important to small firms because it renders them to focus their limited resources on certain market niches in which relatively little or no competition existed. …