STRATEGY FIT AND PERFORMANCE CONSEQUENCES OF INTERNATIONAL ... · CONSEQUENCES OF INTERNATIONAL...

Strategic Management JournalStrat. Mgmt. J., 27: 867–890 (2006)

Published online in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/smj.549

Received 13 February 2003; Final revision received 28 February 2006

STRATEGY FIT AND PERFORMANCECONSEQUENCES OF INTERNATIONAL MARKETINGSTANDARDIZATION

CONSTANTINE S. KATSIKEAS,1 SAEED SAMIEE2* and MARIOSTHEODOSIOU3

1 Leeds University Business School, Leeds, U.K.2 College of Business Administration, The University of Tulsa, Tulsa, Oklahoma,U.S.A.3 Department of Public and Business Administration, University of Cyprus, Nicosia,Cyprus

This study addresses a long-standing debate in the literature regarding the appropriateness andperformance consequences of marketing strategy standardization vs. adaptation. Much of therelevant literature represents the headquarters’ viewpoint and broadly assesses antecedents ofstandardization or adaptation across widely varying markets. Using strategic fit as the theoret-ical platform for analysis, the study investigates international marketing strategy for a specificproduct or line within subsidiaries of U.S., Japanese, and German multinational corporations(MNCs) operating in the U.K. The results indicate that degree of strategy standardization issignificantly related to similarity between markets with respect to regulatory environments, tech-nological intensity and velocity, customs and traditions, customer characteristics, a product’sstage in its life cycle, and competitive intensity. On the critical question of performance con-sequences, the findings suggest that superior performance results from strategy standardizationonly to the extent that there is fit or coalignment between the MNC’s environmental context andits international marketing strategy choice. Copyright 2006 John Wiley & Sons, Ltd.

The ongoing globalization of markets andincreased competition worldwide have madeinternational marketing decisions ever moreimportant to the survival, growth, and profitabilityof multinational corporations (MNCs). The issueof standardized marketing programs vs. programscustomized to the specific requirements ofindividual foreign markets has received focalresearch attention for over four decades. Most

Keywords: strategy fit; international marketing; marketingstandardization; performance*Correspondence to: Saeed Samiee, College of Business Admin-istration, The University of Tulsa, 600 S. College Ave., Tulsa,OK 74104, U.S.A. E-mail: [email protected]

studies focus on the factors that influencethe choice of a particular strategy, identifyinga range of forces driving standardization oradaptation of marketing programs (e.g., Harvey,1993; Jain, 1989; Picard, Boddewyn, and Grosse,1998). However, the importance of a specificinternational marketing strategy lies in its potentialto enhance business performance (Samiee andRoth, 1992). The economic benefits and theease of administering standardized marketingprograms make this strategy an attractive choicefor MNCs (Douglas and Wind, 1987), especiallythose pursuing a global strategy (Johansson andYip, 1994). Yet, while standardization can offer

Copyright 2006 John Wiley & Sons, Ltd.

868 C. S. Katsikeas, S. Samiee and M. Theodosiou

economies of scale, it can also lead to suboptimalsales when it is inconsistent with the environmentin the host market (Yip, 2003).

Although there have been repeated calls for stud-ies on the performance implications of standardiza-tion or customization (Jain, 1989; Keegan, Still,and Hill, 1987), there are but a limited numberof such studies. More importantly, the few studiesaddressing the subject report mixed results, mak-ing it difficult to develop theory and managementpractice in the field. For instance, some studiesindicate that performance is enhanced by stan-dardizing marketing strategies across markets (e.g.,O’Donnell and Jeong, 2000; Szymanski, Bharad-waj, and Varadarajan, 1993), while others revealno association between standardization and per-formance (e.g., Albaum and Tse, 2001). Still otherstudies report inverse relationships between stan-dardization of certain marketing program com-ponents and performance (e.g., Shoham, 1999).Investigators often attempt to establish a direct linkbetween strategy standardization (or adaptation)and performance, assuming—even if tacitly—thatstandardization (or adaptation) is a superior strat-egy (e.g., Johansson and Yip, 1994; Ozsomerand Simonin, 2004). However, it has been the-orized that the appropriateness of a particularstrategy can be defined in terms of its ‘coalign-ment’ or ‘fit’ with environmental contingencies(Drazin and Van de Ven, 1985; Lukas, Tan, andHult, 2001). Good fit between strategy and contexthas been found to have significant positive effectsfor performance (Venkatraman and Prescott, 1990).Despite this concept’s centrality and appeal instrategic planning, there is scant research targetingthe extent to which fit between marketing strat-egy and environmental context can explain inter-firm performance differences in international mar-kets.

The research presented here is the first empiri-cal study designed explicitly to examine the pres-ence, nature, and performance consequences offit between overall marketing program standard-ization/adaptation and the environment in whichit is implemented. By addressing the impact ofstrategy coalignment on performance, we respondto an important issue: whether fit matters and,if so, the extent to which and when it mat-ters. We explore these aspects within the con-text of MNCs’ international marketing strategieson the basis of subsidiary managers’ input on

the degree of international marketing standardiza-tion, its potential drivers, and the performance out-comes.

Prior research has typically addressed the issueof standardization vs. adaptation from the head-quarters’ standpoint. We extend current knowledgeby focusing more directly on subsidiary activitiesand adopting a strategic fit framework to under-stand the performance consequences of interna-tional marketing strategy at the subsidiary level.Recent studies highlight the increasingly strate-gic role of subsidiaries in global operations (e.g.,Delios and Beamish, 2001; Hewett and Bearden,2001; Ozsomer and Simonin, 2004), as these haveassumed a variety of important marketing tasksin MNCs’ drive to develop multinational flexi-bility (Bartlett and Ghoshal, 1991). For instance,Whirlpool encourages its subsidiaries to undertakeproduct and process innovation at the local level,with a view to enhancing its global competitive-ness and performance (Govindarajan and Gupta,1998).

Next, we discuss key issues in the deploy-ment of marketing programs at the sub-sidiary level, present the theoretical base forthis study, and review the research on inter-national marketing strategy and performance.We then formulate research hypotheses. Subse-quently, we describe the research method andpresent the results. Finally, we discuss the find-ings and their implications and consider limi-tations of the study and directions for futureresearch.

REVIEW OF THE PERTINENTLITERATURE

Subsidiary marketing operations

International marketing strategies may be for-mulated at the headquarters, the subsidiary, orboth, although the responsibility for implement-ing local marketing programs rests with the for-eign subsidiary’s marketing unit (Hewett and Bear-den, 2001). Concurrently, studies of standard-ization/adaptation are commonly conducted fromthe standpoint of headquarters (e.g., Samiee andRoth, 1992; Szymanski et al., 1993). Althoughhome office viewpoints regarding existing strate-gies in markets abroad are intuitively importantand such research has offered valuable insights

Copyright 2006 John Wiley & Sons, Ltd. Strat. Mgmt. J., 27: 867–890 (2006)DOI: 10.1002/smj

Marketing Strategy Standardization and Performance 869

in the literature, the validity of this informa-tion might be questionable (Onkvisit and Shaw,1987) in view of the increasingly strategic tasksundertaken by subsidiaries and their role in theeffective implementation of international market-ing programs (Hewett and Bearden, 2001). Onecannot be certain of the extent to which a par-ticular strategy is implemented at local levels asintended. Thus, the accuracy of data generatedfrom a single respondent at headquarters withregard to international strategies in place, environ-mental contingencies, and performance outcomesin dozens of markets abroad is open to ques-tion.

Research based on the headquarters’ perspectiveimplicitly involves the MNC’s overall marketingoperations, which likely cover a broad range ofpotentially heterogeneous products and markets.This is conceptually problematic, as one shouldexpect considerable differences in marketing strat-egy and performance across an MNC’s differ-ent product-market domains. A particular mar-keting strategy may not result in the same per-formance levels in all markets of the firm, asconditions and strategic imperatives differ acrossmarkets (Ghoshal and Nohria, 1989). Hence, anystudy of marketing strategy and performance at theoverall firm level, aggregating all product-marketdomains, will likely result in confounded findings.Since firms tend to be successful in some host mar-kets and unsuccessful in others, such an approachmay discount the variability of performance (Kat-sikeas, Leonidou, and Morgan, 2000). Thus, toobtain a more accurate assessment of internationalmarketing practices, environmental influences, andperformance, we focus on MNCs’ operations fora particular product (line) in a specific host mar-ket served through a local subsidiary (Hewett andBearden, 2001).

Theoretical foundation

The concept of strategic fit provides the theoret-ical foundation for this study. The strategic fitparadigm asserts the necessity of maintaining aclose and consistent linkage between the firm’sstrategy and the context within which it is imple-mented (Venkatraman, 1989). The core propositionis that matching the [marketing] strategy with theenvironment leads to superior performance (Lukaset al., 2001). The concept of fit has played a keyrole in the development of strategic management

and organization theory fields (Zajac, Kraatz, andBresser, 2000), and has also served as the theo-retical foundation in a number of marketing stud-ies (e.g., Hambrick, MacMillan, and Day, 1982;Olson, Walker, and Ruekert, 1995; Vorhies andMorgan, 2003). Marketing applications have cen-tered on the notion that the firm reacts to theenvironment as an exogenous variable and adjustsits marketing strategy and/or organizational formto match the environment (Walker and Ruekert,1987).

There is solid conceptual support for the appro-priateness of strategic fit within a marketing con-text. For example, Day’s (1999) fundamental the-sis for building a market-driven organization isthat performance is a function of fit betweena firm and its environment realized through thedesign and implementation of an appropriate mar-keting strategy. That is, marketing strategy isthe main mechanism for achieving fit betweenan organization and its external market condi-tions. Strategic fit thus offers a relevant founda-tion for performance assessment of a given inter-national marketing strategy. Scholars have longrecognized the importance of matching interna-tional marketing strategy to the context in whichthe firm operates. For example, Jain’s (1989) con-ceptual work points to the influence of envi-ronmental factors on the suitability of interna-tional marketing programs. Jain also recognizesperformance issues, but not within the contextof strategic fit. Thus, although tacitly incorpo-rated in a few international marketing researchprojects, strategic fit as a theoretical frameworkhas received nominal attention in the pertinent lit-erature.

The concept of fit is linked closely to perfor-mance (Ginsberg and Venkatraman, 1985; Lukaset al., 2001). Lemak and Arunthanes (1997) havenoted that higher levels of performance in globalmarkets depend largely on the firm’s selectionof a global strategy that is appropriate for itsunique set of circumstances. We adopt a simi-lar position: the ‘coalignment’ or ‘fit’ betweenstrategy (conceptualized as the degree of market-ing program standardization) and its environmen-tal context has positive effects on business per-formance (cf. Venkatraman and Prescott, 1990).Hence, the main proposition of this study isthat the degree of international marketing strategystandardization leads to higher performance lev-els only to the extent that there is fit between the



environmental imperatives and the strategy beingdeployed.

Research on international marketing strategyand performance

In contrast to the vast amount of research on thedrivers of standardization or adaptation strategy,there is a relative paucity of empirical work onthe relationship between international marketingstrategy and performance. Most studies of mar-keting strategy standardization are conceptual. Asystematic review of the literature reveals a totalof 13 empirical studies that focus on the rela-tionship between international marketing strategyand performance.1 Most of the studies examinemarketing programs and performance of exportingfirms. Only five studies investigate this relation-ship among MNCs, due in part to the difficulty ingenerating reliable data on foreign subsidiary mar-keting practices and performance. Further, the unitof analysis in most studies is the firm. Only fourstudies center on the product or brand as the unit ofanalysis, two of which (Hewett and Bearden, 2001;Ozsomer and Simonin, 2004) focus specifically onMNCs.

In addition, there are two key conceptual issuesthat warrant consideration. First, except for Hewettand Bearden (2001), who examine moderatingeffects of the degree of strategy standardization,there is a consistent pattern among researchersto investigate direct relationships of some inter-national marketing strategy variable(s) with someindicator(s) of performance. Six studies focuson adaptation of one (or more) marketing strat-egy element and its direct impact on perfor-mance, while the remaining seven examine per-formance outcomes of marketing standardization.This stream of research contributes to our knowl-edge of antecedents and performance consequencesof either standardization or adaptation of interna-tional marketing programs. However, conceptual-ization and testing of direct relationships betweenstrategy and performance assumes that a particu-lar strategy enhances performance, while the otherinhibits it. This approach is contrary to the strate-gic fit paradigm, which posits that performancein international markets will be enhanced only

1 A table delineating key aspects of the empirical contributionson international marketing strategy standardization/adaptationand performance is available from the authors upon request.

if there is coalignment between standardization,adaptation, or any combination of the two, andenvironmental context. It also contradicts currentthought and recent empirical evidence that nei-ther standardization nor adaptation of internationalmarketing programs is inherently superior (Hewettand Bearden, 2001). Thus, some inconsistenciesin the empirical findings might be attributed to thetradition of investigating direct links between strat-egy and performance.

Second, though most studies assess performanceusing multiple indicators, researchers commonlyinvestigate individual performance indicators inrelation to marketing program components, or con-ceptualize performance as a unidimensional con-struct. However, there is consensus in the mar-keting and strategy fields that performance isa complex phenomenon involving organizationalinputs and outputs variously viewed and assessed(e.g., Bhargava, Dubelaar, and Ramaswami, 1994;Chakravarthy, 1986). Thus, by default, perfor-mance is a multidimensional construct. Despiterepeated calls for the use of multidimensional per-formance measures (e.g., Bagozzi and Phillips,1982; Katsikeas et al., 2000), our review indicatesthe absence of multidimensional conceptualiza-tions and operationalizations of firm performancein international markets.

Synthesis

Our review of previous work has identified a num-ber of important gaps. First, despite the persistentdebate on marketing standardization vs. adapta-tion, empirical research on the performance out-comes of a particular strategy is limited. We per-ceive the need for a holistic conceptual frame-work and empirical study to isolate factors thatdetermine the deployment of appropriate market-ing strategies, which in turn can explain interfirmperformance variations in international markets.Second, although the strategic fit paradigm positsthat coalignment of international marketing strat-egy with the environment in which it is imple-mented leads to enhanced performance (Venkatra-man and Prescott, 1990), the literature offers littleguidance for pinpointing specific contextual factorsthat have significant positive implications for per-formance in international markets. We deliberatelysought to move from the relatively high level ofabstraction of this paradigm to the identification ofspecific environmental contingencies that are more



familiar to researchers in international business (cf.Homburg, Workman, and Krohmer, 1999). Third,prior research has essentially treated performancein international markets as a unidimensional con-struct or examined associations of marketing pro-gram elements with single performance indicators.To provide greater insight into firms’ internationalmarketing behavior, we treat performance as amultidimensional phenomenon. Multidimensionalconceptualizations offer a coherent structure ofmultifaceted, interdisciplinary knowledge pertain-ing to the domain of a particular construct andthe marketing problem at hand (Kuester, Homburg,and Robertson, 1999).

RESEARCH HYPOTHESES

We focus on the degree of marketing standardiza-tion realized at the subsidiary level and examinedrivers of actual international marketing programsand performance consequences of fit between real-ized strategy and context from the standpoint ofsubsidiary management. Based on the literaturereview and field interviews, we hypothesize twosets of factors as influencing the degree of market-ing standardization: first, macro- (general) envi-ronmental factors, which consist of larger societalforces that impact the firm’s marketing strategyincluding economic, regulatory, and technologicalelements, as well as customs and traditions of theenvironment in which the MNC operates; second,micro- (task) environmental factors, which com-prise forces close to the firm that affect its abilityto serve foreign markets including customer char-acteristics, marketing infrastructure, the life cycleof the product, and the intensity of competition.

Macro-environmental factors and degree ofstandardization

Economic environment

The economic environment of a host market affectsmarket potential and demand for industrial andconsumer products. It reflects standards of livingand employment and income levels which, in turn,influence customer priorities in terms of the prod-ucts they consider essential or desirable, as wellas the prices they can afford and are willing topay (Jain, 1989). The economic environment ofthe host country impacts the firm’s cost structure,as it affects the cost of raw materials, labor, and

allied resources needed to run local manufactur-ing operations (Samli, Wills, and Jacobs, 1993).A standardized strategy is more likely when theprevailing economic conditions in target marketsare similar (Sriram and Gopalakrishna, 1991). Theimportance of economic conditions is also reflectedin prior studies aimed at developing clusters ofnations that share, inter alia, economic similarityas the basis for using standardized programs (e.g.,Sethi, 1971; Day, Fox, and Huszagh, 1988).

Hypothesis 1: Similarity of economic condi-tions in the home and host markets is positivelyrelated to the degree of marketing strategy stan-dardization.

Regulatory environment

Similarity in laws and regulations is a factor con-ducive to the pursuit of standardized strategies;however, laws and regulations governing market-ing activities vary significantly across countries(Harvey, 1993; Yip, 2003). Despite this variation,three sets of laws and regulations are likely tobe of primary importance in developing a mar-keting strategy. The first concerns regulations pro-tecting the nontangible intellectual and tangibleproperties of the firm, as well as laws that guardthe firm from predatory practices of competi-tors (Fraser and Hite, 1988). The second grouprefers to laws and regulations designed to protectthe customer; for example, advertising regulations(e.g., for tobacco products in certain countries) areoften introduced to protect one or more customergroups (Yip, 1989). Customer protection may alsoinfluence technical aspects of product design, itspackaging, branding, services, and warranties, aswell as its pricing and distribution (Hill and Still,1984). The third set pertains to technical stan-dards, including constituents that must or must notbe used in products, as well as size, shape, andrelated attributes (Boddewyn and Grosse, 1995).The literature suggests that differences in laws andregulations across markets are a key obstacle todeploying uniform strategies (Cavusgil, Zou, andNaidu, 1993; Johnson and Arunthanes, 1995).

Hypothesis 2: Similarity of regulatory environ-ments in the home and host markets is positivelyrelated to the degree of marketing strategy stan-dardization.



Technological intensity and velocity

High-technology products are better candidatesfor global marketing standardization (Jain, 1989)and the literature reports a positive relationshipbetween technological intensity and export mar-keting strategy (Cavusgil and Zou, 1994). Suchproducts have rapid obsolescence rates and, thus,firms have neither the time nor the resourcesto adopt customized strategies for each market(Yip, 1989; Samiee and Roth, 1992). This con-dition demands rapid, if not simultaneous, marketentry and roll-out in all potential markets. Concur-rently, new technologies require new productionplatforms (i.e., retooling) that tend to be expen-sive and require a high yield to be profitable. Forexample, as each generation of integrated circuits(e.g., memory, processors) becomes denser, newequipment that complies with state-of-the-art tech-nology and design is required, as are new pro-duction facilities housed in ‘clean rooms’ (i.e.,dust-free plants with strict temperature and humid-ity control). Globally concentrated manufacturingand uniform uses and benefits of high-technologyproducts make them a prime candidate for stan-dardization (Porter, 1986).

Hypothesis 3: The technological intensity andvelocity facing the firm is positively related tothe degree of marketing strategy standardiza-tion.

Customs and traditions

The international business literature highlights cus-tomer values, beliefs, and attitudes, education, andaesthetic preferences, along with conditions andpatterns of product usage, as factors that influencethe degree of marketing strategy standardization(e.g., Hill and Still, 1984; Aydin and Terpstra,1981). In the broader cultural context, there areindications that dissimilarity of customer back-grounds inhibits standardization (Keegan et al.,1987; Wang, 1996). Similarity among intermar-ket segments considered for standardization alongthese dimensions is a pivotal requirement for thestrategy’s success. Standardization across marketsis thus feasible only to the extent to which theyshare such important customs and traditions (Jain,1989). That is to say, customer backgrounds andpreferences need not be identical in all respects;rather, similarity is imperative only along the

dimensions that affect customer interaction withthe product and the firm.

Hypothesis 4: Similarity of customs and tradi-tions in the home and host markets is positivelyrelated to the degree of marketing strategy stan-dardization.

Micro-environmental factors and degree ofstandardization

Customer characteristics

Similarities between customer requirements andevaluative criteria accommodate standardizationefforts (e.g., Douglas and Wind, 1987; Yip, 1997).The value customers attach to a product reflectstheir price sensitivity, which can influence mar-keting strategy decisions. Manufacturing a lessexpensive model to accommodate price sensitiv-ity in host markets tends to inhibit product stan-dardization. Marketing standardization efforts fre-quently fail when firms neglect to identify clearlydefined, researched, and delineated intermarketsegments (Samiee and Roth, 1992). Customer pur-chasing differences across markets are likely torequire adaptation of marketing program compo-nents. Japanese parents, for example, demonstratea preference for changing their infants’ diapersmore frequently. Thus, Procter & Gamble andothers had to design a less absorbent diaper andmodify their host market promotional programsaccordingly.

Hypothesis 5: Similarity of customer character-istics in the home and host markets is positivelyrelated to the degree of marketing strategy stan-dardization.

Marketing infrastructure

Similarity between marketing infrastructures playsa critical role in making standardization a viablestrategy (Ozsomer and Simonin, 2004). A higherdegree of standardization is likely when there issimilarity in institutions within the markets tar-geted. Similarity in intermediary services, researchfirms, media, and logistical support in host mar-kets accommodates standardization (Jain, 1989;Yip, 1989). In contrast, differences in the avail-ability, cost, and competencies of these institu-tions from one country to another hamper theuse of standardized strategies (Douglas and Wind,



1987; Harvey, 1993). Variation in the number, size,and dispersion of distributive outlets may necessi-tate a certain degree of adaptation in distributionstrategy, promotional methods, prevailing whole-sale and retail margins, price and discount struc-tures, and product design and packaging (Samiee,1993).

Hypothesis 6: Similarity of marketing infra-structures in the home and host markets is posi-tively related to the degree of marketing strategystandardization.

Product life cycle

Standardization is a viable option when customersare equally familiar with the product and exhibitreasonably similar demand levels. That is, theproduct is at about the same stage in its life cyclein markets targeted for standardization (Rau andPreble, 1987). However, products may well beat different stages across markets due in part tovariations in customers’ product knowledge, uti-lization, and demand patterns, and thus firms mayhave to adapt their strategies to accommodate localmarket conditions. The literature echoes that thedegree of similarity in the stage of product lifecycle (PLC) between home and host markets gov-erns strategy standardization (e.g., Ozsomer andSimonin 2004).

Hypothesis 7: Similarity of the firm’s PLC stagein home and host markets is positively relatedto the degree of marketing strategy standardiza-tion.

Competitive intensity

The intensity of competition in host markets cansignificantly influence a firm’s international mar-keting strategy. For example, Cavusgil et al. (1993)report that competitive intensity leads to greateradaptation to host markets by exporting firms.Likewise, Subramaniam and Hewett (2004) findthat competitive intensity is a significant predictorof the decision to adapt or standardize productsin international markets. The pressure to standard-ize marketing strategies, on the other hand, isin part related to the globalization trend and thepromise that firms can leverage off market sim-ilarities to standardized one or more aspects of

their marketing programs (Yip, 2003). In particu-lar, when a competitor internationally standardizesits marketing approach for greater efficiency andlower costs to gain a competitive advantage posi-tion, others are likely to follow the same path.However, faced with greater competitive intensityand a desire to be more market-oriented, localmanagers are under pressure to adapt marketingstrategies to the local market environment (Yip,1989).

Hypothesis 8: Similarity of the level of com-petitive intensity in the home and host marketsis positively related to the extent of marketingstrategy standardization.

Strategy fit and performance outcomes

Performance is the single most important consid-eration in assessing the suitability of a specificstrategy. However, as noted earlier, our thoroughliterature review suggests that, despite the impor-tance of performance implications of a given inter-national marketing strategy (Jain, 1989), the topichas received limited empirical attention, particu-larly in an MNC context, and results are con-tradictory and inconclusive. An appropriate strat-egy for a particular firm depends on the contextin which the plan is implemented (Dess, Lump-kin, and Covin, 1997; Miller, 1986; Naman andSlevin, 1993). The strategic fit paradigm positsthat firms can enhance performance by achievingcoalignment or fit between their strategies and theparticular environmental contexts in which theyhave chosen to operate. Therefore, coalignmentbetween environmental conditions and degree ofmarketing program standardization is expected toenhance firm performance in international mar-kets.

Hypothesis 9: Superior performance results fromthe fit between the degree of international mar-keting strategy standardization and the environ-mental context in which it is implemented.

RESEARCH METHOD

Context

The data were gathered through a survey of man-ufacturing subsidiaries of U.S., Japanese, and Ger-man MNCs operating in the U.K. We focused on a



specific product (line) manufactured and marketedby the MNC in both home and host markets. Weselected this empirical setting for a number of rea-sons. First, U.S., Japanese, and German MNCs rep-resent the vast proportion of foreign direct invest-ment in the U.K. (OECD, 2002). Second, studyof MNCs from diverse countries within a singleforeign market (U.K.) has methodological advan-tages: (1) variability in MNC practices for thestudy sample; (2) across-firm variability within thesame industry; and (3) control over potential con-founding factors in cross-national studies (Singh,Verbeke, and Rhoads, 1996). Thus limiting theresearch design also allows the development ofgrounded measures meaningful to all survey par-ticipants.

Theoretically it makes no difference which twomarkets are targeted for investigation. The selec-tion of the home market as the benchmark ismethodologically appropriate, as subsidiary exec-utives interact with key managers at headquartersand travel there more often than is the case forinter-subsidiary interactions. The literature, sup-ported by the field interviews, points to the head-quarters’ influential role in the MNC’s corporatestrategy and policy for its global activities. Inthe vast majority of our sample firms, the homemarket was the largest in terms of sales. Thechoice of the home market is also consistent withcommon practice in prior research (e.g., John-son and Arunthanes, 1995; Kotabe and Omura,1989).

Field interviews

In-depth field interviews, lasting between 60 and120 minutes, were conducted with four senior mar-keting executives based at headquarters and 11subsidiary-level marketing managers. Interviewscomplemented our literature review and helpedus develop a comprehensive set of measures cov-ering critical dimensions of international market-ing strategy. The interviews indicated that MNCsdo not implement identical marketing strategiesacross markets and that some inter-market vari-ation in marketing programs was common evenamong firms that tended to adopt more standard-ized strategies. In addition, the MNC’s home mar-ket was normally the firm’s largest markets andwas typically identified as the epicenter of cor-porate strategy and policy for global operations.The field procedures not only helped us develop

our measures but also ensured that managers couldreadily interpret all constructs and the items usedto measure them. They also confirmed that sub-sidiary managers would be better positioned to pro-vide information on subsidiary marketing practicesand performance and have sufficient knowledgeof the firm’s home market conditions and strate-gies.

Questionnaire development

Initially attention was given to specifying eachconstruct’s domain. Next, items were drafted toreflect the conceptual domain of a particular con-struct, based on a review of the literature andfield interviews. We used seven-point rating scalesto capture responses to all items. We drafted aquestionnaire that we then evaluated and revisedthrough in-depth discussions with five internationalmarketing academics serving as expert judges.After a series of revisions, consensus was reachedas to the relevance of measures: all judges ratedeach item as ‘highly representative’ or ‘some-what representative’ of the construct being con-sidered and they did not perceive any items as‘not at all representative’ (Zaichkowsky, 1985).The revised questionnaire was extensively pre-tested and refined in personal interviews withsubsidiary managers, thus assuring content valid-ity.

Data collection

The study population was developed using theFAME and Dun and Bradstreet databases of U.K.business enterprises. These sources provided infor-mation on each firm’s ownership structure, speci-fying subsidiaries of foreign MNCs and their par-ent company and contact details. In total, we iden-tified 736 subsidiaries of U.S., Japanese, and Ger-man MNCs (target population). All firms were con-tacted to assess their eligibility and locate appro-priate informants for the study.

Key informant selection

Key informants are organizational members whoare knowledgeable of and willing and able toreport on the problem being investigated (Camp-bell, 1955). Three steps ensured informant qual-ity and response validity. First, each of the 736



subsidiaries was contacted by telephone to iden-tify an appropriate individual. Second, if morethan one product (line) was common to the par-ent firm and its subsidiary, respondents were askedto focus on the one that contributed most tothe subsidiary’s revenues, minimizing the poten-tial for bias by incorporating perceptions of dif-ferent products (or lines) into single responses.Third, we conducted a post hoc test on informantquality.

Pre-survey telephone contacts yielded 526 (71%of 736) potential respondents: (1) who workedclosely with headquarters and met the knowledge-ability criterion; (2) whose firms (i.e., the U.K.subsidiary and the parent firm) had manufacturedand marketed the same product (line) locally andin the MNC’s home market for at least 3 years;and (3) who agreed to participate (cf. Heide andWeiss, 1995). A total of 199 firms were excludedbecause: (a) corporate policy restrictions precludedprovision of information which would allow us toassess their eligibility (87 firms); (b) their statushad recently changed due to merger or acquisi-tion (16 firms); (c) they had ceased manufacturingoperations (5 firms); or (d) they had no prod-ucts (lines) in common with their parent com-pany (91 firms). Another 11 subsidiaries wereexcluded because correct contact information wasunavailable.

Response rate

We mailed the questionnaire and a self-addressedprepaid envelope to the key informant in each ofthe 526 firms identified. Of these, 334 (63%), 71(14%), and 121 (23%) were subsidiaries of U.S.,Japanese, and German MNCs, respectively. Weoffered a summary of the results as an incen-tive to participate. Reminder/thank-you postcardsto informants, two follow-up mailings, and twofurther reminders yielded 198 responses (38%of the 526 firms). We excluded five question-naires because of considerable missing data, andeliminated another 22 as they failed our posthoc tests of informant quality. Thus, 171 usablequestionnaires were obtained (33% response rate).Response rates for subsidiaries of U.S., Japanese,and German MNCs were 33 percent (110 firms),31 percent (22 firms), and 32 percent (39 firms),respectively. Response patterns mirror the propor-tions of U.S., German, and Japanese subsidiariesin the sampling frame. The industries included

in the sample are capital goods (31%), con-sumer durables, apparel, and household products(25%), manufactured materials (14%), technol-ogy hardware (12%), automobiles and components(9%), and health care products and pharmaceuti-cals (9%).

Informant evaluation

As per Heide and Weiss (1995), the final partof the questionnaire included two questions thatassessed the informant’s knowledge of (1) the sub-sidiary’s and (2) its parent firm’s home marketconditions and marketing policy for the focal prod-uct (line). A seven-point Likert-type scale, rang-ing from ‘not at all knowledgeable’ (1) to ‘veryknowledgeable’ (7), was used in each case. Twoother questions assessed the informant’s involve-ment in (1) the subsidiary’s marketing policy deci-sion process and (2) its dealings with the par-ent company, utilizing seven-point scales anchoredby ‘minimally involved’ (1) and ‘highly involved’(7). Using Kumar and associates’ (1993) thresh-old (i.e., individual responses above the mid scalepoint) for high informant competency, a total of22 questionnaires were eliminated because theyexhibited a rating of four or below for at leastone item. The mean composite rating for infor-mant quality was 5.67, providing confidence in thecompetence of our key informants.

Assessment of nonresponse bias

We compared early and late respondents using at-test procedure under the assumptions of bothequal and unequal group variances. No signifi-cant differences were detected in the means ofthe study constructs between the two groups. Inaddition, a comparison between respondents anda group of 82 randomly selected (one in everyfour from the 328) nonparticipant firms, in termsof sales and employee number, revealed no signif-icant between-group mean differences. Thus, non-response bias does not appear to pose a problemin this research.

Measures

With one exception, the constructs were measuredusing multi-item scales. Appendix 1 shows specificitems, response formats, and internal consistencyestimates. Items included in each construct were



extracted from the literature and modified on thebasis of the field interviews and pretests.

Marketing strategy standardization/adaptation(MARKSTR)

In accordance with contemporary views (Ozsomerand Simonin, 2004), we view international market-ing strategy as a second-order construct incorpo-rating product, pricing, distribution, and promotiondecisions. The scale describes the degree to whichthe elements of marketing strategy are standardizedin pursuing markets abroad. Respondents wereasked to compare their firms’ marketing programsin their home and host markets with respect to aset of 22 items representing marketing programelements, which was developed after an extensivereview of the literature (e.g., Hill and Still, 1984;Johnson and Arunthanes, 1995) and refined usingpretests.

The data indicate the presence of consider-able variations in responses by U.S., German,and Japanese MNCs (see standard deviations inAppendix 1). A comparison of international mar-keting strategies of U.S., German, and JapaneseMNCs suggests U.S. and German MNCs tendto use more standardized strategies than Japanesefirms (see Appendix 2). Insofar as marketing strat-egy components are concerned, U.S. and Germanfirms implement more standardized product, pro-motion, and distribution programs than Japanesefirms. The only exception is pricing, for which nodifferences were detected.

Economic environment (ECON)

A three-item construct measures the degree of sim-ilarity in economic conditions between the MNC’shome and host market environments. The itemswere borrowed from previous research (e.g., Dou-glas and Wind, 1987; Jain, 1989) and include thelevel of industrial development, purchasing powerof customers, and communications infrastructure.

Regulatory environment (REGUL)

A four-item construct describes the extent to whichthe laws and regulations between home and hostmarkets are similar. The specific items employedare technical standards, environmental laws andregulations, and regulations concerning company

and customer protection (e.g., Baalbaki and Mal-hotra, 1995; Johnson and Arunthanes, 1995).

Technological intensity and velocity (TECH)

A three-item scale assesses the technological inten-sity and velocity of the industry (i.e., product groupidentified by the respondent) in which the MNCoperates. The scale includes items assessing theextent to which: the MNC competes in a tech-nologically intensive sector; technology is chang-ing rapidly; and technological developments pro-vide significant opportunities (e.g., Cavusgil et al.,1993; Samiee and Roth, 1992).

Customs and traditions (CUTRAD)

A three-item scale measures the extent of similar-ity in customs and traditions between home andoverseas markets. The items are customers’ val-ues, beliefs, and attitudes, aesthetic preferences,and level of education (e.g., Hill and Still, 1984;Keegan et al., 1987).

Customer characteristics (CUST)

A four-item construct describes the homogene-ity of customers in home and host markets. Theitems are customer requirements, product eval-uation criteria, price sensitivity, and purchasinghabits (Ozsomer, Bodur, and Cavusgil, 1991; John-son and Arunthanes, 1995).

Marketing infrastructure (MARKET)

A five-item scale assesses the degree of similarityin the MNC’s home and host marketing infra-structures. Items in this scale are competenciesof marketing research agencies and distributors,availability of suitable advertising media, structureof distribution channels, and functions performedby intermediaries (e.g., Douglas and Craig, 1989;Baalbaki and Malhotra, 1995).

Stage of product life cycle (PLCS)

A single-item construct measures the degree towhich the focal product or product line is in thesame life cycle stage in the MNC’s home and hostmarkets. This measure is derived from Johnson andArunthanes (1995) and Kotabe and Omura (1989).



Competitive intensity (COMP)

A three-item construct taps the degree of similar-ity in competitive intensity in the MNC’s homeand host markets. The items composing this scaleare strength of price competition, pace of compet-itive moves in this product area, and frequency ofpromotion wars in the industry (e.g., Jaworski andKohli, 1993; Johnson and Arunthanes, 1995).

Performance (PERFORM)

Performance is viewed as a multidimensional,higher-order construct comprising three dimen-sions: sales performance (SALPE), measured interms of sales volume, sales growth, and newproduct sales; financial performance (FINPE),assessing profitability as a percentage of sales,return on investment, and profit growth; and cus-tomer performance (CUSPE), pertaining to cus-tomer satisfaction and customer retention. Theitems were extracted from the literature on mar-keting (e.g., Day and Wensley, 1988), strategy(e.g., Venkatraman and Ramanujam, 1987), andstandardization (e.g., O’Donnell and Jeong, 2000;Samiee and Roth, 1992). Following the rec-ommendation of Clark and Montgomery (1999)and Day and Nedungadi (1994) for the use ofa competitor-centered performance measurementapproach, respondents were asked to assess theperformance of their firm (subsidiary) vis-a-visthat of its main direct local market competitor ineach of these areas.2

ANALYSIS AND RESULTS

Measure validation

We assessed the validity of our measures usingconfirmatory factor analysis. One measurement

2 Self-reported performance indicators were used because(1) field interviews suggested managers were typically unableto provide objective performance data at the product level;(2) measurement difficulties inherent in certain objectivemeasures may raise comparability concerns (e.g., profitability iscontingent on internal accounting practices such as depreciationand overhead allocation); (3) managerial decision making andactions are guided primarily by perceptions of companyperformance rather than by objective, absolute performanceratings (Day and Nedungadi, 1994); and (4) there is empiricalsupport for the reliability and validity of rigorous subjectiveperformance measures (e.g., Venkatraman and Ramanujam,1987).

model contained 26 items measuring the eight first-order constructs in our study and two second-ordermeasurement models were also estimated for themultidimensional constructs of degree of market-ing program standardization and performance (seeAppendix 3). In all cases we used the ellipticalreweighted least-squares estimation procedure inEQS, proven to yield unbiased parameter estimatesfor both multivariate normal and non-normal data(Sharma, Durvasula, and Dillon, 1989).

First-order factor estimation

Each item was restricted to load on its a pri-ori specified factor, with the underlying factorspermitted to correlate (Gerbing and Anderson,1988). Following the recommendation of Ander-son and Gerbing (1988), the error term of thesingle-item measure of PLC stage was set at 0.10.The chi-square statistic of the measurement modelis significant (χ 2

272 = 486.97, p < 0.001), whichis expected since this test statistic is sensitiveto sample size, and the other fit indices (com-parative fit index [CFI] = 0.95; non-normed fitindex [NNFI] = 0.94; root mean square error ofapproximation [RMSEA] = 0.06; and average off-diagonal standardized residual [AOSR] = 0.05)suggest a good model fit.

Second-order factor estimation

Degree of marketing program standardization wasestimated as comprising the first-order factors ofproduct, pricing, distribution, and promotion. Ourmodel tested the null hypothesis that the first-orderfactors converge to a single higher-order construct.The results suggest a good fit to the data (χ 2

205 =412.22, p < 0.001; CFI = 0.92; NNFI = 0.91;RMSEA = 0.07; and AOSR = 0.07). Similarly,performance was estimated as consisting of threefirst-order factors: sales, financial, and customerperformance. The overall fit of the model is good(χ 2

17 = 29.41, p = 0.044; CFI = 0.99; NNFI =0.98; RMSEA = 0.06; and AOSR = 0.03). Insum, the results support our conceptualizationsof degree of marketing program standardizationand performance as higher-order constructs, eachoperationalized as a linear combination of itsdimensions (Jap and Ganesan, 2000).



Convergent and discriminant validity

All factor loadings are high and significant,which indicates convergent validity. Discriminantvalidity was checked using chi-square differencetests in which the correlation between pairs ofconstructs is freely estimated once and thenconstrained to unity (Gerbing and Anderson,1988). In all cases, the baseline model produceda better fit and the chi-square differencebetween the constrained and unconstrained modelswas statistically significant, thereby providingevidence of discriminant validity. For example,regarding the constructs of customs and traditions(CUTRAD) and customer characteristics (CUST),the chi-square difference test statistic is significant(�χ 2

1 = 47.3, p < 0.001), which suggests thatthese measures are distinct. Further, except forthe competitive intensity (COMP) scale, whichexhibits an alpha score close to the recommendedthreshold of 0.70, our multi-item scales indicatesatisfactory levels of internal consistency (seeAppendix 1). The correlations between our mainstudy constructs are shown in Table 1.

Tests of hypotheses

Regression analysis was used to test our researchhypotheses. We first examined factors drivingdegree of standardization and then assessedwhether presence of fit affects performance.

Drivers of standardization/adaptation

To test Hypotheses 1–8, the following multiplelinear regression model was estimated using

ordinary least squares:

Y1 = a1 + β1X1 + β2X2 + β3X3 + β4X4 + β5X5

+ β6X6 + β7X7 + β8X8 + ε1

where:

Y1 = degree of marketing strategy standardization(MARKSTR);

X1 = economic environment (ECON);X2 = regulatory environment (REGUL);X3 = technological intensity and velocity (TECH);X4 = customs and traditions (CUTRAD);X5 = customer characteristics (CUST);X6 = marketing infrastructure (MARKET);X7 = stage of product life cycle (PLCS); andX8 = competitive intensity (COMP).

As shown in Table 2(a), the value of the relevanttest statistic (F8,162 = 21.10, p < 0.01) suggeststhat the null hypothesis is rejected. The modelexhibits satisfactory explanatory power accountingfor 49 percent of the variance in internationalmarketing strategy. The variance inflation factor(VIF) for each independent variable was computedto assess multicollinearity. Mason and Perreault(1991) recommend a VIF score less than 10 asan acceptable threshold. The highest VIF scoreoccurs for regulatory environment (VIF = 1.99),suggesting multicollinearity did not pose a problemin this study.

The regression model was also evaluated on thebasis of three tests for the detection of the absenceof misspecification. As exhibited in Table 2(a),the White (1980) heteroscedasticity test (χ 2

44 =3.33, p > 0.05) fails to reject the null hypothe-sis of homoscedastic residuals. The Jarque–Bera

Table 1. Intercorrelations for the study constructsa

Construct 1 2 3 4 5 6 7 8 9

1. ECON 1.002. REGUL 0.55 1.003. TECH −0.02 0.06 1.004. CUTRAD 0.50 0.59 −0.07 1.005. CUST 0.44 0.46 0.01 0.50 1.006. MARKET 0.57 0.51 −0.01 0.51 0.50 1.007. PLCS 0.26 0.31 −0.09 0.36 0.33 0.27 1.008. COMP 0.07 0.21 0.16 0.06 0.09 0.06 0.06 1.009. MARKSTR 0.41 0.59 0.15 0.55 0.51 0.46 0.39 0.24 1.0010. PERFORM 0.05 0.11 0.04 0.07 0.11 0.15 0.13 0.05 0.17

a Coefficients ≥ 0.16 are significant (p < 0.05).



Table 2. Tests of hypothesized relationships

(a) Dependent variable: degree of marketing strategy standardization (MARKSTR)

Independent variables Coefficient t-value Hypothesis Results

Intercept 0.93 2.47∗

ECON −0.03 −0.35a H1 (+) No supportREGUL 0.28 3.61∗∗ H2 (+) SupportedTECH 0.14 2.48∗ H3 (+) SupportedCUTRAD 0.20 2.62∗∗ H4 (+) SupportedCUST 0.18 2.53∗∗ H5 (+) SupportedMARKET 0.09 1.24a H6 (+) No supportPLCS 0.16 2.72∗∗ H7 (+) SupportedCOMP 0.12 2.03∗ H8 (+) Supported

R2 = 0.51Adjusted R2 = 0.49F -statistic = 21.10∗∗

Misspecification testsWhite heteroscedasticity test: χ 2

44 = 3.33a

Jarque–Bera normality test: χ 22 = 1.55a

Chow test (mid-point): F9,153 = 2.25a

(b) Dependent variable: performance (PERFORM)—residual analysis

Intercept 5.44 42.73∗∗

|Standardized residuals| −0.43 −6.23∗∗ H9 Supported

R2 = 0.19Adjusted R2 = 0.18F -statistic = 38.79∗∗

Misspecification testsWhite heteroscedasticity test: χ 2

2 = 1.60a

Jarque–Bera normality test: χ 22 = 1.04a

Chow test (mid-point): F2,167 = 0.51a

∗∗ p < 0.01; ∗ p < 0.05; a p > 0.05

(1980) test of the null hypothesis for the normalityof regression residuals is also supported (χ 2

2 =1.55, p > 0.05). Further, the Chow (1960) test(mid-point), which tests the stability of the esti-mated regression coefficients, fails to reject the nullhypothesis of constant parameters (F9,153 = 2.25,p > 0.05). Thus, the reported test statistics pertain-ing to parameter and model significance are robustand the regression model meets the preconditionsfor their validity (i.e., homscedasticity, normality,and parameter stability).3

Similarity in regulatory environments (t = 3.61,p < 0.01), technological intensity and velocity(t = 2.48, p < 0.05), customs and traditions (t =2.62, p < 0.01), customer characteristics (t =2.53, p < 0.01), PLC stage (t = 2.72, p < 0.01),and competitive intensity (t = 2.03, p < 0.05)

3 Misspecification tests were performed using the procedureREGOPT in Time Series Processor (TSP) 4.3a (Hall, 1995).

between home and host markets are all associatedpositively with degree of international marketingprogram standardization. Hence, Hypotheses 2,3, 4, 5, 7, and 8 are supported. Contrary toexpectations, no significant effect for economicenvironment or marketing infrastructure wasfound. Thus, Hypotheses 1 and 6 are not supported.

Impact of fit

Consistent with the study’s theoretical foundation,testing Hypothesis 9 requires the development ofa measure that assesses fit between degree ofmarketing standardization and context and thenexamination of whether fit has a positive effect onperformance. Only those environmental constructsfound to be significantly related to internationalmarketing strategy were used for the measurementof coalignment (Venkatraman and Prescott, 1990:9). We employed the residual analysis method



to measure fit and assess its impact onperformance (Venkatraman, 1989). The use ofresiduals to examine fit–performance relationshipsis an established approach in organization theory(e.g., Drazin and Van de Ven, 1985), strategy(e.g., Zajac et al., 2000), and marketing (e.g.,Olson et al., 1995). Accordingly, the absolutestandardized residuals that resulted from theestimation of a regression model based only onthe significant contextual factors were regressedonto performance. High levels of such residualsindicate misalignment or misfit between degree ofmarketing standardization and contextual factors,which should negatively impact performance, andvice versa (Venkatraman, 1989). The results inTable 2(b) show an inverse relationship betweenabsolute standardized residuals and performance(t = −6.23, p < 0.01) and indicate that theestimated regression model is robust as it meets thepreconditions for the absence of misspecification.4

This suggests small residuals—an indicationof fit between extent of standardization andcontext—are related to relatively high levelsof performance, and vice versa, which supportsHypothesis 9.5

A series of additional analyses were under-taken to investigate linkages of fit with perfor-mance in the context of individual marketing pro-gram components. As shown in Appendix 4, theresults suggest that, except for pricing-based misfitthat exhibits a negative but insignificant associ-ation with performance, misfit in the context ofindividual marketing program components detractssignificantly from performance. Understandably,the explanatory power of the individual market-ing component models is lower than that of our

4 To enhance confidence in our findings, we regressedperformance on the standardized residual value and found nosignificant relationship (coefficient = 0.11; t = 1.38, p > 0.05).Thus, it is not likely that an outlier drives our findings. Weacknowledge an anonymous reviewer for drawing our attentionto this robustness test.5 We also tested the relationship of misfit (absolute standardizedresiduals) with performance using structural equation modeling.Performance was modeled as a higher-order construct includingfirst- and second-order latent factors. For misfit, the path fromthe latent construct to its indicator was set at 0.95 and theerror variance at 0.10 (Anderson and Gerbing, 1988). Thestructural model results (χ 2

24 = 37.76, p = 0.049; CFI = 0.99;NNFI = 0.99; RMSEA = 0.06; and AOSR = 0.04) indicate agood overall fit. The estimated path coefficient is −0.54 (t =−4.96, p < 0.01) and the model’s R2 value 0.29. This evidencesuggests misfit significantly detracts from performance, whichlends further support to our regression results (Table 4B). Wethank an anonymous reviewer for raising this issue.

overall marketing strategy standardization model.Misalignment in the context of individual com-ponents thus contributes to the overall misfit ofinternational marketing strategy and its impact onperformance (Naman and Slevin, 1993). Our over-all strategy model accounts parsimoniously fora range of contingency contexts by consideringthe simultaneous and holistic pattern of interlink-ages between overall marketing strategy and envi-ronmental factors, in line with Venkatraman andPrescott’s (1990) holistic perspective of coalign-ment.

Further, 1 year later we generated additionalperformance and marketing strategy data from26 of the original respondents. Based on thesefollow-up data, significant positive correlationswere found between strategy and each of the siximportant contextual factors identified (the lowestwas for customer characteristics, r = 0.49, p <

0.01). Significant relationships were also foundbetween the follow-up performance measure andfit assessed on the basis of the original data foreach contextual factor. For example, assessmentof the impact of misfit between strategy and regu-latory environment yielded t = −4.16 (p < 0.01),suggesting a positive fit–performance link, whichoffers further support for the findings.

A rival approach

In line with the tradition in the field, a rivalapproach might posit that the degree of standard-ization (adaptation) of an international market-ing strategy is directly linked to performance (inaddition to the direct links of marketing strategywith its antecedents). This possibility was exam-ined via a series of structural equation models.Specifically, Model 1 treated international market-ing strategy and performance as second-order con-structs consisting of four and three components,respectively. The goodness-of-fit indices wereχ 2

89 = 589.50, p < 0.001, CFI = 0.59, NNFI =0.52, RMSEA = 0.18, AOSR = 0.17. A trimmedmodel (excluding the insignificant environmen-tal factor–marketing strategy paths) was esti-mated that also exhibited poor fit results (χ 2

64 =271.23, p < 0.001, CFI = 0.75, NNFI = 0.70,RMSEA = 0.14, AOSR = 0.13). The MARK-STR–PERFORM path coefficient estimate is 0.13(t = 1.25, p > 0.05). Model 2 treated market-ing strategy standardization–adaptation as fourseparate components. The fit indices of the



trimmed model (χ 247 = 255.31, p < 0.001, CFI =

0.75, NNFI = 0.58, RMSEA = 0.16, AOSR =0.13) were clearly below acceptable levels. Theestimated path coefficients of product, pricing,promotion, and distribution on performance are0.23 (t = 2.21, p < 0.05), −0.08 (t = −0.80, p >

0.05), 0.08 (t = 0.76, p > 0.05), and −0.02 (t =−0.21, p > 0.05), respectively. In turn, Model 3treated performance as three separate components.The results of the trimmed model (χ 2

65 = 423.06,p < 0.001, CFI = 0.57, NNFI = 0.48, RMSEA =0.18, AOSR = 0.15) again showed poor fit tothe data. The coefficient estimates of standard-ization on the sales, financial, and customer per-formance facets are 0.19 (t = 1.69, p > 0.05),0.24 (t = 2.16, p < 0.05), and 0.13 (t = 1.27, p >

0.05), respectively. Collectively, this evidence sug-gests the rival models provide poor explanationsof the data, enhancing confidence in this study’sapproach based on strategic fit.

DISCUSSION

The findings from this research broaden anddeepen our understanding of how internationalmarketing strategy is linked to performanceand underscore the need to reconsider currentthinking regarding the deployment of effectivestrategies in international markets. Much ofthe early standardization research focused onthe efficiencies associated with this strategyrather than on the performance consequencesof adopting either standardized or customizedstrategies in foreign markets. Additionally, thefindings of various investigators are almostalways based on information provided bythe headquarters. Thus, there has been noconclusive examination as to how and underwhat conditions the adoption of a particularinternational marketing strategy might benefit thefirm.

Leveraging off the extensive research on strat-egy fit from the strategic management and orga-nization theory literature, this research focuseson the nature and performance consequencesof fit between marketing strategy standardiza-tion/adaptation and context at the subsidiary level.In line with the contingency perspective (e.g.,Drazin and Van de Ven, 1985; Ginsberg andVenkatraman, 1985), the results clearly supportour main proposition that a given international

marketing strategy leads to superior performanceonly to the extent that the MNC has success-fully achieved a coalignment between the strat-egy implemented and important contextual fac-tors. Theoretically, this study contributes to exist-ing knowledge by isolating specific factors con-ducive to achieving fit between marketing strat-egy and environmental context and establishingfit’s positive impact on performance in interna-tional markets. This study thus offers a morerealistic answer to the question of whether thedeployment of a standardized strategy enhancesperformance in international markets: superiorperformance for the MNC subsidiary dependson the presence of fit between a standardiza-tion strategy deployed and environmental condi-tions.

It is also evident that a number of factorsinfluence the degree of marketing strategy stan-dardization. Although prior researchers have pos-tulated such relationships and some have testedthem within the context of functional tasks suchas advertising or product management, they havenot been examined within the context of a com-prehensive marketing strategy and from the per-spective of the MNC subsidiary. This researchsimultaneously considers all major marketing pro-gram components from the unique standpoint ofsubsidiary managers. Similarities (differences) inthe regulatory environment, technological inten-sity and velocity, customs and traditions, customercharacteristics, PLC stage, and competitive inten-sity in the MNC’s home and host markets drivethe deployment of standardized (customized) mar-keting strategies. Such an emphasis on the overallmarketing strategy is important because it providesa more realistic and thorough picture in the deter-mination of fit between strategy and context andits linkage with performance in international mar-kets.

However, economic conditions and marketinginfrastructure were not found to predict inter-national marketing strategy, contrasting with theconceptual expectation expressed in the litera-ture (e.g., Jain, 1989). Several underlying fac-tors may explain the insignificant results. First,prior research is largely conceptual and doesnot offer a unique approach for assessing thedrivers of international marketing strategy. Sec-ond, the vast majority of studies do not addressthe overall marketing program; rather, a single



marketing element is generally targeted for inves-tigation. Third, most empirical studies focus onexporting firms. In contrast, the focus of thisstudy is on the marketing strategy deployed fora given product (line) within MNCs. Fourth, theinsignificant findings might be due to a lackof variability in the research context. Elementsof the economic environment (e.g., purchasingpower of customers) and marketing infrastruc-ture (e.g., competencies of marketing intermedi-aries) may not vary significantly between homeand host markets of the MNCs in our sample.A related explanation might lie in the measure-ment scales employed. We mainly used multi-itemmeasures based on prior research and field inter-views. The literature is void of universal mea-sures for standardization constructs, thus leading towide variations in measures deployed and findingsreported.

It is noteworthy that the highest degree of stan-dardization deployed by MNCs was on the prod-uct dimension of international marketing strategy.This evidence is consistent with recent research onMNCs’ global marketing strategies (e.g., Hewettand Bearden, 2001; Ozsomer and Simonin, 2004),but runs contrary to findings from the exporting lit-erature (e.g., Albaum and Tse, 2001; Cavusgil andZou, 1994) that point to the critical role of productadaptation in the exporter’s endeavor to penetrateoverseas markets. Several reasons can explain whymost MNCs pursue standardized product strate-gies. For example, the subsidiaries of large MNCslike Goodyear and Energizer from the UnitedStates and Varta from Germany follow the par-ent’s product specifications and branding policies,because (1) their products satisfy the same cus-tomer needs across countries and are seeminglyimpervious to cultural differences and (2) thesefirms pursue a consistent global corporate andbrand image. Subsidiaries of MNCs in the car sec-tor like Ford, VW, and Honda use componentsprovided by their parents in their production. Inall of these cases, parent companies invest heavilyin R&D to develop new, high-performing prod-ucts and want to fully exploit the sales poten-tial of their innovations worldwide (Douglas andWind, 1987; Yip, 2003). It should be noted, how-ever, that in other cases MNCs use more cus-tomized product strategies. Our field interviewssuggest that MNCs tend to customize productswhen they are influenced by cultural differencesand if it is cost effective to design and develop

such products given the size of local markets.Hitachi and Siemens, for example, deploy highlycustomized strategies for their information tech-nology products to target and serve large busi-ness customers (e.g., banks, car manufacturers)and their foreign subsidiaries concentrate on pro-viding integrated customer solutions through thedelivery of ‘application optimized’ products. Sim-ilarly, Playtex U.K., the subsidiary of the U.S.-based MNC, Sara Lee, adapts its women’s wearproducts to the tastes and preferences of the localmarket.

On the critical question of the performanceimpact of implementing a given marketing strat-egy, the results offer unequivocal support thathigher product performance at the subsidiary levelis significantly related to the extent that the strat-egy deployed is coaligned with environmentalimperatives. Thus, managers should appreciatethat the appropriateness of a particular interna-tional marketing strategy, whether standardized,adapted, or any combination between the two, isa function of strategic fit. Nevertheless, it shouldbe noted that MNCs do not necessarily adoptand indefinitely stay with a given global strat-egy. Over time, changing market conditions andmanagement preferences for particular strategicapproaches play a key role in determining thestrategies an MNC will deploy in various mar-kets. Evidence suggests that MNCs switch fromlocalized to standardized marketing, adopt patternstandardization, and change again when condi-tions are appropriate (Nelson, 1994). Such changesresult from the efforts of MNCs to align strate-gies deployed at the local level with changingenvironmental conditions and, in turn, enhancetheir performance. Subsidiary managers responsi-ble for the implementation of international mar-keting strategies need to be able to diagnoseand correct misfit. This implies development offlexible internal resources and policies to permitsuch a match. To this end, our research indi-cates that, in assessing the level of strategic fit,international management should benefit from afocus on the significant contextual factors iso-lated in this study. We identify a parsimoniousset of environmental factors that are importantto the achievement of strategic fit and its posi-tive impact on performance. Our findings can alsoguide MNCs’ foreign market expansion decisionsso that the consequences of such choices enhance



performance through the achievement of strategiccoalignment.

LIMITATIONS AND DIRECTIONS FORFUTURE RESEARCH

Despite our emphasis on locating and targetingappropriate informants and ensuring their com-petency, the possibility of single-respondent biasremains. Identifying additional informants able andwilling to answer all questions of the researchinstrument proved a challenging task (cf. Johnsonet al., 1993). Our attempt to generate data froma second informant in each firm resulted in only27 usable questionnaires that satisfied our respon-dent quality criteria, inhibiting the use of a multi-trait, multimethod assessment (Heide and Weiss,1995). Importantly, significant correlations werefound between the two informant reports for the 27cases, ranging from 0.57 (p < 0.01) for customercharacteristics to 0.69 (p < 0.01) for economicenvironment, enhancing confidence in the qualityof our data.

Some of the explained variance in the relation-ships examined may be due to common methodbias. However, the potential for common methodvariance was limited as respondents were unawareof our conceptualization, which prevented themfrom responding on the basis of their knowledgeof how the model variables should be linked.Further, all survey participants were guaranteedanonymity, reducing the possibility of bias inperformance reports for self-presentation reasons(Singh, 2000). Even if the performance assess-ments were inflated, it would be unlikely that thiswould be the case for the other study constructs.We also followed Venkatraman’s (1990) method-ology to examine potential common method biaseffects. If such bias accounts for the observed rela-tionships between the study variables, then a con-firmatory factor analysis containing all constructsshould yield a single method factor. The fit indices(CFI = 0.74, NNFI = 0.71, RMSEA = 0.13, andAOSR = 0.08) show a poor model fit, which sug-gests common method bias alone is not likely toexplain the relationships between our study con-structs.

The cross-sectional character of the study alsorestricts our ability to make causal inferences.Research involving dynamic phenomena such asdrivers of degree of strategy standardization and

fit–performance links would require a temporalfocus. Future research can certainly contribute toexisting knowledge by using longitudinal researchdesigns to examine cause–effect relationships inthe study of strategy fit and performance conse-quences of international marketing standardization.Further, prima facie, there is considerable simi-larity between each of the sample firms’ countryof origin and the focal host market. Given therange of countries worldwide, caution should beexercised in attempts to generalize too broadlyfrom our findings. Different management stylesamong the three national groups of firms may alsoaffect their foreign subsidiary marketing practicesaccordingly. For instance, Japanese firms tend tobe highly centralized and the United States less so.However, as noted in the methods section, prag-matic and methodological considerations deter-mined our focus on subsidiaries of U.S., Japanese,and German MNCs operating in the United King-dom. Future studies should expand their scopeacross MNCs originating from industrializing orless developed countries and explore potentialeffects of management practices on the organiza-tion of marketing activities and extent of strategystandardization.

CONCLUSION

The overall picture emerging from this studyhighlights the performance consequences of fitbetween international marketing strategy and envi-ronmental context from the perspective of MNCsubsidiary, adding significantly to the emergingstream of standardization and marketing strategyliterature on the importance of pursuing strate-gic fit as a means of enhancing performance out-comes. Three macro-environmental factors (reg-ulatory environment, technological intensity andvelocity, customs and traditions) and three micro-environmental forces (customer characteristics,PLC stage, competitive intensity) are identifiedas simultaneously affecting strategic fit and, inturn, subsidiary performance among MNCs. Thisresearch empirically resolves the long-standingcontroversy over the benefits of standardizationversus customization of international marketingstrategies. To our knowledge, this is the firststudy offering clear evidence that the presence offit between marketing strategy and environmentalcontext is an important influential force on a firm’s



performance in international markets and, conse-quently, offers a basis for the extent to which firmsshould pursue international marketing standardiza-tion. This evidence is especially timely for MNCsfighting for growth, development, and success inan era of increasing globalization of markets andintensifying competition worldwide.

ACKNOWLEDGEMENTS

The authors thank George Balabanis (City Uni-versity, London), Susan Douglas (NYU), MarkGoode (University of Wales, Swansea), Neil Mor-gan (Indiana University), Doug Vorhies (Univer-sity of Mississippi), and anonymous SMJ review-ers for their helpful comments on earlier drafts ofthis manuscript.

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APPENDIX 1: MEASURES OF CONSTRUCTS

Construct Mean S.D. Reliability

Marketing strategy standardization/adaptationA. Product 5.70 1.00 0.79(seven-item, seven-point Likert type scale, anchored by ‘Very

different’ and ‘Very similar’)Product design and styleProduct qualityBrand namePackagingLabelingWarrantiesPre- and after-sales service

B. Pricing 4.51 1.38 0.88(five-item, seven-point Likert type scale, anchored by ‘Very different’

and ‘Very similar’)Selling price to trade customers

(continued overleaf )



Appendix 1: (Continued )


Selling price to end-usersProfit margins to trade customersProfit margins to end-usersSales termsC. Promotion 4.54 1.23 0.83(six-item, seven-point Likert type scale, anchored by ‘Very different’

and ‘Very similar’)Advertising messageAdvertising creative presentationAdvertising media strategySales promotion toolsPublicity and public relations activitiesPersonal selling techniquesD. Distribution 4.99 1.22 0.83(four-item, seven-point Likert type scale, anchored by ‘Very different’

and ‘Very similar’)Length of distribution channelsType of middlemen usedDistribution coverageControl over distribution channelsInventory controlsa

Order processing systemsa

Macro and task environmentsEconomic environment 5.19 1.13 0.71(three-item, seven-point Likert type scale, anchored by ‘Very

different’ and ‘Very similar’)Level of industrial developmentPurchasing power of customersCommunications infrastructurePer capita incomea

Cost of raw materials and labora

Regulatory environment 5.20 1.15 0.79(four-item, seven-point Likert type scale, anchored by ‘Very different’

and ‘Very similar’)Laws and regulations concerning company protectionLaws and regulations concerning customer protectionEnvironmental laws and regulationsTechnical standardsTechnological intensity and velocity 4.94 1.36 0.80(three-item, seven-point Likert type scale, anchored by ‘Strongly

disagree’ and ‘Strongly agree’)The industry sector in which our company operates is technology

intensiveThe technology in our industry is changing rapidlyTechnological developments provide big opportunities for our

companyCustoms and traditions 4.91 1.23 0.76(three-item, seven-point Likert type scale, anchored by ‘Very

different’ and ‘Very similar’)Customers’ values, beliefs, and attitudesCustomers’ aesthetic preferencesCustomers’ educational levelsProduct usage patternsa

Customer characteristics 5.02 1.23 0.87(four-item, seven-point Likert type scale, anchored by ‘Very different’

and ‘Very similar’)Customers’ requirementsCustomers’ purchasing habitsProduct evaluation criteriaCustomers’ price sensitivityTarget market segmentsa

(continued overleaf )Copyright 2006 John Wiley & Sons, Ltd. Strat. Mgmt. J., 27: 867–890 (2006)

DOI: 10.1002/smj


Appendix 1: (Continued )


Marketing infrastructure 5.17 1.11 0.85(five-item, seven-point Likert type scale, anchored by ‘Very different’

and ‘Very similar’)Competencies of marketing research agenciesCompetencies of distribution firmsAvailability of suitable advertising mediaStructure of distribution channelsFunctions performed by middlemenStage of product life cycle 5.21 1.68 na(single-item, seven-point Likert type scale, anchored by ‘Strongly

disagree’ and ‘Strongly agree’)Our product is in the same stage of its life cycle in home and host

marketsCompetitive intensity 4.89 1.00 0.68(three-item, seven-point Likert type scale, anchored by ‘Very

different’ and ‘Very similar’)Strength of price competitionPace of new competitive moves in this product areaFrequency of promotion wars in this industry

PerformanceA. Sales performance 4.84 1.01 0.71(three-item, seven-point Likert type scale, anchored by ‘Much worse’

and ‘Much better ’)Sales volumeSales growthNew product salesB. Financial performance 4.56 1.09 0.78(three-item, seven-point Likert type scale, anchored by ‘Much worse’

and ‘Much better ’)Profitability as a percentage of salesReturn on investmentProfit growthC. Customer performance 5.10 1.09 0.85(two-item, seven-point Likert type scale, anchored by ‘Much worse’

and ‘Much better ’)Customer satisfactionCustomer retention

a Item dropped as a result of scale purification.

APPENDIX 2: DIFFERENCES IN INTERNATIONAL MARKETING STRATEGYAMONG U.S., GERMAN, AND JAPANESE MNCS

Marketing strategystandardization/adaptation

U.S.(I)a

German(II)a

Japanese(III)a

F -ratio Scheffe’s test

Product 5.75 (0.96) 5.90 (0.90) 5.10 (1.14) 5.27∗∗ I > III, II > IIIPromotion 4.70 (1.05) 4.67 (1.25) 3.55 (1.53) 8.98∗∗ I > III, II > IIIPricing 4.48 (1.44) 4.73 (1.22) 4.25 (1.34) 0.88Distribution 5.10 (1.11) 5.21 (1.25) 4.10 (1.36) 7.39∗∗ I > III, II > IIIOverall marketing program 5.06 (0.82) 5.18 (0.86) 4.30 (0.85) 9.16∗∗ I > III, II > III

a Mean scores (standard deviations)∗∗ p < 0.01; ∗ p < 0.05



APPENDIX 3: CONSTRUCT MEASUREMENT MODELS

Measurement Model 1 Measurement Model 2 Measurement Model 3

First-order constructs International marketing programstandardization/adaptation

Performance

Factor Standardizedloadingsa

Standardizedloadingsa

Standardizedloadingsa

First-order factors First-order factorsECON (F1) PRODU (F1) SALPE (F1)

EC1 0.74 (9.29) PRO1 0.41b SPE1 0.84b

EC2 0.58 (6.98) PRO2 0.45 (3.17) SPE2 0.83 (10.77)EC3 0.68 (8.43) PRO3 0.59 (4.18) SPE3 0.54 (6.30)

PRO4 0.81 (4.61)REGUL (F2) PRO5 0.71 (4.46) FINPE (F2)

RE1 0.74 (9.85) PRO6 0.60 (4.20) FPE1 0.94b

RE2 0.81 (11.02) PRO7 0.59 (4.18) FPE2 0.93 (16.50)RE3 0.71 (9.30) FPE3 0.60 (8.05)RE4 0.58 (7.18) PRICI (F2)

PRC1 0.80b CUSPE (F3)TECH (F3) PRC2 0.77 (9.83) CPE1 0.85b

IN1 0.73 (9.14) PRC3 0.86 (11.25) CPE2 0.94 (12.87)IN2 0.84 (10.65) PRC4 0.79 (10.13)IN3 0.71 (8.84) PRC5 0.57 (6.97) Second-order factor

CUTRAD (F4) PROMO (F3) PERFOR (F4)CU1 0.77 (10.05) PRM1 0.77b SALPE (F1) 0.97 (10.62)CU2 0.71 (9.07) PRM2 0.83 (9.87) FINPE (F2) 0.76 (9.03)CU3 0.68 (8.52) PRM3 0.72 (8.55) CUSPE (F3) 0.87 (9.23)

PRM4 0.64 (7.54)CUST (F5) PRM5 0.67 (7.90)

CU1 0.82 (11.48) PRM6 0.53 (3.92)CU2 0.85 (12.12)CU3 0.77 (10.61) DISTR (F4)CU4 0.69 (9.04) DIS1 0.60b

DIS2 0.64 (6.16)MARKET (F6) DIS3 0.83 (7.34)

MA1 0.79 (10.76) DIS4 0.89 (7.49)MA2 0.79 (10.86)MA3 0.72 (9.48) Second-order factorMA4 0.63 (8.06) MARKSTR (F5)MA5 0.68 (8.87) PRODU (F1) 0.69 (3.92)

COMP (F7) PRICI (F2) 0.61 (5.47)CO1 0.71 (7.43) PROMO (F3) 0.51 (4.52)CO2 0.66 (7.03) DISTR (F4) 0.63 (4.86)CO3 0.56 (6.03)

PLCS (F7)PL1 0.59b

Goodness-of-fit statistics Goodness-of-fit statistics Goodness-of-fit statisticsχ 2

272 = 486.97, p < 0.001 χ 2205 = 412.22, p < 0.001 χ 2

17 = 29.41, p < 0.044CFI = 0.95 CFI = 0.92 CFI = 0.99

NNFI = 0.94 NNFI = 0.91 NNFI = 0.98RMSEA = 0.06 RMSEA = 0.07 RMSEA = 0.06AOSR = 0.05 AOSR = 0.07 AOSR = 0.03

a t-values from the unstandardized solution are in parentheses.b Fixed parameter



APPENDIX 4: DEPENDENT VARIABLE: PERFORMANCE (PERFORM)

Independent Variable PRODUCTCoefficient(t-value)

PRICECoefficient(t-value)

PROMOTIONCoefficient(t-value)

DISTRIBUTIONCoefficient(t-value)

Intercept 5.13 (39.95)∗∗ 4.98 (32.99)∗∗ 5.16 (37.20)∗∗ 5.14 (39.89)∗∗

|Standardized residuals| −0.25(−3.35)∗∗ −0.11(−1.49) −0.25(−3.35)∗∗ −0.25(−3.35)∗∗

R2 0.06 0.01 0.06 0.06Adjusted R2 0.06 0.01 0.06 0.06F -statistic 11.23∗∗ 2.21 11.22∗∗ 11.20∗∗

Misspecification testsWhite heteroscedasticity test χ 2

44 = 0.96a χ 244 = 1.63a χ 2

44 = 2.63a χ 244 = 2.34a

Jarque–Bera normality test χ 22 = 2.80a χ 2

2 = 3.40a χ 22 = 3.18a χ 2

2 = 3.75a

Chow test (mid-point) F9,153 = 0.27a F9,153 = 0.43a F9,153 = 0.67a F9,153 = 0.85a

∗∗ p < 0.01; a p > 0.05


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