THE RELEVANT ROLE OF ENTREPRENEURIAL MARKETING ON MICRO AND SMALL COMPANIES INTERNATIONALIZATION

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1 THE RELEVANT ROLE OF ENTREPRENEURIAL MARKETING ON MICRO AND SMALL COMPANIES INTERNATIONALIZATION Author: REYNALDO DANNECKER CUNHA - rcunha@espm.br University: ESPM Track: International and Cross-Cultural Marketing Co-author(s): SERGIO GARRIDO MORAES (ESPM) Access to this paper is restricted to registered delegates of the EMAC 2015 Conference.

2 THE RELEVANT ROLE OF ENTREPRENEURIAL MARKETING ON MICRO AND SMALL COMPANIES INTERNATIONALIZATION Abstract Although many studies were conducted to understand the relationship between Export Marketing Strategies (EMS) and Export Marketing Performance (EMP), the majority involved medium-large sized companies, took place in developed countries and the role of managers on influencing marketing strategies was not comprehensively analyzed. Furthermore, researches were developed to understand the empirical link on micro and small enterprises from emerging countries, but, again, the role of entrepreneurs was not still completely explored. In order to fulfill this gap, this study analyzes Entrepreneurial Marketing and its influence on EMS and EMP. The results show entrepreneurs key importance for MSEs internationalization. Keywords: entrepreneurial marketing; export marketing strategy; export marketing performance; micro and small enterprises Track: International & Cross-Cultural Marketing

3 1. Introduction 1 In this study, we assess the role of entrepreneurial marketing (EM) and its influence on marketing activities and their impact on export marketing performance (EMP) of Brazilian micro and small enterprises (MSEs). While questioning the existence of a direct relationship between marketing activities and export performance results, the entrepreneurs importance became evident, especially those market-oriented. Thus, this study aims to: (1) evaluate the direct influence of EM on export marketing strategies (EMS) and export performance; (2) evaluate export marketing strategies (adaptation strategy versus standardization) and entrepreneurial marketing; (3) analyze the export performance and its relevance. Cavusgil and Zou (1994) developed a theoretical model to assess EMP and identified, from a large-sized North American companies sample, a positive influence of marketing activities on EMP. They also pointed out that companies characteristics and products affect marketing activities. We observed that most of the studies of EMS and export performance were conducted with medium-large sized companies from developed countries (Leonidou, Katsikeas, & Coudounaris, 2010). In this paper we adapted the theoretical framework to attend MSEs characteristics and our main contribution was to add the construct of Entrepreneurial Marketing (Hills & Hultman, 2011) in order to understand its influence on EMS and on export performance. 2. Theoretical Model and Hypotheses The relevance of micro and small enterprises in emerging markets, especially in Brazil, is frequently explored considering number of existing companies and job generation in local market (SEBRAE, 2013). MSEs correspond to 99% of all Brazilian companies 6.3 million firms, 52% of formal jobs and 40% of total wage paid in previous year. In 2013 they represented 33.5% of GDP. Concerning export activities, eighteen thousand companies generated US$242.2 billion at foreign markets. More than 67% of them were MSEs, but its sales participation was less than 1% of this total (MDIC, 2013). Among many constrains, the lack of resources and marketing professionals with international training at MSEs negatively influence their export performance. Improving the understanding of this phenomenon can offer important contributions to academy, managers and government policies. Internationalization is a growing involvement process of the firm in international operations (Loustarinen & Welch, 1990). To explain the process we identified theories and models based on economic criteria: Market Power (Hymer, 1976); Internalization (Buckley & Casson, 2009); Eclectic Paradigm (Dunning, 1980); and on behavioral: Uppsala Model (Johanson & Vahlne, 1990); Theory of Networks (Andersson, Forsgren & Holm, 2002); International Entrepreneurship (Andersson, 2000). This behavioral approach is the most appropriate and provides theoretical support to explain MSEs internationalization, mainly market-oriented entrepreneurship. Entrepreneurial marketing has its foundations on studies developed by Hills and Hultman (2011), who tried to bring a consensual definition, based on mainstream concerns regarding this subject. To understand how entrepreneurs make decisions and perceive achievements, we can consider two cognitive processes: intuitive and analytical. Intuition is the ability of an individual to access accumulated knowledge and experiences in the subconscious (La Pira, 2011) and to capture, recognize and use abstract information, implicit and frequent change (Markman & Baron, 2003). Analysis (or planning, as proposed in this article) is the ability to define situations, decide, plan, implement and evaluate the success of export ventures (Filion, 2000), and to evaluate future

4 2 scenarios (Dornelas, 2008). In order to analyze how these two cognitions reflect in the EMS and in performance s perception we adopted a Hills and Hultman s (2011) study. Cavusgil and Zou (1994) understand EMS as planning and management of marketing mix activities to attend international markets. According to Douglas and Craig (1989) the main decision in international marketing is the choice between standardized or adapted marketing strategy to the external environment. On one hand, the observation of international operations performance suggests that standardization has been the most appealing strategy, not as a conscious choice but because of its inherent limitations. On the other, it was also detected that companies that developed at least minor adaptation have higher chances to succeed. Due to the limited scope of economic theories to explain the success of the export ventures, Cavusgil and Zou (1994) identified problems related to previous research regarding level of analysis: (1) limited approaches to performance and export strategy; (2) failure of studies to incorporate strategic vision on export; (3) multiple ways to assess different variables used for measurement. From their findings, the authors developed a theoretical model, which was used as a reference in this study. Then, we adapted the model to MSEs reality to measure EM effect on export marketing strategies apart from products and company s characteristics. 2.1 Hypotheses As we assumed that entrepreneur s decisions impact on the firm, it is important to characterize each type of entrepreneur and identify the one with greatest influence on marketing activities (Kraus, Harms & Fink, 2009). The more developed the marketing skills, the more intense EMS development. Competence in planning reflects on products adaptation - increasing competitiveness (Solberg, Stöttinger & Yaprak, 2006); on communication and price adaptation to local markets (Cavusgil, Zou & Naidu, 1993); and on support to intermediaries to attend specific needs in the host country (Terpstra, 1987). Thus, the use of planning skills affects the ability to offer a more adequate solution to foreign markets (Morgan, Katsikeas, & Vorhies, 2012). Therefore, the following hypotheses will be tested: H 1 : Entrepreneurial marketing with planning cognition (PLAN) influences EMS by: (a) increasing the degree of product adaptation (ADAPP); (b) increasing the degree of communication adaptation (ADAPC); (c) increasing the degree of support to intermediary (SUPINT); (c) increasing the degree of price competitiveness (COMPP). The intuitive entrepreneurs (INTUI) perform better while identifying market opportunities, but are less effectively when evaluating and planning investments and results (Kickul, Gundry, Barbosa & Whitcanak, 2009); they tend not to understand the overall scenario and don t adapt international offers properly, with major reflects on communication and on intermediaries (Markman & Baron, 2003). Following hypothesis express this assessment: H 2a : EM driven by intuition influences EMS by decreasing the degree of product adaptation; H 2b : EM driven by intuition influences EMS by decreasing the degree of support to intermediary. The role of luck on intuitive decision was identified by some authors (La Pira, 2011), as well as the attention devoted by planers to each step involved (Hills & Hultman, 2011). Thus, each profile influences company's results and perceives performance results differently. These assumptions lead to the following hypothesis: H 3a : EM driven by planning positively influences export performance; H 3b : EM driven by intuition positively influences export performance. Export marketing strategies rely on internal and external factors. Therefore, success depends on

5 3 the degree of adaptation/standardization of their marketing activities (Cavusgil & Zou, 1994). The aforementioned relationship is represented in the following hypothesis: H 4 : EMS positively influences export performance by increasing: (a) the degree of product adaptation; (b) the degree of communication adaptation; (c) support to intermediary; (d) price competitiveness. Based on the assumptions a conceptual framework is proposed in Figure 1. Figure 1: Conceptual Framework & Hypotheses EMS H1a + ADAPP H4a + H3a + PLAN H1b + H2a - ADAPC H4b + EM INTUI H1c + H2b - SUPINT H4c + H3b + EMP H1d + COMPP H4d + 3. Methodological Approach First, we developed a theoretical review about internationalization, export marketing strategy, export performance and entrepreneurial marketing to better understand the phenomenon and support our hypotheses. Second, we operationalized a multivariate analysis of data collected from a survey conducted with senior executives of MSEs (SEBRAE and Serasa Experian mailing list). The survey s questionnaire was developed from a revision of the model presented by Cavusgil and Zou (1994) with the inclusion of EM issues. It was translated and verified by back translation. The instrument was pre-tested and validated by experts of internationalization field to verify if language and type of information fitted Brazilian MSEs concern. The questionnaire was hosted in a web survey platform. We used a non-probabilistic convenience sample. At the end of the period 173 resulted valid - based on Hair, Black, Babin and Anderson (2009), from 150 respondents is possible to develop a consistent analysis. The statistical technique used for data analysis was Structural Equation Modeling (SEM) and estimation method was Maximum Likelihood (MLE). 4. Results Before the analysis, data were treated to meet SEM assumptions: no outliers and missing values; normality (Skew and Kurtosis between and +2.58); linearity (within the variable

6 4 range of -1 to +1); multicollinearity (any value above 0.9). All assumptions were met (Hair et al., 2009). Goodness of fit (GOF) was obtained by the following criteria: (1) absolute fit (426.5); ratio between this value and degrees of freedom was 1.85, meaning a well-adjusted model (Schumacker & Lomax, 2010); (2) goodness of fit (GFI = 0.86); (3) comparative fit (CFI = 0.97); (4) root mean square error of approximation (RMSEA = 0.07). GFI tries to take into account differing degrees of complexity of the model, but tends to penalize more complex ones (Hair et al., 2009), which could partly explain the non-achievement of the desired level of acceptance. Considering that the objective of SEM is to test theory and not get good adjustments per se, we understood that the model was valid to test causal relationship and results are presented in Table 1. Table 1 Structural Model Estimation HYPOTHESES FACTORS ESTIMATE S.E. C.R. p Results H 1a PLAN ADAPP *** Supported H 1b PLAN ADAPC *** Supported H 1c PLAN SUPINT Supported H 1d PLAN COMPP *** Supported H 2a INTUI ADAPC *** Supported H 2b INTUI SUPINT Not supported H 3a PLAN EMP *** Supported H 3b INTUI EMP Supported H 4a ADAPP EMP Not supported H 4b ADAPC EMP Not supported H 4c SUPINT EMP *** Supported H 4d COMPP EMP Not supported The results indicate that both entrepreneurs competences have a significant impact on export marketing performance as anticipated in our hypothesis. Firstly, planning (PLAN) competence has a direct and positive effect on EMP because of a strategic variable related to perceived success of its international venture, and because of an economic indicator related to exportation growing rate. It can be explained by the fact that a well and careful planning, allied to an high entrepreneurs commitment level may result on more success. The evidences are explained by strong training and support to intermediaries (distribution channel), that will help them better understanding and commercializing products, and through product strategy and packaging adaptation to the new market. Secondly, we also identified an unexpected effect caused by intuition (INTUI): despite significance, the influence was negative. Considering that we measured variables and perception in a three-year period, decisions based on intuition tend to be less result-oriented and carefully taken and results evaluation doesn t have strong comparison bases. We observed relevant effects of EM on export marketing strategy: (1) Product adaptation is strong and positively influenced by manager s international competence (Douglas & Craig, 1989; Cavusgil et al., 1993). The entrepreneurs understand market rules, try to enhance competitiveness, respect local barriers and adapt offers diminishing risks. Investments reflect need or concern of matching market needs - i.e. label translation to local language; (2) Communication adaptation is positively influenced by entrepreneurs competence (high on planning and low on intuition) despite limited budget; (3) Price competitiveness is strong and positively influenced by entrepreneur planner. This expected effect corroborated other study results that identified the importance of adaptation of this marketing mix element to MSE, and also the relationship with

7 5 pricing strategy as followers internationally (Solberg et al., 2006); (4) Considering distribution, there is no influence of intuitive EM and a non relevant effect of planner on support to intermediary. Our literature review showed that relationship and support to intermediaries is a keysuccess factor (Rosson & Ford 1982; Solberg et al., 2006). The result drove us to the importance of a well-established relationship among exporters and intermediaries, as identified on the impact of export marketing performance by support to intermediaries (SUPINT). We expected to identify it on our research, but it highlighted that it is mandatory to carefully manage this marketing element if a company wants to succeed abroad what is supported by the Theory of Networks (Johanson & Vahlne 1990; Andersson et al., 2002). All in all, our assumptions about the existent influence of entrepreneurial marketing on export marketing strategy and export marketing performance was supported in our study developed with MSE from emerging markets. We also observed the positive effect of EMS on EMP that fulfills our research objectives. 5. Conclusions, recommendations and contributions We found evidences of entrepreneurs key importance for MSEs internationalization. Planning skills as well as intuition influence on marketing activities, adapting or standardizing international offers that directly impact on export performance. There was no prevalence of one EM style to the other, indicating that each one contributes differently and a balance between them can lead to more effective decisions. The sample revealed that the higher the sales and profit participation in company's international results, the greater the perception that international ventures should be valued by MSEs, and the greater the chances to broaden horizons and diminish micro and small companies constrains even in the internal market. The entrepreneurial marketing must drive MSEs towards more elaborated decisions, without ignoring the role of intuition in business. An important contribution to the model was to treat the role of the entrepreneurial marketing (EM) separately, regardless of the type of company and products, resulting in better understanding of how the two cognitive styles (intuition and planning) behave. Furthermore, we fulfilled a theoretical model gap testing it with micro and small-sized enterprises from emerging markets. The sample size affects the sensitivity to variations detected by SEM. It is suggested that a study should be applied to specific sectors or regions in order to identify if conclusions are valid when there is homogeneity. An interesting opportunity is represented by longitudinal studies, able to minimize seasonal effects of the economy present in Brazil and in other foreign markets. 6. References Andersson, S. (2000). The Internationalization of Firm from an Entrepreneurial Perspective. Studies of Management & Organizations, v. 30, Andersson, U., Forsgren, M., & Holm, U. (2002). The strategic impact of external networks. Strategic Management Journal, v. 23, Buckley, P.J., & Casson, M.C. (2009). The internalisation theory of the multinational enterprise. Journal of International Business Studies, v. 40, Cavusgil, S.T., & Zou, S. (1994). Marketing strategy-performance relationship: an investigation of the empirical link in export market ventures. Journal of Marketing, v. 58, 1-21.

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