CHAPTER 5: RESEARCH METHODOLOGY
5.2. Measurement procedure
5.2.1. Development of measurement scales
Relational capability
Although there exist several conceptual definitions on relational capability as mentioned in Chapter 4, the measurement method for relational capability has not been developed. However, as analyzed in part 4.1 regarding the overlap of
meaning to some extent between the two concepts of “relational capability” and
“networking capability,” it is fruitful to refer to previous studies which have developed a measurement scale for networking capability. There seem to be only two published studies developing a measurement scale for networking capability:
Anand and Khanna (2000) and Walter, et al (2005). Anand and Khanna (2000) measure “network capability” with the number of previous alliances. The measurement scale by Anand and Khanna (2000) does not fit with the concept of
“relational capability” as defined in this research, hence it is not used as a reference source for developing a measurement scale of relational capability.
Walter, et al (2005) developed a measurement scale for networking capability as a composite construct that is made up of four components including coordination activities, relational skills, partner knowledge, and internal communication. Some indicators used by Walter, et al (2005) to indicate relational skills are relevant since they reflect a firm’s capability to create, develop, and make use of relationships with its business partners, hence these indicators can be used as reference sources when developing a measurement scale for relational capability.
In brief, this research develops a measurement scale for relational capability by making use of the reflective indicators employed by Walter, et al (2005) (see Appendix 1 for comparison between reflective indicator for relational skill in Walter, et al (2005) and reflective indicators for relational capability developed in this research ).
To measure a firm’s relational capability, it is firstly necessary to have the concept of “capability” more clearly and specifically defined. The early generic description by Nelson and Winter (1982) categorized capability as either lower-order organizational knowledge and skills or higher-lower-order coordinating mechanisms. Based on this description, a number of definitions have been made.
Day (1994, p. 38) defines this concept as the “complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets.” Helfat (2003, p. 1) refers to a firm’s capability as “the ability to perform a coordinated task, utilizing organizational resources, for the purpose of achieving a particular end result.”
O’Regan and Ghobadian (2004) cite capabilities as “a firm’s capacity to deploy its assets, tangible or intangible, to perform a task or activity to improve performance.” These definitions are still so abstract that they make empirical measurement difficult. For example, those by Helfat (2003), O’Regan and Ghobadian (2004) are actually deconstructed into other abstract terms such as
“ability” and “capacity.” Although Nelson and Winter (1982) do employ the abstract term “skill,” they deconstruct this term into its specific components making it more relevant for empirical measurement. Fortunately, Nelson and Winter (1982, p. 104) further clarify that a “firm’s skill can be cast in term of its routine or process of activities”. Therefore, capability is operationalized in this research as lower-order organizational knowledge and routine. Relational capability, hence, is operationalized as a first-order construct reflected by items that indicate firm’s capability to create, develop, and make use of relationships with its business partners.
Table 4: Indicators for Relational capability scale
RC1-We have the ability to build good personal relationships with partners RC2- We analyze what we would like and desire to achieve with each partner.
RC3-We almost always solve problems constructively with our partners.
RC4-We know how to make use of our partners’ strength
RC5-We know how to exploit information when communicating with partners.
RC6-We know how to persuade partners to agree with our suggestions
Indicators will be measured on 5-point Likert - scale, ranging from 0 to 4, with 4 defined as completely true and 0 as completely untrue.
Export market intelligence responsibility
Based on the concept of export market intelligence responsibility introduced earlier, this research develops export market intelligence responsibility as a single item scale. This scale indicates the extent at which the firm handled export market intelligence activities (including export order searching, competitor analysis, export sales forecasts, etc). The indicators will be measured on 5-point Likert - scale, ranging from 0 to 4, with 4 defined as completely done by the firm and 0 as completely done by its business partners.
Export product adaptation responsibility
Building on this concept mentioned in the preceding chapter, export product adaptation is operationalized in this research as a single item scale. This scale indicates the extent at which the firm conducts design functions which include the modifications and developments for the firm’s export products. The indicators will be measured on 5-point Likert - scale, ranging from 0 to 4, with 4 defined as completely done by the firm and 0 as completely done by its business partners.
Export promotion responsibility
Based on this concept discussed earlier, export promotion responsibility is represented as a single item scale,. This scale indicates the extent at which the firm conducts export promotion activities – including personnel visits and calls to potential customers, emailing, website communication, trade fair participation, etc. The indicators will be measured on 5-point Likert - scale, ranging from 0 to 4, with 4 defined as completely done by the firm and 0 as completely done by its business partners.
Export pricing responsibility
Drawing on this concept explained earlier, export pricing responsibility is also represented as a single item scale. This scale indicates the extent at which the firm conducts export pricing (including price setting, quantity discounts, provision of export financing, debt collection, etc.) The indicators will be measured on 5-point Likert - scale, ranging from 0 to 4, with 4 defined as completely done by the firm and 0 as completely done by its business partners.
Export distribution responsibility
Export distribution responsibility is also represented as a single item scale. This scale indicates the extent at which the firm conducts distribution activities in the export market (including operating sales outlets, communication with local distributors in export market, logistics in export market). The indicators will be measured on 5-point Likert - scale, ranging from 0 to 4, with 4 defined as completely done by the firm and 0 as completely done by its business partners.
After export sale service responsibility
After export sale service responsibility is represented as a single item scale This scale indicates the extent at which the firm handles after-sales service activities
including customer service, warranty service, spare part delivery service, etc. The indicators will be measured on 5-point Likert - scale, ranging from 0 to 4, with 4 defined as completely done by the firm and 0 as completely done by its business partners.
5.2.1.2. Dependent variables Export performance
Export performance is defined as the outcome of a firm’s activities in export markets (Shoham 1996). Reviews of the export performance literature (Cavusgil and Zou 1994, Zou and Stan,1998; Leonidou et.al, 1998, 2002; Katsikeas et.al 2000; Balabanis et.al, 2004) summarize two principal ways of measuring export performance: economic (financial measures such as sales, profits, and market share) and non-economic (non-financial measures relating to product, market, experience elements, etc.). Most of the background and intervening variables were associated with economic measures of performance, particularly export sales intensity (export-to-total sales ratio), export sales growth, and export profitability (Katsikeas et.al, 2000).
Export sale intensity
Previous researches popularly use the export-to-total sales ratio as an indicator of export performance. However, when applied in this research, this indicator is in need of modification. In a developing country like Vietnam, export turnover is calculated in the foreign currency while domestic turnover is calculated in the domestic currency. Respondents may be confused when asked to generate the export-to-total sales turnover ratio. However, for accounting purposes, profits from all business activities are always calculated in domestic currency. It is easier for respondents to figure out the export to domestic sales profit ration than the ratio of export-to-total sale. Therefore, the indicator on export sale intensity is modified in this research as the relative export profit per domestic profit.
Export profitability
Financial outcomes can be measured objectively as well as subjectively.
Objective financial data may provide exact values but this data is not easily
revealed. Subjective managerial perception may not provide exact value but this data is more accessible and also important because it affects future strategies.
Cavusgil and Nevin (1981) and Sehlegelmilch (1986) indicate that managerial aspirations about export profit and export profit relative to domestic will directly affect a firm’s decision to further involve themselves in export. The use of this subjective variable encourages more firms to respond because respondents need not provide confidential export profitability figures (White et al, 1998).
The direct question regarding absolute dollar figures on sales or profits will lower response rates to an unacceptably low level. A number of previous empirical studies have not used direct financial performance measures (e.g Kundu and Renko 2005, Koh, 1991) but asked questions that refer to the firm’s profit growth rate. Therefore, in this research, profitability is to be measured by subjective managerial perception which is export profitability aspiration level.
Export growth
Export growth is often measured by the ratio of the export turnover or profit of the existing year to that of the previous year. It is measured in this research as an exact figure and normalized into a five point Likert-scale.
The use of a multiple item scale was popular in measuring export performance because different measures of export performance capture different facets of the strategic and operational phenomena that underlie export performance (Katsikeas et.al, 2000). Export performance, thus can be operationalized in this research as scale reflected by three reflective indicators: export growth, relative export profit, export profit aspiration fulfillment. Items will be measured on 5-point Likert scale.
Table 5: Indicators for export performance
Indicators Scale
EP1-What was the export growth rate in 2006
Measured as a continuous variable and normalized on 5 point Likert-style scale
EP2-To what extent has your company’s export profitability aspiration level been fulfilled
Measured on a 5 point Likert-style scale of ranging from 0 to 4, with 4 defined completely fulfilled and 0 defined as incompletely fulfilled
EP3-How do you perceive your company’s export profitability compared to the profitability of domestic sales
Measured on a 5 point Likert-style scale of ranging from 0 to 4, with 4 defined very high and 0 defined as very low
5.2.1.3. Control variables: size, export experience, ownership, location Firm’s size
Firm size is measured in terms of the number of employees and is normalized as a logarithmic function of the number of employees.
Firm’s export experience
Export experience is measured by the number of years a firm is involved in the export business and is normalized as a logarithmic function of number of exporting years.
Ownership
As analysed in Chapter 3, there is an existence of heteroscedasticity in how firms are run in Vietnam’s economy. Vietnamese firms belong to one of three groups:
state-owned enterprise (SOE), private, and foreign invested enterprises (FDI).
The different governance structure between FDI firms and domestic firms leads to different behaviours in export business activities. Because FDI firms have inherited distribution channel relationships as well as international experience from their foreign stakeholders, FDI firms are in a more favourable condition than domestic firms when performing export business. Therefore, including FDI firms into a sample may cause bias and therefore these firms should be excluded from the testing sample.
Different economic incentives exist between the manager of a private firm and that of a SOE and thus affect a firm’s decisions in the export business. The manager of a private firm is often an owner, who acts for his own profit while a manager of a SOE is an employee of the State, who acts for his salary. The manager of a SOE is believed to be less enthusiastic and more passive in doing business than a manager of a private firm, a distinction which leads to different performances in the export business.
Therefore, this research operationalizes the qualitative variable “ownership” in two categories44. A dummy variable (Os) is coded ' 1 ' if a firm is private owned, and '0' if a firm is SOE.
Location
As analysed in Chapter 3, Vietnam wood furniture producers are in three main regions: North (in and around Dong Ky), Centre (in and around Quy Nhon), South (in and around Binh duong). The three regions differ in historical and cultural conditions as well as economic infrastructure. These differences in environmental factors obviously lead to some differences in business performance among firms of different regions. A qualitative variable Location has three categories. Hence, the research introduces two dummy variables Lo1 and Lo245. If a firm is in the North, a dummy variable Lo1 is coded ' 0 ' and Lo2 is coded ‘1’.
If a firm is in the Center a dummy variable Lo1 is coded ' 1 ' and Lo2 is coded ‘0’.
If a firm is in the South a dummy variable Lo1 is coded ' 0 ' and Lo2 is coded ‘0’.
Table 6: Summary of measurement scales for the empirical model.
Variables Measurement method
Indicators used Dependent variable
Export performance Multiple items EP1-What was the export growth rate in 2006
EP2-To what extent has your company’s export profitability aspiration level been fulfilled EP3-How do you perceive your company’s export profitability compared to the profitability of domestic sales
Independent variables
Export market intelligence
responsibility
Single item To what extent has your company handled export market intelligence activities (including export order
44 Gujarati (2004, p.302) guides “If a qualitative variable has m categories, introduce only (m − 1) dummy variables”
45Gujarati (2004, p.302) guides “In our example, since the qualitative variable “region” has three categories, we introduced only two dummies. If you do not follow this rule, you will fall into what is called the dummy variable trap, that is, the situation of perfect collinearity or perfect multicollinearity, if there is more than one exact relationship among the variables”.
Variables Measurement method
Indicators used
searching, competitor analysis, export sales forecasts, etc)
Export product adaptation
responsibility
Single item To what extent has your company handled export product modifications and development (including identification, specification and negotiation of product modifications required by export market customers)
Export promotion responsibility
Single item To what extent has your company handled export promotion activities – including personnel visits and calls to potential customers, emailing, website communication, trade fair participation, etc
Export pricing responsibility
Single item To what extent has your company handled export pricing (including price setting, quantity discounts, provision of export financing, debt collection, etc.)
Export distribution Responsibility
Single item To what extent has your company handled distribution activities in the export market (including operating sales outlets, communication with local distributors in export market, logistics in export market)
After export sale service responsibility
Single item To what extent has your company handled after-sales service activities including customer servicing, warranty service, spare part delivery service, etc.
Relational capability Multiple item RC1- We analyze what we would like and desire to achieve with each partner.
RC2-We have the ability to build good personal business relationships with business partners
RC3-We almost always solve problems constructively with our partners.
RC4-We know how to make use of
Variables Measurement method
Indicators used our partners’ strength
RC5-We know how to exploit information when communicating with partners.
RC6-We know how to persuade partners to agree with our suggestions.
Control variable
Size Single item Number of employee
Export experience Single item Year of export
Ownership Dummy Ownership types
Location Dummy Location of firm
5.2.2. Pre-test of questionnaire