The market orientation of Chinese enterprises ... - IngentaConnect

The market orientation of Chinese enterprises during a time of transition Shengliang Deng and Jack Dart

College of Commerce, University of Saskatchewan, Saskatoon, Canada Keywords China, Economic conditions, Marketing concepts, Marketing environment, Market orientation

Orientation of Chinese enterprises 631 Received September 1997 Revised February 1998

Abstract As China moves from a command economy to one more directed by customer demands, its enterprises must acquire an entirely new understanding of the purpose of business. The marketing concept appears to offer an approach to management that is dramatically new to China but much needed in its current state of development. Reports the results of an empirical study concerning the market orientation of various types of Chinese enterprises based on their size, location, ownership and sector. The data suggest substantial differences between the various types of operations. Since the existing literature relating to market orientation is devoted almost exclusively to Western business settings, this study provides benchmark data that may be used to track the evolution of an economy that is in the midst of a dramatic economic transition.

Introduction In his eulogy to Deng Ziaopin, President Jiang Zemin reaffirmed the commitment of the Chinese government to carry on the economic reforms of his predecessor. China has come a long way since 1978 when Deng launched the world's most populous country into a process of market transformation that would prove dramatic, yet, when judged by historical standards, surprisingly controlled. The exercise was not without difficulties, as the years between 1978 and 1993 witnessed a variety of economic experiments with each accompanied by considerable debate as to the preferred direction of China's economy. Finally, in 1993, the Eighth People's Congress passed an amendment to the constitution to enshrine into law the theory of the ``socialist market economy'', a credo that anticipates the use of market mechanisms within a socialist system. Since then China has progressed rapidly in its adoption of this hybrid strategy, an adventure designed to capture the best features of both planned and market systems (People's Daily, 1993). China's economic strategy was undoubtedly influenced by the negative consequences experienced by its communist allies in Eastern Europe and the various Republics in the former USSR (Hooley, 1993; Brus, 1993). The attempt to achieve the delicate balance required to maintain China's current political system while providing the necessary stimulus to economic growth (Gordon, 1991; Hamer, 1995) understates the dramatic impact on the commercial sector. At the level of the enterprise, the change from a command economy to one driven by market expectations is nothing short of revolutionary. The new order calls for substantial realignments in corporate governance and policies plus the

European Journal of Marketing, Vol. 33 No. 5/6, 1999, pp. 631-654. # MCB University Press, 0309-0566

European Journal of Marketing 33,5/6 632

development of new organizational skills, especially those related to the marketing function. Despite nearly two decades of reforms, the contribution of marketing in boosting China's once ailing economy has not yet become clear. Equally unknown is the degree to which enterprises in China have recognized the need to adopt and implement processes leading to increased market orientation. The purpose of this article is to examine the extent to which Chinese enterprises have recognized the need to identify and respond to customer needs as part of their adjustment to a rapidly changing economic environment. It is anticipated that as economic reform progresses, Chinese enterprises will become increasingly more market oriented, perhaps even approaching a point where the marketing concept becomes the cornerstone of their business operating philosophy. The paper begins with an overview of the literature on market orientation. Consideration of China's economic reforms is next presented, with this discussion leading to a series of hypotheses. The methodology used to test these hypotheses is subsequently described, followed by a presentation of the research findings. The paper concludes with a summary and implications section that also discusses the study's limitations and provides suggestions for much needed future research. Conceptual background Fundamental to the western marketing literature is the philosophy that an organization should try to satisfy customers' needs through the development of a coordinated set of practices that will also allow the organization to achieve its goals ± the oft discussed ``marketing concept''. Although this tenet has occupied the attention of both educators and executives for more than a generation, its origin remains the subject of some debate. Its genesis may have been a 1954 comment from Peter Drucker, who stated that the creation of a satisfied customer was the only valid purpose of business. Other authors subsequently extended the core of this idea into what eventually came to be known as the marketing concept (Hise, 1965; Barksdale and Darden, 1971; McNamara, 1972; Lawton and Parasuraman, 1980; Edgett and Thwaites, 1990; Hooley et al., 1990; Narver and Slater, 1990; Naidu and Narayana, 1991; Kohli and Jaworski, 1990; Jaworski and Kohli, 1993). Since then, numerous academics and practitioners have advocated that this customer-oriented business philosophy be made an essential part of everyday management practice (e.g. Borch, 1957; Kotler and Levy, 1969; Wind and Roberston, 1983; Webster, 1988; Shapiro, 1988; Webster, 1992). Some authors have even argued that the adoption of the marketing concept is all but essential for survival in today's competitive environment (Levitt, 1960; Kotler, 1977; Crawford, 1983; Kotler and Andreasen, 1987; Day, 1994), a claim that may prove prophetic in an increasingly global economy. Despite its many proponents and its relatively long history, attempts to demonstrate a positive link between corporate performance and the adoption of the marketing concept have occurred only recently (Chang and Chen, 1994; Deshpande, et al., 1993; Jaworski and Kohli, 1992; Naver and Slater, 1990;

Ruekert, 1992). The emergence of a coherent body of empirical evidence relating to the marketing concept has been hampered by the use of different definitions (Wakefield, 1993) plus the use of an equally wide assortment of measurement techniques. Many early attempts at quantification floundered through their use of single item scales, a problem exacerbated by wording that frequently exhibited a strong yea-saying bias (e.g. `Òur firm pays particular attention to customer needs''). Day (1990) argued that the marketing concept could best be practised through the development of superior skills directed toward the understanding and satisfaction of customer needs. At about the same time, Kohli and Jaworski (1990, p. 1) coined the term ``. . .`market orientation' to mean the implementation of the marketing concept''. By shifting the focus of measurement from a philosophical construct to consideration of the extent to which a firm had adopted and implemented a set of defined activities and behaviors, researchers could avoid many of the thorny problems that had plagued attempts to quantify the marketing concept. Although there is not yet a consensus as to the specific activities that best translate the philosophy of the marketing concept into practice, nevertheless, considerable progress has been made. Table I highlights some of the research milestones associated with what is undoubtedly the most important principle of modern marketing. Two basic approaches to the operationalization of market orientation can be identified. The first stream is represented by Shapiro (1988), Narver and Slater (1990), and Deng and Dart (1994) and is closely aligned with the core themes of the marketing concept: customer orientation, competitor orientation, interfunctional co-ordination and, arguably, profit orientation (Hise, 1965; Barksdale and Darden, 1971; McNamara, 1972; Lawton and Parasuraman, 1980; Edgett

Critical factors Keith (1960) Hise (1965) McNamara (1972) Kotler (1977) Lusch and Laczniak (1987) Webster (1988) Narver and Slater (1990) Hooley et al. (1990) Edgett and Thwaites (1990) Naidu and Narayana (1991) Meziou (1991) Kohli et al. (1993) Deng and Dart (1994)

Customer orientation X X X X X X X X X X X X X

Competitor orientation

X X X X X X X

Interfunctional co-ordination

Profit emphasis

X X X X X X X X X X X X X

X X X X X

Orientation of Chinese enterprises 633

X X X X

Note: See Appendix for detailed measurement items under each critical factor. Initially 49 items were discovered through literature review and personal interviews. After pretest and refinement, 35 items remained in the final questionnaire

Table I. Measurement dimensions of market orientation emphasised by selected authors


and Thwaites, 1990; Hooley et al., 1990; Narver and Slater, 1990; Naidu and Narayana, 1991). The second approach, represented by Kohli and Jaworski (1990; 1993), pays particular attention to the effective use of market intelligence. The latter authors utilized 32 variables to operationalize market orientation into three factor constructs relating to intelligence generation, intelligence dissemination and intelligence responsiveness, although they also noted the importance of a customer focus and co-ordination. For this particular study, the former approach has been selected as having the potential to offer greater insights into the current state of marketing development in China, especially given the early stages of market intelligence systems found in many Chinese firms. The vast majority of studies relating to the marketing concept have occurred within Western business settings, especially Europe and North America. To date, very few studies have been reported that were directed to the investigation of the adoption of the marketing concept in developing countries although certain aspects of market orientation have been considered by Whybark (1994) and Kinnell et al. (1994) in the Chinese setting. This study attempts to determine whether market orientation varies across different types of Chinese commercial operations and, by so doing, seeks to broaden the existing knowledge base associated with marketing orientation and the fundamental nature of the economic changes in China. Marketing in China: a brief review of recent history From 1949 until at least 1979, China functioned as a very rigid, planned economy. Under this system, State enterprises played the dominant role, leaving some room for collectively owned organisations but virtually excluding private firms. During these three decades, the denial of the efficacy of marketing was an explicit part of China's economic doctrine (Marx, 1970). Further, since China was a developing country with a rather low GDP per capita and frequently suffered from a widespread scarcity of consumer goods, there was little, if any, incentive for the development of marketing activities (Gordon, 1991; Deng and Dart, 1995). With the exception of a few enterprises involved in foreign trade, the practice of marketing, as understood in Western societies, could not be said to have existed at the level of the individual firm for the first 30 years following the communist revolution. All fundamental marketing decisions concerning product lines, pricing, and distribution channels were appropriated by government officials. The State set production targets for each enterprise, distributed their products, assigned personnel, allocated supplies and equipment, retained all profits and covered all losses (Mun, 1984; Zhuang and Whitehill, 1989; Gordon, 1991). Except for very limited discretion over product design, the Chinese manager had little, if any, control over decisions involving the marketing mix (Holton, 1985; Mahatoo, 1990).

After three decades of rigid economic planning, severe problems surfaced that greatly hindered China's economic development. Most notable were the surpluses and shortages that frequently appeared at various points in the system, the result of the inability of planners to gauge the intensity of customer demand (Mun, 1984). Since the extent of demand is a natural by-product of a market pricing system (Holton, 1985), planners no doubt speculated (albeit quietly) as to how this element might be introduced into a centralized system. The first changes in this direction began in 1979 when the Chinese government, led by Deng, finally acknowledged the lack of adaptability inherent in its planned economic system. Gradual shifts in policy resulted in a lessening of the priority assigned to equitable distribution and a corresponding increase accorded to economic efficiency. Perhaps as the consequence of these policy changes, the economy prospered, resulting in an increasingly abundant supply of products and more disposable income. As the Chinese consumer began to demand better quality goods and services, many enterprises were forced to recognize that their viability and survival could not be guaranteed solely through state planning. The continuous and rapid growth rates in China's GNP during the decade of the 1990s speaks well for that country's strategy of methodical and gradual reform, especially when contrasted with the results achieved by more radical approaches attempted in the former Soviet Union and Eastern Europe (Hooley, 1993; Brus, 1993; Ennew et al., 1994). That said, it is important to note that the benefits of economic growth have not fallen evenly across Chinese society. In fact, Wei (1995) notes that significant, and expanding, economic gaps have become evident between geographic regions, industrial sectors, and organizations of different ownership types and sizes. Do these differences reflect the differential adoption of a market oriented approach to business management? This question, and the factors identified by Wei, are considered in greater depth in the paragraphs that follow. Relevance of ownership type Nowhere has the economic infrastructure of China experienced greater change than that seen in the growth of collectively owned and private firms. In 1980, private enterprises produced only 0.4 percent of the national industrial output, but by 1994 the corresponding figure had soared to 25.1 percent and was still growing (Goodhart and Xu, 1996). The official China Daily (1993) reported that private enterprises accounted for half of all commerce including fully threequarters of China's service sector. Privately owned manufacturing plants, all but unknown before the reforms, mushroomed in number to almost 400,000 by the end of 1994. Their output has been increasing at an average annual rate of 18 percent and, in a few instances, enterprise assets have reached 100 million Yuan or about £7 million (Wu, 1995). Collective enterprises have also shown remarkable growth. These organisations are set up mainly by the unemployed in urban centres or by surplus farm workers from the countryside and operate under the principles of



voluntary participation, mutual benefit and sole responsibility for profit and loss. From 1980 to 1994, such enterprises expanded in number from 758,000 to 6,986,000 firms employing a total of 69.7 million people. Their share of national industrial output has jumped from 23.5 percent in 1980 to 42.04 percent in 1994 (Goodhart and Xu, 1996). The fact that private and collectively owned firms are competing successfully with the powerful state enterprises may be due in part to the practice of superior marketing skills; thus, the first hypothesis: H1: Private/collectively owned enterprises are more market oriented than state owned enterprises. Relevance of company location China began its economic reform experiments with the designation of four special economic zones and 14 open cities, all located in coastal areas. The direct foreign investments made in these regions have far outstripped those directed to comparable inland regions. These investments brought not only needed capital, but also an infusion of management know-how, including marketing. Thus, it is quite likely that the openness of a region is linked to the market orientation of the local enterprises: H2: Enterprises in the more open regions (coastal cities) are more market oriented than those located in less open regions (inland cities). The three locations utilized in this particular study ± Qingdao, Nanjing, and Xi'an ± were carefully selected based on their level of economic openness and exposure to Western marketing concepts. Qingdao is a coastal, open city in the south-east corner of the Shangdong Peninsula. It is located in one of China's most affluent areas and has been the recipient of large amounts of direct foreign investment. The pre-revolution Qingdao was a city where both local and foreign industrialists operated under capitalist concepts. Nanjing, the capital of the Guomindang Government prior to the 1949 revolution, is an open city but located inland along the famous Yangtze River. Although it has not had the same history of interaction with foreign business, its management practices are heavily influenced by the ``Shanghai style'', an aggressive entrepreneurial approach to business that is said to underlie the economic success of Hong Kong. Xi'an, the capital of ancient China, is the largest city in the interior. It has a high profile for its sciences and a well-established technology base but is located far from the coast and often exhibits a sense of isolation from the West. Relevance of government control Despite 15 years of economic reform, the old ideological philosophy of equitable distribution still plays an important role in the Chinese government's economic policy. Even today, both central and local governments retain control of a large number of industries that are regarded as vital to the national economy and essential to ensure equitable distribution. It is unclear how these controlled

sectors practise marketing or even whether the role of customer demand is reflected in management practices. Since the sectors controlled by the government have limited powers in exercising marketing activities, it is likely that the marketing concept has very little influence on the daily operations: H3: Enterprises in uncontrolled sectors are more market oriented than those in controlled sectors. The enterprises in the study were grouped into two broad sectors. State owned enterprises continue to dominate many key areas of the Chinese economy, a legacy of the government's policy to balance social equity and economic efficiency. This controlled sector includes industrial goods manufacturers, wholesaling, construction, transportation and communication, mining and energy, publishing and financial services. The uncontrolled sector is typically characterized by manufacturers of consumer goods, food processing, retailing, agriculture and many service industries. Relevance of company size Although private and collectively owned enterprises are fast growing in numbers and economic influence, their typical size remains small with an average of 14 employees (Wu, 1995). In contrast, firms owned by the State tend to be very large. With limited resources and few government subsidies, small and medium sized firms may well be more responsive to customer demand as their survival depends on their ability to remain competitive; hence, the following hypothesis: H4: Small and medium sized firms are more market oriented than larger enterprises. The enterprises under study were grouped into three size categories based on employee numbers; firms with 100 or fewer employees were classified as small, a payroll of 101 to 500 was considered medium, while firms with more than 500 employees were grouped into the large classification. Although arbitrary, this approach has been often used in Western-based investigations and is particularly appropriate in China where other measures such as company revenues or assets are largely dictated by government directives. This aspect of the investigation was of interest because of the apparent relative success of small firms in China, although the extent that such achievements can be attributed to marketing is unknown. Methodology Data collection The data for this study, part of a larger investigation, were generated through personal interviews with a sample of general managers or presidents drawn from three major cities in China. Six PhD candidates in management from a Chinese university were recruited to conduct personal interviews with a targeted 400 firms. The firms, each operating with a formal marketing



department, were selected from local industrial directories with an effort made to ensure sub-sample sizes that would be adequate for statistical analysis. A mail survey was considered but rejected since, at this stage of China's development, questionnaire research is relatively new and mail response rates have proven to be very low (e.g. Siu, 1992; Siu and Kirby, 1995). The six scholars were provided with the following instructions regarding sample selection: .

.

.

each interviewer was asked to interview from 40 to 60 selected respondents from both state owned and private/collective firms; interviews were to be conducted with the chief executive in the firm, typically someone holding the title of president or general manager; and respondent firms were to be selected from a wide variety of industries with no more than 20 per cent of interviews conducted in any one sector.

The company chief executives were first contacted by telephone to see if they were willing to participate in the interview. Of the 400 companies contacted, 328 agreed to the interview, representing 82 percent of the initial target. It was anticipated that a few respondents would be encountered who had views that were clearly antithetical to the very nature of marketing. In order to relieve interviewers of the obligation of attempting to gather information while becoming involuntarily involved in a political debate, respondents were provided with a generic description of marketing functions (essentially the four Ps) prior to the formal interview. In the event that the potential respondent's understanding of the nature and scope of marketing was substantially different from the standard description (e.g. insistence that advertising was wasteful or that marketing and selling were synonymous), the respondent was excused from this part of the project. Relatively few such individuals were encountered, although when combined with the usual problems of interview scheduling, 46 of the 328 respondents that had agreed to the interviews were eventually eliminated. Table II presents an overview of the demographic characteristics of the 282 participants in the study and some descriptors of their organisations. In any period of rapid economic transition, new companies come and go quickly, and soon outstrip the capacity of statistical collection agencies. This is a particular problem in China, which is both immense in size and developing rapidly. As a result, there was no way to verify if the resulting sample was representative of Chinese industry by category. Data analysis involved a two-stage procedure. Stage one included the analysis of primary statistics to establish the market orientation scale. Stage two was based on group analysis techniques, such as F-tests and Sheffe's analyses, to identify the differences between state-owned and collective/private enterprises, across three different geographic locations, between controlled and uncontrolled sectors, and across different company size categories.

Personal Age in years 35 36-45 46-55 56 Education level Grade school High school Some post-secondary Bachelor's degree Graduate degree/MBA Gender Male Female Firm Years in operation 10 11-20 21-30 31-40 41-50 51 Number of employees 50 51-100 101-200 201-500 501 Annual sales last year $1 million 1-5 million 5-10 million 10-25 million 25 million

Number Percent Years with firm 68 24 5 127 45 6-10 70 25 11-15 17 6 16-20 21 Title in firm 6 2 President/owner 91 32 Vice president 71 25 General manager 67 24 Marketing manager 47 17 205 77

73 27

68 79 45 59 14 17

24 28 16 21 5 6

40 34 34 48 126

14 12 12 17 45

17 65 56 76 68

6 23 20 27 24

Product/service industry Manufacturing of consumer goods Manufacturing of industrial goods Food manfacturing Wholesaling Retailing Construction Transportation and communication Mining/energy Agriculture and forestry Publishing/printing Financial services Others

Number Percent 79 28 68 24 28 10 31 11 76 27 85 65 65 67

30 23 23 24

46

16

48 13 2 25 30

16 5 1 8 11

64 10

22 4

10 10 10 14

4 4 4 5

Operationalization and measurements The market orientation instrument (see Appendix) employed in the study was based on the one developed by Deng and Dart (1994), who drew on previous research by Narver and Slater (1990) and many others (see Table I). The multiitem scale consists of four factors. Inherent in any consideration of the marketing concept is that all activities of the firm should be judged against the litmus test of client needs; hence the factor, ``Customer orientation''. The work of Porter (1980; 1985) develops a strong argument for ``Competitor orientation'', the need to understand the capability of competitors, both current and potential, to serve the same markets. The inclusion of the third dimension, `Ìnterfunctional co-ordination'', is recognition that all parts of the organisation must accept responsibility for servicing the market (Kohli and Jaworski, 1990).


Table II. Demographic characteristics of respondents/firms (N = 282)


Finally, ``Profit orientation'' refers to a mind set that tests corporate activities based on their likely impact on the bottom line. Examples include the compensation of sales representatives based on margins rather than sales revenues; account audits; and measuring the economic returns of charity sponsorships. The questionnaire, including the market orientation scale, was translated into Chinese by one of the authors. The resulting Chinese version was then back-translated into English by three Chinese faculty members, working independently, and revisions were made as required. The amended Chinese version was subsequently reviewed by a panel of native Chinese executives, each of whom had both considerable business experience and an MBA degree from a foreign business school. The consensus of the panel was that the Chinese version accurately mirrored the English version. Measurement reliability A series of tests was undertaken to ensure that the market orientation scale retained its psychometric properties when employed in a Chinese setting. The general approach was to evaluate each measurement item; if shown to detract from the reliability of the intended factor, the offending statement was discarded and the remaining items reevaluated. In order to test for instrument stability, the data were randomly split into two samples before assessing reliability (Narver and Slater, 1990). Table III reports, in two split samples, the original sets of measurement items associated with the four factors, the items dropped from the original sets to achieve maximisation of coefficient alpha, and the reliability estimates associated with the resulting scale. As indicated in this table, the maximised reliability coefficients were fairly uniform, ranging from 0.6880 to 0.7689. Based on these values, the measures were judged to be sufficiently reliable for the research setting (Cronbach, 1970; Nunnally, 1978). To verify further the reliability of the scales, a series of item-to-total correlations was calculated. As evident in Table IV, all items demonstrate a high correlation with the scales to which they were originally assigned relative to all other scales. Accordingly, it was concluded that all items had been assigned to the appropriate scales. Criterion validity Criterion-related validity was evaluated by examining the multiple correlation coefficient between the scores on the four measures of market orientation and a measure of company marketing performance. This latter measure was derived from a series of items, each rated on a five-point scale, relating to 11 performance areas over the previous three-year time period (Table V). An analysis of the 11 performance items revealed a single factor solution with an explained variance of 0.70 and a Cronbach's alpha of 0.83, values sufficient to accept the performance scale as being reliable. The multiple correlation coefficient of the marketing performance measure and the four measures of market orientation was 0.70 (p < 0.000), indicating that the four measures,

Item

Original Number Items Sample 1 Sample 2 items of deleted (N = 138) (N = 144) numbers items (by number) Cronbach alpha Cronbach alpha

Customer orientation 1 2 3 4 5 6 7 8 9 10 11 12

1-12

12

None

0.7454

Competitor orientation 13 14 15 16 17 18

13-19

7

14,19

0.7113

0.6880

Interfunctional co-ordination 20 21 22 23 24 25 27

20-27

8

26

0.7343

0.7101

Profit emphasis 28 29 30 31 32 33 34

28-35

8

35

0.7689

0.7308

Orientation of Chinese enterprises

0.7391

641

Note: See Appendix for detailed measurement items under each critical factor

when taken together, have a high degree of criterion-related validity. In summary, the measures employed do appear to serve as a predictor of corporate performance, confirming the findings of several recent studies (Deshpande et al., 1993; Jaworski and Kohli, 1992; Narver and Slater, 1990; Ruekert, 1992; Deng and Dart, 1994).

Table III. Reliability analysis

European Journal of Marketing 33,5/6

Item factor Customer orientation

642

Competitor orientation

Interfuctional co-ordination

Profit emphasis

Table IV. Item to scale correlation matrix for the critical factors of market orientation

Market orientationa Note:

a

Number

1

1 2 3 4 5 6 7 8 9 10 11 12 13 15 16 17 18 20 21 22 23 24 25 27 28 29 30 31 32 33 34

0.5857 0.5998 0.6067 0.5479 0.5773 0.6975 0.7057 0.6227 0.5759 0.6691 0.7766 0.5419 0.3125 0.2226 0.2818 0.2144 0.3158 0.4114 0.4176 0.2977 0.3409 0.2100 0.3460 0.3174 0.3151 0.3048 0.4299 0.2826 0.2760 0.3022 0.2589 0.8334

Scale (total sample = 282) 2 3 0.2931 0.4216 0.3967 0.0832 0.0513 0.3760 0.3772 0.4057 0.1951 0.2897 0.3784 0.0454 0.7172 0.8190 0.8444 0.8456 0.6782 0.2333 0.3462 0.3205 0.2618 0.4092 0.3802 0.3460 0.4031 0.3446 0.2749 0.2611 0.3442 0.4115 0.3962 0.8875

0.1996 0.4104 0.4713 0.1039 0.1372 0.4048 0.4240 0.4298 0.3105 0.3100 0.3235 0.1282 0.2872 0.3521 0.2648 0.3279 0.3671 0.6225 0.7188 0.7360 0.7196 0.6930 0.6666 0.6796 0.3745 0.4198 0.3898 0.3202 0.2857 0.3492 0.3643 0.8725

4 0.2404 0.4202 0.4115 0.1266 0.1840 0.3106 0.3918 0.4103 0.1827 0.2598 0.1996 0.0934 0.2794 0.3204 0.3129 0.3350 0.4363 0.3969 0.3109 0.4342 0.3226 0.4213 0.3697 0.3257 0.6438 0.6911 0.6662 0.8790 0.8449 0.6810 0.6893 0.8796

Market orientation is a single factor representative of customer orientation, competitor orientation, interfunctional co-ordination and profit emphasis

Research findings Multivariate analysis of covariance (MANCOVA) was used to test the study hypotheses. The four factors in the market orientation instrument served as dependent variables, with company ownership type, company location, sector type and company size representing the independent variables. Since a requirement of MANCOVA is that the dependent variables be correlated, the appropriateness of this multivariate technique was tested by Bartlett's test of sphericity. The test (p < 0.0001 with 6 df) indicated that MANCOVA was appropriate for analysing the data. Tables VI-IX report the results of MANCOVA in relation to the research hypotheses. For the first hypothesis, Table VI shows the univariate results for

Item-to-total correlation

Item Performance measurement Overall financial performance Corporate liquidity Sales volume Market share Penetration of foreign markets Sales in foreign markets New product development Developing new markets Quality improvements Productivity Relative to your expectations

Market orientation factor dimensions Customer orientation Competitor orientation Interfunctional coordination Profit emphasis

0.6147 0.6307 0.6460 0.5595 0.6114 0.5648 0.6592 0.6125 0.6313 0.6529 0.6737

Sample 1 Cronbach alpha

Sample 2 Cronbach alpha

0.8324

0.8244


Table V. The development of the performance measurement scale (N= 282)

Ownership type meansa Private/collective State owned Univariate (N = 181) (N = 101) F-value P-significance 3.27 3.17 3.45 2.89

2.83 2.76 3.14 2.69

3.00 3.18 4.53 3.31

0.060 0.057 0.044 0.135

Notes: Wilks' lambda = 0.92613; p < 0.019; effect power = 0.81 a Using a MANCOVA model to test main effects, the significant test for company ownership type was based on adjusted means eliminating confounding by location, size and sector type

company ownership types. Customer orientation, competitor orientation and interfunctional co-ordination each differ significantly (p < 0.060, p < 0.057 and p < 0.044) between the two ownership groups. The F-tests indicate that collective and privately owned firms place a significantly higher value than their State-owned counterparts on three of the four components of market orientation, thus providing partial support for the first hypothesis. For the second hypothesis, Table VII displays the results relating to company location. Customer orientation, interfunctional co-ordination and profit orientation each differ significantly (p < 0.01) by enterprise location. As indicated, the scores for the Qingdao sample are higher than the Xi'an scores on all four dimensions although not all the differences achieved statistical significance. The Sheffe's tests lend some support to the hypothesis that firms located in coastal cities are more market oriented than inland firms. The exception to the hypothesis is that one of the factors, competitor orientation, does not appear to differ by company location.

Table VI. Effect of ownership type on market orientation

European Journal of Marketing 33,5/6

Market orientation factor dimensions

Company location meansa Xi'an Nanjin Qingdao (N = 125) (N = 102) (N = 55) 2.72 2.93 3.09 2.86

2.83 3.15 2.68 2.76

3.05 3.09 3.11 3.14

Univariate F-value

Scheffe's test (P < 0.05)

4.64* 2.35 5.02* 6.42*

G1 < G3 N/S G2 < G3 G2 < G3

644

Customer orientation Competitor orientation Interfunctional coordination Profit emphasis

Table VII. Effect of company location in market orientation

Notes: Wilks' lambda = 0.88964; p < 0.014; effect power = 0.90 a Using a MANCOVA model to test main effects, the significant test for company location was based on adjusted means eliminating confounding by company size, ownership type and sector type * Significant at a = 0.01 Abbrevations: G1 = Xi'an; G2 = Nanjing; G3 = Qingdao; N/S = not significant

Table VIII presents the univariate results by sector type. All four components of market orientation can be seen to differ (p < 0.01, p < 0.10, p < 0.05 and p < 0.05) between the controlled and uncontrolled sectors; thus, the third hypothesis relating to sectoral differences receives strong support. Table IX displays the results of a comparison of market orientation as related to company size. Customer orientation, competitor orientation and profit orientation differ significantly (p < 0.01) for company size groups. The Sheffe's tests suggest that smaller firms exhibit a significantly higher orientation toward their customers, competitors, and profits as compared to larger firms, thus supporting the fourth hypothesis. Interfunctional coordination, on the other hand, appears not to be related to the company size, a surprising result given the comparative difficulty of achieving coordination in large organisations.

Market orientation factor dimensions Customer orientation Competitor orientation Interfunctional coordination Profit emphasis Table VIII. Effect of government control on market orientation

Sector group meansa Controlled sectors Relaxed sectors Univariate (N = 174) (N = 108) F-value P-significance 2.88 3.07 2.92 2.88

3.39 3.26 3.15 3.20

7.44 3.27 4.08 6.32

0.007 0.067 0.043 0.013

Notes: Wilks' lambda = 0.94016; p < 0.056; effect power = 0.81 a Using a MANCOVA model to test main effects, the significant test for sector type was based on adjusted means eliminating confounding by company location, size and ownership type

Market orientation factor dimensions Customer orientation Competitor orientation Interfunctional coordination Profit emphasis

Company size group meansa Small Medium Large Univariate (N = 74) (N = 82) (N = 126) F-value 3.20 3.31 3.09 3.14

2.98 3.04 3.03 3.04

2.72 2.93 2.97 2.85

6.44* 3.99* 3.00 5.66*

Scheffe's test (P < 0.05) G1 > G3; G2 > G3 G1 > G3 N/S G2 > G3

Notes: Wilks' lambda = 0.94769; p < 0.036; effect power = 0.82 a Using a MANCOVA model to test main effects, the significant test for company size was based on adjusted means eliminating confounding by location, ownership type and sector type * Significant at a = 0.01 Abbrevations: G1 = Small size; G2 = Medium size; G3 = Large size; N/S = not significant

Discussion Private/collectively-owned versus State-owned enterprises Because of the fast growth of private and collectively owned enterprises, it is very important to assess the adoption of the marketing concept by these firms as they may foreshadow future business practices in China. The findings in this study indicate that such firms display a substantially greater market orientation than is evidenced in the business practices of State-owned enterprises. The long run implications of this difference may prove to be substantial. The fact that private/collective enterprises ranked ``customer orientation'' significantly higher than their state counterparts may be a sign of their growing commitment towards customer satisfaction. Such a mind set may well offer a competitive edge and explain why they are gaining market share from State enterprises. Steeped in a long tradition of meeting targets for factory outputs, it is possible that the managers of State-owned enterprises remain oriented toward production and are only now considering the importance of sales. Another important difference is that private/collective managers rate ``competitor orientation'' much higher than managers in State enterprises. This mirrors the old Chinese saying, loosely translated as, ``You will always win when you know your rivals well''. This proactive attitude toward competition may well explain why private/collective enterprises have grown so fast. No difference was found in profit orientation between private/collective and State enterprises although the difference was in the expected direction. This relative similarity between the two groups on this factor was not expected and may be a reflection that at least some managers from State enterprises are coming under increasing pressures to demonstrate positive economic returns. Degree of economic openness (location) Since 1979, the Chinese government has established a number of ``special economic zones'' such as Shenzhen and Zhuhai and the open cities such as


Table IX. Effect of company size on market orientation


Shanghai and Qingdao. The degree of economic openness of each region or city to some extent reflects the level of adoption of Western business practices. The study results provide mild support for the contention that enterprises in open, coastal cities are more market oriented than those in inland cities, although the findings are somewhat ambiguous. For example, the enterprises in Qingdao rated ``customer orientation'' significantly higher than those in Xi'an. Furthermore, coastal city enterprises also appear to have a better interfunctional co-ordination and a greater profit focus than those in the inland cities. These findings may help explain why the economy in coastal areas has enjoyed a much faster rate of growth than is found in inland cities. At the same time, the overall scores from Xi'an are quite comparable with those from Nanjing, thought to be a more open city, suggesting that individual community characteristics may complicate the analysis. Level of government control The fact that enterprises in uncontrolled sectors are more market oriented, on all components, than their counterparts in the controlled sectors should come as no surprise. Businesses in the uncontrolled sectors are strongly influenced by the demands of the market while operations in controlled sectors must still accommodate the dictates of economic planners. Since huge subsidies are provided to many enterprises in the controlled sector, the Chinese government's continued efforts to balance equitable distribution and economic development by means of centralized planning is likely to come under increasing pressure. It is clear that many enterprises in the uncontrolled sectors are in the process of developing the type of market orientation that underlies the practice of modern marketing. These firms are free to design products according to the needs of consumers, price their wares according to the market (although market information is not always adequate), promote to selected target markets and distribute products through whatever channels they see fit. In other words, these firms can exercise the freedom required to design and implement the marketing strategies necessary to satisfy their target customers. The response to market pressures by enterprises in controlled sectors has been more tentative, mainly because the state bureaucratic machine retains considerable influence over management activities. Although the government still pressures firms to meet production quotas, especially in areas experiencing supply shortages, they have recently signalled the further relaxation of controls and promised to let firms undertake increased marketing initiatives. Company size In numbers, China's giant industrial enterprises account for only 0.87 percent of all firms, medium-sized firms represent another 2.03 per cent and small enterprises make up 97.10 percent. The latter two categories constitute 68.5 percent of the national industrial output and employ 78 percent of the total industrial labour force (Wu, 1993). The role of small- and medium-sized firms in the Chinese economy, whether collectively or privately owned, is not only

important, but vital to the country's well being. Their market orientation will certainly influence the direction of future reforms and eventually define the success of the economic transition. The fact that the large, state-owned companies were found to be less market oriented than small and medium sized ones is of no real surprise, except for the finding that they are equally as active in `ìnterfunctional co-ordination'' as their smaller counterparts. It is possible that market pressure has forced larger firms to be better co-ordinated to face the stiff competition from the smaller firms. Alternatively, the communist tradition of holding many meetings may contribute to the development of relatively high levels of coordination. In the final analysis, it is likely that small and medium sized companies, with their better developed marketing practices, will be well positioned to take advantage of the continued liberalisation of economic reforms. Summary and implications Although this study was exploratory in nature, it does provide extensive information relating to the adoption of the marketing concept in modern China. It is evident that the marketing practices of Chinese managers are reflective of the nature of that country's transitional economy. Most enterprises, even if state-owned, now find themselves increasingly involved in marketing because they are no longer allocated production inputs, nor are their outputs assigned to prearranged buyers. As the government relaxes price controls, customer loyalty will become an increasingly important determinant of survival. Further, without a ``government distribution list'' showing producers where to ship and in what quantities, formal marketing planning will become an increasingly essential business practice. Despite two decades of reform, China is far from being a typical market economy. First, many parts of the Chinese economy remain dominated by stateowned enterprises. Although the central planning system may be in its last stages, government concentration of power is still considerable. Secondly, the current infrastructure impedes the dissemination of information, efficient product distribution, and the movement of labour ± all formidable obstacles to further development (Joy, 1990). Finally, the cultural preference for personal rather than contractual relations ± the much discussed guanxi (e.g. Ambler, 1995; Murphy, 1996) ± remains an important factor in doing business in China (Leung and Yeung, 1995) but may actually inhibit the growth of a market economy (Lockett, 1988). As a result of these three factors, marketing practices in China are not yet fully developed in their application. In time, as consumer awareness regarding product quality and variety increases, Chinese enterprises will undoubtedly become more adept in the practices of marketing. Theoretical implications Numerous studies have documented the apparent economic success brought about by China's economic reforms (Groves et al., 1994; Jefferson and Rawski, 1994; Sachs et al., 1994; Goodhart and Xu, 1996). Comparisons of China's



economic performance before and after the economic reforms leave little doubt that a market economy is superior to a command economy in producing economic results. The findings in this study strongly support the contention that once the market becomes more liberal and buyer dominated, firms become more responsive to the market condition, thus more market oriented. In line with the marketing literature, enterprises with greater market orientation appear to be more competitive, thus generating faster growth in the national economy. There are numerous research directions suggested by this investigation, although four are immediately apparent. First, this study provides benchmark data regarding market orientation that may be used to track the evolution of an economy that is in the midst of a dramatic transition. A series of longitudinal investigations would be invaluable. Second, it might prove useful to focus on the development of marketing practices within specific sectors, ideally ones that are likely to emerge as the engines of economic growth over the next two decades. A third subject area concerns the business philosophies and behaviors of managers and their impact on firm performance. As has been documented by Siu and Kirby (1995), Chinese cultural values do have an influence on the marketing practices of small firms, but not always in a positive direction. A fourth research subject builds on the first three and would involve coming to a better understanding of the nature of market orientation within the Chinese environment. The instrument employed in this study, although appearing sound, based on the usual psychometric tests, was developed based on Western business practices; as such, it undoubtedly omits or includes, understates or overstates some aspects of marketing practice that would be appropriate for the Chinese environment. Implications for policy makers and managers The findings of this study suggest a number of implications for policy makers and managers. First, the government may wish to expand its open city policy to inland areas. Encouraging foreign investors to seek new ventures with enterprises in these regions would bring an infusion of much needed capital and management know-how. Such a policy could help to accelerate the transformation process of local enterprises by making them more responsive to market demands. As a second suggestion, the Chinese government should consider promoting more aggressively the growth of small and medium enterprises with private or collective ownership. These organizations have clearly outperformed their state counterparts and would appear to be more responsive to the needs of the marketplace. The government could design special policies to nurture and encourage these firms to compete on a more even basis with the larger state enterprises. Such actions might also serve as an effective prod to the management of state enterprises. The third suggestion is that the government gradually relaxes its control over state enterprises while re-striking the existing balance between social

equity and economic efficiency. The results suggest that the enterprises in controlled sectors are not particularly responsive to the marketplace. Further, the fact that more than one-third of these operations require massive subsidies is an indication that their contribution to social equity may be less than expected when the opportunity costs of such financial infusions are considered. The study has several implications for Chinese managers, especially those in larger state enterprises or those located in inland cities. It is imperative that these organizations develop a better capacity to anticipate the requirements of their customers. The activities in the four dimensions investigated in the study could serve as guidelines to help achieve this goal. The results suggest that market-oriented business entities will have a better likelihood of competing and growing. Western manufacturers and importers may also be interested in the findings as they relate to enterprise location and ownership. At present, foreign investment has been directed to the open coastal cities and often to partners directed by the government. Joint ventures with small or medium sized firms with private or collective ownership may represent a good long-run strategy for entry into the Chinese market. Further, most joint ventures have been with large state enterprises, the government's preferred choice because of the resource implications. Although the transfer of management and marketing know-how to these state enterprises is both required and beneficial, the results of this study suggest that these benefits would flower more quickly in a less controlled environment. Limitations and future research directions Owing to the study's exploratory nature, a number of limitations were encountered. These limitations should be considered when designing future research projects. First, the sample selection process was hindered by the poor information contained in all available industrial directories that deal with China. As a result, the final sample did not achieve the standards demanded for a fully random study. A stratified sample that accurately represents the industrial sectors would allow for better projections to the overall economy. In addition, future researchers may wish to focus their attention on specific, bellwether industries. It is the belief of the authors that different industrial sectors will display different attitudes regarding the adoption of market orientation since they operate under different conditions and with varying degrees of government regulation. Various statistical tests were directed to this premise but were stymied by the small sub-samples involved in the current study. A second limitation can be traced to the objectives of the overall project, which restricted the study to firms that operated with a formal marketing department, undoubtedly a minority in today's China. A better overview of actual Chinese practice would be attained by using a broader cross-section of enterprises. Third, this study attempted the collection of objective information relating to the performance of the firm and the correlating these measures with marketing



orientation. Unfortunately, much of the information provided was not usable because many of the firms under study were unable to provide comparable operating information. Further work on devising different measures of performance would be most useful and allow for a more direct assessment of the impact of various marketing activities. Finally, it must be acknowledged that the project was cumbersome to administer because of the distances involved and the fact that not all the respondents interviewed were familiar with research of this type. These factors undoubtedly slowed the execution of the study, an unfortunate fact given the dynamic nature of the economy under investigation. Further, although the use of PhD students as interviewers resulted in excellent data, it does represent an unusual and perhaps an increasingly unlikely model for subsequent research projects. Future researchers may wish to reduce the number of respondent companies and increase the depth of their investigations. This investigation represents an attempt to overcome the paucity of information relating to the extent of market orientation found in China's commercial sector. Because of the dramatic economic transition underway in that country, China represents an exciting research venue that demands further research. References Ambler, T. (1994), ``Marketing's third paradigm: guanxi'', Business Strategy Review, Vol. 5 No. 4, pp. 69-80. Ambler, T. (1995), ``Reflections in China: re-orienting images of marketing'', Marketing Management, Vol. 4 No. 1, pp. 22-30. Barksdale, H. and Darden, B. (1971) ``Marketers' attitudes towards the marketing concept'', Journal of Marketing, October, pp. 29-36. Borch, F.J. (1957), ``The marketing philosophy as a way of business life'', The Marketing Concept: Its Meaning to Management, American Management Association, New York, NY, pp. 3-16. Brus, W. (1993), ``Marketisation and democratisation: the Sino-Soviet divergence'', Cambridge Journal of Economics, Vol. 17 No. 4, pp. 423-40. Chang, T.Z. and Chen, S.J. (1994), ``The impact of market orientation on total offering quality and business profitability'', American Marketing Association, Winter, p. 59. China Daily (1993), 9 April. Crawford, J.C. (1983), ``The marketing concept ± a utopian dream?'', Developments in Marketing Science, Vol. 6, Academy of Marketing Science, Miami, FL, pp. 450-2. Cronbach, L. (1970), Essentials of Psychological Testing, 3rd ed., Harper & Row Publishers, Inc., New York, NY. Day, G.S. (1990), Market-driven Strategy: Processes for Creating Value, The Free Press, New York, NY. Day, G.S. (1994), ``The capabilities of market driven organizations'', Journal of Marketing, Vol. 58, October, pp. 37-48. Deng, S. and Dart, J. (1994), ``Measuring market orientation: a multi-item, multi-factor approach'', Journal of Marketing Management, Vol. 10 No. 8, pp. 725-42. Deng, S. and Dart, J. (1995), ``The impact of economic liberalization on marketing practices in the People's Republic of China'', European Journal of Marketing, Vol. 29 No. 2, pp. 6-22.

Deshpande, R., Farley, J.U. and Webster, Jr, F. (1993), ``Corporate culture, customer orientation, and innovativeness in Japanese firms: a quadrad analysis'', Journal of Marketing, Vol. 57, January, pp. 23-37. Edgett, S. and Thwaites, D. (1990), ``The influence of environmental change on the marketing practice of building society'', European Journal of Marketing, Vol. 24 No. 12, pp. 35-47. Ennew, C.T., Filatotchev, I., Wright, M. and Buck, T.W. (1993), ``Constraints on the adoption of the marketing concept: the case of the former Soviet Union'', European Journal of Marketing, Vol. 27 No. 11/12, pp. 21-34. Goodhart, C. and Xu, C. (1996), ``The rise of China as an economic power'', National Institute Economic Review, Vol. 155, February, pp. 56-84. Gordon, M.J. (1991), ``Market socialism in China'', Working paper, University of Toronto. Groves, T., Yongmiao, Y., McMillan, J. and Naughton, B. (1994), `Àutonomy and incentives in Chinese state enterprises'', The Quarterly Journal of Economics, Vol. 109 No. 1, pp. 183-210. Hamer, A.M. (1995), ``Why a Soviet-style breakup is not in the cards'', Marketing Management, No. 4 No. 1, p. 18. Hise, R.T. (1965), ``Have manufacturing firms adopted the marketing concept?'', Journal of Marketing, October, pp. 9-12. Holton, R.H. (1985), ``Marketing and the modernisation of China'', California Management Review, Vol. 27 No. 4, pp. 33-45. Hooley, G.J. (1993), ``Raising the Iron Curtain: marketing in a period of transition'', European Journal of Marketing, Vol. 27 No. 11/12, pp. 6-20. Hooley, G., Lynch, J. and Shepherd, J. (1990), ``The marketing concept: putting the theory into practice'', European Journal of Marketing, Vol. 24 No. 9, pp. 7-24. Jaworski, B.J. and Kohli, A.K. (1993), ``Market orientation: antecedents and consequences'', Journal of Marketing, Vol. 57, July, pp. 53-70. Jefferson, G.H. and Rawski, T.G. (1994), ``How industrial reform worked in China: the role of innovation, competition, and property rights'', The World Bank Research Observer, pp. 129-57. Joy, A. (1990), ``Marketing in modern China: an evolutionary perspective'', Canadian Journal of Administrative Sciences, June, pp. 55-67. Keith, R.J. (1960), ``The marketing revolution'', Journal of Marketing, Vol. 24, January, pp. 35-8. Kinnell, M., Feather, J. and Matthews, G. (1994), ``Business information provision for small and medium-sized enterprises in China: the application of marketing models'', Library Management, Vol. 15 No. 8, pp. 16-23. Kohli, A.K. and Jaworski, B.J. (1990), ``Market orientation: the construct, research propositions, and management implications'', Journal of Marketing, Vol. 54, April, pp. 1-18. Kohli, A.K., Jaworski, B.J. and Kumar, A. (1993), ``MARKOR: a measure of market orientation'', Journal of Marketing Research, Vol. 57, November, pp. 467-77. Kotler, P. (1977), ``From sales obsession to marketing effectiveness'', Harvard Business Review, Vol. 55 No. 6, pp. 67-75. Kotler, P and Andreasen, A. (1987), Strategic Marketing for Non-profit Organisations, PrenticeHall, Englewood Cliffs, NJ. Kotler, P and Levy, S. (1969), ``Broadening the concept of marketing'', Journal of Marketing, Vol. 33, January, p. 5. Lawton, L. and Parasuraman, A. (1980), ``The impact of the marketing concept on new product planning'', Journal of Marketing, Vol. 44, Winter, pp. 19-25.



Leung, T. and Yeung, L.L. (1995), ``Negotiation in the People's Republic of China: results of a survey of small businesses in Hong Kong'', Journal of Small Business Management, Vol. 33 No. 1, pp. 70-7. Levitt, T. (1960), ``Marketing myopia'', Harvard Business Review, Vol. 38 No. 4, pp. 45-56. Lockett, M. (1988), ``Culture and the problems of Chinese management'', Organisation Studies, Vol. 9, pp. 475-96. Lusch, R.F. and Laczmiak, G.R. (1987), ``The evolving marketing concept, competitive intensity and organizational performance'', Journal of the Academy of Marketing Science, Vol. 15, Fall, pp. 1-11. Mahatoo, W.H. (1990), ``Marketing in China'', Journal of General Management, Vol. 15, Spring, pp. 63-79. Marx, K. (1970), Capital, Translation, Chinese Foreign Language Publishing House, Beijing. McNamara, C.P. (1972), ``The present status of the marketing concept'', Journal of Marketing, Vol. 36, January, Vol. 50-7. Meziou, F. (1991), `Àreas of strength and weakness in the adoption of the marketing concept by small manufacturing firms'', Journal of Small Business Management, Vol. 29, October, pp. 72-8. Mun, K.C. (1984), ``Marketing in the PRC'', in Kaynak, E. and Savitt, R. (Eds), Comparative Marketing, Praeger Publishers, New York, NY, pp. 247-60. Murphy, I.P. (1996), `Ìt takes guanxi to do business in China'', Marketing News, Vol. 30, October, p. 12. Naidu, G.M. and Narayana, C. (1991), ``How marketing orientated are hospitals in a declining market'', Journal of Health Care Marketing, Vol. 11 No. 1, pp. 23-30. Narver, J.C. and Slater, S.F. (1990), ``The effect of a market orientation on business profitability'', Journal of Marketing, Vol. 20, October, pp. 20-35. Nunnally, J.C. (1978), Psychometric Theory, 2nd ed., McGraw-Hill Book Company, New York, NY. People's Daily (1993), 30 March. Porter, M.E. (1980), `Ìndustry structure and competitive strategy'', Financial Analysts Journal, Vol. 36, July/August, pp. 30-6. Porter, M.E. (1985), ``Technology and competitive advantage'', The Journal of Business Strategy, Vol. 5 No. 3, pp. 60-78. Ruekert, R.W. (1992), ``Developing a market orientation: an organizational strategy perspective'', International Journal of Research in Marketing, Vol. 9, pp. 225-45. Sachs, J., Woo, W., Hughes, G. and Fischer, S. (1994), ``Structural factors in the economic reforms of China, Eastern Europe, and the former Soviet Union'', Economic Policy, Vol. 18, April, pp. 101-46. Shapiro, B.P. (1988), ``What the hell is `market orientated'?'', Harvard Business Review, Vol. 66 No. 6, pp. 119-25. Siu, W. (1992), ``Corporate entrepreneurs in the People's Republic of China: problems encountered and respective solutions'', International Small Business Journal, Vol. 10 No. 4, pp. 26-33. Siu, W. and Kirby, D.A. (1995), ``Marketing in Chinese small business: tentative theory'', Journal of Enterprising Culture, Vol. 3, 3 September, pp. 309-43. Wakefield, K.L. (1993), ``Redefining the marketing concept for the 1990s'', Journal of Marketing ± Theory and Practice, Fall/Winter, pp. 1-16. Webster, F.E. Jr (1988), ``Rediscovering the marketing concept'', Business Horizons, Vol. 31, MayJune, pp. 29-39.

Webster, F.E. Jr (1992), ``The changing role of marketing in the corporation'', Journal of Marketing, Vol. 56, October, pp. 1-17. Wei, S. (1995), ``The new features of marketing environment in The People's Republic of China'', Asia Pacific Journal of Marketing and Logistics, Vol. 7 No. 3, pp. 20-35. Whybark, D.C. (1994), ``Marketing's influence on production economics'', International Journal of Production Economics, Vol. 37 No. 1, pp. 41-50. Wind, Y. and Robertson, T. (1983), ``Marketing strategy: new directions for theory and research'', Journal of Marketing, Vol. 47, Spring, pp. 12-25. Wu, N.T. (1993), ``Rapid progress in small and medium-sized enterprises'', Beijing Review, Vol. 36, 5-11 April, pp. 16-17. Wu, N.T. (1995), ``Private economy flourishes in China'', Beijing Review, Vol. 38, May/June, p. 4. Zhuang, S.C. and Whitehill, A.M. (1989), ``Will China adopt western management practices?'', Business Horizons, March/April, pp. 58-64. Appendix The initial 35 items used for measuring the critical factors of market orientation This appendix contains the items contained in the original research instrument. The items noted by an asterisk (*) were eventually dropped to improve the reliability of the instrument. Factor 1: Customer orientation 1. For our customers, price is the most important selling feature. 2.

We encourage customer comments ± even complaints ± because they help us to do a better job.

3.

After sales service is an important part of our business strategy.

4.

We concentrate on production and let our distributors worry about sales.

5.

In our company ``sales'' and ``marketing'' are pretty much the same thing.

6.

We have a strong commitment to our customers.

7.

We look for ways to create customer value in our products.

8.

We measure customer satisfaction on a regular basis.

9.

Our company would be much better off if our salesforce just worked a bit harder.

10. In our company, marketing's most important job is to promote our products and services to our customers. 11. In our company, marketing's most important job is to identify and help meet the needs of our customers. 12. We define product quality in terms of customer satisfaction. Factor 2: Competitor orientation 13. We regularly analyze our competitors' marketing programs. *14. We frequently collect market data to help direct our new product plans. 15. Our salespeople are instructed to monitor and report on competitive activity. 16. We respond rapidly to competitors' actions. 17. Our top managers often discuss competitors' programs. 18. We target opportunities based on competitive advantage. *19. We produce under the government's guidance so competition is not important to us.



Factor 3: Interfunctional co-ordination 20. In our company, the marketing people have a strong input into the development of new products. 21. People other than our sales reps (such as top management, research, production) regularly call on customers. 22. Market information is shared with all departments. 23. All departments are involved in preparing company plans. 24. We do a good job of integrating the activities of each department. 25. The marketing people in our organisation interact frequently with other departments such as manufacturing, finance, physical distribution, etc. *26. In our company, marketing is confined to the sales/marketing department. 27. In our company, marketing is seen as a guiding philosophy for the entire organisation. Factor 4: Profit emphasis 28. Our company does very little formal marketing planning. 29. Even though our company uses distributors, we have a good knowledge of the requirements of our ultimate customers. 30. Our accounting system could fairly quickly determine the profitability of each of our product lines. 31. Our accounting system could fairly quickly determine the profitability of each of our sales territories. 32. Our accounting system could fairly quickly determine the profitability of each of our customers. 33. Our accounting system could fairly quickly determine the profitability of each of our distribution methods. 34. We have a good idea of the sales potential for each of our markets. *35. Our main job is to fulfil government production quota.