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«Int. Journal of Business Science and Applied Management, Volume 9, Issue 2, 2014 The Role of Supply Chain Integration in the Relationship between ...»

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Int. Journal of Business Science and Applied Management, Volume 9, Issue 2, 2014

The Role of Supply Chain Integration in the Relationship between

Market Orientation and Performance in SMEs

Simone Regina Didonet

Department of Business Administration, Federal University of Paraná

Av. Lothario Meissner, 632, Curitiba, Paraná/Brazil, Postal Code: 80210-170

Telephone: +55 41 3360 4365

Email: simonedidonet@ufpr.br

José Roberto Frega

Department of Business Administration, Federal University of Paraná Av. Lothario Meissner, 632, Curitiba, Paraná/Brazil, Postal Code: 80210-170 Telephone: +55 41 3360 4365 Email: jose.frega@gmail.com Ana Maria Machado Toaldo Department of Business Administration, Federal University of Paraná Av. Lothario Meissner, 632, Curitiba, Paraná/Brazil, Postal Code: 80210-170 Telephone: +55 41 3360 4365 Email: anatoaldo@ufpr.br Guillermo Díaz Latin American Institute of Economics, Society and Politics Federal University of Latin American Integration Av. Tancredo Neves, 6731 – Parque Tecnológico Itaipu, Bloco 6, Espaço 4, Sala 2 Foz do Iguaçu - Paraná/Brazil, Postal Code: 85867-970 Telephone: +55 45 3529 2149 Email: guillermo.diaz@unila.edu.br Abstract The purpose of this paper is to verify the alignment between market orientation and supply chain integration practices for improving performance in small and medium-sized enterprises (SMEs). A model of the relationships between variables was derived from the literature. Data from 327 SMEs were analysed by confirmatory factorial analysis (CFA) to verify the relationships. The findings show that market orientation indirectly and positively influences performance via supply chain integration. The direct relationship between market orientation (MO) and supply chain integration (SCI) was also confirmed. Likewise, the relationship between market orientation and supply chain integration was found to be strong and positive. The findings suggest that the generation of information in market oriented SMEs favours their sharing information both interand intra-organizational. A discussion of these findings, the implications for practice, and proposals for further research are provided.

Keywords: market orientation, supply chain integration, performance, SMEs Int. Journal of Business Science and Applied Management / Business-and-Management.org 1 INTRODUCTION Since the beginning of the discussion surrounding market orientation (MO) in the early 1990s, there have been many different studied regarding the phenomenon. Whithin which, stand out some more important aspects and studies than others in the literature, and to the extent that research on MO advances, even more aspects of the theme are discovered. For instance, there continue to be inconsistent results regarding the MO-performance relationship (see Langerak, 2003; Raju, Lonial, & Crum, 2011; Liao, Chang, Wu, & Katrichis, 2011). This relationship has been considered the starting point of research since the initial theoretical propositions of Narver and Slater (1990) and Kohli and Jaworski (1990). As to inconsistent results in the MO-performance relationship, Langerak (2003) concluded that the weak or non-existent association between the two reported in different studies is due to the variety of scales used in measuring the concepts, the context in which the research takes place, i.e. different countries, and the type of sample used, i.e. cross-sectional, single-corporation survey, etc.

Furthermore, despite the number of studies about MO and its relationship to performance, little is known about the scope of the concept relationships beyond the limits of the organization. Research that relates MO to interfirm practices and the result of both on performance remain incipient (Cambra-Fierro, Florin, Perez, & Whitelock, 2011). This is the case of the relationships among MO, supply chain management (SCM) and performance (Jüttner, Christopher, & Godsell, 2010). As Min, Mentzer, and Ladd (2007, p.508) point out “despite apparent logical association between MO and SCM concepts and the possible mediating role of SCM concepts in the MO-performance link, there have been few, if any, attempts to investigate MO in a supply chain context”.

To insert SCM discussion in the MO context implies to recognize that, in order to respond to customer needs - and consequently achieve better performance - firms not only have to manage their own resources and capabilities, but they are dependent on the resources and capabilities of supplying firms (Kibbeling, Bij, & Weele, 2013; Green, Whitten, & Inman, 2012). Kibbeling et al. (2013, p.500) state that firms now realize that “some value-creating activities are carried out in the supply chain beyond the firm’s direct control”. Therefore, the ability to integrate and coordinate activities across the supply chain becomes crucial to satisfying the demands of the ultimate customers of the supply chain (Green et al., 2012). This means, that MO key concepts become a supply chain concern as they move beyond the boundaries of the individual firm (Baker, Simpson, & Siguaw, 1999; Min et al., 2007; Martin & Grbac, 2003). Furthermore, MO can affect firm performance by influencing its supply chain management (Green, McGaughey, & Casey, 2006).

Despite mutual benefits of a close alignment between market orientation and supply chain management (Jütner et al., 2010), research on MO and SCM have been developed in parallel to each other and there have been few studies that emphasize the joint effects of the practices on business results (Green et al., 2012). Among studies that have examined market orientation in a supply chain setting, a group of researchers focus on how market orientation influences buyer-supplier relationships (Siguaw, Simpson, & Baker, 1998; Langerak, 2001;

Kibbeling et al., 2013). Other researchers oriented their studies to understand the mediating role of SCM in the relationship between market orientation and organizational performance (Min et al., 2007; Green et al., 2006).

In addition, the role of supply chain management in leveraging a firm´s market orientation has been also studied (Martin & Grbac, 2003; Jütner et al., 2010; Liu, Ke, Wei & Hua, 2013).

In the few relationships established between MO and SCM, the studies reinforce the importance of supply chain management and/or its integrating concepts, that is, supply chain orientation and supply chain management (Min et al., 2007), but do not explore specific aspects such as supply chain integration (SCI) (Liu et al., 2013). SCI is oriented to coordinating intra- and inter-organizational information flows by means of adopting information technologies (Kim, 2006) and can integrate a SCM perspective in firms (Min et al., 2007).

Considering that the flow of information in the supply chain facilitates intra and inter-firm integration and that this flow is facilitated by MO (Martin & Grbac, 2003; Liu et al., 2013), exploring the practices of supply chain integration and their relationship to market orientation seems to be a natural route in this process. This is specifically important if we consider that market oriented firms are able to respond better to the requirements of their customers through the information obtained from the market and shared within the firm in a coordinated manner (Kohli & Jaworski, 1990; Narver & Slater, 1990).

Liu et al. (2013) studied the effect of SCI and two dimensions of market orientation, i.e. customer and competitor orientation on performance in large and SMEs firms. In their research model, both dimensions of MO moderate the relationship between SCI and performance. However, the referred authors did not explore the entire MO construct in this relationship and did not considered the opposite side, i.e., how MO can leverage SCI and how can both improve firm performance. Evidence is needed on this perspective, since MO helps the firm to produce and store market information needed to build and maintain collaborative relationships with other firms in the supply chain (Min et al., 2007). Likewise, there is even less research dedicated to deepen knowledge of the relationships between the two themes and the performance of firms in specific contexts of analysis, as it is in the case of SMEs, and specific countries as well.

Simone Regina Didonet, José Roberto Frega, Ana Maria Machado Toaldo and Guillermo Díaz Studying MOSCI-performance relationships in different contexts and countries should report different results and help the understanding of MO formation in firms (Langerak, 2003; Ellis, 2007). This can also help the understanding of the practice and structure of SCM in a specific context, i.e. country (Chow et al., 2008).

To summarize, the MO-SCM-Performance relationship was not sufficiently explored in prior studies, and even less studies refer specific concepts of SCM, i.e. supply chain integration in this relationship. Furthermore, little is known about this relationship in SMEs and in developing countries as it is in the case of Chile.

Based on these considerations, this study tries to fill a part of this research gap by examining the mediating role of supply chain integration in the MO-Performance relationship. Following previous studies in a supply chain-market orientation relationship context (Min et al, 2007; Green et al, 2006; Kibbeling et al., 2013; Liu et al., 2013; Martin & Grbac, 2003; Jütner et al., 2010; Siguaw et al, 1998; Langerak, 2001), we focus on a specific SME context for analysis in Chile, South America. Therefore, the objective of this work is to verify the role of SCI in the MO-Performance relationship in Chilean SMEs.

Specifically, SMEs are an interesting context of analysis as they are considered inherently vulnerable in the reliance on SCM partners for relation-based rents (Arend & Wisner, 2005) instead of obtaining advantage through relationships between customers and suppliers in the supply chain (Bordonaba-Juste & Cambra-Fierro, 2009). Thus, SMEs can take advantage of both MO and SCI activities to compensate for their vulnerabilities in the supply chain. In this sense, studying this group of firms can generate insights in terms of the balance that SMEs can obtain between both perspectives and how this can improve their organizational performance.

Chile also offer an interesting context for the study due to its macroeconomic profile. The country occupies first place among the countries of Latin America and the Caribbean in the global competitiveness ranking of the World Economic Forum (2013). Sustainable economic growth, commercial openness, macroeconomic stability, institutional efficiency and transparency are some of the aspects that justify Chile's leadership in the region (World Economic Forum, 2013). Additionally, the country’s openness index indicates that Chile has an exposure level of 70 percent to international trade (Milesi, Moori, Robert, & Yoguel, 2007), which can be translated into greater competitiveness for its domestic industry. As for SMEs, they contribute a total of 13 percent of the country's gross domestic product (GDP) and provide 38 percent of the total employment according to the 2006 data from the National Institute of Statistics (Instituto Nacional de Estadística [INE], 2008). In the northern region of Chile, SMEs contribute 7.4 percent of the GDP of the district of Antofagasta, where the study was conducted.

The article proceeds in the following manner. In the next section, we present the theoretical framework and the study hypotheses of the research, followed by the methodology used. Subsequently, we present the analysis and discussion of the results found and finally present the managerial implications based on the results and the limitations and future research directions.

2 CONCEPTUAL MODEL The theoretical foundations for the relationships between market orientation, supply chain integration and organizational performance can be based on the configuration theory and the boundary theory.

According to the configuration theory, a configuration represents any multidimensional constellation of distinct attributes inside or outside the organization that occur together within an unifying theme (Meyer, Tsui, & Hinings, 1993). Configurations are generated by exogenous organizational forces, e.g. environmental selection for competitive fitness, and by endogenous pressures towards uniform configurations, e.g. functional relationships among organizational components (Meyer et al., 1993). Hence, the configuration approach involves identifying dominant gestalts or configurations of observable characteristics or behaviors that may lead to a particular performance outcome (Ward, Bickford, & Leong, 1996; Ketchen, Thomas, & Snow, 1993). As Hambrick (1984) notes, these gestalts clarify how strategic attributes work in combinations and often indicate an entire group of strategies that is associated with high performance in a given setting.

The boundary theory involves the discussion about boundaries and boundary roles. The former are a defining characteristic of organizations. The last ones are the link between the environment and the organization concerning resource acquisition and disposal (Aldrich & Herker, 1977). The boundary theory confirms the importance of the environment as a contingency factor and identifies boundary-spanning activities (Jemison, 1984). These activities link the organization with its environment and are related with a better organizational performance (Dollinger, 1984). They are commonly considered in relation with suppliers and/or customers in the marketing literature (e.g. Stock, 2006; Singh, 1998; Stock & Zacharias, 2011).

Both configuration and boundary theories contribute to this study: the configuration theory indicates the need to consider organizational arrangements, i.e. configurations, in order to obtain high performance. We consider the combination of MO and SCM resources as a configuration of organizational resources in order to obtain better performance. The boundary theory relates the links that are established between environment and organizations through boundary-spanning activities in order to acquire resources and disposal. MO and SCM present some boundary-spanning activities as they combine external and internal resources in their development.

Both theories indicate implications for organizational performance that are applied in this study to develop Int. Journal of Business Science and Applied Management / Business-and-Management.org hypotheses about the relationship between MO and SCM activities, i.e. supply chain integration, and their impact on performance.

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