Inter-firm market orientation and the influence of network and relational factors

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Abstract

This article looks at market orientation as a part of inter-firm activities. It investigates the way interorganisational structure affects inter-firm market orientation in food channels in Sweden, the UK and Italy. A qualitative approach is adopted. The structure is discussed in terms of the overall network properties and the arrangements within specific relationships. The governance of the network ties, retail power, and the trust within specific relationships are among factors found to be especially important. Propositions are developed regarding the way the context affects the scope and strategic role of inter-firm market orientation in order to demonstrate the impact of the different network and relational properties.

Introduction

Management literature broadly supports the view that, through cooperation, firms can improve their market understanding and their ability to adapt to their environment (Axelsson & Easton, 1992; Contractor & Lorange, 1988; Gulati, 1998; Morgan & Hunt, 1994). Practical support for this notion is also increasing. Successful firms such as Ikea or Nike offer more or less the same products to customers worldwide, supported by a net of suppliers who deliver to customers exactly what the offer promises. Leading car manufacturers rely on external partners to provide consumers with superior solutions concerning comfort, safety, driving experience and so on. Inter-firm cooperation thus reaches beyond areas such as technology or logistics, to include the interpretation of market signals and the development of a suitable competitive response to these.

Examples such as these show that market orientation (MO) is largely an effect of interaction between firms. The “Marketing Concept”, i.e. the idea that the key to success lies in a firm's ability to offer superior values to its markets (e.g. Kotler, 2003), has had powerful influence in marketing and management research and practice for some 50 years. However, it was not until the MO area emerged in the early nineties that the impact of the marketing concept's on business practice and firms’ performance began to be systematically studied (Deshpandé & Webster, 1989; Houston, 1986; Kohli & Jaworski, 1990; Narver & Slater, 1990). Since then, it has become one of the most studied constructs in the field of marketing (Stoelhorst & van Raaij, 2004). Even so, knowledge about the connection between MO and inter-firm relationships is still limited (Grunert et al., 2005; Hunt & Lambe, 2000; Tuominen, Rajala, & Möller, 2004a). This is remarkable considering that during the same period research has shown that networks and inter-firm relationships are critical to the development of a firm's core competences and competitiveness (Day, 1994; Ford et al., 1998; Lorange & Roos, 1992; Morgan & Hunt, 1994; Varadarajan & Cunningham, 1995).

As Hunt and Lambe (2000) have noted, it is essential for a firm to develop an inter-firm strategy for MO, and to build on support from its external relationships in offering superior values to the market. Previous studies have acknowledged relational aspects, but have either regarded these as antecedents to the MO of the single firm (e.g. Hernández-Espallardo & Arcas-Lario, 2003; Siguaw, Simpson & Baker, 1998), or as something to be considered when dealing with industrial customers (Helfert, Ritter, & Walter, 2002). The present article regards inter-firm activities as a specific part of MO, and inter-firm MO as the activities performed jointly by two or more independent companies to create a network or an individual relationship more sensitive to the ultimate demands of the final market (Elg, 2002). It will also be argued below that the role of inter-firm MO depends upon the nature of the inter-firm relationships and upon the general network structure in which the MO activities occur.

The purpose here is thus to investigate MO empirically as an inter-firm phenomenon, and to analyse the way the interorganisational structure influences the character and degree of inter-firm MO. Interorganisational structure refers to the concentration of firms in the studied markets, the general pattern of linkages between these firms, and the nature of the specific relationships that have developed between them. MO activities in the food sector will be investigated, including the interaction between retailers and manufacturers in generating and exchanging market intelligence and in developing superior customer values. This may concern such things as category management, quality issues, product development and marketing campaigns. Particular attention will be paid to the way in which structural properties—such as the division of power, the forms of governance and trust within the relationships—influence the nature of inter-firm MO. In order to evaluate the possible impact of structural differences on inter-firm MO, a qualitative study of retailers and their relationships with suppliers was conducted on three markets with different structures, namely Italy, the UK and Sweden. This made it possible to consider whether any differences in terms of network characteristics or relationship properties appeared to be affecting inter-firm MO.

Section snippets

MO in interorganisational relationships: a theoretical background

The MO frameworks introduced by Kohli and Jaworski (1990) and Narver and Slater (1990) became widely accepted as the MO research field gained momentum. These authors focused on the single firm. A number of indicators were also developed in the early 1990s in order to quantify and test the frameworks, and to measure MO, its antecedents and its performance effects (e.g. Kohli, Jaworski, & Kumar, 1993). Since then a great many studies have been conducted and within several areas using these

A qualitative research approach

A qualitative approach has been found especially fruitful for the study of complex phenomena such as interorganisational processes and interactions (Håkansson and Snehota, 1995; Parkhe, 1993). As noted above, little empirical research has been done on inter-firm MO, which means that knowledge about relevant forms and indicators at the inter-firm level is also limited. The lack of previous knowledge, and the recognition that various previously neglected aspects should be more fully acknowledged,

Network and relationship coordination in Italy, Sweden and the UK

Table 1 summarises some empirical characteristics regarding the different network and relationship factors identified in the theory section. It should be especially pointed out to the reader that all the empirical descriptions and the conclusions drawn in this article are based upon the situation at the time when the study was conducted. The structure at the manufacturer level of the distribution chains was similar. It included major multinationals with leading brands, such as Procter & Gamble

Inter-firm MO on the three markets

An analysis of inter-firm MO activities also revealed clear differences between the three markets. In Italy inter-firm MO was concerned more or less exclusively with disseminating information and about managing individual products. For instance, a manufacturer might provide prospective buyers with detailed market intelligence on consumer needs and perceptions to support the superiority of their own particular products. Still, retailers might question this information because of its potential

The impact of the environment on the scope and role of inter-firm MO

Empirical research has thus revealed significant variations between the three countries. The present section will look at the impact of variations in the environmental structure on the character of inter-firm MO. The empirical patterns of two new dimensions—the scope and strategic role—is used below to further characterise the specific nature of inter-firm MO. Starting from the empirical data and existing theory, propositions regarding the relation between certain contextual aspects and the

Conclusions

Empirical knowledge about MO as an element in inter-firm interaction is scant, despite the fact that for many firms interorganisational relationships represent a significant source of competitive advantages (Hunt & Lambe, 2000). The present article provides an empirical illustration of inter-firm MO and identifies specific types of inter-firm MO that may develop in different industry and network structures. It shows that inter-firm MO can become an important element in a channel's development

Acknowledgements

The author would like to thank Annette Cerne and Addi Runolfsdottir for empirical work, Steve Burt, the Editor of Scandinavian Journal of Management and three anonymous reviewers for valuable comments. The research has been generously funded by The Swedish Council for Research in Humanities and Social Sciences and Handelsbanken's Research foundations.

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