Market Orientation vis-à-vis Market Adaptation

The ability of firms to adapt to changing markets and technology is a fundamental topic both in strategic management and marketing literature. The focus of this paper is to study how firms adapt to their environments and create superior market orientation. We hypothesize specific relationships between market adaptation and market orientation. Moreover, we analyze the moderating effects of a firm’s internal and external contingencies on this interplay. The results of our empirical study indicate that there exists a strong association between market adaptation and market orientation, and, from contingency point of view, especially, customer intimacy moderates this interface. Introduction The characteristics of the post-industrial era include increasing knowledge, competitive and technological dynamics, and growing complexity. A firm can handle this uncertainty if its repertoire of information is expanded continuously and its ability to exploit such repertoire is correspondingly improved (Chakravarthy 1982). Recent studies suggest that market adaptation is one of the prerequisites for a good performance (Volberda 1996). Several scholars (e.g. Zahra and Pearce 1990; Day and Montgomery 1999) have endorsed that the notion of adaptation is constructed of market, technology, and organization related factors. Nevertheless, there exists little prior research covering explicitly and simultaneously the propositions of these intertwined factors of market adaptation (Thomas and Ramaswamy 1996). Market orientation, in turn, can be seen as a prerequisite to the formulation of effective customer and competitive response, i.e. adaptation based on market intelligence/knowledge creation (Varadarajan and Jayachandran 1999). However, our understanding of the market-oriented firms is incomplete in that it does not encompass the market orientation–adaptation linkages (Slater and Narver 1996). Here we have a real gap in our knowledge of the adaptation–performance interplay. The objective of this study can be expressed by the following research questions: (1) how does a firm’s market adaptation affect its market orientation, and (2) how do internal and external contingency factors moderate this interplay? Hypotheses are derived from the reviewed literature, and tested by an empirical study. Market Adaptation – Market Orientation Interplay: Theoretical Background Market adaptation is a process composed of a state of adaptation, or a storage of organizational ‘slack’, a process of adaptation, i.e. market information processing (MIP), and of an adaptive ability shaped by a firm’s organizational capacity for MIP activities (Chakravarthy 1982). The interaction between these three stages is circular; they influence each other in an intertwined fashion. Market adaptation is regarded here as a state of adaptation, and, meanwhile, as an antecedent of market orientation. Indeed, from contingency point of view, an organization’s ability to adapt to evolving markets is affected by the nature of internal organizational characteristics and external business environment (Day and Nedungadi 1994). Market orientation emphasizes the awareness of and responsiveness to environmental influences, as well as, an ability to learn about customers and competitors in order to continuously sense and act on events and trends in present and prospective markets (Gray et al. 1999). Market orientation has an operational focus on market information process (MIP) activities regarding customers and competitors, particularly information acquisition, information distribution, and the ability to behaviorally respond to what is received (Baker and Sinkula 1999). We view market orientation as characteristics of an organization that determinates the priority that is placed on ANZMAC 2000 Visionary Marketing for the 21 Century: Facing the Challenge 1292 MIP activity and its use in the strategic process. Market orientation emphasizes market-related knowledge creation, i.e. market intelligence generation, its dissemination, and responsiveness to that intelligence (Kohli et al. 1993). Thus, we hypothesize that: H1a: Market adaptation will be positively associated with the level of market orientation. H1b: Business logic and customer intimacy will be positively associated with the level of market orientation. H1c: Environmental dynamism and market globalization will be positively associated with the level of market orientation. The above mentioned internal and external contingencies take a role as moderators regarding the market adaptation–market orientation interplay. Accordingly, the type of business logic influences a firm’s market adaptation by providing a boundary to decision-making and context for the perception and interpretation of the external environment (Day and Nedungadi 1994). Close customer relationships, in turn, may enhance a company’s performance when, especially, operating on global markets (Homburg et al. 1999). Finally, dynamics of market and technology environments, and extensive foreign market experience in line with industry globalization are expected to enhance a company’s market adaptation and market orientation (Gray et al. 1999). It is, therefore, further hypothesized that: H2a: The more market-based the business logic, the greater the impact of market adaptation on market orientation. H2b: The closer and the more intensive the customer relationships, the greater the impact of market adaptation on market orientation. H2c: The more turbulent the external environment, the greater the impact of market adaptation on market orientation. H2d: The more extensive the market globalization, the greater the impact of market adaptation on market orientation. To clarify the nature of our hypotheses, Figure 1 depicts the structural links between the key constructs. The basic point of our framework is simple; in order to understand the complexity of adaptation, research should simultaneously address the context, content, and outcome perspectives. Figure 1. Market Adaptation – Market Orientation Interplay: An Organizing Framework Internal Contingencies • Business Logic • Customer Intimacy External Contingencies • Environmental Dynamism • Market Globalization Market Adaptation Market Orientation H1a + H2a + H2b +