Research on International Service Marketing: A State of the Art

CONTENTS LIST OF CONTRIBUTORS vii PREFACE S. Tamer Cavusgil ix RESEARCH ON INTERNATIONAL SERVICE MARKETING: ENRICHME...

Author: Pieter Pauwels Ko de Ruyter

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CONTENTS LIST OF CONTRIBUTORS

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PREFACE S. Tamer Cavusgil

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RESEARCH ON INTERNATIONAL SERVICE MARKETING: ENRICHMENT AND CHALLENGES Pieter Pauwels and Ko de Ruyter

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PART I: MARKETING SERVICES ACROSS BORDERS MANAGING SERVICE RELATIONSHIPS IN A GLOBAL ECONOMY: EXPLORING THE IMPACT OF NATIONAL CULTURE ON THE RELEVANCE OF CUSTOMER RELATIONAL BENEFITS FOR GAINING LOYAL CUSTOMERS Thorsten Hennig-Thurau, Kevin P. Gwinner, Dwayne D. Gremler and Michael Paul

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A CROSS-CULTURAL INVESTIGATION OF RELATIONSHIP MARKETING EFFECTIVENESS IN RETAIL SERVICES: A CONTINGENCY APPROACH Gaby Odekerken-Schröder, Kristof De Wulf and Kristy E. Reynolds

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THE ROLE OF SOCIALLY DESIRABLE RESPONDING IN INTERNATIONAL SERVICES RESEARCH Marcel van Birgelen, Ko de Ruyter and Martin Wetzels

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PART II: GETTING SERVICES ACROSS BORDERS THE INTERNATIONALIZATION PROCESS OF SERVICE PROVIDERS: A LITERATURE REVIEW Tinne Lommelen and Paul Matthyssens ENTRY MODE CHOICE IN SERVICE FIRMS: A REVIEW OF CONTEMPORARY RESEARCH Aileen Kennedy

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PART III: NEW SERVICES ACROSS BORDERS MARKETING INDUSTRIAL PROJECT-RELATED SERVICES INTERNATIONALLY: A MULTI-LINGUAL LITERATURE REVIEW Maria Anne Skaates and Bernard Cova

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INTERNATIONAL CONSULTING PROVIDERS AND MULTILATERAL INSTITUTIONS: NETWORKS AND INTERNATIONALIZATION Catherine Welch

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LIST OF CONTRIBUTORS Marcel van Birgelen

Department of Marketing, Maastricht University, The Netherlands

Bernard Cova

Marketing Group, European School of Management (ESCP-EAP), France

Dwayne D. Gremler

Department of Marketing, Bowling Green State University, USA

Kevin P. Gwinner

Department of Marketing, Kansas Sate University, USA

Thorsten Hennig-Thurau

Department of Marketing and Media Research, Bauhaus-University of Weimar, Germany

Aileen Kennedy

School of Marketing, Dublin Institute of Technology, Ireland

Tinne Lommelen

Department of Burinen Administration, Limburg University Center, Belgium

Paul Matthyssens

Department of Strategy, University of Antwerp, Belgium

Gaby Odekerken-Schr¨oder

Department of Marketing, Maastricht University, The Netherlands

Michael Paul

Department of Marketing and Media Research, Bauhaus-University of Weimar, Germany

Pieter Pauwels

Department of Marketing, Maastricht University, The Netherlands

Kristy E. Reynolds

Department of Marketing, Louisiana State University, USA vii

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Ko de Ruyter

Department of Marketing, Maastricht University, The Netherlands

Maria Anne Skaates

Systime Academic, Denmark

Catherine Welch

School of International Business, University of New South Wales, Australia

Martin Wetzels

Eindhoven University of Technology, ECIS, The Netherlands

Kristof De Wulf

Competence Center Marketing, Vlerick Leuven Gent Management School, Belgium

PREFACE This special volume of Advances in International Marketing is devoted to exploring new perspectives on international service marketing – a topic of great interest to scholars and practitioners of international marketing. It is guest edited by Pieter Pauwels and Ko de Ruyter, both of Maastricht University. The idea for devoting a separate volume on international service marketing originated from Professors Pauwels and de Ruyter. They issued a call for papers, which then attracted a variety of submissions of high quality. We owe gratitude to them for screening and evaluating these submissions, and for preparing the final set of chapters. We are also indebted to many colleagues who assisted in the review process. The resulting selections draw from a variety of perspectives and offer rich insights on international services marketing. Our thanks go to Professors de Ruyter and Pauwels for their efforts in creating this volume. At Michigan State University, I would like to recognize the professional assistance of Ms. Kathy Waldie, Editorial Assistant for the Advances in International Marketing series. Kathy carries the responsibility of corresponding with the authors, guest editors, as well as the staff of Elsevier Science at various phases of the publication process. Finally, we express our appreciation to Ms. Hannah Collett and the other staff at JAI/Elsevier Science who saw the volume through the production process. S. Tamer Cavusgil Series Editor

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RESEARCH ON INTERNATIONAL SERVICE MARKETING: ENRICHMENT AND CHALLENGES Pieter Pauwels and Ko de Ruyter SERVICES ACROSS THE GLOBE ANNO 2005 Today, services officially represent more than 22% (or about USD 3 trillion) of world trade and are the fastest growing sector of world trade for the last two decades (OECD, 2004; WTO, 2001). Optimist analysts believe that services will reach 50% of world trade by 2020 (Hibbert, 2003). Nearly half of the 100 biggest multinationals are service firms with an average revenue of over USD 50 million in 1997 (Hibbert, 2003; Keillor, Hult & Kandemir, 2004). The American McKinsey and Company in management consulting, the Danish ISS in facility management and the Dutch VNU in business information illustrate how service firms may succeed in gaining and holding a global dominant position. On top of the official service economy, the (hidden) service component of product markets is responsible for a major and increasing part of the total value of the world merchandise trade (Brown et al., 2001; Gr¨onroos, 1990). Illustrative in this respect is the critical role of the global service systems of the Swedish/Swiss ABB in automation technology and of the American Caterpillar in construction and mining equipment. Despite the increasingly important role of services in world trade, crossborder marketing and delivery of services is complex and full of hindrances. Firstly, services remain highly protected by national regulations. Prior to the ratification of GATS – the General Agreement on Trade in Services – in 1996,

Research on International Service Marketing: A State of the Art Advances in International Marketing, Volume 15, 1–7 Copyright © 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1016/S1474-7979(04)15001-1

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no multilateral agreement existed on rules for global trade in services. Today GATS remains a tricky issue, high on the global political agenda. Secondly, more than tangible goods, services require idiosyncratic internationalization approaches. Due to the critical role of the customer in service delivery, the degree of intangibility of a service may dictate a redefinition of that service across the border (Patterson & Cicic, 1995). Finally, as services are fundamentally peoplecentred, they are highly culture-sensitive (Knight, 1999). As a consequence, services need more local customization, which, on its turn, is complicated by the limited mobility of customers as well as by the intangibility and the similtaneous production and consumption of services. In sum, the recent troublesome internationalization processes of multinationals such as the French Carrefour and the American Walmart in retailing and the American Disneyland in entertainment illustrate the complexity and forced ideosyncracy of the internationalization of services.

COMPLEX YET WANTED: INTERNATIONAL SERVICE MARKETING RESEARCH Nothwithstanding the dramatic increase in, and impact of, global trade of services on the world economy and the intrinsic complexity of the marketing of services across borders, the international dimension of service marketing research remains underdeveloped at best. Milestone reviews by Berry and Parasuraman (1993) and Fisk, Brown and Bitner (1993), which marked the maturation of service marketing research, remained surprisingly silent on the (potential) impact of the international dimension on the key questions of service marketing research. Only five years ago, the Journal of Services Marketing was the first to set up a Special Issue on international service marketing. Although the international dimension had entered the general debate on services marketing earlier, we see various reasons why this occurred in a slow and scattered way. Initially, scholars did not capture the relevance of international services just because no (reliable) data was available. While GATS, OECD and WTO are working hard on it, official and detailed data on international services remain scares and vague (Hibbert, 2003). Moreover, data from different sources have been inconsistent for the simple reason that international services had been defined in different ways (Samiee, 1999). Secondly, quite some non-cummulative academic effort was done to solving the problem of heterogeneity of services. From different points of view, a wide variety of international service typologies and taxonomies has been developed. Today, it is believed that this heterogeneity

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problem remains largely unsolved (Lommelen, 2004). Thirdly, emerging attention to the international dimension of service marketing in the early 1990s was largerly diverted to the issue of e-services and the role of internet for worldwide service marketing (Fisk, 1999). It is clear that information technology and the internet may dramatically reduce the barrier of physical distance (Mattsson, 2000). Yet, it does not (or partly at best) relieve the problem of the psychic distance between the supplier and the customer. Fourthly, the cultural issue continues to torture the international marketing agenda. Despite the dominance of some elegant approaches to capture (read: measure) culture, the cross-cultural translation of key constructs in service marketing remains largely unsolved. Finally, research on international services is highly complex due to the multidisciplinary nature of both service marketing theory and international business theory (Clark, Rajaratnam & Smith, 1996).

A BIFOCAL APPROACH TO INTERNATIONAL SERVICE MARKETING At the risk of oversimplifying the historic reality, to date the agenda of international service marketing research has been shaped from two perspectives: consumer marketing and international business. From an international business perspective, the interest in the service firm has been lukewarm. Why then consider the service firm a special case? Li and Guisinger (1992) and Buckley, Pass and Prescott (1992) basically concluded that no separate internationalization theory was needed for the explanation of the service multinational. Nevertheless, the interest in the internationalizing service firm grew slowly during the 1990s. Interest has primarly focused on the (pre-) startup phase of service internationalization. Some of the most popular themes remain: internationalization motives, country/market selection, initial entry mode choice, and typologies of international services. Despite a record of over hundered studies on these issues in the last decade, their conceptual and empirical contribution remains limited (Knight, 1999; Lommelen, 2004). From a marketing perspective, the interest in international services has been more limited in terms of the quantity of publication, yet far more advanced in terms of conceptual underpinning and empirical approaches. The key issue was and remains to test the central research questions of service marketing in an international setting: service quality, understanding and optimizing the service encounter, service design and delivery, customer retention and relationship marketing, and internal marketing.

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CONTRIBUTIONS IN THIS ISSUE – AN OVERVIEW This special issue reflects the aforementioned bifocal approach to international service marketing research. Part I “Marketing Services across Borders” captures the issue from a marketing perspective. Part II “Getting Services across Border” builds explicitly on the IB perspective to international service marketing. Part III “New Services across Borders” opens a research window on two poorly researched tendencies of service internationalization: industrial projectbased services and international consulting to multilateral institutions. Each of these hold potential as leverage for acceleration in the globalization of services.

Part I: Marketing Services Across Borders In the first paper, Thorsten Hennig-Thurau, Kevin P. Gwinner, Dwayne D. Gremler and Michael Paul focus on the role of relational benefits in developing long-term relationships with consumers in a cross-cultural context. The authors propose a conceptual framework and suggest hypotheses that accommodate for the moderator effect of Hofstede’s cultural dimensions. Highly complementary to the first, the second paper by Gaby Odekerken-Schr¨oder, Kristof De Wulf and Kristy E. Reynolds investigates the moderating impact of demographic characteristics, personal values and shopping-related consumer characteristics on the effectiveness of relationship marketing efforts in a retail service context. Their analysis builds upon an extended sample in three countries: USA, The Netherlands and Belgium. As the moderator effects were found to be inconsistent among these three countries, the authors argue in favour of an adaptation strategy with respect to relationship marketing efforts. Both papers exemplify the rigor – both conceptual and empirical – of current research on international service marketing research. The third paper by Marcel van Birgelen, Ko de Ruyter and Martin Wetzels illustrates the need for ongoing optimization of methodological approaches for the investigation of cross-border service marketing. Indeed, the core characteristic of services – intangibility – affects the conceptualization as well as the complexity of researching its phenomena in a cross-cultural setting.

Part II: Getting Services Across Borders Tinne Lommelen and Paul Matthyssens scrutinize the extant literature on the internationalization process of services providers. This paper focuses on four

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themes: internationalization motives, country/market selection, entry mode choice, and the profile of service exporters. Although the authors found and analyzed over a hundred recent publications, still they have to conclude that this stream of literature misses sound theoretical bases. Accordingly, specific research questions per research theme are formulated. While Lommelen and Matthyssens take a broad perspective on service internationalization, Aileen Kennedy zooms into the entry mode choice. Complementary to the previous paper, Kennedy points at the paucity of empirical research in this area. In contrast to the more marketing-based research as represented in Part I of this Special Issue, these two profound literature reviews plead for better – not necessarily a lot more – research on the internationalization process of the service firm. Future research should build upon established IB and marketing theory and should apply rigorous longitudinal analytical approaches.

Part III: New Services Across Borders In the first paper of Part III, Maria Anne Skaates and Bernard Cova focus on a booming global market: industrial project-related services. While mainly domestically organized until recently, the global consolidation trend in many project-related industries has increased cross border trade dramatically. Building upon a multi-lingual literature review, the authors scrutinize the viability of four marketing schools of thought for the conceptual accommodation of this phenomenon. Applying a rigorous qualitative approach, Catherine Welch investigates the internationalization of consulting providers and more in particular how this process may be accelerated by globally dominant institutions such as the World Bank or the UN. The network approach to underpin the logic of this study holds unrealized potential for the explanation of the internationalization process of the service provider.

FUTURE RESEARCH ON INTERNATIONAL SERVICES MARKETING Whatever the particular emphases in future research, the meta-question remains whether traditional theories of service marketing apply for international services. Although (implicitly) contested in earlier work, recent publications (e.g. Clark & Rajaratnam, 1999; Knight, 1999; Samiee, 1999) as well as the papers in this Special Issue illustrate that the international dimension may dramatically impact upon the state of the art of service marketing research.

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Table 1. Top 10 Issues in Future International Service Marketing Research. 1. The moderating effect of culture on the relationship between the intangibility of services and marketing performance; 2. Cultural (mis)fit and the service seller-buyer dyad; 3. Inward internationalization (cf. customers’ mobility); 4. International outsourcing of services; 5. The limits of ICT and internet in international service marketing; 6. The process of service internationalization beyond the start-up phase; 7. The network approach to international service marketing; 8. Local service standardization versus adaptation; 9. Pricing services across borders; 10. Strategic and competitive strategies of global service providers.

At the certain risk of being incomplete, Table 1 lists our top 10 of issues in international service marketing research for the next five years. Some of the issues are quite general others are more specific. With this list we aim at inspiring top researchers to enter this field, at teasing current international service marketing scholars, or even at inciting disagreement. In any way, we contribute to the basic aim of this Special Issue: to increase academic interest in international service marketing research.

ACKNOWLEDGMENTS We highly appreciate the confidence we enjoyed from S. Tamer Cavusgil, the Editor-in-Chief of Advances in International Marketing. We firmly acknowledge the insights and contributions of a dozen of reviewers, all experts in international service marketing research. Finally, we are proud of the truly multinational character of this Special Issue. The group of nineteen authors represents research institutes from eight different countries on three continents. Research for this book was partially funded by a research grant from the 6th European Framework Program, Specific Support Action-CoCombine (WP2).

REFERENCES Berry, L. L., & Parasuraman, A. (1993). Building a new academic field – The case of services marketing. Journal of Retailing, 69(1), 13–60. Brown, S. W., Van Bennekom, F., Goffin, K., Hahn, A., & Alexander, J. A. (2001). S-business: Deﬁning the services industry. Fort Myers, FL: AFSM International.

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Buckley, P. J., Pass, C. L., & Prescott, K. (1992). The internationalization of service firms: A comparison with the manufacturing sector. Scandinavian International Business Review, 1(1), 39–56. Clark, T., & Rajaratnam, D. (1999). International services: Perspectives at the century’s end. Journal of Services Marketing, 13(4/5), 298–310. Clark, T., Rajaratnam, D., & Smith, T. (1996). Toward a theory of international services: Marketing intangibles in a world of nations. Journal of International Marketing, 4(2), 9–28. Fisk, R. P. (1999). Wiring and growing the technology of international services marketing. Journal of Services Marketing, 13(4/5), 311–318. Fisk, R. P., Brown, S. W., & Bitner, M. J. (1993). Tracking the evolution of the services marketing literature. Journal of Retailing, 69(1), 61–102. Gr¨onroos, C. (1990). Service management and marketing. Managing the moments of truth in service competition. Lexington, MA: Lexington Books. Hibbert, E. (2003). The new framework for global trade in services – All about GATS. The Service Industries Journal, 23(2), 67–78. Keillor, B. D., Hult, G. T. M., & Kandemir, D. (2004). A study of the service encounter in eight countries. Journal of International Marketing, 12(1), 9–35. Knight, G. (1999). International services marketing: A review of research, 1980–1998. Journal of Services Marketing, 13(4/5), 347–360. Li, J., & Guisinger, S. (1992). The globalization of service multinationals in the “triad” regions: Japan, Western Europe and North America. Journal of International Business Studies, 23(4), 675–696. Lommelen, T. (2004). A learning perspective on internationalization: Progression in the internationalization of logistic services providers. Unpublished doctoral dissertation. Limburg University Center, Diepenbeek, Belgium. Mattsson, J. (2000). Learning how to manage technology in services internationalisation. Service Industries Journal, 1(January), 22–39. OECD (2004). Structure and trends in international trade in services. Paris: OECD. Patterson, P. G., & Cicic, M. (1995). A typology of service firms in international markets: An empirical investigation. Journal of International Marketing, 3(4), 57–83. Samiee, S. (1999). The internationalization of services: Trends, obstacles and issues. Journal of Service Marketing, 13(4/5), 319–328. World Trade Organization (2001). GATS – Facts and ﬁction. Geneva: World Trade Organization.

MANAGING SERVICE RELATIONSHIPS IN A GLOBAL ECONOMY: EXPLORING THE IMPACT OF NATIONAL CULTURE ON THE RELEVANCE OF CUSTOMER RELATIONAL BENEFITS FOR GAINING LOYAL CUSTOMERS Thorsten Hennig-Thurau, Kevin P. Gwinner, Dwayne D. Gremler and Michael Paul ABSTRACT Customer relational beneﬁts have been identiﬁed as a driving motivation for consumers to engage in long term relationships with service providers. Such beneﬁts can be expected to play a crucial role in the success of service ﬁrms when extending their business into other countries and cultures. Most of the previous discussion of relational beneﬁts has been conducted almost exclusively in North-American contexts and has not addressed the impact a nation’s culture may have on the relevance of relational beneﬁts for gaining relationship outcomes such as customer loyalty. The aim of this article is to deepen our understanding of the role of relational beneﬁts in developing long-term relationships with consumers in a cross-cultural context. Speciﬁcally, propositions focusing on the moderating role of power Research on International Service Marketing: A State of the Art Advances in International Marketing, Volume 15, 11–31 Copyright © 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1016/S1474-7979(04)15002-3

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distance, individualism/collectivism, masculinity/femininity, and uncertainty avoidance for the beneﬁts-outcomes relationship are developed. The article concludes with a discussion of potential implications for service ﬁrms and researchers.

INTRODUCTION Today, many companies have migrated from a transactional mindset to a relational mindset in their dealings with customers. The extant literature proposes that, for many organizations, success is dependent upon the firm’s ability to develop and maintain long-term relationships with individual customers (e.g. Heskett et al., 1997; Lemon et al., 2002; Morgan & Hunt, 1994). This is particularly critical in service businesses where the customer’s input and even co-production of the service are often necessary components for a positive outcome (e.g. Berry, 1995). The idea that business relationships require both the service firm and the customer to benefit from the relationship has recently stimulated academic interest on the types of beneﬁts consumers receive as a result of engaging in long-term relationships with sellers (e.g. Gwinner et al., 1998; Hennig-Thurau et al., 2002; Reynolds & Beatty, 1999a). Understanding these consumer relational benefits and their impact on customer loyalty will provide guidance to organizations, allowing them to focus on those benefits deemed most important to their customers. Extant academic research on relational benefits has been conducted almost exclusively with North American consumers. Because the nature and development of relationships is highly culture-dependent, the reliance on U.S.-based research has left a large gap in our understanding of the importance of relational benefits in cultures outside the United States. As service providers, as well as companies selling tangibles with a substantial service component, increasingly expand their operations into countries and cultures other than their own (e.g. Citicorp, Hennes and Mauritz, Kentucky Fried Chicken, Starbucks, Tony and Guy, T-Mobile, WalMart), developing a thorough understanding of the relational benefits that consumers desire in different cultures and culture’s impact on the economic relevance of relational benefits will be of growing importance. Against this background, this article strives to extend our understanding of the impact of national culture on the relationship between customer relational benefits and relationship marketing outcomes. We start with a review of the literature on consumer relational benefits and cross-cultural issues in relationship marketing research. On this basis, we extend the original three-benefits typology suggested by Gwinner, Gremler and Bitner (1998, henceforth cited as GGB) and then develop propositions suggesting how national culture may moderate

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the influence of relational benefits on outcomes such as customer loyalty. The article ends with a discussion of potential implications for service firms and researchers.

THEORETICAL BACKGROUND The Concept of Customer Relational Beneﬁts A customer’s decision to enter into and maintain a long-term relationship with a company is largely driven by his or her assessment of: (1) the core product/service; and (2) the relational aspects of the exchange (Hennig-Thurau et al., 2000). In separating the core product/service from the relational aspects, one is able to begin thinking about the added value the interpersonal interaction between customers and providers has for consumers. Relational benefits focus on aspects of the relationship itself and are available only to those customers who are engaged in continuing relationships with the service provider and its personnel. Over the past few years the relationship marketing literature has begun to explore what kind of benefits customers derive from staying in long-term relationships with companies and how these benefits impact customers’ behavior. This represents a major shift in relationship marketing from exclusively focusing on the benefits of long-term relationships for companies to the benefits accruing to customers. In his seminal work, Barnes (1994) identified 24 facets of relationships between customers and service companies that are salient to customers, including dimensions of trust, provision of social support and economic advantages. Berry (1995) distinguished between two general categories of such relational motives: a desire for risk reduction and a desire for social interaction. He suggested risk-reduction to be connected with trust: “Customers who develop trust in service suppliers . . . have good reasons to remain in these relationships: they reduce uncertainty and vulnerability” (Berry, 1995, p. 242). With regard to customers’ social needs, Berry argued that people long for individual and customized treatment in the context of customer-employee interactions. A later analysis by Bendapudi and Berry (1997) confirmed the relevance of trust-related benefits for customers’ relational decisions. The most extensive study of relationship benefits from the customer’s perspective has been presented by GGB. Through a thorough literature review as well as an extensive qualitative study, GGB developed a typology consisting of four separate relational benefits. Specifically, social beneﬁts refer to the emotional part of the relationship between a customer and an employee. The customer: (1) enjoys his or her positive relationship with the employee (“it’s more fun to deal with somebody

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you’re used to”; customer statement in GGB, p. 104); and (2) interprets his or her relationship with the respective employee as similar to friendship (“he’s like a kind of friend now”; customer statement in GGB, p. 104). Psychological beneﬁts include those aspects of a relationship that focus on the reduction of uncertainty (“you don’t have as much anxiety and you have a higher confidence level in being a loyal customer”; customer statement in GGB, p. 104). Economic beneﬁts contain monetary and non-monetary advantages (e.g. time saving) that the customer derives from maintaining the relationship and finally customization beneﬁts describe those advantages resulting from individualized treatment of the customer by the service provider. In a second step of their analysis, GGB tested their four-benefit typology using a cross-sectional survey of consumers from a variety of service businesses. This analysis resulted in an aggregation of economic and customization benefits into a joint factor named special treatment benefits. In addition, psychological benefits were renamed conﬁdence beneﬁts to better reflect the structure of the factor loadings. Since then, research in this area has extended our understanding of relational benefits and their role within the relationship marketing concept. Reynolds and Beatty (1999a, b) developed empirical consumer typologies based on relational benefits and found relational benefits to influence customer satisfaction and loyalty with the salesperson. Based on consumer-brand relationship research (e.g. Fournier, 1998), Hennig-Thurau et al. (2000) generated a framework for relational benefits and barriers and showed empirically that the importance of relational benefits differs between customer segments. They also introduced the concept of identity-related relational beneﬁts and proposed that being in a relationship with a specific provider might add meaning to the consumer’s self-concept. Such identity-related benefits were originally suggested by Fournier (1998) in the context of consumer goods. As their importance for consumers is based on the brand rather than the product’s manifest character, identity-related benefits can be expected to be relevant to consumers of branded services. Recently, other researchers have elaborated on the importance of identification in consumer-to-business relationships (Arnett et al., 2003; Bhattacharya & Sen, 2003). In another study, Hennig-Thurau et al. (2002) conceptualized relational benefits as antecedents of relationship quality and relationship outcomes (i.e. customer loyalty and positive word-of-mouth communication). They found both social benefits and confidence benefits to significantly impact relationship outcomes, while no such impact was found for special treatment benefits. Finally, based on a qualitative analysis of professional service relationships, Sweeney and Webb (2002) suggested the existence of another benefit type, which they labeled “symbiotic benefits” but might be more simply described as quality-improvement beneﬁts in the context of consumer services. In particular, as service employees often learn

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about the preferences of a specific customer through repeated interactions, they are often able to avoid mistakes and, consequently, provide the customer with a higher level of service than that provided in one-time transactions. This benefit is based on the mutual knowledge both the service provider and customer have developed during previous encounters, enabling the employee to better fulfill the customer’s needs. While customization benefits stem from the differences in treatment between a customer and other customers, quality-improvement refers to the adjustment of the core service (e.g. a hair cut provided by a hair stylist or a restaurant meal).

Cultural Issues in Relationship Marketing Research Consumer-firm relationships have been shown to be a culture-dependent concept (Ambler & Styles, 2000; Palmer, 1997, 2000; Simmons & Munch, 1996). Specifically, Palmer concludes that relationship marketers “should be as wary of prescribing universal solutions for exchange bases as they are of developing universal product and promotion policies for all markets” (Palmer, 1997, p. 321). Ambler and Styles (2000) echo this sentiment by contending business relationships are embedded in a cultural environment that must be considered to fully understand the development of long-term relationships. In addition, several studies have demonstrated the impact cross-cultural differences can have on relationship-oriented constructs such as service quality and trust. Regarding service quality, Malhotra et al. (1994) argued that the importance of service quality dimensions differs between developed and developing countries based on cultural peculiarities. Donthu and Yoo (1998) empirically show that service quality expectations differ for four of the cultural dimensions proposed by Hofstede (1980). Furrer et al. (2000) conceptualized Hofstede’s (1991) culture dimensions as moderators of the impact of five service quality dimension on outcomes (e.g. loyalty) and found support for such influence on 21 of 25 service quality-outcome relationships. This is consistent with several other studies, including Winsted (1997), Mattila (1999), Stauss and Mang (1999), Liu et al. (2001) and Witkowski and Wolfinbarger (2002), which all found service quality dimensions to be impacted by cultural variables. A study on consumer trust and culture by Doney et al. (1998), who considered “the extent to which cultural norms and values facilitate or inhibit the formation of trust” (p. 602), proffered several propositions on how trust formation differs with regard to Hofstede’s cultural dimensions. As such, abundant evidence exists to suggest that an individual’s perception of relationship-oriented concepts, such as relational benefits, will vary greatly depending upon one’s national culture.

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The only study to explicitly address the concept of customer relational benefits in a non-North American context was carried out by Patterson and Smith (2001). They replicated the original work of GGB in Thailand and identified differences in the importance of individual relational benefits. However, despite the fact that their study adds support to the culture-dependent character of the relational benefits concept, their study suffers from a number of limitations. Most critical, as their data collection was limited to a single country (i.e. Thailand), the data does not allow for a comprehensive assessment of culture’s impact on relational benefits. Altogether, relational benefits have empirically been shown to lead to such important outcomes as customer loyalty and word-of-mouth communication in the context of the U.S. culture (Hennig-Thurau et al., 2002; Reynolds & Beatty, 1999a). Given the findings of Patterson and Smith (2001) and the cultural sensitivity of other consumption and assessment constructs (e.g. service quality and trust), we expect the impact each of the relational benefits has on such relational outcomes to vary across cultures. In addition, as service encounters are largely social exchanges between consumers and service providers, cultural values that influence social relationships should play a role in these service relationships as well. Specifically, we will propose that national culture will moderate the relationship between relational beneﬁts and customer loyalty.

THE IMPACT OF NATIONAL CULTURE ON THE RELATIONAL BENEFITS-CUSTOMER LOYALTY LINK The Moderating Role of National Culture The term national culture is used to describe a system of values and norms that are shared by the members of a society. National culture has been conceptualized by different authors (Chinese Culture Connection, 1987; Hofstede, 1980, 1991, 2001; Schwartz, 1994; Smith et al., 1996), but the most comprehensive and most widely used (e.g. Atuahene-Gima & Li, 2002; Dawar & Parker, 1994; Lynn et al., 1993; Nakata & Sivakumar, 1996; Roth, 1995; Steenkamp et al., 1999) framework by far is the one developed by Hofstede (1980, 1991, 1998, 2001). Hofstede originally conceptualized national culture as a four-dimensional construct encompassing the following dimensions: (1) Power distance refers to the degree to which members of a society expect and accept power in that society to be distributed unequally. (2) Individualism/collectivism refers to the degree to which society members prefer to act based on their own self-interests as opposed to being concerned with conforming to group behavior.

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Fig. 1. The Moderating Role of National Culture for the Impact of Relational Benefits on Customer Loyalty.

(3) Masculinity/femininity is the degree to which a society is characterized by assertiveness (masculinity) versus nurturance (femininity). (4) Uncertainty avoidance refers to the degree to which uncertain situations are tolerated and accepted by a society’s members. We argue that these four cultural dimensions1 moderate the relationship between the relational benefits identified earlier in this article (i.e. social, confidence, economic, customization, identity-related and quality-improvement relational benefits) and customer loyalty as visualized in Fig. 1.2 Table 1 overviews the impact of each cultural dimension on the different kinds of relational benefits, with each of the expected moderating influences being discussed in the following paragraphs.

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Table 1. Proposed Moderating Effects of Cultural Dimensions on Relational Benefits-Customer Loyalty Relationship. Relational Benefits Social Benefits

Cultural Dimensions

n.i.

∗∗ ⊕ ⊕ ⊕

Economic Benefits

Customization Benefits

IdentityRelated Benefits

QualityImprovement Benefits

n.i. n.i. ⊕ n.i.

∗∗ n.i. ⊕

⊕∗∗ n.i. n.i.

n.i. n.i. n.i. ⊕

Notes: ⊕ indicates a positive impact on the benefits-loyalty relationship, indicates a negative impact on the benefits-loyalty relationship and n.i. indicates that no impact is postulated. To illustrate, the greater the level of masculinity within a culture, the lower the impact of social benefits on customer loyalty. Also, ∗ indicates the proposed relationship is based on the assumption that the service firm/employees are assigned to the customers’ out-groups and ∗ ∗ indicates that the service firm/employees are assumed to be viewed by consumers as members of a lower social class.

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Power distance Collectivism∗ Masculinity Uncertainty avoidance

Confidence Benefits

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Impact of Power Distance on the Relevance of Relational Beneﬁts We expect power distance to influence the impact of social benefits, confidence benefits, customization benefits and identity-related benefits on customer loyalty. On a basic level, it is expected that a less powerful person strives to reduce an existing power distance, while a more powerful person will strive to maintain or to increase it (Hofstede, 2001, p. 83). As the impact of social relationships on society members’ behavior is positively influenced by the perceived similarity of relational partners (Duck, 1994), the overall effect of social beneﬁts on customer loyalty in service relationships is argued to be weaker in cultures with greater levels of power distance (i.e. in cultures with a low level of perceived similarity between customer and service provider/firm), as this implies by definition the unequal distribution of power. PPD–1 . The greater the level of power distance within a culture the weaker the impact of social benefits on customer loyalty. When the power distance within a culture is high, individuals who perceive themselves to be of lower status relative to others will be reluctant to assert their rights when treated unfairly (Hofstede, 2001). As such, with regard to conﬁdence beneﬁts, when service employees/firms are perceived by the consumer to be of a higher social class, customers are expected to have a stronger dependency on employees’ trustworthy behavior (i.e. strong impact of confidence benefits on relational outcomes), as other ways to secure “fair” treatment (e.g. confronting the provider and asserting their rights) are limited due to the belief that they have no power in the relationship. In contrast, confidence benefits are expected to have less influence on relational outcomes when service employees/firms are perceived as members of a lower social class due to customer perceptions of increased power and options. PPD–2 . When service employees/firms are perceived as members of a higher social class by consumers, the greater the level of power distance within a culture the stronger the impact of confidence benefits on customer loyalty. When service employees/firms are perceived as members of a lower social class by consumers, the greater the level of power distance within a culture the weaker the impact of confidence benefits on customer loyalty. In a culture in which power distance is high, consumers who perceive themselves as of a higher class than the service firm/employees will take some customized treatment from their service provider for granted (Riddle, 1992). That implies, when the service firm and its employees are considered as members of a higher social class, such special treatment will be highly valued and will have a strong

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impact on customer loyalty. However, the same impact may not hold for economic benefits as they are of a less personal nature and, further, depend more upon the policy of the organization rather than on the individual discretionary behavior of the employee. Customization beneﬁts are therefore expected to have a stronger impact on loyalty in high power distance cultures when service employees/firms are perceived as members of a higher social class. PPD–3 . When service employees/firms are perceived as members of a higher social class by consumers, the greater the level of power distance within a culture the stronger the impact of customization benefits on customer loyalty. When service employees/firms are perceived as members of a lower social class by consumers, the greater the level of power distance within a culture the weaker the impact of customization benefits on customer loyalty. The perception of service employees’ power status is also expected to influence the importance of identity-related relational beneﬁts and, consequently, their impact on customer loyalty. Specifically, if the firm (as a relational partner) is perceived as belonging to a lower social class, then identity-related benefits will be of greater importance to the consumer when the power distance is large, as the consumer can exercise power and confirm his self-concept in a satisfying manner. In contrast, if the firm is perceived as a higher social class entity, the consumer will be polarized between dependence and the desire to reject dependence (“counterdependence”; Hofstede, 1991, p. 27) in a high power distance culture, resulting in an extreme diversity of feelings of the consumer towards the firm and a large emotional distance between the consumer and the firm/employees. This emotional distance is part of the identity of a less powerful person in a culture with high power distance, but it will not serve as a motive to maintain a relationship as it is too ambiguous to be valued as a benefit. PPD–4 . When service employees/firms are perceived as members of a lower social class by consumers, the greater the level of power distance within a culture the stronger the impact of identity-related benefits on customer loyalty. When service employees/firms are perceived as members of a higher social class by consumers, the greater the level of power distance within a culture the weaker the impact of identity-related benefits on customer loyalty.

Impact of Individualism/Collectivism on the Relevance of Relational Beneﬁts Individualism can be argued to moderate the influence of social, confidence, customization and identity-related relational benefits on customer loyalty. Regarding

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social beneﬁts, the strict distinction between in-groups and out-groups in collectivistic cultures has to be taken into account. In-groups are usually characterized “by similarities among the members and individuals have a sense of ‘common fate’ with members of the ‘in-group’ ” (Triandis, 1995, p. 9), while out-groups are groups to which the consumer does not belong to and feels he has little in common with. In cultures scoring high on collectivism, relationships within in-groups are very close and social by definition, whereas it is almost impossible to get into existing social networks as a member of an out-group (Hofstede, 2001; Smith & Bond, 1998; Triandis, 1995), with the consequence that social benefits are not valued if they come from out-group members. We therefore believe the impact of social benefits on customer loyalty will be weaker if the service firm and its employees are not considered as part of the customer’s in-group and that it will be stronger when the firm and its employees are part of the customer’s in-group. PIC–1 . When a service firm employee is regarded as part of the customer’s out-group, the greater the level of collectivism within a culture the weaker the impact of social benefits on customer loyalty. When a service firm/employee is regarded as part of the customer’s in-group, the greater the level of collectivism within a culture the stronger the impact of social benefits on customer loyalty. In collectivistic cultures there is the expectation that members of a society will take care of each other and not attempt to take advantage of each other (Yamagishi & Yamagishi, 1994). Generally, this high level of trust in collectivistic cultures is only prevalent with regard to society members which are considered to be part of the individual’s in-group, while the opposite will be the case with respect to outgroup society members (Bj¨orkmann & Kock, 1995; Hofstede, 2001). Presuming that service firms and their employees are assigned to out-groups by the customer, we predict the added level of comfort conﬁdence beneﬁts offer will be viewed positively by the customer as it will serve to overcome mistrust in the firm. Therefore, the offer of confidence benefits is expected to be more highly valued in collectivistic cultures under these conditions. When the service firm/employee is a member of the customer’s in-group, confidence benefit offers will be considered less important in collectivistic cultures due to the high level of interpersonal trust already present between in-group members. PIC–2 . When a service firm/employee is regarded as part of the customer’s outgroup, the greater the level of collectivism within a culture the stronger the impact of confidence benefits on customer loyalty. When a service firm/employee is regarded as part of the customer’s in-group, the greater the level of collectivism within a culture the weaker the impact of confidence benefits on customer loyalty.

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With regard to culture’s influence on the customer’s valuation of customization beneﬁts, one has to distinguish between two different kinds of customization offers. First, group-based customization benefits (e.g. in-group members are given credit by a grocery store owner based solely on him knowing about the people’s in-group membership) are not offered to individual consumers but to all members of the in-group and make the in-group stand out from the rest of the society (i.e. the out-group). Such group-based customization benefits will only be offered when the service firm and its employees are part of the in-group. Under these conditions, group-based customization will result in a strong impact of customization benefits on loyalty in collectivistic cultures, as particularism (i.e. “taking particular relationships into account” Hofstede, 2001, p. 30) represents a common feature in collectivistic cultures (Hofstede, 2001; Smith et al., 1996). Second, customization benefits offered to individual consumers make the individual stand apart from the group, which goes against group norms in collectivistic cultures (Steenkamp et al., 1999) and will therefore be more highly valued in individualistic cultures than in collectivistic cultures. PIC–3a . When a service firm/employee is regarded as part of the customer’s in-group, the greater the level of collectivism within a culture the stronger the impact of group-based customization benefits on customer loyalty. PIC–3b . The greater the level of collectivism within a culture the weaker the impact of individual customization benefits on customer loyalty. Finally, we expect the relevance of identity-related beneﬁts to be greater in a consumer’s in-group in a collectivistic culture, as members of collectivistic cultures generally put more emphasis on exchanging identity-related resources such as love and status rather than money and information (Foa & Foa, 1974; Triandis, 1995). This is because identity-related relational benefits focus on strengthening the consumer’s self-concept, which is interdependent in collectivistic cultures but generally independent in individualistic cultures (Markus & Kitayama, 1991). In contrast, consumers’ relationships with service firms, employees, or brands which are considered to be part of an out-group will not add meaning to the self-concept in a collectivistic culture because out-group members are of limited importance to the consumer. PIC–4 . When a service firm/employee is regarded as part of the customer’s outgroup, the greater the level of collectivism within a culture the weaker the impact of identity-related benefits on customer loyalty. When a service firm/employee is regarded as part of the customer’s in-group, the greater the level of collectivism within a culture the stronger the impact of identity-related benefits on customer loyalty.

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Impact of Masculinity/Femininity on the Relevance of Relational Beneﬁts The masculinity/femininity cultural dimension is postulated to moderate the impact of social, confidence, economic and quality-improvement benefits on relational outcomes. Given that the interest in relationships with other society members plays a central role in social beneﬁts and because consumers in masculine cultures place less value on interpersonal relationships and people (Hofstede, 2001), we predict social benefits will have a weaker impact on customer loyalty when the level of masculinity within a culture is high. PMF–1 . The greater the level of masculinity within a culture the weaker the impact of social benefits on customer loyalty. Regarding confidence benefits, as members of masculine cultures are strongly “ego oriented” (Hofstede, 2001, p. 299), this widespread pursuit of ego goals might imply a greater level of uncertainty within relationships. Consequently, we expect trust and the offer of conﬁdence beneﬁts through the service provider to be more important for loyalty in a highly masculine cultural context. PMF–2 . The greater the level of masculinity within a culture the stronger the impact of confidence benefits on customer loyalty. Economic incentives such as money are generally more highly valued in masculine than in feminine cultures (Hofstede, 2001). As economic beneﬁts focus on this sort of economic incentives, we expect economic benefits to have a greater impact on customer loyalty in cultures with a high level of masculinity. PMF–3 . The greater the level of masculinity within a culture, the stronger the impact of economic benefits on customer loyalty.

Impact of Uncertainty Avoidance on the Relevance of Relational Beneﬁts Uncertainty avoidance is expected to impact the influence of confidence, customization and quality-improvement benefits on customer loyalty. By definition, in cultures with a high level of uncertainty avoidance, offers that reduce consumers’ uncertainty are more highly valued (Hofstede, 2001). Because conﬁdence beneﬁts add to consumer certainty, we expect confidence benefits to have a greater impact on customer loyalty when the culture has a high level of uncertainty avoidance. Moreover, members of cultures high in uncertainty avoidance hold the attitude that most people cannot be trusted (Hofstede, 2001; Inglehart et al., 1998), which also implies that confidence benefits will be more highly appreciated in those cultures.

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PUA–1 . The greater the level of uncertainty avoidance within a culture the stronger the impact of confidence benefits on customer loyalty. Customization and quality-improvement benefits can both be thought of as a way to deliver goods and services that meet a consumer’s individual preferences. To the extent that those benefits provide the consumer with clear expectations (Gudykunst, 1995) they serve to eliminate the surprise component of consumption (i.e. one receives what he or she asks for, not a “one-size-fits-all” solution). Consequently, both customization and quality-improvement benefits are expected to have a greater impact on customer loyalty in high uncertainty avoidance cultures. PUA–2 . The greater the level of uncertainty avoidance within a culture the stronger the impact of customization benefits on customer loyalty. PUA–3 . The greater the level of uncertainty avoidance within a culture the stronger the impact of quality-improvement benefits on customer loyalty. As is evident from the prior discussion, it is probable that some contrasting culture effects will off-set each other in the moderating process. That is, when one starts to examine the national culture of a country cluster or a single country in depth, it is apparent that some of the predictions made by our propositions may be in conflict with each other. For example, how does the moderating influence relative to social relational benefits work in a feminine culture (suggesting a stronger influence of this benefit type on customer loyalty) where individualism is low (suggesting a weaker influence between out-groups)? As predicting the relative importance of each moderator would be highly speculative, this remains an empirical question that should be investigated by collecting and analyzing data collected in a variety of cultural settings.

DISCUSSION AND IMPLICATIONS The theoretical analysis of the influence of culture dimensions on the impact of relational benefits on relationship marketing outcomes such as customer loyalty provides important insights for the internationalization of service providers’ business activities. We now point out some implications of our analysis for service providers and researchers. In order to derive expressive conclusions, we formed country clusters out of cultures which are similar on Hofstede’s national culture dimensions instead of presenting implications for individual countries (e.g. Kale, 1995). Based on Hofstede (2001) and other researchers (for an overview, see Ronen & Shenkar, 1985), Table 2 shows a five-cluster typology distinguishing between an Anglo cluster, a Nordic

Power Distance

Individualism

Masculinity

Uncertainty Avoidance

Anglo cluster Australia Canada Great Britain Ireland New Zealand United States

From low to very low 36 39 35 28 22 40

Very high 90 80 89 70 79 91

High 61 52 66 68 58 62

Very low 51 48 35 35 49 46

Nordic cluster Denmark Finland Netherlands Norway Sweden

Very low 18 33 38 31 31

From very high to high 74 63 80 69 71

Very low 16 26 14 8 5

From low to very low 23 59 53 50 29

Germanic cluster Germany Switzerland Austria

Very low 35 34 11

High 67 68 55

Very High 66 70 79

Medium 65 58 70

From very high to medium 68 80 58

From low to very low 25 20 17

From high to medium 57 66 45

From medium to very low 29 30 69

Medium 54

Medium 46

Very high 95

Very high 92

East Asian cluster Hong Kong People’s Republic of China Taiwan Independent cluster Japan

25

Note: Scores are reported in Hofstede (2001) with all scales ranging from 0 to 100. Larger values indicate a greater level of the respective culture dimension.

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Table 2. Selected Country Cluster and Hofstede’s Cultural Dimensions Scores.

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cluster, a Germanic cluster, an East Asian cluster and an Independent cluster, index scores on the national culture dimensions for each country and an assessment of the relative level on national culture dimensions on the cluster level. To reduce complexity, in our discussion we assume that: (1) service firms and their personnel are predominantly assigned to the customers’ out-groups; and (2) that firms and employees are generally considered as members of a lower social class. Anglo Cluster (Australia, Canada, Great Britain, Ireland, New Zealand and United States): Countries from this cluster score high on individualism, fairly high on masculinity, quite low with regards to uncertainty avoidance and low to very low when it comes to power distance. Compared to other cultures, the provision of economic benefits are likely to be more valued by service customers of this culture cluster. In contrast, quality-improvement benefits can be argued to be relatively less effective in this cultural context based on the arguments laid out in this article. The relevance of social, confidence, identity-related as well as individual-level customization benefits remains unclear, as contradictory findings exist with regard to these benefits. Nordic Cluster (Denmark, Finland, Netherlands, Norway, Sweden): This cluster represents countries where the power distance is very small, individualism is high and masculinity and uncertainty avoidance are quite low. According to these characteristics and the propositions stated above, service firms in these markets should, in comparison to other cultural environments, put strong emphasis on the offer of social benefits because of this cluster’s individualistic and feminine character and the low degree of power distance. We would expect individual-level customization benefits to be valued due to the low power distance and the high levels of individualism and femininity. Economic, confidence benefits and qualityimprovement benefits can be argued to have a relatively weak effect on loyalty compared to other cultures and should therefore be offered cautiously. For identityrelated benefits, no clear recommendation can be given as theoretical findings are ambiguous. Germanic Cluster (Germany, Austria, Switzerland): This cluster is composed of countries in which the power distance is very low, individualism is medium to high, masculinity is very high and uncertainty avoidance is medium. With regard to this cluster, our earlier discussion suggests a strong emphasis should be put on the offer of confidence benefits because of the low power distance and the high masculinity in this culture. Similarly, attention should be devoted to individuallevel customization as power distance is low in this cluster and individualism is high. We would also anticipate economic benefits to be relatively effective due to the cluster’s high masculinity. In contrast, social and identity-related benefits are likely to be less effective in a Germanic culture than in other cultural environments and for quality-improvement benefits, no impact of culture can be found.

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East-Asian Cluster (Hong Kong, People’s Republic of China, Taiwan): Primarily due to divergent political developments in the last century, countries in this cluster show more variance on the national culture dimensions than the other ones, but because of their close links concerning history and language they can be regarded as one cluster. The high degree of collectivism implies a differentiated treatment depending on the customer’s perception of being an in-group versus out-group member. In order to become a member of the consumer’s in-group, service firms should offer customization benefits that are tailored to the consumer’s group needs. Also, the offer of identity-related benefits should correspond with an interdependent, collectivistic construal of the self. With regard to other kinds of relational benefits, no clear recommendation can be given based on ambiguous findings, medium level culture dimensions (for masculinity/femininity) and high intra-cluster heterogeneity (for uncertainty avoidance). Independent Cluster (Japan): Japan builds an independent cluster all by itself due to characteristics which are particular for the Japanese culture (Doi, 1973; Yamagishi & Yamagishi, 1994; Yamaguchi, 1994). On the national culture dimensions Japan ranks medium on power distance and collectivism and scores very high on masculinity and uncertainty avoidance. The latter two scores imply a high impact of confidence benefits for developing long-term relationships. Similarly, economic benefits should exert a strong impact on customer loyalty due to the extremely high level of masculinity in this culture and quality-improvement benefits are recommended based on the cluster’s high uncertainty avoidance. In contrast, as high masculinity suggests social benefits are likely to have a weak effect on loyalty, such measures should be carefully reconsidered in the Japanese culture. For customization benefits, results are ambiguous and no clear recommendation can be derived on theory alone. For identity-related benefits, no recommendation can be given as no moderating impact of masculinity and uncertainty avoidance is postulated and the other culture dimensions are medium for this cluster. While empirical validation of the propositions offered in this study is needed, marketing managers should consider how the proposed relationships summarized in Table 1 can be used in improving service relationships across different cultures. By taking into account the impact of national culture dimensions, service firms will be enabled to manage relationships with customers in a culture-sensitive manner and avoid the problems associated with implementing standardized strategies across diverse global markets. Specifically, a firm can consider the dominant cultural type of a given market segment (from Table 2) and then reference Table 1 to determine which relational benefits are expected to have the largest influence on consumers in that region. This information could be used to better inform a company’s resource allocation decisions. For example, in a culture where uncertainty avoidance is high (such as Japan) a firm may be guided to spend relatively large

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amounts on information technology that will improve the customization capabilities of front-line employees by tracking a customer’s service preference history and, consequently, will have a positive effect on customer loyalty.

Directions for Future Research As this article is developed using a theoretically based, deductive approach, validation of the propositions should come from an empirical investigation of the moderating role of national culture on the relational benefits-customer loyalty relationship. As mentioned at the end of the propositions section, one particularly interesting area of investigation involves examining how contrasting culture effects may off-set each other in the moderating process. Because different kinds of relational benefits in different cultural environments may be confounded in some cases by contrasting national culture effects, an empirical study would help to identify which national culture dimension is dominant under which conditions. In efforts to empirically test the proposed propositions, future research should consider collecting data to control for service type influences since the importance of relational benefits has been shown to differ between service types (see GGB). As such, including services from two or more different service categories identified by Bowen (1990) may yield interesting service type differences. For example, data collection could be limited to two different service types in all countries (e.g. hairdressers and banking). In selecting the specific service types it is important that the service serves a similar function across cultures.

NOTES 1. Hofstede later added a fifth dimension titled long-term orientation (the degree to which society members value past and present rather than considering the effect of actions being important in the future). Because long-term relationships are less valued when a culture’s long-term orientation is low (Hofstede, 2001), the benefits received by customers based on their ongoing relationships with service providers are expected to have a larger impact on relational outcomes in cultures with a high long-term orientation. As such, this fifth dimension is applicable to all of the relational variables and thus is not as interesting as those where the influence may vary. Long-term orientation is not considered further in this study in order to concentrate on those cultural dimensions that have the potential to help us understand greater variation. 2. Although GGB combined economic and customization benefits using a post-hoc factor analysis, we decided to treat them separately because of the different facets they represent when it comes to understanding the moderating impact of national culture on relational benefits.

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A CROSS-CULTURAL INVESTIGATION OF RELATIONSHIP MARKETING EFFECTIVENESS IN RETAIL SERVICES: A CONTINGENCY APPROACH Gaby Odekerken-Schr¨oder, Kristof De Wulf and Kristy E. Reynolds ABSTRACT Relationship marketing is not effective in every situation or context. This study investigates the impact of three categories of potential contingency factors on the effectiveness of relationship marketing efforts in a retail services context: demographic characteristics of the consumer (age and gender), personal values of the consumer (social afﬁliation), and shoppingrelated consumer characteristics (product category involvement, consumer relationship proneness, and shopping enjoyment). The data relate to more than 1,700 mall intercept personal interviews conducted in the United States, and in two western European countries (the Netherlands and Belgium), covering a wide variety of food and apparel retailers. The found moderating inﬂuences were inconsistent across samples, stressing the need for an adapted relationship marketing strategy per country and industry. The results do provide a ﬁrst indication that relationship marketing efforts are relatively more effective if they are directed at consumers who are young and female, have a high need for social afﬁliation, and show Research on International Service Marketing: A State of the Art Advances in International Marketing, Volume 15, 33–73 Copyright © 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1016/S1474-7979(04)15003-5

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high levels of product category involvement, consumer relationship proneness, and shopping enjoyment. The results provide a preliminary framework for retailers to optimize the allocation of their relationship marketing budgets.

INTRODUCTION Despite the increased attention for relationship marketing practices, various scholars consider relationship marketing efforts not to be effective in every situation or context (e.g. Barnes, 1997; Day, 2000). Not every exchange has the potential to grow into a relationship and a thorough cost-benefit analysis is required before companies make a decision to invest in relationship marketing (Houston & Gassenheimer, 1987). Different scholars emphasized that companies’ resources could be misallocated or even wasted as a result of automatically applying a relationship marketing strategy in every situation (Bendapudi & Berry, 1997; Christy et al., 1996; Pressey & Mathews, 2000). Moreover, undifferentiated relationship marketing approaches could cause buyers to become disappointed or to perceive relationship marketing efforts as intrusive (Krapfel et al., 1991). Low (1997) even indicated that, under certain conditions, parties should actively and consciously play the market, seek out opportunities, and develop an opportunistic mentality. However, only limited empirical evidence has been compiled on contingency factors potentially curbing or strengthening the effects of relationship marketing efforts (e.g. Verhoef et al., 2003). According to Bendapudi and Berry (1997, p. 31), “a contingency approach to relationship marketing involves understanding when and why customers are most receptive to relationship maintenance.” Based upon literature (Berry & Gresham, 1986; Crosby et al., 1990; Javalgi & Moberg, 1997; Shani & Chalasani, 1992), we could classify characteristics influencing the effectiveness of relationship marketing efforts into four broad categories: (1) buyer characteristics (e.g. gender); (2) product or service characteristics (e.g. product complexity); (3) environmental characteristics (e.g. environmental uncertainty); and (4) exchange situation characteristics (e.g. exchange frequency). Our study explicitly focuses upon the service retailer-consumer relationship, collecting data from a consumer’s point of view and investigating buyer characteristics as potential moderators. First, while empirical research on relationship marketing has strongly emphasized channel and industrial relationships, systematic research on relationship marketing in a consumer environment has

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only recently increased in attention (Singh & Sirdeshmukh, 2000; Varki & Wong, 2003). Nevertheless, the importance of relationship marketing research in a retail setting is generally acknowledged. Taher et al. (1996) for instance stressed that traditional store patronage is weakening due to new technologies, the appearance of Internet stores, and consumers’ time impoverishment. Second, we solely focus on the role of buyer characteristics to the neglect of other potential moderator categories. We believe the managerial relevance of focusing on buyer characteristics as moderators is most promising as retailers are more flexible in deciding which customers to target than in affecting the retail context they operate in (product/service, environmental, and exchange situation characteristics). We focus upon those buyer characteristics that are commonly referred to in existing relationship marketing literature as potential moderators of relationship marketing effectiveness. As a result, our study contributes to existing relationship marketing literature by taking a contingency approach in a retail service setting. More specifically, we assess to which extent relationship marketing effectiveness is contingent upon demographic characteristics of the consumer (age and gender), personal values of the consumer (social affiliation), and shopping-related consumer characteristics (product category involvement, consumer relationship proneness, and shopping enjoyment). Existing conceptual literature suggests that these factors, distinguishing different types of consumers, can moderate the success of relationship marketing (Bendapudi & Berry, 1997; Christy et al., 1996). However, empirical research focusing on their moderating role is largely lacking (e.g. De Wulf et al., 2001). In response, we conduct a comprehensive and rigorous test by empirically validating our conceptual model in a multi-country (U.S., The Netherlands, and Belgium) and multi-industry (food and apparel) context, following cries for cross-validation across different settings (e.g. Iacobucci & Ostrom, 1996; Steenkamp & Baumgartner, 1998).

THEORETICAL BACKGROUND AND HYPOTHESES Figure 1 depicts that each of the examined contingency factors moderates: (1) the interrelationships between four relationship marketing efforts (direct mail, preferential treatment, interpersonal communication, and tangible rewards) and relationship investment; and (2) the interrelationships between relationship investment and three relationship outcomes (relationship satisfaction, relationship commitment, and behavioral loyalty). Each of the components of the conceptual model and their interrelationships are discussed subsequently.

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Fig. 1. Conceptual Model.

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Relationship Marketing Efforts Elaborating on the work of De Wulf et al. (2001) we distinguish the following four relationship marketing efforts: direct mail, preferential treatment, interpersonal communication and tangible rewards. First, they define direct mail as “a consumer’s perception of the extent to which a retailer keeps its regular customers informed through direct mail.” By conveying interest in the consumer, communication is often considered to be a necessary condition for effective relationships (Duncan & Moriarty, 1998). Direct mail is an often-used communication means intended to strengthen relationships. Beatty et al. (1996) found that salespeople notified regular customers of upcoming events and promotions/sales by contacting them by mail. Other salespeople sent thank you cards to their customers. Second, they regard preferential treatment as “a consumer’s perception of the extent to which a retailer treats and serves its regular customers better than its non-regular customers.” Sheth and Parvatiyar (1995, p. 264) referred to the importance of preferential treatment by recognizing that “implicit in the idea of relationship marketing is consumer focus and consumer selectivity – that is, all consumers do not need to be served in the same way.” Beatty et al. (1996) also found that regular customers tend to be provided with special treatment. For example, they are given the opportunity to shop before- or after-hours. In addition, salespeople will often choose merchandise for these customers from all departments in the store, not just the salesperson’s particular department. The salespeople will also often coordinate entire seasonal wardrobes for their regular customers. Beatty et al. (1996) termed this special treatment “augmented personal service.” Gwinner et al. (1998) and Hennig-Thurau et al. (2002) also provided examples of “preferential treatment” that regular customers receive. For example, some service providers will make special deliveries to these customers. Treacy and Wiersema (1993) addressed a similar concept, calling it “customer intimacy” in which employees go to great lengths to ensure that customers receive exactly what they desire. Third, they consider interpersonal communication as “a consumer’s perception of the extent to which a retailer interacts with its regular customers in a warm and personal way.” The importance of personal exchanges between consumers and store personnel in influencing relationship outcomes should not be surprising given that relationships are inherently social processes (Beatty et al., 1996). Gwinner et al. (1998) described how service providers personally call their customers to see how they are doing and if customers need them for anything. One service provider will call customers upon the arrival of new products that he knows the customers will enjoy. In their study, regular customers reported receiving personal recognition and friendship from their service providers, and having a personal connection with them. In the Beatty et al. (1996) study,

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salesperson relationships were often described by customers as “friendships.” One strategy that salespeople used to build personal relationships with customers was knowing and using customers’ names and remembering the preferences of customers’ family members. Salespeople would make a special effort to greet customers by name and also inquire about family members. These salespeople/service providers also know their customers so well they can anticipate customer needs and contact the customer ahead of time (Beatty et al., 1996). Finally, they distinguish between intangible rewards, meaning the relationship marketing efforts previously described, and tangible rewards, meaning “a consumer’s perception of the extent to which a retailer offers tangible benefits such as pricing or gift incentives to its regular customers in return for their loyalty.” For example, trying to earn points – on such things as grocery purchases, hotel stays, movie tickets, and car washes – would help consumers to remain loyal, regardless of service enhancements or price promotions of competitors (Sharp & Sharp, 1997).

Relationship Investment In line with De Wulf et al. (2001) we define relationship investment as “a consumer’s perception of the extent to which a retailer devotes resources, efforts, and attention aimed at maintaining or enhancing relationships with regular customers that do not have outside value and cannot be recovered if these relationships are terminated” (cfr. Smith, 1998). In line with Doney and Cannon (1997), Macintosh and Lockshin (1997), Morgan and Hunt (1994), and Crosby and Stephens (1987) who all examined person-tofirm relationships, we chose to evaluate the relationship at a broad level – the relationship between one retailer and many consumers. Usually a service retailer’s relationship marketing efforts are a part of his overall relationship marketing strategy which is designed for all customers similarly, rather than the case-by-case approach which is more common in a business-to-business environment.

Relationship Outcomes In line with Dwyer et al. (1987), we believe that research on relationship marketing effectiveness should not focus at discovering whether a relationship exists, but rather at the extent to which it exits. As a result, our model assumes that the extent to which a relationship exists, is expressed by the strength of relationship outcomes. Models that theorize attitudinal as well as behavioral relationship

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outcomes have strong precedence in relationship marketing studies (e.g. Dick & Basu, 1994). Frequently reported attitudinal outcomes include relationship satisfaction and relationship commitment (e.g. Garbarino & Johnson, 1999; Hennig-Thurau et al., 2002; Ping, 2003). We define relationship satisfaction as “a consumer’s affective state resulting from an overall appraisal of the relationship with the store” (cf. Anderson & Narus, 1984). Relationship commitment is defined as “a consumer’s enduring desire to continue a relationship with a retailer accompanied by the willingness to make efforts at maintaining it” (cf. Morgan & Hunt, 1994). As Sharp and Sharp (1997) explicitly stated that the effectiveness of relationship marketing efforts should be evaluated in terms of the behavioral changes they create, we assess behavioral loyalty as a behavioral outcome of relationships in line with Dick and Basu (1994). In line with De Wulf et al. (2001) we define behavioral loyalty as “a composite measure based on a consumer’s purchasing frequency and amount spent at a retailer compared with the amount spent at other retailers from which the consumer buys.”

Factors Potentially Moderating Relationship Marketing Effectiveness Li and Nicholls (2001) stressed that the boundary conditions of relationship marketing – when it may work more or less effectively-need to be addressed in future research. Several authors acknowledged that marketing relationships are easier to form in some types of consumer markets than others, expressing the idea that some consumer exchange situations are more “relationship friendly” than others (Christy et al., 1996). In the following section we will explain 6 factors potentially moderating relationship marketing effectiveness in a retail service context. Reynolds and Beatty (1999b) contributed to the field of retail relationships by providing empirical support for the fact that personal characteristics or needs motivate consumers to maintain relationships in a retail context. They distinguished between “time poverty,” “shopping enjoyment,” “shopping confidence,” and “social needs” (sociability/social affiliation) as potential relationship motivations. Although our main objective is to assess the effectiveness of relationship marketing efforts as opposed to distinguishing buyer motivations, we believe consumers’ personal characteristics to temper or strengthen relationship marketing effectiveness. In addition to shopping enjoyment and social affiliation investigated by Reynolds and Beatty (1999b), and in line with De Wulf et al. (2001) we investigate the moderating role of two other shopping-related variables (consumer relationship proneness and product category involvement). Finally, we also assess the moderating role of two demographic variables (age and gender).

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Demographic Characteristics Demographic variables are generally considered to influence store patronage behavior and customer loyalty (Reichheld, 1993). For instance, Miller and Granzin (1979) already found demographics to be related to the benefits that consumers seek in their relationship with a store. Two demographic variables were included in this study: age and gender. With respect to age, it can be claimed that older people think and behave differently than younger people concerning marketing related phenomena (Wilkes, 1992). Wakefield and Baker (1998) indicated that age may be a moderating factor affecting consumer response to retail environments. More specifically, one common theme in the patronage behavior literature is that shopping has an important recreational and social dimension for the elderly (Lumpkin & Greenberg, 1982). In several studies, elderly shoppers expressed the desire for improved retail personnel-consumer interactions (cf. Lambert, 1979) and placed a great deal of importance on personnel assistance (cf. Moschis, 1992). Overall, according to the literature, customer-salesperson relationships are valued by older consumers, with some evidence indicating that these relationships become more important with age (Burt & Gabbot, 1995). This leads us to hypothesize that relationship marketing efforts are more effective when directed at older consumers as opposed to younger consumers. Hence, we formulate the following hypotheses: H1a . The relationship between direct mail and relationship investment is more positive for older consumers than for younger consumers. H1b . The relationship between preferential treatment and relationship investment is more positive for older consumers than for younger consumers. H1c . The relationship between interpersonal communication and relationship investment is more positive for older consumers than for younger consumers. H1d . The relationship between tangible rewards and relationship investment is more positive for older consumers than for younger consumers. H1e . The relationship between relationship investment and relationship satisfaction is more positive for older consumers than for younger consumers. H1f . The relationship between relationship investment and relationship commitment is more positive for older consumers than for younger consumers. H1g . The relationship between relationship investment and behavioral loyalty is more positive for older consumers than for younger consumers. With respect to gender, it is generally recognized that buying has traditionally been female-dominated (Kline & Wagner, 1994). Some studies even indicated that 80% of the shoppers in department stores consist of women (Bellenger & Korgaonkar,

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1980). Gender is generally acknowledged to have a profound impact on response to marketing strategies. For example, Korgaonkar et al. (1985) discovered that female consumers exhibit a stronger patronage behavior than male consumers. Also Fournier (1998) concluded that women have more and stronger interpersonal and brand relationships than men. Moreover, many of today’s consumers report that they simply have less time for many activities. This increased perception of time poverty could be due to several factors, such as the rise in the number of dual-career or single-parent households. Compared to men, women report taking on relatively high levels of family responsibilities (Reifman et al., 1991). Thus, women may be more likely than men to value products and services that save time. According to Reynolds and Beatty (1999a), having a salesperson relationship may save customers’ time in that the salesperson assists with or assumes many shopping tasks. Solomon (1987) stated that the provision of time/place utility is related to the use of surrogate shoppers and that the typical client is the working woman who does not have time to shop. Finally, the work on gender differences in risk perception generally reports a greater propensity for males to take higher risks (Carlson & Cooper, 1974; Coet & McDermott, 1979; Kogan & Dorros, 1978; Roberts, 1975). Thus, women may seek to reduce risk in certain purchasing situations. A relationship may help in this risk reduction (Bendapudi & Berry, 1997; Berry, 1995; Sheth & Venkatesan, 1968). Stinerock et al. (1991) reported that females were heavier users of personal financial planners and were more risk averse compared to men. Based upon this reasoning, we hypothesize that: H2a . The relationship between direct mail and relationship investment is more positive for female consumers than for male consumers. H2b . The relationship between preferential treatment and relationship investment is more positive for female consumers than for male consumers. H2c . The relationship between interpersonal communication and relationship investment is more positive for female consumers than for male consumers. H2d . The relationship between tangible rewards and relationship investment is more positive for female consumers than for male consumers. H2e . The relationship between relationship investment and relationship satisfaction is more positive for female consumers than for male consumers. H2f . The relationship between relationship investment and relationship commitment is more positive for female consumers than for male consumers. H2g . The relationship between relationship investment and behavioral loyalty is more positive for female consumers than for male consumers.

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Social Afﬁliation It is generally acknowledged that personal values underlie consumption behaviors (e.g. Kahle et al., 1986). However, empirical research on the importance of personal values in retail shopping behavior is largely lacking (Shim & Eastlick, 1998). Following Shim and Eastlick’s (1998) study on the role of personal values in affecting shopping attitudes and behavior, we assess the potential moderating role of social affiliation on the effectiveness of relationship marketing efforts. In line with Cheek and Buss (1981), we define social affiliation as “a consumer’s individual characteristic representing the tendency to affiliate with others and to prefer being with others to remaining alone.” According to McAdams (1988), highly sociable people tend to seek friendships and opportunities to engage in relationships. Beatty et al. (1996), in extensive qualitative work, found that regular customers who had high social needs satisfied these needs through a personal salesperson relationship. Others have acknowledged that customers may have relationships with salespeople for social reasons (cf. Berry, 1995; Bitner, 1995; Forman & Sriram, 1991; Reynolds & Beatty, 1999a; Shim & Eastlick, 1998). Beatty et al. (1996) and Gwinner et al. (1998) found that many regular customers described their salespeople and service providers as friends. Finally, Reynolds and Beatty (1999a) discovered a segment of regular customers who possessed strong social needs and appeared to be motivated to engage in relationships for the social aspects. Thus we postulate the following hypotheses: H3a . The relationship between direct mail and relationship investment is more positive for consumers with a higher need for social affiliation than for consumers with a lower need for social affiliation. H3b . The relationship between preferential treatment and relationship investment is more positive for consumers with a higher need for social affiliation than for consumers with a lower need for social affiliation. H3c . The relationship between interpersonal communication and relationship investment is more positive for consumers with a higher need for social affiliation than for consumers with a lower need for social affiliation. H3d . The relationship between tangible rewards and relationship investment is more positive for consumers with a higher need for social affiliation than for consumers with a lower need for social affiliation. H3e . The relationship between relationship investment and relationship satisfaction is more positive for consumers with a higher need for social affiliation than for consumers with a lower need for social affiliation.

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H3f . The relationship between relationship investment and relationship commitment is more positive for consumers with a higher need for social affiliation than for consumers with a lower need for social affiliation. H3g . The relationship between relationship investment and behavioral loyalty is more positive for consumers with a higher need for social affiliation than for consumers with a lower need for social affiliation. Shopping-Related Characteristics We incorporated three domain-specific attitudes of consumers towards shopping as potential moderators of the effectiveness of relationship marketing efforts: product category involvement, consumer relationship proneness, and shopping enjoyment. First, in line with Mittal (1995), we define product category involvement as “a consumer’s enduring perceived importance of the product category based on the consumer’s inherent needs, values, and interests.” Researchers have suggested that individuals who are highly involved with the product category reveal a tendency to be more loyal (Dick & Basu, 1994; King & Ring, 1980; Varki & Wong, 2003). Christy et al. (1996) stressed that highly-involved consumers provide a strong basis for extending the relationship. Consequently, approaches by the retailer, however well intentioned, could be regarded by the consumer as undesirable when the consumer’s involvement is low (Christy et al., 1996). For many consumers, clothing is a high involvement product carrying a high level of social risk. Thus, consumers with high clothing involvement may feel some anxiety when shopping for clothing (Solomon, 1987). This may lead these consumers to engage in relationships in the hopes of reducing some of this anxiety (Berry, 1995; Bitner, 1995), for example by a salesperson offering customer advice and reassurance (Beatty et al., 1996; Reynolds & Beatty, 1999a). Consequently, we hypothesize that: H4a . The relationship between direct mail and relationship investment is more positive for consumers with a higher level of product category involvement than for consumers with a lower level of product category involvement. H4b . The relationship between preferential treatment and relationship investment is more positive for consumers with a higher level of product category involvement than for consumers with a lower level of product category involvement. H4c . The relationship between interpersonal communication and relationship investment is more positive for consumers with a higher level of product category involvement than for consumers with a lower level of product category involvement.

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H4d . The relationship between tangible rewards and relationship investment is more positive for consumers with a higher level of product category involvement than for consumers with a lower level of product category involvement. H4e . The relationship between relationship investment and relationship satisfaction is more positive for consumers with a higher level of product category involvement than for consumers with a lower level of product category involvement. H4f . The relationship between relationship investment and relationship commitment is more positive for consumers with a higher level of product category involvement than for consumers with a lower level of product category involvement. H4g . The relationship between relationship investment and behavioral loyalty is more positive for consumers with a higher level of product category involvement than for consumers with a lower level of product category involvement. Second, in line with De Wulf et al. (2001) we consider consumer relationship proneness as “a consumer’s relatively stable and conscious tendency to engage in relationships with retailers of a particular product category.” Fournier et al. (1998, p. 42) pointed to this issue by stressing that “caught up in our enthusiasm for our information-gathering capabilities and for the potential opportunities that longterm engagements with customers hold, is it possible that we have forgotten that relationships take two?” According to Bendapudi and Berry (1997), all customers are not equal with regards to their desire to engage in long-term relationships with companies and/or companies’ employees. Some customers will be more receptive to relationships than others. In fact, Beatty et al. (1996) encountered some “nonrelationship” customers, in addition to those customers who are inclined to engage in relationships with salespeople. Non-relationship customers simply chose not to develop close relationships with salespeople. De Wulf et al. (2001) found empirical evidence for the moderating role of consumer relationship proneness in establishing relationship quality. Motivated by their empirical work and by the definition of consumer relationship proneness emphasizing that relationship-prone consumers are most likely to develop relationships, we formulate the following hypotheses: H5a . The relationship between direct mail and relationship investment is more positive for consumers with a higher level of store relationship proneness than for consumers with a lower level of store relationship proneness. H5b . The relationship between preferential treatment and relationship investment is more positive for consumers with a higher level of store relationship proneness than for consumers with a lower level of store relationship proneness.

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H5c . The relationship between interpersonal communication and relationship investment is more positive for consumers with a higher level of store relationship proneness than for consumers with a lower level of store relationship proneness. H5d . The relationship between tangible rewards and relationship investment is more positive for consumers with a higher level of store relationship proneness than for consumers with a lower level of store relationship proneness. H5e . The relationship between relationship investment and relationship satisfaction is more positive for consumers with a higher level of store relationship proneness than for consumers with a lower level of store relationship proneness. H5f . The relationship between relationship investment and relationship commitment is more positive for consumers with a higher level of store relationship proneness than for consumers with a lower level of store relationship proneness. H5g . The relationship between relationship investment and behavioral loyalty is more positive for consumers with a higher level of store relationship proneness than for consumers with a lower level of store relationship proneness. Finally, in line with Bellenger and Korgaonkar (1980), we define shopping enjoyment as “a consumer’s individual characteristic representing the tendency to find shopping more enjoyable and to experience greater shopping pleasure than others.” The construct of shopping enjoyment relates to the difference between hedonic and utilitarian shoppers. While utilitarian shoppers aim at accomplishing the consumption task, hedonic shoppers strive for fun and entertainment related to shopping (Arnold & Reynolds, 2003; Beatty & Ferrell, 1998; Hirschman & Holbrook, 1982; Wakefield & Baker, 1998). Bellenger and Korgaonkar (1980) proved that people who enjoy shopping hardly ever have a pre-planned purchase in mind, potentially reducing their desire to commit themselves to one specific store. Solomon (1986, 1987) and Forsythe et al. (1990) proposed that one reason customers use a “personal shopper” is that they do not enjoy shopping. Beatty et al. (1996) found that many customers had relationships with retail salespeople because they did not like to shop. The salesperson would help relieve these customers of at least some of their shopping duties or make shopping more convenient and less time consuming. Reynolds and Beatty (1999b) found three segments of regular customers who did not enjoy shopping. In line with Reynolds and Beatty (1999b) who found that shopping enjoyment was the strongest discriminator among consumer segments and who hypothesized that “consumers who do not enjoy shopping may engage

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in relationships with salespeople to avoid this activity” (p. 511), we propose the following hypotheses: H6a . The relationship between direct mail and relationship investment is more positive for consumers with a lower level of shopping enjoyment than for consumers with a higher level of shopping enjoyment. H6b . The relationship between preferential treatment and relationship investment is more positive for consumers with a lower level of shopping enjoyment than for consumers with a higher level of shopping enjoyment. H6c . The relationship between interpersonal communication and relationship investment is more positive for consumers with a lower level of shopping enjoyment than for consumers with a higher level of shopping enjoyment. H6d . The relationship between tangible rewards and relationship investment is more positive for consumers with a lower level of shopping enjoyment than for consumers with a higher level of shopping enjoyment. H6e . The relationship between relationship investment and relationship satisfaction is more positive for consumers with a lower level of shopping enjoyment than for consumers with a higher level of shopping enjoyment. H6f . The relationship between relationship investment and relationship commitment is more positive for consumers with a lower level of shopping enjoyment than for consumers with a higher level of shopping enjoyment. H6g . The relationship between relationship investment and behavioral loyalty is more positive for consumers with a lower level of shopping enjoyment than for consumers with a higher level of shopping enjoyment.

METHOD Setting We tested the role of contingency factors on the effectiveness of relationship marketing efforts in three different countries, covering respondents from the U.S., the Netherlands, and Belgium. This large-scale study is conducted in the food and apparel industries, covering a wide variety of retailers including discount stores, mass merchandisers, traditional department stores, as well as prestige stores. Relationship marketing is predominantly important in both industries as competition has gradually intensified over the years (Gutman & Mills, 1982; Sirohi et al., 1998).

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Samples Mall intercept personal interviews were administered in the U.S. (food: N = 231, apparel: N = 230), the Netherlands (food: N = 337, apparel: N = 338), and Belgium (food: N = 289, apparel: N = 302). Samples were drawn from shopping mall visitors to obtain coverage on age (18–25 years, 26–40, 41–55, and 55 years and over), gender, and allocated share-of-wallet for the store reported on (0–20, 21–40, 41–60, 61–80, and 81–100%). These criteria are often mentioned to influence shopping attitudes and behavior (e.g. Carman, 1970), so we consider them to be relevant for the study’s objectives. We also sought even coverage over interviewing time of day (morning, early afternoon, and late afternoon) and interviewing day of week (Wednesday, Friday, and Saturday) so as to reduce possible shopping pattern biases. Across our samples, an average of 37% of the visitors who were approached participated.

Procedure Participants were first asked whether they had ever made a purchase in the particular product category. If so, they were asked to indicate the names of five stores in which they usually bought food or apparel. Next, respondents indicated their approximate share-of-wallet for each store listed (measured on a continuous scale from 0 to 100%) and the extent to which they felt they were a regular customer of each store (measured on a scale from 1 to 7). Finally, the interviewers selected a specific store to which the remaining questions were related, based upon the reported share-of-wallet figures. Care was taken that the share-of-wallet percentages approximated a normal distribution in each sample. That is, respondents reporting low, medium, as well as high levels of share-of-wallet were represented in each sample. As by definition a relationship is of extended duration and made of multiple interactions, many of the costs and benefits from buyer-seller relationships cannot be assessed on an a priori basis (Dwyer et al., 1987; Parasuraman, 1997). Gwinner et al. (1998) stated that while customers may receive relationship benefits and believe these benefits are important, they may not always be aware of their existence in the early stages of a relationship and may not have assessed their value yet. Therefore, only those stores were included for which respondents indicated at least 4 on the 7-point scale measuring their “being a regular customer of the store.” In order to enhance inter-rater reliability, the cover letter attached to the questionnaire explained the term “regular customer” to respondents as “a customer who regularly buys clothes/food in a store and not simply visits the store to look around.”

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Measures Most measures represent a combination and synthesis of past formulations, and revealing comparable reliability scores (see Appendix). For the constructs of relationship investment, direct mail, tangible rewards, and consumer relationship proneness, the scales developed by De Wulf et al. (2001) were used in this study.

MODEL EVALUATION In this section, we report on the characteristics of the data and evaluate the overall and measurement models. Maximum likelihood estimation structural equation models were applied to our covariance matrices. Preliminary Data Analyses To enhance the stability of our covariance matrices, e.g. to help ensure their being positive definite, we employed case-wise deletion of missing values. We verified that sample compositions were not significantly different with regard to age and gender before and after case deletion. Even with these deletions, our sample sizes are substantially larger than those typically reported or those said to be required for stable estimation. We examined the data for skewness and kurtosis, but found only slight tendencies for either, not sufficient for transformations of responses which would introduce alternative problems, e.g. interpretability. We also assessed the data for the possible existence of univariate, bivariate, as well as multivariate outliers, using plots against normals, bivariate scatter plots, and Mahalanobis distance measures respectively. So few of the observations (<1%) could be classified as outliers that we retained them for subsequent data analysis, because we believed both that our samples were large enough to envelope a few extreme data points and that such outliers were nevertheless representative of some segment of the target consumers. Overall Model Evaluation The chi-squares in each country for each industry are all significant, a finding not unusual with large sample sizes (Doney & Cannon, 1997). The European samples reveal ratios of chi-square to degrees of freedom that are acceptable, ranging from 2.23 to 2.72. In the U.S., these values are slightly higher with 3.16 for the food sample and 3.10 for the apparel sample. While the values of GFI (ranging from

A Cross-Cultural Investigation of Relationship Marketing Effectiveness

49

0.78 to 0.88) and AGFI (ranging from 0.72 to 0.85) are somewhat lower than those of CFI (ranging from 0.89 to 0.94), this result is mainly due to the former measures being more easily affected by sample size. In general, the indicated fits are acceptable, including for the RMSEA (ranging from 0.060 to 0.097). Given the adequacy of these batteries of overall goodness-of-fit indices and given the fact that the model was developed on theoretical bases, no re-specifications of the model were made.

Measurement Model Evaluation We assessed the quality of the measurement models in each country for each industry on unidimensionality, convergent validity, reliability, and discriminant validity. Evidence for the unidimensionality of each construct included the appropriate items loading at least 0.65 on their respective hypothesized factor, with a loading no larger than 0.30 on other constructs. Convergent validity was supported by good overall model fits, all loadings being significant (p < 0.01), and nearly all R2 exceeding 0.50 (Hildebrandt, 1987). Reliability was indicated by Cronbach alphas all exceeding 0.70. Moreover, all of the composite reliability measures included in Table 1 were at least 0.70, exceeding Bagozzi and Yi’s (1988) minimum values of 0.60. Discriminant validity was tested in a series of nested confirmatory factor model comparisons in which correlations between latent constructs were Table 1. Measurement Model Results. Construct

Composite Reliability Food U.S.

Direct mail Preferential treatment Interpersonal communication Tangible rewards Relationship investment Relationship satisfaction Relationship commitment Behavioral loyalty

N

% of Variance Explained

Apparel B

U.S.

N

Food B

U.S.

N

Apparel B

U.S.

N

B

0.89 0.90

0.76 0.83 0.79 0.91

0.93 0.89

0.94 0.93 0.86 0.86

0.73 0.76

0.52 0.63 0.57 0.77

0.82 0.73

0.84 0.82 0.67 0.68

0.89

0.87 0.89

0.90

0.89 0.83

0.73

0.69 0.73

0.74

0.72 0.61

0.87 0.91

0.77 0.80 0.85 0.88

0.91 0.92

0.87 0.86 0.89 0.86

0.69 0.78

0.52 0.57 0.65 0.72

0.77 0.79

0.69 0.68 0.72 0.68

0.86

0.77 0.82

0.89

0.85 0.77

0.67

0.53 0.61

0.72

0.66 0.54

0.87

0.74 0.77

0.85

0.73 0.71

0.70

0.49 0.54

0.65

0.48 0.46

0.93

0.90 0.91

0.85

0.77 0.79

0.82

0.75 0.77

0.66

0.53 0.56

50

¨ GABY ODEKERKEN-SCHRODER ET AL.

constrained to 1 (each of the 24 off-diagonal elements constrained and the model re-estimated in turn), and indeed chi-square differences were significant for all model comparisons (p < 0.01) in all samples. A stronger test for discriminant validity provided by Fornell and Larcker (1981) was performed. This test suggests that a scale possesses discriminant validity if the average variance extracted by the underlying construct is larger than the shared variance (i.e. the squared intercorrelation) with other latent constructs. Based upon this most restrictive test, we found strong evidence for discriminant validity between all of our constructs.1 In all samples, these results demonstrate that a model in which the four relationship marketing efforts are modeled as antecedents of relationship investment outperforms a second-order factor model in which relationship marketing efforts are dimensions of one higher-order factor. In sum, the measurement models are clean, with evidence for unidimensionality, convergent validity, reliability, and discriminant validity, which allowed proceeding to the assessment of moderating effects in the structural models.

MODERATING RESULTS The main objective of our study is to assess the moderating influences of a broad range of contingency variables on relationship marketing effectiveness. We tested moderating effects via multi-group analyses, splitting the samples into sub-samples according to whether consumers scored high or low on the moderating variables to ensure within-group homogeneity and between-group heterogeneity. The subgroup method is a commonly preferred technique for detecting moderating effects (Anderson, 1986; Jaccard & Wan, 1996; Ping, 1995; Sharma et al., 1981; Stone & Hollenbeck, 1989). For Likert-type variables, one sub-sample contained about one third of the lowest values for the moderating variable (e.g. relationship proneness low), while the other sub-sample contained about one third of the highest values for the moderating variable (e.g. relationship proneness high). As a result, cases of which the moderating variables’ values lie around the median level were excluded. This ensured a high level of within-group homogeneity and a high level of betweengroup heterogeneity. For gender and age as moderating variables, the total sample was split into two sub-samples as follows: a male versus female sub-sample and a “younger than 41-years-old” versus “older than 40-years-old” sub-sample. The sizes of the various sub-samples are described in Table 2 . Tables 3–8 contain the results related to each moderator variable. Each table compares the chi-square value of the “equal” model with the chi-square value of seven models in which one of the hypothesized paths is set free. In the equal model, all paths of the structural model were set equal across sub-samples. In a

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Table 2. Sample Sizes of Sub-Samples. Food

Apparel

U.S.

N

B

U.S.

N

B

Age Total Young Old

231 186 45

337 198 138

289 138 151

230 156 74

338 184 154

302 91 150

Gender Female Male

132 91

246 91

204 85

155 75

235 103

210 91

89 97

124 104

78 129

71 78

127 126

103 77

Product category involvement Low 89 High 112

96 104

97 107

75 76

116 104

108 92

Consumer relationship proneness Low 88 High 91

106 116

107 100

75 78

110 128

102 110

Shopping enjoyment Low High

110 119

100 101

76 89

113 134

101 96

Social affiliation Low High

74 82

free model, all paths were constrained to be equal across sub-samples, except for the path that is hypothesized to be affected by the moderator variable. Differences in chi-square values between models determine whether the contingency factor acts as a moderating variable. A significant decrease in chi-square from the equal model to a model in which one relationship is set free implies that the moderator variable has a significant influence on that relationship. In the tables, significant differences between an equal model and a model in which a particular path is set free, are single (p < 0.05) or double (p < 0.01) underlined.

Demographic Characteristics Age Table 3 indicates that seven paths were significantly moderated by the age variable. In the Dutch food sample, the paths from direct mail, preferential treatment, and interpersonal communication to relationship investment were significantly

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52

Table 3. Moderating Effects of Age.a,b Moderator: Age

Food

Apparel

U.S.

N

B

U.S.

N

B

535 1,316.34

535 1,408.38

535 1,072.33

535 1,249.48

535 1,183.07

535 1,438.54

H1a : Direct mail → Relationship investment: free df 534 534 ␹2 1,316.13 1,404.47 ␹2 0.21 3.91

534 1,068.81 3.52

534 1,249.46 0.02

534 1,183.07 0.00

534 1,438.10 0.44

H1b : Preferential treatment → Relationship investment: free df 534 534 534 ␹2 1,315.56 1,402.37 1,071.21 ␹2 0.78 6.01 1.12

534 1,249.14 0.34

534 1,182.96 0.11

534 1,438.08 0.46

H1c : Interpersonal communication → Relationship investment: free df 534 534 534 ␹2 1,313.32 1,402.00 1,072.32 ␹2 3.02 6.38 0.01

534 1,248.98 0.50

534 1,181.09 1.98

534 1,437.32 1.22

H1d : Tangible rewards → Relationship investment: free df 534 534 534 ␹2 1,315.52 1,404.90 1,071.73 ␹2 0.82 3.48 0.60

534 1,248.94 0.54

534 1,182.06 1.01

534 1,438.41 0.13

H1e : Relationship investment → Relationship satisfaction: free df 534 534 534 ␹2 1,316.27 1,407.35 1,071.74 ␹2 0.07 1.03 0.59

534 1,248.94 0.54

534 1,183.07 0.00

534 1,431.32 7.22

H1f : Relationship investment → Relationship commitment: free df 534 534 534 ␹2 1,315.88 1,406.55 1,069.64 ␹2 0.46 1.83 2.69

534 1,249.44 0.04

534 1,172.33 10.74

534 1,424.78 13.76

H1g : Relationship investment → Behavioral loyalty: free df 534 534 534 ␹2 1,315.64 1,407.93 1,071.90 ␹2 0.70 0.45 0.43

534 1,245.07 4.41

534 1,181.43 1.64

534 1,435.89 2.65

Equal model df ␹2

a The following abbreviations were used: U.S. = United States, N = the Netherlands, B = Belgium. Double underlined estimates: p < 0.01, single underlined estimates: p < 0.05. b Numbers presented in italics refer to contingency factors that are significantly associated with other contingency factors in the specific sample for the specific path examined. In each sub-sample, we examined whether contingency factors could be considered as independent using Pearson correlation coefficients, chi square coefficients, and F values based upon one-way ANOVA (95% confidence interval). This is important in order to be able to attribute significant moderator effects to one specific contingency variable. For example, if “consumer relationship proneness” and “product category involvement” correlate and if both moderate effectiveness of relationship marketing efforts, it is hard to determine which one causes the moderating effect. Evidently, if only one of two variables related to each other significantly moderates effectiveness of relationship marketing efforts, the moderating effect can be safely attributed to this variable. The problem only occurred in the U.S. samples for contingency factors moderating the relationships between relationship investment and relationship satisfaction and relationship commitment.

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Table 4. Moderating Effects of Gender.a,b Moderator: Gender

Food

Apparel

U.S.

N

B

U.S.

N

B

535 1,797.41

535 948.18

535 1,032.70

535 1,273.74

535 982.64

535 1,023.21

H2a : Direct mail → Relationship investment: free df 534 534 ␹2 1,794.72 947.31 ␹2 2.69 0.87

534 1,032.43 0.27

534 1,273.55 0.19

534 981.68 0.96

534 1,022.45 0.76

H2b : Preferential treatment → Relationship investment: free df 534 534 534 ␹2 1,784.32 948.05 1,032.65 ␹2 13.09 0.13 0.05

534 1,272.81 0.93

534 982.49 0.15

534 1,022.65 0.56

H2c : Interpersonal communication → Relationship investment: free df 534 534 534 ␹2 1,777.85 948.16 1,032.43 ␹2 19.56 0.02 0.27

534 1,273.73 0.01

534 982.62 0.02

534 1,023.02 0.19

H2d : Tangible rewards → Relationship investment: free df 534 534 ␹2 1,786.90 948.18 2 ␹ 10.51 0.00

534 1,032.44 0.26

534 1,272.57 1.17

534 982.64 0.00

534 1,021.79 1.42

H2e : Relationship investment → Relationship satisfaction: free df 534 534 534 ␹2 1,792.06 948.17 1,032.64 2 ␹ 5.35 0.01 0.06

534 1,273.72 0.02

534 982.63 0.01

534 1,016.27 6.94

H2f : Relationship investment → Relationship commitment: free df 534 534 534 ␹2 1,797.06 947.53 1,031.45 2 ␹ 0.35 0.65 1.25

534 1,267.45 6.29

534 981.92 0.72

534 1,022.33 0.88

H2g : Relationship investment → Behavioral loyalty: free df 534 534 ␹2 1,797.08 946.78 2 ␹ 0.33 1.40

534 1,272.33 1.41

534 981.14 1.50

534 1,022.75 0.46

Equal model df ␹2

534 1,029.20 3.50

a The following abbreviations were used: U.S. = United States, N = the Netherlands, B = Belgium. Double underlined estimates: p < 0.01, single underlined estimates: p < 0.05. b Numbers presented in italics refer to contingency factors that are significantly associated with other contingency factors in the specific sample for the specific path examined. In each sub-sample, we examined whether contingency factors could be considered as independent using Pearson correlation coefficients, chi square coefficients, and F values based upon one-way ANOVA (95% confidence interval). This is important in order to be able to attribute significant moderator effects to one specific contingency variable. For example, if “consumer relationship proneness” and “product category involvement” correlate and if both moderate effectiveness of relationship marketing efforts, it is hard to determine which one causes the moderating effect. Evidently, if only one of two variables related to each other significantly moderates effectiveness of relationship marketing efforts, the moderating effect can be safely attributed to this variable. The problem only occurred in the U.S. samples for contingency factors moderating the relationships between relationship investment and relationship satisfaction and relationship commitment.

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Table 5. Moderating Effects of Social Affiliation.a,b Moderator: Social Affiliation

Food

Apparel

U.S.

N

B

U.S.

N

B

535 1,129.19

535 919.18

535 928.45

535 1,121.23

535 982.33

535 959.29

534 919.12 0.06

534 928.23 0.22

534 1,119.63 1.60

534 982.23 0.10

534 959.27 0.02

H3b : Preferential treatment → Relationship investment: free df 534 534 ␹2 1,129.03 914.59 ␹2 0.16 4.59

534 928.45 0.00

534 1,120.93 0.30

534 982.29 0.04

534 959.29 0.00

H3c : Interpersonal communication → Relationship investment: free df 534 534 534 ␹2 1,129.13 918.66 927.47 ␹2 0.06 0.52 0.98

534 1,119.67 1.56

534 981.92 0.41

534 958.89 0.40

H3d : Tangible rewards → Relationship investment: free df 534 534 ␹2 1,129.07 910.17 ␹2 0.12 9.01

534 927.07 1.38

534 1,120.35 0.88

534 981.81 0.52

534 959.22 0.07

H3e : Relationship investment → Relationship satisfaction: free df 534 534 ␹2 1,119.04 916.74 ␹2 10.15 2.44

534 926.26 2.19

534 1,115.49 5.74

534 979.15 3.18

534 956.74 2.55

H3f : Relationship investment → Relationship commitment: free df 534 534 ␹2 1,118.09 919.07 ␹2 11.10 0.11

534 928.13 0.32

534 1,117.75 3.48

534 980.93 1.40

534 957.23 2.06

H3g : Relationship investment → Behavioral loyalty: free df 534 534 ␹2 1,127.72 917.08 2 ␹ 1.47 2.10

534 927.61 0.84

534 1,114.88 6.35

534 977.34 4.99

534 956.74 2.55

Equal model df ␹2

H3a : Direct mail → Relationship investment: free df 534 ␹2 1,129.06 ␹2 0.13

a The following abbreviations were used: U.S. = United States, N = the Netherlands, B = Belgium. Double underlined estimates: p < 0.01, single underlined estimates: p < 0.05. b Numbers presented in italics refer to contingency factors that are significantly associated with other contingency factors in the specific sample for the specific path examined. In each sub-sample, we examined whether contingency factors could be considered as independent using Pearson correlation coefficients, chi square coefficients, and F values based upon one-way ANOVA (95% confidence interval). This is important in order to be able to attribute significant moderator effects to one specific contingency variable. For example, if “consumer relationship proneness” and “product category involvement” correlate and if both moderate effectiveness of relationship marketing efforts, it is hard to determine which one causes the moderating effect. Evidently, if only one of two variables related to each other significantly moderates effectiveness of relationship marketing efforts, the moderating effect can be safely attributed to this variable. The problem only occurred in the U.S. samples for contingency factors moderating the relationships between relationship investment and relationship satisfaction and relationship commitment.

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Table 6. Moderating Effects of Product Category Involvement.a,b Moderator: Product Category Involvement

Food

Apparel

U.S.

N

B

U.S.

N

B

535 1,611.21

535 1,067.75

535 954.40

535 1,113.35

535 688.06

535 929.33

534 953.65 0.75

534 1,107.19 6.16

534 – –

534 927.72 1.61

534 954.21 0.19

534 1,109.99 3.36

534 688.05 0.01

534 929.31 0.02

H4c : Interpersonal communication → Relationship investment: free df 534 534 534 ␹2 1,610.04 1,067.74 953.53 ␹2 1.17 0.01 0.87

534 1,111.44 1.91

534 – –

534 929.32 0.01

H4d : Tangible rewards → Relationship investment: free df 534 534 ␹2 1,610.13 1,067.74 ␹2 1.08 0.01

534 954.26 0.14

534 1,109.68 3.67

534 – –

534 929.32 0.01

H4e : Relationship investment → Relationship satisfaction: free df 534 534 534 ␹2 1,604.28 1,067.52 953.95 ␹2 6.93 0.23 0.45

534 1,110.58 2.77

534 686.51 1.55

534 929.06 0.27

H4f : Relationship investment → Relationship commitment: free df 534 534 534 ␹2 1,607.67 1,066.92 950.90 ␹2 3.54 0.83 3.50

534 1,101.09 12.26

534 685.63 2.43

534 924.18 5.15

H4g : Relationship investment → Behavioral loyalty: free df 534 534 ␹2 1,609.79 1,067.43 ␹2 1.42 0.32

534 1,111.22 2.13

534 684.48 3.58

534 927.99 1.34

Equal model df ␹2

H4a : Direct mail → Relationship investment: free df 534 534 ␹2 1,610.69 1,067.46 ␹2 0.52 0.29 H4b : Preferential treatment → Relationship investment: free df 534 534 ␹2 1,610.48 1,067.69 ␹2 0.73 0.06

534 953.77 0.63

a The following abbreviations were used: U.S. = United States, N = the Netherlands, B = Belgium. Double underlined estimates: p < 0.01, single underlined estimates: p < 0.05. b Numbers presented in italics refer to contingency factors that are significantly associated with other contingency factors in the specific sample for the specific path examined. In each sub-sample, we examined whether contingency factors could be considered as independent using Pearson correlation coefficients, chi square coefficients, and F values based upon one-way ANOVA (95% confidence interval). This is important in order to be able to attribute significant moderator effects to one specific contingency variable. For example, if “consumer relationship proneness” and “product category involvement” correlate and if both moderate effectiveness of relationship marketing efforts, it is hard to determine which one causes the moderating effect. Evidently, if only one of two variables related to each other significantly moderates effectiveness of relationship marketing efforts, the moderating effect can be safely attributed to this variable. The problem only occurred in the U.S. samples for contingency factors moderating the relationships between relationship investment and relationship satisfaction and relationship commitment.

¨ GABY ODEKERKEN-SCHRODER ET AL.

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Table 7. Moderating Effects of Consumer Relationship Proneness.a,b Moderator: Consumer Relationship Proneness

Food

Apparel

U.S.

N

B

U.S.

N

B

535 1,229.29

535 928.30

535 886.40

535 1,162.95

535 1,046.72

535 975.33

H5a : Direct mail → Relationship investment: free df 534 534 ␹2 1,229.21 928.00 ␹2 0.08 0.30

534 879.33 7.07

534 1,162.93 0.02

534 1,045.98 0.74

534 974.94 0.39

H5b : Preferential treatment → Relationship investment: free df 534 534 ␹2 1,229.02 928.25 ␹2 0.27 0.05

534 886.35 0.05

534 1,162.75 0.20

534 1,045.55 1.17

534 975.07 0.26

H5c : Interpersonal communication → Relationship Investment: free df 534 534 534 ␹2 1,228.73 927.71 886.40 ␹2 0.56 0.59 0.00

534 1,162.92 0.03

534 1,044.21 2.51

534 975.18 0.15

H5d : Tangible rewards → Relationship Investment: free df 534 534 ␹2 1,229.22 928.26 ␹2 0.07 0.04

534 883.49 2.91

534 1,162.95 0.00

534 1,045.40 1.32

534 972.80 2.53

H5e : Relationship investment → Relationship satisfaction: free df 534 534 534 ␹2 1,220.37 928.06 881.61 ␹2 8.92 0.24 4.79

534 1,160.09 2.86

534 1,045.57 1.15

534 972.80 2.53

H5f : Relationship investment → Relationship commitment: free df 534 534 534 ␹2 1,224.51 928.27 874.58 ␹2 4.78 0.03 11.82

534 1,157.58 5.37

534 1,046.68 0.04

534 975.30 0.03

H5g : Relationship investment → Behavioral loyalty: free df 534 534 ␹2 1,222.29 927.76 ␹2 7.00 0.54

534 1,161.83 1.12

534 1,046.60 0.12

534 974.45 0.88

Equal model df ␹2

534 882.43 3.97

a The following abbreviations were used: U.S. = United States, N = the Netherlands, B = Belgium. Double underlined estimates: p < 0.01, single underlined estimates: p < 0.05. b Numbers presented in italics refer to contingency factors that are significantly associated with other contingency factors in the specific sample for the specific path examined. In each sub-sample, we examined whether contingency factors could be considered as independent using Pearson correlation coefficients, chi square coefficients, and F values based upon one-way ANOVA (95% confidence interval). This is important in order to be able to attribute significant moderator effects to one specific contingency variable. For example, if “consumer relationship proneness” and “product category involvement” correlate and if both moderate effectiveness of relationship marketing efforts, it is hard to determine which one causes the moderating effect. Evidently, if only one of two variables related to each other significantly moderates effectiveness of relationship marketing efforts, the moderating effect can be safely attributed to this variable. The problem only occurred in the U.S. samples for contingency factors moderating the relationships between relationship investment and relationship satisfaction and relationship commitment.

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57

Table 8. Moderating Effects of Shopping Enjoyment.a,b Moderator: Shopping Enjoyment

Food

Apparel

U.S.

N

B

U.S.

N

B

535 1,080.29

535 911.23

535 856.31

535 1,131.59

535 894.61

535 892.61

H6a : Direct mail → Relationship investment: free df 534 534 ␹2 1,080.09 911.22 ␹2 0.20 0.01

534 854.65 1.66

534 1,130.50 1.09

534 – –

534 890.70 1.91

H6b : Preferential treatment → Relationship investment: free df 534 534 534 ␹2 1,076.07 910.23 855.91 ␹2 4.22 0.00 0.40

534 1,131.59 0.00

534 888.71 5.90

534 891.03 1.58

H6c : Interpersonal communication → Relationship investment: free df 534 534 534 ␹2 1,078.73 911.22 855.89 ␹2 1.56 0.01 0.42

534 1,129.27 2.32

534 894.33 0.28

534 889.80 2.81

H6d : Tangible rewards → Relationship investment: free df 534 534 ␹2 1,079.71 910.77 ␹2 0.58 0.46

534 852.27 4.04

534 1,130.83 0.76

534 893.54 1.07

534 890.69 1.92

H6e : Relationship investment → Relationship satisfaction: free df 534 534 534 ␹2 1,057.99 908.95 855.80 ␹2 22.30 2.28 0.51

534 1,130.64 0.95

534 893.67 0.94

534 890.49 2.12

H6f : Relationship investment → Relationship commitment: free df 534 534 534 ␹2 1,069.09 910.85 852.55 ␹2 11.20 0.38 3.76

534 1,129.51 2.08

534 894.61 0.00

534 890.02 2.59

H6g : Relationship investment → Behavioral loyalty: free df 534 534 ␹2 1,074.65 911.22 ␹2 5.64 0.01

534 1,130.07 1.52

534 893.90 0.71

534 892.46 0.15

Equal model df ␹2

534 856.23 0.08

a The following abbreviations were used: U.S. = United States, N = the Netherlands, B = Belgium. Double underlined estimates: p < 0.01, single underlined estimates: p < 0.05. b Numbers presented in italics refer to contingency factors that are significantly associated with other contingency factors in the specific sample for the specific path examined. In each sub-sample, we examined whether contingency factors could be considered as independent using Pearson correlation coefficients, chi square coefficients, and F values based upon one-way ANOVA (95% confidence interval). This is important in order to be able to attribute significant moderator effects to one specific contingency variable. For example, if “consumer relationship proneness” and “product category involvement” correlate and if both moderate effectiveness of relationship marketing efforts, it is hard to determine which one causes the moderating effect. Evidently, if only one of two variables related to each other significantly moderates effectiveness of relationship marketing efforts, the moderating effect can be safely attributed to this variable. The problem only occurred in the U.S. samples for contingency factors moderating the relationships between relationship investment and relationship satisfaction and relationship commitment.

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Table 9. Change in Path Coefficients for Paths Moderated by Age and Gender. Moderator: Age

Sample

Path Coefficient <41 Yrs

H1a : Direct mail → Relationship investment H1b : Preferential treatment → Relationship investment H1c : Interpersonal communication → Relationship investment H1e : Relationship investment → Relationship satisfaction H1f : Relationship investment → Relationship commitment H1g : Relationship investment → Behavioral loyalty

>40 Yrs

Hij

N food

0.21

0.00

−0.21

Reject

N food

0.04

−0.24

−0.28

Reject

N food

0.44

0.19

−0.25

Reject

B apparel

0.72

0.49

−0.23

Reject

N apparel

0.65

0.81

+0.16

Support

B apparel U.S. apparel

0.74 0.45

0.38 0.17

−0.36 −0.28

Reject Reject

Female

Male

Moderator: Gender

Sample

H2b : Preferential treatment → Relationship investment H2c : Interpersonal communication → Relationship investment H2d : Tangible rewards → Relationship investment H2e : Relationship investment → Relationship satisfaction

U.S. food

0.18

−0.22

−0.40

Support

U.S. food

0.68

0.36

−0.32

Support

U.S. food

−0.02

−0.43

−0.41

Support

U.S. food

0.72

0.53

−0.19

Support

B apparel U.S. apparel

0.60 0.64

0.31 0.79

−0.29 +0.15

Support Reject

H2f : Relationship investment → Relationship commitment

Hij

moderated by age. In the U.S. apparel sample, the path from relationship investment to behavioral loyalty was significantly affected by respondents’ age. In the Dutch apparel sample, the relationship between relationship investment and relationship commitment was sensitive to age differences. Finally, we observed two significant moderator effects of age in the Belgian apparel sample: from relationship investment to relationship satisfaction and relationship commitment. For these relationships, Table 9 reveals that within-group path coefficients were consistently lower in the sub-sample representing consumers more than 40 years old than in the sub-sample including consumers less than 41-years-old, rejecting our hypotheses H1a , H1b , H1c , H1e , and H1g in these samples. For H1f , mixed evidence was

A Cross-Cultural Investigation of Relationship Marketing Effectiveness

59

found. Although not all paths are moderated, the multi-group results related to age provide a first illustration of the fact that the effectiveness with which retailers can build consumer relationships can increase when targeting relatively younger consumers. Gender Table 4 reveals six different paths that were moderated by gender. In the U.S. food sample, the strongest impact of gender as a moderator could be detected. We found empirical evidence for a moderating effect of gender on the paths from preferential treatment, interpersonal communication, and tangible rewards on relationship investment. Moreover, the path from relationship investment to relationship satisfaction was moderated by gender as well. In the U.S. apparel sample, only the path from relationship investment to relationship commitment was influenced by the gender of respondents. Finally, in the Belgian apparel sample the path from relationship investment to relationship satisfaction was affected. For each of these relationships, Table 9 reveals that within-group path coefficients were consistently lower in the sub-sample representing male consumers than in the sub-sample including female consumers, providing support for hypotheses H2b , H2c , H2d , and H2e in these samples. Only in the U.S. apparel sample, it appeared that men became more easily committed to a retailer as a result of this retailer’s relationship investment than women, leading to a rejection of H2f in this sample. These results are a first indication of the fact that female consumers might be more receptive to relationship marketing efforts.

Social Afﬁliation Table 5 includes the results of the moderating effects of social affiliation. It shows that in the food samples, four significant moderating effects could be established. The U.S. food sample revealed a significant moderating effect of social affiliation on the paths from relationship investment to relationship satisfaction and relationship commitment. In the Dutch food sample, the paths from preferential treatment and tangible rewards to relationship investment were influenced by social affiliation. In the apparel samples, also four significant moderating effects could be detected. In the U.S. apparel sample, all three paths from relationship investment to relationship outcomes were moderated. Finally, in the Dutch apparel sample, only the path from relationship investment to behavioral loyalty was moderated. As shown in Table 10, all of these moderator effects were in the expected direction, except for the paths from preferential treatment and tangible rewards to relationship investment in the Dutch food sample. Consequently, concerning the role of

¨ GABY ODEKERKEN-SCHRODER ET AL.

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Table 10. Change in Path Coefficients for Paths Moderated by Social Affiliation. Moderator: Social Affiliation (SA)

H3b : Preferential treatment → Relationship investment H3d : Tangible rewards → Relationship investment H3e : Relationship investment → Relationship satisfaction H3f : Relationship investment → Relationship commitment H3g : Relationship investment → Behavioral loyalty

Sample

Path Coefficient SA Low

SA High

Hij

N food

0.12

−0.19

−0.31

Reject

N food

0.34

−0.08

−0.42

Reject

U.S. food

0.68

0.84

+0.16

Support

U.S. apparel U.S. food

0.75 0.45

0.86 0.74

+0.13 +0.29

Support Support

U.S. apparel U.S. apparel

0.70 0.01

0.76 0.45

+0.06 +0.44

Support Support

N apparel

0.47

0.56

+0.09

Support

social affiliation as a moderator of the relationship marketing effectiveness, our results provide initial support for H3e , H3f , and H3g and counter-support for H3b and H3d . Shopping-Related Characteristics Product Category Involvement Table 6 shows the results related to product category involvement as a moderator. In the U.S. apparel sample, product category involvement moderates the path from direct mail to relationship investment. In the U.S. food sample, the path from relationship investment to relationship satisfaction is moderated. Finally, product category involvement moderates the path from relationship investment to relationship commitment in the U.S. and Belgian apparel samples. For all paths that were moderated, Table 11 reveals that within-group path coefficients were consistently higher in the sub-sample representing highly involved consumers than in the sub-sample including less involved consumers. As a consequence, for the samples just mentioned, these results provide initial support for our hypotheses H4a , H4e , and H4f . Consumer Relationship Proneness Table 7 provides the multi-group analyses results related to consumer relationship proneness. Consumer relationship proneness acted as a moderator in four different

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Table 11. Change in Path Coefficients for Paths Moderated by Product Category Involvement, Consumer Relationship Proneness, and Shopping Enjoyment. Moderator: Product Category Involvement (PCI)

Sample

Path Coefficient

H4a : Direct mail → Relationship investment H4e : Relationship investment → Relationship satisfaction H4f : Relationship investment → Relationship commitment

U.S. apparel

0.14

0.43

+0.29

Support

U.S. food

0.67

0.81

+0.14

Support

U.S. apparel

0.52

0.80

+0.28

Support

B apparel

0.38

0.63

+0.25

Support

PCI Low

Hij

Sample

H5a : Direct mail → Relationship investment H5e : Relationship investment → Relationship satisfaction

B food

0.06

0.37

+0.31

Support

U.S. food

0.59

0.79

+0.20

Support

B food U.S. food

0.40 0.39

0.64 0.65

+0.24 +0.26

Support Support

0.30 0.13 −0.10

0.62 0.60 0.32

+0.32 +0.47 +0.42

Support Support Support

0.21

0.47

+0.26

Support

H5g : Relationship investment → Behavioral loyalty

U.S. apparel B food U.S. food B food

Moderator: Shopping Enjoyment (SE)

Sample

H6b : Preferential treatment → Relationship investment H6d : Tangible rewards → Relationship investment H6e : Relationship investment → Relationship satisfaction H6f : Relationship investment → Relationship commitment H6g : Relationship investment → Behavioral loyalty

SRP High

Moderator: Consumer Relationship Proneness (SRP)

H5f : Relationship investment → Relationship commitment

SRP Low

PCI High

Hij

SE Low

SE High

Hij

U.S. food

−0.35

−0.05

+0.30

Reject

N apparel B food

0.17 0.48

−0.05 0.27

−0.22 −0.21

Support Support

U.S. food

0.51

0.84

+0.33

Reject

U.S. food

0.44

0.75

+0.31

Reject

B food U.S. food

0.28 0.05

0.52 0.43

+0.24 +0.38

Reject Reject

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¨ GABY ODEKERKEN-SCHRODER ET AL.

paths in the Belgian food sample: from direct mail to relationship investment and from relationship investment to relationship satisfaction, relationship commitment, and behavioral loyalty. In the U.S. food sample, consumer relationship proneness moderated all paths from relationship investment to relationship satisfaction, relationship commitment, and behavioral loyalty. Finally, the path from relationship investment to relationship commitment was also affected in the U.S. apparel sample. The changes in path coefficients between respondents revealing a low level of consumer relationship proneness and respondents revealing a high level of consumer relationship proneness were all in the hypothesized direction. These results provide initial evidence for hypotheses H5a , H5e , H5f , and H5g . Shopping Enjoyment Table 8 reveals the empirical results related to shopping enjoyment as a potential moderator. In the U.S. food sample, shopping enjoyment moderated four different paths: from preferential treatment to relationship investment and from relationship investment to relationship satisfaction, relationship commitment, and behavioral loyalty. Shopping enjoyment moderated two paths in the Belgian food sample: from tangible rewards to relationship investment and from relationship investment to relationship commitment. In the Dutch apparel sample, only the path from preferential treatment to relationship investment was affected by shopping enjoyment. Most of the changes in path coefficients were however opposite to the hypothesized direction, implying an initial rejection of H6e , H6f , and H6g . Mixed evidence was found for H6b . Initial support was found for H6d .

DISCUSSION AND IMPLICATIONS The prime interest of this study was to assess whether the effectiveness of relationship marketing efforts is dependent upon various types of contingency factors. Despite the recognized importance of this objective (Barnes, 1997; Christy et al., 1996; Kalwani & Narayandas, 1995), only few studies have ever tackled this issue before in a consumer setting (De Wulf et al., 2001; Verhoef et al., 2003). At first glance, one might question the significance of our findings, as our results are somewhat disappointing in terms of consistency between the six samples. However, we automatically created threats of inconsistency by empirically validating our conceptual model in a multi-country and multi-industry context. Our findings stress the need for an adapted relationship marketing strategy per country and industry. Moreover, our results do provide some empirical evidence of the existence of moderating effects. Despite the lack of consistency, our study does show that

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retailers should not lose sight of the importance of consumer-related factors in shaping customer loyalty. No matter how much trouble a retailer goes through in order to increase customer loyalty, our results indicate that such efforts can be tempered or strengthened. While many retailers are making their first moves in implementing relationship marketing efforts, hardly any efforts to target these efforts towards specific consumer segments are being made (Barnes, 1997). Such targeting might be especially critical for retailers who increasingly aim at targeting individual consumers instead of applying mass marketing approaches. Focusing relationship marketing efforts at suitable consumer segments may be the most cost-effective method to keep existing customers. While demographic variables were often found to be ineffective with respect to their systematic impact on variables of interest such as consumer choice (Kim et al., 1999; Richardson et al., 1996), we do find significant differences between young vs. old and male vs. female consumers in terms of the effectiveness of relationship marketing efforts. First, all but one of the significant paths indicate that young consumers react more favorably to retailers’ efforts aimed at enhancing customer loyalty. While these findings contradict our hypotheses, they could support the underlying thought that younger shoppers engage in more elaborate processing of retailer-originated stimuli (Cole & Balasubramanian, 1993; Wilkes, 1992; Yoon, 1997). As more and more retailers face aging market segments (Wilkes, 1992; Yoon, 1997), the challenge of tomorrow’s retailers might be to find appropriate ways to earn the loyalty of older consumers. Moreover, all but one of the moderated paths suggest that it could be worthwhile for retailers to start customer-bonding practices when their target population is relatively young in order to encourage “lifetime” commitment. Second, all but one of the moderated paths suggest that female consumers are more sensitive to loyalty efforts as opposed to male consumers. This provides additional support to Fournier’s (1998) conclusion that women reveal more intense interpersonal and brand relationships. Again, this finding may have important implications for retailers as males are doing more of the shopping than was the case in previous generations and in categories that traditionally were not part of their shopping domain, such as grocery and clothing (Evans et al., 1996). As a result, our study may imply that retailers are urged to increase their appeal to men in terms of the way they try to stimulate store loyalty. With respect to the moderating impact of social affiliation, we repeatedly observed that people with a high need for social affiliation more strongly reciprocate a retailer’s resources and efforts used for enhancing loyalty than people with a low need for social affiliation. For the same level of relationship investment, highly sociable persons expressed higher levels of satisfaction, commitment, and loyalty than less sociable persons. However, our results tentatively indicate that the

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application of relationship marketing efforts has less impact on relationship investment when targeted at highly sociable consumers as opposed to less sociable consumers. A potential explanation for this observation might be found in the literature on customer satisfaction. Similar to the notion that consumers with higher expectations are more difficult to satisfy (Oliver, 1997), consumers with a higher need for social affiliation may be more demanding towards a retailer’s relationship marketing efforts. This may entail important implications for retailing practice. Retailers targeting consumer segments that are sensitive to social affiliation (e.g. expressed by advertising images, salespeople, and in-store atmospherics in communication messages) could be more successful when stressing their objective of creating customer loyalty in communicating the efforts they make. If they do not, they might run the risk of wasting valuable resources invested in launching relationship marketing efforts. Also shopping-related characteristics were found to play a role of importance in strengthening or weakening the effectiveness of relationship marketing efforts. First, several paths consistently show that relationship marketing efforts are more effective when directed at consumers who are relationship prone, confirming the results found by De Wulf et al., 2001). These outcomes might be explained by the fact that relationship-prone consumers are more sensitive to a retailer’s efforts directed at them (cf. Dwyer et al., 1987). Consequently, in addition to more traditional segmentation criteria such as demographic characteristics, retailers might benefit from segmenting customers according to consumer relationship proneness. This may offer potential as it is directly related to the objective of creating customer loyalty. A simple approach to use consumer relationship proneness as a segmentation criterion might be to integrate additional questions measuring relationship proneness when consumers fill out the information form underlying many customer loyalty cards. Second, tentative support was found for the fact that consumers with a higher degree of product category involvement are more influenced by a retailer’s relationship marketing efforts than consumers with a lower degree of product category involvement (e.g. consistent with Solomon et al., 1985; Varki & Wong, 2003). Leuthesser (1997) pointed out that a buyer’s stake in a relationship with a seller tends to be higher with greater involvement in the product category. Our data then might be reasonably interpreted as higher stakes in a relationship, leading consumers to react more positively towards relationship marketing efforts. As a result, as involved consumers could be expected to have a higher tendency to remain loyal to one retailer, segmenting consumers according to levels of product category involvement might affect expected share-of-market and share-of-customer. Third, contrary to our hypotheses and the findings of Bellenger and Korgaonkar (1980) and Forsythe et al. (1990), some of our data indicate that people who enjoy

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shopping, attach more value to enduring relationships with a retailer. However, in line with our hypotheses, two paths that were moderated suggest the opposite. As a result, it is difficult to guide retailers on the basis of our findings related to shopping enjoyment as a moderating variable. On the one hand, consumers who have more fun in shopping might reveal an increased sensitivity towards various shopping-related impulses, including attempts to stimulate customer loyalty. On the other hand, relationship marketing efforts might be less effective when targeted at consumers who have more fun in shopping as they prefer to shop at a variety of different retailers as opposed to being loyal to one particular retailer.

LIMITATIONS AND DIRECTIONS FOR FUTURE RESEARCH Although our study has added to our understanding of factors moderating the effectiveness of relationship marketing efforts, we recognize that there are limitations associated with our study. First, we focused only on two different service industries, food and apparel. The constructs in our model may play out differently in other services settings such as banking, insurance, legal services, restaurants, or jewelry retailers. It is likely that the nature of customer relationships would differ in each of these industries. Thus, future research should examine other retailing and service categories. Moreover, it would be interesting to conduct research focusing at the differences between large store chains and small, independent stores. While large store chains generally operate on basis of anonymous self-service, the survival of small, independent store is often dependent upon personal service and knowledge of customers’ preferences. Second, the data collection procedure may have contributed to potential bias. Because a mall-intercept method was used, frequent mall shoppers may have been over-sampled. In addition, self-selection bias may be a problem in that shoppers who were more interested in our topic or who are more enthusiastic towards shopping in general may have been more likely to participate. Future research efforts might attempt to collect data using a different survey method or in different settings. Also social desirability biases might have occurred as a result of face-to-face interactions between interviewers and respondents. We tried to reduce this bias by stating to respondents that there were no right or wrong answers and by training interviewers to maintain the difficult balance between offering sufficient personal assistance to respondents and reading over respondents’ shoulders. Third, our study was cross-sectional in nature. We realize that future studies that are experimental or longitudinal in nature are needed to increase our confidence in the model. Fourth, a threat to validity may be common method bias. As we used one single questionnaire to measure

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all constructs included, the strength of the relationships between these constructs may somewhat be inflated. Using multiple data sources could resolve this potential problem. For example, database information could be used as input for measuring actual purchasing behavior instead of the self-declared loyalty measure used in this study.

NOTE 1. Only in the U.S. food sample, the Fornell and Larcker (1981) test was not supportive for the discriminant validity between preferential treatment and tangible rewards. Also in the Dutch apparel sample, discriminant validity between relationship investment and relationship satisfaction/commitment could not be found.

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A Cross-Cultural Investigation of Relationship Marketing Effectiveness

APPENDIX Measure Sources

Construct

Source

Direct mail

De Wulf, Odekerken-Schr¨oder and Iacobucci (2001) De Wulf, Odekerken-Schr¨oder and Iacobucci (2001) De Wulf, Odekerken-Schr¨oder and Iacobucci (2001) De Wulf, Odekerken-Schr¨oder and Iacobucci (2001) De Wulf, Odekerken-Schr¨oder and Iacobucci (2001) Anderson and Narus (1984) Frazier, Gill and Kale (1989) Kumar, Stern and Achrol (1992) Ping (1993/1997) Smith and Barclay (1997) Mohr, Fisher and Nevin (1996) Morgan and Hunt (1994) Sirohi, MacLaughlin and Wittink (1998) Cheek and Buss (1981) Villani and Wind (1975) Laurent and Kapferer (1985) Zaichkowsky (1985) Mittal (1995)

Preferential treatment Interpersonal communication Tangible rewards Relationship investment Relationship satisfaction

Relationship commitment Behavioral loyalty Social affiliation Product category involvement

Consumer relationship proneness Shopping enjoyment

De Wulf, Odekerken-Schr¨oder and Iacobucci (2001) Bellenger and Korgaonkar (1980) Gutman and Mills (1982) Mittal and Lee (1989)

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72

Items Construct Direct mail

Items

This store often sends mailings to regular customers This store keeps regular customers informed through mailings This store often informs regular customers through brochures Preferential This store makes greater efforts for regular customers than for non-regular customers Treatment This store offers better service to regular customers than to non-regular customers This store does more for regular customers than for non-regular customers Interpersonal This store takes the time to personally get to know regular customers Communication This store often holds personal conversations with regular customers This store often inquires about the personal welfare of regular customers Tangible rewards This store rewards regular customers for their patronage This store offers regular customers something extra because they keep buying there This store offers discounts to regular customers for their patronage Relationship This store makes efforts to increase regular customer’s loyalty Investment This store makes various efforts to improve its tie with regular customers This store really cares about keeping regular customers Relationship As a regular customer, I have a high quality relationship with this store Satisfaction I am happy with the efforts this store is making towards regular customers like me I am satisfied with the relationship I have with this store Relationship I am willing “to go the extra mile” to remain a customer of this store Commitment I feel loyal towards this store Even if this store would be more difficult to reach, I would still keep buying there

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Behavioral loyalty What percentage of your total expenditures for clothing do you spend in this store? Of the 10 times you select a store to buy clothes at, how many times do you select this store? How often do you buy clothes in this store compared to other stores where you buy clothes? Social affiliation Generally, I am someone who likes to seek contact with others Generally, I am someone who has no difficulty “mingling” in a group Generally, I am someone who, given the chance, seeks contact with others Product category Generally, I am someone who finds it important what clothes he or she buys Involvement Generally, I am someone who is interested in the kind of clothing he or she buys Generally, I am someone for whom it means a lot what clothes he or she buys Consumer Generally, I am someone who likes to be a regular customer of an apparel store Relationship Generally, I am someone who wants to be a steady customer of the same apparel store Proneness Generally, I am someone who is willing to “to go the extra mile” to buy at the same apparel store Shopping enjoyment Generally, I am someone who enjoys shopping Generally, I am someone who likes shopping to see whether there is anything new Generally, I am someone who considers shopping as a pleasant way to spend his or her time

THE ROLE OF SOCIALLY DESIRABLE RESPONDING IN INTERNATIONAL SERVICES RESEARCH Marcel van Birgelen, Ko de Ruyter and Martin Wetzels ABSTRACT In this paper, the contaminating role of socially desirable responding (SDR) in the investigation of “dark-side” aspects in international services marketing is examined. The main question to be answered is whether or not relationships between consumer ethnocentrism towards international services and its antecedents are biased by SDR, manifesting itself as impression management by respondents. The results of an empirical study conﬁrm that conscious impression management indeed is likely to represent a serious threat in this type of consumer behavior-related research. The relationship between cultural openness and consumer collectivism on the one hand and consumer ethnocentric tendencies towards foreign services on the other hand was found to be biased by SDR. Such bias, however, could not be found for the other antecedents, namely patriotism and conservatism. This suggests that whether or not respondents engage in impression management depends on the conceptual character of the constructs being studied in international services research. Accordingly, the results have several implications for international services research practice.

Research on International Service Marketing: A State of the Art Advances in International Marketing, Volume 15, 75–91 Copyright © 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1016/S1474-7979(04)15004-7

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1. INTRODUCTION During the past decade, many service industries have been internationalizing at rapid pace. This move towards globalization is accompanied by a growing attention of researchers and academics to issues related to the internationalization of services and its consequences for services marketing research. One problem that has remained particularly unresolved in international services research is the bias in respondents’ responses caused by socially desirable responding (SDR). SDR originates from the tendency of respondents to present themselves in more favorable terms towards external parties, with the intention to stress desirable, socially accepted, behavior and to hide undesirable behavior. SDR is biasing research results since measurements of interest to researchers now do not reflect real personality traits or perceptions. SDR is especially salient in research when respondents are unable or unwilling to report honestly on sensitive issues (Fisher, 1993). Constructs corresponding to these socially sensitive issues have also been referred to as “dark-side” variables, representing the negative sides of consumer behavior. Although their significance has already been recognized previously by several academics (e.g. Belk, 1983; Moschis, 1987), these “dark” aspects of consumer behavior have received renewed attention in the past years (e.g. Mick, 1996). Illustrative examples of “dark-side” constructs focused on before are the level of compulsive buying behavior, materialism, gambling, cigarette smoking, drug and alcohol addiction, and prostitution (Hirschman, 1991). In this study, consumer ethnocentrism towards international services will be the focal construct. Also this phenomenon can potentially be classified as a “dark-side” variable. Consumer ethnocentrism towards services represents the tendency to prefer domestic services over services from abroad, this mainly on the basis of nationalistic emotions. Because of loyalty towards one’s home country, ethnocentric consumers are more reluctant to make use of services offered by foreign providers. When marketing products, emphasizing the country of origin is an often used strategy for convincing consumers to buy only “home-made” products (“manufactured and assembled in . . .”). Since it can be reasoned that support of one’s own country and economy is socially desirable, (measurement of) consumer ethnocentrism toward services is a suitable candidate for contamination by SDR. This holds particularly true when positioning the consumer ethnocentrism in a larger framework, that is when relating it to other socio-psychological constructs. In previous research on consumer ethnocentric tendencies and its antecedents and consequences, no attention has been paid to the contaminating role of SDR (e.g. Sharma et al., 1995). The purpose of

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this paper, therefore, is to investigate SDR with respect to socio-psychological antecedents of consumer ethnocentric tendencies in an international services setting. The main focus will be on assessing the extent to which SDR influences relationships between consumer service ethnocentrism and its antecedents. Our paper is structured as follows. First, we offer a conceptual synthesis of the literature on the construct of SDR. In the following two sections, SDR is discussed in more detail and some methodological issues are presented. Subsequently, we focus on the construct of consumer ethnocentrism in international services marketing and relate it and its socio-psychological antecedents to SDR. Next, we discuss the results of a study designed to investigate the contaminating effect of SDR in an international services setting. We conclude the paper by discussing a number of theoretical and practical implications for international services research.

2. SOCIAL DESIRABILITY: CONCEPTUAL ISSUES Socially desirable responding (SDR) is a widely studied and highly debated bias and has been a main issue among psychologists, especially in the establishment of attitudes, personality, sensitive behavior and psychopathology (Paulhus, 1991). SDR represents the tendency to overreport desirable behaviors and underreport undesirable behaviors, this in accordance with temporary cultural ethics. Other classifications of SDR are “impression management” (Paulhus, 1984) and “moralistic hypocrisy” (Cattell et al., 1976). The level of contamination that SDR represents remains highly unresolved in the social sciences (Mick, 1996). Two reasons for underestimation of SDR contamination are: (a) the fact that very few studies have studied SDR, limited only to differences in mean desirability scores and simple correlations between SDR and other constructs; and (b) that a priori selection of measures and constructs that might be biased by SDR is quite rare (Zerbe & Paulhus, 1987). In marketing and consumer research too, the bias SDR causes is highly underestimated, in spite of the fact that the need for improved knowledge of SDR contamination in research on consumer issues was shown to be obvious (Mick, 1996). As mentioned above, consumer ethnocentrism can be considered to be a “dark-side” variable. The use of dark-side variables in marketing research and corresponding questionnaires puts respondents in an awkward position. Respondents can generate embarrassed feelings in reacting to items measuring these, often very personal, constructs of interest. These feelings of embarrassment could result in respondents reacting to items in such a way that they present

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themselves more positively towards the external environment and therefore engage in socially desirable responding. SDR has been extensively considered to be the tendency of people to present themselves in favorable terms according to current cultural values when providing researchers with answers on questions (Paulhus, 1991). When respondents are reluctant to give their opinions on sensitive topics, socially desirable responding leads to a response bias that can have a hidden and damaging effect on conclusions drawn from the research. Adjusting for this bias should result in measurements that reflect respondents’ true feelings with regard to the constructs under study more aptly. In order to measure the level of SDR, various measures have been developed, of which the Marlowe-Crowne Scale (Crowne & Marlowe, 1960) is the most widely used. These various scales mainly consist of items about behavior that is desirable but rare or undesirable but common. Respondents then reply to these various items by giving an indication of the personal relevance of these items. The conceptual dimensionality of SDR is a much-debated issue. Factor analyses of various SDR measures indicated that these scales clustered around two factors (Paulhus, 1984): self-deception and impression management. Self-deception is the unconscious tendency to see oneself in a favorable light that results in socially desirable, positively biased self-descriptions that the respondent believes to be true (Zerbe & Paulhus, 1987). Self-deception is operationalized by asking questions concerning psychologically threatening thoughts and feelings which some people (the so-called self-deceivers) deny but which are assumed to be present universally. These questions are often characterized by deep personal threat, mainly in relation to sexual and parental conflicts. Self-deceiving respondents exhibit a defensiveness toward psychologically threatening ideas, which is not strongly influenced by the level of anonymity versus publicity of the research context (Paulhus, 1984). On the other hand, the dimension of impression management is a conscious false representation of the individual in positive terms, e.g. creating a favorable impression by consciously biasing responses (Zerbe & Paulhus, 1987). Items, which refer to desirable, statistically infrequent behavior, and undesirable but common behavior operationalize impression management. Questions involve issues of which the respondents know the true value and responses to these questions are strongly affected by the level of anonymity versus publicity of the research (Paulhus, 1984). Summarizing, the main and most important difference between the two dimensions of SDR is that self-deception concerns the unconscious denial of threatening psychological thoughts and feelings, whereas conscious impression management is aimed at desirable or undesirable behavior of an overt nature.

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3. SOCIAL DESIRABILITY: METHODOLOGICAL ISSUES In addition to matters of conceptualization, methodological issues are also dominant in discussions on SDR. For example, Ganster et al. (1983) made a distinction between three classes of SDR effects: spuriousness, suppression, and moderation. When SDR has a spuriousness effect, SDR is correlated with both the predictor and criterion variable. In this case, any observed correlation between the variables is caused by the shared variance with SDR rather than any real existing relationship. Partialing out the effect of SDR by using multiple regression or partial correlation techniques results in a weaker and sometimes even non-significant relationship, which indicates that SDR created the misleading relationship. The suppression effect is the opposite of the spuriousness effect. In this case a relationship between two variables remains undetected, because SDR suppresses or masks it. In this case partialing out SDR leads to a larger non-zero correlation. Finally, the moderation effect is represented by an interaction effect between an independent variable and SDR, which indicates that the response of the dependent variable to changes in the level of the independent variable is dependent on the level of SDR. The significance of this moderation effect can be tested by using hierarchical multiple regression analysis. A final important issue is the consideration when to control for socially desirable responding biases. Zerbe and Paulhus (1987, p. 252) state that “In general, SDR can be considered contamination only when, within a particular theoretical context, the construct that SDR represents is unrelated conceptually to the constructs of interest.” This indicates that in doing research the conceptual role of SDR within the larger theoretical framework that surrounds the constructs should be examined and that it should be determined whether or not SDR could contaminate the research results. If SDR is conceptually related to a focal construct and the measurement of this construct would be controlled for SDR, content variance would be thrown away and important information would be lost. Taking the two dimensions of SDR, self-deception and impression management, into account can nuance the impact of SDR. According to Zerbe and Paulhus (1987, p. 254) “. . . self-deception should never be controlled for in assessing adjustment-related constructs” (e.g. achievement motivation, self-esteem, perceived control, social dominance, optimism, and achievement motivation), because self-deception is characteristic of well-adjusted individuals (Paulhus, 1986). When controlling such psychological adjustment constructs for self-deception content variance relating to personality factors of interest would be partialed out. In the next section we will pay more attention to this dimensional distinction. We provide a brief discussion of

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the construct of consumer ethnocentrism towards international services and relate consumer ethnocentrism to SDR in a conceptual framework.

4. CONSUMER ETHNOCENTRISM AND SOCIAL DESIRABILITY 4.1. Consumer Ethnocentrism in International Services Consumer ethnocentrism is a specific form of ethnocentrism, a construct that has its origin in sociology. Sumner (1906, p. 13) defined ethnocentrism as “. . . the view of things in which one’s own group is the center of everything, and all others are scaled and rated with reference to it . . . Each group nourishes its own pride and vanity, boasts itself superior, exalts its own divinities and looks with contempt on outsiders.” Very important in this definition is the aspect of superiority of the “in-group” in relation to the “out-group” that is considered to be inferior. Ethnocentric tendencies are very important for marketing research and practice of services, since ethnocentric evaluations can also be related to consumer behavior. This consumer ethnocentrism towards services can then be defined as “the beliefs held by consumers about the appropriateness of making use of services provided by foreign companies.” The belief of inappropriateness is the result of the conviction that using foreign services has a negative impact on the domestic economy and welfare. With respect to services the construct of consumer ethnocentrism may be even more important than for products. Services can be differentiated from products by four key characteristics (Berry, 1980; Zeithaml et al., 1985). Services are intangible, consumption and production can not be separated, they are very heterogeneous, and highly transitory. Because of these factors consumers attach higher levels of risk to making use of services, especially if these services are provided by foreign and often relatively unknown service providers. Furthermore, as a result of the tremendous growth of the international services sector consumers are more and more confronted with foreign services. As a matter of fact, the services industry can be identified as one of the fastest growing domains of international trade (Bradley, 1995; Terpstra & Sarathy, 1993). This tremendous growth is caused by several factors of which structural, market and technological changes are the most important ones (Segal-Horn, 1994). Nowadays, services, which are traditionally characterized by high levels of governmental protectionism such as public utilities, public transport and telecommunication, even face international competition. This can be illustrated by several concrete examples. In the south of the Netherlands a company from the United States recently started to operate

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regional public transportation by bus, in Europe national infrastructures of railroads are opened up to foreign service providers, international competition is becoming rather normal in service sectors such as telecommunication and express transportation. Local presence of foreign service providers by means of local subsidiaries is one of the most important modes of export in the international service environment (Czinkota & Ronkainen, 1995). One reason for this is the high level of transitoriness of services, therefore services can hardly be distributed by making use of traditional marketing channels. Another reason is that service providers should be highly accessible for their customers, which can be achieved by having local outlets. Furthermore, local subsidiaries of foreign service providers help to create customer awareness of the existence of the service. It is obvious that with these new international competitors local service providers and consumers find themselves in a completely new dynamic situation, a situation that is accompanied by many new threats and of course opportunities. A thorough understanding of consumer ethnocentric tendencies of certain consumer groups facilitates the international services marketing. The next section introduces four antecedents of consumer ethnocentrism on the basis of which we will formulate the main objective of our study concerning the contaminating effect of SDR.

4.2. Consumer Ethnocentrism and SDR In previous research, various socio-psychological antecedents of consumer ethnocentrism have been identified. Sharma et al. (1995) proposed and tested a framework in which consumer ethnocentric tendencies with regard to products formed the central construct. On the basis of an extensive literature search they identified four socio-psychological concepts which could be related theoretically to consumer ethnocentrism: “openness to foreign cultures” (the level to which consumers are open-minded towards foreigners and their oftenunknown cultures), “patriotism” (the dedication to a person’s home-country), “conservatism” (characterized by high appreciation of traditions and social customs), and “collectivism” (the tendency to act as a society and feel strong bonds with each other). Sharma et al. (1995) concluded that these four antecedents were significantly related to consumer ethnocentrism towards foreign products. Individuals more open towards foreign cultures reported less consumer ethnocentric tendencies, whereas persons with more patriotic, conservative, and collective attitudes turned out to be more consumer ethnocentric with regard to foreign products. However, since consumer ethnocentrism can be considered to be a “dark-side” variable, socially desirable responding effects could contaminate these relationships. The aforementioned study on consumer ethnocentrism with

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regard to products did not take this bias into account. Therefore, in our study which extends consumer ethnocentrism to services the main objective is to test whether or not SDR is a factor that should be taken into consideration, when trying to explain various causes of consumer ethnocentrism. The decision of when to control for SDR depends on its relationship with the other constructs of interest in a study. When SDR is unrelated conceptually to the other constructs, it can be considered contamination (Zerbe & Paulhus, 1987). When it is related to another construct of interest, correcting for SDR would result in the loss of content variance. This consideration is especially important when a distinction is made between the two dimensions of SDR, self-deception and impression management. As has been mentioned before, unconscious selfdeception should never be controlled for when measuring adjustment-related constructs, because it represents an important characteristic of well-adjusted individuals. Controlling such psychological adjustment constructs for selfdeception would lead to loss of content variance, which can be related to personality factors of interest. Therefore, it should be determined whether or not measurements of the constructs in this study (cultural openness, patriotism, conservatism, collectivism, and consumer ethnocentric tendencies) should be corrected for both self-deception and impression management or just for impression management. Since cultural openness, consumer patriotism, consumer conservatism, consumer collectivism, and consumer ethnocentric tendencies involve respondents’ deeper psychological considerations it can be argued that these five constructs can be classified as psychological adjustment constructs. Therefore, it is feasible that there should be no correction for self-deception when measuring these constructs. Additionally, consumer ethnocentric tendencies are expressed as intentions of consumers to behave in a certain way, that is intentions not to make use of foreign services. Since consumer ethnocentric tendencies are directed towards consumer behavior, impression management, which is a conscious bias in reported behavior, can contaminate measurements of these tendencies. This leads to the conclusion that the five constructs of interest should only be corrected for SDR in the dimension of impression management. Therefore, we developed 10 items on the basis of the Crowne and Marlowe’s (1960) scale aimed at measuring respondents’ level of impression management. These measurements can then be used when controlling for SDR. The aim of our research is to investigate whether impression management contaminates the relationship between consumer ethnocentrism towards international services and its antecedents. Figure 1 depicts the research framework of this study: In the next section we will report on a study designed to test the contaminating effect of SDR on the four main relationships in Fig. 1.

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Fig. 1. Conceptual Framework.

5. AN EMPIRICAL STUDY 5.1. Questionnaire Development and Sampling Method In order to measure the level of consumer patriotism, consumer conservatism, consumer collectivism, and consumer ethnocentric tendencies, established scales were used. All items were measured by using nine-point Likert-type scales. The level of consumer patriotism was measured with five items from Levinson’s (1950) scale. In order to measure consumer conservatism six items were used from the scale, which was developed by Ray (1983). In measuring collectivism, a distinction could be made between collectivism towards parents and collectivism towards colleagues or fellow-students. The former was measured with six items of Hui’s (1988) scale, the latter with five items of that same scale. These 11 collectivism items can then be combined into an overall collectivism score. The items for measuring consumer ethnocentric tendencies towards foreign services were based on the 17 items of the CET-scale (Shimp & Sharma, 1987), which were rewritten in order to apply to the services industry. Since no scales existed to measure the

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level of cultural openness, seven self-developed Likert-type items were used for assessing this construct. Finally, to measure the level of impression management, we developed 10 Likert-type items on the basis of the social desirability scale developed by Crowne and Marlowe (1960). The items were adapted in such manner that they were more appropriate for Dutch individuals and their cultural context. The data, which we used to test the contaminating effect of SDR, was obtained from a national sample of consumers in eight large and middle-large cities in the Netherlands. The interviewers were provided with strict instructions with regard to approaching potential respondents, leading to each fifth adult passer-by being asked to participate in the study. If respondents agreed upon participation the interviewers gave them an envelope containing the anonymous questionnaire and a stamped return-envelope, addressed to the university. This approach was chosen in order to minimize the effect of respondent/interviewer interaction on the occurrence of impression management, an effect that could easily occur in personal interview situations. The result was a total sample of 175 respondents, which represented over three quarters of the persons who agreed upon participation.

5.2. Descriptive Analysis Table 1 presents mean responses and standard deviations on the scales for the various constructs. In order to assess the internal consistency of the measurement scales, reliability analysis was conducted. Table 2 presents the reliability scores (Cronbach Alpha) of the various scales. All reliability scores exceed the critical value of 0.6 proposed by Nunnally and Bernstein (1994), except for collectivism and conservatism, for which the lowest scores were found. The reliability score of 0.961 of the CET-scale is remarkably high, compared to the score of 0.91, which was found by Sharma et al. (1995) in their study on consumer ethnocentric tendencies towards foreign products. Table 1. Mean Construct Scores. Construct

Mean

S.D.

Cultural openness Patriotism Conservatism Collectivism Consumer ethnocentric tendencies Impression management

6.14 5.49 5.57 5.96 4.52 7.15

1.55 1.75 1.35 1.08 2.03 1.14

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Table 2. Reliability Scores. Construct

Reliability (␣)

Cultural openness Patriotism Conservatism Collectivism Consumer ethnocentric tendencies Impression management

0.745 0.715 0.532 0.581 0.961 0.785

5.3. Correlation and Regression Analyses In order to find out whether or not the constructs of interest in this study are significantly related to impression management, correlation analyses were performed. A significant correlation indicates that impression management may bias the measurement of a certain construct. Table 3 provides an overview of the correlations between the various constructs and impression management. As can be concluded from Table 3 impression management is correlated significantly with four of five constructs of interest. Therefore, correcting relationships between these constructs for impression management bias is certainly useful for drawing valid conclusions. As was mentioned in Section 3, SDR can contaminate measurements of relationships between constructs in three different ways: SDR can create spurious relationships, it can suppress relationships, and finally SDR can moderate relationships (Ganster et al., 1983). In this study, the use of a combination of simple and partial correlations between content variables tests the spuriousness and suppression effects, this in accordance with Mick (1996). By comparing simple correlations (the correlations with no correction for SDR) with partial correlations Table 3. Construct Correlations with Impression Management. Construct

Correlation

Cultural Openness Patriotism Conservatism Collectivism Consumer Ethnocentric Tendencies

−0.06 (n.s.) 0.20** 0.17* 0.32*** 0.21**

∗p

< 0.05. < 0.01. ∗∗∗ p < 0.001. ∗∗ p

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Table 4. Simple and Partiala Correlations with Consumer Ethnocentric Tendencies. Construct

Simple Correlation

Cultural openness Patriotism Conservatism Collectivism

−0.53*** 0.46*** 0.39*** 0.22**

Partial Correlation −0.54*** 0.42*** 0.38*** 0.19**

a Controlling

for impression management. < 0.01. ∗∗∗ p < 0.001. ∗∗ p

(the correlations with SDR held constant), it can be examined if SDR in the form of impression management is inflating or suppressing the relationships between the constructs of interest. For testing the moderation effect moderating regression analysis is used, also in accordance with Mick (1996). Statistical significance of the interaction of impression management with an antecedent of consumer ethnocentric tendencies means that impression management has a significant moderating effect on the relationship between that antecedent and consumer ethnocentrism. In Table 4 the simple and partial correlations between the four antecedents and consumer ethnocentrism towards foreign services are given. When comparing the simple and partial correlations in Table 4, it can be seen that there are no significant differences between the correlations. For each antecedent, correction for the impression management bias does not result in any change of the observed simple correlation. Therefore, it can be concluded that socially desirable responding in the dimension of conscious impression management does not create or suppress the relationships between consumer ethnocentrism towards foreign services and its antecedents. In other words, in this study the spuriousness and suppression effect of SDR is negligible and impression management has no influence on the correlation between cultural openness, consumer patriotism, consumer conservatism, consumer collectivism, and consumer ethnocentrism towards foreign services. In order to test the moderating effect of impression management four moderating regression analyses were performed: one for each antecedent. In each model, there were three independent variables: one of four antecedents, impression management, and the interaction of impression management with the respective antecedent. The dependent variable is then the consumer ethnocentric tendencies towards foreign services. The results of the moderating regression analyses are presented in Table 5.

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Table 5. Moderating Regression Results.a

Regression 1

Regression 2

Regression 3

Regression 4 a Consumer

Cultural Openness

Impression Management

Interaction

R2

−0.73b,***

0.41**

0.23**

0.37

Patriotism

Impression Management

Interaction

R2

0.48***

0.24 (n.s.)

0.10 (n.s.)

0.22

Conservatism

Impression Management

Interaction

R2

0.55***

0.27*

0.04 (n.s.)

0.18

Collectivism

Impression Management

Interaction

R2

0.31 (n.s.)

0.46**

0.20*

0.11

ethnocentric tendencies towards foreign services is the dependent variable. coefficient (␤).

b Regression ∗p

< 0.05. < 0.01. ∗∗∗ p < 0.001. ∗∗ p

As can be seen in Table 5, two interaction terms are statistically significant. First, impression management has a moderating effect on the relationship between the level of cultural openness and consumer ethnocentrism towards foreign services. The main effect of cultural openness on consumer ethnocentric tendencies is negative: as was expected, consumers more open towards foreign cultures have less consumer ethnocentric tendencies towards international services. However, this negative relationship is opposed by the significant positive moderating effect of impression management. For a given level of cultural openness, respondents who engage in higher levels of conscious impression management will have higher consumer ethnocentric tendencies than respondents with less socially desirable responding. In other words, these socially sensitive consumers consider consumer ethnocentric tendencies towards foreign services to be socially desirable and therefore consciously stress these tendencies. Second, the level of impression management by respondents also moderates the relationship between consumer collectivism and consumer ethnocentrism. The main effect of consumer collectivism is not significant, however the interaction term of impression management with consumer collectivism is significantly positive. This implies that, although collectivism itself has no significant influence, for a given level of collectivism, consumers with more conscious impression management are more consumer ethnocentric towards foreign services than consumers with less social desirability. Again, in combination with consumer collectivism, consumer ethnocentric tendencies are considered to be socially

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desirable and have to be stressed consciously. No significant interaction terms were found for impression management in combination with consumer patriotism and consumer conservatism. The level of conscious impression management by consumers does not moderate the significant positive relationships of these two antecedents with consumer ethnocentric tendencies towards foreign services.

6. CONCLUSION 6.1. Discussion The results show that socially desirable responding for the purpose of impression management represents a serious bias in the measurement of focal constructs in international services research. Four of five correlations between impression management and the constructs under study turned out to be significant. The positive direction indicates that persons who engage in conscious impression management tend to be more patriotic, more conservative and collective, and also tend to have a stronger preference for services provided by domestic service providers. It seems that these respondents consider rather conservative and protectionist attitudes to be socially desirable. When controlling the simple correlations between consumer ethnocentric tendencies and its four antecedents for impression management, no significant changes were found. From this result it can be concluded that impression management does not artificially create or suppress relationships. However, two important impression management biases were found when moderating regression analyses were performed. Firstly, impression management moderates the relationship between cultural openness and consumer ethnocentric tendencies towards services. Furthermore, impression management also has a moderating effect on consumer ethnocentrism when being considered together with consumer collectivism. In both cases, it can be concluded that respondents who are more sensitive to social opinions report higher levels of consumer ethnocentric tendencies towards foreign services than respondents who do not engage in conscious impression management. Apparently, these respondents are convinced that support of one’s own country and its economy is generally desirable behavior that should be stressed on purpose. In the cases of patriotism and conservatism no contaminating effect of impression management was found. There seems to be a conceptual difference between the antecedents of consumer ethnocentrism towards services. On the one hand, cultural openness and collectivism could be characterized as more concrete and moderate concepts, which do not reflect extreme attitudes. A respondent who is influenced by social opinion and therefore engages in impression management has

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to put extra emphasis on the influence of both concepts on consumer ethnocentrism towards services. On the other hand, it can be argued that this extra emphasis is not needed in the case of patriotic and conservative consumers. Both concepts are of a much stronger and more extreme nature. The effects of these concepts on consumer ethnocentrism need not to be stressed deliberately.

6.2. Theoretical and Practical Implications for International Services Research Certain limitations should be kept in mind when interpreting the findings that are reported in this paper. First of all, all concepts were measured at one point in time. More insight is needed as to the validity of causal relationships and to how concepts develop over time. Therefore, future studies regarding the construct of consumer ethnocentrism towards foreign services and its antecedents are certainly needed in order to generate longitudinal data. Secondly, although respondents were guaranteed 100% anonymity, data were gathered by making use of personal interviews. Because of this face-to-face contact with the interviewers, it is possible that respondents question this anonymity and SDR is evoked by the research design. Therefore, other research techniques, guaranteeing de facto anonymity, should also be used in future research. Thirdly, even if 100% anonymity is being guaranteed to respondents and they are convinced of that, why would they then engage in SDR? The fact that this question can be raised indicates that the understanding of SDR in real anonymous situations should be enhanced. Finally, although the Marlowe-Crowne scale is the most widely used instrument to measure SDR, it has received some serious criticism. Some researchers question the compatibility of the Marlowe-Crowne scale with the basic two-dimensional structure of SDR (Ballard et al., 1988; Paulhus, 1984, 1991). Future studies should also incorporate other SDR measurement instruments, like Paulhus’s (1992) BIDR scale, in order to reevaluate the applicability of the instruments. An important conclusion that can be drawn from these research results is that researchers on consumer behavior should be very cautious in making inferences about respondents’ SDR. At first SDR seemed to represent no contamination in assessing relationships between constructs, as can be concluded from the nonsignificant difference between simple and partial correlations. However, when examining the moderating effects, significant SDR biases were found. Therefore, future studies on SDR bias should certainly continue to examine spuriousness, suppression, and moderating effects systematically. The starting point for assessing the biasing role of SDR in international services research, is a thorough understanding of the meaning of the constructs

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in the framework under study. Researchers studying dark-side aspects of servicerelated consumer behavior should try to clarify if self-deception and impression management represent serious biases in measurements or if they are conceptually related to the constructs being measured. If the latter case is true, correction for SDR would result in a loss of important relevant information for the study. After that, they should develop and conduct a procedure that checks the effects of SDR in the case of measuring dark-side variables in consumer research. In explaining these effects it is important to take the conceptual character of the focal constructs into consideration, because differences in the underlying characters of construct is likely to determine the level SDR contamination.

REFERENCES Ballard, R., Crino, M. D., & Rubenfeld, S. (1988). Social desirability response bias and the MarloweCrowne social desirability scale. Psychological Reports, 63, 227–237. Belk, R. W. (1983). Worldly possessions: Issues and criticism. In: R. P. Bagozzi & A. M. Tybout (Eds), Advances in Consumer Research (Vol. 10, pp. 514–519). Ann Arbor, MI: Association for Consumer Research. Berry, L. L. (1980). Services marketing is different. Business Magazine, 30, 24–29. Bradley, F. (1995). The service firm in international marketing. In: W. J. Glynn & J. G Barnes (Eds), Understanding Services Management (pp. 420–448). Chicester: Wiley. Cattell, R. B., Pierson, G., & Finkbeiner, C. (1976). Alignment of personality source trait factors from questionnaires and observers ratings: The theory of instrument-free patterns. Multivariate Experimental Clinical Research, 2, 63–88. Crowne, D. P., & Marlowe, D. (1960). A new scale for social desirability independent of psychopathology. Journal of Consulting Psychology, 24, 349–354. Czinkota, M. R., & Ronkainen, I. A. (1995). International marketing. Fort Worth: Dryden Press. Fisher, R. J. (1993). Social desirability bias and the validity of indirect questioning. Journal of Consumer Research, 20, 303–315. Ganster, D. C., Hennessey, H. W., & Luthans, F. (1983). Social desirability response effects: Three alternative models. Academy of Management Journal, 26, 321–331. Hirschman, E. C. (1991). Presidential address: Secular immortality and the dark side of consumer behavior or how semiotics saved my life. In: R. H. Holman & M. R. Solomon (Eds), Advances in Consumer Research (Vol. 18, pp. 1–4). Provo, UT: Association for Consumer Research. Hui, C. H. (1988). Measurement of individualism-collectivism. Journal of Research in Personality, 22, 17–36. Levinson, D. J. (1950). The study of ethnocentric ideology. In: T. W. Adorno, E. Frenkel-Brunswik, D. J. Levinson & R. Nevitt Sanford (Eds), The Authoritarian Personality. New York: Harper & Row. Mick, D. G. (1996). Are studies of dark side variables confounded by socially desirable responding? The case of materialism. Journal of Consumer Research, 23, 106–119. Moschis, G. (1987). Consumer socialization. Lexington, MA: Lexington. Nunnally, J. C., & Bernstein, I. H. (1994). Psychometric theory. New York: McGraw-Hill.

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Paulhus, D. L. (1984). Two-component models of socially desirable responding. Journal of Personality and Social Psychology, 46, 598–609. Paulhus, D. L. (1986). Self deception and impression management in test responses. In: A. Angleitner & J. S. Wiggins (Eds), Personality Assessment via Questionnaire (pp. 143–165). New York: Springer. Paulhus, D. L. (1991). Measurement and control of response bias. In: J. P. Robinson (Ed.), Measures of Personality and Social Psychological Attitudes (Vol. 1, pp. 17–59). New York: Academic Press. Paulhus, D. L. (1992). The balanced inventory of desirable responding. Reference manual, BIDR. Version 6. Vancouver, BC: University of British Columbia. Ray, J. J. (1983). A scale to measure conservatism of American public opinion. Journal of Social Psychology, 119, 293–294. Segal-Horn, S. (1994). Are service industries going global? In: C. Armistead (Ed.), The Future of Services Management (pp. 41–61). London: Kogan Page. Sharma, S., Shimp, T. A., & Shin, J. (1995). Consumer ethnocentrism: A test of antecedents and moderators. Journal of the Academy of Marketing Science, 23, 26–37. Shimp, T. A., & Sharma, S. (1987). Consumer ethnocentrism: Construction and validation of the CETSCALE. Journal of Marketing Research, 24, 280–289. Sumner, W. G. (1906). Folkways: The sociological importance of usages, manners, customs, mores, and morals. New York: Ginn & Co. Terpstra, V., & Sarathy, R. (1993). International marketing. Harcourt Brace: Dryden. Zeithaml, V. A., Parasuraman, A., & Berry, L. L. (1985). Problems and strategies in services marketing. Journal of Marketing, 49, 33–46. Zerbe, W. J., & Paulhus, D. L. (1987). Socially desirable responding in organizational behavior: A reconceptualization. Academy of Management Review, 12, 260–264.

THE INTERNATIONALIZATION PROCESS OF SERVICE PROVIDERS: A LITERATURE REVIEW Tinne Lommelen and Paul Matthyssens ABSTRACT The present paper scrutinizes the extant literature on the internationalization process of service providers. It provides an overview of current insights and unresolved issues. The ﬁndings of over 100 published studies are structured and summarized under four headings: internationalization motives, country/market selection, entry mode choice, and the proﬁle of service exporters. Although literature is closing the gap with reality, this paper concludes that (empirical) work still lacks sound theoretical bases, and – partially as a consequence – it is largely fragmented and exploratory. Per heading we formulate speciﬁc suggestion for better and more focused future research endeavors.

INTRODUCTION Today, services account for more than 75% of total employment and gross national product of industrialized countries in Northern America and Europe. Furthermore, services represent more than a fourth of world trade and are its fastest growing sector (Lindbergh & Wilson, 2001; OECD Report, 2002). Although with a backlog, this importance of international services is reflected in a growing stream of Research on International Service Marketing: A State of the Art Advances in International Marketing, Volume 15, 95–117 Copyright © 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1016/S1474-7979(04)15005-9

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academic papers on international services. This paper presents a literature review of contemporary studies that particularly zoom in on the internationalization of service providers. The aim of this review is: (1) to structure current insights; and (2) to a identify anomalies and priorities for further research. The focus of this literature review is different from the one of Knight (1999) and Bryson (2001). Knight (1999) particularly reviews the research on international services marketing in the period 1980–1998 whereas this review is not restricted to the international marketing of services but includes a wide variety of strategic issues related to the internationalization process of service companies. In comparison with Bryson’s (2001) review that looks at the progress of research into service activities in Europe in 1998, the present paper does not limit the geographic origin of the studies to any certain region, although an indirect limitation occurs because only studies published in English are included. A little more than a hundred studies were identified and retained for this review. The studies represent a wide variety of topics related to the internationalization process in general – e.g. international trade barriers for services (Deardorff, 2001; Zimmerman, 1999), foreign direct investment in services (Buckley et al., 1992, Dunning, 1993), or service export problems (Bell, 1997; Reardon et al., 1996). To allow concise summaries of the main insights and research gaps, the studies are grouped around four key themes: internationalization motives, country/market selection, entry mode choice, and the profile of service “exporters.” The paper is structured as follows. First, the methodology is presented. Next, the main findings of the reviewed studies are summarized. We indicate where findings converge and where inconsistencies remain. Eventually, in the conclusive section, a roadmap is drafted that starts from unresolved issues to make suggestions for further research to progress insight in the internalization process of service providers.

OVERVIEW OF STUDIES ON SERVICE INTERNATIONALIZATION Only studies that explicitly deal with some or several topics related to the internationalization process are included in the literature review. For a clear understanding, the internationalization process refers to international market entry and development (Root, 1994; Young et al., 1989). Therefore, studies on internationalization of services were considered for in-depth analysis when they addressed issues such as drivers or inhibitors to internationalization, selection of market and entry strategies, and key success factors for export expansion. Further, the definitions of O’Farrell and Wood (1998) and Clark et al. (1996) are adopted to give content to going and being international in a service context. We

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define an international service as a service that is offered in foreign markets and/or to foreign customers. As such, services are considered to be international when one or more of the following situations occur(s): (1) the movement of service providers to clients abroad; (2) the movement of foreign clients to service providers; (3) the movement of both clients and providers; and (4) no movement by either client or service provider due service delivery through objects, technological vehicles and/or assets. Furthermore, the concept “movement” is broadly interpreted as it can both refer to temporary situations in the sense of project-based operations or to more permanent ones in the sense of establishing foreign outlets by the expanding service firms. The studies identified and retained in this paper were retrieved through four channels. First, we started a search of full text electronic databases BRONCO, ABI/INFORM, and Business Elite/EBSCO using key words such as “international services,” “service internationalization,” and “internationalization process of services.” Second, we scanned these electronic catalogues for the names of authors that frequently publish in the field of international services. Third, the electronic catalogues were used to review journals in the field of services, international management, international marketing and international business. Although studies appeared in a wide variety of journals, the larger portion of studies are published in the Journal of Services Marketing, Service Industries Journal, Journal of International Marketing, International Marketing Review, International Business Review and the Journal of International Business Studies. Fourth, reference lists of retained articles were systematically examined to identify other studies. In total, a little more than 100 articles were identified and retained. Of the retained studies, one-third is characterized as conceptual, review or opinion-type study whereas two-thirds – and predominantly the younger papers – are empirical studies. Contrarily, Knight (1999) reports an equal division between empirical and non-empirical articles whereas Bryson (2001) emphasizes empirical articles. The current shift towards empirical studies may indicate that the international services domain is moving out of its infancy. This is also indicated by the growing number of studies over the last five years – almost half of the retained articles are published between 1998 and 2003. When clustering the retained studies with respect to their perspective on international services, four groups are distinguished. The first group encloses a quarter of the articles and discusses services in general with no explicit attention to possible heterogeneity within the general category or within a broad group of services. The second group, holding about half of the articles, also takes a rather general approach. In this group the researchers’ emphasis is on a variety of service industries or types of services. The third group, representing a fifth of the articles, concentrates on one particular service industry such as software, retailing, freight transport, insurance, hotel, advertising, engineering consulting, banking, or

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tourism. The fourth group includes studies that focus both on goods and services. Overall, researchers do not mention their rationale for studying particular subsets of services nor do they refer to the classification scheme used (if any).

FINDINGS ON SERVICE INTERNATIONALIZATION To analyze and summarize the major findings in the retained studies, we use Hollensen’s (2001) categorization of key aspects of a company’s internationalization process. In particular, the discussion is organized around the following consecutive steps: (1) the decision whether to internationalize (“motives”); (2) deciding which markets to enter (“country/markets selection”); (3) market entry strategies (“entry mode choice”); and (4) marketing programme design and its implementation/coordination (“profile of service exporters”) (see Fig. 1).

Motives for Internationalization In general, service firms – irrespective of the industry to which they belong – go international “to make money.” However, as in most business activities,

Fig. 1. Four Topics on the Internationalization Process for Services.

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one stimulus alone rarely accounts for any given action. Usually, a combination of factors affects the internationalization decision. Non-service or general literature suggests a distinction between proactive and reactive motives to internationalization (Bartlett & Ghoshal, 2000; Hollensen, 2001; Jeannet & Hennessey, 1998). Scanning the papers included in this study, we conclude that most of the traditional motives for international involvement apply in the service setting. In the next paragraph, we illustrate how both reactive and proactive motives incite service providers to expand internationally. Particular attention is paid to the “client following”/ “market seeking” debate, which is service-specific. Table 1 summarizes reactive motives as they have been studied in the literature. Many times, the decision to go abroad is influenced by parties outside the service firm (Gr¨onroos, 1999). For instance, O’Farrell et al. (1996) report on service firms in various business-to-business sectors to follow clients by responding to contracts or requests for tenders. Only a small minority of the investigated companies made Table 1. Reactive Motives in the Case of Service Internationalization. Reactive Motives

Examples of Studies

Following customers

Bell (1995), O’Farrell et al. (1996, 1998), Winsted and Patterson (1998), Patterson et al. (1999), Coviello and Martin (1999), Katrishen and Scordis (1998), Hellman (1996), Sharma and Johanson (1987), Fern´andez and Fern´andez (2001)

Unsolicited foreign orders

Bell (1995), Bj¨orkman and Kock (1997), Coviello and Munro (1995; 1997), O’Farrell et al. (1996), O’Farrell and Wood (1998)

Competitive pressures

Hellman (1996), Terpstra and Yu (1988), Erramilli (1992), Patterson et al. (1999)

Formal and informal networks

Bj¨orkman and Kock (1997), Coviello and Munro (1995; 1997), Coviello and Martin (1999), Sharma and Johanson (1987)

Domestic market: small and saturated

Coviello and Munro (1995; 1997), Coviello and Martin (1999), Patterson et al. (1999)

Export market incentives/disincentives

Winsted and Patterson (1998), Patterson et al. (1999), Dahringer (1991), Fugate and Zimmerman (1996), Zimmerman (1999), Reardon (1996)

Proximity to international customers/psychological distance

Winsted and Patterson (1998), Patterson et al. (1999)

Overproduction/excess capacity

Winsted and Patterson (1998)

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a deliberate decision to select a specific foreign market. Similarly, Bell (1995) reports that in most of the software firms he studied, international activities started in response to requests of current clients to follow them, inquiries from abroad, or unsolicited orders. Fern´andez and Fern´andez (2001) note that business service multinationals follow their clients abroad as they consider customer interaction as an important competitive advantage. Next to (potential) clients that show opportunities, the studies indicate that competitors and partners in both formal and informal networks drive service companies to expand internationally. Like Terpstra and Yu (1988), Hellman (1996) reports that competitors influence to a great extent the internationalization of banks and insurance companies. Concerning the influence of networks, Bj¨orkman and Kock (1997) note that in addition to unsolicited orders, social networks are very influential in the inward internationalization of the tourist companies they investigated. Coviello and Munro (1995) argue that the majority of firms in their survey indicate that their initial internationalization decisions were triggered by opportunities presented by contacts in a formal or informal network, rather than by their own proactive search process. Besides these drivers, stimuli originating from the domestic market might push service providers abroad. For instance, Coviello and Munro (1995, 1997), Coviello and Martin (1999), and Patterson et al. (1999) indicate the impact of a small and/or saturated home market on the initial internationalization of service companies. The studies of Patterson et al. (1999), and Winsted and Patterson (1998) endorse the motivating role of export promotion programs by governmental and trade organizations. Winsted and Patterson (1998) also report the availability of excess capacity as well as the proximity of an attractive foreign market as stimuli for service internationalization. Next to reactive triggers, evidence is found in favor of proactive motives that drive service companies to internationalize as summarized in Table 2. L´eo and Philippe (2001) note that the internationalization of business-to-business services is as often the result of following domestic clients as of the active wish of the companies to develop markets abroad. Especially the active role of management in searching for opportunities is emphasized. Studies by Weinstein (1977), Patterson et al. (1999) and Winsted and Patterson (1998) have identified management commitment as an important impetus to internationalization. O’Farrell et al. (1996) and Edvardsson et al. (1993) note that internationalization is driven by actions that are made intuitively and that are based on individual managers’ ambitions and commitment to growth. Networks were identified to represent a key reactive motive, but at the same time networks are proactively used to expand abroad. Some of the studies reveal that service providers do not wait until the network identifies opportunities for them.

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Table 2. Proactive Motives in the Case of Service Internationalization. Proactive Motives

Examples of Studies

Managerial initiative

Patterson et al. (1999), Winsted and Patterson (1998), Majkg˚ard and Sharma (1998), Edvardsson et al. (1993), O’Farrell et al. (1995)

Formal and informal networks: to spot foreign market opportunities

Coviello and Munro (1995, 1997), Majkg˚ard and Sharma (1998), Sharma and Johanson (1987)

Technology competence/unique product

Winsted and Patterson (1998), Coviello and Martin (1999), Mathe and Perras (1994)

Economies of scale

Patterson et al. (1999) versus Katrishen and Scordis (1998), Veugelers (1992)

Managers are found to actively search for and develop relationships with strong network actors in order to prepare the internationalization process. Like Majkg˚ard and Sharma (1998), Coviello and Munro (1995, 1997) stress the attempt of software companies to actively develop and maintain relationships with network partners enabling them to grasp opportunities abroad. Sharma and Johanson (1987) report similar results for technical consultancy firms. Furthermore, Winsted and Patterson (1998) and Coviello and Martin (1999) report on how a unique service may stimulate service providers to go abroad. Evidence is mixed on the importance of economies of scale. Patterson et al. (1999) report that for Dutch service companies in various industries the expectation of gaining scale economies drive them abroad. To the contrary, Veugelers (1992), Katrishen and Scordis (1998), and Campbell and Verbeke (1994) question the advantage of scale economies in service industries. National responsiveness and scope economies appear to prevail over scale economies. Addressing the matter of motives to internationalize in a service context requires a further elaboration of the “client following” motive. Firms that follow clients enter foreign markets primarily to serve foreign subsidiaries of their domestic clients (Alexander & Lockwood, 1996; Dunning, 1993; Kundu & Contractor, 1999; Terpstra & Yu, 1988). In fact, client following is often assumed to be more prevalent for services than for manufacturing industries (Bryson, 2001; Erramilli & Rao, 1990; Terpstra & Yu, 1988). Additionally, Li and Guisinger (1992) and Li (1994) report that most service firms initiate international operation by following clients in order to capitalize on pre-established business relationships. However, once a foreign market presence is established, motivation seems to shift to serving local foreign customers and as such a market seeking approach is adopted. As such, a

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two-stage process is suggested which implies that importance of the motive client following may decrease over time. The suggestion of a switch in motives that cause a change from a reactive client following to a more active market seeking behavior seems logical. Nevertheless, the literature on international services is inconclusive on this matter. Some authors agree with the reasoning and take it along in their study (Bj¨orkman & Kock, 1997; Cicic et al., 1999; Roberts, 1999). Others come to challenging findings (Majkg˚ard & Sharma, 1998; McLaughlin & Fizsimmons, 1996; Winsted & Patterson, 1998) in the sense that a switch is not found or it occurs from a market seeking to a client following approach. Still other researchers do not even consider a switch (Alexander & Lockwood, 1996; Ekeledo & Sivakumar, 1998; Erramilli, 1990; Gr¨onroos, 1999; Stare, 2002). In sum, a wide selection of reactive and proactive motives drives the internationalization of service companies. Especially, networks tend to hold opportunities/threats that motivate service providers to expand abroad.

Country/Market Selection Companies that decide to expand internationally need to be selective on wich market(s) to enter. In the international marketing literature, the factors that influence market selection are divided in two broad groups – external factors such as the political, economical, demographic situation of the targeted countries, versus internal factors such as product fit, resources and experience of the company. Furthermore, it is assumed that firms that internationalize consciously look for information to make a rational selection (Hollensen, 2001; Jeannett & Hennessey, 1998). In line with the reported impact of networks on a service firm’s motives to internationalize, the studies stress that network partners such as current or potential clients, competitors and/or other business partners (co)determine the selection of country and/or market. For instance, Coviello and Martin (1999) note that for engineering consulting service companies, the choice of initial and subsequent markets is mainly driven by the location of clients and network contacts. Each firm’s strategy is to expand to markets where project opportunities arise. Similar findings appear in studies such as those of O’Farrell et al. (1996) and O’Farrell and Wood (1998) that focus on business-to-business services in a variety of industries. Likewise, Bell (1995) concludes that neither the psychic nor the geographic distance influenced computer software firms in their choice of markets to expand to. To the contrary, their market selection was affected by the locations of clients, hardware and software producers, and niches with growth potential. Furthermore, Hellman (1996) reports that for banks and

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insurance companies country/market selection is mainly determined by the behavior of competitors and customers. The existing network is again indicated as very influential in the selection of markets both initially and subsequently. In sum, instead of thoroughly preparing and investigating alternative options, it seems that the location of third network parties determines market selection. At the same time, other studies show that service companies prepare their international market entry very consciously. For instance, Yip et al. (2000) find that firms active in service or good sectors perform better if they take a systematic approach to new internationalization by considering many alternative countries and entry modes. Furthermore, from studying six Australian cases, Brewer (2001) concludes that firms are more rational than often given credit for. In preparing subsequent market entries, managers in the cases studied, search for information in order to get an idea of the market attractiveness and the competitive position of their company. Further insights in the active selection of a suited country/market arise in studies that examine the applicability of FDI-MNE theory to services. In general, the FDIMNE theories developed in a manufacturing context are found suitable to study the internationalization of services (Boddewyn et al., 1986, Buckley et al., 1992; Dunning, 1989, 1993). Boddewyn et al. (1986) theorize that the locational choice is affected by the service type, the size of the market, the quality of local resources, governmental policies and the political climate. Dunning (1989) adds closeness and responsiveness to the local customer to the discussion. Buckley et al. (1992) endorse the two latter factors although they stress that rapid technological changes like in telecommunications redefine the situation constantly. Empirical research in particular industries illustrates the impact of both general and service-specific factors on the locational choice. For instance, Nigh et al. (1986) find that the U.S. banking involvement abroad depends on the U.S. business presence and openness of the host country to foreign bank branches but, contrarily to the expectations not on the existence of market opportunities. Terpstra and Yu (1988) note that in terms of locational factors U.S. advertising agencies enter foreign countries with larger market size irrespective of their geographic place. Kundu and Contractor (1999) look at country location choices of service multinationals in the hotel sector and find that traditional general macroeconomic indicators for market size, such as GDP, are significant. However, sector-specific demand indicators such as tourism receipts and inward investment FDI in the country offer invaluable additional information and as such should be taken into account where possible. Daniels (2000) states that especially for high technology or information/knowledge intensive sectors the locational choice of FDI is influenced by the availability of educated and well-trained manpower, technological capacity and a good transportation and communications network. In sum, the retained studies report that service providers both

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reactively as well as actively select the country/market to expand to. Influential factors seem to be diverse including general factors next to idiosyncratic factors.

Entry Mode Choice Companies that decide to enter a foreign country/market – actively or reactively – have to choose a mode of entry. Root (1994, p. 5) defines entry mode choice as: “[A]n institutional arrangement that makes possible the entry of a company’s products, technology, human skills, management, or other resources into a foreign country.” The literature review reveals that the service firm’s choice of a particular foreign market entry mode is the result of a number of factors that simultaneously affect the choice. Furthermore, it needs to be stressed that foreign market entry behavior in the services sector is characterized by a considerable diversity in entry mode patterns. Apparently, for their initial entry and subsequent expansion service firms make use of various shared and/or full control entry modes such as direct and indirect exports, agents, distributors, joint marketing and/or development agreements, piggybacking, joint ventures, and FDI through acquisitions and/or greenfields and so on (e.g. Clancy, 1998; Coviello & Munro, 1995, 1997; Domke-Damonte, 2000; Fladmoe-Linquist & Jacque, 1995; Gr¨onroos, 1999; O’Farrell et al., 1996; Patterson & Cicic, 1995; Winsted & Patterson, 1998). To understand the nature and magnitude of the diverse preferences for entry modes, various factors are studied and included in the discussion. In particular, the studies indicate that, similar to manufacturing industries, entry mode choice by service companies is dependent upon a variety of internal and external factors. Table 3 presents an overview of potential factors grouped in six categories – three internal and three external to the venture. Although Table 3 lists a wide variety of indicators proposed in several conceptual and/or empirical studies, for many service companies the selection of the entry mode seems to occur in a rather opportunistic/pragmatic way. O’Farrell et al. (1996) report that only a minority of service firms actually consider alternative modes and, of those, few engage in a systematic evaluation process of the alternatives. As summarized in Table 3, the first internal factor concerns service characteristics. For instance, the degree of inseparability between the production and consumption of services is often used to clarify specific entry mode choices by categories of service companies. In particular, the distinction between soft and hard services is introduced to explain the preference in entry modes between firms (e.g. Cicic et al., 1999; Ekeledo & Sivakumar, 1998; Erramilli, 1990; Erramilli & Rao, 1990; O’Farrell et al., 1996; Stare, 2002). Soft services require the simultaneity of production and consumption. Consequently, the entry mode selected must facilitate

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Table 3. Overview of Influential Factors – Directly or Indirectly – on Entry Mode Choice in a Service Context. Entry Mode Choice is Affected by Internal factors Product service characteristics

Examples of Indicators

Inseparability (soft versus hard) Capital versus labor intensity Asset specificity Interaction with client (high versus low) Technological intensity

Firm characteristics

Export motives – strategies (client following vs. Market seeking) Experience (length and scope) Resources (personnel and capital) Size (in employees and in sales)

Managerial and behavioral characteristics

Attitudes & perceptions of foreign sales Desire to get rapidly established Corporate policy on control Personal knowledge of foreign markets/ experience

External factors Entry mode characteristics

Level of control Degree of flexibility Resource commitment (costs)

Home market

Intensity domestic competition Market size

Host market

Availability of suitable partners Economic and market infrastructure Information availability Intensity foreign competition Lack of host country knowledge Market size & growth Political instability Production costs Psychic/cultural distance Trade and investment restrictions

Source: Based on conceptual and empirical work of Agarwal and Ramaswami (1992); Buckley et al. (1992); Brouthers et al. (1996); Cicic et al. (1999); Ekeledo and Sivakumar (1998); Erramilli (1990, 1991, 1992); Erramilli and D’Souza (1995); Erramilli and Rao (1990, 1993); Majkg˚ard and Sharma (1998); O’Farrell et al. (1996); O’Farrell and Wood (1998); and Patterson et al. (1999).

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the needed client-provider interaction during service delivery. Hard services, to the contrary, are considered to resemble goods because the production of these services can precede consumption, which affects the entry mode selection. Boddewyn et al. (1986), Dunning (1989), Buckley et al. (1992), Hirsch (1993) and Aharoni (1993) use a similar distinction (location – bound versus tradeable services). Furthermore, researchers refer to the capital and labor intensity of services as another service characteristic to explain entry mode choices (Aharoni, 1993; Erramilli & Rao, 1993; Knight, 1999; Sharma & Johanson, 1987). For instance, Roberts (1999) discusses the internationalization of information intensive business services and argues that these services are skilled-labor intensive but not capital intensive. As a consequence, setting up foreign presence for a skilled labor-intensive business service firm is not extremely costly. More influential service characteristics discussed in the retained studies are: the asset specificity of services (Erramilli & Rao, 1990, 1993), the degree of interaction with the client during service delivery (O’Farrell et al., 1998; Patterson & Cicic, 1995; Patterson et al., 1999; Vandermerwe & Chadwick, 1989) and the degree of technological intensity of services (e.g. Brouthers et al., 1996; Cicic et al., 1999). The second category comprises firm characteristics. A first factor considered herein is the impact of the firm’s client following or market seeking behavior. Findings on this issue are mixed. Majkg˚ard and Sharma (1998) presume that market seeking firms are more willing to invest in entry modes that require larger amounts of resources abroad. The reason is that market seekers cannot rely on their partners to make the international expansion work as client followers can. Erramilli and Rao (1990) and Eriksson et al. (1997) alternatively report that client following firms are more aggressive in their entry mode choice than market seekers, a consequence of their higher degree of variation in market knowledge. On the experience factor, Erramilli (1991) argues that entry mode choice is related to the stage in the internationalization process of the firm and proposes a U-shaped relationship between experience and propensity for integrated entry modes. Contrarily, like Agarwal and Ramaswami (1992), Contractor and Kundu (1998) endorse the assumption of a more linear relationship as they conclude that companies with more experience tend to prefer equity-based entry modes. With regard to two other firm factors – resources and size – Erramilli (1992) finds that the service firm’s ability and tendency to integrate decrease as internal resource constraints become more influential. In terms of firm size, Brouthers et al. (1996) note that larger and more experienced firms prefer integrated entry modes while the smaller and less experienced firms prefer independent modes – i.e. separate companies that manufacture, sell or service abroad. Contrarily, Contractor and Kundu (1998) conclude that size is not necessarily correlated with the propensity to use high-ownership modes.

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The third category of internal factors comprises managerial and behavioral characteristics that are assumed to affect entry mode choice. Here the literature is more converging. Erramilli (1992) notes that a service company’s propensity to integrate its international operations increases when the firm has a policy of maintaining control over foreign operations whereas a desire to get rapidly established will have the opposite effect (a preference for shared control modes). Cicic et al. (1999) propose that the attitudes and perceptions of managers with respect to foreign sales, and their personal knowledge and experience affect the entry mode choice. These assumptions are empirically confirmed by Majkg˚ard and Sharma (1998) and O’Farrell et al. (1996). Next to internal factors, three categories of external factors are expected to influence the entry mode choice of service companies as is clearly shown in the conceptual work of Ekeledo and Sivakumar (1998) and Cicic et al. (1999). Entry mode characteristics are often assumed to affect the choice (e.g. Buckley et al., 1992). O’Farrell et al. (1996) report that firms that consider alternative entry modes make a crude assessment of costs, flexibility and marketing advantages of the different options. Nevertheless, only a minority of firms in their sample took various entry modes into consideration. No empirical evidence was found for the impact of home market characteristics on the services firms’ entry mode selection. Yet, characteristics of the host market are extensively included in the studies on entry mode selection. For instance, Erramilli (1992) finds evidence that a service company’s propensity to integrate its international operations increases with the host market size and the unavailability of host country partners, and decreases with higher host country restrictions of foreign ownership and environmental risk. Contrary to Sharma and Johanson (1987) and Contractor and Kundu (1998), Erramilli (1991) reports that the use of full control modes declines with increasing cultural distance. Also Brouthers et al. (1996) find that firms prefer integrated entry modes in the case of markets with cultural, economic and political similarity, infrastructure similarity, and strong market demand. Contractor and Kundu (1998) ascertain that in the hotel sector franchising and management service contracts are preferred in riskier nations. In sum, the retained studies extensively discuss entry mode choice, either conceptually and/or empirically. A wide variety of internal and external factors are assumed to affect the selection.

Proﬁle of International Service Companies To develop profiles of service exporters, three studies compare exporting with nonexporting service companies (Javalgi et al., 1998; White et al., 1999; Winsted & Patterson, 1998). Building upon the manufacturing-based export literature, these

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studies expect various factors to influence the decision to expand internationally. Hypotheses are tested concerning firm characteristics (e.g. size and age), management attitudes (e.g. perceived profit potential, costs, risk and trade barriers) and decision-maker characteristics (e.g. foreign language skills and international experience). However, findings do not converge. On the one hand, White et al. (1999) describe exporting firms (in comparison to non-exporting firms) as more recently established and larger firms that have decision-makers with international work experience and a clear perception of the profit potential of exporting. As such, they build a desire to expand internationally. Similarly, Winsted and Patterson (1998) conclude that exporters are larger both in terms of employees and sales although some of the smaller firms are dedicated exporters too. Overall, exporters see fewer barriers to exporting than non-exporters. Exporters carry much more positive attitudes about the benefits and profit potential of exporting, they feel a higher domestic competitive intensity, and they see opportunities in foreign markets and the ease with which their services can be adapted to it. On the other hand, Javalgi et al. (1998) compare manufacturers with manufacturing-based service providers active in various industries in terms of their propensity to export, and conclude that manufacturing firms are more inclined to export when they are older, have more employees, have larger sales, and are publicly owned. Unfortunately, these characteristics are not able to discriminate exporting from non-exporting manufacturing-based service firms. Only the variable “low sales” seems to negatively influence the propensity to export. As a result, the authors argue that other characteristics – for instance management characteristics – should be used to examine the research propensity of service firms. In sum, the retained studies do not offer a uniform profile of service exporters.

Theoretical Frameworks Underlying Studies A closer look at the theoretical frameworks underlying the retained studies reveals that most scholars tend to rely rather unreservedly on theories and concepts developed in a manufacturing context. For instance, the literature sections of the articles summarized under the first three headings reveal that service researchers partially borrow and use concepts from stages internationalization process models, the eclectic paradigm, transaction cost theory, industrial network theory, a combination of these frameworks or, too often, no framework at all. For instance, Bell (1995) assesses the applicability of the Uppsala model to explain the internationalization of software companies; whereas Coviello and Munro (1995) use the industrial network theory. Others develop their own theory like

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Edvardsson et al. (1993) who conceptualize the internationalization process in four stages stressing the concept “creativity mix.” The majority of studies takes several frameworks into account and present an (eclectic) custom-made empirical frame. For instance, Bj¨orkman and Kock (1997) and Coviello and Martin (1999) use the logic of the Uppsala model, the industrial network perspective and internalization theory to develop a particular framework. Opinions on the applicability of the various frameworks in a service sector differ as evidence is found that either supports or questions the manufacturing-based theories. In the context of the fourth theme – profiles of exporters, White et al. (1999) and Winsted and Patterson (1998) endorse the manufacturing-based export literature whereas Javalgi et al. (1998) pleads for a modification of extant models. In the context of the three other themes, similar conclusions hold. More in particular, with regard to economic theories, O’Farrell and Wood (1998) and O’Farrell et al. (1998) severely question the applicability of the transaction cost approach, the eclectic paradigm and the internalization theory to explain the internationalization of business service SMEs. On the other hand, researchers such as Erramilli and Rao (1993) and Coviello and Martin (1999) argue that the economic approaches are well transferable to a service setting. Furthermore, evidence is found that supports Johanson and Vahlne’s (1977, 1990) Uppsala model (e.g. Eriksson et al., 2000a, b, 2001; Li, 1994) or contradicts it (e.g. Bell, 1995; Hellman, 1996; Sharma & Johanson, 1987). Finally, ample support is found for the industrial network theory (e.g. Bj¨orkman & Kock, 1997; Coviello & McAuley, 1999; Coviello & Munro, 1995, 1997) although it is stressed that other frameworks are needed to complement the analysis. In general, like in a manufacturing context, researchers of service industries acknowledge that several frameworks seem to be required since each of the approaches can only offer partial explanation (Baden-Fuller, 1993; Bell, 1995; Coviello & Martin, 1999).

Accommodating Service Characteristics Given the controversy on the necessity of different internationalization theories for services together with the contradicting findings summarized above, an intriguing issue concerns to what extent researchers pay explicit attention to the impact of the distinctive service characteristics on the internationalization process. The review reveals that various groups of research can be distinguished within the retained studies. The first group of studies mainly aims to describe and/or explain internationalization processes of service companies active in one or multiple sector(s) explicitly taking into account the distinctive characteristics of services both

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in the literature and analysis section (e.g. Erramilli, 1990; L´eo & Philippe, 2001; Majkg˚ard & Sharma, 1998; Roberts, 1999). A second group also focuses on the internationalization of service firms but does not explicitly discuss the findings in the light of the distinctive service characteristics or service types (e.g. Chadee & Mattsson, 1998; Javalgi et al., 1998; O’Farrell et al., 1996; Patterson et al., 1999). The third group improves the understanding of various internationalization issues, which are empirically tested in a service setting although the results are not discussed in terms of the examined service context (e.g. Eriksson et al., 1997, 2001; Hertz, 2001; Patterson et al., 1997). Thus, although some researchers clearly stress the service characteristics by taking the differences into account both in the theoretical platform and in the analysis of the results, most research in a services context is rather negligent about the heterogeneity of services distorting a clear discussion of internationalization in service industries. For example, O’Farrell et al. (1996) discuss the process of first foreign market entry mode selection in various business services, ignoring the possibility that the simultaneous inclusion of various service types might affect the results. In other words, we question whether it is correct to assume that management consultancy firms can rely on the same entry modes as computer software or product design companies. Moreover, Patterson et al. (1999) discuss service companies’ motives to start and continue exporting and compare Dutch with Australian companies. However, the authors do not clarify the composition of their sample but conclude for instance that client following is a very important motivator over the two geographical samples. Again, we question the assumption that the client following stimulus is equally important in every service industry included in the sample.

A ROADMAP FOR FUTURE RESEARCH Based on this literature review, it is our opinion that the limited nature of the studies on the internationalization of services does not primarily concern the number of studies published but rather the restricted conceptual and methodological approach to the subject. Apparently, extant research does not offer an unequivocal insight in the internationalization patterns of service companies as is discussed above. Briefly summarized, the findings reveal mixed evidence in the different themes, the applicability of extant internationalization theories is both supported and questioned on the basis of empirical studies in various service industries and no clear alternative conceptual model is developed. In this section, particular problems with regard to the selection of research context and theoretical frameworks are used as the basis for suggesting a roadmap for further research. Figure 2 captures the roadmap that acts as guidance in this conclusive discussion.

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Fig. 2. Roadmap for Future Research.

We start the discussion in the middle of the figure where two general research issues applicable to the four sub-fields are highlighted. The first challenging issue concerns the selection of the research context or more specifically the choice of service industries to study. The literature review indicates that the heterogeneity in the group of services is insufficiently acknowledged when focusing on one industry or a multitude of industries without distinguishing between different service types. Endorsing scholars such as Nicolaud (1989), Clark et al. (1996) and Erramilli (1990), we expect that service characteristics such as the intangibility and the simultaneity of production and consumption affect the internationalization process. However, despite the existence of several classification schemes of services offered internationally (e.g. Clark et al., 1996; Lovelock & Yip, 1996; Patterson & Cicic, 1995; Vandermerwe & Chadwick, 1989), none of them found widespread acceptance in the service internationalization studies for purposes such as sampling or data analysis. Furthermore, studies that do acknowledge the heterogeneity remain rather limited as they only distinguish between the tradeable

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(hard) and location-bound (soft) services. At the same time these studies remain quite vague about the large diversity in the category of location-bound or soft services. Nonetheless, we are convinced that future research can benefit from a special focus on the peculiarities of these location-bound services because this is a very broad category that seems to be unjustly treated as a homogeneous whole on the basis of one common characteristic, i.e. simultaneity of production and consumption. A second challenging issue concerns the use of theoretical frameworks. The literature review shows that researchers who study the internationalization of service companies tend to fragmentarily and sometimes even haphazardly borrow and use concepts from extant internationalization theories developed in a manufacturing setting. As stated above, the applicability of the existing theories is seldom explicitly questioned in the literature or discussion sections although the empirical findings lead researchers to conclude that extant theories are suited or not. Nevertheless, it is our opinion that future work on service internationalization processes should explicitly start from strong and concise conceptual frameworks to guide data collection, analysis, and interpretation. This should not be understood as a plea in favor of exclusive theory-testing research. To the contrary, we are convinced that especially more theory-building research is needed that takes previous research into account via ongoing iteration between induction and deduction. Specific suggestions for research in the four sub-fields are made as well. First, the review on motives has shown a variety of reactive and proactive motives impacting on the service firm’s decision to internationalize. The role of network actors merits further attention as they appeared to be crucial motivators for most service firms. Particularly, the difference of service providers’ reactive and proactive use of networks in progressing the internationalization process calls for further attention. Furthermore, a more longitudinal approach seems appropriate to look at differences in motives depending on the particular stage in the internationalization process. Especially, insights in the switch from client following to market-seeking behavior (and/or vice versa) can be improved with a scrutiny of the sequencing of particular motives. The second theme – country/market selection – calls for further research in terms of the impact of general versus idiosyncratic environmental factors. Extant studies that discuss the locational choice start from economic manufacturing-based theories. However, idiosyncratic factors related to the specific studied service sectors seem to add significantly to the explanatory power of the models tested. As such, the question remains whether there are more general – cross-industry – factors that affect and characterize the country/market selection of service providers. For the third theme, which looks into entry mode choice, two key issues for future research are distinguished. First, acknowledging service heterogeneity, we plead

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for the development of a typology or taxonomy that couples service types with bestsuited entry modes. Secondly, the literature review shows that numerous factors are assumed to affect the entry mode choice. Nevertheless, conceptual models of entry mode choice in service companies like that of Ekeledo and Sivakumar (1998) or that of Cicic et al. (1999) are still open for empirical validation. For the fourth theme, which discusses the profile of services exporters, more conceptual and empirical research is needed to refine the profile of the service “exporter.” A modification of the manufacturing-based export models seems appropriate to capture the best discriminating characteristics. In sum, addressing the general issues in the middle of Fig. 2 and at the same time focusing on one of the blocks can bring the insights in the internationalization of service providers undoubtedly to a higher level.

CONCLUSION In this paper, the extant research on the internationalization process of service providers is summarized. Synthesizing more than a hundred studies in four key themes – internationalization motives, country/market selection, entry mode choice, and the profile of service “exporters” – allowed us to suggest a roadmap with suggestions for further research. We firmly endorse Knight (1999) who concluded that studies on service internationalization are still largely fragmentary, exploratory, and lack strong theoretical bases. Nevertheless, this literature review also shows that service internationalization is an interesting topic that deserves further academic attention. By means of this literature review we hope to have contributed to stimulate the debate on the way forward.

ACKNOWLEDGMENTS The authors wish to thank Pieter Pauwels and the anonymous reviewers for thorough comments on earlier drafts of the paper.

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ENTRY MODE CHOICE IN SERVICE FIRMS: A REVIEW OF CONTEMPORARY RESEARCH Aileen Kennedy ABSTRACT This paper reviews extant contemporary literature in the area of entry mode choice in service ﬁrms and analyzes 14 empirical studies conducted in the area. The review is limited to articles which focus speciﬁcally on entry mode choice and the determinants of such a choice. The publication time frame covers the period from 1977 to 2003. The review observations in relation to factors such as the origin of the research, the theoretical frameworks underpinning existing entry mode research, methodological approaches and other relevant patterns are presented. The analysis highlights the paucity of empirical research in the area, which in turn has been largely fragmentary and exploratory in nature. It suggests that research sites need to be extended into Europe, alternative research designs need to be considered and the opportunity to conduct some form of collaborative research warrants exploration.

INTRODUCTION Choosing a mode of entry for a foreign market has been identified as a critical determinant of the likely success of the foreign operation (Root, 1987) and Research on International Service Marketing: A State of the Art Advances in International Marketing, Volume 15, 119–145 Copyright © 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1016/S1474-7979(04)15006-0

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as a critical decision in international marketing (Terpstra, 1987). Service firms are choosing entry modes in an increasingly competitive environment, where options are altered by technological advances, impacted by government policy and complicated by the general pace of change. Simultaneously, increasing trade liberalization and increased consumer and business demand continues to support phenomenal growth in internationally traded services. Though a topic of sustained and focused research in the manufacturing sector, the topic of entry mode choice has received far less attention within the services sector. The aim of this paper is to review and synthesize extant contemporary literature in the area of entry mode choice in service firms with a view to assessing the current state of knowledge in this area. A key objective of this review is the identification of research gaps and possible future research directions. In total 14 studies were included and the salient aspects of these studies are reviewed and the key research findings across the literature are presented. The paper then proceeds with a discussion of the key observations that emerged in the course of the analysis. The studies identified were analyzed looking at issues such as the origin of the research, the firms sampled and methodological approaches employed in order to identify patterns across these and other relevant dimensions. Finally, future research considerations and opportunities are presented.

RESEARCH STREAMS IN EXTANT INTERNATIONAL SERVICES LITERATURE The internationalization process of service firms has received increasing research attention (Edvardsson, Edvinsson & Nystrom, 1993; Terpstra & Yu, 1988) and has taken both a firm and sectoral perspective with research focusing on engineering consultancy (Coviello & Martin, 1999), financial services (Hellman, 1996; Sijbrands & Eppink, 1994), business services (O’Farrell, Wood & Zheng, 1996; Roberts, 1999) and software services (Bell, 1995; Coviello, 1996). Conceptual models of service internationalization (Cicic, Patterson & Shoham, 1999; Patterson & Cicic, 1995; Vandermerwe & Chadwick, 1989) have been developed and how the process compares with that of manufacturing (Buckley, Pass & Prescott, 1992) has been explored. The decision to internationalize and the determinants of, and barriers to, such service firm internationalization have also been explored (Dahringer, 1991; Ramcharran, 1999; Zimmerman, 1999). Classification schemes for international services and firm typologies have also been the focus of research attention as efforts are made to profile firm characteristics, internationalization and entry mode decisions (Cicic, Patterson & Shoham, 1999; Lovelock & Yip, 1996; Patterson & Cicic, 1995; Vandermerwe

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& Chadwick, 1989). A parallel stream of research focuses on firm characteristics and export propensity (Javalgi et al., 1998) and examining the differences between exporters and non-exporters (Patterson & Cicic, 1995; Winsted & Patterson, 1998) and whether service exporters differ from merchandise exporters (Chadee & Mattsson, 1998). The final strand of research focuses on the strategic issue of entry mode choice in service firms and the determinants influencing firm choice.

ENTRY MODE CHOICE Once a firm makes a decision to enter a foreign market it must choose a mode of entry. As each mode of entry has different implications for the degree of control a firm can exercise over the foreign operation, the resources it must commit and the risks it must bear (Anderson & Gatignon, 1986; Root, 1987), identifying the appropriate mode in a given context is necessarily a difficult and complex task (Hill, Hwang & Kim, 1990). The choice, however, is a critical determinant of the likely success of the foreign operation (Root, 1987) and the choice of a foreign entry mode is seen as “one of the most critical decisions in international marketing” (Terpstra, 1987, p. 333) and has been described as a “frontier issue” in international marketing (Anderson & Gatignon, 1986; Wind & Perlmutter, 1977). Like their manufacturing counterparts, service firms have a range of entry modes to choose from. Studies have often viewed the choice of entry mode as a problem in choosing the degree to which international business transactions are vertically integrated. Integration, implying ownership of the export channel or foreign operation is represented by export modes such as direct-to-customer channels and overseas sales subsidiaries, also foreign production such as branch offices and wholly owned subsidiaries. Exporting through intermediaries, contractual transfers and joint ventures represent non-integrated modes (Anderson & Coughlan, 1987; Anderson & Gatignon, 1986; Davidson & McFetridge, 1985; Gatignon & Anderson, 1988). Service firms may also produce their services in foreign markets, either through contractual modes, licensing and franchising, or via direct foreign investment, joint ventures and wholly owned subsidiaries. Three main streams of thought have emerged in the services entry mode literature to date, firstly the view proffered that factors influencing manufacturing firms choice of mode are in fact generalizable to services (Agarwal & Ramaswami, 1992; Terpstra & Yu, 1988), alternatively the idea that influential factors differ and need to be adapted specifically for service firms (Erramilli, 1990; Erramilli & Rao, 1990) and thirdly that the basic process of entering foreign markets is the same for services as for manufacturing firms, rather it is the implementation of the process that differentiates one from the other (Majkg˚ard & Sharma, 1998). A comprehensive

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review of whether the internationalization of services and goods differ and a review of the key issues of debate are discussed in Ekeledo and Sivakumar (1998). Early services research noted that little was known about how service firms enter foreign markets (Erramilli & Rao, 1990) and that “for international services, theory lags practice by a considerable degree and many important questions await answers” (Clark, Rajaratnam & Smith, 1996, p. 9). These observations still hold true today (Gr¨onroos, 1999) and calls to refocus attention on understanding service firm modalities for internationalization continue to emerge (Leo & Philippe, 2001). A real need for more studies on the entry of service firms into foreign markets exists (Majkg˚ard & Sharma, 1998) and “although entry mode strategy has been getting more and more attention from researchers, a lot of work still needs to be done” (Brouthers, Brouthers & Werner, 1996, p. 391). Despite such expressions conceptual and empirical research in the area remains limited and fragmented, while simultaneously, increasing trade liberalization continues to support phenomenal growth in internationally traded services.

REVIEW METHOD AND PARAMETERS The aim of this paper is to review and synthesize extant contemporary literature in the area of entry mode choice in service firms. As international trade in services continues unabated it assesses the current state of knowledge in this area and questions whether extant literature provides useful insights and guidelines for practitioners and policy makers in this sector. A key objective of this review is the identification of research gaps and future research directions while also stimulating debate on how to progress this field of knowledge. The paper proceeds with an overview of the method used and a summary of the major literature and research findings to date. The key observations of the review and future research challenges and directions are then presented. This review is limited to examining published articles only, with relevant studies identified through electronic sources (Business Source Premier, ABI Inform and Emerald Fulltext). Only articles which focus specifically on entry mode choice and the determinants of such a choice are included. The publication time frame covers the period from 1977 to 2003. The content was analyzed on the basis of issues such as country of origin of the research, the nature of the firm’s sampled, methodological approaches employed including data collection methods, sample size, time frame of the research and finally the theoretical frameworks underpinning entry mode research in order to identify patterns across such relevant dimensions. A stream of literature which emerges within this review is that of franchising, specifically business format franchising, as a mode of non-equity entry into

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a foreign market. Several empirical studies have examined business format franchising and the factors affecting the firm’s propensity to franchise (Contractor & Kundu 1998a, b; Fladmoe-Linquist & Jacque, 1995) in the choice between equity and non-equity modes. More recently Erramilli, Agarwal and Dev (2002) have examined the choice within non-equity entry modes in the multinational hotel sector from an organizational capability perspective. The relevant franchising literature, focusing on actual entry mode choice among alternatives is viewed as a separate entity to general service sector studies for several reasons. Firstly, it is a specialized form of entry mode almost exclusive to consumer services, where the tendency has been to sample large companies with global reach (FladmoeLinquist & Jacque, 1995), in this case global hotel operations, and secondly it tends to sample firms who have already gained substantial international experience. Additionally the hotel sector differs from most other service sectors by virtue of having very high capital intensity (Contractor & Kundu, 1998a). In view of these characteristics empirical studies of entry mode choice involving franchising are excluded from this particular analysis. A summary of the key characteristics of the main franchising studies to date is presented in the Appendix. The 14 empirical studies included in the final analysis focus specifically on entry mode selection by service firms, where the entry decision itself is the unit of analysis, the firms sampled are either partially or exclusively service firms and the research focus is on the determinants of the entry mode selection made. With this in mind this review purposely excludes broader studies of internationalization, (Cicic, Patterson & Shoham, 1999; Coviello & Martin, 1999; Javalgi, Griffith & White, 2003; Patterson & Cicic, 1995), which involve entry mode selection as a stage in the process but invariably as descriptive variables to facilitate building frameworks and typologies as opposed to examining the determinants of entry mode choice. Though intertwined and hugely valuable sources of knowledge, for the sake of clarity this review focuses explicitly on international entry mode choice studies. The focus here is on why certain modes of entry are chosen rather than profiling and describing the modes of entry that are finally selected.

KEY SERVICE SECTOR STUDIES: FINDINGS AND DISCUSSION The objective of this section is to review the salient aspects of the main studies conducted to date, as presented in Table 1. These empirical studies focus specifically on entry mode choice by service firms with the research focus firmly centered on the factors and determinants impacting the entry mode choice.

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Table 1. Empirical Studies on Foreign Market Entry Mode Choice in Service Firms: 1977–2003. Service Sectors Studied

Entry Mode Determinants

Firm Origin and Characteristics

Methodology/Analytical Approach

Entry Modes Examined

Weinstein (1977)

Advertising Agencies

U.S. firms

Longitudinal data – pre and post 1950s

FDI – Sole and Joint Venture.

Terpstra and Yu (1988)

Advertising Agencies

U.S. firms 20 largest advertising agencies

Data sets from 1972 and 1984

FDI Dichotomous question only.

Erramilli (1990)

7 service sectorsa

Area of the world, Stage of Economic Development, Year of Investment, Agency Size, Overseas Experience. Market and Firm Size, Geographic Proximity, International Experience, Oligopolistic Reaction. Type of Service: Hard and Soft, Services, Inseparability.

U.S. firms

All options included, Integrated, Co-operative and Independent

Erramilli and Rao (1990)

Sectors as above

As above

As above

Erramilli (1991)

Sectors as above

As above

151 usable responses

As above

Erramilli (1992)

Sectors as above

As above

175 firms

As above

Agarwal and Ramaswami (1992)

Equipment leasing firms

Type of Service: Hard and Soft, Client Following firms/Market Seeking firms. International Experience (length and scope), Control sought. External environmental factors Ownership restrictions, Foreign market size, External uncertainty, Lack of availability of partner in host market. Internal environmental factors Desire to establish rapidly, Scarcity of resources (personnel and capital), Firm policy regarding control sought. Firm size, Multinational experience, Differentiated products, Market potential, Investment risk, Contractual risk.

175 firms/628 entry decisions. Cross sectional design, mail survey, logistic regression. As above

U.S. firms

Cross sectional research. 97 firms/285 observations Factor analysis.

Excluded indirect export.

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Author/Year

7 sectors as above 7 sectors as above

Firm Size, Capital Intensityb .

Erramilli and D’Souza (1995)

As above

Brouthers (1995)

Computer Software firms

Internal and External Uncertainty. Moderating factors: Capital intensity, Firm size, Inseparability. Control risk, Market complexity risk, Influence of international risk.

Brouthers, Brouthers and Werner (1996)

Computer Software firms

Ownership and Locational advantages from Eclectic theoryc .

Domke-Damonte (2000)

Software firms, Restaurants, Food and Lodging High Tech Start Up firms product and service firmsd

International strategy and Throughput technology, Experiential knowledge.

U.S. firms

Firm size, International experience, Innovativeness of technology, Channel experience domestically, Product characteristics, Transaction costs.

U.K. firms High tech, start-ups. Entrepreneurs, Technology and Knowledge intensive firms.

Burgel and Murray (2000)

Asset Specificity, Inseparability, Country risk, Firm size, Capital intensity.

U.S. firms – focus on small firms U.S. firms

U.S. firms

U.S. firms Small/Medium sized firms U.S. firms Small/Medium sized firms

141 firms, logistic regression. 175 firms/628 entry decisions. Cross sectional mail survey, logistic regression. As above

125 high tech international computer software firms. 106 entries from 27 firm responses. Mail questionnaire. 98 complete on ownership, 72 complete on location. Data from 1991and1995 157 entry decisions. Logistic regression. Mail questionnaire. 398 decisions from 246 firms

FDI modes only. Full and Shared Control modes only – excludes exporting. All options

All options

All options

Entry Mode Choice in Service Firms

Erramilli and D’Souza (1993) Erramilli and Rao (1993)

All options. Examines multiple entry modes.

Binary decision only – Direct Exporting or Distribution only as options

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a The seven service sectors included in the sample were: (a) Consumer services (restaurants, hotels, health care); (b) Advertising firms; (c) Computer Services; (d) Engineering and Architectural services; (e) Management Consulting and R&D services; (f) Accounting firms; and (g) Miscellaneous services (equipment leasing and maintenance). b Capital Intensity is operationalized as the ratio of fixed assets to sales revenue. c Ownership advantages: Global maturation, Product differentiation, Adaptability of product, Service and technology intensity. Locational advantages: Market demand, Production costs, Cultural differences and Market infrastructure. d Sample includes both product and service firms drawn from the following sectors: software, information technology, communications, engineering, life sciences, medical, technical and others, including electrical components. Sample characteristics focus on firms being start ups (less than 6 years old), entrepreneurial and high tech as in having an established R&D department.

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Early studies focused on whether determinants of Foreign Direct Investment (FDI) for manufacturing could in fact be generalized to services, and findings from one group of researchers suggest that this indeed is the case. Both Terpstra and Yu (1988) who investigated the impact of locational and firm specific advantages on foreign investment, and Weinstein’s (1977) seminal work suggested that the behavior of the advertising industries studied was similar to that of their manufacturing counterparts. Later Agarwal and Ramaswami (1992) supported this view showing through their research that the determinants of entry mode choice of manufacturing firms also applied to equipment leasing (service) firms. Alternative studies also emerged in support of adapting entry mode determinants to service firms. Erramilli (1990) suggested that the type of service, hard or soft, affected options with hard services capable of export and soft services limited to traditional FDI options by virtue of their inseparability. Other determinants such as client following and market seeking behavior are explored by Erramilli and Rao (1990). Similar behavior is implied in the work of Weinstein (1977) through the influence of networking motives on advertising agencies going abroad. Erramilli (1991) departs from the traditional linear conceptualization associated with firm experience and control sought, and hypothesizes a U-shaped relationship between experience and propensity for integrated modes of entry among service firms. Erramilli (1992) goes on to examine the impact of environmental factors, both external and internal, on the entry mode decision, suggesting this is the first systematic empirical study of environmental influences in the international services sector. Erramilli and D’Souza (1993) then question whether firm size and capital intensity could also factor into the equation. Firm size appears to only become an issue at higher levels of capital intensity, which is operationalized as the ratio of fixed assets to sales revenue and is hypothesized to be low for services such as advertising and consultancy and high for hotels. The examination of the sample collected continues through the work of Erramilli and Rao (1993), which argues that the relationship between asset specificity and entry mode choice is moderated by numerous factors that either raise the costs of integration or diminish the firm’s ability to establish full control modes. They suggest that firm’s favor shared control modes of entry when asset specificity is low and such specificity can intensify under certain conditions. Finally Erramilli and D’Souza (1995) examine internal and external uncertainty as determinants of entry mode choice moderated by such variables as capital intensity, firm size and again inseparability issues. Brouthers (1995) sample of high tech international firms examines control and market complexity risk, and suggests that under conditions of high risk firms will choose independent modes of entry. Brouthers, Brouthers and Werner (1996) examine how ownership and locational issues affect small and medium firms and whether this is similar to the impact on larger firms. Domke-Damonte (2000)

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extends the research of Erramilli and Rao (1993) and Erramilli (1991) by examining throughput technology as a moderator between the firm’s international strategy and entry mode choice and its corresponding impact on the level of control and resource commitment sought by the firm. Results suggest that the probability of using low control entry modes are highest for firms using intensive throughput technology, rendering such services separable (computer software), medium for firms using mediating technology (restaurants, fast food) and lowest for firms using long linked technology, rendering the service inseparable/people based (location bound services). This is posited as the first study in the service sector to empirically test the relationship between international strategy, type of throughput technology and entry mode choice. Burgel and Murray (2000) report on a sample of start up high tech entrepreneurial firms, including both manufacturing and service firms (software and engineering) in the sample, and examine the impact of firm size, experience and type of technology on entry mode choice. The main aim of the research is to determine the modes of entry these specific types of firms use and the primary reasons for their elected choice. The most programmatic research effort has been that of Erramilli (1990, 1991, 1992), and Erramilli and Rao (1993). Their sample of 175 U.S. firms primarily targeted industrialized countries in the developed world. Though the most popular mode was via wholly owned subsidiary, overall market entry behavior was characterized by considerable diversity, particularly when compared to the manufacturing sector (Knight, 1999).

KEY RESEARCH FINDINGS: SERVICE, FIRM AND MARKET CHARACTERISTICS Service Characteristics Erramilli (1990) concludes that inseparability is a key issue distinguishing service firm’s entry modes from those of manufacturing firms. The subsequent hard/soft service classification which has emerged from research to date (Erramilli, 1990; Erramilli & Rao, 1990, 1993) has meaningfully decreased the large diversity of the service sector and uncovered useful insights about international entry modes that extend beyond individual service industries. This dichotomy also suggests explanations for observed similarities and dissimilarities between entry mode behavior of some service and manufacturing businesses (Ekeledo & Sivakumar, 1998). Erramilli (1990) divided internationally traded services into two groups. Hard services (airlines, banking, computer software, engineering design, education) represent tangible capital intensive services where production and consumption can be decoupled rendering such services separable or location

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free (Patterson & Cicic, 1995) and therefore exportable. Patterson and Cicic (1995) in their scheme refer to such services as location free professional services characterized as low-client contact services e.g. product design and distance education courses as hard services. This parallels Clark, Rajaratnam and Smith’s (1996) scheme where vehicle based and object vehicles (e.g. computer services) are hard services. Lovelock and Yip (1996) in turn refer to information processing services such as education as hard services. Domke-Damonte (2000) integrates the moderating effect of service throughput technology on the choice of level of control in international entry mode decisions as a research variable. In this case information processing services, utilizing long linked technology, (banking and computer software) are separable and selecting high control entry modes is more probable in this case. Such long linked technology services require least interaction with the customer whose influence can be buffered from the production process. This type of technology is most closely reflected in Lovelock and Yip’s (1996) information processing category. This type of service firm can then follow a gradual incremental process of internationalization like that of their manufacturing counterparts and the full range of foreign market entry modes is available to such firms. Soft services (consultancy, professional services) are largely location bound (Patterson & Cicic, 1995) requiring simultaneous production and consumption and are intangible and customized to varying degrees. They may incorporate customized projects and value added services, characterized as high-client contact services (e.g. accommodation services and project management) (Patterson & Cicic, 1995). They are alternatively described as contact based and asset-based services (Clark Rajaratnam & Smith, 1996) and as people processing services (Lovelock & Yip, 1996). Domke-Damonte (2000) also refers to such people processing services, characterized by intensive throughput technology where the customer is included on a short-term basis in the throughput process and it is difficult to separate the customer from the production process. These firms cannot export in the classic sense and they move to more advanced contractual and investment modes of entry, which facilitate a more immediate presence for the firm in international markets. In this way soft service firms are seen to face special risks in that they must meet consumers on foreign soil from day one without the benefit of experience from gradual internationalization that exporting provides (Carman & Langeard, 1980).

Firm Characteristics In relation to firm characteristics a number of issues have emerged. In examining “Client Following” and “Market Seeking” behavior, entry mode research has

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distinguished between the global strategic motivations (Sarkar & Cavusgil, 1996) of market seeking (Erramilli & Rao, 1990) and client following behavior (Erramilli & Rao, 1990; Terpstra & Yu, 1988). Client Followers have more knowledge and are more willing to commit to integrated modes. Client following motives were initially discussed by Weinstein (1977) in the form of early and late market entrants, which implicitly indicated the influence of networking motives in entry mode choice. Subsequent research (Terpstra & Yu, 1988) showed client following behavior to be the main motivation of advertising agencies going abroad. Such client following behavior results in less uncertainty being felt by service firms entering foreign markets, since client followers are part of an international network and possess experiential knowledge of the client firm, entry into the foreign market is less problematic (Majkg˚ard & Sharma, 1998). Erramilli and Rao (1990) suggest that such client following firms commit more resources abroad than market seekers and exhibit significantly more aggressiveness in choosing entry modes when following existing clients that when serving new customers. Such client following firms are prepared to commit large resources in countries with higher psychic distance and are more willing to commit resources in equity ventures abroad (Majkg˚ard & Sharma, 1998). Alternatively Majkg˚ard and Sharma (1998) postulate that market seekers lack experiential knowledge of foreign markets and have operated in a domestic exchange network that provides little assistance to go abroad. Erramilli and Rao (1990) previously found that a greater proportion of market seeking soft service firms (compared with hard service firms) adopted entry modes involving collaboration with external entities. Brouthers, Brouthers and Werner (1996) demonstrated that most U.S. software firms had the same motive for going abroad that of market seeking. In the case of these software firms client following is not usually required as software development is highly mobile, can easily cross national borders and can be exported to anywhere in the world within a few days. Market seeking motives were also evidenced in Erramilli and Rao (1993) where networking motives appeared stronger for soft rather than hard services. Majkg˚ard and Sharma (1998) suggest that such differences arise due to differences in the resource exchange networks of firms, with firms forming part of an international network perceiving less uncertainty in the early years of internationalization and vice versa. Firm size and moderating factors have also been explored within the literature. Although the relationship between firm size and entry mode choice is theoretically evident, limited empirical evidence exists (Erramilli & D’Souza, 1993). Terpstra and Yu (1988) showed that in the case of advertising firms both the size and international operations experience of the agency had a positive significant impact on its foreign investment. Agarwal and Ramaswami (1992) concur, suggesting that though firms would like to establish a presence in a foreign market through

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investment, their ability to do so is constrained by their size and multinational experience. Erramilli (1991) found that firm size had no apparent effect on entry mode choice with large and small service firms showing uniform ability to establish wholly owned operations. Erramilli and D’Souza (1993) suggest that the relationship between firm size and foreign market entry behavior is conditioned by the capital intensity of the industry to which the service firm belongs, and the impact of resource availability on the behavior of small firms should then be considered within the context of such capital intensity. Low specificity firms are more likely to favor shared control modes than high specificity firms. High specificity firms will insist on integrated modes, regardless of capital intensity. Erramilli and D’Souza (1993) conclude that small and large service firm behavior only differs in service industries characterized by high levels of capital intensity, at lower levels differences between small and large firm behavior are insignificant. For low capital intensity firms Foreign Direct Investment (FDI) does not entail significant commitment of resources as large scale investments are not required and FDI is limited to establishing an office (Erramilli and D’Souza 1995). Low capital intensity firms tend also to be less sensitive to uncertainty and risk and therefore tend not to follow conventional patterns of entry mode choice (Erramilli, 1991; Erramilli & D’Souza, 1995; Erramilli & Rao, 1993). Asset specificity has also received attention and Erramilli and Rao (1993) propose that the production and delivery of idiosyncratic services is characterized by high asset specificity as it necessitates nontrivial, transaction specific investments, both human and physical, in the value added chain. Therefore as the service becomes more idiosyncratic and skill expertise and know-how is not easily redeployed to another situation, the asset specificity of the transaction under consideration increases (Erramilli & Rao, 1993). Transaction cost analysis predicts that firms will integrate when asset specificity is high (Williamson, 1985). Erramilli and Rao (1993) suggest that service firms tend to favor shared control modes when asset specificity is low, rather than when it is high and this tendency intensifies under certain circumstances, namely, when services are inseparable, with increasing country risk and as firms become smaller (Erramilli & Rao, 1993). In relation to ownership and locational advantages, Brouthers, Brouthers and Werner (1996) set out to investigate the entry mode selection of small and medium sized service firms based on Dunnings (1988) eclectic theory. They suggest that in terms of the computer software industry, as a firm’s ownership advantages increase so does its use of more integrated modes and as the firm’s perception of locational advantages increases the result is the same. This confirms similar findings of Agarwal and Ramaswami (1992) with equipment leasing firms and Terpstra and Yu (1988) examining advertising agencies. Market potential (size and growth) has also been found to be an important determinant of overseas investment

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(Terpstra & Yu, 1988; Weinstein, 1977), and in high market potential countries investment modes are considered as a means of achieving the long term objectives of the firm in relation to overall profitability. In terms of experience, the firms level of multinational experience has been referred to as a form of asset power (Agarwal & Ramaswami, 1992) where firms without experience are likely to have more problems managing foreign operations, making the choice of non-investment modes more probable (Agarwal & Ramaswami, 1992; Gatignon & Anderson, 1988; Terpstra & Yu, 1988). Conversely, firms with higher levels of experience can be expected to prefer investment modes of entry (Agarwal & Ramaswami, 1992). Erramilli (1991) departs from the traditional linear conceptualization associated with firm experience and control sought, and hypothesizes a U-shaped relationship between experience and propensity for integrated modes of entry among service firms. Manufacturing firms follow a linear pattern in their entry behavior, favoring low control modes of operation in early stages of internationalization and higher control modes as they gain more experience. In contrast the U-shaped pattern of service firms suggests they prefer sole ownership during the early years of foreign market experience, changing to shared control modes such as joint ventures as they gain international experience and revert to sole ownership once their international experience becomes extensive. It is acknowledged however that the relationship between experience and entry mode choice is a dynamic evolutionary process that is intimately meshed with market selection practices (Erramilli, 1991).

Market Characteristics Research on market characteristics as determinants of entry mode choice are more fragmented in nature with fewer generalizable findings. Issues such as external environmental factors including ownership restrictions, external uncertainty and lack of available partners have been explored by Erramilli (1992) as has external uncertainty (Erramilli & D’Souza, 1995). Risk has been a recurring variable but has been operationalized differently by researchers such as investment and contractual risk (Agarwal & Ramaswami, 1992), control and market complexity risk (Brouthers, 1995) and country risk (Erramilli & Rao, 1993) operationalized as environmental volatility. Agarwal and Ramaswami (1992) examined the risk components of general stability of political, social and economic conditions and suggested that markets with high investment risk resulted in low risk and low resource commitment modes as did markets with high contractual risk. Brouthers (1995) criticizes previous research approaches for measuring only one or two dimensions of international risk, such as country specific risk, while ignoring

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the interactive effect between various other types of risks. A further criticism of previous studies in this area is that they have not examined the trade off between the different types of risk in making the strategic decision and so provide an incomplete picture which may be misleading as the one mode of entry selected tends to be based on the observation of only one type of risk. Brouthers (1995) found in his own study that both control type risks and market complexity type risks were related to the entry mode used. A highly significant relationship existed between total perceived risk and the strategic choice (entry mode), and supported the proposition that as international risks increased the strategic choice would tend to favor solutions where risks could be shifted out to other firms. It was also noted that manager’s perceptions of risk were significantly different between many of the market areas included in the study.

REVIEW OBSERVATIONS Research Origin and Volume The most immediate observation from the studies detailed in Table 1 is that the country of origin of entry mode research has been predominantly American to date. With the sole exception of Burgel and Murray (2000), whose sample firms are U.K. based, all other studies draw on firm data from the U.S. The lack of substantial European research is surprising given the phenomenal growth in internationally traded services in the past decade. The lack of European data is a concern as it can be argued that European service firms operate under differing regulatory and financial frameworks and American based studies in this area are of limited value as they may not be generalizable across borders. Another notable issue is the paucity of entry mode research, which is fragmented and is dominated by one key author and one key data set. The lack of research within the sector is highlighted when compared with the situation within the manufacturing sector. Also extant research is largely exploratory in nature and generates few solid conclusions, perhaps as it reflects the diversity in the service sector. With the exception of the work of Erramilli (1990, 1991, 1992), Erramilli and Rao (1990, 1993) and Erramilli and D’Souza (1993, 1995), most research does not represent programmatic efforts intended to develop theory and conceptualizations that generalize across industries (Knight, 1999). Theoretical Frameworks Underpinning Entry Mode Research in Services Various frameworks have been applied in the study of foreign entry mode choices in service firms each with certain merits and implications. The programmatic work of Erramilli (1990), and Erramilli and Rao (1993) employs a modified

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transaction cost analysis (TCA) framework (Williamson, 1985), which has been influential as it provides a decision rule with regard to individual entry decisions. Firms are expected to choose the governance or entry mode that minimizes the costs of carrying out particular transactions (Burgel & Murray, 2000). Following transaction cost theory (Williamson, 1985) specific assets, the frequency of economic exchange and uncertainty surrounding the exchange of resources between buyer and seller represent the core dimensions of the transaction (Andersen, 1997). Most studies have made modifications to transaction cost theory such as Erramilli and Rao (1993) to allow for the inclusion of nontransaction cost benefits from increased control or integration (Andersen, 1997). This modified transaction cost analysis predicts a positive relationship between asset specificity and propensity for high control modes with the strength of this relationship contingent on the influence of moderating factors such as external uncertainty (Erramilli & Rao, 1993), internal uncertainty (Anderson & Gatignon, 1986) and firm size (Erramilli & Rao, 1993). Within this modified TCA framework the empirical setting and measurement problems (Andersen, 1997) have not yet been properly resolved. Erramilli and Rao (1993) focus on the binomial choice between full and shared control modes as TCA has had less success in explaining multinomial choice among entry modes as the theory does not distinguish well between differing degrees of partnership (Anderson & Gatignon, 1998). Though TCA appears effective in explaining vertical integration decisions (Anderson & Gatignon, 1988; Erramilli & Rao, 1993) the overt emphasis on cost minimization and the efficiency paradigm has been questioned (Aulakh & Kotabe, 1997; Hill, Hwang & Kim, 1990), where global strategic issues and motivations may be equally important. Its relevance has also been questioned in the context of the internationalization process of firms where they are highly dependent on the cooperative environment available (Majkg˚ard & Sharma, 1998) and so the issue of networks becomes a pertinent one. Existing literature has not yet reached agreement on which conceptual framework and constructs should be used to explain firm’s foreign market entry mode (Andersen, 1997). An evolution in entry mode research towards a more integrated paradigm with a more eclectic view is also in evidence with the application of Dunning’s (1988) framework based on ownership (O), location (L) and internalization (I) advantages. According to this approach, the decision by a firm to engage in Foreign Direct Investment (FDI) and whether to allocate resources through its own control procedures, rather than through market mechanisms depends on the interplay of the three variables: ownership specific advantages, locational attractions of countries or regions and internalization advantages (Axinn & Matthyssens, 2001). This eclectic framework represents a multi-theoretical approach for studying the choice of entry mode, where international trade theory, resource based theory and transaction cost theory are used (Andersen, 1997). This multi-theoretical

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approach has found favor among Terpstra and Yu (1988) who used measures of ownership and locational advantages for their study of the largest U.S. advertising agencies, Brouthers, Brouthers and Werner (1996) who also tested ownership and location factors in the software industry, and Agarwal and Ramaswami (1992) who included all factors. The key focus of this research was to examine the impact that inter-relationships among ownership, location and internalization advantage factors had on entry mode choice and the study reinforces the importance of including interaction effects in the entry choice model. Viewing the choice of entry mode as contingent on a number of factors has allowed researchers an element of creativity while the number of variables involved has proven problematic from a measurement and operationalization perspective. Domke-Damonte (2000) focuses on experiential knowledge and her findings lend support to the application of the resource based view of the firm, with its emphasis on causal ambiguity created by networks of relationships, but also to the eclectic framework where firms seek to internationalize to maintain sustainable competitive advantage. However, Brouthers, Brouthers and Werner (1996) acknowledge the need to test Dunning’s (1988) theory in other service industries to determine its applicability across all services. Burgel and Murray (2000) conceptualize entry choice as a binary one between direct exporting and distribution, founded in the organizational capability perspective (OC), seen by some as an alternative to TCA (Madhok, 1997) while viewed as complementary by others (Aulakh & Kotabe, 1997). Viewing the firm as a bundle of static and transferable resources the OC perspective suggests firms with embedded knowledge prefer internalization. For future research, the eclectic framework of Dunning (1988) is likely to be the preferred route (Andersen, 1997) to encompass all the factors that could influence entry mode choice and increase the explanatory power of research. However, relationships between moderating factors and entry modes are still unclear and so more studies based on TCA and resourcebased theory are needed to increase our understanding of such relationships. Challenges do exist as highlighted by Axinn and Matthyssens (2001) transaction cost and the eclectic theory are specifically applicable to multinational corporations involved in direct investment and thus appear to have limited relevance to firms involved in the various kinds of cooperative agreements that have evolved in the new e-business and network economy.

Methodological Issues A key challenge with empirical research in international service firms has been getting complete and reliable data from statistically based samples. Major difficulty

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in getting representative samples was encountered in most studies, perhaps partially explaining the single industry focus in some. Several studies are therefore limited in applicability and generalizabilty by small sample sizes, with Erramilli and Rao (1993) acknowledging that their work is based on a non-representative sample. Low response rates have also been an issue across all studies. Domke-Damonte (2000) achieved a 25% response rate, whereas Brouthers, Brouthers and Werner (1996) reported a response rate of 20%, partially attributed to the length of the questionnaire employed. Also, in terms of the nature of the firms sampled, computer software companies have been popular (Brouthers, 1995; Brouthers, Brouthers & Werner, 1996; Domke-Damonte, 2000) as have advertising agencies (Terpstra & Yu, 1988; Weinstein, 1977). However soft services appear underrepresented within the quantitative domain, though they have been the focus of much qualitative research, perhaps as the more appropriate approach (Coviello, 1996; Coviello & Hellman, 1996; Majkg˚ard & Sharma, 1998; Martin, 1999; Roberts, 1999). The key challenge is that the focus is the entry decision itself not the firm (Erramilli & Rao, 1993) and as such researchers should try to sample from the sum total of all entry mode decisions made by all firms in a sector to get a truly representative sample, this is obviously hugely problematic. Another point of debate is the specification of the entry mode decision. In selecting entry decisions to analyze, given the preference for questionnaire structures, researchers have allowed respondents to select the entry decision to report on. Erramilli (1991, p. 485) in analyzing the experience factor in entry mode behavior asked company respondents to provide “data on one entry decision that he/she was most familiar with,” a similar approach to selection was adopted by Erramilli and Rao (1993) in later research (O’Farrell, Moffat & Wood, 1995). Though pragmatic this approach has been heavily criticized as distorting and biasing results in a number of fundamental ways (O’Farrell, Moffat & Wood, 1995) as respondents choose more recent and more successful entries and “pooling all entry mode decisions irrespective of their order in the sequence ignores the feedback and the learning derived from earlier entries” (O’Farrell, Moffat & Wood, 1995, p. 690). A related challenge is that certain factors are measured on an ex-post facto basis, where entry modes may have been chosen in a certain way but post-rationalized differently (Erramilli, 1992). Domke-Damonte (2000) supports this concern that the choice of entry mode actually undertaken and reported in research may not have been the most favored one. Erramilli and Rao (1993) suggest that several factors such as contractual obligations, resource limitations and government policies may force a firm to alter its preferred mode of entry and this topic is worthy of further research. As highlighted by O’Farrell, Moffat and Wood (1995) most surveys report on the expost determinants of particular FDI decisions though the primary interest of policy

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makers is directed towards the factors perceived as generally most relevant to firms ex-ante. Certain researchers have also concentrated their attention on a subset of entry modes, Erramilli and Rao (1993) restrict their study to FDI or shared control modes and exclude exporting, therefore excluding other options from their analysis (O’Farrell, Moffat & Wood, 1995). It is argued that such studies which exclude certain modes when firms have selected them are “not flawed per se but partial” (O’Farrell, Moffat & Wood, 1995, p. 689) and therefore limited in the extent to which their findings are generalizable. Another key issue is the level of aggregation to adopt when investigating mode choice. Some researchers have collected disaggregated information on entry mode choices and then pooled data into binary dependent variables for the purpose of statistical modelling (O’Farrell, Moffat & Wood, 1995). Erramilli and Rao (1993) aggregated data to form a binary variable of 1 for full control entry modes and a value of 0 for shared control. O’Farrell, Moffat and Wood (1995) contend that in allowing the aggregation of disaggregated information considerable information is lost and the contribution to understanding the complexities of entry mode choice is therefore limited. The operationalization of variables also differs across studies, particularly in regard to the risk dimension, which hampers comparability of findings. Dissemination risk is operationalized differently by Erramilli and Rao (1993) and Agarwal and Ramaswami (1992), while Brouthers, Brouthers and Werner (1996) take a more holistic view of risk, incorporating control and market complexity risk. Cultural distance tends to be examined through the development of surrogate indicators of the constructs with Erramilli (1990) and Erramilli and Rao (1993) using cultural distances computed by Kogut and Singh (1988). The work of Agarwal and Ramaswami (1992) in this area is an exception. Empirical studies have used cross-sectional designs focused on the initial mode of entry used, and on the determinants involved in choosing one mode over another at a specific point in time. By default the main streams of entry mode research (using transaction cost and the eclectic framework) have been static in nature (Andersen, 1997), whereas longitudinal research may be more interesting and explanatory as studies involving dynamic processes such as entry mode choice may require a temporal focus (Agarwal & Ramaswami, 1992). Some researchers have attempted to collect data from several time frames, for example Terpstra and Yu (1998), have two data sets from 1972 to 1984, and Domke-Damonte (2000) collected data from 1991 through to 1995, however it was not assessed to uncover longitudinal patterns. The dominant analytical approach is quantitative, as discussed previously the review is purposely focused on such empirical studies. Generally single method approaches have been employed, with a lot of the research suggested by the authors to be exploratory in nature. There appears to be a need to establish new research propositions and a focused research agenda drawing on more descriptive research designs and larger and more representative samples. In a similar vein to Knight’s

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(1999) observation in relation to internationalization studies, much of the literature on entry modes has also been largely exploratory, descriptive and focused on particular industries (e.g. computer software, advertising) or international locations (U.S.).

FUTURE RESEARCH CONSIDERATIONS Research Opportunities Research sites need to be extended into Europe as a matter of urgency. The vast majority of studies to date on entry mode choice have been on U.S. firms entering industrialized developed markets and research on entry into emerging markets and markets in transition needs to be conducted. Research into markets in transition specifically within the European context could also be an interesting stream of enquiry. American based research needs to be strengthened and European research gaps need to be addressed. Research sites also need to be extended in order to gain alternative perspectives and to investigate relationships across cultural contexts (Sarkar & Cavusgil, 1996). As U.S. based research has dominated the area to date this has limited understanding of the impact of cultural contexts on entry mode selection and the overall complexities involved in entry mode choice. Given the dominance of U.S. research European researchers should attempt to redress the imbalance. As well as individual country and sectoral studies pan-European research opportunities also exist and should be pursued (Bryson, 2001). The option of conducting collaborative research across European institutions could help in the creation of a significant body of knowledge, which would also assist further theory development. Opportunities to conduct comparative research could also be considered and the pooling of data and resources among researchers across borders may allow synergistic benefits to emerge and allow for significant cross-cultural dimensions to such research (Bryson, 2001). Presently, as mentioned, there is a notable lack of such cross-cultural research within extant entry mode literature. Another advantage of such an approach may be to avoid the “risk of researchers reinventing the wheel” (Coviello & McAuley, 1999, p. 236) while also helping to provide the basis for a focused research agenda in the area, which in turn could help to increase the generalizability of current theories.

Revisiting Research Designs While previous studies have emphasized internal validity controlling for other factors that could influence the entry mode decision, an emphasis on external

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validity, where frameworks chosen can be generalized to other settings, may now be called for. Collaborative research, as mentioned, could assist greatly with the development and refinement of such frameworks. Though research to date has been largely cross-sectional in nature, it has been suggested that studies involving dynamic processes such as entry mode choice may require a temporal focus making longitudinal designs more appropriate (Agarwal & Ramaswami, 1992). Most research conducted has focused on the initial mode of entry chosen by firms under certain conditions and cannot therefore capture or reflect the pace of change within the world of business. Longitudinal research could offer real insights though may be difficult to structure and execute. In relation to firms sampled, it must be noted that many studies have used only one service industry (Terpstra & Yu, 1988) or an arbitrary combination of service firms across multiple industries (Erramilli, 1990). Some research is then overly sector specific. There remains an ongoing need to gain access to larger and more representative samples, trying to gather data from diverse sets of firms and industries to enhance the generalizability of research and also to examine as many moderating factors as possible (Erramilli & Rao, 1993). As suggested by Koch (2001) market selection and entry mode decisions are so closely intertwined that new approaches to collecting data must now also be considered. Firms will often change from the initial mode of entry chosen for a market in reaction to market developments, competitor actions and their own experience. This is examined by Pedersen et al. (2002) who look at why Scandinavian firms change their foreign market servicing mode, how often this happens and the factors inducing and impeding such change. Though limited to an examination of the move from independent distributors/agents to company owned sales organizations it does highlight an alternative research route. Further research is needed assessing which entry modes and mode combinations, as well as the sequencing of such options are most appropriate for various types of services. Though some research has examined the issue of foreign operation mode combinations (Petersen & Welch, 2002) this has not been explored in relation to service firms. Peterson and Welch (2002, p. 162) suggest that “the new millennium is likely to see firms using mode combinations in ever more diverse and creative ways as they seek to become more effective and flexible in global markets.” This will also be of paramount importance to service firms and the issues of mode combinations and sequencing of entry modes remain crucial decisions for firm viability and profitability. Typologies building on the previous work of Patterson and Cicic (1995) are needed to help firms ascertain the best methods to take their service abroad (Clark & Rajaratnam, 1999). The need to gather such firm research data adds further weight to the argument for a shift from the currently more popular cross-sectional designs to the use of more longitudinal studies in the future. Performance focused studies are also necessary

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to examine what entry mode combinations influence firm performance in the short, medium and long term, given that maximal firm performance is the ultimate goal of international entry mode choice. There is a distinct lack of such performance based studies both in the European and American context, however a move towards longitudinal based research may facilitate an improvement in this area.

Research Variables It can also be suggested that the focus should now move from solely identifying the most efficient form of entry into a foreign market, to that of considering the factors which impact on the firms choice (Sarkar & Cavusgil, 1996) as well as the complex relationships between these economic and non-economic variables (strategic firm considerations, home market conditions and relational dimensions) and their effect on strategy. There is a notable absence of studies which would allow for comparative analysis, specifically in relation to these environmental and non-economic variables. The integration of home market conditions into research (Sarkar & Cavusgil, 1996) is especially relevant within the European context as many governments are supporting and encouraging internationally traded services as a policy initiative and so influencing firm entry mode decisions at the early stages. Further research focusing on home country government policies is needed to fully understand their impact on service firm’s entry mode choice (Erramilli, 1992). A related feature of European activity in this area is the significant number of small service firms operating internationally. Erramilli and D’Souza (1993) suggest that the characteristics of small firms differ sufficiently from those of larger firms to warrant a separate and focused research agenda specifically tailored to the international activities of small service firms. Conceptual frameworks are being redefined by the impact of technology and empirical research needs to incorporate this issue also. As technology continues to develop, new entry mode options and hybrid modes will emerge for firms. There is an ongoing need to examine the moderating effect of such technology on entry mode selection. Though Domke-Damonte (2000) examined the moderating effect of throughput technology on international strategy and entry mode choice it is cautioned that the extent to which the results of the study are due to differences in types of services throughput technologies instead of differences due to industry effects will have to be confirmed in the future. Though the discussion of the impact of information technology enabled delivery on tradability of services has begun (Baark, 1999) as the volume of separable services continues to increase further research is needed. Technology mediated marketing of services will continue to increase and will redefine conceptual frameworks used to study foreign

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entry modes. Firms are now internationalizing in more different ways than ever before, often using combinations of entry and exit strategies. Often smaller firms, especially high tech firms, practice advanced entry modes from the outset (Axinn & Matthyssens, 2001). Domke-Damonte (2000) also calls for further research on the moderating role of throughput technology on the relationship between international strategy and choice of entry mode, which could focus on the role of specific service characteristics in predicting alliance partnership and expansion patterns globally. Also technological proliferation may imply decreasing differences between firms domestic and foreign business operations and such issues need to be incorporated into new frameworks.

CONCLUSION Despite the phenomenal growth in internationally traded services in Europe and worldwide there is an acknowledged paucity of conceptual and empirical research in the area (Brouthers, Brouthers & Werner, 1996; Majkg˚ard & Sharma, 1998) which needs to be addressed. Conceptually there is an ongoing need to conduct further work on model development in the area (Clark, Rajartnam & Smith, 1996). The conceptual frameworks of Ekeledo and Sivakumar (1998) and Cicic, Patterson and Shoham (1999) both remain subject to empirical verification, and while conceptual frameworks for internationalization have advanced this has not been the case with entry modes specifically. Empirically, the main body of work to date has been largely fragmentary and exploratory in nature. As noted by Axinn and Matthyssens (2001) the growing practice of international trade in services stands in stark contrast to its relative conceptual and empirical neglect in the international business/marketing literature. Research sites need to be extended, alternative research designs considered and the opportunity to conduct focused and pan-European collaborative research explored further. The need for quality research initiatives in this area will no doubt continue into the future if as suggested “the 21st century will be the century of services, as globalization continues it will increasingly be the century of international services” (Clark & Rajaratnam, 1999, p. 307). A key objective of this paper was to consolidate extant literature and to stimulate debate on the way forward. The key issue in this context is deciding how best to capitalize on research opportunities available to advance knowledge in this area and to address the research gaps identified. As remarked upon by Brouthers, Brouthers and Werner (1996, p. 391) “although entry mode strategy has been getting more and more attention from researchers, a lot of work still needs to be done,” the challenge remains what work exactly, how, when, and where?

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Author/Year

Service Sectors

Factors Influencing Modal Choice

Firm Characteristics

Methodology

Entry Modes Examined

FladmoeLindquist and Jacque (1995)

Hotels, Restaurants, Retail (merchandise) Retail (food) Hotel sector

U.S. firms. Large global companies with substantial experience. 1131 hotels in 112 countries.

12 firms, 4 industries. Logistic regression.

Contractor and Kundu (1998a) Contractor and Kundu (1998b)

Hotel sector

1131 hotels in 112 countries.

Discriminant analysis, Ordinal logistic regression.

Equity, wholly owned, equity joint venture, non-equity, franchising. Equity, wholly owned, and non-equity, franchising. Equity, wholly owned, equity joint venture and non-equity, franchising and management service contracts.

Erramilli, Agarwal and Dev (2002)

Hotel sector

Geographical and cultural distance, International experience, Host country uncertainty (political and currency risk), Brand name, Asset specificity. Level of development of intended foreign market, International firm experience, Strategic factors. Country specific variables (country risk, cultural distance, level of development, penetration by foreign business). Firm factors (size, international experience, extent of foreign business). Firm strategy and control factors (economies of scale, control quality, need for size, global reservation system, investment in training). Availability of partners and of managers, Level of development of business environment, Cultural distance of host market. Organizational, customer and physical competence.

139 hotels, 46 different countries.

Factor analysis.

Binary logistic regression.

Entry Mode Choice in Service Firms

APPENDIX: EMPIRICAL STUDIES ON EQUITY VS. NON EQUITY (FRANCHISING/ MANAGEMENT SERVICE CONTRACTS) MODAL CHOICE IN SERVICE FIRMS

Non-equity modes, franchising and management service contracts.

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MARKETING INDUSTRIAL PROJECT-RELATED SERVICES INTERNATIONALLY: A MULTI-LINGUAL LITERATURE REVIEW Maria Anne Skaates and Bernard Cova ABSTRACT Project business as a mode of operation is currently very prevalent on international business-to-business markets, and project-related services are an important part of most projects. However the way to market these types of services is under-researched in mainstream marketing literature. Therefore, via a multi-lingual literature review, this article scrutinizes four marketing schools for frameworks relevant to the marketing of project-related services: project, services, transaction, and interactive business-to-business marketing. The analysis shows that the project marketing concepts better capture key aspects of marketing project-related services internationally than do the mainstream service marketing concepts. However, the analysis also suggests that a pluralist approach may be useful when marketing of project-related services, as some frameworks from other marketing schools are also suitable. On this basis, suggestions for marketers of project-related services are presented, and a research agenda for academics concerning

Research on International Service Marketing: A State of the Art Advances in International Marketing, Volume 15, 149–174 Copyright © 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1016/S1474-7979(04)15007-2

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the study of project-related services both internationally and domestically is suggested.

1. INTRODUCTION Services are an increasingly important part of project business (Gr¨onroos, 1997), an important mode of international business operations (Cova et al., 2002; Kock et al., 2003). Services are also a key source of competitive advantage in projects because they often provide the main source of value-added (Flipo, 1998), which a study of 157 German deliveries of projects to customers in 23 different countries (Backhaus & Weiber, 1993) demonstrates. However marketers selling project-related services internationally often have difficulties developing a coherent marketing approach as they have not been educated in marketing projects (Cova & Salle, 1996). Therefore the aim of this article is to scrutinize frameworks potentially relevant to the international marketing of project-related services to determine which are most relevant. In relation to this, we consider project-related services to be marketed internationally when: (1) the client is foreign to the supplier or the client is an multinational coalition of firms; and/or (2) the project is financed internationally or by a multilateral organization. English is not the dominating language in project marketing research, as there is a huge body of project marketing literature written in other European languages (i.e. German, French, Italian, and the languages of the Nordic countries), and student textbooks concerning project marketing were available in German and French about a decade before the first English-language textbook (Cova et al., 2002) was published. However, this literature is marked by a lack of cross-referencing and cumulative theoretical development, due to its multi-lingual nature (G¨unter & Bonaccorsi, 1996) and to some plurality in the disciplinary and theoretical frameworks with which it scrutinizes projects. Therefore, based on the authors’ multilingual study of this literature, project marketing is defined and seminal international project marketing contributions are presented in Section 2. After this, key developments in service marketing are summarized in Section 3, and some initial comments about the relevance to services marketing to project-related services are made. In Section 4, studies which specifically deal with the marketing of project-related services are presented and assessed in relation to services and project marketing theory. The analysis shows that, generally speaking, the project marketing concepts introduced in Section 2 capture key aspects of marketing project-related services better than the mainstream service marketing concepts of Section 3. However, the analysis also suggests that a pluralist approach is useful

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in marketing project-related services, as some frameworks from Section 3 are also suitable. Building on this, Section 5 explores such pluralism further. Using metatheoretical analysis (M¨oller, 1994), the ontological assumptions of the bodies of project, services, transaction, and interactive Industrial Marketing and Purchasing Group (IMP) marketing literature are examined, to determine the extent to which the assumptions of these bodies of literature are commensurable with the reality experienced in international project marketing, and to determine the extent to which contributions from these schools may be combined. Finally, in Section 6, we make our concluding assessment for marketers as well as present a research agenda for academics seeking to contribute knowledge about the international marketing of project-related services.

2. KEY PROJECT MARKETING CONTRIBUTIONS As concerns this section and Section 4 of this article, we conducted systematic searches for relevant literature in various e-libraries that contain business administration literature. Additionally, as e-library coverage of non-English language literature is less extensive, reputed business administration research libraries in Denmark, Finland, France, Germany, and Italy were visited by the authors, the found articles and books were read, and correspondence concerning project marketing research was exchanged with Finnish, German, Norwegian, Hungarian, Swedish and U.S. researchers. Definitions of projects vary widely in the marketing literature (Ahmed, 1993). However, Cova et al. (2002, p. 3) define a project as “a complex transaction covering a package of products, services and work, specifically designed to create capital assets that produce benefits for a buyer over an extended period of time.” We will use this definition in this article. In French, projects are called “affaires” or “projets” (Cova, 1990), whereas the German term for project business is “industrielles Anlagengesch¨aft” (G¨unter & Bonaccorsi, 1996). In English, French, or Nordic language parlance, a system, i.e. a complex total solution composed of various components (see, e.g. Mattsson, 1973), is sometimes viewed as a synonym to a project (cf. G¨unter & Bonaccorsi, 1996). This is not so common in German language usage (see, e.g. Backhaus, 1995), as speakers of German view systems as more standardized than projects. In this article, we will follow the German line of reasoning, by excluding more standardized systems from our considerations, because the above definition of Cova et al. (2002) states that projects are “specifically designed.”

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2.1. Project Characteristics In his comprehensive textbook treatment of projects as a type of business, Backhaus (1995) lists characteristics often found in projects: Discontinuity of incoming orders. Customized production of physical elements. High value of the single order. Buyer/supplier coalitions. An ever-increasing share of services in projects, yet still: Possibilities for variations in the scope of supply and service activities and other contractual aspects, e.g. financing packages. Differences between customers’ and suppliers’ levels of knowledge of potential solutions and delivery-related aspects. Internationalization of project business. Concerning internationalization, an on-going research project (Kock et al., 2003; Owusu, 2002) is currently attempting to define the unique features of projects as a foreign entry mode. However, due to the presence of supplier coalitions, there is some ambiguity in entry mode choice for project marketers, as they may get involved in projects as main or sub-contractors, as a French-Vietnamese-Danish case (Cova et al., 2001) illustrates. Projects may be classified as partial, turnkey projects, or turnkey plus projects. Many services projects (e.g. the supply of design, planning, and/or engineering services) are partial projects because they are delivered in connection with a larger project (Holstius, 1987). In a turnkey (or engineering, procurement, and construction, i.e. EPC) project, a complete unit is delivered to the buyer. Turnkey plus projects are complete unit deliveries plus supplementary services such as personnel training. Facility management services (see Grill-Kiefer, 2000) may also be an element of a turnkey plus project. In most international projects the main contractor is not in a position to supply/manufacture all of the project or parts of the project and therefore uses subcontractors. For instance in a case where a Swedish company supplied a complete power plant to Nigeria (Cova et al., 2002), the Swedish company had to find a local subcontractor for the civil works. In this case, the Swedish company was working, on one hand, as a marketer and, on the other, as a purchaser of civil works from a local construction company. The subcontracting construction company, in turn, had to market itself internationally to the Swedish company, although it was to supply its civil works partial project locally. The subcontractor may also have used subcontractors for part of its partial project.

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Fig. 1. The Project Pyramid (Cova et al., 2002, p. 30).

For this reason each project supplier occupies different positions within the project pyramid of Fig. 1. However, the main contractor usually tends toward one of two roles, either the role of the project’s architect and assembler or that of a mere coordinator of project execution. If the main contractor is a coordinator, a consulting or an engineering company may be in charge of defining the project architecture, and the subcontractors in charge of the partial projects may be legally responsible for their assembly-related partial projects. However, the precise distribution of responsibility can vary from project to project and country to country, in accordance with the preferences of buyer and the typical project organization constellations in the country in question. 2.2. Managing Relationships in Project Business One implication of discontinuity of incoming orders in project business is a potential lack of buyer-seller bonding, dependence, and mutual orientation beyond the single project, although there will be substantial buyer-seller interaction during the delivery of an individual project. Thus, firms selling projects need to concern themselves with two separate dimensions of relationships (Alajoutsij¨arvi, 1996): The first dimension is that of managing relationships related to an individual project from beginning to end. The second is “the level of multiple projects.” At this multiple project level, marketers need to be concerned about optimizing their portfolio of projects and references (Boughton, 1987; Salminen, 2001) and ensuring that references from customers in one country will be recognized by potential customers in another country (Skaates, 2003).

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Cova and Salle (2000) present the creation and use of rituals in relational strategies to specific former or potential customers at the multiple project level, based on international case research. Furthermore, at this same multiple project level, after a project has been completed, Hadjikhani (1996) speaks of the “sleeping relationship” the supplier has to its former customer. In relation to the “sleeping relationship” period, he also illustrates possibilities for creating dependency and bonds of trust to ensure future contact to customers using empirical data from a few multi-country case studies. As concerns controlling sleeping relationships, Schwab (1984) examines the advantages and disadvantages of outsourcing after-sale repair and maintenance services, emphasizing the complex interdependencies between the choices made in the pre-project, negotiation, completion and post-completion phases through in-depth discussion of the implications of the phase-specific interdependencies on the suppliers’ levels of control of their business. Bengtson et al. (2001) and L¨ofmarck-Vaghult (2002) discuss the use of network dependencies based on Swedish and international case research. However, based on a study, which used a deductive testing methodology and a German sample, Backhaus et al. (1994) are less positive about the possibilities of using dependency to manage relations to customers because customers very often recognize that there may be a connection between increased dependency on a specific supplier and greater costs of improvement or maintenance of the facility that has been delivered through the project. At the levels of both the individual project and of multiple projects, the collective of relevant actors for the project marketing activities of an organization has been termed the “milieu” by Cova et al. (1996a, b, 1998). A milieu is characterized by four elements: A territory. A network of actors (e.g. individuals, businesses, governmental bodies, civil society organizations) related to each other within this territory. A representation constructed and shared by these actors. A set of rules and norms (“the law of the milieu”) regulating the interactions between these actors. As defined above, the milieu is synonymous with the sociological and institution theoretical concept of the field (Skaates, 2003). However, in one international project marketing-related contributions (Hellgren et al., 1993), the milieu/field is defined as being global. In another (Tikkanen, 1998), the inclusion of territory is questioned on the grounds that some milieus might be global. In relation to this dispute, there is evidence from case studies of local milieus in the French, German, and Danish construction industries (Cova et al., 1994; Skaates, 2003)

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and in Australian-Chinese, Danish-Ghanaian, and Finnish-Chinese development projects (Kuada, 2002; Skaates et al., 2002a, b; Welch et al., 1996). In contrast, there is evidence from Finnish-USA and French and Eastern European case research (Cova et al., 2000; Warsta, 2001) that the milieus for software development, waste treatment facilities, and defense projects are more international. Concerning the management of relationships in global or foreign milieus, some authors (Holstius, 1987; Jansson, 1989; Tikkanen, 1998) suggest that firms involved in international project marketing must develop more dense and multifunctional network of relationships in the global or foreign milieu than would be the case in their home country. Project-related services are no exception to this (Cova & Salle, 1996). At an international level, firms seeking development project opportunities most often interact with two decision makers (Jansson, 1989): multilateral financers and the recipient country, which means that they must relate to the normative preferences of both decision makers and take the relationships that these decision makers have to key influencers and other stakeholders into account. For when projects are funded or purchased by multilateral financing organisations such as the UN, the World Bank, or other international development banks, these organisations’ influence on projects is neither passive nor necessarily confined to financing (Holstius, 1987). Some contributions specifically compare relationships across regions, e.g. Denmark and Germany (Skaates, 2003), Finland and the USA (Warsta, 2001), or Scandinavia and Southeast Asia (Jansson, 1989), as relationships vary due to cultural, institutional, and legal differences between countries. Additionally the role of relationships in public tendering is a theme of key project marketing contributions (e.g. China: Welch et al., 1996; Denmark/EU/Germany: Skaates, 2003; Eastern Europe: Cova et al., 2000; France/EU: Cova et al., 2000, 2002). Moreover the effects of political risk on project relationships has been addressed (Hadjikhani, 1998), as has the design of development projects in relation to the long-term needs and limits of various stakeholders (e.g. Owusu, 2002; Welch et al., 1996), a theme also addressed many times in literature on the developing countries (e.g. Bryant, 1996).

2.3. The Acquisition and Delivery of Projects According to Project Marketing Theory With regard to the process of acquisition and delivery of projects, Cova et al. (1994) have developed a model on the basis of case research using Decision System Analysis methodology. It is depicted in Fig. 2.

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Fig. 2. General Marketing Configuration for Project-to-Order Supplier Firms (Cova et al., 1994, p. 40). Note: Steps 1–5 above and on the thick horizontal line concern marketingrelated steps taken independent of a given project (the phase of the anticipation of a project). Steps 5–10 on and below the thick horizontal line concern marketing and co-ordination efforts related to a specific project that has been awarded or is in the processes of being awarded to the project-selling firm in question (the adaptive phase).

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Hungarian project marketing scholars Mandj´ak and Veres (1998, p. 484) explain the merit of the Cova et al. (1996a, b) model as follows: [I]t calls attention to the two fundamentally separate phases of the preparatory stage of the project. There is no concrete project in the anticipative stage, the company watches the market in order to gain information necessary for anticipating future projects. This, however, is not a passive process because the company wants to affect and initiate the future projects through the network [. . .]. Once the future project starts to take shape either in the form of a tender or a contract, it is followed by the second stage of preparation, the adaptive stage.

Concerning the various phases of Fig. 2, before the final agreement about the project proposal, project selling firms, including those that sell project-related services, may take two alternative postures to project marketing in relation to the norms, rules, and representations of a given project marketing milieu (Cova & Hoskins, 1997): They may either anticipate, learn to comprehend, and excel in following the accepted rules and representations of the milieu (the deterministic posture), or they may become actively involved in shaping the rules and representations of the milieu (the constructivist posture). Additionally project marketing firms may switch between both postures at different points in time, e.g. in different phases the project marketing process of Fig. 2 or with regard to different potential projects (Cova & Hoskins, 1997). In relation to Cova and Hoskins (1997), the control posture (see Bonnacorsi et al., 1996) is an extreme version of constructivist posture. According to these authors, it is often paramount for main contracting firms in innovative and R&D-intensive industries to maintain global control of technological dynamics. This is due to the fact that in situations where radical innovation may occur, the complex relationship content between the main contractor and other project actors cannot be given in advance, as if a subcontractor or customer achieves the radical innovation, it may also achieve a lot of power over the main contractor. Thus the control posture presupposes that project-selling firms are constantly involved in attempting to control all rules, representations, and developments in their relevant milieus to minimize their market uncertainty. Regarding the switch between the different postures at different points in time, i.e. either in different phases the project marketing process of Fig. 2 or in different potential projects, services within projects often play the decisive role in switching tactics (Backhaus & Weiber, 1993; Cova et al., 2000). The series of case studies of projects presented in Cova et al. (2000, which builds on Mathieu, 1999) document in the presence of four potential service types in projects, which may be manipulated with at different points in time to achieve a certain posture: SSP = Service which supports the physical offering, e.g. installation or fault diagnosis, many of these may be perceived as an integral part of the offering.

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SSC1 = Service which supports the client’s action in relation to the physical offering, e.g. employee training, consul or services to integrate one piece of equipment to another, these are usually more separable from the physical project offering than SSP. SSC2 = Service which supports the client’s action with a less direct relation to the supplier’s immediate order, e.g. general advice about the energy efficiency or market requirements of the future. As these are not directly connected to the physical project offering, they are also easily separable from it. SSN = Services which support the client’s action in the client’s network of relationships to other actors, e.g. entering to a dialogue with the client’s business partners, public authorities, or the media, these services are also most often easily separable from the physical project offering. In relation to the above service types SSC2 and SSN, it is important for marketers marketing projects internationally to remember that norms concerning the use of these types of services vary from milieu to milieu. M¨uller (2003a, b) looks at patterns of communication throughout the acquisition and delivery of international and domestic IT projects and these patterns’ influence on current project success, firm profits, and chances of future project orders, whereas Cova and Allen (1989) and Skaates and Sepp¨anen (2002, forthcoming) examine how project marketers and managers may seek to codevelop their resource and capabilities during and through acquisition and deliveryrelated interactions with customers to retain market-focus both domestically and internationally. Finally Cova et al. (1996b), Ghauri (1998), Kumar et al. (2002) examine international project negotiations, whereas Backhaus et al. (1994) and Warsta (2001) deal with domestic and international contract management throughout the acquisition and delivery process.

3. THE SERVICES MARKETING LITERATURE Having briefly surveyed the project marketing literature, we turn now to services marketing. During our discussion of its contribution, we will focus less on international marketing, as most services marketing contributions are not specifically international. Services marketing has developed rapidly from the midseventies, however initially emphasis was placed on consumer services (Berry & Parasuraman, 1993; Fisk et al., 1993). Pioneering contributions, e.g. Shostack (1977), dealt with characteristics such as intangibility, simultaneity, inseparability, perishability, and heterogeneity that render the marketing of services different from the marketing of goods (Fisk et al., 1993). However, similar to other service

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types, industrial project-related services are marked by these characteristics to a varying extent. For example, project-related production and MRO services (see Bansard et al., 1990) such as installation and testing are much more simultaneous, inseparable, and perishable than many of the project-related design and engineering services (Sharma, 1991), in which, in terms of Eiglier and Langeard (1987), the “factory” dimension of service production can at least partially be disassociated from the “shop window” dimension of collecting service orders and delivering them. This means that, similarly to the case of other services, not all service marketing frameworks are equally applicable to the various types of industrial project-related services. However, with inspiration from Buttler and Stegner (1990), Grill-Kiefer (2000), and Homburg and Garbe (1996), we can define project-related services as e.g. possibly being: (1) An integral part of projects, meaning that they cannot be separated from the physical element of the given project. Examples would be construction management or installation work, i.e. the production services of Bansard et al. (1990). These integrated services may also be categorized according to the phase of the project, commonly they will be placed in phase 10 (“completion”) of the Cova et al. (1994) project marketing phase model (Fig. 2). (2) An at least partially separable part from the physical part of projects, e.g. the design and engineering services of a “partial project” (Holstius, 1987), maintenance and repair services in relation to turnkey projects (as opposed to turnkey plus projects, see Bansard et al., 1990) or, in terms of Cova et al. (2000), SSC1, SSC2, and SSN services. Unless otherwise specified, we will deal with both types of project-related services in our following remarks. Returning now to general developments in services marketing, after 1980, issues such as service quality (see, e.g. Gr¨onroos, 1983; Parasumaran et al., 1985), the design and management of service production and encounters (Czepiel et al., 1985; Eiglier & Langeard, 1987), and the role of customers, intangibles, and the physical environment in the customer’s evaluation of the services (e.g. Hui & Bateson, 1991; Larsson & Bowen, 1989) played a leading role (Berry & Parasuraman, 1993; Fisk et al., 1993). However, the main focus was still consumer services, although the service quality model was later used in a study of the delivery of two technology-intensive design projects (Cohen & Regan, 1996). Slightly later on in the eighties, service customer retention (e.g. Berry, 1983; Gr¨onroos, 1983), relationship marketing (e.g. Christopher et al., 1991; Reichheld & Sasser, 1990), and internal marketing (e.g. Berry, 1981; George, 1990) became important areas of focus (Fisk et al., 1993). As concerns the first two of these last three

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issues, the general prescriptions of the mainstream services marketing literature are not generally applicable to the situation of project-related services, due to the discontinuity of incoming orders in project business discussed in Section 2 of this article.

3.1. Professional Services and Project-Related Services Several authors (e.g. Alvesson, 1995; Miettil¨a & M¨oller, 1990; Sharma, 1991; Starbuck, 1992) have also attempted to differentiate various types of businessto-business services. For exampe, Miettil¨a and M¨oller (1990) and Løwendahl (2000) identify “professional services” as including: accounting, auditing and bookkeeping services, advertising and other marketing services, business and management consulting services, legal services, and engineering and architectural services (i.e. the technical services of Sharma, 1991). These professional services are different from other services required for e.g. production or the daily functioning, i.e. MRO, of a company (see Jackson & Cooper, 1988), in that they often are carried out by qualified professionals recognized as specialists acting in their own names (e.g. architects and consultants) and that their added-value is based on mainly on the production and use of knowledge and information. However, Alvesson (1995) and Starbuck (1992) make a further distinction between professional and knowledge-intensive services. In the case of the services of, e.g. accountants, auditors, bookkeepers, and lawyers, which are termed professional services by Alvesson (1995) and Starbuck (1992), there is a limit to the discretionary effort and personal judgment used in providing the services, as there are established scientific or scholarly methods. In contrast, with regard to the other services from Miettil¨a and M¨oller’s (1990) classification, the scope for discretionary judgment based on the professionals’ personal experience and the specific situation is much larger. Thus these latter services are referred to as “knowledge-intensive services” by Alvesson (1995) and Starbuck (1992). It is especially these complex “knowledge-intensive services” that are an integral part of design and/or engineering partial projects or the design and/or engineering phases of turnkey and turnkey-plus projects.

3.2. Two Service Models Relevant to the Marketing of Project-Related Services Two newer and still less well known service models seem especially relevant to marketing and managing industrial project-related services. The first of these is the Dynamic Model of Client Expectations in Professional Services of Ojasalo (1999).

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Fig. 3. Blueprint of the Service Acquisition Process (Fließ & Kleinaltenkamp, 2004, p. 97).

It is especially relevant to suppliers of project-related services during the initial phases of project marketing and acquisition because it deals with potential gaps between the customers’ and the suppliers’ levels of knowledge concerning possible project solutions, which Backhaus (1995, see Section 2) has indicated is a key issue in projects as well. The model specifies that suppliers may need to educate their customers by making customers’ unclear and implicit expectations explicit and then transforming any unrealistic explicit expectations to realistic expectations. The “Service Blueprint Model” of Fließ and Kleinaltenkamp (2004) is the second highly relevant model. It is depicted in Fig. 3. The Blueprint Model is a tool for studying and optimizing service process efficiency and effectiveness for management purposes, yet it is also relevant to services and project marketers in that it is in these marketers’ interest to ensure that their offerings are delivered in an efficient way so that they are perceived as efficient and effective by the customers and that they make the greatest possible contribution to the selling firm’s profits. As one moves from the left to the right of the Blueprint Model along the line of interaction, one goes through the processes of service design and delivery, which are depicted sequentially, similar to the depiction in the model of Fig. 2. The Blueprint Model’s line of visibility is similar to the distinction between the “shop window” and “factory dimension” of Servuction model (Eiglier & Langeard, 1987). Beyond this, the model contains the line of internal interaction, which distinguishes the front office from back office activities. The line of order penetration separates the activities prompted by interaction with the customer from the activities carried out independent of specific customers, such

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as part of the development of the project marketing firm’s resources and capabilities (Skaates & Sepp¨anen, forthcoming) or the procurement and storage of equipment, components, and material. Although projects as defined in Section 2 of this article are marked by a lesser degree of standardized elements, to the extent that some possibilities for standardization across individual project offerings exist (and there are usually some such possibilities also in projects according to, e.g. Backhaus, 1995; Cova et al., 2002), such standardization is achieved behind the line of order penetration, yet must still be optimized in relation to the needs and preferences of customers. Finally, those back office customer-independent activities which are necessary to put the very facilities used in the delivery of all offered services into operation (such are employee training, creation of soft- and hardware systems, cleaning, and maintenance) are those that lie behind the line of implementation, they must however likewise be designed while keeping customer characteristics in mind.

4. THE REALITY OF PROJECT-RELATED SERVICES MARKETING Having discussed insights from the services marketing literature, we now turn to contributions that specifically deal with the reality of marketing project-related services. Here, our literature study indicates that there are only a few marketing studies that specifically focus on project-related services: (1) the pioneering article by Hardy and Davies (1983) on the marketing of construction services; (2) Larcher (1988) on the specific marketing of Arianespace, e.g. the marketing of satellites launching services; (3) the dissertation by Messner (1994) on U.S. architects’ international project acquisition efforts; (4) Gallouj (1996) on the buyer/seller relationships for complex services in the consulting sector; (5) Cova and Salle (1996) on the marketing of complex industrial services such as waste management contracts; (6) Filiatrault and Lapierre (1997) concerning marketing in consulting engineering firms; (7) Flipo (1998) that develops a case study around the marketing of a unique artistic and cultural service sold in a project fashion; (8) the dissertation by Grill-Kiefer (2000) on the integrative marketing of facility management services in projects; (9) the dissertation by Sepp¨anen (2000) on the market-focused management of project relationships in contract R&D, which has also resulted in Skaates and Sepp¨anen (forthcoming, 2002); (10) the dissertation by Warsta (2001), which focuses on the market-oriented management of software subcontracting projects from a contract management point of view; (11) Stremersch, Wuyts and Frambach (2001) that investigates the purchase of full-service maintenance contracts; (12) the dissertation by L¨ofmarck-Vaghult

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(2002) which examines whether consulting firms can prolong their project-based relationships to clients using network effects; (13) the dissertation by Skaates (2003) that looks at how Danish architectural firms market architectural projects domestically and in German, which resulted in Skaates et al. (2002a, b, 2003); and finally (14) the dissertation by M¨uller (2003b), which resulted in M¨uller (2003a), M¨uller and Turner (2002, forthcoming). All these works suggest that the most well-known contributions of mainstream services marketing (i.e. the literature discussed in the first part of Section 3) are not sufficient to grasp the intricacies of marketing project-related services. This circumstance is related to the definition of projects of Cova et al. (2002) and Backhaus’ (1995) common characteristics of project business, as described in Section 2, as the fact that each project is specifically designed leads to marketing, strategic, and organizational issues being much more intertwined than is the case in the marketing of less knowledge-intensive and more standardized services. Several additional citations to this effect are listed below: The marketing of construction services does not simply duplicate the mainstream literature of the marketing of services. [. . .] “There are two problems which determine the flavour of a successful marketing strategy: the rich and complex interplay of communications and influences between the several participating units in the industry together with the constraint imposed by the practice of competitive tendering provide a conceptual challenge to the marketer” (Hardy & Davies, 1983, pp. 9, 17). [T]he third factor is the political factor . . . For each project the national dream and political ambitions are detected, we need to know the channels of influence, the people with influence, who can change at any moment, and all this requires constant monitoring of the client but also of the non-business actors in the client’s network (Larcher, 1988, p. 59, authors’ translation). Gallouj (1996) defines the market of complex consulting services as a ‘network-market’. He argues (Gallouj, 1996, p. 309, authors’ translation) that “it is because there inside big French consulting companies and inside big French industrial companies are people with the same diploma, the same cultural identity and the same feeling of belonging to an elite that consulting relationships based on trust can develop. And these are supported by social networks that maintain on a long-term basis this type of relationships.” TDI’s (a waste management company) marketing practice can be articulated according to two complementary diagrams. The first, accounting for the majority of cases, concerns projects emerging within the framework of an existing well-established relationship with a client. [. . .] The second diagram, accounting for fewer cases today (but likely to develop considerably according to some scenarios), can be described as the irregular and intermittent sales of complex services with a relational investment in unfamiliar milieus (Cova & Salle, 1996, p. 202). We propose a four-phase model of the relationship management process in business-to-business consulting engineering projects: (1) before the project; (2) at the beginning of the project; (3) during the project; and (4) after the project” [. . .] “Personal contacts and referrals are useful in

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evaluating competence, and networks are an integral part of relationship marketing (Filiatrault & Lapierre, 1997, pp. 216, 220). Four main types of players have come along Cit´e de la Cr´eation (a plastic art company that provides mural painting services) development: cultural players, political players, economic players, social players (Flipo, 1998, p. 45, authors’ translation).

The brief historical approach of the way the Way Cit´e de la Cr´eation has developed its own manner to deal with projects gives several lessons: The large time-span necessary to develop a new service business . . . The process of broadening step by step, slowly, the number and diversity of allied companies (Flipo, 1998, p. 50, authors’ translation). The main period of project marketing, with regard to project content, spans from the customer’s discovery or convincing of a need for a project to the signing of the contact (Grill-Kiefer, 2000, p. 72, authors’ translation). Full-service contracts can be considered a new task buy with high dollar value, high perceived complexity, involving long-term mutual commitment and therefore are comprehensively evaluated by decision makers within the customer firm [. . .] marketing full-service offerings demands considerable adaptation of the marketing and sales organization of the supplier (Stremersch et al., 2001, p. 10).

In Skaates’ (2003, p. 449) dissertation, the concepts of cultural and social capital (Bourdieu, 1979) are introduced to “enable the abductive analysis of the Danish architectural firms’ establishment of credibility and position [. . .] in the German construction industry milieu,” the quotation indicates that also Skaates (2003) is convinced that the milieu conceptualization captures the relevant features of the actors involved in and influencing project business. Furthermore, Skaates (2003, p. 459) notes that the German and Danish networks in which “Danish construction industry firms active on the German market participated had more of a social and informational nature than the characteristic[s . . ..] common to the assumptions of the IMP Group.” It is evident from the above quotations that the reality of marketing industrial project-related services is marked by the following inherent circumstances: Complex communications and interplay, including the building of coalitions, also among non-business actors, e.g. political actors and civil society organizations. Competitive tendering practices, which also often mandate considerable adaptation of the marketing and sales organization of the supplier. (Sometimes) irregular and intermittent sales. Long-drawn decision making process with comprehensive client evaluations due to the customer-perceived high level of complexity. The interconnected nature of marketing, organization, and strategic issues.

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Two separate phases of marketing (before and after the presentation of the offering). Moreover, those of the contributions (e.g. Cova & Salle, 1996; Larcher, 1988; Skaates, 2003) that deal with project-related services marketed internationally go to the extremes concerning the first point. Everything becomes even more complex in foreign or global milieus: the number of actors and the financial, political, societal, and technological norms involved, the nature of actors’ relationships, existence of conflicting sub-networks, etc. In relation to these circumstances, the project marketing conceptualizations covered in Section 2 (the milieu, the sleeping relationship, network dependencies, rituals, the constructivist posture, and the SSP/SSC1/SSC2/SSN service categorization) present more suitable conceptualizations of the problems and possibilities for marketing project-related services than do the more mainstream service marketing frameworks summarized at the beginning of Section 3. These service marketing frameworks are especially lacking with regard to addressing discontinuity and strategic optimization of variation at the level of multiple projects. However, in saying this, we do rule out the possibility that marketers seeking to improve their company’s project-related service business may also use frameworks from services marketing contributions such as the Service Quality model (Zeithaml et al., 1990) or the Dynamic Model of Client Expectations (Ojasalo, 1999) at the level of the individual project or the Blueprint Model (Fließ & Kleinaltenkamp, 2004) at the level of multiple projects. To address the issue of such marketing school pluralism better, we now go to our meta-theoretical analysis.

5. META-THEORETICAL ASSESSMENT OF VARIOUS MARKETING SCHOOLS’ AND RESEARCH GROUPS’ RELEVANCE TO THE MARKETING OF PROJECT-RELATED SERVICES According to M¨oller (1994, p. 349), meta-theoretical comparisons of the works of major communities of researchers are useful when “we embrace the idea that the multiple views created by different research traditions can be linked.” In our review, we use the profile method (ibid, p. 350), in that we have defined a set of descriptive criteria, namely “Basic goals,” “Key questions asked,” “Ontological Assumptions,” “Level/Unit of Analysis” and “Inspiration from other research communities,” with which we evaluate the chosen research streams. Our analysis is presented in Table 1. It is a result of our survey of key project and service marketing contributions in Sections 2 and 3 as well as our scrutiny of the

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Table 1. Meta-Theoretical Profiles of Marketing Schools (Characteristics marked by italics are from M¨oller & Halinen, 2000). 2. Services Marketing

3. IMP Group

4. Project Marketing

Basic Goals

To provide a general theory of marketing

To understand and explain the marketing of services as a general category

To understand and explain business relationships and networks of relationships

To understand and explain project marketing

Key questions asked

How to manage marketing activities, what are the optimal price, product, place, and promotion for a product, how to manage a line of products?

How to provide value and perceived quality for the customer, how to manage service encounters, how to create and manage customer relationships

How are relationships created and managed, how networks function and evolve, how can an actor manage these relationships and create position in a network?

How are projects acquired, how can an actor market itself both independent of projects and in relation to a project opportunity, how does a milieu function?

Ontological assumptions

Competitive markets, marketing according to a SOR view, weak long-term dependency perspective, goods exchanged substitutable

Dyadic, interaction relationships, yet customers often seen as objects, interdependence between the seller and customer varies, i.e. weak – relatively strong. The basic service is often relativ. substitutable, yet the service can be differentiated/individualized

Any actor, buyer or seller, can be active, actors are seen as subjects. Reciprocal interdependence between actors, caused by heterogeneity of resources, which makes substitution difﬁcult, presence of long-term actor bonds, activity links and resource ties

Buyer or seller make take contact initiative, discontinuity, uniqueness, and complexity of projects, presence of project marketing milieus with socioeconomic rules and norms, often absence of long-term activity links and resource ties

Level/unit of analysis

Market characteristics, competitive product characteristics, distribution and communication media characteristics, the transaction

Service components, the service encounter, the production of services, the measurement of service quality, customer relationships

Actor, dyadic relationships, nets of relationships, transactions as episodes in long-term relationships, relationships as embedded in networks (industrial) and time

Actors, coalitions of actors, project phases, single projects, series of multiple projects, milieus, rules and norms in milieus and the manipulation of these, tendering procedures

Response to 1, later: consumer behavior, operations, general and human resource management

Channels research, OBB, resource dependency theory, social exchange theory

Inspired by 3, institutional theory, literature on innovation milieus, organ. sociology, socio-economics

Inspiration from Neoclassical economics other research Communication theory communities

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1. Transaction Perspective

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categorizations of Berry and Parasuraman (1993), Brennan and Skaates (2004), Fisk et al. (1993), Meffert (2000), M¨oller and Halinen (2000), and M¨oller (1994). Especially M¨oller and Halinen (2000) is drawn upon heavily in Table 1, as their contribution also contains a meta-theoretical analysis, which is used in the analysis of relationship marketing theory’s roots and direction. The categorizations that have been taken from M¨oller and Halinen (2000) without modification are identified by italics in Table 1, in order to facilitate the reader’s identification of these and give credit to the original source. In relation to the issue of possible room for pluralistic approaches for the case of project-related services, with regard to the services marketing (Column 2 of Table 1) versus project marketing (Column 4 of Table 1) dichotomy, it is relevant to note that service marketing scholars have examined issues related to the individual components of services, the service encounter, and the production of services to a greater extent than the project marketing community of researchers. Conversely, project marketing scholars have developed more sophisticated conceptualizations of project phases and the dynamics at the level of multiple projects, for situations in which long-term relationships may or may not exist. This leads us to suggest, as previously proposed by Cova and Salle (1996), that the contributions of service marketing, minus the relationship marketing component and the Blueprint Model (Fließ & Kleinaltenkamp, 2004) are relevant to the marketing of projectrelated services at level of the individual project and/or specific project phases. In contrast, at the level of multiple projects, where long-term relationships may or may not be present, the conceptualizations from the project marketing literature with the addition of the Blueprint Model provide the most powerful descriptive tools, from which the marketers of project-related services can deduce the normative implications for their own specific international project marketing situation. Turning now to the work of the IMP group (Column 3 of Table 1), the IMP assumptions of long-term activity links and resource ties are problematic in international project marketing, due to the fundamental discontinuity of project orders previously discussed Section 2. This means that the IMP studies are not an especially good source of concepts about the key issues of marketing project-related services at the level of the individual project phase, the entire project or a series of project. However, many of IMP studies provide valuable methodological insights for project marketing researchers preparing to undertake inter-organizational research, and one of the research communities which has inspired the IMP group – namely the community of OBB theoreticians – may provide insights relevant to project marketers with regard to the buying-process phases of the project, i.e. phases 5 to 8 of the project marketing phase model of Fig. 1.

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Finally, as concerns the transaction perspective of marketing (Column 1 in Table 1, see also Brennan & Skaates, 2004; Meffert, 2000), this perspective has been applied to the field of project marketing in Pinto and Covin (1992). In this contribution, the transaction perspective’s “market analysis” is transformed into an analysis of a specific potential client, and it is suggested that the potential project supplier should develop an optimal marketing mix for its offer on the basis of this specific client analysis. Additionally, with specific regard to Nordic projects in South East Asia, the transaction perspective is combined with a business relationship perspective in Jansson (1989). However, aside from public tendering procedures which mandate written proposals without negotiations or contact to the public authority in question (see Skaates, 2003), the transaction approach seems less relevant to the marketing of industrial project-related services because such services are most often marked by a high level of complexity, customization, and/or differences in the level of knowledge of the customers vis a vis the suppliers, which render the traditional transaction perspective’s model of one-sided communication to the client unrealistic. Furthermore, building on, e.g. Cova et al. (1994), Messner (1994), and Skaates and Sepp¨anen (2002, forthcoming), we would advise against the uncritical use of project-level specific client analyses alone, as these neither say anything about the long-term effects of performing specific projects for clients on the project selling firm’s position in the milieu nor do they take any firm-internal considerations about its general, multi-project long-term goals into account.

6. CONCLUDING SUGGESTIONS FOR MARKETERS AND ACADEMICS Kotler (1999), a leading proponent of mainstream marketing, is also an advocate of the put-into-play of new knowledge and thought processes when marketers switch from selling one type of offering (e.g. goods or services) to another (e.g. projects). Thus he implicitly recognizes that many marketing tools and concepts are not universally applicable. However, we would not want to go to the other extreme by suggesting that marketing tools and concepts are unique to each type of business and/or market. Instead, through meta-theoretical analyses, we have sought to prove to that applying a blend of some middle-range frameworks from especially project marketing and services marketing might help marketers marketing project-related services internationally overcome the feelings of unease and insecurity that they often feel about undertaking such activities. For academics and others interested in scientific development, this article has been about going against both the idea of a single, universally applicable framework

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for marketing and extreme theoretical fragmentation, which may lead to the degeneration of scientific disciplines (see Martinet, 1990; Rosenau, 1991). Thus we are neither making claims for the leadership of a particular theory nor for an integrative “Grand Theory” of marketing, but rather advocating a “coherent pluralism” of middle-range marketing theories. However, there is much further room for research. To date, most research in services in international project marketing – and indeed in project marketing itself – has been based on cases. While the case method allows the researcher to account for the inherent complexity of projects, the external validity of many aspects of theories developed based on cases is problematic. This means that in most areas of where project-related services are marketed internationally (e.g. the construction industry, the advertising and communications industry, the consulting industry, the realm of development projects), we are still lacking truly comparative, comprehensive cross-national studies of the very practices (e.g. rituals used by companies, network dependence, project contract management, and the use of the deterministic, constructivist, and control postures) that we know vary from milieu to milieu. External and internal validity are also difficult to achieve due to the very socially constructed – and thus changeable – nature of project marketing milieus, which also leads to major changes in practices, such as those in the realm of public tendering in the past 15 years (see Skaates, 2003). In relation to such changes, it is also relevant for project marketers to understand the positions of various stakeholders, how and why they change over time, and how this affects the specific project marketing milieus they must act in. Here there is room for longitudinal studies of, for instance, changes in public and private sector project acquisition and of the effect of new project valuation practices such as the recent boom in the use of life-cycle costing calculations or the new project communication possibilities made possible by information technology. Moreover, as there is a relatively large body project management literature, we are struck by the almost total lack of marketing studies examining how project suppliers’ external customers perceive various project management frameworks (see, however, Freemand & Beale, 1992; Pinto & Rouhiainen, 2001; Shenhar et al., 2001) and whether the use of specific project management frameworks has an influence on customers’ service quality perceptions or on other measures of project success. Also in these areas, we believe that there is much room for further work on the part of marketing academics. Here we would like to mention in specific relation to international project management and marketing that although international (e.g. ISO) standards for project management and standardized project management software now exist, we judge that there are still significant national differences in project management practices, which in turn once again points to a need for comparative studies of this aspect.

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This project management-related suggestion leads us to a final, more general wish: There seems also to have been little cross-fertilization between the fields of project management, services marketing, and project marketing. We therefore hope that researchers examining the marketing of project-related services will also look for and, if applicable, apply frameworks from project management in their future studies, and that a comprehensive review of the project management literature’s applicability to project and/or services marketing will be undertaken at some point of time in the near future.

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INTERNATIONAL CONSULTING PROVIDERS AND MULTILATERAL INSTITUTIONS: NETWORKS AND INTERNATIONALIZATION Catherine Welch ABSTRACT This paper investigates the internationalization of consulting providers that supply to multilateral institutions such as the World Bank, United Nations and Asian Development Bank. Previous research has identiﬁed that such clients do play a notable role in the internationalization of some consulting ﬁrms, but little empirical research has been undertaken. In this paper, a “network” approach to internationalization is taken, with the ﬁndings from an interview study suggesting that while consulting providers “follow” multilateral institutions to new markets, this is only one of several “relationship strategies” that ﬁrms use in combination to enter and develop foreign markets.

INTRODUCTION An enduring theme of research on the internationalization process of service firms is the extent to which it differs from that of manufacturers (see e.g. Ekeledo & Sivakumar, 1998). In general, internationalization is regarded as “relatively more Research on International Service Marketing: A State of the Art Advances in International Marketing, Volume 15, 175–197 Copyright © 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1474-7979/doi:10.1016/S1474-7979(04)15008-4

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complex” (Knight, 1999, p. 356) – even riskier (Carmen & Langeard, 1980) – for service than non-service firms. One commonly cited difference between the internationalization of service and manufacturing firms is the higher incidence of “client following” among the former than the latter, with one study of engineering consulting firms concluding it is “the most consistent external influence” on their internationalization (Coviello & Martin, 1999, p. 56). This paper revisits the role that client-following strategies play in the internationalization of providers of consulting services. However, the focus is on a client that has received little attention in the international marketing and international business literature to date: the multilateral institution. Multilateral institutions – chiefly the United Nations and multilateral development banks (MDBs) such as the World Bank and Asian Development Bank (ADB) – provide aid and concessional loans to fund projects in developing countries. In this role, they are significant procurers of goods, services and civil works. There has been little prior research on the role of multilateral institutions in the internationalization process of firms. In their survey of business service firms, O’Farrell et al. (1998) found that the initial market entry of engineering and management consultancies was often the result of winning a tender with an international or multilateral agency. Contracts with multilateral institutions are also part of the internationalization process of the engineering consultancy firms studied by Coviello and Martin (1999). In addition, Sharma (1988) identifies multilateral funding institutions as important sources of information for consulting firms about forthcoming project opportunities. In sum, existing literature suggests that multilateral institutions do play noteworthy roles both as a client and information source in the internationalization of firms in some service industries, notably consulting. The providers of consulting services are consequently the focus of this paper. This approach is consistent with Boddewyn et al. (1986), who advocated the analysis of service subsectors rather than services in general, given that differences between services are sometimes greater than the differences between service and non-service firms. Consulting has, however, proved to be a difficult service to characterize and classify. Consulting is generally considered to be a “soft” business service, in that it is characterized by simultaneous production and consumption (Cicic et al., 1999; Erramilli, 1990; Erramilli & Rao, 1990). The degree of faceto-face contact between buyer and seller during the delivery phase does vary, however, with “low contact” services not requiring client presence during service delivery (Patterson & Cicic, 1995; see also Vandermerwe & Chadwick, 1989). It also constitutes a highly intangible service (Nicoulaud, 1989): buyers cannot view the service prior to its purchase, and its core offering involves the provision of professional expertise and skills. The intangibility of consulting services is

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heightened by the fact that they are often delivered on a project basis (see e.g. Sharma, 1988). All these characteristics of consulting services have an impact on their internationalization. In this paper, the role that multilateral clients play in the internationalization of their consulting contractors is analyzed. A “network” approach to internationalization is taken, with client following conceptualized as one form of “relationship strategy” that firms adopt when they expand internationally. In the next section, existing findings on client following are reviewed and extended with insights from network theories of internationalization. Propositions are derived that are then assessed against the findings of an interview study of consulting providers to multilateral institutions. In conclusion, it is argued that while the “following” of multilateral clients is a feature of the internationalization of the contractors to these institutions, it cannot be understood in isolation from other processes. Rather, the internationalization of the consulting organizations in this study can best be understood as a process of investment in, and coordination of, their positions in both multilateral and country networks.

CONCEPTUAL BACKGROUND Client following – the act of moving offshore to service the foreign affiliates of a home country client – has long been identified as a motivation for the international expansion of service firms. In a study of U.S. advertising agencies, Miracle (1966, p. 43) concluded that “[t]he international expansion of U.S. advertising agencies is related to the international expansion policies of U.S. manufacturers.” Later studies of U.S. advertising agencies have confirmed that client following is a motive in their international expansion (Terpstra & Yu, 1988; Weinstein, 1977), with a similar conclusion being reached in studies of other industries such as banking (e.g. Grubel, 1989; Nigh, Cho & Krishnan, 1986) and software (Bell, 1995; Majkg˚ard & Sharma, 1998). Client following as a market entry strategy is usually contrasted with market seeking, in other words, entering a foreign market to serve foreign customers rather than to serve current domestic clients (Erramilli & Rao, 1990). In existing research, client following refers to the following of domestic clients. Multilateral institutions are similar to domestic clients that internationalize to the extent that their operations span borders, and thus provide opportunities for suppliers in multiple countries. Thus, knowledge of the client is transferable across markets. However, they differ in that their operations are confined to developing markets, thus they do not represent a home country client for firms from developed countries. O’Farrell and Wood (1994) suggest that multilateral institutions represent intermediate clients for business service firms: such firms

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may begin by fulfilling contracts with their home governments, graduate to multilateral opportunities and then diversify their markets and clients. Multilateral institutions constitute a distinctive type of client in a number of ways. First, in the case of the MDBs and many UN agencies, they commit loans or aid to developing countries on a project basis. The MDBs have an established project cycle, from project identification and design to implementation and evaluation. Projects are often large and multidisciplinary in nature, meaning that firms frequently form consortia and alliances to bid for contracts (Welch et al., 1996). There is a heavily formalized and rule-bound system of procurement, which is generally conducted on the basis of international competitive bidding, a form of open rather than closed tender (Sharma, 1988). This leads to a highly competitive tendering process in which the power asymmetry between buyer and supplier is high: hence, “client following” in this context also potentially denotes a highly dependent relationship. Second, multilateral institutions form what might be termed a “fragmented” buying centre (Cova et al., 2002). The UN represents a complex procurement system, with each agency conducting its own procurement; MDBs have field offices as well as decision-makers at headquarters. In the case of the MDBs, procurement for projects financed by loans is managed by the borrowing country, which nominates an executing agency to oversee the tendering and implementation process. In the case of a loan project, the consultancy signs a contract with the executing agency rather than the MDB. If the MDB is directly funding consulting services, as in the case of ADB “technical assistance” (TA) contracts, the local executing agency is still involved, even though the consultancy has a contract with the Bank. The effects of these characteristics of multilateral clients on the internationalization of their suppliers are not well understood. Existing literature explaining the degree of client following has rather focused on the characteristics of suppliers: notably, the type of service (Ekeledo & Sivakumar, 1998; Patterson & Cicic, 1995), industry sector (Erramilli, 1990; Sarathy, 1999), degree of international experience (Cicic et al., 1999), and whether service firms are early or later internationalizers in their industry (e.g. Li, 1994; Li & Guisinger, 1992; Weinstein, 1977). While these supplier characteristics may be significant, they are not the only potential influences on client following. Client following involves the development over time of a relationship between supplier and client in the context of other inter-firm and inter-organizational relationships. Accordingly, research on client following has more recently turned to theories of interfirm exchange relationships and business networks (Coviello & Martin, 1999; Hellman, 1996; Majkg˚ard & Sharma, 1998). Understanding of the role of interfirm relationships and business networks in internationalization was pioneered

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by researchers associated with the Industrial Marketing and Purchasing (IMP) Group. As IMP research has shown, internationalization is a process of developing a network of exchange relationships with firms and non-market actors in foreign markets. The IMP network approach therefore shifts the analytical focus from the dyadic client-supplier relationship to the dynamics of a firm’s entire network of direct and indirect connections. A key insight of the IMP tradition is that a firm’s internationalization is “to an important extent, dependent on its current network position” (Axelsson & Johanson, 1992, p. 218). A firm’s network position is defined by the totality of its direct and indirect exchange relationships (Johanson & Mattsson, 1992). It is the product of a firm’s past actions, as well as the actions of other network actors, but at the same time is its basis for future action (Turnbull et al., 1996). From a network perspective, strategic action takes the form of “relationship strategies” (Turnbull, 1996) that seek to enhance the firm’s resources through its inter-firm linkages. Internationalization typically involves relationship strategies to extend existing networks into new markets. As well as utilizing their domestic relationships as a “bridge” into a new market (Sharma & Johanson, 1987), firms may enter via their connections in a third market (Johanson & Mattsson, 1988). These relationships do not have to be confined to clients, and foreign market entry is posited to be a process involving multiple interactions and relationships (Blankenburg, 1995). Other domestic and international partners may be influential in “pulling” service firms offshore, such as suppliers (Majkg˚ard & Sharma, 1998), associate and lead contractors or consortia (Coviello & Martin, 1999; Welch et al., 1996), and even firms that are indirectly connected, such as competitors (Engwall & Wallenst˚al, 1988; Hellman, 1996). A firm’s internationalization decisions are thus very much shaped by its “antecedent ties” (Wong & Ellis, 2002). This suggests the following proposition: P1. While consulting firms follow multilateral clients to new foreign markets, they also follow other network actors, such as fellow contractors. Given this role of inter-firm relationships, IMP researchers argue that psychic distance should be measured at the relational not just the country level; in other words, differences in perception among firms are the result of inter-firm as well as inter-country distance (Hall´en & Wiedersheim-Paul, 1979). This accords with existing services research that suggests client followers may not be influenced by psychic distance as part of their market selection process, or at least, psychic distance becomes a secondary, even “fortuitous,” consideration (Bell, 1995). Unlike other firms, client followers possess valuable market knowledge through their clients, so “are better able to move anywhere in the world rapidly” (Majkg˚ard & Sharma, 1998, p. 30). In the case of consulting firms, such market knowledge

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may not even need to be extensive, given that consulting skills can be more easily adapted from one market to another (Coviello & Martin, 1999; Sharma & Johanson, 1987). Moreover, repeated interactions allow suppliers and clients to develop a positive relationship “atmosphere” based on a common understanding and set of behavioural norms. If such an atmosphere develops, inter-firm distance is low and inter-country psychic distance is “neutralized” (Sandstr¨om, 1992, p. 59). It could be anticipated that distance between contractors and their multilateral clients would be low, given that contractors are able to maintain their relationships with their clients even while moving into new markets. This leads to the following proposition: P2. Consulting firms that follow multilateral clients to new markets will not prefer psychically close to psychically distant countries. While client following can be an important driver of foreign market entry, it has been suggested that as service firms develop their international operations, “the importance of the client-following strategy may decrease over time” (Li, 1994, p. 230). Coviello and Martin (1999, p. 59) report that the project firms they studied became more “strategic,” over time targeting particular markets where they had existing experience in order to consolidate their position there. When contractors implement projects in a foreign market, they develop relationships with key government decision-makers, local subcontractors and community stakeholders. These connections do not necessarily cease upon the end of a project, providing contractors with contacts for future projects: relationship “sediments” from past projects are likely to form the basis for opportunities in the future (Hadjikhani, 1996). This is consistent with the path dependence posited by Johanson and Mattsson (1992, p. 284): a firm’s current network positions in foreign markets “define restrictions and opportunities” for developing these positions in the future. A firm’s nationally based network and market knowledge therefore become a strong influence on the selection of new projects, leading to a preference for repeat multilateral work in the same country over projects in new markets. This leads to the following proposition: P3. Over time, consulting firms will show a higher degree of country targeting in their selection of multilateral projects. IMP research conceptualizes the process of establishment in a new country network as being a cumulative one (Axelsson & Johanson, 1992) – although less so in the case of consulting firms, which do not require the same level of resource commitment as their manufacturing counterparts (Sharma & Johanson, 1987). This suggests a stepwise use of entry modes as firms gradually develop exchange relationships and network knowledge in foreign markets. Existing findings on client following are mixed about whether service firms do internationalize in

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stages, moving from “low commitment” modes such as exporting to the “high commitment” establishment of subsidiary operations. There is some evidence that the providers of “soft” services such as consulting (Cicic et al., 1999; Ekeledo & Sivakumar, 1998) and client followers (Erramilli & Rao, 1990) are more likely to enter markets by means of high commitment modes than those taking a marketseeking approach, although Coviello and Martin (1999) and Majkg˚ard and Sharma (1998) offer different findings. These conflicting findings suggest that other factors may be an influence on a client follower’s entry mode choice and subsequent foreign market development. Existing literature on service firms suggests a critical point in their foreign market development is making the transition from supplying established customers to building a foreign client base, since appealing to foreign clients may require extensive adaptation of the service package (McLaughlin & Fitzsimmons, 1996). There is little research about this switch; however, a network approach would suggest it depends on the firm’s ability to use its existing client relationship as a “bridgehead,” in other words, an important source of information and referrals that can be used in expanding to other clients (Blankenburg Holm & Eriksson, 2000). As this is likely to be an incremental process, firms are most likely to use lowcommitment entry modes in their early stages of foreign market development. The mode of entry requiring the least commitment is direct exporting, in other words, servicing the client by sending the project team to the foreign site (Gr¨onroos, 1999). Given “periodic purchasing” is a feature of project business (Hadjikhani, 1996), and demand conditions in less developed markets may not be strong, only an expanded client portfolio will provide contractors with the regularity of project revenue to sustain a high-commitment mode such as a companyowned office or subsidiary. This process can be expressed in propositional form as: P4. Contractors to multilateral institutions will commence foreign market operations via exporting, only proceeding to higher-commitment entry modes when they diversify their client portfolio in a country. Resource commitments to a marketing organization in a particular foreign market are a form of country-specific investment, or investment in a firm’s macro position (Johanson & Wootz, 1986). This can be contrasted with investments in a firm’s micro position that involve resource commitments to a specific relationship. As a result of both investments, firms gain critical network assets: access to other firms’ resources, reputation, trust, knowledge and predictability (Turnbull et al., 1996). One complication when firms internationalize is that they need to make both relationship- and country-specific investments (Johanson & Wootz, 1986). Relationship-specific investments come in various forms of

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resource commitment and adjustments: adaptation of a firm’s products, services or processes, the development of its organizational structures and routines, increased information sharing and social exchange, and higher service intensity for customers (H˚akansson & Snehota, 1995; Johanson & Wootz, 1986). Investments are unique to a relationship and may result in resource particularity: in other words, because resources are tied up in or adapted to a relationship this may be detrimental to their use in other relationships (Anderson et al., 1994). The two forms of investment are highly interrelated, since investments in a specific relationship can enhance a firm’s general market position and reputation, while country-specific investments can provide support to individual relationships (Johanson & Wootz, 1986). This interrelationship is enhanced by the fact that local governments are part of the multilateral client network, given their involvement in the procurement cycle. However, while this is not explored by Johanson and Wootz (1986), relationship- and country-specific investments may not necessarily be complementary. This can be expected to apply in the case of multilateral clients, since their multi-country operations, distinctive procurement requirements and power over suppliers potentially lead to resource particularity. Contractors therefore face the challenge of what Johanson and Mattsson (1988, p. 296) term “international integration,” or the coordination of their positions in multiple networks. Johanson and Mattsson were referring specifically to coordination across country networks, however an additional coordination problem concerns that of the contractor’s borderless multilateral client network and its nationally bound networks. Hence: P5. A contractor’s investment in its multilateral network position may weaken its position in a country network, and vice versa.

METHODOLOGY As the focus of this investigation is the multilateral institution, the first stage of the empirical phase of this study involved compiling a database of Australian organizations that have bid for and/or won contracts with the World Bank, ADB and United Nations between June 2000 and July 2002 (although for Australian firms, MDBs rather than the UN are the most significant multilateral clients, so will also be the focus in this paper). In total 80 organizations were identified, although this was subsequently found to under-represent the true population, as the information made available by multilateral institutions was not complete, particularly in recording associate rather than lead contractors. Of these 80 organizations, the majority had been shortlisted for or won consulting contracts, reflecting the fact that most

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Australian contractors supply consulting services rather than goods and civil works to multilateral institutions (Austrade, 2002). An additional 36 organizations were identified as having registered with the World Bank (DACON) but were not on the list of awardees. Consulting providers contracts were then selected from this database to form the sample for the current study. The original criteria for the process of purposeful sampling consisted of selecting five small (less than 20 employees), five medium (21–199 employees) and five large (over 200 employees) organizations. Within this quota, at least one organization was to be publicly owned, at least one yet to win a multilateral contract and at least one with a high degree of experience. In addition, at least one engineering and non-engineering consulting organization was to be included. Beyond this initial sample, organizations were selected to provide contrasting or additional cases to help refine the theoretical conclusions. This resulted in a diverse sample of organizations at different stages of internationalization and of multilateral experience. Given the exploratory nature of this study, this form of “maximum variation” sampling, capturing shared patterns as well as uniqueness, was considered appropriate (Patton, 1990). Of the 23 consulting providers in the sample, 8 were consulting engineers, 2 were in environmental management, 4 were multi-disciplinary project management firms that provided consulting services in a wide range of areas, 5 specialized in health, education or other forms of social infrastructure, 3 were in regulatory or public sector reform, and one in business services. In addition, two manufacturers were interviewed by way of contrast. Precise details of the firms under study are not provided here in order to preserve their anonymity. In the next stage, 27 in-depth, semi-structured interviews averaging 90 minutes long were conducted with at least one manager from each organization. The managers interviewed were managing directors, division heads, project managers, senior consultants and business development managers, with the organization concerned selecting the person to be interviewed. All the managers interviewed were directly involved in their firm’s international operations and were selected for participation in the study on that basis. Interview questions centered on the organization’s international and multilateral contracting experience, project selection process, foreign market servicing and perceived challenges of multilateral contracting. While validation of the study would have been improved had more interviewees been included from each organization, a decision was made to focus on breadth – including a larger number of organizations in the study – rather than depth – studying a smaller number of organizations more intensively (Flick, 2002). Instead, verification was provided by seeking follow-up feedback from each informant, providing member validation for the study (Lincoln & Guba, 1985), and by

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supplementing interviews with media reports and as much company documentation as was made publicly available. Interview transcripts or summaries were then coded with the aid of NVivo data analysis software, using the key network concepts introduced in the previous section. The findings of this analysis will be presented in the next section, which will consider each propositional statement in turn.

INTERVIEW FINDINGS AND DISCUSSION Multilateral Client Following: Where They Go We Go? Most of the organizations in the sample demonstrated a degree of “client following” in relation to multilateral institutions; in other words, the pursuit of project opportunities partially or fully financed by multilateral institutions, no matter where in the world these project opportunities arose. This resulted in a sequence of market entries that one manager characterized as “not that deliberate.” Interview data suggested that client following was attractive for three main reasons. The first is that by following a “project” or “client” rather than “market” logic, firms can capitalize on their existing expertise and project track record. Contractors that complete a project in a technically specialized area may successfully use this experience as a basis for winning similar projects elsewhere – indeed, they may have no choice but to do so, if there is no follow-on project within the same country. Because MDBs often launch a particular set of reforms in a succession of countries, this does encourage a certain standardization of projects across countries. Moreover, contractors that implement a project successfully often have the opportunity to interact with Bank staff who manage a portfolio of projects in different countries. As one manager summarized, “multilateral work may not be repeat work in the same country, but . . . if you develop a track record and a relationship with various [Bank] project officers, you’ll get repeat work [elsewhere].” Second, client following has the advantage that it often provides early opportunity for market entry, as MDBs and UN agencies tend to be the first entrants into a newly opened country. Following the multilateral institution into these new markets can be an advantageous move: no firm has the competitive advantage of prior country experience, and a willingness to operate in less desirable locations can be favorably perceived by multilateral institutions. The third reason for the attractiveness of client following is that it can enable firms to minimize risk by diversifying their markets. Client following reduces the likelihood of specializing in a particular country or region from whom multilateral institutions subsequently withdraw or downgrade their activities.

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The degree of client following did, however, vary among the contractors studied. One crucial distinction was between organizations that saw themselves as development specialists, or those for whom development projects were a core business, as opposed to those for whom such projects were peripheral to their domestic or international client portfolio. Development specialists were the most likely to engage in “Bank following” – as well as bidding for contracting opportunities with AusAID, the Australian Government’s bilateral aid agency – since MDBs are a substantial source of development aid and loans. As a result, the internationalization of these firms often reflected changes in MDB lending. Over the past fifteen years, MDBs have withdrawn or downgraded their presence in some countries (such as Pakistan and Indonesia), while entering new ones (such as the former Soviet bloc and East Timor). Development specialists tended to mirror this pattern in terms of their own market entry and withdrawal. However, client following – and the conversion of a project record in one country into an opportunity in another – was regarded by interviewees as far from automatic, since competition for multilateral projects is intense. Securing regular multilateral work – which “client following” implies – is particularly difficult for organizations without an existing track record with MDBs or UN agencies, or which seek to move into a country where they have no prior experience. “Client following” requires considerable knowledge about multilateral project cycles, tendering processes and policies – and, critically, personal familiarity and credibility with key decisionmakers in the multilateral institution. Contractors without this client-specific knowledge or credibility are therefore likely to follow more experienced firms abroad. Even experienced contractors who were interviewed partnered with other firms to break into new regions. To this extent, Proposition 1 is supported (see Table 1 for a summary). In addition, the findings suggest a more interactive set of relationship strategies is at work. Contractors follow multilateral clients, but are more likely to do so into countries where they can utilise their inter-firm associations. In this way, they are simultaneously following both inter-firm linkages and multilateral clients.

Psychic Distance and Its Role in Market Selection At first glance all the countries in which contractors to multilateral institutions might operate are psychically distant, in that the level of economic development and often institutional environments are very different to those in their home country. Nevertheless it was found that in fact a hierarchy of “closeness” is often followed in international market selection. There was an overwhelming sense that Australian firms are more competitive in countries possessing close geographical

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Table 1. Summary of Findings. Proposition

Supported?

Comments

P1: While consulting firms follow multilateral clients to new foreign markets, they also follow other network actors, such as fellow contractors.

Yes

Client following was a common driver of international expansion, however firms were likely to follow multilateral clients into markets where they also had strong inter-firm connections.

P2: Consulting firms that follow multilateral clients to new markets will not prefer psychically close to psychically distant countries.

No

Contractors did consider inter-country psychic distance, as well as inter-organizational distance, when making market selection decisions.

P3: Over time, consulting firms will show a higher degree of country targeting in their selection of multilateral projects.

Partially

While country focus, or positioning in a country network, was indeed found to be significant, some contractors were highly focused from a very early stage.

P4: Contractors to multilateral institutions will commence foreign market operations via exporting, only proceeding to higher commitment entry modes when they diversify their client portfolio in a country.

Yes

An establishment chain that proceeded from exporting to agents, offices and local subsidiaries was observed. Both client and sectoral diversification were critical to the survival of a local subsidiary.

P5: A contractor’s investment in its multilateral network position may weaken its position in a country network, and vice versa.

Yes

While relationship- and country-specific investments were often complementary, coordination between micro and macro position was still a challenge.

proximity (such as South-East Asia and the Pacific), historical connections (such as Papua New Guinea and British Commonwealth countries), high levels of bilateral aid funding from the Australian Government (such as Pacific Island nations) and linguistic familiarity (such as Sri Lanka and India). Only later in their development was there a concerted push by contractors to consider more psychically distant markets. The exceptions were two organizations whose first contracts resulted from an invitation to bid; in both cases, the opportunities were in newly opened markets where there was no established competition from other international consultants, and psychic distance was high. Therefore, Proposition 2 was not supported. Interview data suggested that there are two main reasons why firms are likely to make psychic distance as well as inter-organizational distance a factor in their market entry decisions. The first is that when bidding for and implementing multilaterally financed projects, firms require significant levels of country-specific as well as relationship-specific knowledge. Consequently, similarities in language

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and institutional environments were regarded by interviewees as increasing their operational effectiveness in a market. The second reason is that firms were likely to have more extensive inter-firm and other relationships in psychically close markets. In particular, many firms had implemented bilateral aid projects prior to bidding for multilaterally financed projects, or associated with firms that had.

Developing a Position in Country Networks While client following was a common strategy used by the contractors in the sample, it has limits set by the requirements of the MDBs themselves. MDB selection of consulting services emphasizes the importance of in-country expertise. This means that projects cannot be fully standardized across countries, and project experience in one country is not fully transferable to a project elsewhere. Moreover, the involvement of borrowing or recipient countries in MDB project cycles means that, in effect, contractors need to contend with two potential clients: the local government and the lending institution. This encourages a strategy of active positioning in country networks, providing contractors with the local knowledge and connections they regard as crucial to both the bidding and implementation phases of projects – particularly loan projects, which tend to be larger and involve a direct contractual relationship with the executing agency. Bidding for repeat projects in the same country enables contractors to develop their network there; at the same time, this network makes it more likely that contractors will win additional work in that country. In relation to project bidding, having a local network position can be vital to obtaining advance warning of an upcoming project opportunity, a potential advantage when preparing a bid. As one manager commented, the local managers in his firm’s global network of offices are likely to “know about project ideas before even the Bank does,” since such ideas are often generated by local governments and communities. Early warning is regarded by firms as a potential advantage in allowing them to develop a considered proposal and engage the best international consultants available. It also allows firms to assess at an early stage which projects are achievable, and thus save on bidding costs. A local network may even be the only way a firm finds out about a tender at all, with some procurement notices only advertised locally. Perhaps even more importantly, a local network position enables access to key decision-makers when preparing a project proposal. In the case of a loan project, the tendering process is run by a local executing agency, a government department or instrumentality, and in view of MDB policies to decentralize, increasingly key Bank staff are located in the field rather than at headquarters. Even in the case

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of TAs and other Bank-funded projects, understanding the needs of the ultimate client – the local government – is regarded as crucial. These may in fact differ from the demands that the MDB has of the project. For one development specialist, incountry knowledge was regarded as so important that it attached low priority to face-to-face contact with MDB headquarters. A local network position can also be useful in the project implementation stage, with some firms delegating part of the project management role to their local offices, representatives or partners. It can be an important means for ensuring client satisfaction, since “[h]aving somebody come from Australia once every six or twelve months doesn’t really give them [i.e. clients] any sense of partnership or relationship.” A local office or representative also provides firms with countryspecific intelligence and the early identification of country risks; as one manager commented, it would be too late to find out about a national emergency on a night-time news bulletin. Locally based staff can also ensure firms submit invoices correctly, thus avoiding potentially lengthy payment delays. A local marketing organization (such as an agent or local office) is the most visible evidence of local positioning. However, for those consulting providers without a formal representative or permanent office, alternative arrangements were possible. One such firm was small but had an extensive project track record, and consequently was able to use local consultants with whom they had worked on previous projects as “quasi” agents. In this way, maintaining “sediments” from previous projects can be an important basis for repeat work. Contractors might also use project team members on the ground for marketing purposes, or staff from head office who are on a site visit. An exception to this trend of country targeting was some firms still new to multilateral bidding. Interviewees from two such firms reported that they were highly experimental at this early stage, taking a “scattergun” approach by submitting expressions of interest for projects in a wide range of countries and regions. Both firms became more targeted in their country focus as they accumulated shortlistings and contracts: as a consultant from one of the firms explained, “it’s much easier for us to get more work in [the region we have won projects] than it is to break in to a new area,” and a manager from the other firm commenting: “Now we know where the land lies . . ., I think we will build on what we’ve got.” In the case of one firm, this even extended to experimentation with the services it offered, as it sought to find the technical area in which it was best able to “get a niche.” The geographical and technical scope of MDB lending makes such experimental behavior possible. This transition to greater country focus over time was not the only observable pattern, however. Some consulting organizations in the sample were highly targeted in their market selection process at an early stage. They focused their bidding

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on particular countries, which typically were selected on the basis of a variety of potential factors: low psychic distance, key staff have prior experience in those countries, competition may not be as intense as elsewhere, the country’s government has high levels of borrowing projected to extend well into the future, and the executing agency is sufficiently transparent in its decision-making. Opportunities in other countries or regions are not necessarily ruled out in the market selection process, but are the result of reactive rather than proactive marketing strategies. Among the sample for the current study, firms that did not regard development projects to be a core business displayed a higher degree of country focus. For these contractors, multilateral projects were more likely seen to be part of their country marketing strategy: for example, use as a reference site. Country targeting at such an early stage in the contractor’s foreign market development was not suggested by Proposition 3, which is therefore only partially supported.

Establishment Chain The contractors in this study faced the typical dilemma of project firms: namely that while market development requires a sustained and continuous presence, the nature of projects is discontinuous and irregular. Moreover, client following only reinforces this discontinuity, in that it may not produce a project pipeline in the same country or countries. Yet many firms in the study regarded a local marketing organization – whether it is in the form of a local representative, joint venture, branch office or subsidiary – as an essential requirement for ongoing success at winning multilateral projects, and even when small are prepared to invest the resources needed to ensure that this presence is an enduring one. The sample firms typically commenced their multilateral involvement in the form of direct exporting. For a large multi-year project, this would typically involve the establishment of a temporary project office. The team members on the ground are often not permanent employees; because of the specialized requirements of this type of consulting, most firms rely heavily on subcontractors. The main exception to this pattern was firms with existing offshore offices established, as part of a market-seeking strategy, to service other clients prior to their involvement in multilateral business in those countries. For the international consulting firms in this study, the most common “establishment chain” for their foreign market development saw them moving from exporting to the appointment of local representatives, then the opening of a wholly-owned office, and culminating in the establishment of a locally registered subsidiary company. Local representatives and agents are common in the early

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stages of market development, although the nature of such arrangements can vary significantly in terms of the remuneration, exclusivity and responsibilities given to the agent. Some interviewees clearly stated that the use of representatives was a second-best option. However, much depended on the talents of the representative concerned, as well as the effectiveness of the monitoring and support from head office. The next stage – the decision to switch from representatives to wholly-owned offices – is not open to the government department in the sample, or to firms early in their internationalization. For those firms for whom an office is a viable option, the decision to make the switch depends on the availability of suitable staff, but it is also related to a firm’s ability to generate a sufficient number of projects within a country (with one firm estimating the threshold to be 4–5 projects in the same country, depending on their size). As one manager elaborated about a current agency arrangement maintained by his firm: We don’t yet have a large enough portfolio of projects to take her [i.e. the representative] on full time, but we’re constantly putting proposals in for [that country]. So if we can reach that critical mass, then we’ll take her on full-time if she wants to join us full-time. And the sooner we reach that stage the better. Because if she’s full-time, she’ll make our projects run more efficiently, and she’ll generate more work for us. So it’s self-perpetuating. But that’s the problem: you’ve got to reach that critical mass.

While the overheads of a wholly-owned office can be considerable, firms try to reduce them by, for example, employing local staff or finding additional revenue streams. At this stage, internal coordination can become a challenge, with head office staff typically retaining primary responsibility for business development and project management. The final step in the “establishment chain” is a local subsidiary that is locally incorporated. The most internationalized firms had taken the step of locally incorporating some of their offices, or acquiring existing consulting firms in target countries. While this step increases the complexity of internal coordination and communication, a major benefit of this form of market commitment lies in the fact that these offices are then qualified to register separately with multilateral institutions, bid for local government work, and for contracts with aid programs that would otherwise exclude Australian companies. Another advantage is the additional legitimacy that these firms gain by offering local employment and investment. Furthermore, it increases the firms’ attraction as potential alliance partners, since they can bring the strength of local knowledge to any interfirm partnership. As a manager from one of the firms detailed, the advantage of localization means that his firm can draw on both local and expatriate staff, which is:

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an almost unbeatable combination . . . because these two categories of people have access to two different sets of local networks. There are certain people who will see a visiting businessman from Australia, but would never see a local employee of a foreign company. But there are things which local bureaucrats or industry representatives will tell local people that they would never tell an Australian.

Yet continuity of presence can pose a challenge even for these highly internationalized contractors. Firms consolidate their market presence by seeking other clients, using their MDB record as a “bridge” or reference site. Some firms had been able to obtain follow-on non-multilaterally financed work from local governments, which has the advantage of not involving international competitive bidding. This, however, is not possible in all industries or all countries. For one specialized consultancy, multilateral institutions were the major funding source. In some of the least developed countries, alternative funding sources are uncommon, while in other countries, rapid economic growth has even meant that MDB loans have been reduced, or in some cases ceased altogether. A spread of clients in the one country therefore helps ensure that a firm’s presence will endure beyond that of the MDBs. The end result of the firm’s “establishment chain” may therefore be the firm considerably reducing its percentage of overseas revenue derived from multilateral contracts. Interview evidence of the “establishment chain” therefore supports Proposition 4. In addition to client diversification, however, an office or subsidiary may require sectoral diversification. As national economic development is a dynamic process, the types of projects funded tend to change over time, meaning that contractors need to change their consulting expertise if they are to remain in the market and appeal to new clients. For example, one of the firms studied initially entered markets by consulting in just one niche area, but “having got in . . ., it’s allowed us to bid for a wider and wider range of work.”

Coordination Between Client and Country Networks Consulting providers make considerable relationship-specific investments, as well as adaptations of their organizational resources and routines, to ensure a continuous “pipeline” of multilateral contracts. The organizational adaptations and investments listed by interviewees were extensive, leading them to agree that entry barriers to multilateral contracting are high. Contractors were found to adapt their internal structure and processes in three ways. The first is organizational: they may set up a separate division for multilateral business, establish an office or agency arrangement in the same city as the headquarters of a multilateral institution, hire staff who have previously worked or consulted for

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multilateral institutions, and establish quality assurance systems that meet MDB reporting and accountability requirements. The second adaptation is to marketing activities: contractors integrate the monitoring of multilateral activities into their business development function, tracking MDB and UN websites, procurement notices and project documents. While the advent of the internet has facilitated this process, most firms also place importance on face-to-face contact with staff at Bank headquarters. The third type of internal transformation is technical. Multilateral projects, while they vary considerably, are seen as requiring different technical solutions and methodologies to those provided to clients in developed countries. For example, projects tend to have a “capacity building” and technology transfer component, which as one consultant explained, means that the nature of consultancy “has to be more involved” than is the case with a home-country client. Perhaps one of the more significant challenges for the organizations in this study came in the form of reconciling relationship-specific with country-specific investments. To a great extent, the two could be regarded as complementary. As a contractor upgrades its commitment to a foreign market, the improvement in its local knowledge may result in a higher number of multilateral contracts. Countryspecific investments can therefore improve a firm’s micro position with regards to its multilateral client. Conversely, the implementation of a multilateral contract typically provides face-to-face, personalized contact with key decision-makers in the executing agency and other parts of the local government, thus providing an opportunity for market-specific learning and relationship development. In this way, the multilateral client relationship can result in an improvement of the firm’s macro position in a country. As firms became more experienced suppliers of consulting services to the MDBs, they were able to accumulate both client- and countryspecific knowledge and commitments. However, relationship- and country-specific investments are not fully complementary: investment in multilateral clients may not bring returns in the same country – and may even lead to market withdrawal if Bank lending to that country ceases. Similarly, a country-specific investment may be aimed at meeting the needs of clients other than multilateral institutions. Given this “resource particularity” (Anderson et al., 1994), the pursuit of both client- and market-related opportunities can stretch the resources of even a large firm, and result in potential tensions between expansion into new markets as opposed to the development of existing ones. One manager expressed his firm’s regret that it had exited a country when the types of multilateral projects it had been pursuing came to an end. At that time, the firm had rated its market commitment as secondary to its client commitment and technical expertise: “we were project focused, we weren’t market focused.” Larger and more experienced organizations were the most likely to be

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able to develop their positions in multilateral and country networks simultaneously, whereas smaller organizations were more conscious of, as one manager put it, the tradeoff between breadth and depth. Therefore, Proposition 5 was supported by the interview data.

CONCLUSIONS The consulting providers in this study defied a simple classification as client followers or market seekers. Instead, each contractor tended to pursue both a “client” and a “market” logic. While this differs from Majkg˚ard and Sharma’s (1998) findings, it is consistent with Hellman’s (1996, p. 203) argument that firm internationalization is typically based on “elements of both customer following and market seeking,” and that a categorization of a firm as a “client follower” or “market seeker” may therefore be misleading. In the current study, internationalization decisions can only be explained in a wider network context that includes cooperative relationships with other contractors, domestic and foreign government agencies, and other clients. A variety of “relationship strategies” (Turnbull et al., 1996) were pursued in combination: client following and following other firms, developing foreign market relationships as well as securing repeat work with multilateral clients, using multilateral clients as a bridge to new clients, and client following as well as market seeking. There was some variation in client-following behavior as a result of industry, organizational size, age and type. In some industries or sectors, client following is more pronounced because multilateral institutions are a primary source of project finance, whereas in other industries, MDBs and other multilateral institutions are only occasional clients. Organizational size and age are factors in that smaller and less experienced consulting providers are more limited in their ability to “broaden” and “deepen” their foreign market presence simultaneously. Organizational type also has an impact in that government departments or corporations may not be able to invest in the establishment of a foreign subsidiary. The NGO in the sample was able to use its existing market presence, established for aid and relief work, to facilitate its provision of consulting services. However, whatever the characteristics of the organization, all faced the challenge of developing and coordinating their “micro” position in the multilateral client network and “macro” position in country networks. Their internationalization decisions concerning timing, market selection and entry modes were all the result of this process of “international integration” across different networks. While the focus in this paper has been providers of consulting services and their relationships with multilateral clients, the question remains as to whether

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multilateral client following can also be found among manufacturing firms. While this was not a specific research question of the current study, two interviews were conducted with firms that had won “goods and works” contracts with MDBs. While neither firm was a regular supplier to MDBs, both were actively considering how they might convert the contracts they had won into additional opportunities with MDBs. These firms faced the same dilemma as consulting firms, in that the market-specific knowledge that had enabled them to win their contracts was not necessarily sufficient to win additional multilateral business. The extent to which the internationalization of service firms differs from manufacturing firms is therefore relevant in this context, as it is not clear that manufacturing and service firms would necessarily differ in their “multilateral following” behavior. Further research that systematically compared the customer-following behavior of service and manufacturing firms would be necessary for a more conclusive answer to this question. Another limitation of this study is that it is confined to a sample of Australian organizations, which as a result of their location in the Asia-Pacific region tend to have a multilateral client “portfolio” dominated by the World Bank and ADB. Further research could therefore be conducted into firms from other regions with different client portfolios. Additional questions arise when considering the internationalization of firms from the developing countries in which the MDBs finance projects. For these firms, the MDBs are in fact a type of domestic client. To what extent can such firms use their involvement in MDB-financed projects in their home country as a bridge into foreign markets? Does a contract with an MDB in their home country act as the first “pre-internationalization” step into new markets for developing country firms? While this study has been confined to the internationalization decisions of consulting firms, it does have implications for internationalization theories more generally. The contribution of this study is three-fold. First, a focus on multilateral institutions provides greater understanding of a type of client that has been identified in past literature to play a role in the internationalization of consulting firms. Second, the study has developed existing network approaches to internationalization, in particular, insight into the ways in which firms coordinate across different client and country networks as they expand internationally. In this way, the analysis of particular supplier-client relationships is broadened to an understanding of how these relationships evolve in a wider network. Third, it suggests that internationalization can best be viewed as a process of relationship and network management that takes place at different levels (cf. M¨oller & Halinen, 1999). International success depends not just on managing individual relationships and networks, but also, this paper suggests, on managing across them.

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