Emerging Issues in Global Marketing: James Agarwal Terry Wu Editors

James Agarwal
Terry Wu Editors
Emerging
Issues in Global
Marketing
A Shifting Paradigm
Emerging Issues in Global Marketing
James Agarwal • Terry Wu
Editors
Emerging Issues in Global

Marketing
A Shifting Paradigm
Editors
James Agarwal Terry Wu
Haskayne Research Professor & Full Faculty of Business and Information
Professor of Marketing at the Haskayne Technology
School of Business University of Ontario Institute of
University of Calgary Technology
Calgary, AB, Canada Oshawa, ON, Canada
ISBN 978-3-319-74128-4 ISBN 978-3-319-74129-1 (eBook)

https://doi.org/10.1007/978-3-319-74129-1
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Foreword
This world has become a global marketplace and Professors Agarwal and Wu did an
outstanding job of editing a book that presents the paradigm shift in global market-
ing. Inside the covers of this book, you will find a wide range of topics that are
pertinent to consumers, businesses, institutional thinkers, and policy makers in nav-
igating the current dynamics of the global world. The topics examined include
trends in political risk across the globe and their impact on global marketing, the
influence of cultural values in shaping consumer behavior, cross-border e-com-
merce (CBEC) as a new driver of international trade in the global economy, global
brand positioning, and the role of social media that allows for real-time interaction
among business-to-business (B2B), peer-to-peer (P2P), and consumer-to-consumer
(C2C) markets, as well as between business-to-customer (B2C) markets. Of course,
markets are different and you will find insights on differences across emerging mar-
kets with special reference to entry mode strategies of MNEs (multinational enter-
prises) and e-commerce firms. Finally, you will be intrigued by thought-provoking
ideas on global CSR, sustainability, and macromarketing issues.
This book has been put together in a way that crystallizes the cohesiveness of the
topics covered by different authors so as to present a unified picture of the global
marketplace. This book is recommended reading for every serious student, scholar,
practitioner, and administrator concerned with issues of a global economy.
Georgia Institute of Technology (Georgia Tech), Naresh K. Malhotra

Scheller College of Business ,
Atlanta, GA, USA
v
Contents
Part I Introduction
1 The Changing Nature of Global Marketing:
A New Perspective................................................................................... 3
James Agarwal and Terry Wu
Part II Emerging Trends in Global Markets

2 A Thematic Exploration of the Changing Trends
in Political Risk and Global Marketing Scholarship
in the Last Three Decades (1986–2015): Implications
and Future Research............................................................................... 15
James Agarwal, Tatiana Vaschilko, and Elena Loukoianova
3 Does Country or Culture Matter in Global Marketing?
An Empirical Investigation of Service Quality
and Satisfaction Model with Moderators in Three Countries............ 61
Naresh K. Malhotra, James Agarwal, and G. Shainesh
4 Cross-Border E-Commerce: A New Driver of Global Trade.............. 93
Yanbin Tu and Joe Z. Shangguan
Part III Global Marketing Strategies

5 Standardized Global Brand Management Using C-D Maps.............. 121
Charan K. Bagga and Niraj Dawar
6 Social Network Brand Visibility (SNBV):
Conceptualization and Empirical Evidence......................................... 149
Aijaz A. Shaikh, Richard Glavee-Geo, Adina-Gabriela Tudor,
Chen Zheng, and Heikki Karjaluoto
vii
viii Contents
7 Reconfiguring the Marketing Mix to Counter

the Counterfeits in the Global Arena.................................................... 179
Karminder Ghuman and Hemant Merchant
8 Bridging Institutional Distance: An Emerging
Market Entry Strategy for Multinational Enterprises........................ 205
Ogechi Adeola, Nathaniel Boso, and James Adeniji
9 E-Commerce in Emerging Economies: A Multi-theoretical
and Multilevel Framework and Global Firm Strategies..................... 231
Part IV Global CSR, Sustainability, and Macromarketing Issues

10 CSR-Driven Entrepreneurial Internationalization:
Evidence of Firm-Specific Advantages
in International Performance of SMEs................................................. 257
Maria Uzhegova, Lasse Torkkeli, Hanna Salojärvi,
and Sami Saarenketo
11 Case Study of Corporate Social Responsibility
in Japanese Pharmaceutical Companies: A Comparison
with Western Firms................................................................................. 291
Terry Wu and Yuko Kimura
12 How Do Western Luxury Consumers Relate
with Virtual Rarity and Sustainable Consumption?........................... 311
Anne-Flore Maman Larraufie and Lucy Sze-Hang Lui
13 Putting African Country Development
into Macromarketing Perspective......................................................... 333
Mark Peterson and Saman Zehra
Index................................................................................................................. 369
List of Figures
Fig. 2.1 EFA path diagram for Russia, 2001–2005.................................... 22

Fig. 2.2 Scree plot for Russia, 2001–2005.................................................. 23
Fig. 2.3 Change in factor scores for Russia, 2001–2005............................ 25
Fig. 2.4 Factor loadings for the first two factors for BRICS
and MINT countries...................................................................... 26
Fig. 2.5 Temporal changes in the EFA-based index of political
risk of BRICS and MINT countries for 1986–2015...................... 28
Fig. 2.6 EFA-based index and ICRG political risk rating: geographic
maps 1986–2015............................................................................ 30
Fig. 2.7 Total number of publications per journal per year, 1986–2015..... 32
Fig. 2.8 Distribution of the percentages of cases for each automatically
identified topic, 1986–2015........................................................... 34
Fig. 2.9 Preliminary clusters of broad areas of global marketing
scholarship based on automated content analysis......................... 35
Fig. 2.10 (a, b) Distribution of number of cases on global marketing
(Dictionary Approach), 1986–2015. Distribution of number
of cases on ICRG political risk categories (Dictionary Approach),
1986–2015..................................................................................... 37
Fig. 2.11 The word cloud of keywords and key phrases in the entire
corpus of scholarly articles, 1986–2015........................................ 39
Fig. 2.12 Number of published papers per topic per journal, 1986–2015.
Note: the category “world economic system” includes
mention of all the countries........................................................... 40
Fig. 2.13 The number of publications per major topic for each time
period: 1986–1995, 1996–2005, 2006–2015................................. 41
Fig. 2.14 Subcategories of the world economic system, for 1986–2015...... 41
Fig. 2.15 Research topics in global marketing scholarship, 1986–2015...... 42
Fig. 2.16 Co-occurrence of research topics in global marketing
and research on BRICS and MINT, 1986–2015............................ 43
Fig. 2.17 Distribution of global marketing topics per journal,
1986–2015..................................................................................... 44
ix
x List of Figures
Fig. 2.18 Distribution of ICRG topics per journal, 1986–2015.................... 45

Fig. 2.19 Temporal changes in the number of published papers
per ICRG political risk topic, 1986–2015..................................... 46
Fig. 2.20 Co-occurrence of major research topics with research
on BRICS, MINT, and the rest of the world.................................. 46
Fig. 2.21 The number of papers on BRICS and MINT per journal,
1986–2015..................................................................................... 47
Fig. 2.22 The temporal changes in the number of papers on BRICS
and MINT, 1986–2015.................................................................. 48
Fig. 2.23 The co-occurrences of ICRG political risk categories
with research on BRICS and MINT, 1986–2015.......................... 49
Fig. 2.24 Research across BRICS and MINT countries, 1986–2015........... 49
Fig. 2.25 Research on BRICS and MINT countries across journals,
1986–2015..................................................................................... 50
Fig. 2.26 Changes in global marketing scholarship across three time
periods: 1986–1995, 1996–2005, 2006–2015............................... 52
Fig. 3.1 Second-order service quality→satisfaction model
with moderators: cross-national vs. cross-cultural analysis.......... 71
Fig. 4.1 Export CBEC in China (Data Source: CECRC 2016).................. 99
Fig. 4.2 Bonded warehousing vs. direct import (Source: Ng 2015)........... 100
Fig. 4.3 Infrastructure and environment of China’s CBEC
(Source: Revisions on Lee 2015).................................................. 101
Fig. 4.4 Trading center service in CBEC pilot cities
(Source: CFTA 2015).................................................................... 104
Fig. 4.5 Abandoned products by DaiGou at Airport................................... 106
Fig. 5.1 C-D map of US passenger car market
(Map reproduced from Dawar and Bagga 2015a)......................... 124
Fig. 5.2 Flow chart detailing C-D mapping implementation
in international markets................................................................. 134
Fig. 5.3 Details of alpha and its competition in all seven markets............. 137
Fig. 5.4 C-D maps of Italy and France. C-D map of Italy, dashed
orange circle represents competitive set, dashed blue circle
represents cognitive neighbors. C-D map of France, dashed
orange circle represents competitive set, dashed blue circle
represents cognitive neighbors...................................................... 139
Fig. 5.5 Alpha’s cognitive neighbors and competition in Spain.
Dashed orange circle represents competitive set. Dashed
blue circle represents cognitive neighbors..................................... 140
Fig. 5.6 Distance of Alpha from Beta in each of the seven countries......... 141
Fig. 5.7 Alpha’s performance along the consumer’s decision-making
journey. Dashed red circles represent where Alpha is weak
along the customer decision journey............................................. 141
Fig. 5.8 Budgetary implications for Alpha in each market......................... 143
Fig. 5.9 Which positioning dimension makes more sense?........................ 144
List of Figures xi
Fig. 6.1 Four-dimensional conceptualization of SNBV............................. 155

Fig. 6.2 SNBV-relationship variables framework....................................... 155
Fig. 6.3 Conceptual model (A)................................................................... 158
Fig. 6.4 Conceptual model (B)................................................................... 161
Fig. 6.5 Results of structural model with second-order loadings
(model A)....................................................................................... 166
Fig. 6.6 Results of path analysis (structural model B)................................ 167
Fig. 7.1 Counterfeiting issues affecting the brand owners.......................... 184
Fig. 7.2 Institutional context affecting trade in counterfeits....................... 187
Fig. 7.3 Conventional marketing mix......................................................... 188
Fig. 7.4 Extended marketing mix constituents to counter
the counterfeits.............................................................................. 189
Fig. 7.5 Extended marketing mix............................................................... 190
Fig. 8.1 FDI inflows into Africa ($ Millions) (Data source: UNCTAD:
World Investment Report 2015).................................................... 212
Fig. 8.2 Using stakeholder engagement to bridge institutional distance.... 217
Fig. 9.1 E-commerce in emerging economies: a multilevel framework..... 237
Fig. 10.1 A research framework................................................................... 269
Fig. 10.2 Distribution of sample by industry, % from total sample.............. 270
Fig. 10.3 A primary international entry mode.............................................. 270
Fig. 10.4 A mediating model........................................................................ 275
Fig. 10.5 Indirect effect of market-sensing capability through social
responsibility on international performance (Note: *p < 0.05,
**p < 0.01, ***p < 0.001)............................................................ 275
Fig. 10.6 Indirect effect of environmental responsibility through social
responsibility on international performance (Note: *p < 0.05,
**p < 0.01, ***p < 0.001)............................................................ 276
Fig. 11.1 Product donations-performance matrix......................................... 304
Fig. 12.1 Conceptual framework.................................................................. 325
Fig. 13.1 The SSI’s 3 dimensions, 7 categories, and 21 dimensions
(Source: Sustainable Society Foundation
http://www.ssfindex.com/ssi/framework/)..................................... 335
Fig. 13.2 Africa and the rest of the world on the 21 dimensions
of the SSI in 2016.......................................................................... 338
Fig. 13.3 Africa and the other developing countries on the 21 dimensions
of the SSI in 2016. * = group means are statistically the same
(others are statistically different at p = 0.05)................................. 339
Fig. 13.4 Africa, other developing countries, and developed countries
on averages for well-being............................................................ 340
Fig. 13.5 Political map of Africa (GeoCurrents 2017)................................. 342
xii List of Figures
Fig. 13.6 United Nations Statistics Division’s geoscheme

for Africa’s five regions................................................................. 354
Fig. 13.7 2006–2016 change in 21 SSI dimensions for the 5 regions
of Africa......................................................................................... 355
Fig. 13.8 2016 SSI ratings on three dimensions of well-being
for UN regions of the world.......................................................... 356
Fig. 13.9 Average of three well-being dimensions for UN regions
of the world................................................................................... 357
Fig. 13.10 Overall sustainability scores for Africa, other developing
countries, and developed countries................................................ 358
List of Tables
Table 2.1 Rotated factor loadings for Russia, 2001–2005............................ 22

Table 3.1 Psychometric properties of measurement model
and correlation matrix................................................................... 75
Table 3.2 Service quality structural model: cross-national
vs. cross-cultural analysis.............................................................. 77
Table 3.3 Moderating role of individualism: cross-national analysis
vs. cross-cultural analysis.............................................................. 79
Table 3.4 Moderating role of uncertainty avoidance: cross-national
analysis vs. cross-cultural analysis................................................ 81
Table 4.1 Global online retail sales............................................................... 94
Table 4.2 CBEC vs. traditional international trade....................................... 94
Table 4.3 Trade volume of China’s CBEC.................................................... 95
Table 4.4 Fitted i-based N-OLI framework for CBEC.................................. 97
Table 4.5 The structure of China’s CBEC..................................................... 98
Table 4.6 Traditional international trade vs. cross-border e-commerce........ 99
Table 4.7 Ten pilot cities for CBEC.............................................................. 103
Table 4.8 Key support and promotion policies for China’s CBEC............... 105
Table 5.1 Comparison of the C-D mapping method vis-à-vis other
global brand management methodologies..................................... 126
Table 6.1 Summary of past literature on SNBV............................................ 153
Table 6.2 Six-dimensional social network brand visibility
conceptualization........................................................................... 154
Table 6.3 Measures and items....................................................................... 162
Table 6.4 Demographic characteristics of respondents................................. 163
Table 6.5 Correlation matrix......................................................................... 164
Table 6.6 Three-dimensional SNBV, with first- and
second-order loadings.................................................................... 166
Table 6.7 Results of hypothesis testing (model A)........................................ 167
Table 6.8 Results of hypothesis testing (model B)........................................ 168
xiii
xiv List of Tables
Table 7.1 Profile of different groups of counterfeit producers...................... 181

Table 7.2 Mapping extended marketing mix to counterfeit issues................ 198
Table 8.1 Major Nigerian oil production joint ventures
(slightly amended to reflect parent name of the companies)......... 215
Table 10.1 Differences in CSR between MNCs and SME.............................. 261
Table 10.2 A typology of responsible business practice orientation............... 266
Table 10.3 Descriptive statistics and correlations of key variables................. 274
Table 10.4 Results of hypotheses test.............................................................. 274
Table 11.1 Overall ranking and rating (2016)................................................. 302
Table 11.2 Product donations and philanthropic activities index (2016)........ 302
Table 11.3 Company financial information for fiscal year 2016..................... 303
Table 12.1 List of participants......................................................................... 316
Table 13.1 SSI dimensions, measures, and source of measures...................... 336
Table 13.2 The dimensions of the SSI and corresponding dimensions
of the UN’s sustainable development goals................................... 337
Table 13.3 Typology of progress-prone and progress-resistant cultures
(Grondona 2000)........................................................................... 360
List of Appendices
Appendix 6.1 Six-dimensional conceptualization of SNBV....................... 172

Appendix 6.2 Standardized parameter estimates
(second-order loadings)........................................................ 173
Appendix 6.3 Single-phase data collection procedure
for developing measures (Source: Adapted
from Churchill 1979:66)....................................................... 173
Appendix 10.1 International performance, market-sensing capability,
social responsibility, and environmental responsibility........ 282
xv
List of Contributors
James Adeniji Leeds University Business School, University of Leeds, Leeds, UK

Ogechi Adeola Lagos Business School, Pan-Atlantic University, Lekki, Nigeria
James Agarwal Haskayne Research Professor & Full Professor of Marketing at
the Haskayne School of Business, University of Calgary, Calgary, AB, Canada
Charan K. Bagga Haskayne School of Business, University of Calgary, Calgary,
Alberta, Canada
Nathaniel Boso KNUST School of Business, Kwame Nkrumah University of
Science and Technology, Kumasi, Ghana
Niraj Dawar Ivey Business School, Western University, London, ON, Canada
Karminder Ghuman LM Thapar School of Management, Thapar University,
Patiala, India
Richard Glavee-Geo Department of International Business, NTNU-Norwegian
University of Science and Technology, Aalesund, Norway
Heikki Karjaluoto Jyväskylä University School of Business and Economics,
University of Jyväskylä, Jyväskylä, Finland
Yuko Kimura School of Business, University of Leicester, Leicester, UK
Anne-Flore Maman Larraufie SémioConsult® & ESSEC Business School,
Paris, France
Elena Loukoianova Asia and Pacific Department of the International Monetary
Fund (IMF), Washington, DC, USA
Lucy Sze-Hang Lui Fendi, Paris, France
Naresh K. Malhotra Georgia Tech CIBER and Regents’ Professor Emeritus,
Scheller College of Business, Georgia Institute of Technology, Atlanta, GA, USA
xvii
xviii List of Contributors
Hemant Merchant University of South Florida in St. Petersburg, St. Petersburg,

FL, USA
Mark Peterson College of Business, University of Wyoming, Laramie, WY, USA
Sami Saarenketo School of Business and Management, Lappeenranta University
of Technology, Lappeenranta, Finland
Hanna Salojärvi School of Business and Management, Lappeenranta University
Aijaz A. Shaikh Jyväskylä University School of Business and Economics,
University of Jyväskylä, Jyväskylä, Finland
G. Shainesh Indian Institute of Management (IIM), Bangalore, India
Joe Z. Shangguan School of Business, Robert Morris University, Moon Township,
PA, USA
Lasse Torkkeli School of Business and Management, Lappeenranta University of
Technology, Lappeenranta, Finland
Yanbin Tu School of Business, Robert Morris University, Moon Township, PA,
USA
Adina-Gabriela Tudor Department of International Business, NTNU-Norwegian
University of Science and Technology, Aalesund, Norway
Maria Uzhegova School of Business and Management, Lappeenranta University
Tatiana Vaschilko Haskayne School of Business, University of Calgary, Calgary,
AB, Canada
Terry Wu Faculty of Business and Information Technology, University of Ontario
Institute of Technology, Oshawa, ON, Canada
Saman Zehra College of Business, University of Wyoming, Laramie, WY, USA
Chen Zheng Department of International Business, NTNU-Norwegian University
of Science and Technology, Aalesund, Norway
About the Authors
James Adeniji is a doctoral researcher in the Marketing Division of Leeds

University Business School. His research seeks to understand motivations for
employees seeking customer feedback and the effects of this behavior on relational
assets such as trust and commitment, as well as employee performance measures.
Prior to doctoral studies, James earned a first degree in accounting from the
University of Oklahoma and an MSc in international accounting and finance from
the University of Strathclyde.
Ogechi Adeola teaches marketing management at the Lagos Business School (Pan-

Atlantic University), Nigeria. Her research interests include tourism and hospitality
marketing, strategic marketing, digital marketing strategies, branding management,
and export marketing strategies in developing economies, particularly sub-Saharan
Africa. She has published academic papers in top scholarly journals. Her coau-
thored papers had won best paper awards in conference in 2016 and 2017. She is a
fellow of the Institute of Strategic Management (ISMN), Nigeria, and the National
Institute of Marketing of Nigeria (NIMN). She holds a doctorate in business admin-
istration (DBA) from Manchester Business School, UK, and started her career at
Citibank Nigeria, spending approximately 14 years in the financial sector before
moving into academia.
James Agarwal (PhD, Georgia Tech) holds the Haskayne research professorship

and is full professor of marketing at the Haskayne School of Business (HSB),
University of Calgary. He served as chair and research director of the Marketing
Area at HSB from 2002 to 2005 and 2013–2015, respectively. He is listed in
Canadian Who’s Who, University of Toronto Press, and Marquis Who’s Who in
America. In 2017, he received the Albert Nelson Marquis Lifetime Achievement
Award from Marquis Who’s Who. He has published over 50 research papers in
major refereed journals, proceedings, and book chapters and has presented his work
in major national and international conferences in 20 countries. In 2005, he was
listed in Most Prolific Scholars in International Business Research compiled by
Cavusgil et al. (2005), authored articles published in International Marketing
xix
xx About the Authors
Review in 1996–2006, and coauthored Xu et al.’s (2008) article published in Asia

Pacific Journal of Management. He has received several best paper awards from the
American Marketing Association and the Academy of Marketing Science. He is a
member of the editorial review board of the Journal of International Marketing and
International Marketing Review, among others. In his spare time, he is passionate
about studying and teaching the Bible and is a member of Centre Street Church in
Calgary, Alberta. He has been married to Pritam for 22 years and they have four
children, Joel, Joshua, Johanan, and Joseph.
Charan K. Bagga is an assistant professor of marketing at the Haskayne School of

Business. Charan has a PhD in marketing from the Ivey Business School, Canada,
and was formerly a visiting professor at Tulane University (2015–2016). He does
research in the areas of brand positioning, cognitive representations of competition
and innovation, and consumer decision making in alternate market exchange set-
tings. His research has been published in the Harvard Business Review, MIT Sloan
Management Review, and the Journal of Consumer Psychology. Charan has also
worked as a senior manager in sales and consulting at global corporations (CSC,
Standard Chartered, and HCL) in the USA and India.
Nathaniel Boso is an associate professor of marketing and executive dean at

KNUST School of Business, Kwame Nkrumah University of Science and
Technology, Ghana. His research interests lie in international entrepreneurship and
marketing and supply chain management from a developing economy perspective.
His research has been published in leading journals including the Journal of
Business Venturing, Journal of Business Ethics, Journal of International Marketing,
Journal of Product Innovation Management, and Industrial Marketing Management,
among many others. He received his PhD in international entrepreneurship and
marketing from Loughborough University, UK.
Niraj Dawar is professor of marketing at the Ivey Business School, Canada. His

research on marketing strategy and global consumer behavior has appeared in the
Journal of Marketing, Journal of Marketing Research, Journal of International
Business Studies, Harvard Business Review, and other outlets. He works with PhD
and MBA students as well as with executives of leading companies around the
world.
Karminder Ghuman has been the area chair in marketing and entrepreneurship

and an associate professor at LM Thapar School of Management, Thapar University,
Patiala, India, since July 2013. He was the PGP chair from May 2014 to February
2015 and possesses professional experience of 20 years in teaching and in corporate
sector. He also heads the Venture Lab – Thapar, an incubation center of Thapar
University, and is the coordinator for the Centre for Indian Management, Thapar
University. With a PhD (rural marketing) and MBA from Himachal Pradesh
University, Shimla, India, he did his MSc (sustainable development) from the Indian
Institute of Ecology and Environment, New Delhi, India. He has attended numerous
About the Authors xxi
competency development programs at prestigious institutions like the University of

Groningen, the Netherlands; the University of Twente, Holland; Indian School of
Business (ISB), Hyderabad; CIIE, Indian Institute of Management, Ahmedabad;
Indian Institute of Technology (IIT), Delhi; and Indian Institute of Management
(IIM), Kozhikode. Dr. Ghuman’s books titled Rural Marketing (2007) and
Management: Concept, Practice, and Cases (2010) have been published by
McGraw-Hill. His recent book Effective Mentoring has been published by Ane
Books. He also coedited a book Indian Management, which was published by
Bloomsbury in 2016.
Richard Glavee-Geo graduated with MSc and PhD in business logistics from
Molde University College, Norway. He also has a postgraduate diploma in market-
ing (CIM-UK) and advanced marketing diploma from Harstad University College
(now the Arctic University of Norway). He is associate professor of marketing/
logistics and supply chain management (SCM) at the Department of International
Business, Faculty of Economics and Management, Norwegian University of Science
and Technology (NTNU), Norway. His teaching experience is in consumer behav-
ior, marketing research, international marketing, logistics and SCM and export
management at the undergraduate level, and international marketing at the master
level. His research interest includes global logistics and SCM, country of origin,
social media, bank marketing, interorganizational relationships, and consumer and
organizational buying behavior. Richard is particularly interested in the use of sec-
ond-generation structural equation modeling techniques (e.g., PLS) and CB-SEM
application in the broader areas of business and management research. His publica-
tions include book chapters published by Palgrave Macmillan and IGI Global and
articles published in International Journal of Export Marketing, Research in
International Business and Finance, and International Journal of Bank Marketing.
Heikki Karjaluoto is a professor of marketing at the University of Jyväskylä,

Finland. His research interests include electronic and mobile business, customer
value, and financial services marketing. Previous publications have appeared in the
Computers in Human Behavior, Industrial Marketing Management, Internet
Research, and Telecommunications Policy, among others.
Yuko Kimura is currently a PhD candidate of social science in the School of

Business at the University of Leicester, UK. She graduated with an MBA with merit
from the University of Leicester. She obtained her bachelor’s degree in pharmaceu-
tical science from Meiji Pharmaceutical University. She has been a registered phar-
macist with a national pharmacist certificate in Japan. She has worked in several
divisions (medical affairs, global marketing, corporate social responsibility, corpo-
rate strategy, and research and development) of a Japanese pharmaceutical company
in both Japan and the USA. Her research focuses on organizational behavior, cross-
regional and functional collaboration, workplace learning, and lifelong learning.
She has published in the Journal of Business Research.
xxii About the Authors
Elena Loukoianova has worked at the IMF since 2002, and currently she is a dep-
uty division chief at the Asia and Pacific Department of the International Monetary
Fund (IMF). In the IMF, she has been working on country surveillance issues, finan-
cial inclusion, financial surveillance issues, financial soundness indicators (FSIs)
methodology and use for surveillance, methodological and analytical issues of bal-
ance sheet analysis, macroprudential policies, and analytical tools to assess and
monitor systemic risks. In 2008–2010, she worked as a senior economist (Russia
and CIS) in Emerging Market Research for Emerging Europe and Middle East and
Central Asia in Barclays Capital, London, as well as a senior economist at the
European Bank for Reconstruction and Development (EBRD), where she evaluated
policy dialogue and program implementation in different countries. Apart from
political risk area, her current research focuses on global liquidity, monetary aggre-
gates, and systemic risks, and she recently published a paper on these issues in the
Economic Policy. Her work also appeared in the European Economic Review and
the Journal of Derivatives. She holds a PhD in economics from the University of
Cambridge, England, and a PhD in mathematics from Ulyanovsk State University,
Russia.
Lucy Sze-Hang Lui graduated with an MBA in luxury business degree jointly at

ISC Paris School of Management and Mod’Art International School of Fashion
Design. She is trilingual in English, Cantonese, and Mandarin with an advanced
proficiency in French. SzeHang is currently working as a sales associate at Fendi
Paris. She previously worked as a sales associate in Loewe for her internship. She
was also a property officer in a luxury residential estate in Hong Kong. In her posi-
tion as a flight attendant for Cathay Pacific Airways, she demonstrated her abilities
in providing customer service to VIPs and first-class passengers.
Naresh K. Malhotra is a senior fellow of Georgia Tech CIBER and a regent’s pro-

fessor emeritus at Scheller College of Business, Georgia Institute of Technology,
USA. In 2010, he was selected as a marketing legend, and his refereed journal arti-
cles were published in nine volumes by SAGE with tributes by other leading schol-
ars in the field. He has been listed in Marquis Who’s Who in America continuously
since the 51st edition in 1997 and in Who’s Who in the World since 2000. In 2017,
he received the Albert Nelson Marquis Lifetime Achievement Award from Marquis
Who’s Who. In 2015, he received the Lifetime Achievement Award from the Prestige
Institute of Management, Gwalior, India. He received the prestigious Academy of
Marketing Science CUTCO/Vector Distinguished Marketing Educator Award in
2005. In 2011, he received the Best Professor in Marketing Management, Asia Best
B-School Award. He has several top (number one) research rankings that have been
published. His marketing research books are global leaders. He is an ordained min-
ister of the Gospel, a member and Deacon, First Baptist Church, Atlanta, and presi-
dent of Global Evangelistic Ministries, Inc. This ministry has documented in
independent reports more than 1.7 million people praying to receive Jesus Christ as
personal Savior and Lord. He has been married to Veena for more than 36 years, and
they have two grown children Ruth and Paul.
About the Authors xxiii
Anne-Flore Maman Larraufie graduated from the Military Academy of Saint-Cyr

as an engineer, got an advanced master in strategy and management of international
business (SMIB) from ESSEC Business School (France) and a Certificate in
Advanced Studies at Thunderbird Business School (USA), and finally completed
her PhD in business administration at ESSEC. After several working experiences in
various companies including EADS and LVMH (Guerlain), she decided to set up
her own consulting agency SémioConsult® while teaching in prestigious business
schools and universities all around the world (ESSEC, HEC, Ca′ Foscari, Shanghai
Normal University, etc.). She also became a delegate of INPI (the French
IP-regulating body) for the European Union and an expert on Made in France and
Luxury for the French Ministry of Economy. She is an expert in luxury, consumer
behavior, branding, and counterfeiting. She still pursues academic research and
publishes in top-tier journals. She got recently the best paper award for her article
on the e-semiotics of luxury, published in the Journal of Global Fashion Marketing.
She is also the academic director of the Advanced Master in Strategy and
Management of International Business at ESSEC, for the three campuses (two in
Paris and one in Singapore), and as such manages yearly more than 300 students
and works with an administrative team of 6 people, all spread around the world. She
is also the academic director of Master in Management in the Perfume Industry in
partnership with ISIPCA.
Hemant Merchant (PhD, Purdue University) is professor of global business at the

University of South Florida in St. Petersburg, USA (USFSP). Prior to joining
USFSP, he was a professor of international strategy and the dean’s endowed research
fellow at Simon Fraser University (Vancouver, Canada); his most recent position
was at Florida Atlantic University (FAU). He currently is ranked as the tenth most
prolific international management scholar in the world. His work has been pub-
lished in several leading refereed journals, including the Canadian Journal of
Administrative Sciences, Global Strategy Journal, International Business Review,
Journal of Management, Journal of World Business, Management International
Review, Multinational Business Review, Strategic Management Journal, and
Thunderbird International Business Review. He has authored Competing in
Emerging Markets (2008; Routledge) and coedited the Handbook of Research on
International Strategic Management (2012; Elgar). His most recent edited volume
is the Handbook of Contemporary Research on Emerging Markets (2016; Elgar).
His research endeavors have earned him approximately $225,000 in various types
of grants as well as six research accolades conferred by the Academy of International
Business (AIB) and Administrative Sciences Association of Canada (ASAC). In
2006, Dr. Merchant won the Douglas Mackay Outstanding Paper Award – a coveted
prize that he also won in 2005. In 1990, he earned AOM’s Best Paper Award. He
currently is the editor-in-chief of the Journal of Asia Business Studies and also a
consulting editor at the Journal of International Business Studies, the top-ranked
journal in international business. Until recently, he served as the “strategy” editor at
the International Journal of Emerging Markets and the “strategic management and
international business” editor at Canadian Journal of Administrative Sciences.
xxiv About the Authors
Mark Peterson received his PhD in marketing from Georgia Tech in 1994 and
joined the University of Wyoming faculty in fall 2007 where he teaches doctoral,
MBA (online and on-campus), as well as undergraduate students. His research
interests include international marketing, marketing and society issues, as well as
research methods. His research has been published in such outlets as Journal of the
Academy of Marketing Science, Entrepreneurship Theory and Practice, and the
Journal of Macromarketing (where he is ranked as the top author in terms of num-
ber of articles and number of citations). He was a Fulbright scholar at Bilkent
University in Ankara, Turkey, in 2006. Mark’s SAGE Publications book Sustainable
Enterprise: A Macromarketing Approach in 2013 received three extensive reviews
by authors including Shelby Hunt in the December 2012 issue of the Journal of
Macromarketing. It is in use around the world on campuses, such as Virginia Tech
and WU-Vienna. He worked for 11 years at the University of Texas at Arlington
where he taught qualitative research to grad students in the specialty masters’ pro-
gram in marketing research. He received the Outstanding Senior Research Award
from the College of Business at the University of Wyoming in 2016.
Sami Saarenketo is a professor of international marketing at the School of Business

and Management, at Lappeenranta University of Technology, Finland. His primary
areas of research interest are international marketing and entrepreneurship in tech-
nology-based small firms. He has published on these issues in the Journal of World
Business, International Business Review, Management International Review,
European Journal of Marketing, and Journal of International Entrepreneurship,
among others.
Hanna Salojärvi is an associate professor at the School of Business and Management

at Lappeenranta University of Technology. Her main research interests include cus-
tomer relationships, customer knowledge management, and strategic orientations.
She has published on these issues, for example, in Industrial Marketing Management
and European Journal of Marketing, among others.
Aijaz A. Shaikh is a university lecturer (in marketing) at the Jyväskylä University

School of Business and Economics in Finland. He earned his PhD (with a major in
marketing) from the Jyväskylä University School of Business and Economics in
Finland. Prior to that, he earned his MSc from the AACSB-accredited Hanken
School of Economics in Finland, and he has more than 15 years of professional
(mostly banking), teaching, and research experience. His primary research interests
include both qualitative and quantitative studies in the broader areas of consumer
behavior, mobile banking, branchless banking, Internet banking, payment systems,
and social media. He has published in Computers in Human Behavior, Telematics
and Informatics, and other refereed journals, such as the Journal of Financial
Services Marketing, the International Journal of E-Business Research, and the
International Journal of Bank Marketing.
About the Authors xxv
G. Shainesh is professor of marketing, Indian Institute of Management (IIM)

Bangalore. He has over two decades of research and teaching experience in India
and abroad, including the Goteborg University (Sweden), University of St. Gallen
(Switzerland), Audencia Nantes and IESEG (France), Vienna University and MCI
Innsbruck (Austria), Bocconi University (Milan), and Curtin University of
Technology (Perth). His research and teaching focus on CRM, brand management,
services marketing, and innovations. He leads the cross-functional research initia-
tive on consumer insights. His case study “Narayana Nethralaya: Expanding
Affordable Eye Care” was the second place winner in the GlobaLens 2014
NextBillion Case Writing Competition. The “Best Professor in Marketing” Award
was conferred on Shainesh by the CMO Asia Council during the “Best B-Schools
in Asia” Awards, July 2011, Singapore. Shainesh is the editor-in-chief of the Journal
of Indian Business Research (JIBR), an Emerald (UK) publication. His papers on
services and relationship marketing have been published in the MIS Quarterly,
Journal of Service Research, Journal of International Marketing, International
Journal of Bank Marketing, International Journal of Retail & Distribution
Management, International Journal of Technology Management, Journal of
Relationship Marketing, and International Marketing Review. His books include
Customer Relationship Management: A Strategic Perspective (Laxmi Publications)
and Customer Relationship Management: Emerging Concepts, Tools and
Applications (20th Reprint 2017, McGraw-Hill).
Joe Z. Shangguan is an associate professor of accounting at the School of Business,

Robert Morris University. He holds a doctorate in accounting from the University of
Connecticut. He conducts research on corporate financial reporting, the capital mar-
ket implications of accounting information, and other interdisciplinary topics. He
has published in the Journal of Corporate Finance, Review of Quantitative Finance
and Accounting, International Journal of Banking, Accounting and Finance,
International Journal of Accounting and Finance, and Eurasia Economic Review.
Lasse Torkkeli is an associate professor at the School of Business and Management

at Lappeenranta University of Technology, Finland. His research interests include
SME internationalization, business networks, organizational capabilities and com-
petencies, and business-to-business interaction. He has previously published in the
Journal of International Entrepreneurship and in the European Management
Journal, among others.
Yanbin Tu is a professor of marketing at the School of Business, Robert Morris

University, Pennsylvania. He is also a summer visiting professor and Chutian
scholar at the School of Business, Jianghan University, China. He obtained his doc-
torate degree from the University of Connecticut. His research interests cover
e-commerce, interactive marketing, database marketing, and customer relationship
management. His work has appeared in International Journal of Electronic
Commerce, Applied Economics, Decision Support Systems, Journal of Electronic
xxvi About the Authors
Commerce Research, International Journal of Internet Marketing and Advertising,

International Journal of Electronic Business, and Communications of the ACM.
Adina-Gabriela Tudor is a graduate student at the Department of International

Business Faculty of Economics and Management, Norwegian University of Science
and Technology (NTNU), Norway.
Maria Uzhegova is a junior researcher at Lappeenranta University of Technology

(LUT) School of Business and Management. Her research focuses on the interna-
tional business relationships of firms, with specific emphasis on the role of corpo-
rate social responsibility and sustainability in internationalization of SMEs. She has
previously published in the International Journal of Multinational Corporation
Strategy.
Tatiana Lukoianova Vashchilko is an assistant professor in strategy and global

management at Haskayne School of Business at the University of Calgary. After
receiving her PhD in political science and MA in economics from the Pennsylvania
State University, she worked as a visiting assistant professor in international busi-
ness at the Sellinger School of Business at Loyola University Maryland (2015–
2016), at the Max M. Fisher College of Business at the Ohio State University
(2013–2015), and as a sessional instructor at the DeGroote School of Business at
McMaster University (2013). Her main research centers on the strategic responses
of multinational enterprises (MNEs) to new challenges and opportunities in interna-
tional business environment. Specifically, her research focuses on the conditions
under which international politics, international institutions, and political risks
influence strategies and performance of MNEs. Her work has appeared in the
Journal of International Business Studies (JIBS), International Business Review
(IBR), and Journal of the Association for Information Science and Technology
(JASIST). Dr. Vashchilko was a finalist of the International Management (IM)
Division Fundação Dom Cabral Best Paper in Strategy/International Business (IB)
Theory Award and a finalist of the William H. Newman Dissertation Award at the
2013 AOM Annual Meeting.
Terry Wu is professor of business at the University of Ontario Institute of

Technology (UOIT), Canada. His research focuses on international marketing, mar-
keting of higher education, globalization, and trade policy. His research has been
published in academic journals including Management International Review,
Columbia Journal of World Business, Journal of Marketing Management,
International Marketing Review, Journal of Business and Industrial Marketing,
Journal of International Communication, and Thunderbird International Business
Review, among others.
Saman Zehra is a marketing doctoral student at the University of Wyoming. She has

an undergraduate degree in chemistry and a master’s degree in business administra-
tion (MBA) with a concentration in marketing and human resource management
About the Authors xxvii
from Aligarh Muslim University (A.M.U.), India. She was awarded two university
gold medals for her academic performance at the master’s level in business, as well
as in management. She was also awarded the university merit scholarship at the
undergraduate as well as at the master’s level. After completing her MBA, she
worked in the packaging films industry in India for 19 months as a senior executive
in the marketing of exports to Europe and Canada. Her research interests include
topics in consumer behavior, specifically the influence of religion, spirituality, and
culture on the consumption of goods and services. In her spare time, she enjoys
reading, cooking, and traveling.
Chen Zheng is a graduate student at the Department of International Business

Faculty of Economics and Management, Norwegian University of Science and
Technology (NTNU), Norway.
Endorsements
1. This well-crafted research volume is an excellent addition to the growing lit-

erature on new trends in international marketing. The authors present the latest
insight on the impact of phenomena such as crossborder e-commerce and digi-
tal markets, and they discuss new tools for political risk assessment, interna-
tional branding and more broadly the reconfiguring of marketing-mix strategies
– A powerful reminder that the new global market remains a rugged
landscape.
–– Alain Verbeke is McCaig Research Chair in Management and Editor-in-Chief
Journal of International Business Studies, University of Calgary, Canada.
2. Emerging trends in institutions, markets, and societies, accompanied by new

technological advances, are redefining the scope and strategy in global market-
ing. Professors Agarwal and Wu have assembled a remarkable collection of cut-
ting-edge topics and issues that captures the shifting paradigm in global
marketing. This book is very timely and makes a valuable contribution, useful
for both scholars and practitioners of global marketing.
–– Constantine S. Katsikeas is Arnold Ziff endowed research chair in marketing
and international management and editor-in-chief of the Journal of International
Marketing, University of Leeds, UK.
3. This book presents new and cutting-edge thinking at a time when the traditional
views of international marketing need to be scrapped. Convergence forces are
creating new opportunities as well as threats on a daily basis, and marketing
practitioners as well as scholars must be forewarned as well as forearmed on how
to deal with these changes. The real growth is coming from the emerging nations,
and the theories that provided sufficient insights 10 years ago have been com-
pletely outmoded by the ever-accelerating rate of innovation and technological
xxix
xxx Endorsements
change as well as the pressures to address the needs of all of the firm’s relevant
stakeholders. The strategic insights provided here are absolutely invaluable.
Don’t miss an opportunity to read this book!
–– John B. Ford is professor of marketing and international business, eminent
scholar and Haislip-Rohrer fellow, and editor-in-chief of the Journal of
Advertising Research, Old Dominion University, USA.
Part I
Introduction
Chapter 1
The Changing Nature of Global Marketing:
A New Perspective
Abstract There have been significant changes in the global marketing landscape
that is presenting contemporary threats and opportunities in markets, institutions,
and technology for global marketers. Much of the mainstream research on global
marketing has focused on the traditional marketing strategy combined with the tra-
ditional paradigms to analyze international markets. Global companies need to chal-
lenge traditional assumptions in global marketing in an era of shifting political,
cultural, economic, and technological changes. Given scant research attention on the
emerging issues in global marketing for the twenty-first century, there is a critical
need for a new research direction to shed new insights into emerging and cutting-
edge issues in global marketing. This book examines emerging theories and frame-
works of global marketing and discusses how global marketing strategies are
evolving and being re-calibrated in a globalized and digital economy that is fast
changing.
Introduction
There have been significant changes in the global marketing landscape due to grow-
ing economic integration, declining trade barriers, and new global markets. As an
outcome of globalization, there has been a rapid increase in international business
transactions taking place since the beginning of the twenty-first century (Jormanainen
and Koveshnikov 2012). Nowadays, companies are able to gain unprecedented
access to a global market for consumers worldwide. At the same time, they are able
to produce goods and services in other countries or source suppliers globally,
achieving efficiency and reducing the cost of production (Trent and Monczka 2002).
J. Agarwal (*)
Haskayne Research Professor & Full Professor of Marketing at the Haskayne
School of Business, University of Calgary, Calgary, AB, Canada
e-mail: [email protected]
T. Wu
Faculty of Business and Information Technology, University of Ontario Institute of
Technology, Oshawa, ON, Canada
© Springer International Publishing AG, part of Springer Nature 2018 3

J. Agarwal, T. Wu (eds.), Emerging Issues in Global Marketing,
https://doi.org/10.1007/978-3-319-74129-1_1
4 J. Agarwal and T. Wu
While globalization of markets and production creates new market opportunities,

it also brings in newer challenges and complexities for marketers in a globally
competitive environment. In addition to the changing world economy, the global
market is further transformed by major advances in information and communication
technologies (ICT). Thus, the traditional approach to global marketing is no longer
sufficient to address emerging issues in global markets for the twenty-first century.
Global companies need to take a new look at the contemporary threats and opportu-
nities in markets, institutions, and technology and how they affect entry and expan-
sion strategies through careful recalibration of the marketing mix. They are likely to
apply approaches different from those implemented in the past, reflecting a para-
digm shift in global marketing.
Emerging Trends in Global Marketing
Global companies must deal with the new reality of global marketplace for global
consumers in the twenty-first century. Several emerging trends are developing that
present both opportunities and challenges for global marketers.
1. The world has witnessed increasing economic integration and gradual reduction
of trade barriers over the last two decades, primarily as a result of the World
Trade Organization (WTO) (Agarwal and Wu 2004). On the positive side, tariff
and nontariff barriers, in general, are on the decline, leveling the playing field for
global competitors. Several developing economies have deregulated erstwhile
protected industries and have liberalized trade and investment policies. Signs of
new market potential with authoritarian regimes are promising as embargoes are
lifted. For example, after the normalization of US-Cuba relations, US companies
are permitted to enter the Cuban market, raising hopes that Cuba is at last ending
its more than 60 years of isolation. Similarly, Myanmar has undergone substan-
tial economic and political reforms since 2010, allowing the US and other
Western countries to lift their economic sanctions. On the negative side, there are
some indications that globalization is facing strong headwinds across countries.
Emerging political risks and security concerns are changing the global game
plan as economies falter under populist leadership (e.g., Venezuela) and coun-
tries begin to weaken their commitment to regional trading blocs. The political
climate has significantly changed after the US withdrawal from Trans-Pacific
Partnership (TPP) in 2016 and the impending exit of the United Kingdom from
the European Union (i.e., Brexit) scheduled for March 2019.
2. The increasing global competition for goods and services has led many business
firms to develop international marketing strategies as part of their corporate man-
date and corporate strategy. While previously the focus of international market-
ing was largely focused on the cultural differences at the country level, there is a
call for challenging traditional assumptions underlying cultural distance and
improving the quality of cross-cultural research in an era of global crossvergence
(Merchant et al. 2012; Tung 2008). This has implications for global companies
1 The Changing Nature of Global Marketing: A New Perspective 5
with respect to market segmentation, i.e., vertical versus horizontal global market
segmentation (Agarwal et al. 2010). Further, the role of institutional distance
especially in the context of emerging markets is of particular interest for global
marketers. Current research in institutional distance needs to make a careful
theoretical and empirical distinction between institutional profile and institu-
tional distance in the research context of emerging economies (Meyer and Peng
2016; Van Hoorn and Maseland 2016; Yang et al. 2012).
3. The spread of innovation and technology has enabled countries to produce new
products and services across national boundaries. There has been an exponential
growth in innovation and technological advances (Agnihotri et al. 2016) espe-
cially in emerging markets that is impacting the approach to global marketing as
firms reach out to potential customers globally. The explosive growth of the
Internet has transformed the global marketplace into a borderless world where
goods, services, and information can be exchanged freely across national bound-
aries. Electronic commerce is replacing not only traditional retailing in the home
country, but it is also transforming the pattern and speed of internationalization
of online retailers in the global marketplace (Schu et al. 2016). At the same time,
firms are using sophisticated data-capturing technologies, customer relationship
management, big data, and social media to identify market needs, to build proto-
types, to develop positioning and segmentation strategies, and ultimately to
develop marketing mix strategies. These positive developments call for global
marketers to incorporate newer methodologies to better understand brand posi-
tioning and brand management strategies using data from multiple sources.
However, the downside risk of innovation and e-commerce has also resulted in
the proliferation of the counterfeit market globally across multiple industries, a
growing problem that needs to be effectively managed by deploying anti-
counterfeit marketing strategies.
4. As growth has picked up in emerging markets and slowed down in advanced
economies, firms have had to rethink their global strategies in exporting, contrac-
tual agreements, and foreign direct investments (Ramamurti 2012). With the
recent growth of emerging economies, e.g., the BRICS countries (Brazil, Russia,
India, China, and South Africa) as well as the MINT countries (Mexico,
Indonesia, Nigeria, and Turkey), there is a critical need for scholars to redefine
and reconceptualize new theories and conceptual frameworks that highlight the
rapid globalization of firms, especially in the domain of e-commerce. E-commerce
has not only revolutionized the global marketplace, but it has also brought about
a paradigm shift in the way business is conducted in emerging economies, par-
ticularly in China and India (Agarwal and Wu 2015). However, one of the great-
est challenges for global companies still prevalent in many emerging economies
is the seemingly insurmountable “institutional distance” and “institutional voids”
(Van Hoorn and Maseland 2016) compared to home markets. With economic
development, global marketers are increasingly cognizant of rising stakeholder
expectations of their company’s CSR activities, i.e., triple bottom line, especially
in emerging and bottom-of-pyramid (BOP) markets (Prahalad and Hammond
2002; Berman 2013). Stakeholders in general, and customers in particular, are
increasingly demanding ethical products and consumption, ethical sourcing,
ethical value chains, social and environmental responsibility of companies, sus-

tainable consumption, and marketing’s positive role in society.
Despite the growing importance of global markets in the global economy,
research is still limited to old research themes. Much of the mainstream research on
global marketing has focused on the traditional marketing strategy combined with
the traditional paradigms to analyze international markets. There is scant research
attention on emerging issues in global marketing with little focus on emerging con-
temporary challenges and opportunities facing global marketers in the twenty-first
century. Hence, there is an urgent need for a new research direction to shed new
insights into emerging and cutting-edge issues in global marketing and highlight
how global marketing strategies are changing in a globalized and digital economy
that is fast changing. Against this background, this book aims to address the paucity
of research that currently exists in this area. Drawing from many areas of expertise,
this book presents emerging issues and shifting paradigms in global marketing. This
book is organized as follows. The next section summarizes the 13 chapters pre-
sented in this book. The last section is devoted to a summary and conclusion.
Organization of the Book
This book is organized into 13 chapters. Part 1 (Chap. 1) is the introduction to the
book in which the editors reflect on the paradigm shift in global marketing and sum-
marize the key contributions made in each chapter. Part 2 (Chaps. 2, 3, and 4) dis-
cusses emerging trends in global marketing; Part 3 (Chaps. 5, 6, 7, 8, and 9) discusses
global marketing strategies; and Part 4 (Chaps. 10, 11, 12, and 13) discusses global
corporate social responsibility, sustainability, and macromarketing issues. Chapter
2 examines the trends in political risk across the globe and its impact on global
marketing research in the past 30 years (1986–2015). To compare the political risk
across countries, a novel measure of political risk index is derived from the explor-
atory factor analysis (EFA). This EFA-based index is then used to identify global,
regional, and country-specific dimensions of political risk. Monthly data were col-
lected from Political Risk Services’ International Country Risk Guide (ICRG) polit-
ical risk index’s 12 components for each of 140 countries in three time periods,
1986–1995, 1996–2005, and 2006–2015. Each country’s 5-year time series of 12
ICRG observations of political risk is analyzed using exploratory factor analysis.
The purpose is to ascertain the latent factor structure of a country’s political risk by
identifying factors (i.e., factor loading plots) that contribute to intercorrelations of
ICRG components. The second part of the chapter focuses on whether and how the
scholarship in global marketing has captured the changing nature of the political
risk landscape since the last 30 years. The scholarly evidence on political risk
research can be demonstrated by publication records in the academic literature.
Using a sample of seven top international business and marketing journals (Journal
of International Business Studies, Journal of World Business, Management
International Review, International Business Review, Journal of Marketing, Journal

of International Marketing, and International Marketing Review), an automated
content analysis is conducted to ascertain publication frequencies, followed by the
cluster analysis to group research areas. The results reveal the evolution of various
research areas within global marketing (entry modality – FDI and contractual agree-
ments, brand positioning, start-up innovation and global diffusion, and political risk
and corruption) and identify existing gaps in research on political risk and global
marketing.
Chapter 3 examines the influence of cultural values in shaping consumers’ per-
ception of service quality and satisfaction through cross-national vs. cross-cultural
analysis. Prior research in global marketing has assumed cultural homogeneity
within countries, and as a result, country and culture have been assumed to be syn-
onymous. The objective of this study is to analyze the moderating role of the cul-
tural values of individualism/collectivism and uncertainty avoidance on service
quality dimensions and the relationship between perceived service quality (modeled
as a second-order reflective construct) and satisfaction. A conceptual framework of
service quality, customer satisfaction, and cultural values is developed to test sev-
eral hypotheses. Survey data (N = 1059) were collected from bank customers in
three countries – the United States, India, and Philippines – and the model tested
using structural equations modeling (LISREL). This study provides a new and inter-
esting perspective on international service quality. Despite globalization, cross-
national research (i.e., country effect) continues to have important meaning and
significance for global marketers. Yet, at the same time, findings also validate the
need for cross-cultural research that recognizes within-country heterogeneity on
cultural values, thus pointing to the right etic-emic balance. This study presents a
number of theoretical, methodological, and managerial contributions that highlight
the shifting paradigm in global marketing.
Chapter 4 explores cross-border e-commerce (CBEC) as a new driver of interna-
tional trade in the global economy. The study adopts a modified version of i-based
N-OLI framework (Agarwal and Wu 2015) for CBEC. Using China as a case study,
the study examines the rapid growth, structure, export/import models, as well as
infrastructure and environment of China’s CBEC. It is found that China’s CBEC
success is attributed, both directly and indirectly, to several key factors: e-commerce
giants such as Alibaba.com and JD.com, the designation of CBEC pilot cities, sup-
portive governmental policies, and big capital inflows. The evidence presented in
this study is a confirmation that strong government support, growing middle class,
improved technologies, and increasing e-commerce adoptions by SMEs are in fact
instrumental to the success of CBEC in China. This study also shows that cultural
differences, customer trust, logistics, payment, and legal and regulatory barriers are
among the biggest challenges facing CBEC. This chapter therefore brings a more
nuanced understanding to CBEC with policy implications for foreign firms entering
the Chinese market via e-commerce.
The third part of this book is devoted to global marketing strategies. Chapter 5
proposes the centrality-distinctiveness mapping (C-D mapping) methodology in
global brand positioning. The C-D map methodology is explained with detailed
guidelines for implementation and is applied to a large European company operat-

ing in seven European countries: France, Poland, Spain, Italy, the Netherlands,
Sweden, and Germany. This approach allows marketers to detect differences in con-
sumer perceptions of brands across markets. The distinct advantage of this method-
ology is that it sets consistent positioning and performance goals for a global brand
across geographical markets, enabling global brand managers with brand standard-
ization versus localization decisions. While the traditional globalization paradigm
has shifted toward digital markets (Lund et al. 2016), e.g., Internet and social media
that are fast converging in brand perceptions, country-specific competitive contexts
still require local branding and positioning strategies. In addition to providing infor-
mation on actual brand performance across countries, the C-D map methodology
supplies a means and a vocabulary for strategic conversations about global brand
positioning between headquarters and local managers.
Chapter 6 investigates social media that allows for real-time interaction among
business-to-business (B2B), peer-to-peer (P2P), consumer-to-consumer (C2C), as
well as between business-to-customer (B2C) markets. It is argued that customers
are increasingly accessing and using social networking sites (SNS). For this reason,
it is important for businesses and organizations to ensure a presence on these plat-
forms to enhance corporate visibility. The objective of this chapter is to conceptual-
ize and operationalize social network brand visibility (SNBV) in an exploratory
study. A conceptual model is developed with six dimensions: social media presence,
brand awareness, value equity, knowledge, social media marketing, and information
exchange. Data were collected from an online survey in Norway, with a sample size
of 122. Using structuring equation modeling (AMOS), two competing models were
run to test the validity of testable hypotheses. Results showed validity for a three-
dimensional SNBV model (i.e., brand awareness, value equity, and product knowl-
edge). The findings reveal that social media plays an important role in promoting
e-commerce.
Chapter 7 proposes different strategies to counter the global trade in counterfeit
goods. The majority of efforts by governments to curb the trade in counterfeits have
been largely ineffective. Despite rapid growth of global counterfeit trade, there is
very little research in this area, especially a conceptual framework that can be used
to explain anti-counterfeit interventions. Using a holistic framework, this study
extends marketing mix variables to include anti-counterfeiting strategies for spe-
cific counterfeiting issues. The authors argue that reconfiguring the traditional mar-
keting mix is a desirable solution for significantly stamping out counterfeit goods as
part of the marketing program design.
In Chapter 8, the authors argue that there are significant differences across
emerging markets with special reference to entry mode strategies of MNEs (multi-
national enterprises) to these markets. The focus of this study is on market entry
strategy that would narrow the “institutional distance” (i.e., regulatory, cognitive,
and normative) between MNEs’ home and host markets, using Nigeria as an exam-
ple. In terms of market entry strategies, this study identifies several key issues for
MNEs to consider when entering the Nigerian market in order to build legitimacy:
corporate social responsibility, social media engagement, governmental relations,
and informal relational ties. The study reveals that cognitive and normative institu-
tional distance is in fact a greater challenge for MNE to succeed in Nigeria than the
regulatory institutional distance.
Chapter 9 develops a multi-theoretical and multi-level framework for analyzing
growth potential of e-commerce in emerging economies. In developed economies,
Internet usage and e-commerce have expanded rapidly in the last two decades.
Recognizing the market potential of information technology, emerging economies
are quickly embracing e-commerce as an engine of economic growth. Using a
multi-theoretical and multi-level framework, this study examines determinants and
deterrents of e-commerce growth potential in emerging economies. Understanding
key factors influencing the development of e-commerce is of critical importance to
the economic development of emerging economies. As expected, there are signifi-
cant differences between developed and emerging economies in e-commerce
growth. The first part of the study presents a multi-theoretical framework to explain
growth of e-commerce in emerging economies. A combination of multiple theories
on transaction cost economies, resource-based view, network theory, network-based
ownership-location-internalization (N-OLI) paradigm, institutional theory, and
entrepreneurship theory provides a theoretical framework in explaining e-commerce
in emerging economies. To complement the multi-theoretical framework, this chap-
ter also identifies the global (trade agreements, technological innovations, and stra-
tegic behavior of firms), national (institutional environment, infrastructure, and
culture), and transactional (integrity of transactions, online intermediaries, and net-
work externalities) level factors. Based on the conceptual framework, the study
highlights implications for MNEs, both from developed markets and emerging mar-
kets, operating in emerging economies.
The fourth part of this book is devoted to global CSR, sustainability, and macro-
marketing issues. Chapter 10 examines the role of corporate social responsibility
(CSR) and market-sensing capability in firm performance in foreign markets.
Previous studies on CSR focus primarily on large multinational enterprises (MNEs).
This study attempts to fill the research gap by focusing on the impact of CSR on
international performance of small- and medium-sized enterprises (SMEs). A con-
ceptual model is developed to include three key variables: market-sensing capabil-
ity, social responsibility, and environmental responsibility. The data used in this
study was based on a sample of 85 CEOs from Finnish SMEs covering a variety of
industries collected through an online survey. The findings based on regression and
mediation analysis suggest that market-sensing capability improves socially respon-
sible behavior which then contributes to international performance of SMEs.
However, environmentally responsible behavior pays off and improves international
performance only through social responsibility.
Chapter 11 examines corporate social responsibility (CSR) in the pharmaceutical
industry comparing Japanese firms and Western firms. However, Japanese pharma-
ceutical companies have started late on CSR activities in comparison to their
Western counterparts. The study is based on a sample of eight pharmaceutical com-
panies: four Japanese-based firms and four Western-based firms. The samples con-
sisting of Japanese firms are Eisai, Takeda, Astellas Pharma, and Daiichi Sankyo.
For comparison, the samples consisting of four non-Japanese Western firms are
GlaxoSmithKline (GSK), Johnson and Johnson (J & J), Novartis, and Merck. The
results suggest that there are differences between Japanese and Western firms in
terms of the level of CSR.
Chapter 12 explores the relationship between virtual rarity and sustainable devel-
opment in the luxury industry from Western consumers’ perspective. In general,
luxury goods are characterized by limited supply (rarity), high quality, premium
value, and exorbitant price. Purchasing luxury products is to enhance one’s self-
image and to distinguish oneself from other groups. In contrast, sustainability
focuses on environmental issues and social responsibility. In order to ascertain the
relationship between virtual rarity and sustainable luxury goods, an interpretive
qualitative interview was conducted in order to understand the beliefs and experi-
ences of luxury consumers. The data used in this study is based on a sample of 20
respondents who are regular luxury customers from Europe, North America, and
Latin America. In addition to basic demographic information, the respondents were
asked to indicate their attitudes toward rarity and sustainable luxury in separate
interviews. Content analysis was then used to analyze the interview data. The
research found that quality and design are still the two key variables influencing
purchase intention of luxury goods. Although consumers are generally aware of
sustainability, they are reluctant to purchase luxury goods on the basis of sustain-
ability only.
Chapter 13 focuses on macromarketing to understand the interactions among
markets, marketing, and society at large. This study uses Sustainable Society Index
to analyze country and regional developments in Africa. The purpose is to compare
the indicators for human, environmental, and economic well-being for societies
across the African continent. Specifically, comparisons are made with respect to (i)
the rest of the world, (ii) other developing countries, and (iii) regions of the world.
The results reveal that Africa does well on the planet (environmental) dimension.
However, Africa lags in the people and profit dimensions (human and economic
development). In the African context, these results have huge relevance for both
African-based and non-African multinational firm strategies as marketing and soci-
ety intersect each other in clear ways.
Conclusion
The chapters in this book form a collection of scholarly analyses that cover both
emerging trends, theories, strategies, and applications relevant for global marketing in
the twenty-first century. Emerging trends in the political, cultural, and economic land-
scape of countries and markets, accompanied by new developments in technological
advances, e-commerce, and networked economies, are redefining the scope and strat-
egy of global marketing. Global marketers are harnessing the power of e-commerce to
enter new markets and reconfiguring their marketing mix, both online and offline, to
better address the complex issues surrounding standardization vs. customization deci-
sions in global markets. The challenge for global marketers is to think outside the
“marketing mix” box in the bigger context of institutions, markets, and society at
large. The book provides an impressive state-of-the-art overview of the “shifting para-
digm” of global marketing that will be of relevance to both academic scholars and
reflective managers and policymakers. It is hoped that the core insights found in this
book will be of interest to current and future scholars and practicing managers to
rethink global marketing strategies for a world market that is fast changing.
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Part II
Emerging Trends in Global Markets
Chapter 2
A Thematic Exploration of the Changing
Trends in Political Risk and Global Marketing
Scholarship in the Last Three Decades
(1986–2015): Implications and Future
Research
James Agarwal, Tatiana Vaschilko, and Elena Loukoianova
Abstract This chapter analyzes temporal patterns in political risk across the globe
and in global marketing scholarship in 1986–2015 to offer perspectives on emerging
political risk issues for current and future research. We offer a novel measure of
political risk based on exploratory factor analysis (EFA) to identify the most influ-
ential sources of political risk and its latent structure within a country in three time
periods, 1986–1995, 1996–2005, and 2006–2015. This EFA-based measure pro-
vides a more nuanced way of analyzing global-, regional-, and country-level politi-
cal risk dynamics compared to the existing indices based on the observable
characteristics of political environment. We synthesize global marketing scholar-
ship to examine the evolution of various research topics/themes within global mar-
keting and identify potential future research directions on the impact of political risk
on global marketing activities abroad.
The views expressed in this paper are those of the author(s) and do not necessarily represent the
views of the IMF, its Executive Board, or IMF management.
J. Agarwal (*)
T. Vaschilko
Haskayne School of Business, University of Calgary, Calgary, AB, Canada
E. Loukoianova
Asia and Pacific Department of the International Monetary Fund (IMF),
Washington, DC, USA

16 J. Agarwal et al.
Introduction
As the world enters “a period of political recession” (Bremmer and Kupchan 2017)
combined with the information overflow rather than the lack thereof, the nature and
dynamics of political risks1 have been shifting and inadvertently affecting interna-
tional business in unpredictable ways. For example, the recent terrorist attacks in
Paris, Beirut, Brussels, Berlin, and Barcelona demonstrate that “we are talking
about a new qualitative threat, because we have arrived at the intersection of terror-
ism and globalization” (Melhem 2015) and the “traditional intelligence exchange is
not enough anymore” to identify the potential of new terrorist threats (Walt 2016).
In contrast to even a few years ago, most companies today have little doubt in the
value of assessment of political risks, which can tell not just, for example, “whether
a particular country can pay its debt,” but also “whether that country will pay its
debt” (Bremmer 2005, p. 3). As a matter of fact, reduction in exposure to political
risks has taken unprecedented urgency in global markets and has emerged as “a key
aspect of doing business globally today” (Export Development Canada 2012).
The scholarly examination of political risk has been continuously evolving in
different disciplines, including political science (e.g., Baccini et al. 2014; Ballard-
Rosa 2016; Barry and Kleinberg 2015; Jensen et al. 2012, 2013; Li 2009; Paine
2016), international business (e.g., Li and Vashchilko 2010; Henisz et al. 2010; Oh
and Oetzel 2011; Darendeli and Hill 2016, Bekaert et al. 2016), and global market-
ing (Welch and Wilkinson 2004; Agarwal and Feils 2007; Czinkota et al. 2010;
Laufs et al. 2016). Scholarship in political risk has undisputedly demonstrated that
30 years ago, if the typical response of many multinational enterprises (MNEs) to
political risk was avoidance (Kobrin 1979), today, this is not an option for any
global company including domestic firms competing with MNEs from other coun-
tries. The contemporary fundamental response of the firms today consists of build-
ing resilience to political risks (Sheffi 2007; Van der Vegt et al. 2015), which are
risks of uncertain political events or conditions that, if and when they occur, can
cause significant negative multi-country or multi-industry impact for prolonged
periods of time (World Economic Forum (WEF) 2015). Building such resilience (or
buffer), however, depends on the types of political risks prevalent in the firm’s busi-
ness environment, the potential degree of the firm’s exposure to those risks, and the
firm’s capabilities to mitigate and diminish their adverse impact (Bremmer and
Kupchan 2017).
The goal of this chapter is to track the changing political landscape globally in
the last three decades with a focus on political risk and its impact on international
marketing activities of companies. To do this, the chapter identifies the most influ-
ential sources of political risk within a country and offers a novel measure of politi-
cal risk to analyze the changing political landscape across the world, with a sharper
1
Political risk deals with uncertainty originating in political actions of governmental and nongov-
ernmental actors (e.g., NGOs, terrorist groups, MNEs) that lead to adverse consequences for
business.
2 A Thematic Exploration of the Changing Trends in Political Risk and Global… 17
focus on BRICS2 and MINT countries. Furthermore, this chapter synthesizes the
evolution of global marketing scholarship and its main research areas including the
accumulated scholarly knowledge on influences of politics on international market-
ing. The main goal is to identify (1) global, regional, and country levels of political
risk during the last 30-year period, 1986–2015; (2) whether and how the scholarship
of global marketing has studied and captured the changing nature of political land-
scape and its influence on global marketing, i.e., the evolution of various research
areas within global marketing; and (3) existing gaps in research in global marketing
and potential future research directions on the impact of political risk on global
marketing.
To trace the 30-year political risk dynamics and its multiple country-specific
dimensions, we use International Country Risk Guide (ICRG) monthly political risk
index and its components for the 1986–2015 period. This index has the longest run-
ning time-series data since 1984 and the broadest coverage of different facets of
political risk, i.e., 12 components for about 140 countries. To outline global market-
ing scholarship, we chose seven top journals in the 1986–2015 period: Journal of
Marketing (JM), International Marketing Review (IMR), Journal of International
Marketing (JIM), Journals of International Business Studies (JIBS), Management
International Review (MIR), Journal of World Business (JWB), and International
Business Review (IBR). Altogether, temporal trends in political risk across the globe
and in global marketing scholarship should provide a comprehensive picture of the
past research retrospectively and offer perspectives and contexts on the changing
landscape of political risks for current and future research. This will set the stage for
understanding why some research topics in the confluence of political risk and
global marketing were overstudied and others understudied and how they might
have shaped global marketing activities of MNEs. Going forward, these understud-
ied areas will serve as the basis for identifying gaps in the scholarship at the inter-
section of global marketing and political risk.
To analyze trends in political risk across countries in the past 30 years (1986–
2015) and to accurately assess country levels of political risk, we need to understand
the underlying processes that generate various observable components, i.e., dimen-
sions of political risk. Such understanding seems to be lacking, as there seems to be
no scholarly or practitioner publication attempting to study how to (a) describe the
“structure of political risk” among its various observable components within a
country and (b) what this structure could look like if one uses ICRG components of
political risk. The answer to both of these questions depends on the identification of
the underlying latent structure that produce changes in political environment within
a country. Since only ICRG components are observable, factor analysis of ICRG
components of political risk index allows us to investigate the latent structure of
political risk within a country and across time. The value of this approach for schol-
arly and practitioner communities is that our chapter will provide a more systematic
2
BRICS stands for Brazil, Russia, India, China, and South Africa. MINT stands for Mexico,
Indonesia, Nigeria, and Turkey.
approach for using accumulated quantitative information on political risk in the past
30 years.
To analyze the research trends in global marketing scholarship, our chapter uses
content analysis of the abstracts and titles of all published papers in seven journals
specified above in the 1986–2015 time period and each of the three time periods
separately, 1986–1995, 1996–2005, and 2006–2015, to examine the temporal
changes across research areas. The main premise of the content analysis is to iden-
tify and examine the changes in research domains within global marketing across
30 years based on the weighted frequencies of the main theoretical concepts. Thus,
the use of the content analysis allows us to trace the historically persistent and emer-
gent intellectual foundations of global marketing and subareas of research as politi-
cal risk’s impact on international marketing.
The chapter proceeds as follows. The first section will focus on the analysis of
the 30-year political environment in BRICS, MINT, and the worldwide trends based
on ICRG political risk index including a brief overview of the exploratory factor
analysis and its use for identifying the underlying country-specific dimensions of
political risk. The second section will briefly outline the methodological founda-
tions of content analysis to map research areas and trends in global marketing and
political risk across the entire global marketing scholarship in each decade of the
entire 30-year period, 1986–1995, 1996–2005, and 2006–2015. Once the key
30-year global marketing scholarship and political risk trends are analyzed, the third
section will focus on the identification of potential gaps and future research direc-
tions in global marketing scholarship.
ection 1: Country, Cluster and Global-Level Trends

S
in Political Risk in 1986–2015
In this section, we focus on the identification and analysis of the prevalent sources
of political risks across countries in the past 30 years by utilizing existing observ-
able indicators of various dimensions of political risk and subjecting them to explor-
atory factor analysis. Novel empirical measures have been developed by public and
private institutions to measure political risk. The main goal of the majority of these
measures is to inform investors and other stakeholders about the emergent political
challenges in different parts of the world based on the qualitative subjective assess-
ments of political risk by experts combined with the quantitative economic, finan-
cial, and political information.
Economist Intelligence Unit (EIU) developed the operational risk model to quan-
tify the risks to business profitability (EIU 2017). In 2007, Eurasia Group in col-
laboration with Citi Private Bank developed political risk index that intended to
synthesize the investment process research and political risk analysis to develop a
unique indicator providing better understanding of the trade-offs between financial
rewards and political risk, especially in frontier and emerging countries (Eurasia
2007). Now, this political risk index provides the basis for the annual Eurasia’s flag-
ship publication, “Global Risks,” that offers past political trends and future scenar-
ios of the geopolitical developments around the world (Eurasia 2017). Maplecroft
(2017) offers one of the broadest set of indicators (over 150) including political risk
index to benchmark inherent risk in any country, city, or specific types of assets.
Relying on over 30 individual data sources to assess different dimensions of gover-
nance3 in a country, Worldwide Governance Indicators (WGI) developed a survey-
based aggregate indicators to quantify political stability, government effectiveness,
regulatory quality, rule of law, control of corruption, and government accountability
(WGI 2017). In 1995, Transparency International developed Corruption Perception
Index (CPI) to evaluate the extent of corruption4 across countries based on about 13
different data sources from 12 different institutions that could perform regular and
credible assessments of corruption perceptions from country experts and business
people (Transparency International 2017b).
Political Risk Services (PRS)’s International Country Risk Guide (ICRG) is one
of the oldest indicators of political risk developed in 1984, and, therefore, it pro-
vides one of the longest time-series data for political risk for about 140 countries
(PRS 2017a). The main goal of ICRG index since its inception has been to assess
different types of risks to international business operations that currently include 22
components split into three main categories, economic, financial, and political risk.
Political risk index has 12 main components: government stability, socioeconomic
conditions, investment profile, internal conflict, external conflict, corruption, mili-
tary in politics, religious tensions, law and order, ethnic tensions, democratic
accountability, and bureaucratic quality, which when combined measures the total
political risk at the country level on a monthly or annual basis.
Each of these measures boasts important information about changes in political
environment at the global, regional, and country levels. Many of these measures are
used in scholarly research and company reports to assess past trends and forecast
the emergence of new ones. In an increasingly interconnected world, these multiple
efforts result in companies having no dearth of information about international and
domestic politics in different countries supplied by multiple private and public orga-
nizations specializing in political risk analytics, risk management, and/or political
risk insurance (e.g., Eurasia Group, EDC). Yet, abundant information might not
imply specific knowledge about political dynamics and its impact on competition in
particular markets where the firm operates and on its required strategic responses.
The evidence pertaining to the continued and new losses of many companies due to
political risks demonstrates apparent deficiencies in internal capabilities of
3
“Governance consists of the traditions and institutions by which authority in a country is exer-
cised. This includes the process by which governments are selected, monitored, and replaced; the
capacity of the government to effectively formulate and implement sound policies; and the respect
of citizens and the state for the institutions that govern economic and social interactions among
them” (WGI 2017).
4
“Corruption is the abuse of entrusted power for private gain. It can be classified as grand, petty
and political depending on the amounts of money lost and the sector where it occurs” (Transparency
International 2017a).
companies to systematically incorporate information on country-specific latent

structures of political risk into the formulation of their strategies. To overcome this
gap, this section offers an overview of the political dynamics in the past 30 years
and a novel measure of political risk using the ICRG data, i.e., EFA-based political
risk index, to capture the most influential forces shaping a country’s political risk
structure.
Data and Methodology
Among different measures of political risk, we chose the PRS’s ICRG political risk
index’s 12 components because it has the broadest coverage of temporal, country,
and phenomenon-based dimensions that are required to draw conclusions about the
underlying latent structure of political risk within a country. The data consist of
monthly observations of 12 ICRG variables for each of 140 countries for the period
of 1986–2015. Each of these ICRG components is supposed to measure an extent of
the presence of a particular feature of a country’s political environment. For exam-
ple, an ICRG component “corruption” quantifies the level of corruption within the
political system of a country (PRS 2017b).
Our objective is to identify the latent factor structure of a country’s political risk
by uncovering groups of highly interconnected ICRG components that are explained
by fewer underlying factors. To achieve this data reduction objective, we employ
exploratory factor analysis (EFA). We analyze the within-country variability of
political risk structure by estimating the relationships among the 12 observable
ICRG components across time for every country. These components have relatively
high correlations for every country as many of the ICRG components are conceptu-
ally related. For example, high levels of corruption within a country imply a great
extent of various illegal activities (e.g., extortions, a black market, racketeering) and
in general are associated with the lack of contract enforceability according to the
rule of law, problems with government effectiveness, government instability, demo-
cratic accountability, and bureaucracy quality (Cuervo-Cazurra 2016; Jiang and Nie
2014; Sequeira and Djankov 2014; Luiz and Stewart 2013; Langbein and Knack
2010).
To compare the political risk across countries and over time, we develop a novel
EFA-based index of political risk (EFA-based index). Our EFA-based index uses the
orthogonality assumption of the extracted latent factors (i.e., factor scores) which
implies that we can treat them as separate dimensions that form a corresponding
coordinate system, an N-dimensional real space.5 Within this coordinate system
(and in general, in any N-dimensional real space), every point can be considered a
vector, the length of which represents the magnitude of the corresponding metric
defined on that space and thereby associated with that vector. Therefore, this metric
5
N is indicating the number of the factors satisfying the Kaiser’s criterion and each country’s space
dimensionality depends on the EFA results.
should capture the extent of a country-level political risk across country-specific

dimensions of political risk in a particular 5-year time period. We employ a com-
mon approach to measure a vector’s length from the origin of the coordinate system,
i.e., the Euclidian distance.
We run EFA separately for each country’s 5-year time series of 12 ICRG observ-
able components of political risk with 60 observations (12 months*5 years= 60).
Thus, the columns in this EFA are 12 ICRG variables, and the rows are the monthly
observations of those 12 variables for one country. We assume that the error terms
are uncorrelated.6 Such EFAs allow us to make inferences about the relationships
among the 12 ICRG components for every country for every 5-year period, 1986–
1990, 1991–1995, 1996–2000, 2001–2005, 2006–2010, and 2011–2015. As a result,
we derive a comprehensive picture of changes in a country’s underlying political
risk structure based on the historical time-series trends of each of the ICRG variable
and the overall political environment based on the relationships among those ICRG
variables.
Country-Level Political Risk Trend: An Illustrative Example
EFA for Russia in 2001–2005
To illustrate, Fig. 2.1 schematically demonstrates the three underlying factors of

Russia’s political risk structure in 2001–2005, F1, F2, and F3. Table 2.1 provides
rotated factor loading matrix and unique variance estimates for Russia in 2001–
2005, from which we extracted the appropriate number of factors based on Cattell’s
scree test (Cattell 1966) and Kaiser’s criterion of eigenvalues greater than unity.
Figure 2.2 contains the scree plot with eigenvalues on the y-axis and the number
of factors on the x-axis. Table 2.1 and Fig. 2.2 demonstrate that the three factors
have a large eigenvalue compared to other factors and explain a predominant part of
the variance in the data on Russia’s political risk structure for 2001–2005. The inter-
pretation of the factors is subjective and in general depends on the values of the
factor loadings, which are the correlations between a factor and a variable and
thereby demonstrate the extent to which each of the variables contributes to the
meaning of the factor.
Factor 1 correlates most with corruption (0.91), religious tensions (0.81), and
ethnic tensions (0.92) as well as describes the largest amount of variance in the data
(31%).7 Since corruption, ethnic, and religious tensions explain about 31% of varia-
6
We recognize that the data structure implies that we have 60 repeated monthly observations for
every ICRG component. However, we make an assumption that during the 60-month period for
which we run EFA, there are stronger exogenous forces that drive each of the monthly ICRG com-
ponents making the repeated observations relatively independent. The p-factor analysis could be a
way to relax the independence assumption of the repeated observations; however, we leave it for
future research.
7
The amount of variance that is explained by a factor is calculated as the sum of the squared factor
Fig. 2.1 EFA path diagram for Russia, 2001–2005
Table 2.1 Rotated factor loadings for Russia, 2001–2005
Variable Factor1 Factor2 Factor3 Factor4 Factor5 Factor6 Factor7 Uniqueness Communality
government stability -0.5332 0.0721 0.3245 0.0217 0.5215 -0.0015 0.0002 0.3329 0.6671
socioeconomic conditions 0.5539 0.7765 -0.096 0.2629 0.0337 -0.0789 -0.0041 0.0045 0.9955
investment profile 0.1825 0.9359 0.0157 0.0464 -0.1131 -0.0887 -0.0039 0.0677 0.9323
external conflict -0.1921 -0.2611 0.7982 -0.0519 0.0248 -0.0384 -0.0014 0.2531 0.7469
internal conflict -0.4632 -0.1477 0.6726 -0.2261 0.2295 0.0864 0.002 0.2 0.8
corruption 0.9051 0.3284 -0.1876 0.1681 -0.045 0.023 -0.0013 0.007 0.993
law and order 0.3106 0.7622 -0.4531 0.1956 0.1776 0.1084 0.0007 0.0358 0.9642
religious tensions 0.8119 0.3441 -0.1974 0.3629 0.0317 -0.1421 0.0066 0.0306 0.9694
ethnic tensions 0.9218 0.2537 -0.1778 -0.1166 -0.1251 0.0762 -0.0016 0.0193 0.9807
democratic accountability 0.1716 0.4275 -0.1904 0.677 0.0055 0.0121 -0.0003 0.293 0.707
military in politics 0.2642 0.825 -0.3363 0.1436 0.0507 0.1281 0.0099 0.0968 0.9032
Notes: Factor loadings areestimated using Maximum Likelihood method with varimax rotation
12 ICRG components are used. The factor loadings larger than 0.6 are in bold.
tions in political risk in Russia in 2001–2005, we name this factor as “corruption,”

because many of the religious and ethnic tensions in a multinational Russian
Federation seems to be connected (or even driven) by the distribution of political
power, “administrative resources controlled illicitly by governors,” and the degree
of influence exerted by various government officials in the regions with “pervasive”
loadings of that factor and then divided by the number of the variables (and multiplied by 100%).
Fig. 2.2 Scree plot for Russia, 2001–2005
corruption at the “regional level” (Slider 2010, p. 186). The link between corrup-
tion, ethnic, and religious tensions could become especially apparent once we
examine media freedom across different regions as free media, in general, is associ-
ated with higher levels of transparency and greater accountability of government
(Brunetti and Weder 2003; Dininio and Orttung 2005). For example, when assess-
ing whether a region in Russia has a “free” media, the Glasnost Reform Foundation
(GDF) found in its 2007–2008 survey that 17 out of 81 regions that had “unfree”
media included many of the non-Russian regions (e.g., Basjkortostan, Ingushetia,
Kalmykia, Karachai-Cherkessia, Mari El, Mordovia, Tatarstan, and Chechnya)
(Slider 2010).8 Moreover, other evidences demonstrate that the greatest barrier to
foreign direct investment (FDI) in Russia is corruption (Baranov et al. 2015),
whereas the quality of the subnational governance is influenced by norms and val-
ues of the population (Grosfeld et al. 2013; Knack and Keefer 1997; and Menyashev
and Polishchuk 2011). Additional events, starting with 1999 second Chechen war
and the inauguration of Vladimir Putin as President in 2000 led to the increased
tolerance in Chechen Republic and other North Caucasus Republics (Dagestan,
Ingushetia, North Ossetia, and Kabardino-Balkaria) of “generalized corruption,
clan hegemony, and nepotism.” Thus, not surprisingly the first factor loads most
highly on corruption, ethnic, and religious tensions.
8
According to the survey of the Russian journal Ekspert (“Expert”) conducted in 2007 on the
degree of influence of various officials or other persons in regions, local religious leaders were
ranked fourth in their influence within the region after the Governor, Region Legislature Chair, and
the Mayor of Capital (Slider 2010).
Factor 2 correlates most with socioeconomic conditions (0.78), investment pro-

file (0.94), law and order (0.76), and military in politics (0.825) as well as describes
the second largest amount of variance in the data (30%) on political risk. President
Putin appointed siloviki, “those with the background in the armed forces or security
services,” to many important positions in Russian politics, which led to “the g rowing
power of the military” (Mathers 2010, p. 253) not only in politics but also in the
economy as political and economic areas have become tightly interwoven in Russia
since 2000. The presence of siloviki in Russia’s higher echelons of political power
and in the key positions of the largest state-owned enterprises has led to further
politicization and selective enforcement of law (Smith 2010; Draguiev 2015) which
in turn contributed to additional challenges of contract enforcement (one of the
main components of ICRG Investment Profile) (Frye 2004). Thus, we named this
factor as “politicization of law enforcement.”
Factor 3 correlates most with external conflict (0.8) and internal conflict (0.67)
accounting for about 15% of the variance in the political risk data. Russia’s counter-
terrorism operation in the republic of Chechnya ended only in 2009 according to
official Kremlin’s declaration with the end of military phase in Chechnya only in
2002 (O’Loughlin et al. 2011). Unfortunately, conflict in North Caucasus region
fueled terrorist attacks in other Russian regions.9 ICRG external conflict component
is defined as anything from any non-violent external pressure such as diplomatic
pressure, sanctions, trade restrictions, and the like to violent external pressure from
cross-border conflicts to all-out war. During Putin’s first two terms as president
(2000–2008), Russia returned “as a major international player,” while witnessing a
“worsening of relations with the West” (Mankoff 2009, p. 23). Thus, we name
Factor 3 as “Conflicts.”
The values of these three factors can be considered as the three underlying
dimensions of political risk structure in Russia in 2001–2005.10 Table 2.1 also pro-
vides the measurement errors of the ICRG components or, in other words,
“Uniqueness,” a unique variance of an ICRG component that cannot be explained
by any of the factors. No single ICRG component contains more than 33% (govern-
ment stability) of the variance that we cannot attribute to at least one newly derived
three dimensions of political risk structure in Russia in 2001–2005. That is, indi-
vidually, these ICRG components do not explain much of the variance of the latent
structure of political risk in Russia.
9
During this time several high profile cases include October 2002’s hostage takings at the Dubrovka
Theater in Moscow leading to over 170 deaths; June 2004 attack on Nazran town in Ingushetia
targeting 15 government buildings and leaving 88 dead; August 2004’s hijacking of two domestic
airlines; September 2004’s attack on a secondary school in Beslan, North Ossetia, leading to over
380 deaths including many children; and October 2005’s massive attack on the capital of
Kabardino-Balkaria, Nal’chik, leaving 100 dead including 14 civilians (O’Loughlin et al. 2011).
10
To check the fit of the three-factor model, we performed a likelihood ratio (LR) test, which com-
pares the three-factor model to the alternative one. The LR statistics is 930.45 (p-value 0.00)
implying that the LR test rejects the null hypothesis that the estimates of the two models are equal
in favor of the three-factor model.
Fig. 2.3 Change in factor scores for Russia, 2001–2005
EFA-Based Index for Russia in 2001–2005
We next use the corresponding factor scores to construct our new measure of the
country’s political risk, EFA-based index that accounts for the country’s underlying
political risk structure. Each of the three factors that we calculated in the Russia
example represents a unique unobservable political force that is formed from the
interactions among related sources of political risk. Figure 2.3 demonstrates the
changes in the factor scores for Russia for each year during 2001–2005. We imposed
orthogonality restriction on the factors as part of the EFA modeling, which implies
that F1, F2, and F3 on Fig. 2.1 are orthogonal to each other. This orthogonality of
the three factors implies that we could mathematically define a new 3D space that
represents the latent political structure of Russia in 2001–2005. The estimated fac-
tor scores represent the extent of the presence or magnitude of each of the three
dimensions and correspond to a point or a vector drawn from the origin of the coor-
dinate system in this new three-dimensional space. Thus, to calculate the EFA-
index, we employ the Euclidian distance to measure the length of the vector in the
3D space representing the extent of political risk that accounts for the underlying
latent political risk structure.
Fig. 2.4 Factor loadings for the first two factors for BRICS and MINT countries
Cluster-Level Political Risk Trends: BRICS and MINT
Following the same procedure, we identified the underlying latent factors of politi-
cal risk for the BRICS and MINT countries. Figure 2.4 depicts the loadings of the
first two factors for these countries in three time periods: 1986–1995, 1996–2005,
and 2006–2015. Figure 2.4 demonstrates the clusters of the variables with similar
factor loadings. For example, the first leading factor of Indonesia in 1986–1995 cor-
related most with external conflict, bureaucratic quality, law and order, internal con-
flict, corruption, ethnic tensions, military in politics, and government stability,
whereas the second leading factor has most correlation with socioeconomic condi-
tions and investment profile. By 2006–2015, the underlying political structure in
Indonesia had changed with the leading latent factor influencing most democratic
accountability, external conflict, and law and order, whereas the second leading fac-
tor influencing investment profile, internal conflict, and government stability.
Fig. 2. 4 (continued)
Figure 2.5 shows the year-to-year temporal changes in the EFA-based index, i.e.,
vector employing Euclidean distance for BRICS and MINT countries for 30 years.
Global-Level Political Risk Trends: Geographic Map
For an overview of the changing nature of political risk structures manifested by

EFA-based index, we calculated the EFA-based index for every country for which
ICRG index is available and created a geographic map for each time period
(Fig. 2.6). To place countries in different groups of political risk, we used natural
breaks (Jenks) in combinations with quantile classification and manual intervals to
identify the groupings of countries based on the similarities of the observations
(ArcGIS 2017). In addition, we also provide geographic maps for each time period
using ICRG index based on the sum of the 12 components.
Our proposed EFA-based index using orthogonal factors (i.e., factor scores)
allows us to project the political risk in an N-dimensional real space onto a point,
wherein every point can be considered a vector. This metric offers the advantage of
comparing political risk across countries and time periods using a common denomi-
nator. The plot of EFA-based index for each country reveals changes in the overall
28
Fig. 2.5 Temporal changes in the EFA-based index of political risk of BRICS and MINT countries for 1986–2015
J. Agarwal et al.
potency of political risk across time. This index works relatively fine when we need
to identify the most influential political risk drivers and the underlying structure of
political risk for a short time period which is especially evident when we interpret
factor loading plots (see Fig. 2.5). However, our index might be sensitive when we
average it across 10 years. For example, some of the Sierra Leone’s EFA-based
index values for some of the years were the largest compared to the rest of the coun-
tries, as Sierra Leone had a civil war in 1991–2002. However, when we averaged
across 10 years, for some reason, in 1986–1995 the country with the largest value of
EFA-based index (and thereby the largest political risk) was Germany (or East
Germany prior to 1989). One explanation is that when the values of political com-
ponents do not change over time, those components are dropped out of the factor
analysis model. That is, what EFA-based index might be also capturing is more of
the changes in political risk, rather than just the level of political risk. By contrast,
ICRG-constructed political risk rating captures the levels of political risk (based on
the original 100-point ICRG political risk index). One supporting evidence to this
effect is found in 1996–2005, when the ICRG index rating demonstrated declining
political risk in many countries, whereas our EFA-based index showed an increase.
In general, we would expect that after September 11, 2001, the overall terrorism
threat level in many advanced countries would increase, plus, there were other
changes in the world politico-economic system (Iraq war in 2003 that involved not
only Iraq but also some of the NATO countries), which would imply that the overall
risk level in many countries should be higher in the second decade (1996–2005)
compared to that in the first decade (1986–1995).
ection 2: Research Trends in Global Marketing and Political

S
Risk in 1986–2015
In this section, our goal is to identify whether and how the scholarship of global
marketing has captured the changing nature of the political risk landscape, vis-à-vis
changing political risk and its influence on global marketing scholarship, i.e., the
evolution of various research themes/topics in global marketing. The scholarly work
in global marketing and political risk provides the elements of the main definitional
theoretical concepts that gave rise to additional neologisms as the scholarly area on
the study of nonmarket risks associated with political actions of government and
nongovernment actors has been developing in the past 30 years. These neologisms
are a natural way for scholarship to expand as global marketing phenomena itself
has been changing requiring novel and more nuanced explanations.
The identification of the research trends in global marketing and its connection
to the trends in political risk research in international business (IB) and international
marketing (IM) literature since the last 30 years, 1986–2015, consists of content
analysis of the topics studied in IB/IM journals based on the abstracts/titles. First we
identified the top journals that publish papers in global marketing and political risk
30
J. Agarwal et al.
Fig. 2.6 EFA-based index and ICRG political risk rating: geographic maps 1986–2015
in international business based on the 5-year journal impact factors (IF) as of 2016
(Thomson Reuters 2016). The final list included seven journals: International
Business Review (IBR) (IF = 3.095), International Marketing Review (IMR)
(IF = 3.450), Journal of International Business Studies (JIBS) (IF = 7.433), Journal
of International Marketing (JIM) (IF = 4.910), Journal of Marketing (JM)
(IF = 8.971), Journal of World Business (JWB) (IF = 4.541), and Management
International Review (MIR) (IF = 2.732). The number of articles for each journal
for the entire time period is IBR, 1030; IMR, 853; JIBS,1311; JIM, 460; JM, 1085;
JWB, 1094; and MIR, 896. The total number of publications in these seven journals
was 6729. The number of articles for all journals (combined) for each year from
1986–2015 is in Fig. 2.7.
Data and Methodology
The data for the content analysis part consists of all abstracts and titles from the
seven journals in the period 1986–2015. We assume that the main thrust of any
scholarly article is captured in both the title and the abstract of the article. For the
rest of the chapter, we herein refer to the combination, i.e., title and abstract of a
scholarly article, as a document. We decided not to rely on author-provided key-
words to identify the main research trends as the metadata on keywords might not
be consistent across the seven journals for the entire 30-year period. To conduct
content analysis of the documents for the purpose of identifying the main research
trends in global marketing and political risk, we used the automated and dictionary
approaches. For both approaches we used WordStat 7.1.17 from QDA Miner 5.0
software (Provalis Research 2017).
Automated Content Analysis Approach
Automated content analysis approach uses exploratory factor analysis (EFA) with
words and their frequencies as the data for identification of the main topics for each
of the documents and the entire collection. To identify discriminative and unique
keywords for the entire corpus of the documents based on the calculated TF*IDF11
score, we used WordStat’s “topic modeling” feature. TF*IDF increases with the
number of occurrences of the word within a document and therefore indicates that
the word is important to characterize that document. TF*IDF also increases with the
rarity of the word within the collection of the documents and therefore captures how
discriminative the word is within the entire collection. In the EFA analysis, each
document is represented by a vector of TF*IDF scores assigned to each word of that
document.
11
TF*IDF stands for term frequency–inverse document frequency.
Fig. 2.7 Total number of publications per journal per year, 1986–2015
For the first and subsequent rounds of the EFA, we set the number of topics to 30
and the minimum factor loading to 0.3 to ensure keeping only the words that char-
acterize most of the topics with the rest of the words being cutoff (0.3 is the factor
loading that a word needs to reach to be left in the solution). We excluded the words
that appear in 95% of the cases as these top 5% most frequent words in the corpus
are the nondiscriminate common ones such as, for example, “international” or
“marketing” in addition to a general “exclusion dictionary” of the WordStat that
includes the words such as, for example, articles (“the,” “an,” “a”) and alike. For
over 6000 documents in our collection, the top 300 words with the highest TF*IDF
scores out of the total number of just over 18,551 unique words (948,950 total
words) in the entire corpus of documents should provide relatively valid results for
the automated identification of the main topics (Provalis Research 2017).
After the first run of the automated content analysis, the identified topics with the
corresponding eigenvalues and the list of words that correspond to each topic
reflected to some degree the major areas of these top seven IB/IM journals that tend
to publish the articles on global marketing. Some of the topics included “capabili-
ties,” “MNE,” and “Alliance.” However, one cycle of the automated content analysis
is not enough as words cannot really characterize the topic and can be misleading at
times if the same concept has two different meanings such as MNCs and MNEs,
which are placed in two different categories. To improve the results of the auto-
mated content analysis, we ran a few rounds of EFA utilizing the “topic modeling”
feature in WordStat with each round excluding nondiscriminative and out-of-topic

words based on the top TF*IDF scores calculated for the words. The resulting cat-
egories included the main global marketing and political risk-related categories.
Figure 2.8 lists the percent of the cases per year for some of these preliminary topics
that emerged from the EFA analysis of the word frequencies.
To understand the preliminary relationships between the topics from the auto-
mated content analysis, we run the co-occurrence and clustering analysis based on
the occurrences of the topics associated with the most frequent keywords in the
same sentence. The clustering on the same sentence helped to identify potential
phrases from more narrow clusters and the potential broader topics from more
extensive clusters. Figure 2.9 demonstrates some of the main topics appearing dur-
ing the entire 30-year period and some of the preliminary clusters of those topics.
We see, for example, that intellectual property rights often appear in the same sen-
tence as corruption and officials, some of which in turn appear in the same sentences
as enforcement and barriers. Political risk appears more often in the same sentence
as government regulation, which appear more often (compared to co-occurrence
with other topics) with import and export topic.
However, even though automated content analysis gives us a glance at some of
the predominant topics in the collection of published articles, we cannot fully rely
on it to identify the main research topics because some of the words might have dif-
ferent meaning depending on the context, while others do not have a particular
meaning if not used as part of a phrase. For example, if we include the keyword
“war” to potentially capture those papers that deal with different types of internal or
external military conflicts, then the set of abstracts containing “war” would also
include those scholarly articles that are written on “war for customers,” which is a
completely unrelated concept to a civil or an interstate warfare.
Since the automated topic modeling is more of an inductive approach for having
a general idea about various potential topics in the collection of the documents, this
approach did not allow us to identify more specific topics such as the ones associ-
ated with the 12 ICRG political risk components or more specific global marketing
research topics. Thus, we turn to the second content analysis approach, a dictionary
approach, to identify the key research trends in global marketing and the impact of
political risk on international marketing.
Dictionary Approach
Dictionary approach relies on the construction of a dictionary that categorizes the

discriminative phrases by their associations with particular research categories and
subcategories. We followed seven steps to build the dictionary to identify the main
research trends and key research areas in global marketing and political risk. Relying
on the main theories in global marketing, international business, and political sci-
ence as well as the co-occurrences and cluster analysis results of the automated
34
J. Agarwal et al.
Fig. 2.8 Distribution of the percentages of cases for each automatically identified topic, 1986–2015
Fig. 2.9 Preliminary clusters of broad areas of global marketing scholarship based on automated
content analysis
content analysis, we build the categorization dictionaries for global marketing

scholarship. We followed the following main steps to building the dictionary:
1. Identify the main keywords based on the most frequent phrases and keywords
from the automated approach.
2. Find the synonyms within the corpus for the identified keywords and overlap-
ping phrases in which the most frequent phrases appear combined with syn-
onyms and different abbreviations of the same concepts and terms into larger
categories (e.g., various ways to describe “FDI,” “foreign direct investment,”
“foreign investments” were combined in a large category called “FDI”).
3. Create the categories of the main research themes for global marketing, for
which we coded the phrases associated with the global marketing theories based
on the key theoretical concepts and the results of the automated analysis.
4. Utilize ICRG categorization to classify political risks by assigning the keywords
and key phrases to each of the 12 components of political risk that ICRG defines.
To identify research themes on political risk, we coded the extracted unique
phrases and words according to the 12 dimensions of ICRG index (PRS 2017).
By definition of ICRG index, each dimension captures a particular aspect of any
country’s political environment. Thus, by applying this differentiation to the
analysis of the research trends in the top marketing journals, we are able to iden-
tify the number of papers that studied each of the 12 ICRG components. These
frequencies allowed us to understand the extent of the scholarship on each politi-
cal risk dimension in top international business and global marketing journals.
5. Add the identified phrases to the appropriate categories of global marketing and
political risk to make sure that a phrase does not carry multiple meanings within
the context.
6. Validate the dictionary making sure that every phrase included in the correspond-
ing category measures only with reference to specific phenomena or concept
(e.g., we had to exclude the word “war,” and, instead, in the “external conflict”
category, we included more specific phrases characterizing conflictual relation-
ships between countries such as “Cold War,” “Gulf War,” “war/military animos-
ity,” etc.).
7. Reapply the dictionary to the collection of the documents to identify those docu-
ments that are not categorized and search the uncategorized documents for the
additional phrases that might be used to study various research questions in
global marketing or that might be used to define the ICRG types of political
risks.
Once the dictionary achieved a good coverage (over 60% of all papers from the
top seven journals were jointly covered by global marketing and ICRG dictionar-
ies), we applied the dictionary to the entire corpus of abstracts and titles to examine
the research trends in global marketing. Figure 2.10a, b demonstrates the changes in
the dictionary-based research areas of global marketing and ICRG political risk for
the entire 30-year period (similar to Fig. 2.8).
To better understand the dynamics of the global marketing scholarship, we com-
pared the frequencies of papers that were published on global marketing and politi-
cal risk (against research topics on world economic system and international
business) across seven journals and three different time periods, 1986–1995, 1996–
2005, and 2006–2015. We also compared joint occurrences of the research themes
from both global marketing and political risk, which allowed us to understand the
extent of joint scholarship on different aspects of political risk and global market-
ing. Country and region coverage have been very extensive across all time periods;
however, we were especially interested in the research on BRICS and MINT
countries.12
We identified four broad research themes: global marketing, international busi-
ness, political risk, and world economic system, each of which has a number of
categories and subcategories.13 The word cloud (Fig. 2.11) demonstrates the extent
of research in the entire corpus of articles on every subcategory and geographic
region with the sizes of the words and phrases reflecting the number of scholarly
articles written on those topics. The total number of all identified key phrases and
12
For robustness checks, we also conducted the analysis of the keywords that authors assigned to
their articles following the approach taken by Lamberton and Stephen (2016). Results are available
upon request. However, we believe that the content analysis based on the keywords is somewhat
narrow as the number of keywords is not discriminative enough and very limited resulting in their
inability to capture the essence of the entire paper. In this regard, relying on the content of abstracts
and titles produces a more comprehensive and thorough analysis of the research trends.
13
All categories and subcategories for keywords are available upon request.
2 A Thematic Exploration of the Changing Trends in Political Risk and Global…
37
Fig. 2.10 (a, b) Distribution of number of cases on global marketing (Dictionary Approach), 1986–2015. Distribution of number of cases on ICRG
political risk categories (Dictionary Approach), 1986–2015
38
J. Agarwal et al.
Fig. 2.10 (continued)

Fig. 2.11 The word cloud of keywords and key phrases in the entire corpus of scholarly articles,
1986–2015
words in the final dictionary for global marketing is 906, for ICRG political risk is
881, for international business is 184, and for world economic systems is 175.
After applying the WordStat exclusion dictionary on the entire 30-year collection
of articles, the total number of unique words in 6729 abstracts and titles is 17,453
out of 929,967 total words. 82.9% of the entire collection of abstracts was written
on any of the four major topics, global marketing, political risk, international busi-
ness, or world economic system (which also includes BRICS, MINT, and the rest of
the countries), whereas the rest of just over 17% of articles was written on other
topics. Over the 30-year period, JIBS published most articles on IB (704) and politi-
cal risk (494), whereas JWB published the largest number of articles on world eco-
nomic system (716),14 and IMR was the leader in the number of published articles
on global marketing (521) (Fig. 2.12). JM has the least number of publications in
almost all four categories. The topics on global marketing and IB co-occur more
often in the same paper than the pair of topics on political risk and world economic
system.
Over time, the number of articles on each broad topic in IB and global marketing
has increased with a noticeable jump after 2006 and after 2007 for political risk. The
topic of world economic systems (which also includes all countries) has been
researched most extensively during the entire 30-year period, though after 2008 the
14
Note that the category “world economic system” includes the mentioning of all the countries.
Fig. 2.12 Number of published papers per topic per journal, 1986–2015. Note: the category
“world economic system” includes mention of all the countries
relative number of articles on world economic system has declined compared to the
number of articles on global marketing and international business.
In each of the three time periods, 1986–1995, 1996–2005, and 2006–2015, we
can see the steady increase in the number of publications on each of the topics
(Fig. 2.13), although the topics pertaining to MINT countries have not increased
substantially over the entire time period, whereas research on BRICS countries has
been steadily increasing (Fig. 2.14). Research on different regions and countries has
been the largest in 1996–2005 time period followed by the research on marketing
and international business, whereas research on global marketing and political risk
exceeded the one on international business in 1986–1995. In the last decade, 2006–
2015, research on IB had the largest number of published papers followed by
research on regions and countries, global marketing, and political risk. Research on
various aspects of the world economic system, such as international institutions,
global economic trends, foreign economic policy, and host countries, has been
increasing over time with substantial jump in research on host countries and world
economic trends in the last decade (Fig. 2.14).
Research Trends in Global Marketing in 1986–2015
In 1986–2015, 39.2% of the papers published in the seven journals are on global
marketing, and if we add research on BRICS and MINT countries, then the total
coverage is 48.4%. The largest number of papers is written on marketing entry
modes, export, FDI, international joint ventures (IJVs), and strategic alliances (SAs)
as well as branding and international marketing (Fig. 2.15). The predominant global
marketing topics on BRICS included FDI, IJVs, export, international marketing,
Fig. 2.13 The number of publications per major topic for each time period: 1986–1995, 1996–
2005, 2006–2015
2,940
2,646
2,352
2,058
1,764
1,470
1,176
882
588
294
0
IB GLOBAL REGION AND POLITICAL BRICS WORLD ECONOMIC MINT
MARKETING COUNTRY RISK SYSTEM
Fig. 2.14 Subcategories of the world economic system, for 1986–2015
mergers and acquisitions (M&As), and branding; for MINT these were wholly
owned subsidiary (WOS), country of origin, FDI, IJVs, SAs, and export marketing.
The least researched topics on global marketing for both BRICS and MINT are
macro marketing, luxury branding, local advertising, import marketing, counterfeit,
and global pricing (Fig. 2.16).
If JIBS, IBR, MIR, and to some degree JWB predominantly publish research on
various market entry modes as well as global pricing, country of origin, and local
advertising, JIM and IMR’s publications centered on global advertising, global
branding, regional branding, international marketing, export marketing, and to a
Fig. 2.15 Research topics in global marketing scholarship, 1986–2015
lesser degree import marketing, gray market, national branding, counterfeit market,
segmentation, and foreign branding. JM is sort of an outlier with main research top-
ics in global marketing related to private branding, branding, and to a lesser extent
luxury branding and licensing (Fig. 2.17).
Temporal distribution of global marketing topics across the three time periods
demonstrates that research on market entry modes has been steadily increasing
across all three time periods; however, specifically, research on FDI has signifi-
cantly increased only in the last decade, 2006–2015. If in the first two decades,
research in international marketing exceeded the volume of research in branding; in
the last decade research in branding has exceeded the one in international market-
ing. Research in M&A in 2006–2015 exceeded the one in IJVs which was the larg-
est in 1996–2005. The amount of research in the country of origin, global branding,
global advertising, and national branding has also jumped in the last decade, whereas
research in licensing has declined compared to the decade before.
esearch Trends in ICRG Political Risk in Global Marketing

R
Scholarship in 1986–2015
In 1986–2015, 31.3% of the papers were published on political risk, and if we add
BRICS and MINT countries, the coverage increases to 39.9%. The largest number
of papers was written on socioeconomic conditions, investment profile, bureaucracy
quality, and law and order. JWB published the largest number of papers on
Fig. 2.16 Co-occurrence of research topics in global marketing and research on BRICS and
MINT, 1986–2015
socioeconomic conditions associated with political risk (270), law and order (78),
government stability (20), democratic accountability (29), and internal conflict (8).
JIBS published the largest number of papers on investment profile component of
political risk (128), bureaucracy quality (102), corruption (22), and external conflict
(13), whereas MIR published 12 papers on issues related to external conflict. Most
research on aggregate level of political risk (keyword “political risk”) is published
by JIBS (52) (Fig. 2.18). Only one paper was published on ethnic tensions and reli-
gious tensions, both in JWB, and two papers on military in politics, one in JWB and
IMR each. The publications on ICRG financial and economic risks are mainly found
in JIBS (54), JWB (53), and MIR (37).
Over time, the volume of research on socioeconomic type of political risk jumped
in the last decade, 2006–2015 (Fig. 2.19). If research on political risks within the
ICRG category of investment profile was the second largest in the first two decades
(1986–2005) and almost no research on bureaucracy quality in the first decade
(1986–1995), research on bureaucracy quality became the second largest in the last
decade (2006–2015). Research on corruption, internal conflict, as well as law and
order has also significantly increased in the last decade compared to the ones in the
first two decades. Only research on economic and financial risks as well as the one
on democratic accountability decreased in the last decade.
Research on BRICS and MINT in 1986–2015
The research on various regions and countries (including the cultural groups) was
very extensive in 1986–2015 period with the number of papers on BRICS (969)
substantially exceeding the ones on MINT (179). Most research were conducted on
BRICS and political risk and least on BRICS and world economic system, whereas
Case Occurrence for JOUR
JIBS
JWB
IMR
MIR
IBR
JIM
JM
BRICS
MARKETING ENTRY MODE-FDI
MARKETING ENTRY MODE-EXPORT
INTERNATIONAL MARKETING
BRANDING
MARKETING ENTRY MODE-STRATEGIC ALLIANCE
MARKETING ENTRY MODE - IJV
MINT
SEGMENTATION
MARKETING ENTRY MODE - M&A
COUNTRY OF ORIGIN
EXPORT MARKETING
GLOBAL BRANDING
MARKETING ENTRY MODE - WOS
GLOBAL ADVERTISING
MARKETING ENTRY MODE - CONTRACTS
MARKETING ENTRY MODE - LICENSING
NATIONAL BRANDING
GLOBAL PRICING
PRIVATE BRANDING
GRAY MARKET
COUNTERFEIT
FOREIGN BRANDING
LUXURY BRANDING
REGIONAL BRANDING
LOCAL ADVERTISING
IMPORT MARKETING
LICENSING MARKETING
MACROMARKETING
Fig. 2.17 Distribution of global marketing topics per journal, 1986–2015

Fig. 2.18 Distribution of ICRG topics per journal, 1986–2015
MINT countries were most featured in the research on world economic system fol-
lowed by political risk with the rest of the world being featured most in the research
on IB and global marketing (Fig. 2.20).
JWB published the largest number of papers on both BRICS and MINT coun-
tries, whereas JM published the least number of articles on them (Fig. 2.21). The
number of publications on BRICS countries has been steadily increasing, whereas
the number of publications on MINT has been more or less within the same range
per year during the entire 30-year period (Fig. 2.22). If we look at each of the time
periods, the number of papers on BRICS has been steadily increasing from one
period to another, whereas the number of papers on MINT has been more or less the
same in each of the time periods. The number of papers for each of the categories of
640
576
512
448
384
320
256
192
128
64
0
1986-1995 1996-2005 2006-2015
ICRG - SOCIOECONOMIC CONDITIONS ICRG - INVESTMENT PROFILE ICRG - BUREAUCRACY QUALITY ICRG - LAW AND ORDER POLITICAL RISK [GENERAL]
ICRG ECONOMIC AND FINANCIAL RISKS ICRG - GOVERNMENT STABILITY ICRG - DEMOCRATIC ACCOUNTABILITY ICRG - CORRUPTION ICRG - EXTERNAL CONFLICT
ICRG - INTERNAL CONFLICT ICRG - MILITARY IN POLITICS ICRG - ETHNIC TENSIONS ICRG - RELIGIOUS TENSIONS
Fig. 2.19 Temporal changes in the number of published papers per ICRG political risk topic,
1986–2015
Proximity plot
IB
GLOBAL
MARKETING
POLITICAL
RISK
WORLD
ECONOMIC
SYSTEM
0 0.05 0.1 0.15 0.2 0.25

BRICS MINT REGION AND COUNTRY
Fig. 2.20 Co-occurrence of major research topics with research on BRICS, MINT, and the rest of
the world
political risk was larger for both groupings of countries, BRICS and MINT
(Fig. 2.23).
Among the nine countries in MINT and BRICS, nor surprisingly, China has been
researched the most (691 papers), followed by India (160), Russia (118), Mexico
(89), Turkey (54), Brazil (52), South Africa (28), Indonesia (28), and Nigeria (18)
(Fig. 2.24). China was featured most in JWB (150), JIBS (142), and IBR (139).
India had the largest number of publication in JWB (46), followed by MIR (25),
Fig. 2.21 The number of papers on BRICS and MINT per journal, 1986–2015
JIBS (24), and IBR (23). Research on Russia has also mostly published in JWB
(52), followed by JIBS (17), IBR (16), and IMR (13). Research on Brazil has the
largest number of publications in JWB (17) followed by IBR (13), IMR (8), and
MIR (5). Research on Turkey was mainly featured in JWB (15), IMR (12), IBR
(10), and MIR (8). Research on Mexico was predominantly published by JWB (36),
MIR (15), JIBS (13), and IMR (9). No research on South Africa and Nigeria
appeared in either JIM or JM. JM also did not publish any research on Indonesia.
South Africa, Indonesia, and Nigeria seem to be the least researched countries in all
seven journals with the largest number of publication on each of the three countries
published in JWB (nine, eight, and six papers correspondingly) (Fig. 2.25).
We use the Jaccard coefficient to examine the extent of research on each of the
ICRG political risk topics and each of the nine countries. Of all documents contain-
ing either of the four ICRG categories (internal conflict, external conflict, corrup-
tion, and religious tensions) and either of nine countries, less than 2% of those
articles (Jaccard is less than 0.02) contained both. Slightly more than 4% of all
articles containing either Russia or key phrases associated with ICRG democratic
accountability contained both Russia and ICRG democratic accountability key
phrases. Just under 3% of all articles on either India or key phrases associated with
bureaucratic quality featured both India and bureaucratic quality key phrases.
48
70
BRICS MINT
63
56
49
42
35
28
21
14
0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Fig. 2.22 The temporal changes in the number of papers on BRICS and MINT, 1986–2015
J. Agarwal et al.
Fig. 2.23 The co-occurrences of ICRG political risk categories with research on BRICS and
MINT, 1986–2015
CHINA 56.0%
BRAZIL 4.2%
TURKEY 4.4%
NIGERIA 1.5%
MEXICO 7.2%
INDONESIA 2.0%
INDIA 13.0% SOUTH AFRICA 2.3%
RUSSIAN FEDERATION 9.6%
Fig. 2.24 Research across BRICS and MINT countries, 1986–2015

50
160
BRAZIL SOUTH AFRICA
144
CHINA INDONESIA
128
INDIA MEXICO
112
RUSSIAN FEDERATION NIGERIA
96
TURKEY
80
64
48
32
16
0
IBR IMR JIBS JIM JM JWB MIR
Fig. 2.25 Research on BRICS and MINT countries across journals, 1986–2015
J. Agarwal et al.
Content Analysis of Research Trends in 1986–2015
In 1986–1995, the total number of unique words in 1577 abstracts and titles is 7924
out of 178,688 total words. Percentage of words excluded based on the exclusion
dictionary is 65.8%, and the total number of words that we used to build the global
marketing and ICRG political risk dictionary is 34.2%. In 1996–2005, the total
number of unique words in 2121 abstracts and titles is 9719 out of 286,522 total
words. Percentage of words excluded based on the exclusion dictionary is 66.2%,
and the total number of words that we used to build the global marketing and ICRG
political risk dictionary is 33.8%. In 2006–2015 period, the total number of unique
words in 3031 abstracts and titles is 12,181 out of 483,740 total words. Percentage
of words excluded based on the exclusion dictionary is 66.1%, and the total number
of words that we used to build the global marketing and ICRG political risk diction-
ary is 33.9%.The exclusion dictionary is supplied by the WordStat and includes
such words as pronouns, etc.
1986–1995: Our dictionary coverage of the papers for each time period is very
comprehensive. 30.8% of the papers are related to any of the topics on global mar-
keting; 28.7% of the papers are related to any topic political risk (these numbers are
derived after we applied the corresponding Global Marketing and ICRG Political
Risk Dictionary). When we apply both dictionaries simultaneously, the number of
scholarly articles that are included in the analysis increases to 51.8%. If we add a
category “world economic system,” which captures such broad economic global
trends (e.g., “international financial crises”) and international institutions (e.g.,
“IMF,” “FTA”), the coverage increases to 58.5%. If we also add the category
“International Business,” then the coverage increases to 80.2% in this time period,
which means that the rest of the papers published in these seven journals are on
other topics.
The most research during this time period was done on various regions/countries
and global marketing followed by political risk, IB, and world economic system
(see Fig. 2.26). Proximity plot indicates that of all papers published on different
countries or global marketing, over 25% of research featured both; of all papers on
IB or global marketing, over 20% of papers features both; and of all papers on
global marketing or political risk, about 18% of papers were done on both global
marketing and political risk.
In this time period, the largest number of papers on global marketing was pub-
lished by IMR (154), followed by JIBS (107); the largest number of papers on
political risk was published by JWB (203), followed by MIR (76) and JIBS (74); the
largest number of papers on IB was published by JIBS(127), MIR (84), and JWB
(75); and the largest number of papers on the world economic system was published
by JWB (58), JIBS (28), and MIR (24). The research on most of the topics has
declined by 1990 and then intensified again.
1996–2005 36.5% of the papers are related to any of the topics on global market-
ing; 28.5% of the papers are related to any topic on political risk (these numbers are
Fig. 2.26 Changes in global marketing scholarship across three time periods: 1986–1995, 1996–
2005, 2006–2015

scholarly articles that are included in the analysis increases to 54%. If we add a
other topics.
The most research during this time period was done on various regions/countries
and global marketing followed by IB, political risk, and world economic system
IB or global marketing, about 22% of papers features both; and of all papers on
marketing and political risk. In this time period, the largest number of papers on
global marketing was published by JIBS (164), followed by IMR (163), and IBR
(159); the largest number of papers on political risk was published by JIBS (129),
followed by IBR (108), JWB (97), and MIR (93); the largest number of papers on
IB was published by JIBS(214), IBR (164), MIR (161), and JWB (105); and the
largest number of papers on the world economic system was published by JIBS
(47), IBR (42), and JWB (32). The research on most of the topics has been steadily
increasing over time during thistle period.
2006–2015 37.5% of the papers are related to any of the topics on global market-
ing; 34% of the papers are related to any topic political risk (these numbers are

scholarly articles that are included in the analysis increases to 56.8%. If we add a
other topics.
The most research during this time period was done on IB, various regions/coun-
tries, and global marketing followed by political risk and world economic system
IB or global marketing, about 28% of papers featured both; and of all papers on
marketing and political risk. In this time period, the largest number of papers on
global marketing was published by IBR (269) and JIBS (230), followed by IMR
(204) and MIR (134); the largest number of papers on political risk was published
by JIBS (273), followed by IBR (200), JWB (180), and MIR (136); the largest num-
ber of papers on IB was published by JIBS (363), IBR (307), JWB (258), and MIR
(211); and the largest number of papers on the world economic system was pub-
lished by JIBS (92), IBR (60), and JWB (56). The research on most of the topics has
been fluctuating during this time period with the least amount of research on almost
all topics in 2006 and 2011. Not surprisingly, the amount of research on world eco-
nomic systems and political risks was the largest in 2010.
ection 3: Political Risk and Global Marketing – Implications

S
and Future Research
1. While research on political risk using multiple country-specific dimensions (i.e.,

ICRG index) draws the attention of companies operating globally, these fixed
components ignore complexities associated with underlying latent structures that
are actually driving the phenomena. This latent structure exists as real entity
apart from and independent of its measurements but which influences scores on
their associated measures. At the same time, each dimension also has unique
variance with distinctive characteristics, and eliminating any one of them would
compromise the conceptual domain of political risk. In this chapter, we have
empirically demonstrated country- and time-specific variations of political risk
structure that are useful for academics, practitioners, and policy makers.
Indeed, in reality the multidimensionality of political risk phenomenon is unique
to every country and every time period due to the complexities of internal politico-
economic processes of that country combined with unique dyadic and multilateral
international relations. For example, political regime changes could increase direct
and indirect expropriations (Li 2009). The ICRG index captures only the increase in
expropriation (which is part of the Investment Profile component of ICRG index)
and the decline in democratic accountability, a separate component of ICRG index.
If one would employ ICRG index to calculate the total level of political risk in that
country, the interactive effect of both expropriation and political regime would be
missed. Moreover, the strength of association between different ICRG components
varies across countries and over time mainly due to each country’s distinctive histo-
ries, which is also absent from all the existing measures of political risk. For exam-
ple, more politically constrained governments expropriate less; however, these
political constraints are more effective in restraining governments from expropria-
tion than in imposing transfer restrictions on foreign investors (Graham et al. 2017).
2. The EFA factor loading plots help researchers/analysts to identify the most
potent underlying drivers of political risk with its concomitant observable dimen-
sions. Comparison of plots for the same country across time reveals changes in
the configuration of these drivers (Fig. 2.4). Factor loading plots are extremely
helpful in understanding similarities and differences in the underlying latent
political risk structures of countries. Countries with similar political risk struc-
tures in the same time period should have comparable levels of political risks and
thereby pose similar nonmarket challenges to foreign investors. For example, in
1986–1995, law and order correlated most with the first factor for Brazil, India,
South Africa, Indonesia, Nigeria, and Turkey, whereas corruption correlated
most with the first factor only for Turkey, Indonesia, and Brazil. This would
imply that some of the most influential components of political risk in Turkey,
Indonesia, and Brazil in 1986–1995 were corruption and related inefficiencies
with the legal systems in those countries. On the other hand, in India, South
Africa, Nigeria, Turkey, and Indonesia, inefficiencies in legal system were
associated with ethnic tensions, internal conflict, religious tensions, and external
conflict in the same time period. By contrast, in China and Russia, government
stability, socioeconomic conditions, and investment profile correlated most with
the leading factor and thereby introduced the greatest challenge to foreign inves-
tors in 1986–1995.15 In 2006–2015, law and order variable continued to corre-
lated most with the first factor in Brazil, South Africa, Indonesia, Turkey, and
now also in Russia, China, and Mexico, whereas in India inefficiencies in legal
system became less important consideration of political risk in 2006–2015.
Surprisingly, corruption continued to play an important role in political risk cal-
culations only in India and Russia in 2006–2015 implying that either the rest of
the MINT and BRICS countries (whether via domestic or international legal
Ethnic tensions in China were also contributing most to higher levels of political risk in that time
15
period.
means) were able to decrease corruption or foreign investors learned16 to deal

with it using various domestic and international legal tools or both.17
3. Using automated content analysis and based on co-occurrence and cluster analy-
sis (see Fig. 2.8), we find the emergence of the following five broad clusters of
research topics in global marketing published in the top seven journals in IB/IM
in the last 30 years. These are (i) entry mode FDI consisting of acquisitions,
Greenfields, wholly owned subsidiaries (WOS), M&As, alliances, and IJVs; (ii)
entry mode contractual agreements consisting of franchises, hazards, uncertain-
ties, and technology licensing; (iii) brand positioning and communication con-
sisting of advertisement, branding, segmentation, online (Web), and pricing; (iv)
startup innovation and global diffusion consisting of born global, networks,
SMEs, contracts, culture, human, region, innovation, importer, exporter, and
MNE; and (v) political risk and corruption consisting of government regulation,
political risk, institutions, gray and parallel imports, policies, government bar-
rier, enforcement, corruption, officials, and intellectual property. Automated
content analysis also reveals the following published research topics that have
been on a steady rise in the last 30 years: intellectual property rights, branding,
acquisition, born global, FDI, Hofstede culture, SMEs, and societal issues.
Interestingly, very recently the following topics/themes have been published in
rapid succession: bottom of pyramid (BOP) markets and CSR. Global marketers
are beginning to realize the hidden business potential locked in this vast market
and are correcting their erstwhile mistaken assumptions of the BOP market
(Prahalad and Hammond 2002; Karamchandani et al. 2011). Further, global
firms are ramping up their CSR activities to get a share of the increasing pie in
both BOP markets and emerging economies.
4. The marketing journal, IMR, published the most articles in global marketing
closely followed by JIBS and IBR. JIBS published the most articles on political
risk closely followed by JWB. IMR was in the middle of the pack, and JIM had
the least articles published in political risk (see Fig. 2.12). While the increase in
the total number of articles in the four topics (Global Marketing/IB/Political
Risk/World Economic System) was gradual in 1986–2006, we see a sharp
increase from 2007 to 2015 (Fig. 2.13). Fortunately, such increase has come
from scholarship in global marketing and IB, albeit a greater proportion is driven
by scholarship in IB. This presents opportunities for scholars in global marketing
to push the research agenda to new frontiers in the coming years. Where are
some under-researched areas that global marketing scholars can pursue? A
breakdown of the research areas in global marketing published in the top seven
journals in IB/IM in the last 30 years, 1986–2015 (Fig. 2.15), indicates that the
largest number of papers is written on (a) entry modes, namely, exports, FDIs,
16
We can make this conclusion because corruption component of ICRG is assessed from a foreign
investor perspective.
17
Furthermore, the number of international and domestic initiatives to improve international and
domestic anti-corruption law has improved dramatically in the last decade (Arnone and Leonardo
2014).
IJVs, M&As, and SAs (see 30 years of meta-analytic review by Zhao et al. 2017)
and (b) international marketing, branding, segmentation, and country of origin
(see 29 years of review of publications in IMR by Malhotra et al. 2011). These
results are consistent with preliminary cluster analysis reported earlier. To a lim-
ited extent, some other research topics include WOS, contractual agreements,
and global advertising. In the past, JIM and IMR publications have generally
centered on international marketing, export marketing, global branding, country
of origin, and global advertising and to a lesser degree import marketing, gray
marketing, national branding, counterfeit markets, segmentation, and foreign
branding (see Fig. 2.17). However, we see very little scholarship and publication
in the domain of national, regional, private, and luxury branding. Similarly, very
limited research has been published in global pricing, gray markets, counterfeit
markets, imports, and macro marketing (see Fig. 2.15). With the establishment
of WTO and regional trading blocs and the exponential growth of e-commerce,
issues related to global pricing, gray markets, counterfeit markets, and imports
will become more significant in the future.
5. At the country cluster level, the topics that frequently co-occur with BRICS
include market entry modes, namely, FDI, IJV, export, M&A, WOS, SAs, inter-
national marketing, country of origin, and branding and advertising. For MINT
countries, these include FDI, export, WOS, SAs, and country of origin. It is
interesting to note that for MINT countries, IJV has not been studied as much,
perhaps as a reflection of reality of the level of difficulty in finding a compatible
JV partner from this cluster. Similarly, country of origin is still relevant for both
BRIC and MINT clusters even though global branding seems to have trumped
the COO effect (Holt et al. 2004; Magnusson et al. 2011). Country of origin lit-
erature has a long tradition in global marketing, and it seemed that global brand-
ing may have partially replaced it; however, in the BRIC and MINT context, it is
well and alive. The least researched topics in global marketing for BRICS and
MINT are macro marketing, luxury branding, local advertising, imports, coun-
terfeits, and global pricing (Fig. 2.16). Scholars in global marketing should
develop systematic research agendas in these identified under-researched areas
pertaining to BRICS and MINT economies, as they occupy 27% of the world’s
GNI share (2015 data) with projected increasing levels of growth going forward
(World Development Indicators 2017). South Africa, Indonesia, and Nigeria
seem to be least researched countries in all seven journals with the largest num-
ber of publication on each of the three countries published in JWB. On the ICRG
political risk components, while IMR had a disproportionately high number of
publications in socioeconomic conditions compared with JIM, they both had a
balanced, albeit lower, representation among topics including investment profile,
bureaucracy quality, and law and order. The least researched topics for both IMR
and JIM include government stability, democratic accountability, corruption, and
conflict. Global marketing scholars are encouraged to address these political risk
components as we enter into an era of global political uncertainty marked with
populism, political instability, trade protectionism, and de-globalization.
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Chapter 3
Does Country or Culture Matter in Global
Marketing? An Empirical Investigation
of Service Quality and Satisfaction Model
with Moderators in Three Countries
Naresh K. Malhotra, James Agarwal, and G. Shainesh
Abstract The increased importance and acceleration of service globalization dur-

ing the first decade and a half of the twenty-first century has resulted in multina-
tional firms serving customers with divergent needs and expectations shaped by
different cultural background and values. This divergence in consumer perceptions
across countries may be attributed to cultural differences. Yet, several cross-cultural
studies in services marketing have assumed cultural homogeneity within countries,
i.e., country and culture are assumed to be synonymous. In this study, we investigate
the influence of cultural values in shaping consumers’ perception of service quality
and satisfaction through cross-national vs. cross-cultural analysis. We also analyze
the moderating role of the cultural values of individualism/collectivism and uncer-
tainty avoidance on service quality dimensions and the relationship between per-
ceived service quality and satisfaction. We present the conceptual background on
service quality, customer satisfaction, and cultural values and develop our hypoth-
eses by integrating these domains. Both cross-national vs. cross-cultural models are
empirically tested using customer survey data in three countries. We discuss our
SEM-based methodology, present our results, and discuss research implications.
Our study makes a number of theoretical, methodological, and managerial contribu-
tions that highlight the shifting paradigm in global marketing.
N. K. Malhotra
Georgia Tech CIBER and Regents’ Professor Emeritus, Scheller College of Business,
Georgia Institute of Technology, Atlanta, GA, USA
J. Agarwal (*)
G. Shainesh
Indian Institute of Management (IIM) Bangalore, Bangalore, India

62 N. K. Malhotra et al.
Introduction
During the 1990s, the growth of services in international markets was driven by
declining trade barriers, globalization of businesses and markets, and the emergence
of modern information technologies which facilitated cost-effective international
services operations (Knight 1999). The acceleration of service globalization during
the first decade of the twenty-first century has resulted in multinational firms serv-
ing customers with divergent needs and expectations shaped by different cultural
background and values (Wong 2004). The growth of global firms across services
including banking, insurance, retailing, hospitality, healthcare, telecom, transporta-
tion, consulting, etc. with presence in several countries also catalyzed research
focusing on how consumers in different countries and cultures form attitudes, assess
performance, and perceive the quality of service offerings. Research on consumer
perceptions of service quality, satisfaction, and behavioral intentions indicate great
divergence in perceptions of service quality among consumers belonging to differ-
ent nations and cultures (Malhotra et al. 1994; Winsted 1997; Donthu and Yoo 1998;
Mattila 1999; Furrer et al. 2000; Brady and Robertson 2001; Van Birgelen et al.
2002; Raajpoot 2004; Voss et al. 2004; Malhotra et al. 2005; Agarwal et al. 2010).
This divergence in consumer perceptions across countries may be an artifact of their
cultural differences. As the importance of service quality in improving customer
satisfaction is very well established in extant literature (Parasuraman et al. 1985,
1988; Brady et al. 2005), the impact of culture on consumer perceptions assumes
relevance for theory as well as practice.
Several cross-cultural studies in services marketing have assumed cultural homo-
geneity within countries, i.e., country and culture are assumed to be synonymous
(Leung et al. 2005). But culture refers to any form of social environment which
shares common values and does not automatically correspond to country borders or
ethnic groups (Steenkamp 2001). Emerging evidence points to the spread of global
culture facilitated by globalization, growth of transnational firms, and homogeniza-
tion of global consumption (Ger and Belk 1996; Agarwal et al. 2010). As a result of
this global culture permeating down to the individual cognitive level, cultural con-
vergence is taking place at the external layer of behavior (Erez and Gati 2004;
Leung et al. 2005) thus underscoring the need to explore the homogeneity of cul-
tural values across countries while simultaneously recognizing the heterogeneity
across consumers belonging to a country.
A related issue is the specific role played by culture in influencing consumer
perceptions, attitudes, and behavioral intentions. Van Birgelen et al. (2002) stated
that the theoretical and empirical foundations of culture’s consequences for services
are fluid and advocated for further research on the interaction between culture and
consumers’ perceptions of service performance. Similarly, Liu et al. (2001) had
called for research to be directed toward empirically testing the indirect and moder-
ating effects of cultural factors to aid theoretical development in cross-cultural ser-
vices marketing. However, the moderating role of cultural values in the relationship
between service quality and customer satisfaction is not fully understood as limited
3 Does Country or Culture Matter in Global Marketing? An Empirical Investigation… 63
studies have analyzed culture as a moderator (Van Birgelen et al. 2002; Reimann
et al. 2008; Schumann et al. 2010). Our research aims to fill this void and contribute
to a greater understanding of the moderating role of cultural values in influencing
consumer perceptions.
The objectives of this study are twofold. First, we investigate the influence of
cultural values in shaping consumers’ perceptions of service performance through
cross-national and cross-cultural analysis. Second, we analyze the moderating role
of individualism/collectivism and uncertainty avoidance on service quality dimen-
sions and the relationship between perceived service quality and satisfaction. This
fits in with the growing need for understanding systematic variations in service
quality and satisfaction across nations and cultures (Liu et al. 2001). The article is
organized as follows: in the next section, we present the conceptual background on
service quality, customer satisfaction, and cultural values and develop our hypoth-
eses by integrating these domains. We discuss our methodology, present our results,
and discuss research implications. Finally, our study makes a number of theoretical,
methodological, and managerial contributions that are identified.
Conceptual Background
Service Quality and Satisfaction
Service quality plays a key role in satisfying and retaining customers (Parasuraman
et al. 1985, 1988). Perceived service quality is defined as the degree and direction of
discrepancy between consumers’ perceptions and expectations (Parasuraman et al.
1988). It is conceptualized and operationalized as a multidimensional construct
comprising of the dimensions of reliability, responsiveness, assurance, empathy,
and tangibles.1 Service quality is an overall evaluation similar to attitude, while
satisfaction is a global affective construct based on feelings and emotions related to
the buying and consumption experience over time. Prior research showed that the
cognitively oriented service quality is an antecedent to the affective-oriented satis-
faction which in turn precedes behavior (Cronin Jr. et al. 2000; Spreng and Mackoy
1996). This cognitive-affective-behavioral sequence is consistent with Bagozzi’s
(1992) appraisal → emotional response → coping framework, drawn from Lazarus
(1991). Applying this framework, service quality, a cognitive and appraisal-oriented
construct (Bolton and Drew 1991), leads to both an evaluative state (attitude) and an
1
Reliability means performing the service dependably, consistently, and accurately. Responsiveness
refers to prompt and substantive service offered to customers by frontline employees. Empathy
refers to caring and individualized attention provided to customers. Assurance refers to the knowl-
edge and courtesy of frontline employees and their ability to inspire trust and confidence on cus-
tomers. Finally, tangibility refers to the physical evidence of the service including physical
facilities, technology, and appearance of personnel, tools, or equipment, as well as physical presen-
tation of the service.
affective state (satisfaction) (Oliver 1997). When affective states are not favorable,
problem-solving or emotional coping is undertaken at the behavioral intentions
stage to reduce conflict (Bagozzi 1992). However, when affective states are favor-
able, behavioral intentions are positively reinforced through future patronage.
Service quality and customer satisfaction determine the long-term success of ser-
vice businesses (Parasuraman et al. 1994).
Cultural Values
Culture is defined as “the collective programming of the mind, which distinguishes

the members of one group or category of people from another” (Hofstede 2001).
The cultural context is often expressed in shared norms and value systems as high-
lighted by Hill (1997, p. 67) who defined culture as “a system of values and norms
that are shared among a group of people and that when taken together constitute a
design for living.” These shared cultural values influence individual cognitions. This
influence on the underlying cognitive constructs (Triandis 1972) and cognitive pro-
cessing (McCort and Malhotra 1993) often results in shared behavioral patterns
among people belonging to a culture or subculture.
Hofstede (1980) identified values as the basic manifestations of culture and
defined them as “broad tendencies to prefer a certain state of affair over others.”
Based on his seminal work on cultural differences in values, Hofstede (1980/1991)
identified five dimensions of culture on which people belonging to different coun-
tries diverge in their orientations. These dimensions are power distance, individual-
ism/collectivism, masculinity/femininity, long-term orientation, and uncertainty
avoidance. Values are programmed early in people’s lives, and these values shape
subjective attitudes and preferences and form the basis for comparisons used by
customers to evaluate a service experience (Lovelock and Yip 1996; Van Birgelen
et al. 2002).
Culture, Service Quality, and Satisfaction
The cultural context, often expressed in shared norm and value systems (Hofstede
1980), is known to influence consumer cognitions and behavior (McCort and
Malhotra 1993). Empirical studies have explored the impact of culture on consumer
expectations, perceptions, and satisfaction based on the service quality (SERVQUAL)
framework (Parasuraman et al. 1985, 1988) and dimensions of cultural values
(Hofstede 2001, 2011). Despite several years of research in cross-cultural differ-
ences in the evaluation of services, several issues elude complete understanding, so
there is increased research interest in cross-cultural studies (Zhang et al. 2008).
Many of the earlier studies focused on relationship between dimensions of cultural
values and service quality (Furrer et al. 2000) and differences in the perception of
service quality dimensions between developed and developing economies (Malhotra

et al. 2005). Recent studies have started examining the moderating role of culture
on consumer’s beliefs and attitudes. Reimann et al. (2008) analyzed the moderating
role of uncertainty avoidance in the relationship between perceived service quality
and customer satisfaction. Schumann et al. (2010) tested a model of the moderating
effects of cultural values on trustworthiness beliefs about service providers’ ability,
benevolence, predictability, and integrity which drive consumer trust. Similarly,
Agarwal et al. (2010) investigated the application of cross-national versus cross-
cultural approaches to segmenting markets by estimating a country-based model
and cluster-based model of consumers’ perceived service quality. Their research
identified distinctive differences between cross-national and cross-cultural models
of perceived service quality, thus reinforcing the relevance for more cross-cultural
research.
In our research, we focus on the relative importance of the dimensions of
perceived service quality vis-à-vis reliability, responsiveness, assurance, empathy,
and tangibles and the impact of perceived service quality on satisfaction across (a)
three countries, i.e., USA, India, and Philippines, and (b) across segments of cus-
tomers who belong to similar clusters based on their similarities in cultural values.
We also explore the moderating role of individualism/collectivism and uncertainty
avoidance on service quality dimensions and in the relationship between perceived
service quality and satisfaction. Our research follows in the spirit of the earlier stud-
ies and extends recent research on service quality and satisfaction through a cross-
national and cross-cultural empirical study.
Hypotheses Development
Cross-National Versus Cross-Cultural Models
Hofstede (2001) argued that as the mental programs of people do not change rap-
idly, so culture changes slowly, endures over time, and is consistent within coun-
tries. Thus national culture is seen as a relatively stable construct reflecting a shared
knowledge within a country. In line with this thinking, many research in interna-
tional services marketing focused on cross-national research wherein national cul-
ture is used as a grouping variable to study cultural divergence across countries
(Adams and Markus 2004). Even in culturally diverse countries, people share a
common cultural foundation, and thus, nationality is adopted as a viable proxy for
culture in cross-national research (Beaudreau 2006; Dawar and Parker 1994). One
major argument in favor of cultural stability is that traditional values, such as group
solidarity, interpersonal harmony, paternalism, and familism, can coexist with mod-
ern values of individual achievement and competition (Smith and Bond 1998). For
example, Chang et al. (2003) find that the Chinese in Singapore endorsed traditional
values of moderation and social power denoting deference to authority and
face-saving along with modern values such as prudence, industry, civic harmony,
and moral development.
However, assumptions about the stability of national cultural values become a bit
tenuous during rapid changes in the environment leading to adaptation and cultural
change. Despite the backlash of globalization in recent years (e.g., Brexit, populism
in nation-states), globalization in the last quarter century has given birth to free
market economies, democracy, and freedom of choice, individual rights, acceptance
and tolerance of diversity, and openness to change (Leung et al. 2005). Hence, the
assumption of absence of change in cultural dimensions across nations, and there-
fore, stability of cultural distance measures between countries across time is unreal-
istic. For example, Heuer et al. (1999) found that continuous economic development
over a period of 30 years in Indonesia resulted in an unprecedented socio-cultural
transformation. The authors found a narrowing over time of the differences between
Indonesian and American managers in terms of individualism/collectivism and
power distance, thus suggesting crossvergence (Ralston 2008). Drawing from dia-
lectical thinking and the yin-yang principle, Fang (2005–2006) uses the “ocean”
metaphor to explain the “paradoxical nature” of culture, the “moment” of culture,
and the “new identity” of national culture in the era of globalization.
Erez and Gati (2004) view culture as a dynamic construct. Culture and individual
psychological processing are seen as evolving and adapting to ecological and socio-
logical influences (Kitayama 2002). Erez and Gati (2004) using the “onion” meta-
phor view culture as a multilevel, multilayered construct in which global culture
shapes national culture, i.e., macro level, which in turn shapes nested cultural units
at the organizational and group levels, i.e., meso level, which then permeates to the
individual level, i.e., micro level. As cultural values are transmitted from national
culture to the individual, a set of core common values at each level are retained,
while unique values are introduced that reflect heterogeneity (Leung et al. 2005). In
addition to top-down processes, bottom-up processes also take place that emerge at
the individual level and then permeate the group and organizational levels, and over
time new cultural norms become national-level culture. Gould and Grein (2009)
interpret culture to be distinct from national culture and as a holistic and pivotal
construct whose formation and evolution involves a social construction of practices
and experiences highlighting meaning, context, practices and process. The transfer
and construction of meaning involves processes like glocalization, hybridization,
and identity formation.
Drawing on the concepts of poly-contextualization (Von Glinow et al. 2004),
culture as a multilevel, multilayer dynamic construct (Erez and Gati 2004; Leung
et al. 2005), and multicultural status of nation-states (Naylor 1996), it is clear that
there is considerable within-country variation on cultural values because the ever-
growing hegemony of global culture influences the “elective identity” of customers
within nation-states to yield significant heterogeneity (Au 1999; Arnett 2002;
Cornwell and Drennan 2004; Kirkman et al. 2006). In comparing several countries,
Au (1999) found that intra-cultural variation on certain variables was greater than
intercultural variation. These variables ranged from demographics, rigidity of rules
and social structures, cultural tightness and looseness, moral discipline, and
g overnment policies that reinforce the dominant behavior. Emerging evidence also
shows considerable within-country variation on cultural values and the existence of
significant cultural differences between regions or subcultures within a country
(Kirkman et al. 2006; Tung 2008).
On the other hand, there is growing support for cultural homogeneity across
countries, driven by global culture’s continual influence which alters and influences
individuals’ personal cultures (Broderick et al. 2007; Eckhardt and Houston 2007;
Kjeldgaard and Askegaard 2006). Cultural differences across countries are declin-
ing, and a convergence of cultures and values is taking place (Ralston 2008). By
identifying culture-based segments which transcend national boundaries and share
more commonalities than differences, we expect cross-cultural research to detect
more homogeneity. Thus, culture-based segments will show greater homogeneity in
consumers’ perceptions and attitudes as compared to cross-national groupings that
will reveal greater differences (Agarwal et al. 2010). Based on these discussions, we
propose:
H1 Cross-national model will reveal greater differences than cross-cultural model
in the importance of service quality dimensions assigned by customers and the
impact of service quality on satisfaction.
oderating Effects in Cross-National and Cross-Cultural

M
Analysis
Individualism/Collectivism
Individualism/collectivism reflects a culture’s relation to individual goals and

accomplishments (Hofstede 2001). The ties between individuals are loose in indi-
vidualistic societies, and everyone is expected to look after him-/herself and his/her
immediate family. Individualists are characterized by a strong “I” consciousness,
and their identity is independent from institutions and organizations. Collectivists
are characterized by a “we” consciousness, and their identity is based on the social
system in which they are embedded. Thus the self is always defined in the context
of social networks. Hofstede’s individualism/collectivism scales were originally
designed for country-level analysis, and yet cross-national researchers have utilized
them at the individual level of analysis. Consequently, such disparity between the
theoretical and methodological underpinnings of Hofstede’s conceptualization
inherent in the two levels of analysis has resulted in equivocal findings slowing
down the accumulation of research findings into a generalizability template and
hence the advancement of the field (Kirkman et al. 2006; Oyserman et al. 2002).
To alleviate this limitation, we borrow from the work of Markus and Kitayama
(1991, 1994) who proposed the concept of independent versus interdependent self-
construal which is seen as an alternative explanation for individualism/collectivism.
Markus and Kitayama (1991, 1994) and others (e.g., Triandis 1995) have argued
that individuals possess both independent and interdependent self-construal and that
cultural contexts typically promote the development of one or the other self-
construal more strongly. Self-construal refers to how individuals define and make
meaning of the self and is conceptualized as a constellation of thoughts, feelings,
and actions concerning one’s relationship to others and the degree to which the self
is distinct or separate from others or connected with others. That is, self-construal
is typically defined as how individuals see the self in relation to others.
Independent self-construal is defined as a “bounded, unitary, stable” self that is
separate from social context. The constellation of elements includes an emphasis on
(a) internal attributes, thoughts, and feelings, (b) being unique and expressing the
self, (c) realizing internal attributes and promoting one’s own goals, and (d) being
direct in communication (Markus and Kitayama 1991; Singelis 1994). Individuals
with highly developed independent self-construal consider their own (or others’)
attributes and characteristics as referents when thinking about themselves (or oth-
ers) rather than relational or contextual factors. On the other hand, interdependent
self-construal is defined as a “flexible, variable” self that emphasizes (a) external
roles and relationships, (b) belongingness to a group, (c) engaging in appropriate
action, and (d) being indirect in communication and “reading others’ minds”
(Markus and Kitayama 1991; Singelis 1994).
Independent self-construal and interdependent self-construal are typically identi-
fied as corresponding to individualism and collectivism, although the latter is used
to describe national cultures whereas self-construal refers to at the individual level
(Gudykunst et al. 1996; Oyserman et al. 2002). Individualists, with independent
self-construal, strive to know and validate their unique real self by behaving autono-
mously and resisting the influence of others (Markus and Kitayama 1991).
Individuals with independent self-construal view themselves consistently across
situations and display beliefs and value judgments that are consistent with past per-
sonal commitments (Petrova et al. 2007). Individual consistency is therefore reflec-
tive of maturity and self-integrity in individualistic societies and a lack of consistency
poses a threat to the core authentic self (Cross et al. 2003). Individualists are more
independent and self-centered and, due to their drive and self-responsibility ethic,
will demand others to be efficient and are more demanding than people in more col-
lectivistic cultures. Because they are promotion focused and strive for goal attain-
ment and efficiency (Higgins 1998), individualists want prompt service, and these
services must be provided right the first time. Individualists base their perceptions
of competence and trust on a person’s reliability and courtesy with respect to rights,
attitudes, and privacy (Hofstede 1991). Thus individualists are expected to differ
from collectivists on the service quality dimensions of reliability and responsive-
ness, i.e., individualists give higher importance to reliability and responsiveness
than collectivists (Furrer et al. 2000; Agarwal et al. 2010).
During a service interaction, individualists will also prefer to maintain a distance
between themselves and the service provider. Tangibles are a mean to maintain this
distance and offers autonomy allowing one to freely enter and leave social relations
(Furrer et al. 2000; Kwan et al. 1997). Therefore, individualists give higher impor-
tance to tangibility. Further, due to self-confidence, an individualist is expected to
seek more assurance (i.e., knowledge and courtesy) from individual frontline ser-
vice employees and less from service providers and hence likely to assign lower
importance to assurance from service providers. Also, individualists have greater
self-knowledge that are more distinctive and elaborate in memory and fewer others-
knowledge; as a result, accessibility of others-knowledge is reduced in a decontex-
tualized schema resulting in lack of sensitivity and empathy. Thus individualists
assign lower importance to empathy. Finally, for the service quality-satisfaction
link, individualists express true feelings of satisfaction/dissatisfaction without res-
ervation, allowing people to freely enter and leave relationships. Expression of feel-
ings of satisfaction is not shaped by a consideration of the reaction of others, and
hence it is candidly expressed to safeguard the authentic self (Markus and Kitayama
1991). Based on these discussions, we propose:
H2a Customer perceptions of the importance of service quality dimensions and the
impact of service quality on satisfaction are moderated by individualism/collectiv-
ism in both cross-national model and cross-cultural model.
H2b However, based on the arguments presented in H1, cross-national model will
reveal greater differences than cross-cultural model in the importance of service
quality dimensions assigned by customers and the impact of service quality on
satisfaction.
Uncertainty Avoidance
Uncertainty avoidance (UA) refers to the tolerance for unstructured, ambiguous, or

unpredictable future events (Hofstede 2001). The degree of UA can be used to dis-
tinguish societal norms related to beliefs, attitudes, and behavior (Hofstede 1980,
2001). A high UA indicates higher anxiety, greater stress levels, more propensity to
display emotions, and a tendency for aggressive behavior when challenged. There is
less tolerance and acceptance of unclear situations, less acceptance of dissent, and a
strong need for consensus, clarity, and structure. There is a strong belief in expertise
and knowledge for problem-solving, commitments are long-lasting, and there is a
strong need for adherence to rules and regulations to make behavior predictable
(Reimann et al. 2008). In contrast, a low UA refers to low levels of stress and anxi-
ety, weaker superegos and less showing of emotions, greater tolerance and accep-
tance of diversity and uncertain situations, and a general approach and common
sense to problem-solving. Commitments are less binding, rules and regulations are
adaptive and changed if they don’t work, there is greater acceptability of dissent,
and a willingness to take unknown risks (Reimann et al. 2008).
In a service context, customers of high UA culture have a much lower tolerance
for ambiguity as they find it difficult to accept unclear situations and deviations
from norms. High UA cultures are characterized by a need to reduce ambiguity and
risk through strict rules and regulations (Kale and Barns 1992) and by seeking to
minimize service defect potentials (Wong 2004). People high on UA perceive life
more as a threat and experience higher levels of anxiety. They would be motivated
to reduce the perceived ambiguity and uncertainty of life to lower this anxiety
(Doney et al. 1998). Seeking advice or assurance from others is one way to lower
this anxiety. People reduce their inherent uncertainty by technology, law, and gen-
eral rituals (Hofstede 2001). Thus, tangibles will be used as a surrogate for service
quality as they are visible evidence of service quality in high UA cultures (Donthu
and Yoo 1998). Uncertainty and ambiguity from unknown situations can also be
reduced through close relationships with a service provider who is responsive and
empathetic and by seeking advice or assurance from trusted others. However, a
caveat is worth noting in that when a frontline employee engages in employee inter-
action, there is a good chance that high uncertainty avoidance (i.e., narrow tolerance
zone) may lead to significant service defect. Providing clear structure and accuracy
in the service process, i.e., reliable service, may help ease customers from high UA
cultures. Furrer et al. (2000) proposed that the uncertainties are higher in infrequent
service situations, and therefore all dimensions of service quality are important in
cultures with higher UA, i.e., individuals from higher UA cultures give greater
importance to all dimensions of service quality than individuals from lower UA
cultures. Finally, for the service quality-satisfaction link, because of the narrow tol-
erance zone of high UA individuals, the higher the degree of uncertainty avoidance,
the less satisfied the customer will be when a service is defective (Reimann et al.
2008). Based on these discussions, we propose:
H3a Customer perceptions of the importance of service quality dimensions and the
impact of service quality on satisfaction are moderated by uncertainty avoidance in
both cross-national model and cross-cultural model.
H3b However, based on the arguments presented in H1, cross-national model will
reveal greater differences than cross-cultural model in the importance of service
quality dimensions assigned by customers and the impact of service quality on
satisfaction.
The research model, incorporating our hypotheses, is shown in Fig. 3.1.
Methodology
We chose banking services for our study context because they are widely available
in all three countries, namely, the USA, India, and the Philippines, and the banking
sector is an important part of the service economy in each nation. A structured ques-
tionnaire was prepared and administered in English to bank customers by marketing
research professionals. The questionnaire was pretested in each country using per-
sonal interviews to identify and eliminate potential problems in question content,
wording, difficulty, and instructions. The survey data were obtained from major
metropolitan areas, and the respondents in each of the countries were fluent in
English, thereby avoiding the need for questionnaire translation. A total of 1069
First-Order Dimensions Second-Order Service Quality
Reliability
Responsiveness
SERVICE
SATISFACTION
Assurance QUALITY
Empathy
Tangibles IND/COLL &

UAV
Fig. 3.1 Second-order service quality➔satisfaction model with moderators: cross-national vs.
cross-cultural analysis
interviews were completed: 455 in the USA, 314 in India, and 300 in the Philippines.
We used the 21-item SERVQUAL 9-point scale (Parasuraman et al. 1988, 1994)
tapping performance perception measures along the five dimensions of perceived
service quality following recent research (Dabholkar et al. 2000). To measure over-
all satisfaction, we used both evaluative and emotion-based measures derived and
adapted from the work of Oliver (1997). Finally, we used Hofstede’s 7-point Likert-
type scale to measure the cultural dimensions of individualism/collectivism and
uncertainty avoidance with four items for each cultural dimension (adapted from
Hofstede 1991; Furrer et al. 2000).
Results and Analysis
Modeling of Service Quality
We developed and estimated a second-order reflective model of perceived service

quality. Service quality has typically been conceptualized as a first-order factor,
antecedent, one-factor model, and/or multi-item summary construct (e.g., Brady
and Cronin 2001). For example, Brady and Cronin (2001) include three primary
dimensions and nine subdimensions in a hierarchical structure. Their three primary
dimensions – interaction quality, physical environment quality, and outcome quality
are modeled as antecedents to SQ (measured as a two-item global construct) rather
than dimensions reflecting higher-order SQ. However, theoretical work predicts that
SQ is a higher-order, multidimensional, and multilevel construct.
We tested for alternative conceptualizations of service quality: Rindskopf and

Rose (1988) proposed a hierarchy of models for factor structure comparisons spe-
cifically when testing for a second-order factor model. The least restricted model is
a bi-factor model consisting of one general factor plus group factors. The next
nested model is the group factor model which is equivalent to first-order correlated
factor model without the general factor (i.e., loadings for the general factor are set
to zero). Next in the hierarchy of nested models is the second-order model which is
a special case of group factor model. The second-order reflective model puts a struc-
ture on the pattern of correlations among the first-order group factors. Finally, the
one-factor model is a special case of the second-order model where the unique vari-
ances of the first-order factors are set equal to zero. The one-factor model is the
most restrictive model in the hierarchy. Based on factor structure models and nomo-
logical net comparison, model fit results confirmed that service quality is best con-
ceptualized as a second-order reflective construct, with five dimensions with
reflective constructs at the first-order level. Details of the development of measure-
ment equivalence procedures are not presented due to space constraints but are
available from the authors upon request.
Based on psychometric theory, a reflective model is appropriate because its indi-
cators share a common theme, are expected to covary with each other, and are mani-
festations of the construct (Jarvis et al. 2003). Prior research is consistent with this
notion; Dabholkar et al. (1996) report high internal consistency reliability of service
quality factors and high intercorrelations across first-order factors – implying a high
degree of shared variance. From a causal perspective, the association between the
first-order dimensions (as reflective indicators) and second-order service quality is
fairly stable over time. Such association tends to generally remain stable in reflec-
tive models as opposed to formative models where the association between the mea-
sures and the construct depends upon the composite that best predicts the dependent
variable (Edwards and Bagozzi 2000). Further, an important advantage of modeling
service quality as a second-order reflective construct is that it is possible to deter-
mine the measurement error (or reliability) at both the individual item level as well
as the first-order factor level – thereby allowing for prescriptive measures for scale
improvement (Bagozzi and Heatherton 1994). The full model was tested using
cross-national and cross-cultural analysis as in Fig. 3.1.
Measurement Model
We performed confirmatory factor analysis (using LISREL) by running measure-

ment models separately on each sample – the USA, India, and the Philippines.
Initially our measurement model included six latent factors, i.e., tangibility (TANG),
reliability (REL), responsiveness (RESP), assurance (ASSU), empathy (EMP), and
satisfaction (SAT) and 25 indicators. However, two items (TANG 5 – convenience
of operating hours) and (REL 2 – sincere interest in solving customer problem) had
loadings less than 0.60, and the overall model results were less than the
recommended minimum requirement. Given that the loadings were low for these
items and that they lacked convergent validity with their respective constructs
(cross-loadings were high), we deleted these two items and ran a modified measure-
ment model with the same six latent factors and 23 indicators – TANG (four items),
REL (four items), RESP (three items), ASSU (four items), EMP (four items), and
SAT (four items). The results were as follows: USA sample χ2 (215) = 565.13,
RMSEA = 0.061, SRMR = 0.034, CFI = 0.96, NNFI = 0.95, and CAIC = 983.15;
India sample χ2 (215) = 392.21, RMSEA = 0.053, SRMR = 0.044, CFI = 0.96,
NNFI = 0.95, and CAIC = 804.17; and Philippines sample χ2 (215) = 546.98,
RMSEA = 0.075, SRMR = 0.030, CFI = 0.96, NNFI = 0.95, and CAIC = 956.66.
CMV and Measurement Equivalence Test
We also tested for common method variance (CMV), i.e., the mount of spurious
covariance shared among variables because of common method used in collecting
data. We utilized the marker variable test by estimating the marker variable post hoc
to acquire a reliable estimate of CMV by selecting the second smallest positive cor-
relation (Lindell and Whitney 2001; Malhotra et al. 2006) among the manifest vari-
ables – rM of 0.23, 0.17, and 0.14 for the USA, India, and Philippines samples,
respectively. Assuming that a method factor has a constant correlation with all mea-
sured items, we computed CMV-adjusted correlations [rA = (rU − rM)/(1 − rM)],
where rA is the adjusted correlation and rU is the unadjusted correlation and their
(
corresponding t-statistics denoted by t ( a / 2 ) , n - 3 = rA / (1 - rA ) ) / ( n - 3)
2
where n is the sample size. We did not find such effects to be problematic. Therefore
using the preceding measurement model results, we worked with the observed cor-
relations to test for their psychometric properties. In addition, we also performed a
series of measurement equivalence tests at different levels of invariance following
the procedure suggested by Steenkamp and Baumgartner (1998). We examined con-
figural, metric, scalar, and variance-covariance equivalence (Malhotra et al. 1996).
These equivalence tests were conducted separately and measurement equivalence
was established. Details of the development of measurement equivalence proce-
dures are not presented due to space constraints but are available from the authors
upon request.
Reliability and Validity
We further tested for reliability and convergent and discriminant validity of the mea-
surement model, and the results were found acceptable. Both the construct reliabil-
ity (CR) and average variance extracted (AVE) values for the three samples were
above the recommended minimum levels of 0.70 and 0.50, respectively (Hair et al.
2010; Malhotra 2010). This established the reliability of the measurement scales.
We next tested for convergent and discriminant validity. Convergent validity is

established if all item loadings are equal to or above the recommended cutoff level
of 0.60. Of a combined total of 69 loadings in three samples, only one item had a
loading less than 0.70, and the rest were above 0.70. The distribution of all loadings
was 25 items (0.70 – <0.80), 25 items (0.80 – <0.90), and 18 items (≥0.90) with one
loading equaling 0.69, thus confirming convergent validity. Table 3.1 contains the
psychometric properties of the measurement model and the correlation matrices of
for each of the three samples.
Discriminant validity is achieved if the square root of the AVE is larger than cor-
relation coefficient. In the USA sample, we found all of the correlation estimates
met the criterion except in 3 out of the 15 cases. These involved the dimensions of
RESP, ASSU, and EMP. In the India sample, 10 out of the 15 cases involving five
dimensions of TANG, REL, RESP, ASSU, and EMP were found to have high cor-
relations. In the Philippines sample, all correlation estimates met the criterion
except for 1 out of the 15 cases (REL and ASSU). Given the size of the correlation
matrix while some violations can occur through chance, these results confirm ear-
lier reports of high intercorrelations found across service quality dimensions
(Dabholkar et al. 1996). First, theoretical work predicts that perceived service qual-
ity is a higher-order, multidimensional, and multilevel construct (Brady and Cronin
2001; Carman 1990; Dabholkar et al. 1996). Because our study models perceived
service quality as a second-order reflective construct, significant intercorrelations at
the first-order level are conceivable. In order to further test the robustness of our
findings on discriminant validity, we checked for it by examining whether a correla-
tion between two constructs is significantly different from unity. The correlation of
the two constructs was freely estimated in the first model but set to one in the second
model. A chi-square difference was examined to determine whether the two con-
structs were significantly different. Results of the 15 pairs in all three samples indi-
cate that all pairs of constructs had significant difference at p < 0.001, thus supporting
discriminant validity. In summary, the scale items were both reliable and valid for
model testing.
Hypothesis 1 Cross-National Versus Cross-Cultural Models
First, we tested for the fit of the service quality structural model in all three coun-
tries by running a three-group simultaneous cross-national analysis. The model fit
for each sample was satisfactory and above the recommended level. These were as
follows: USA sample χ2 (224) = 611.44, RMSEA = 0.063, SRMR = 0.041,
CFI = 0.95, NNFI = 0.95, and CAIC = 970.01; India sample χ2 (224) = 410.97,
and Philippines sample χ2 (224) = 613.44, RMSEA = 0.079, SRMR = 0.043,
CFI = 0.95, NNFI = 0.94, and CAIC = 956.74. Further, we found significant differ-
ence between the unrestricted model and the fully restricted model in the three-
group analysis at p < 0.05. Results were unrestricted model χ2 (672) = 1635.85,
RMSEA = 0.065, SRMR = 0.043, CFI = 0.95, NNFI = 0.95, and CAIC = 2867.81
and fully restricted model χ2 (776) = 3363.01, RMSEA = 0.093, SRMR = 0.14,
CFI = 0.87, NNFI = 0.88, and CAIC = 3425.44.
Table 3.1 Psychometric properties of measurement model and correlation matrix

Constructs USA sample
Correlation matrix
Mean SD CR AVE 1 2 3 4 5 6
1. TANG 6.85 1.22 0.85 0.59 0.77
2. REL 7.10 1.41 0.90 0.70 0.77 0.84
3. RESP 6.90 1.36 0.86 0.68 0.65 0.81 0.83
4. ASSU 7.08 1.32 0.92 0.64 0.70 0.83 0.92 0.80
5. EMP 6.83 1.45 0.91 0.72 0.67 0.81 0.87 0.93 0.85
6. SAT 6.69 1.67 0.95 0.82 0.52 0.61 0.68 0.71 0.70 0.91
Constructs India sample
Correlation matrix
1. TANG 5.48 1.09 0.84 0.56 0.75
2. REL 5.37 1.04 0.83 0.55 0.83 0.74
3. RESP 5.45 1.09 0.79 0.55 0.87 0.94 0.74
4. ASSU 5.33 1.00 0.83 0.54 0.80 0.92 0.91 0.73
5. EMP 5.41 1.08 0.85 0.59 0.80 0.91 0.92 0.95 0.77
6. SAT 6.61 1.32 0.88 0.65 0.45 0.61 0.63 0.57 0.57 0.81
Constructs Philippines sample
Correlation matrix
1. TANG 7.03 1.14 0.93 0.76 0.87
2. REL 6.99 1.21 0.95 0.82 0.81 0.91
3. RESP 7.17 1.19 0.93 0.82 0.77 0.83 0.91
4. ASSU 7.12 1.22 0.95 0.82 0.71 0.76 0.93 0.91
5. EMP 7.13 1.20 0.96 0.86 0.74 0.79 0.85 0.83 0.93
6. SAT 7.13 1.29 0.96 0.85 0.24 0.21 0.17 0.24 0.21 0.92
Value on the diagonal of the correlation matrix is the square root of AVE
TANG tangibles, REL reliability, RESP responsiveness, ASSU assurance, EMP empathy, SAT
satisfaction, SD standard deviation, CR composite reliability, AVE average variance extracted
The mean (standard deviation) of cultural dimensions for each country is power
distance [USA(1) 3.45 (0.94), India(2) 3.90 (0.46), Philippines(3) 3.01 (0.96).
Scheffe’s multiple range comparison: (1)–(2) = −0.449*, (1)–(3) = 0.433*, and (2)–
(3) = 0.883*], individualism [USA(1) 3.79 (0.68), India(2) 4.10 (0.44), Philippines(3)
3.95 (0.65). Scheffe’s multiple range comparison: (1)–(2) = −0.316*, (1)–
(3) = −0.159*, and (2)–(3) = 0.156*], masculinity [USA(1) 3.68 (0.80), India(2)
3.96 (0.48), Philippines(3) 3.60 (0.78). Scheffe’s multiple range comparison: (1)–
(2) = −0.278*, (1)–(3) = 0.080, and (2)–(3) = 0.359*]; uncertainty avoidance
[USA(1) 4.56 (0.67), India(2) 3.96 (0.48), Philippines(3) 4.39 (0.60). Scheffe’s
multiple range comparison: (1)–(2) = 0.607*, (1)–(3) = 0.172*, and (2)–
(3) = −0.435*], and long-term orientation [USA(1) 4.13 (0.68), India(2) 3.86
(0.47), Philippines(3) 4.07 (0.54). Scheffe’s multiple range comparison: (1)–
(2) = 0.273*, (1)–(3) = 0.057, and (2)–(3) = −0.216*].
To identify specific differences in the structural links, we also compared three

pair-wise differences (i.e., USA versus India, USA versus Philippines, and India
versus Philippines) across each structural link in the first-order dimensions of ser-
vice quality and the service quality→satisfaction link. The top portion of Table 3.2
contains the structural coefficients and the differences in structural links between
each pair of countries. As is evident, except for tangibility and responsiveness, each
of the dimensions of service quality is structurally different in terms of second-order
factor loadings in at least one paired comparison with all three comparisons signifi-
cantly different for the service quality→satisfaction link. On the service
quality→satisfaction link, it is also interesting to find that the impact of second-
order service quality was the strongest in the USA sample (0.84), followed by India
sample (0.46), and the lowest in the Philippines sample (0.22).
To test hypothesis 1, we compared the cross-national findings with that of cross-
cultural analysis. We performed cluster analysis using Ward’s method on the aggre-
gate sample (i.e., all three country samples) using Hofstede’s cultural dimensions
and generated a 3-cluster solution with the best fit. Based on F-values and group
sizes, a three-cluster solution gave us the best fit (with n1 = 370, n2 = 394, and
n3 = 291). The mean (standard deviation) of cultural dimensions for each cluster is
power distance [Cluster(1) 3.53 (0.79), Cluster(2) 3.30 (0.98), Cluster(3) 3.58
(0.89). Scheffe’s multiple range comparison: (1)–(2) = 0.229*, (1)–(3) = −0.050,
and (2)–(3) = −0.281*], individualism [Cluster(1) 3.92 (0.59), Cluster(2) 4.01
(0.62), Cluster(3) 3.82 (0.64). Scheffe’s multiple range comparison: (1)–
(2) = −0.092, (1)–(3) = 0.0.98, and (2)–(3) = 0.191*], masculinity [Cluster(1) 3.82
(0.64), Cluster(2) 3.63 (0.77), Cluster(3) 3.79 (0.75). Scheffe’s multiple range com-
parison: (1)–(2) = 0.198*, (1)–(3) = 0.034, and (2)–(3) = −0.164*], uncertainty
avoidance [Cluster(1) 4.29 (0.62), Cluster(2) 4.32 (0.67), Cluster(3) 4.40 (0.65).
Scheffe’s multiple range comparison: (1)–(2) = −0.037, (1)–(3) = −0.114, and (2)–
(3) = −0.076], and long-term orientation [Cluster(1) 4.04 (0.62), Cluster(2) 4.03
(0.57), Cluster(3) 4.00 (0.61). Scheffe’s multiple range comparison: (1)–(2) = 0.007,
(1)–(3) = 0.037, and (2)–(3) = 0.029].
Subsequently, we ran the SQ structural model across these three clusters by
using a three-group simultaneous LISREL. Here again, the model fit for each clus-
ter was satisfactory and above the recommended level. These were as follows:
Cluster1 χ2 (224) = 474.76, RMSEA = 0.059, SRMR = 0.043, CFI = 0.97,
NNFI = 0.96, and CAIC = 856.85; Cluster2 χ2 (224) = 475.96, RMSEA = 0.057,
SRMR = 0.030, CFI = 0.97, NNFI = 0.97, and CAIC = 847.61; and Cluster3 χ2
(224) = 602.71, RMSEA = 0.079, SRMR = 0.051, CFI = 0.94, NNFI = 0.93, and
CAIC = 951.83. Similar to country analysis, we also compared three-way cluster
differences across each structural link in the first-order dimensions of perceived
service quality and the service quality-satisfaction link. Results for the unrestricted
model were χ2 (672) = 1553.43, RMSEA = 0.065, SRMR = 0.051, CFI = 0.96,
NNFI = 0.96, and CAIC = 2828.99 and for the fully restricted model χ2
CAIC = 2419.32. The bottom portion of Table 3.2 contains the structural coeffi-
cients and the differences in structural links between each pair of countries. Results
Table 3.2 Service quality structural model: cross-national vs. cross-cultural analysis
Dimensions of 3G cross-national analysis 3G cross-national analysis
second-order Second-order loading estimates
SQ USA(1) India(2) Philippines (3) (1)–(2) (1)–(3) (2)–(3)
TANG γ11 0.75 0.73 0.89 [Δχ2 [Δχ2 [Δχ2
(1) = 0.08] (1) = 2.62] (1) = 3.60]
NSD NSD NSD
REL γ21 1.01 0.70 0.84 [Δχ2 [Δχ2 [Δχ2
(1) = 16.48] (1) = 4.16] (1) = 3.66]
SD SD NSD
RESP γ31 0.99 0.88 0.97 [Δχ2 [Δχ2 [Δχ2
(1) = 1.72] (1) = 0.03] (1) = 1.39]
NSD NSD NSD
ASSU γ41 1.06 0.79 0.97 [Δχ2 [Δχ2 [Δχ2
(1) = 12.21] (1) = 1.19] (1) = 5.75]
SD NSD SD
EMP γ51 1.01 0.82 0.91 [Δχ2 [Δχ2 [Δχ2
(1) = 6.40] (1) = 1.66] (1) = 1.57]
SD NSD NSD
SQ→SAT γ61 0.84 0.46 0.22 [Δχ2 [Δχ2 [Δχ2
(1) = 25.91] (1) = 53.92] (1) = 9.46]
SD SD SD
Dimensions of 3G cross-cultural analysis 3G cross-national analysis
second-order Second-order loading estimates
SQ CLUS(1) CLUS(2) CLUS(3) (1)–(2) (1)–(3) (2)–(3)
TANG γ11 0.89 0.84 0.79 [Δχ2 [Δχ2 (1) = [Δχ2 (1) =
(1) = 0.38] 1.25] NSD 0.36] NSD
NSD
REL γ21 0.93 0.92 0.89 [Δχ2 (1) = [Δχ2 (1) = [Δχ2 (1) =
0.01] NSD 0.23] NSD 0.14] NSD
RESP γ31 0.93 0.99 0.97 [Δχ2 (1) = [Δχ2 (1) = [Δχ2 (1) =
0.72] NSD 0.22] NSD 0.09] NSD
ASSU γ41 0.92 0.99 1.00 [Δχ2 (1) = [Δχ2 (1) = [Δχ2 (1) =
1.05] NSD 1.23] NSD 0.04] NSD
EMP γ51 0.92 0.97 0.95 [Δχ2 (1) = [Δχ2 (1) = [Δχ2 (1) =
0.52] NSD 0.13] NSD 0.07] NSD
SQ→SAT γ61 0.49 0.44 0.71 [Δχ2 (1) = [Δχ2 (1) = [Δχ2 (1) =
0.36] NSD 6.72] SD 10.76] SD
3G three-group simultaneous estimation. SD significantly different at p < 0.05, NSD not signifi-
cantly different i.e., p > 0.05, SQ service quality, TANG tangibles, REL reliability, RESP respon-
siveness, ASSU assurance, EMP empathy, SAT satisfaction
indicate that with the exception of two pairs in the service quality→satisfaction link,
all of the second-order loadings were not significantly different across the three
clusters. These findings suggest that cross-cultural model across segments exhibit
more similarities than cross-national model across countries, thus supporting
hypothesis H1.
Hypothesis 2 Individualism/Collectivism as Moderator of Service Quality in

Both Cross-National and Cross-Cultural Models
To test for the moderating role of individualism (high versus low), we ran a two-
group analysis in each of the three countries (cross-national) and three clusters
(cross-cultural). For the country-level analysis, the results were as follows: USA χ2
CAIC = 1754.90; India χ2 (448) = 709.94, RMSEA = 0.059, SRMR = 0.067,
CFI = 0.94, NNFI = 0.93, and CAIC = 1379.32; and Philippines χ2 (448) = 1003.42,
RMSEA = 0.088, SRMR = 0.049, CFI = 0.93, NNFI = 0.92, and CAIC = 1600.96.
Empathy was significantly different between low and high individualism in all the
three samples. Further, assurance was significantly different in the USA sample
(low IND 1.04, high IND 0.81), and tangibility was significantly different in the
India sample (low IND 0.97, high IND 0.69). For the culture-level analysis, the
results were as follows: Cluster1 χ2 (448) = 820.06, RMSEA = 0.070, SRMR = 0.067,
CFI = 0.95, NNFI = 0.95, and CAIC = 1544.07; Cluster2 χ2 (448) = 815.74,
and Cluster3 χ2 (448) = 1038.97, RMSEA = 0.097, SRMR = 0.089, CFI = 0.91,
NNFI = 0.90, and CAIC = 1698.39. Here also, empathy was significantly different
between low and high individualism in two clusters (2 and 3), while assurance was
significantly different in cluster 3. Respondents low in individualism (or high col-
lectivism) attached greater importance to empathy and assurance than respondents
high in individualism. In clusters 1 and 3 the SQ-SAT link was found significant
implying that perceived service quality has a greater impact in collectivists than
individualists. Table 3.3 contains the results for the moderating role of individual-
ism in both cross-national and cross-cultural analyses.
Hypothesis 3 Uncertainty Avoidance as Moderator of Service Quality in Both
Cross-National and Cross-Cultural Models
Similarly, to test for the moderating role of uncertainty avoidance (high versus
low), we ran a two-group analysis in each of the three countries (cross-national) and
three clusters (cross-cultural). The results for the country-level analysis were as fol-
lows: USA χ2 (448) = 926.50, RMSEA = 0.069, SRMR = 0.051, CFI = 0.94,
NNFI = 0.94, and CAIC = 1628.22; India χ2 (448) = 704.45, RMSEA = 0.060,
SRMR = 0.058, CFI = 0.94, NNFI = 0.93, and CAIC = 1385.57; and Philippines χ2
CAIC = 1561.01. Tangibility emerged significantly different between low and high
uncertainty avoidance only in the USA sample (low UA 1.03, high UA 0.61) but not
in India and the Philippines sample. For the culture-level analysis, the results were
as follows: Cluster1 χ2 (448) = 770.98, RMSEA = 0.064, SRMR = 0.052, CFI = 0.96,
NNFI = 0.95, and CAIC = 1475.13; Cluster2 χ2 (448) = 765.44, RMSEA = 0.063,
SRMR = 0.031, CFI = 0.96, NNFI = 0.96, and CAIC = 1490.32; and Cluster3 χ2
(448) = 927.30, RMSEA = 0.087, SRMR = 0.072, CFI = 0.93, NNFI = 0.92,
and CAIC = 1594.14. While there were no significant differences in cluster 1 and
cluster 2, four dimensions were found to significantly differ in cluster 3. These were
Table 3.3 Moderating role of individualism: cross-national analysis vs. cross-cultural analysis
2G cross-national 2G cross-national 2G cross-national
analysis analysis analysis
Second-order loading Second-order loading Second-order loading
estimates estimates estimates
Dimensions of USA(1) India(2) Philippines(3)
second-order Individualism Individualism Individualism
SQ Low High Low–high Low High Low–high Low High Low–high
TANG γ11 0.72 0.80 [Δχ2 0.97 0.69 [Δχ2 0.86 0.70 [Δχ2
(1) = 0.43] (1) = 4.24] (1) = 1.77]
NSD SD NSD
REL γ21 0.89 0.81 [Δχ2 1.05 0.86 [Δχ2 0.87 0.84 [Δχ2
(1) = 0.61] (1) = 1.86] (1) = 0.04]
NSD NSD NSD
RESP γ31 0.96 0.85 [Δχ2 1.06 0.86 [Δχ2 0.99 0.92 [Δχ2
(1) = 0.95] (1) = 2.63] (1) = 0.29]
NSD NSD NSD
ASSU γ41 1.04 0.81 [Δχ2 1.02 0.88 [Δχ2 1.00 0.78 [Δχ2
(1) = 4.03] (1) = 1.15] (1) = 3.35]
SD NSD NSD
EMP γ51 1.04 0.65 [Δχ2 1.08 0.79 [Δχ2 0.96 0.71 [Δχ2
(1) = 13.45] (1) = 5.17] (1) = 5.23]
SD SD SD
SQ→SAT γ61 0.80 0.51 [Δχ2 0.68 0.48 [Δχ2 0.22 0.23 [Δχ2
(1) = 7.23] (1) = 2.50] (1) = 0.01]
SD NSD NSD
2G cross-cultural 2G cross-cultural 2G cross-cultural
Dimensions of CLUS(1) CLUS(2) CLUS (3)
second-order Individualism Individualism Individualism
TANG γ11 0.80 0.93 [Δχ2 0.94 H0.75 [Δχ2 0.85 H0.74 [Δχ2
(1) = 1.30] (1) = 3.39] (1) = 0.66]
NSD NSD NSD
REL γ21 0.95 0.88 [Δχ2 1.00 0.87 [Δχ2 0.87 0.88 [Δχ2
(1) = 0.47] (1) = 1.58] (1) = 0.01]
NSD NSD NSD
RESP γ31 0.94 0.97 [Δχ2 1.01 0.90 [Δχ2 1.01 0.85 [Δχ2
(1) = 0.04] (1) = 1.48] (1) = 1.58]
NSD NSD NSD
ASSU γ41 0.97 1.01 [Δχ2 1.02 0.88 [Δχ2 1.06 0.67 [Δχ2
(1) = 0.11] (1) = 1.99] (1) = 8.32]
NSD NSD SD
EMP γ51 0.97 0.87 [Δχ2 1.05 0.83 [Δχ2 1.02 0.70 [Δχ2
(1) = 0.79] (1) = 5.75] (1) = 5.71]
NSD SD SD
SQ➔SAT γ61 0.58 0.36 [Δχ2 0.60 0.42 [Δχ2 0.68 0.32 [Δχ2
(1) = 3.98] (1) = 2.98] (1) = 7.25]
SD NSD SD
2G two-group simultaneous estimation. SD significantly different at p < 0.05, NSD not significantly
different i.e., p > 0.05, SQ service quality, TANG tangibles, REL reliability, RESP responsiveness,
ASSU assurance, EMP empathy, SAT satisfaction
tangibility (low UA 1.04, high UA 0.62), reliability (low UA 1.03, high UA 0.73),
responsiveness (low UA 1.15, high UA 0.82), and empathy (low UA 1.11, high UA
0.82). These results indicate that high UA respondents in cluster 3 tend to assign
lower importance to SQ dimensions than low UA respondents. Table 3.4 contains
the results for the moderating role of uncertainty avoidance in both cross-national
and cross-cultural analyses.
Discussion and Implications
Cross-National Research
With regard to hypothesis 1, our study suggests that there are distinctive differences
between cross-national and cross-cultural models of perceived service quality. In
the cross-national study, reliability, assurance, and empathy were distinctive dimen-
sions with significant differences in at least one paired comparison among the three
countries (USA, India, and Philippines). Similarly, perceived service quality link-
age with satisfaction was significantly different across all three pairs of comparisons
in cross-national analysis. These findings indicate that significant cross-national dif-
ferences in the study of service quality and satisfaction emerge pointing to a need
for an emic-centered research methodology whereby the assumption of more differ-
ences than similarities becomes the default standard (Malhotra et al. 1996). That is,
in cross-national research, national culture is a relatively stable construct (i.e., static
entity) that reflects a shared knowledge structure within a nation-state and that
attenuates variability in values, behavioral norms, and patterns of behaviors (Erez
and Earley 1993). Hofstede (2001) has been a strong proponent of cultural stability
in that national culture, particularly individualism/collectivism, endures over time
and is consistent within countries. Even when countries are culturally diverse, mem-
bers share the same cultural foundation and thus according to cross-national research
nationality may be considered a viable proxy for culture (Beaudreau 2006; Dawar
and Parker 1994).
However, tangibility and responsiveness dimensions showed nonsignificant dif-
ference in all three countries. One plausible explanation is that customers across
countries may tend to use tangibility as a substitute for evaluating service outcomes
as opposed to service delivery. That is, given the impact of globalization and rising
consumer expectations of services worldwide, technical quality of services as
exemplified by technology and tangible servicescape (Brady and Cronin 2001)
becomes the “differentiating” factor rather than functional quality of services which
has reached competitive parity. This is quite pronounced in India and the Philippines
where customers have historically been utilitarian driven but now are aspiring for
better service quality and delivery. Both economies, in particular India, have under-
gone substantial economic transformation in the last 25 years as a result of the lib-
eralization of trade and foreign direct investment policies. The influence of global
Table 3.4 Moderating role of uncertainty avoidance: cross-national analysis vs. cross-cultural
analysis
2G cross-national 2G cross-national 2G cross-national
Dimensions of USA(1) India(2) Philippines (3)
second-order Uncertainty avoidance Uncertainty avoidance Uncertainty avoidance
TANG γ11 1.03 0.61 [Δχ2 0.93 H0.74 [Δχ2 0.90 0.74 [Δχ2
(1) = 10.33] (1) = 1.75] (1) = 1.90]
SD NSD NSD
REL γ21 0.97 0.81 [Δχ2 1.04 0.80 [Δχ2 0.96 0.79 [Δχ2
(1) = 2.08] (1) = 2.87] (1) = 2.03]
NSD NSD NSD
RESP γ31 1.03 0.90 [Δχ2 0.99 0.95 [Δχ2 1.00 0.94 [Δχ2
(1) = 1.37] (1) = 0.10] (1) = 0.34]
NSD NSD NSD
ASSU γ41 0.98 0.98 [Δχ2 0.98 0.91 [Δχ2 1.01 0.87 [Δχ2
(1) = 0.00] (1) = 0.27] (1) = 1.59]
NSD NSD NSD
EMP γ51 1.04 0.90 [Δχ2 1.01 0.85 [Δχ2 0.97 0.84 [Δχ2
(1) = 1.57] (1) = 1.52] (1) = 1.57]
NSD NSD NSD
SQ→SAT γ61 0.66 0.74 [Δχ2 0.65 0.54 [Δχ2 0.35 0.15 [Δχ2
(1) = 0.53] (1) = 0.63] (1) = 2.59]
NSD NSD NSD
2G cross-cultural 2G cross-cultural 2G cross-national
TANG γ11 0.93 0.76 [Δχ2 0.88 H0.84 [Δχ2 1.04 0.62 [Δχ2
(1) = 2.40] (1) = 0.15] (1) = 10.09]
NSD NSD SD
REL γ21 0.95 0.91 [Δχ2 0.85 1.00 [Δχ2 1.03 0.73 [Δχ2
(1) = 0.20] (1) = 2.34] (1) = 5.87]
NSD NSD SD
RESP γ31 0.96 0.94 [Δχ2 0.98 0.95 [Δχ2 1.15 0.82 [Δχ2
(1) = 0.04] (1) = 0.12] (1) = 7.54]
NSD NSD SD
(continued)
Table 3.4 (continued)
2G cross-cultural 2G cross-cultural 2G cross-national
ASSU γ41 0.98 0.99 [Δχ2 0.96 0.97 [Δχ2 1.05 0.89 [Δχ2
(1) = 0.01] (1) = 0.02] (1) = 1.75]
NSD NSD NSD
EMP γ51 0.93 0.93 [Δχ2 1.00 0.94 [Δχ2 1.11 0.82 [Δχ2
(1) = 0.00] (1) = 0.33] (1) = 6.21]
NSD NSD SD
SQ➔SAT γ61 0.44 0.51 [Δχ2 0.49 0.49 [Δχ2 0.59 0.6 [Δχ2
(1) = 0.43] (1) = 0.00] (1) = 0.06]
NSD NSD NS
2G two-group simultaneous estimation. SD significantly different at p < 0.05, NSD not signifi-
cantly different i.e., p > 0.05, SQ service quality, TANG tangibles, REL reliability, RESP respon-
siveness, ASSU assurance, EMP empathy, SAT satisfaction
culture has accentuated the global-national dialectic (Kjeldgaard and Askegaard

2006) shaping the definition of self and national identity. Customers, particularly in
urban centers, are giving more importance to the tangible aspects of services (i.e.,
physical facilities, technology, appearance of personnel, etc.) and are becoming
more demanding with regard to substantive and timely delivery of services. Some
research has validated that economic development creates a shift toward the indi-
vidualistic material-cultural environment and away from the collectivist and social
obligations (Heuer et al. 1999; Inglehart and Baker 2000). For instance, the link
between sustained affluence and the development of individualistic culture can be
seen in countries like Japan and Singapore, where there is fear that the younger
generation is losing work ethic and the sense of collective obligation (Ahuvia 2002).
With continued progress in economic development, the requirement of social con-
formity declines and post-modernization values of self-expression and individual-
ism emerges (Tang and Koveos 2008).
In summary, results from cross-national research suggest that despite globaliza-
tion, national borders continue to have important meaning although not in the way
cross-national research or values-based research tradition might suggest. An argu-
ment can be made based on Gelfand et al. (2011) study that found country-level
factor, namely, degree of “cultural tightness,” i.e., countries that have strong social
norms and enforcement and low tolerance for deviant behavior, may influence
“country effect.” Thus, rather than abandoning country-level research, both country-
level and intra-country-level cultural values research must be integrated for fine-
grained analysis (Beugelsdijk et al. 2017). Although, culture resides at different
levels, e.g., organizations, teams, professional associations, and nation-states,
Beugelsdijk et al. (2017) argue that to abandon country as the unit of analysis may
be too farfetched as suggested by Kirkman et al. (2017), similar in spirit to throwing

the baby with the bath water. Having said that, Taras et al. (2016) found that every
possible container of culture (e.g., socioeconomic status, globalization index, eco-
nomic freedom, etc., to name a few) outperformed country as a criterion for setting
boundaries for cultural entities. They found that only a maximum of 20% of vari-
ance in cultural values resides between countries, which of course means that 80%
resides within countries, indicating wide intra-country variability. There is a need to
explore other containers of culture and break out of the dominant “country equals
culture” paradigm.
Cross-Cultural Research
In contrast, in cross-cultural research, no service quality dimension was signifi-

cantly different across the three clusters, that is, tangibility, reliability, respon-
siveness, assurance, and empathy were all common dimensions of service
quality. Our findings empirically validate what cross-cultural and international
business scholars have maintained regarding the within-country heterogeneity
on cultural values and the growing hegemony of global culture in bringing some
convergence of global markets (Au 1999; Kirkman et al. 2006; Ralston 2008;
Tung 2008). In contrast to cross-national research, cross-cultural research views
culture as a distinct web of significance or meaning that involves sense making,
meaning making or production that goes beyond the constraints of group mem-
bership (Adams and Markus 2004). Gould and Grein (2009) construe culture as
a pivotal and holistic construct, distinct from national culture, and position cul-
ture-centric research as a constructivist process of meanings and patterns of
practices that are rooted on the processes of culture itself. Unlike national cul-
ture, the formation and evolution of culture involves a social construction of
practices and experiences which puts emphasis on meaning, context, and pro-
cess. Our study provides evidence of cultural convergence at the most external
layer of behavior as a result of global culture permeating down to the individual
cognitive level (Erez and Gati 2004; Leung et al. 2005). However, it should be
noted that culture as a multilayer construct (Schein 1992) is most easily influ-
enced at the external layer of artifacts and behavior and gets progressively dif-
ficult to penetrate at the deeper levels of values and basic assumptions reflecting
convictions about reality and human nature.
For international marketing scholars, these findings indicate a need for an
centered research methodology (albeit in combination with emic-centered
etic-
methodology) which assumes more similarities than differences in perceived ser-
vice quality and satisfaction (Malhotra and McCort 2001). This has implications for
global market segmentation in that segmentation based on individual-level cultural
values as opposed to nation-states detects more similarities in the dimensions of
perceived service quality and satisfaction. While researchers have found empirical
support for the existence of horizontal market segments for consumer products and
services (Bolton and Myers 2003; Hofstede et al. 1999), we believe this study offers
managerial insights on the efficacy of international market segmentation based on
common segments that transcend national boundaries. Service delivery systems
should be simultaneously customized to meet unique perceptions across segments
and standardized on common service dimensions to meet organizational cost-
effectiveness (see Agarwal et al. 2010).
Individualism/Collectivism as Moderator
With regard to hypothesis 2a, there are two implications. First, assurance and
empathy emerged as the two most critical service quality dimensions which were
significantly moderated by individualism/collectivism in both cross-national and
cross-cultural models. Assurance refers to the knowledge and courtesy of employ-
ees and their abilities to inspire trust and confidence, and empathy refers to the
caring and individualized attention and understanding a firm provides to its cus-
tomers. Collectivists assign greater weights to assurance and empathy than indi-
vidualists. This is because collectivists generally have interdependent self-construal,
as opposed to independent self-construal, in which knowledge about others are
relatively more elaborate and distinctive than knowledge about the self and as such
they seek assurances from people rather than from technology, and are more sensi-
tive and empathetic toward others (Gudykunst et al. 1996; Markus and Kitayama
1991, 1994; Oyserman et al. 2002). Second, we also find that collectivists draw
greater service satisfaction arising from perceived service quality than do individu-
alists. This finding is rather curious as one might have expected that individualists
prefer open expression of emotions as a validation of their authentic self and that
satisfaction and dissatisfaction can be expressed candidly. In contrast, for collec-
tivists, one might expect that the expression of emotions is significantly shaped by
a consideration of the reaction of others, and thus true feelings of dissatisfaction
are often suppressed for the preservation of long-term relationship. Perhaps, one
plausible explanation to this aberration is the apparent asymmetry between satis-
faction and dissatisfaction and that collectivists voice their satisfaction for a high
perceived service quality as a signal to reinforce their long-term relationship. This
however may not be the case for voicing dissatisfaction. More research is war-
ranted here.
Uncertainty Avoidance as Moderator
With regard to hypothesis 2b, there are two implications. First, tangibility emerged
as the only service quality dimension which was significantly moderated by uncer-
tainty avoidance (UAV) in both cross-national (i.e., USA sample) and cross-cultural
analyses (i.e., cluster 3). Tangibility refers to the physical evidence of the service,
consisting of physical facilities and technology, appearance of personnel, tools or
equipment, and physical presentation of the service, which can influence consumers
at physiological, sociological, cognitive, and emotional levels (Parasuraman et al.
1985). Research on uncertainty avoidance suggests that people reduce their uncer-
tainty by technology, law, and rituals and people who are high on UAV tend to dis-
play less tolerance for unclear situations and greater proclivity toward consensus,
structure, reliability, and long-term relationships (Hofstede 2001; Reimann et al.
2008). While technology and tangibility (i.e., high tech) can address the inherent
narrow zone of tolerance of high UAV customers through efficiency, our study
shows that customers that are high on UAV tend to assign less importance to tangi-
bility. This is perhaps because a high-tech environment can also generate anxiety
and stress especially when social interactions and personal connectivity (i.e., high
touch) are compromised. Therefore, global marketers need to strike the right bal-
ance between “high tech” and “high touch” especially in cross-cultural market seg-
ments, as evidenced in our cross-cultural findings. Second, we also find that, in
general, UAV with the exception of tangibility, does not significantly moderate
dimensions of SQ in cross-national analysis. In contrast, the role of UAV as a mod-
erator is pronounced in cross-cultural analysis in one of the clusters (cluster 3) in
which it significantly moderates tangibility, reliability, responsiveness, and empa-
thy. This implies that in international marketing studies, a cross-cultural analysis
which yields more homogeneity within segments is a better unit of analysis to detect
the influence of moderators when the moderator is relevant for a given segment with
an expected effect size (Kirkman et al. 2006; Beugelsdijk et al. 2017). The impact
of moderators gets more refined and pronounced in cross-cultural analysis as extra-
neous noise is eliminated and greater homogeneity is attained. Thus a better way to
capture the effects of moderators in international business research is to model its
influence on global segments that transcend national boundaries (i.e., cross-cultural
research) rather than on nation-states (i.e., cross-national research) as conducted
historically.
Contributions and Conclusion
In conclusion, our study makes a number of theoretical, methodological, and mana-

gerial contributions. Theoretically, our research contributes to the international mar-
keting literature by demonstrating differences between cross-national and
cross-cultural research and empirically validating the growing relevance of culture-
based approach to global market segmentation. Until recently, most international
business research has focused on cross-national research where national culture,
based on group membership in a nation state, has been used as a grouping variable
to study cultural variation among countries. We also investigate the moderating role
of individualism/collectivism and uncertainty avoidance in the relationship between
perceived service quality and satisfaction and find some insightful results in both
sets of analyses. Cross-cultural analysis yields more homogeneity within segments
and is a better unit of analysis to detect the refined influence of moderators for a
relevant segment.
In terms of methodological contributions, we (1) collect data from large and

representative samples from three countries; (2) we test for common method vari-
ance bias using the recent methodology proposed by Malhotra et al. (2006); (3) we
estimate measurement models and establish the reliability, convergent, and discrim-
inant validity of all our measures; (4) we examine configural, metric, scalar, and
variance-covariance equivalence (Malhotra et al. 1996; Steenkamp and Baumgartner
1998); and (5) we employ structural equation modeling to test our hypotheses.
Our hypotheses and the resulting findings also have useful managerial implica-
tions. With regard to hypothesis 1, there are implications for global market segmen-
tation in that segmentation based on culture as opposed to nation-states detects more
similarities in the dimensions of perceived service quality and satisfaction. Thus,
our study offers managerial insights on the efficacy of global market segmentation
based on common segments that transcend national boundaries. Service delivery
systems should be customized to meet “emic” peculiarities by adopting vertical
segmentation strategies and simultaneously standardized to meet “etic” universals
by adopting horizontal segmentation strategies on common service dimensions to
meet organizational cost-effectiveness. In terms of hypothesis 2a, collectivists
assign greater weights to assurance and empathy than individualists. Thus, market-
ers should emphasize assurance and empathy-based strategies and mechanisms in
collectivist cultures. With regard to hypothesis 2b, global marketers need to strike
the right balance between “high tech” and “high touch” to alleviate concerns related
with uncertainty avoidance especially in cross-cultural market segments, as evi-
denced in our cross-cultural findings.
In conclusion, this research is not without limitations. Because service quality is
a malleable construct contingent on personal, cultural, and institutional factors, a
longitudinal study tracking its evolving nature would better detect convergence over
time. Further, in this study, we only used the Hofstede framework; future studies test
our model using alternative frameworks such as the GLOBE project. Notwithstanding
these limitations, we believe our preliminary empirical results shed new light to an
old debate that was first sparked by Levitt in 1983 in his classic published article
that appeared in Harvard Business Review. While the debate between convergence
and divergence of cultural values will continue into the future, we believe our
research provides sufficient evidence for more cross-cultural research by interna-
tional marketing researchers and the need for using culture both as a grouping vari-
able and a moderating variable.
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Chapter 4
Cross-Border E-Commerce: A New Driver
of Global Trade
Yanbin Tu and Joe Z. Shangguan
Abstract In this chapter, we explore cross-border e-commerce (CBEC) as a new

driver of international trade. We adopt a revised i-based N-OLI framework for
CBEC. Using China as a case study, we discuss the rapid growth, structure, export/
import models, and infrastructure and environment of China’s CBEC. We attribute
China’s CBEC success to the important role of e-commerce giants such as Alibaba.
com and JD.com, the designation of CBEC pilot cities, supportive governmental
policies, and big capital inflows. Four factors are seen to create future opportunities
for all stakeholders of global CBEC, especially for merchants: the push from gov-
ernments, the rise of middle class in developing countries, technological improve-
ments, and more SMEs adopting CBEC. On the other hand, cultural differences,
customer trust, logistics, payment, and legal and regulatory barriers are among the
biggest challenges facing CBEC. Lastly, we outline several recommendations for
foreign firms planning on entering into China’s market by means of CBEC.
Introduction
We are in an information age with a dynamic business environment. While tradi-

tional retailers struggle to keep up with market changes, with well-known names
like Sears in the USA and Wanda Shopping Mall in China closing their stores,
e-tailers are prospering in both developed and developing countries. As Table 4.1
shows, online retail sales in world’s major economies are projected to grow at envi-
able rates from 2014 to 2018, with China, India, and Argentina all exceeding 100%.
Y. Tu (*) • J. Z. Shangguan
School of Business, Robert Morris University,
Moon Township, PA 15108, USA

94 Y. Tu and J. Z. Shangguan
Table 4.1 Global online retail sales

# Country 2014 $B 2018 $B Projected increase %
1 USA 294 414 41
2 UK 70 98 40
3 China 440 990 125
4 Germany 49 75 53
5 France 41 65 59
6 Japan 63 93 48
7 Australia 25 35 40
8 India 4 24 500
9 Brazil 19 35 84
10 Mexico 2.8 5.5 96
11 Argentina 3.3 6.8 106
Data Source: Forrester (2014)
Table 4.2 CBEC vs. traditional international trade

Advantages Disadvantages
CBEC Shorter channels between sellers Relatively new practice; subject to rapid
and buyers; lower prices and wider changes in technology; barriers in global
choices for consumers; easier for logistics, customer services, payment,
SMEs to use to access foreign and taxation. Prone to frauds
markets
Traditional Long history and tradition; import/ Longer channels, longer process time,
international export practices well established and higher costs; more regulatory
trade and regulated procedures and compliances (e.g., CIQ
compliance checks, product registrations,
etc.)
A significant portion of online sales involve sellers and buyers from different
countries. This business practice is now coined as cross-border e-commerce
(CBEC). CBEC can be defined in two ways. In a narrow sense, CBEC refers to
cross-border retailing: sellers in one country accept orders through the Internet and
deliver products to customers in another country via cross-border logistics. In a
broad sense, CBEC refers to any electronic foreign trade, as products are exported
from one country and imported to another through display, negotiation, and transac-
tion on the Internet (iResearch 2014). However defined, CBEC differs from tradi-
tional foreign trade in many ways. For example, traditional import/export usually
does not involve consumers, whereas in CBEC consumers are directly involved,
who might pay tariffs/taxes and track shipments on their own.
CBEC has several advantages over traditional international trade. As an Internet-
based business model, CBEC helps small- and medium-sized enterprises (SMEs)
enter into foreign markets. CBEC allows merchants to bypass the middlemen and
deal with individual wholesalers, retailers, and even end users directly. In CBEC,
sellers may be able to quickly adapt to the changes in market as they actively inter-
act with end users. In addition, CBEC is generally less regulated and taxed by
governments, which often translates into lower costs for both sellers and buyers and
4 Cross-Border E-Commerce: A New Driver of Global Trade 95
Table 4.3 Trade volume of China’s CBEC

Year 2011 2012 2013 2014 2015 2016
Volume (in b. RMB) 1550 1860 2700 3570 4500 5400
Annual growth 20% 45% 32% 26% 20%
Data Source: CECRC (2016)
more room for this market to expand. Table 4.2 lists the advantages and disadvan-
tages of CBEC vs. traditional international trade.
In recent years, traditional global trade has shown some growth fatigue. Four
factors contribute to the slowdown: (1) slow global economic recovery after the
2008 financial crisis. Global demands for products and services have been sluggish.
(2) Competition. CBEC is replacing certain parts of traditional global trade. (3)
Rising trade protectionism from certain countries. (4) Digitalization of many goods
and services, which are delivered via the Internet.
While traditional global trade appears to have slowed down, CBEC is rapidly
growing and becoming a new driver of global trade. Global e-commerce will
become a $661.66 billion market by 2017, with mobile commerce expected to grow
30% from 2016, according to PayPal and IPSOS. CBEC in China, for example, has
been growing by double digits in each of the past 5 years. Table 4.3 shows the trade
volume and growth rates between 2011 and 2016.
Two factors have contributed to the rapid growth of global CBEC. The first is
globalization. Countries nowadays are more integrated with each other than before.
Particularly, the two largest economies, the USA and China, are bonded with close
economic and trade relationships. The second is information technology innova-
tions. Infrastructures and platforms conducive to CBEC have been significantly
improved, international logistics are more efficient, and international payment has
become more secure.
The rapid growth of CBEC, however, is not without its roadblocks. In fact, there
have been many barriers and challenges in such areas as logistics, customs clearance,
international payment, customer services, and product frauds. Common problems
reported by CBEC buyers are product frauds and counterfeits, limitation of delivery
methods, failed deliveries, contract termination, unauthorized charges, defective
products, and inconvenient returns. Solving these problems is not easy because more
than one country is involved and international cooperation is often required.
Our goal in this chapter is to provide readers with a broad and deep understand-
ing of CBEC. We use China as a case study because of its prominent role in global
CBEC and relative success it has had. The remainder of the chapter is organized as
follows: first, we review current literature and provide a theoretical framework for
CBEC; next, we provide an overview of China’s CBEC and discuss China’s experi-
ence on promoting CBEC; we then discuss the opportunities and challenges in
global CBEC; finally, we outline some strategies for small- and medium-sized for-
eign firms that are planning to enter into China’s market via CBEC. Conclusion
follows at the end.
Literature Review
To understand cross-border e-commerce, one needs to first understand e-commerce

in general. Agarwal and Wu (2015) provide a comprehensive conceptual framework
for understanding e-commerce in the global marketplace. Building upon Dunning
(1995, 1998, 2000) and Singh and Kundu (2002), they propose an institution-based
network-ownership, location, and internationalization (i.e., i-based N-OLI) frame-
work due to the significant role of institutions. From this multi-theoretical perspec-
tive, they examine the factors impacting the growth potential of e-commerce in
emerging economies at the global, national, and transactional levels. These factors
are also applicable in the context of CBEC as it can be viewed as the globalization/
internationalization of e-commerce.
Malhotra et al. (2003) synthesize several foundational theories on modes of
global entry and offer a conceptual framework of the internationalization process.
They discuss global strategic factors, government-imposed factors, market factors,
and transaction-specific factors which jointly drive internationalization or globaliza-
tion. Cross-border e-commerce is seen as the new format of international trade in the
information age, with features different from traditional international trade. Yousefi
(2015) investigates whether growing CBEC boosts traditional international trade or
simply substitutes it. He finds that electronic delivery of digital products in CBEC
helps developing countries gain deeper access to international markets. Terzi (2011)
studies the impact of e-commerce on international trade and employment and finds
that electronic commerce brings economy-wide benefits to all countries. The author
further points out that the gains are likely to be concentrated in developed countries
in the short run, but more gains will switch to developing countries in the long run.
Some studies focus on the challenges facing cross-border e-commerce and
potential solutions. Xue et al. (2016) analyze the business model and ecosystem of
cross-border e-commerce in China. Zhang et al. (2016) point out that, with the rapid
development of CBEC in recent years, many problems have emerged including
shortage of relevant professionals and lack of innovation on business model. Gomez-
Herrera et al. (2014) point out that, although distance-related trade costs are greatly
reduced compared to offline trade, a strong increase in trade costs related to cross-
ing linguistic borders is observed. Pei et al. (2016) find that the most weighted fac-
tors that satisfy foreign buyers are commodity quality, relative price, delivery speed,
and payment methods. Deng and Wang (2016) find that early-mover advantages
may diminish beyond a critical length of tenure because of free-riding costs, resolu-
tion of technological or market uncertainty, as well as the incumbent inertia of early
movers. Tao and Zhang (2016) propose a credit evaluation model for CBEC that
makes use of big data, along with the application of advanced machine learning tool
for training and forecast.
As Agarwal and Wu (2015) and Malhotra et al. (2003) point out, government
policies play an important role in promoting the growth of both e-commerce and
global trade. Several researchers have empirically explored this aspect of
CBEC. Gessner and Snodgrass (2015) study the joint programs sponsored by the
US and Canada federal governments to facilitate cross-border business and explore
the effectiveness of participation in such programs for small- and medium-sized

firms in overcoming the barriers to cross-border e-commerce transactions. Chen and
Yang (2017) find that cross-border e-commerce plays a mediating role between
government’s pro-innovation supportive policy and firm performance. Sun et al.
(2017) analyze the Sino-Russian cross-border e-commerce port city Manzhouli and
discuss the opportunities and challenges for various stakeholders.
Conceptual Framework for CBEC
Though originally proposed to understand the factors influencing the growth poten-
tial of e-commerce in emerging economies, we believe that Agarwal and Wu’s
(2015) i-based N-OLI framework, along with the framework of internationalization
process by Malhotra et al. (2003), also effectively explains CBEC in general as well
as the development of CBEC in China. In Table 4.4, we identify the factors impact-
ing China’s CBEC that fit into Agarwal and Wu’s three-level model. We keep the
original impact factors identified by Agarwal and Wu (2015) and add a few (in
Table 4.4 Fitted i-based N-OLI framework for CBEC

Impact factor
# level Impact factor Example
1 Global-level Multilateral agreements WTO
Strategic behavior of firms Convergence in industry standards
Technological innovations Fast and secure internet
Global logistics Fast and economical global logistics
International online payment Payment platforms: PayPal, AliPay
2 National-level Institutional environment
Government policies and China’s CBCE pilot cities
regulations
Legal environment Law enforcement against Frauds
Infrastructure
Physical infrastructure Airports and seaports
Financial and market Market efficiency
infrastructure
Social infrastructure Rising middle class in emerging
Economy countries
Price advantage Lower prices in emerging country
Manufacturing advantage Economies of scale
Culture Fostering online trust
3 Transactional- Integrity of transactions Customer privacy, data security
level Online intermediaries Product review, trust booster
Network externalities and value Strategic alliances, value co-creators
clustering
CBEC platform and venture One-stop CBEC platforms, huge
capital investment in platforms
boldface) that we think are either new or unique to CBEC and CBEC in China in
particular. In the right column, we provide specific examples related to the impact
factors.
Here we mainly explain the added impact factors. Readers can refer to Agarwal
and Wu (2015) for details of the i-based N-OLI framework and the original factors.
For the significance of China’s entry into WTO, please refer to the analysis by
Agarwal and Wu (2004) on its global impact, issues, and implications. At global
level, global logistics and international online payment support the high growth of
CBEC. At national level, rapid economic growth and cheap labor in certain emerg-
ing countries give them manufacturing and pricing advantages over other countries,
which, in turn, boost export via CBEC. At transactional level, multifunctional, one-
stop CBEC platforms facilitate transactions between sellers and buyers in different
countries. Overall, we believe that all the factors listed in Table 4.4 contribute to the
success of China’s CBEC, as will be discussed in the following sections.
China’s Cross-Border E-Commerce: An Overview
urrent Picture, Structure, Shopping Channels,

C
and Import Models
As mentioned earlier total transaction volume of CBEC in China reached RMB

5400 billion in 2015, up 20% from the previous year. The structure of China’s
CBEC can be illustrated on three dimensions: key provinces involved in export
CBEC, main product categories, and main trade partners. Table 4.5 lists the rank-
ings for the three dimensions: (1) The top CBEC provinces are Guangdong,
Zhejiang, Jiangsu, Fujian, Shanghai, Beijing, Hubei, and Shandong. Not surpris-
ingly, these provinces are located on the east coast, which represents the more
developed economy than other regions in China. (2) The main product categories
are 3C (computer, communication, and consumer) Electronics, Clothing, Outdoors,
Health and Cosmetics, Jewelry, Gardening, Shoes and Case, and Toys. These products
are suitable for international shipment at fairly low costs. (3) The main trade
Table 4.5 The structure of China’s CBEC

# CBEC province % Product category % Trade partner %
1 Guangdong 24.7 3C Electronics 37.7 USA 16.5
2 Zhejiang 16.5 Clothing 10.2 European Union 15.8
3 Jiangsu 12.4 Outdoors 7.5 ASEAN 11.4
4 Fujian 9.4 Health and cosmetics 7.4 Japan 6.6
5 Shanghai 7.1 Jewelry 6 Russia 4.2
6 Beijing 5.2 Gardening 4.7 S. Korea 3.5
7 Hubei 4.1 Shoes and case 4.5 Brazil 2.2
8 Shandong 3.2 Toys 3.6 India 1.4
Data Source: CECRC (2016)
partners of China’s CBEC are the USA, European Union, ASEAN, Japan, Russia,
S. Korean, Brazil, and India.
Of the RMB 5.4 trillion total volume of CBEC, RMB 4.48 trillion are for export,
and RMB 920 billion are for import. As a result, China has a super surplus in CBEC
trade. Furthermore, the main component of China’s CBEC is B2B commerce. The
share of B2C commerce is relatively small. Figure 4.1 below shows the breakdown
of total CBEC export by B2B and B2C. We can see that B2B CBEC is dominant
over B2C CBEC even though B2C CBEC gains more shares in recent years. The
reason for this B2C dominance is that China’s CBEC started with the B2B model
led by Alibaba.com 10 years ago. Only more recently are e-commerce companies
putting more efforts on B2C CBEC model.
Why has CBEC in China kept growing fast over the last 10 years? One reason
is that CBEC has many advantages over traditional international trade. Table 4.6
lays out some of them: First, trade procedures for CBEC are simpler. Second,
overall tax rates for CBEC are lower. Third, CBEC customers have more choices
Fig. 4.1 Export CBEC in China (Data Source: CECRC 2016)
Table 4.6 Traditional international trade vs. cross-border e-commerce

# Traditional international trade E-commerce cross-border trade
1 Requires multiple import documents Unified registration system
Uncertainty about compliance with China’s Only need to meet standards of country
standards of origin
Higher importation standards and involving Unified monitoring system
multiple departments Goods can be sold immediately after
Longer time to go through the import procedure registration
Goods can be sold without labels in
Chinese
2 Tariff: 10% ~30%; value-added tax: 17% Personal postal articles tax:
10%、20%、30%、50%
3 Customer chooses after imports Customer can choose before imports
Data Source: Various news and polices
Fig. 4.2 Bonded warehousing vs. direct import (Source: Ng 2015)
of goods. Because of these advantages, the share of CBEC in China’s total foreign
trade has steadily increased in the past few years, from 4.4% in 2008 to 14.8% in
2014 (Lee 2015).
Chinese online shoppers mostly buy foreign products either directly from over-
seas websites or from domestic CBEC platforms, replacing the once-popular chan-
nel of purchasing agents (USDC 2015). Buying from CBEC platforms is the
predominant method because of its relative ease and trustworthiness. Regarding
CBEC imports, foreign products can find their way into China by either bonded
warehousing or direct import. With the bonded warehousing model, products are
imported in bulk and temporarily stored in bonded areas located in pilot cities before
being ordered by consumers on CBEC platforms. After purchase orders are received,
products will be delivered from bonded areas to consumers directly via local
express. With the direct import model, products are ordered from overseas and
shipped to China by international transportation. Although customs clearance is
required for both models, China Inspection and Quarantine (CIQ) is only required
of the bonded warehousing model (see Fig. 4.2).
Infrastructure and Environment of China’s CBEC
CBEC cannot be run efficiently without effective infrastructure and environment.

We discuss five aspects of China’s CBEC infrastructure and environment: (1) plat-
forms, (2) payment, (3) logistics, (4) regulation, and (5) third-party services.
E-commerce platforms have been the strong force behind the rapid growth of
China’s CBEC, both B2B and B2C models. There are two types of B2B platforms:
B2B information and service platform and B2B transaction platform (Mansfield
2015). The information and service platform provides members with bid ranking,
value-added service, and online advertising service. Its revenues mainly come from
membership fees. Representative B2B platforms include Alibaba.com, Made-in-
China.com, Toocle.com, and Globalsources.com. The transaction platform provides
market-making service, product display, transaction data, and online payment. Its
revenues mainly include commissions and display fees paid by sellers. Representative
platforms are Dhgate.com, Aliexpress.com, Osell.com, and Tradetang.com. There
are also two types of platforms on the B2C side: Open to 3rd Party platform and
Fig. 4.3 Infrastructure and environment of China’s CBEC (Source: Revisions on Lee 2015)
Self-Business platform. The Open to 3rd Party B2C platform offers open platform,
ecosystem, data sharing, warehousing, logistics, marketing, and promotion.
Example platforms include eBay.com, Amazon.com, Wd.cm, and Wish.com. The
Self-Business B2C platform has its own procurement, online transaction, branding,
logistics, and post-sale services. The well-known ones are Lightinbox.com,
Milanoo.com, Globalegrow.com, and Dx.com (see Fig. 4.3).
Payment is critical to CBEC. Two key elements are trusted online payment
options and the availability of payment services. Secure, convenient, and preferable
payment methods increase consumers’ confidence in buying from overseas sellers.
In recent years, Chinese companies have made heavy investments to greatly
enhance their online payment processing capabilities. Alibaba’s AliPay and
Tencent’s TenPay have established dominance in the online payment market, espe-
cially on the mobile end. The two platforms together processed RMB 12.8 trillion
of payment in the fourth quarter of 2016 alone, accounting for 91.1% of market
share. In addition to payment infrastructure, other financial services provided by
Chinese financial institutions and even the government also play an important role
in CBEC. For example, some banks and insurance companies provide credit guar-
antee to the CBEC exporters.
International e-commerce logistics are more expensive, complex, and time con-
suming than domestic logistics. China has a quite impressive logistical system, with
CBEC platforms working closely with domestic shipping firms such as Shunfeng
Express and international logistics firms such as UPS and FedEx. In 2016, about 30
billion deliveries were handled, averaging over 80 million per day. The amount of
daily shipment is expected to grow by 50% annually to 1 billion in 7–8 years of
time!
Every country has its laws and rules on trade. However, China’s regulations on
CBEC are generally lax compared to those on traditional international trade. China’s
policies on CBEC have also evolved over time, especially since 2012, to keep up
with the development of the CBEC market. These policies tend to be supportive
rather than restrictive. The most relevant CBEC regulatory bodies are the Ministry
of Commerce, General Administration of Customs, Bureau of Foreign Exchanges,
and General Administration of Quality Supervision, Inspection and Quarantine.
These agencies work in coordination to maintain a conducive CBEC environment.
Finally, numerous third-party service providers have emerged in China to sup-
port CBEC. These service providers, mostly small- and medium-sized firms, play
an indispensable role in the overall CBEC ecosystem. Their services range from
consulting, education, and training to transaction enhancing. China E-Commerce
Research Center (www.100ec.cn) estimates that there were 2.7 million people
directly working in the e-commerce service industry as of December 2015.
Promoting Cross-Border E-Commerce: China’s Experience
China has rich experiences on promoting cross-border e-commerce. We summarize

its experiences in four aspects: (1) roles played by e-commerce giants such as
Alibaba.com and JD.com, (2) government-designated CBEC pilot cities, (3) favor-
able governmental CBEC policies, and (4) capital inflows into the CBEC industry.
Alibaba.com and JD.com: Key CBEC Players
Alibaba started in 1999 as a B2B online marketplace (Alibaba.com) connecting

Chinese manufacturers with overseas buyers. Alibaba launched Taobao (Taobao.
com), a C2C online marketplace in 2003. Taobao is similar to eBay in the USA,
which offers Alibaba.com rich and successful practices on electronic commerce. In
2004, Alibaba launched Alipay, an escrow-based online payment platform. Escrow
allows buyers to pay securely online without exposing their credit card details.
Alipay is the preferred payment solution for transactions on Taobao. In 2013, Alipay
reported 300 million registered users and 12.5 billion transactions. Alipay eventu-
ally overtook PayPal as the largest mobile payment platform in the world with 100
million mobile registered users and over 2.78 billion transactions. Alibaba launched
Tmall in April 2008 for the B2C market. On Tmall, brands and retailers sell prod-
ucts directly to end consumers. Tmall is currently selling more than 70,000 brands
from over 50,000 stores. Over 4000 global brands such as Apple, Burberry, Estee
Lauder, and Costco have set up stores on Tmall. Tmall, as an online platform, pro-
vides a number of services to retailers from design, operation, marketing, and pay-
ment to order fulfillment and logistics (Liang et al. 2016).
To promote its CBEC business, Alibaba.com launched AliExpress.com in 2010.

AliExpress.com provides a platform to serve small Chinese businesses, offering
products to international online buyers. Alibaba also uses Tmall Global to provide a
solution for overseas companies to sell products directly to Chinese consumers.
Orders can be fulfilled and shipped from outside of or within China. Overall, in
2016 Tmall has a market share of 24%, and AliExpress.com has a market share of
18.7% of China’s import CBEC (CECRC 2017).
JD.com, formerly 360Buy, is the largest online direct sales company and the
second largest online B2Ccompany in China. In 2013, JD reached a market share of
46.5% in the online direct sales market and a market share of around 20% in the
online B2C market (iResearch 2014). The number of products JD offers through its
online direct sales and marketplace has grown from approximately 1.5 million stock
keeping units, or SKUs, as of December 31, 2011, to approximately 40.2 million as
of March 31, 2014 (Liang et al. 2016).
JD started its CBEC business relatively late. It launched its CBEC platform, JD
Worldwide (JD.HK) in April 2015. JD sells its own products and provides a plat-
form for other vendors. It has a partnership with eBay, the biggest American auction
house. To facilitate CBEC imports and exports, JD supports sales, marketing, and
logistics services to its platform users. JD Worldwide has a market share of 9.9% of
China’s import CBEC (CECRC 2017).
Ten Pilot Cities on CBEC
Ten Chinese cities have been designated as pilot zones for cross-border e-commerce
by the end of 2016. They include Shanghai, Hangzhou, Zhengzhou, Ningbo,
Hangzhou, Chongqing, Guangzhou, Tianjin, Fuzhou, and Pingtan (see Table 4.7).
Chinese central government offers favorable policies to these cities, and local gov-
ernments of the cities make efforts to conduct pilot programs in terms of technical
standards, business process, regulatory mode, information construction, and other
Table 4.7 Ten pilot cities for CBEC

# Pilot city Year est. Operation area
1 Shanghai 2012 China (Shanghai) Pilot Free-Trade Zone
2 Hangzhou 2012 Hangzhou Bonded Logistics Center
3 Guangzhou 2013 Guangzhou Baiyun Airport Bonded Zone
4 Ningbo 2012 Ningbo Free-Trade Zone
5 Zhengzhou 2012 Henan Bonded Logistics Center
6 Chongqing 2012 Chongqing Xiyong Integrated Free-Trade Zone
7 Shenzhen 2014 Qianhai Free-Trade Port Zone
8 Tianjin 2014 China (Tianjin) Pilot Free-Trade Zone
9 Fuzhou 2016 China (Fuzhou) Pilot Free-Trade Zone
10 Pingtan 2016 China (Pingtan) Pilot Free-Trade Zone
Fig. 4.4 Trading center service in CBEC pilot cities (Source: CFTA 2015)
aspects relating to cross-border e-commerce. These CBEC pilot areas also have
established their own e-commerce platforms either for online sale or combing with
other e-commerce services like parcel tracking, customs clearance, and products
filing. Companies are allowed to store goods tax-free in bonded warehouses in the
free-trade zone of a pilot city. The retailer does not pay tax until the product leaves
the free-trade zone. This business model helps resolve issues related to language
barrier, after-sales service, potential difficulty with Customs, and long delivery
time. In return, it guarantees that the customs will collect a 10% import tax on prod-
ucts that might have otherwise been sent as personal parcels and not paid tax at all
(Collier International 2015). There are trading centers set up in the pilot cities to
facilitate CBEC processes. They provide one-stop services for vendors as described
in Fig. 4.4.
Favorable CBEC Policies
Chinese governments at various levels fully support and promote CBEC. Since
2012, a number of favorable policies have been promulgated that cover the designa-
tion of pilot cities, duties and taxes, international payment, foreign currency
exchanges, imported goods inspection, etc. The timeline of these policies and their
implications to CBEC are listed in Table 4.8.
Venture Capital Inflows
Another driver for China’s CBEC growth is venture capital inflows. The rapid
growth of CBEC markets encourages venture capital to invest in start-ups and new
e-commerce firms for CBEC. In 2016, the total venture capital inflows into B2B
Table 4.8 Key support and promotion policies for China’s CBEC
# Policy topics Significance to CBEC Time
1 The central government designates The first group of CBEC pilot 12/2012
Shanghai, Zhengzhou, Ningbo, Hangzhou, cities with specialized support
and Chongqing as pilot cities for cross- from the central and local
border e-commerce development governments
2 The State Council issues a policy to support CBEC exporters can get finance, 08/2013
export CBEC tax return, and other supports
3 Guangzhou designated pilot city Guangdong is the largest 09/2013
exporting province in China.
Guangzhou pilot zone will boost
the provincial exports via CBEC
4 The Customs Bureau allows an existing tax Help CBEC importers save costs 03/2014
known as “xing you shui” (行邮税) to be and simplify the importing
applied to goods stored in or transferred process
through the bonded areas of the six pilot
cities
5 Companies involved in e-commerce import Integrated online payment 04/2014
in Shanghai (via sales, payment, logistics, or system sponsored by the
warehousing) must register with Shanghai government would help speed up
Customs, via the Shanghai Oriental CBEC importing procedure
Electronic Payment System
6 China’s Customs Bureau requires customs Help clear up market disorders 07/2014
clearance for all cross-border e-commerce. and regulate the CBEC market.
Shenzhen designated pilot city Apply successful CBEC pilot
city experience to more cities
7 The Central Government calls for faster Push local governments and 11/2014
issuance of new guidelines to support the administrations to supervise and
development of cross-border e-commerce support the CBEC practices
8 Ministry of Industry and Information Encourage foreign investors and 01/2015
Technology allows overseas investors to entrepreneurs to build CBEC
wholly own an online transaction or data platforms
processing company in Shanghai’s FTZ
9 Zhejiang Province issues a 3-year plan for Offer solid supports from local 01/2015
the development of cross-border governments
e-commerce (2015–2017)
10 State Administration of Foreign Exchange Offer favorable foreign exchange 01/2015
provides guidance on cross-border payment policy for CBEC importers and
exporters
11 The State Council approves the setup of the Apply successful CBEC pilot 03/2015–
cross-border e-commerce pilot zones in city experience to more cities 01/ 2016
Hangzhou, Tianjin, Fuzhou, and Pingtan
12 The State Council issues the guidance for Raise status of CBEC as a 05/2015
fostering economy by CBEC vehicle to grow economy
13 General Administration of Quality Simplify the importing and 05/2015
Supervision, Inspection and Quarantine exporting process to enhance the
issues a policy on inspection and quarantine CBEC efficiency
to promote CBEC
Source: Collier International (2015) and various news
Fig. 4.5 Abandoned products by DaiGou at Airport
electronic commerce platforms was over RMB 15.3 billion (CCECR 2017). These
capital investments not only enhance the operation of CBEC platforms but also help
integrate various services in the supply chain into one-stop services.
Government Intervention Missteps
On April 8, 2016, the General Administration of Customs started to impose a high

duty on personal imported goods (“DaiGou”). Chinese travelers must pay a duty for
purchases valued more that RMB 2000 per entry or more than RMB 20,000 for
1 year. The policy also adjusts the categories of customs duties from four to three,
while raising tax rates accordingly. The main purpose of the new policy is to encour-
age Chinese to buy more domestic products. However, the hasty implementation of
the new policy caused chaos in some Chinese international airports. Many Chinese
abandoned their goods to avoid paying heavy duties at the airport (see Fig. 4.5).
This new policy negatively affected the China’s import CBEC and triggered strong
protests from both Chinese consumers and CBEC vendors. Just 3 months later, the
General Administration of Customs had to call for a suspension of the policy for
1 year.
Cross-Border E-commerce: Opportunities and Challenges
Opportunities
Despite its rapid expansion in recent years, it is widely held that cross-border
e-commerce is still in a nascent stage and that there are even greater opportunities
ahead for merchants from every corner of the world. One of the biggest benefits of
the development of CBEC thus far, in our view, may be the increased awareness and
desire for all parties, including merchants, consumers, service providers, as well as
governments, to participate in CBEC activities. Below we discuss the opportunities
for each of these critical stakeholders in the CBEC ecosystem, with an in-depth look
at the opportunities for CBEC merchants in particular.
Opportunities for Merchants
From the e-commerce merchants’ perspective, the opportunities to enter and grow
in the CBEC space come particularly from the following areas:
1. The push for CBEC at the government level has been stronger than ever. In the
past year or so, the world has witnessed a surge of populism and protectionism
among certain populations in some countries, as evidenced in the most recent
election cycles in the USA, France, Austria, and the Netherlands. At least in the
political arena, there seems to be head winds against global trade. For example,
the G20 meeting held in Germany in March 2017 failed to reaffirm free-trade
agreement and pledge against protectionism due to the US resistance. Fortunately,
a great deal of other countries remain as the proponents of globalization and free
trade. Realizing that CBEC could be an important engine of economic growth,
many national governments have incorporated CBEC into their strategic eco-
nomic planning.
The country that is leading the drumbeat is China. In 2013, the Chinese gov-
ernment proposed the “Belt and Road Initiative” as a grand scheme to promote
economic development and cultural ties among the countries along the ancient
Silk Road and the seaway connecting the Far East, Africa and Europe. More than
130 countries and 70 international organizations have since joined forces, sign-
ing dozens of cooperation agreements with China. In November 2016, all the
193 members of The United Nations Assembly unanimously passed the docu-
ment A/71/9 to hail the initiative and called upon all parties to participate. Of all
the projects undertaken under the Belt and Road Initiative such as the Silk Road
Fund and the Asia Infrastructure Investment Bank (AIIB), CBEC is considered
as another key element. For example, the official G20 Hangzhou, China Summit
in September 2016 included a proposal of creating a global e-commerce plat-
form, referred to as the Electronic World Trade Platform (eWTP), to strengthen
cross-border digital trade (G20 2016). Besides, as mentioned before, the Chinese
government has launched several CBEC pilot zones.
2. The rise of the middle class and the e-consumer generation. Decades of eco-
nomic development has created large middle-class populations worldwide, espe-
cially in developing countries such as China, India, and Brazil. Even with the
financial crisis of 2007–2008 and the ensuing slow recovery of world economies,
the wealth of households in many countries has still steadily increased, albeit
unevenly. A study by the Brookings Institute shows that the global middle class
exceeded three billion people in 2015, nearly half of which lived in Asia. Further,
the middle class are projected to increase by 160 million people per year on aver-
age through 2030. The total consumption by the middle class totaled $35 trillion
in 2015, about $12,000 per person. The amount is estimated to increase by 4%
per year to $10 trillion more in 2022 and $29 trillion more in 2030 (The Brookings
Institute 2017).
Besides the tremendous size of consumption by the middle class, today’s con-
sumers are increasingly shopping online, both domestically and globally. This
change in shopping behavior is even more encouraging and much to the benefit
of CBEC merchants. A 2016 Pitney Bowes Inc. Global Shopping Survey found
that 94% of consumers frequently made domestic online purchases, about two-
thirds (66%) of which also made at least one cross-border online purchase during
the previous year. Singapore (89%), Australia (86%) and Hong Kong (85%) had
the highest number of cross-border shoppers. In China, over two-thirds of con-
sumers said they made online purchases on a daily or weekly basis (Pitney
Bowes 2016). A study by Accenture Plc. estimates that, by 2020, over two billion
e-shoppers would be transacting 13% of their overall retail consumptions online,
equivalent to a market value of $3.4 trillion (Accenture 2016).
3 . Technological improvements and digital infrastructure have greatly enabled
CBEC. Innovations in technologies and ambitions of businesses are fueling the
rapid growth of CBEC by lowering barriers and increasing accessibility. Several
trends are particularly noteworthy:
(a) Some of the biggest players in e-commerce have been making heavy invest-
ments to global online platforms. Alibaba Group, as mentioned before, is
working with governments around the world to build a digital free-trade
zone through its eWTP. The company has signed agreements with the gov-
ernments of Canada, Australia, Italy, France, and Malaysia, to name a few.
Meanwhile, Amazon.com has expanded its operations into more than a
dozen countries, and China’s JD.com has launched JD Worldwide and is
partnering with EBay to pursue international expansion. To support their
global ambitions, these companies are also building up massive cross-border
logistical systems.
(b) The improvement of the Internet infrastructure in the once less-developed
countries and regions, along with the wide use of sophisticated end-user
devices, especially mobile devices, has made cross-border online shopping
easier. In addition, the application of cloud computing and big data analytics
has made possible the processing of virtually unlimited volume of transac-

tions. Some popular social media platforms such as WeChat, Weibo, and
Facebook, with their hundreds of millions of users around the world, also
play a key role as both providers of information and facilitators of interac-
tion between merchants and consumers. Finally, in the near future, virtual
reality (VR) and augmented reality (AR) technologies will greatly enhance
online shopping experience.
(c) Online payment is emerging as one of the central issues in CBEC. Although
it remains a major challenge, as will be discussed later in this chapter, there
have been important advancements in payment technologies as many com-
panies race to the competition. More payment options are available now. In
addition to traditional credit card companies such as Visa and MasterCard
extending their footprint, others are offering alternative, arguably more
streamlined and more secured, payment solutions. PayPal, for example, has
operations in more than 200 major markets and offers integrated yet flexible
payment systems. AliPay and TenPay, on the other hand, offer convenient
yet secure in-app payment solutions embedded in their trading and messag-
ing platforms. Although the final competitive landscape of the global pay-
ment industry has yet to take shape, CBEC is already benefiting from the
current technological advances.
4. Small- and medium-sized businesses (SMEs) have as good chances at CBEC as
big players. One of the most promising aspects of cross-border e-commerce,
compared to traditional import-export trade, is that merchants of any size and
anywhere can participate due to lower barriers. In collaboration with World
Trade Organization (WHO) and many national governments, Alibaba Group is
leading the effort to create a level playing field for foreign SMEs through its
eWTP. The company’s ultimate goal is to recruit ten million retailers and ven-
dors onto its platforms, the majority of which will be small SMEs. In fact, when
it comes to consumer products, SMEs may even have an edge over the large
competitors because of the variety of specialized goods only they are able to sell.
SMEs sometimes may be nimbler to find their niche markets. A dairy products
merchant in the Netherlands or New Zealand, for instance, can quickly find the
appeal of its merchandises when a scandal breaks out about the quality of pow-
dered milk sold in the Chinese domestic market.
Opportunities for Governments
Traditionally, the role of government relating to cross-border e-commerce has

focused on regulations. For example, governments are always interested in enforc-
ing safety standards for imported goods or adequate taxation of e-commerce activi-
ties. However, many governments seem to have evolved from passive regulators to
proactive advocates of CBEC. They have embraced e-commerce, domestic or cross-
border, as an important driver of economic growth. As discussed earlier, China has
enacted a number of supportive laws and policies since 2012 to foster CBEC as part
of the broader strategy under the Belt and Road Initiative. The government of India
recently has also taken several e-commerce initiatives including opening up several
government e-commerce platforms and raising the limit of FDI in Indian e-commerce
marketplaces.
In Europe, the European Commission adopted the Digital Single Market strategy
in 2015, which “aims to open up digital opportunities for people and business and
enhance Europe’s position as a world leader in the digital economy” (European
Commission 2017). The European Commission has identified the completion of the
Digital Single Market as one of its ten political priorities. On May 25, 2017, the
Commission adopted a package of legislative proposals to boost e-commerce among
the EU members. The proposals focus on three specific areas: stopping unjustified
geo-blocking and other forms of discrimination, making cross-border parcel deliv-
ery more affordable and efficient, and strengthening the enforcement of consumers’
rights.
Opportunities for Third-Party Providers
Third-party service providers are both enablers and beneficiaries of CBEC. The
rapid growth of global CBEC also presents huge growth potential for third-party
service providers in industries such as shipping and logistics, payment, financial
services, and trade services. For example, the major international shipping compa-
nies have all seen steady revenue growth between 2010 and 2016, with UPS of
America from $49.5 billion to $60.9 billion, FedEx Corp from $34.7 billion to
$64.3 billion, and Deutsche DHL Group from €51.4 billion to €57.3 billion, all
against a backdrop of slow recovery from the global economic recession during the
same period. DHL specifically attributes its recent success to CBEC: “Thanks to our
targeted approach to e-commerce, the entire Group is benefiting increasingly from
the dynamic international development in this segment” (DHL Group 2016b).
Similarly, major international payment companies such as Visa, MasterCard, and
PayPal have also enjoyed significant increases in both transaction volume and rev-
enues. Furthermore, a new class of businesses that provide either specialized ser-
vices or integrated solutions to CBEC merchants have emerged in recent years.
Opportunities for Consumers
While the booming of CBEC may have created uneven opportunities for other
stakeholders, consumers around the world are the clear winners. CBEC has brought
about at least the following dividends to consumers:
1. Access to more foreign products and brands and hence more consumption
choices. Alibaba Group’s Tmall International, for instance, has a listing of
14,500 brands from 63 countries as of April 2017.
2. More savings due to wider choices and increased competition among merchants.
An EU Commission study found that online shoppers could save about €11.7
billion a year from lower prices and wider choices. If e-commerce were to grow
to 15% of the total retail sector and Digital Single Market barriers were elimi-
nated, total consumer welfare gains would reach around €204 billion (EU
Commission 2011).
3. More convenient and safer payment options, thanks to integrated payment solu-
tions (such as AliPay and TenPay) offered by the major CBEC platforms as well
as the international expansion of third-party payment companies (such as PayPal
and Visa).
4. Better shopping experience including faster delivery and improved post-sale ser-
vices. The former is made possible by the buildup of powerful logistics net-
works, and the latter is made possible by the nearly ubiquitous use of such social
media platforms as Facebook, WhatsApp, and WeChat.
Challenges
While CBEC presents seemingly unlimited growth potential for merchants, they
also face plenty of challenges and must overcome many obstacles in order to capi-
talize on the new e-retailing trend. Besides the obvious cultural and language obsta-
cles and the difficulty of winning the trust of local customers, we discuss three other
major challenges with regard to B2C cross-border e-commerce below.
1. Logistics. While the buyer and the seller could meet directly online and it may
feel as if there is no distance between them, this is certainly not the case when it
comes to delivering ordered goods to the customer across borders. Logistics
could be the most deterring factor in CBEC. Though large merchants such as
Costco or Nike with more resources and options may be able to build a well-
streamlined logistics procedure, it may still put a strain on their profitability. For
small merchants, challenges relating to logistics range from getting goods ready
(e.g., proper labeling and packaging), high shipping costs, long shipping time,
customs duties and documentation, sales allowances for defects or product
returns, and post-sale customer services. Any of these steps, if not planned
thoughtfully or handled well, could result in the following negative outcomes:
(a) buyer’s cart abandonment at the checkout, (b) bad customer experience and
hence poor customer retention, (c) poor brand image and reputation, and (d) hurt
profit margin or straight financial loss. Several survey studies have found that
high shipping cost, long shipping time, and concerns over product return are
among the most significant factors causing the abandonment of a filled shopping
cart, while a good delivery experience would encourage over 80% of German,
French, and British customers to choose a retailer over others (Pitney Bowes
2014; ComScore 2015; iMedia Research 2017).
2. Payment. This is another top hurdle to CBEC recognized by both consumers and
merchants, due to the complex nature of international payment. While credit
cards issued with the backing of Visa, MasterCard, and American Express are the
predominant payment method in the USA, payment methods and habits in other
countries could be widely different. From the consumers’ perspective, lack of
preferred payment method and concerns over fraudulent use of personal infor-
mation can often cause shopping cart abandonment. For the merchants, the chal-
lenges go well beyond providing more payment options and security measures.
They also include:
• Processing foreign cards and improving acceptance rate while battling fraud
• Settling and reconciling payments
• Handling multiple currencies
• Dealing with exchange rates and bearing the exchange rate risks
• Choosing and working with local partners (called acquirers)
• Dealing with changes or upgrades of payment system
• Dealing with cross-border remittance and related regulatory and tax issues
• Managing costs on payment to protect profit margin
In recent years, there has been a boom of digital payment solutions such as
PayPal, Google Wallet, Apple Pay, Square, AliPay, TenPay, and Paytm, just to
name a few. However, the reality is that the payment market still remains
highly fragmented. The payment methods are either restricted to certain geo-
graphic areas, embedded as part of the sponsoring company’s ecosystem
(e.g., TenPay in WeChat), or simply have not gained meaningful acceptance
by consumers in a certain country.
3 . Legal and tax regulations. Every country has its unique laws and rules.
Regulations for foreign business entities could often be more stringent.
Negligence of them may bring a merchant significant risks. So even with the
relatively low physical barriers to entering into an overseas market, it is fair to
say that CBEC is not about just putting up goods for sale on a website. At the
minimum, a CBEC merchant should make clear of the following issues:
• What goods can or cannot be sold in the targeted market?
• What are the customs requirements and procedures of the country?
• To what extent should information on products be disclosed to consumers?
• What are the seller’s rights and obligations in a dispute? What are the chan-
nels to resolve disputes?
• How does the foreign country’s judicial process work should a dispute be
turned to the court? What enforcement outcome can be realistically expected
after a judgment is rendered?
• Are there any different legal and regulatory requirements for CBEC at the
local government level?
• How strong is the country’s legal system to protect intellectual property
rights?
With respect to taxation, each country also has its own tax system applicable to
CBEC. The European Union (EU), for example, has a unique value-added tax (VAT)
system, with individual members of the group allowed slight adjustments (European
Union 2017). This is very different from the US sales tax system, which, in its own
right, could be widely different across states when it comes to implementation.
China, on the other hand, has a tax system consisting of VAT, consumption tax, and
tariffs. The type of tax and the tax rate also differ by product type and value of sales
(GAC 2017). Adding to the complexity is that the tax rules in virtually all jurisdic-
tions keep evolving as the governments adapt their goals to the development of
CBEC. For example, some countries want to collect more tax revenues by increas-
ing tax rates or broadening tax collection base or cracking down transfer pricing,
while others may want to incentivize CBEC by lowering rates or even offering
exemptions. It is a big challenge for a CBEC merchant to keep abreast of all the
regulatory developments.
Cross-Border E-Commerce: China as a Destination
In this section, we shift our discussion to how foreign merchants can succeed in
China’s CBEC market from a B2C merchant’s perspective. For a typical small- or
medium-sized merchant in North America who desires to venture into the Chinese
retail market via e-commerce, what can it do to succeed as to achieving sales growth
and attaining profitability?
First, it is worth noting that there are already many North American brands that
have had various degrees of success in China’s e-retail market such as Costco,
Coach, Calvin Klein, Sketchers, Victoria’s Secret, Canadian Goose, etc. A prospec-
tive, less-known entrant can study these brands and benchmark the best practices.
We believe a small- or medium-sized merchant should consider the following issues
and strategies:
• Conduct prelaunch market research. Before launching sales, a merchant should
conduct careful marketing research to understand the demands in the Chinese
market and consumers’ consumption preferences and behaviors. Some prefer-
ences and behaviors are rooted in the culture; others might be events- or news-
driven. The merchant should also ask what the selling point of its products is
from a competitive point of view. Is it the brand name, quality, functionality, or
pricing advantage? The merchant needs to determine what niche market it wants
to be in. Finally, it needs to make sure it has the agility to react to the dynamics
in Chinese market and can deliver goods to consumers in a most efficient way.
• Choose the right sales channel. A merchant should carefully weigh the pros and
cons of different sales channels. Should it set up its own direct sales website or
use e-commerce marketplaces like Tmall.com, JD.com, or Kaola.com? If the
latter option is chosen, should one or multiple marketplaces be used? In making
the decision, initial investments required, subsequent costs and cash flows, acces-
sibility of more consumers, logistics, and customers’ shopping experience are all
factors to consider, along with many others. Most observers would agree that
using platforms like Tmall.com or JD.com, which offers more localized shop-
ping experiences, is the most effective way for foreign SMEs to enter into China
e-commerce market.
• Join team marketing efforts. For small, little-known foreign merchants with con-
strained marketing budget, one of the biggest challenges is to obtain name recog-
nition by the Chinese consumers. In 2016 alone, for example, 14,500 new foreign
brands were introduced in Alibaba’s Tmall.com, and the number is only increas-
ing rapidly. How can a merchant make its products sought after by shoppers? A
useful strategy could be to team up with other SMEs from the same region.
Chinese consumers have some favorable, prototypical perceptions about the
products from certain regions such as skincare products from Japan; baby food
products from Australia, New Zealand, or the Netherland; wines and fashion
products from France or Italy; sporting and cultural products and beers from the
USA; maple syrup and winter sporting products from Canada; etc. As another
example, when Canadian Prime Minister Justin Trudeau announced the opening
of a Canadian pavilion (Canada.tmall.com) on Alibaba’s e-commerce platform,
there was a great deal of attention drawn to the participating Canadian brands. A
small merchant may find it very beneficial to ride on these positive group images
and group actions.
• Utilize social media platforms like WeChat and Weibo. Compared to American
counterparts like Facebook or Twitter, the Chinese social media platforms,
WeChat and Weibo, in particular, are much more integrated into e-commerce.
A merchant can use the platforms to (1) provide in-app purchase capability,
(2) conduct interactive campaigns and offline activities, and (3) provide
instant, personalized customer services. The platforms allow for deep cus-
tomer engagement and therefore are really must-have venues for foreign
CBEC merchants.
• Use third-party service providers strategically. As discussed before, because of
the multitude and complexity of the issues involved along the CBEC process, a
merchant inevitably has to enlist the help of third-party service providers. The
question is which services should be sourced and to what extent third-party ser-
vices ought to be employed? The key consideration here is the trade-off between
cost savings and quality of services, since most SMEs are budget conscious and
keen on profitability. Using premium services hurts short-term profitability,
which for some merchants may be hard to accept if they are already operating on
thin margin, but may lay a foundation for future growth in the long run due to
better customer satisfaction. For example, a DHL study shows that premium
shipping could be a differentiator between merchants of certain product catego-
ries. Businesses that offer expedited/premium shipping grow 60% faster than
peers who only offer standard shipping (DHL Group 2016a).
Conclusion
In this chapter, we discuss the importance of CBEC as a new driver for international
trade. We adopt Agarwal and Wu’s (2015) i-based N-OLI conceptual framework to
understand the recent development of CBEC. Using China’s CBEC as a case study,
we compare the differences between traditional international trade and CBEC. We
introduce a broad picture of China’s CBEC. We attribute the success of China’s
CBEC to the role of e-commerce giants such as Alibaba.com and JD.com in build-
ing marketplaces of cross-border e-commerce for Chinese SMEs, the establishment
of ten CBEC pilot cities, favorable policies to support CBEC, and big capital inflows
into CBEC industry. China’s missteps on imposing high duties on CBEC personal
products are also discussed.
We think opportunities for future CBEC growth will abound due to governmen-
tal pushes for CBEC, the rise of the middle class in emerging countries, technologi-
cal and infrastructure improvements, and more SMEs to adopt CBEC. Major
challenges facing CBEC lie in logistics, payment, and legal and tax regulations.
Finally, we outline several strategies for foreign small- and medium-sized mer-
chants that are planning on entering into China’s market via CBEC.
We believe that as a new driver of global trade, CBEC has a great prospect in the
future, and more and more countries, industries, firms, and individuals will join in
and benefit from this new format of e-commerce. We also believe that the success of
China’s CBEC will offer a shifting paradigm for global marketer. For example,
many countries may learn from China to set up CBEC pilot cities or zones.
Governments at central and local levels will probably want to provide more, solid
support to promote CBEC in their countries. Finally, China’s experience has also
shown that powerful CBEC platforms, effective global logistics, convenient and
safe online payment, and simplified custom clearance are critical to the success of
CBEC in a country.
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Part III
Global Marketing Strategies
Chapter 5
Standardized Global Brand Management
Using C-D Maps
Charan K. Bagga and Niraj Dawar
Abstract In this chapter, we describe an application of the centrality-distinctiveness

mapping (C-D mapping) methodology in the context of global brand positioning.
C-D maps of different countries offer a way to visualize differences in consumer
perceptions of brands across markets. Our methodology helps set consistent posi-
tioning and performance goals for a global brand across geographical markets. It
also helps global brand managers with brand standardization versus localization
decisions. Finally, it places actual brand performance in context: it helps explain
differences in cross-border performance that are due to different locations on the
C-D map for the same brand in different geographies. In sum, we believe that the
C-D map methodology provides a means and a vocabulary for strategic conversa-
tions about global brand positioning between headquarters and local managers. It
also suggests an implementation plan for overcoming brand-positioning challenges
in different countries.
The Challenges Faced by Global Brands
Global brands face different consumers, are sold in different market conditions with
different regulations, and battle with different competitors in each of their interna-
tional markets. Yet, their strategy is often centrally determined, and their positioning
is expected to be globally uniform.
Indeed, standardization has many benefits. Many successful and global brands
such as Apple engage in high levels of standardization (Brand Quarterly 2014)
and may consequently achieve greater economies of scale. When successful,
C. K. Bagga (*)
Haskayne School of Business, University of Calgary, Calgary, AB, Canada
N. Dawar
Ivey Business School, Western University, London, ON, Canada

122 C. K. Bagga and N. Dawar
standardization results in significant savings for the global brand. It costs the global
brand much less to create a single global advertising campaign, hire one agency, and
derive the benefits of being driven by a single strategy (Aaker and Joachimsthaler
1999). However, examples of such a high degree of standardization are few and far
between.
Most global brands face brand-positioning challenges as they expand interna-
tionally. Examples of brands that faced positioning challenges in international mar-
kets abound, Colgate in France, Electrolux in United States, Ford in Brazil, and Ikea
in Thailand; the list goes on (Inc.com 2014). The problems with implementing stan-
dardized marketing programs are multifold. First, consumers in most countries have
trouble relating to generic products and communications that are a function of the
corporation’s least-common-denominator approach (Holt et al. 2004). Second, a
brand’s image may not be the same throughout the world. Honda represents quality
and reliability in the United States. However, in Japan, where quality is a common
factor across competitors, Honda positions itself as youthful and energetic.
Consequently, standardized comparison of brands across different positioning
dimensions for different countries is not possible (Aaker and Joachimsthaler 1999).
Finally, in many cases, country-level managers use their own vocabularies and strat-
egy templates to position the global brand in their respective markets (Aaker and
Joachimsthaler 1999). The resulting lack of a common vocabulary and method to
make brand management decisions in different countries becomes an impediment to
standardized cross-country brand management.
In this chapter, we describe a methodology that examines global brand position-
ing in international markets at a strategic level. The methodology (C-D maps or
centrality-distinctiveness maps) was developed by us and has been featured twice in
Harvard Business Review in 2015 (Dawar and Bagga 2015a, b). Our method allows
brand positioning (across countries) to be analyzed and tracked along the universal
cognitive dimensions of centrality and distinctiveness. It also offers global and local
brand managers a means and a vocabulary for conversations about positioning. The
method we propose does not result in over-standardization that may end up stifling
local inventiveness. We subscribe to the view that without some diversity in the
organization, marketing standardization will not work (Kashani 1989). Our method
permits flexibility by factoring in country-level variables such as country-level com-
petition, country attractiveness, and country-level tactical positioning dimensions
among others. From a marketing methodology perspective, our method integrates
standardized analysis of positioning across markets with localized implementation
recommendations.
The remainder of this chapter is organized as follows. We start with a description
of the C-D map methodology. We next discuss why the C-D map methodology is
appropriate for global brands and how it compares to other global brand manage-
ment methodologies. In the subsequent section, we provide detailed guidelines for
implementing C-D mapping for global brands in international markets. Finally, we
present a comprehensive case study that demonstrates the implementation of the
methodology for a company in seven European countries.
5 Standardized Global Brand Management Using C-D Maps 123
What Are C-D Maps?
Brand strategy consists of addressing fundamental business questions including the

following: What is the unique value we offer our customers? How are we positioned
against competitors? And why should customers buy our brand? Answers to these
questions help develop a position in the marketplace that customers’ value, which
competitors have not addressed, and that is profitable. The business value of tradi-
tional positioning maps is limited because they fail to link a brands’ location on the
map to market performance variables such as sales and pricing ability. In the inter-
national context, different markets may use different positioning dimensions, mak-
ing it difficult to compare positioning across markets. In contrast, strategic tools
such as the Boston Consulting Group matrix map brands on common business mea-
sures such as market share and market growth rate but do not map consumer percep-
tions of the marketplace.
C-D maps allow companies to connect a brand’s location on the positioning map
to business outcomes such as sales and pricing (Dawar and Bagga 2015a). The
methodology starts with the premise that markets and brands are represented in
consumers’ minds and that these representations guide consumer behavior, includ-
ing purchase decisions (Bagga et al. 2016; MacDonald and Sharp 2000). Our meth-
odology maps consumer perceptions of brands on the universal dimensions of
centrality (i.e., how representative a brand is of its category) and distinctiveness
(i.e., how different a brand is relative to its competitors) and shows how these posi-
tions are linked to marketplace outcomes such as sales and the price premium a
brand commands. Each positioning choice carries consequences not just for how the
brand will be perceived, but for how much will be sold and at what price, and, there-
fore, ultimately for profitability.
At a high level, C-D mapping involves measuring the centrality and distinctive-
ness of each brand in a category and plotting the scores on a graph so that each
brand is represented by its location on these two dimensions. The graph can then be
split into four quadrants consisting of brands that are (a) both central and distinctive,
(b) central but not distinctive, (c) distinctive but not central, and (d) neither central
nor distinctive. Interpreting the data by examining the nature of brands in each
quadrant, we label the four quadrants of the C-D map as follows: the high distinc-
tiveness and low centrality quadrant is labeled, unconventional. For example, in the
US passenger car category, this quadrant contains brands such as Smart and Tesla.
The quadrant that is low on both centrality and distinctiveness contains peripheral
brands such as Kia and Mitsubishi in the US car market. Third, brands that are cen-
tral but not highly distinctive include brands such as Toyota and Ford in the US
passenger car category. We labeled such brands as mainstream brands. Finally, the
high distinctiveness and high centrality quadrant is labeled as the aspirational quad-
rant. Such brands are well differentiated and have wide appeal. See Fig. 5.1 for a
C-D map of US passenger car market (Dawar and Bagga 2015a).
We found that each of these positioning choices has consequences in terms of
sales, pricing ability, risk, and market influence. More importantly, the C-D map
Fig. 5.1 C-D map of US passenger car market (Map reproduced from Dawar and Bagga 2015a)
methodology examined how centrality and distinctiveness impact market perfor-

mance variables such as sales and pricing. We found that centrality is a significant
positive predictor of sales. In contrast, brand distinctiveness is a significant negative
predictor of sales. Finally, distinctiveness has a significant positive effect on a
brand’s price.
The C-D Map Methodology Appropriate for Global Brands
A company that manages a global brand in a standardized manner is often stymied

by differences across markets. The C-D maps of different geographies offer a way
to visualize differences in consumer perceptions of brands across markets. As an
example, Chevrolet and Tide, both highly central brands in the United States, may
be relatively low in centrality and distinctiveness in an emerging market such as
India. Some of these differences may stem from differences in positioning, while
others may be due to market conditions such as consumers’ willingness to pay.
Brand location on the C-D map in the different markets is useful at multiple levels.
First, it helps visualize differences in consumer perceptions of brands across mar-

kets. Second, it sets consistent performance goals for a global brand that is ranked
equivalently on centrality and distinctiveness across a cluster of geographical mar-
kets. Third, it helps global brand managers with brand standardization versus local-
ization decisions. Finally, it places actual brand performance in context: it helps
explain differences in cross-border performance that are due to different locations
on the C-D map for the same brand in different geographies (Dawar and Bagga
2015a). In sum, we believe C-D maps can bridge the gap in the conversation between
headquarters and local managers of global brands and can provide a common under-
standing of the strategy and positioning challenges of global brands in each
market.
We also conducted an audit of multiple global brand management methodologies
that have been developed by practitioners and academics (Holt et al. 2004; Hsieh
2004; Kish et al. 2001; Ozsomer and Altras 2008; Roth 1992; Steenkamp et al.
2003). We examined the advantages that the C-D mapping methodology provides
over prior methods. We noticed many common themes where the existing method-
ologies fall short. Some of the shortcomings include disjointedness of brand’s posi-
tioning with its market performance, lack of information on how the brand operates
relative to its competition in different countries, and lack of visualization to make
managerial interpretation easier. See Table 5.1 for a comparison of the C-D map-
ping methodology vis-à-vis prior global brand management methodologies.
Implementing C-D Mapping Methodology for Global Brands
In this section, we provide detailed guidelines for implementing C-D mapping for
global brands in international markets.
Step 1: Identify the Project Sponsor and Countries
The first step of the process is to identity the project sponsor and the portfolio of
countries for which you would like to conduct the analyses. The implementation of
the methodology has country-level budgetary implications that may lead to push
back from the local level management of certain countries. Therefore, the project
sponsor should ideally be a senior C-level executive (e.g., regional CEO) who is in
charge of a portfolio of countries under her management. Within a particular port-
folio of countries, it is crucial not to limit your analyses only to those countries
where your brand is performing poorly. It is imperative to include those countries
where the brand is doing well. This will allow additional cross-country analyses of
why brand performance varies between countries and what best practices can be
shared across borders.
Step 2: Identify the Category Level
The next step of the process is to identity the category level of analyses.
The category level should ideally be the basic category level (Loken and Ward 1990)
Table 5.1 Comparison of the C-D mapping method vis-à-vis other global brand management
methodologies
What shortcomings in the
methodology does C-D
Method Description of method mapping overcome?
Steenkamp Discuss how perceived brand globalness Measure operates in an isolated
et al. (2003) impacts brand purchase likelihood. The authors brand-level context
do a path analysis and analyze three paths It does not provide information
through which this relationship operates (direct on how the brand operates
path, indirect paths though brand quality and relative to its competition in
brand prestige) different countries
No graphic presentation (of the
relative positioning of brands)
that makes positioning
interpretation easier
Does not measure the impact of
brand’s globalness measure
with its market performance
(sales, profitability) in different
countries
Ozsomer and Built a model of global brand attitude and No clear guidelines on how
Altras (2008) purchase likelihood based on the following managers can use the model to
constructs (brand authenticity, cultural capital, assess their brand performance
perceived brand globalness, brand credibility, in international markets
brand quality, social responsibility, prestige, Does not measure the impact of
and relative price) brand’s global brand attitude
on its market performance
(sales, profitability) in different
countries
Kish et al. Measured customer-based brand equity using It does not provide information
(2001) Equitrak brand equity model. Five measures on how the brand operates
(awareness, quality, uniqueness, popularity, and relative to its competition in
favoritism) provide a composite measure of different countries
global brand equity Does not measure how brand
equity is linked with market
performance (sales,
profitability) in different
countries
(continued)
What shortcomings in the
methodology does C-D
Method Description of method mapping overcome?
Holt et al. Examined the impact of global brand Does not measure the impact of
(2004) dimensions (quality signal, global myth, social brand’s globalness on its
responsibility) on purchase behavior market performance (sales,
profitability) in different
countries
No graphic presentation of the
brands positioning to make the
interpretation easier
Some dimensions such as
“social responsibility” may
carry different meanings in
different cultures
Hsieh (2004) Developed a global brand equity model to Provides a global measure of
assess a brand’s value relative to its global brand equity (that has relatively
competitors few managerial implications)
Roth (1992) Examined the impact of brand positioning Based solely on a sample
(depth vs. breadth strategies) on market derived from managers in the
performance (sales volume, profit margin, and parent country. Did not include
market share) in multiple countries consumer-level perception data
It does not provide information
on how the brand operates
relative to its competition in
different countries
No graphic presentation of the
brands positioning
and not a subordinate or superordinate category level (Rosch and Lloyd 1978).
For instance, cars and beer are basic-level categories. Going one level deeper, we
get to the subordinate category levels of sports cars and fruit beers. Zooming one
level out, we get to the superordinate category levels of motorized vehicles and
alcoholic beverages. Members of basic-level categories are likely to be comparable
on more specific sets of attributes than are members of superordinate categories
(Mervis and Rosch 1981). It does not make sense to perform C-D analyses at a
superordinate level, as the members at the superordinate category level are product
types rather than brands that compete against each other. Analysis at a superordinate
category level would lead to a proverbial apple and orange comparison with few
useful insights. To illustrate, a comparison of Jack Daniels and Budweiser on the
same map will provide no actionable insights to either of these brands.
On the other hand, a C-D analysis at a subcategory level would not be very useful
as brands offer similar product types within a subcategory, and hence there will be
low variance on the distinctiveness dimension at the subcategory level. To illustrate,
there is not much distinctiveness between Coca-Cola and Pepsi-Cola at the subcat-
egory level of cola drinks. In contrast, Dr. Pepper is a distinctive basic-level soft
drink brand, while Coca-Cola is a central basic-level soft drink brand. In sum,
basic-level categories with competing and substitutable brands are most appropriate
for conducting a C-D analysis.
Step 3: Identify the Number of Brands
The number of brands should be between 15 and 30. Too few brands will result
in lack of statistical power and violate assumptions when conducting regression
analyses. Too many brands will result in an unreliable regression model, as small or
unknown brands are likely to be outliers in the regression analyses. For example,
including specialty car brands such as Rolls-Royce (that has very low sales and very
high pricing) in a C-D analysis of the US passenger market will give an inflated
impact of distinctiveness on pricing and deflated impact of centrality on sales.
Therefore, relevant filters are recommended when identifying the brands to be
included in the analyses. An appropriate filter is the market share or level of sales.
For instance, in a C-D map analyses we conducted for the consumer banking indus-
try, we used level of deposits and the number of customers as filters. In a C-D map
analyses we conducted for the beer industry, the filter we used was the volume of
beer sold. Additionally, care should be exercised to include both multinational
(common) competitors and active country-specific competitors when finalizing the
short list for each country. We also recommend having the same number of brands
in each country so that the number of cases for country-specific regression analyses
is the same.
Step 4: Identify the Appropriate Dependent Variables for Analyses
The next step is to determine the appropriate dependent variables for analysis.
The type of dependent variables depends on what the methodology is used for. For
commercial products and services, sales, pricing, and market share are the most
appropriate dependent variables. Where data for brand-level market performance
variables is not available or where consumer behavior rather than the brand’s market
performance is of interest, we recommend the use of variables such as consumer
consideration and choice. In nontraditional categories, the dependent variables will
depend on the nature of the category. In a C-D mapping exercise that we conducted
for the US presidential elections (specifically, the Republican Presidential Primary),
we used the candidate’s share of polling data as the dependent variable. Other vari-
ables such as the level of promotional expenditure and number of distribution out-
lets may also be considered to examine how such variables relate with centrality and
distinctiveness.
Step 5: Deciding on Sample Type and Sample Size
The process for determining sample characteristics is similar to any survey-
based marketing research studies. The sample should include consumers (or pros-
pects) who have familiarity with the category. This is essential as respondents are
asked to rate a battery of brands on whether they are central or distinctive. If respon-
dents have relatively low knowledge of the players in a category, they will be unable
to discriminate appropriately on whether the brands vary on centrality and
distinctiveness. Therefore, we recommend including awareness and familiarity

screener questions.
The sample size is a function of the depth of analyses that is desired. For straight-
forward analyses, where you are interested in aggregate country-level C-D maps,
we have observed stable results with 200–250 respondents. For more advanced
analyses, where the manager is interested in understanding how different segments
within each market view the category or how centrality and distinctiveness correlate
with tactical level positioning dimensions, larger sample sizes of 500+ per market
are recommended.
Step 6: Designing the Survey Instrument for Each Country
We recommend that the survey instrument be split into six sections. Sections 1–3
are required. Sections 4, 5, and 6 are optional and are included to gain a deeper
understanding of the product category.
Section 1. In the first section, the survey should include appropriate demographic,
psychographic, and behavioral questions that will help split the data based on
specific segment dimensions that the company uses. Consumers’ cognitive rep-
resentations of the marketplace vary by different segment types. Therefore, to get
a richer view of how different segments of consumers view your brand and other
brands in the category, collecting such segmentation data is necessary. To illus-
trate, if the C-D mapping exercise is being done for a product category such as
business schools and the sample is prospective business school students, one
may want to include questions related to the areas of specialization (e.g., finance,
marketing, etc.) and the type of program that students are interested in (e.g.,
MBA, Executive education). This is relevant as segments of prospective business
school students may have very different representations of the business school
category.
Section 2. This section should include questions that gauge the awareness of the
brands in the C-D mapping exercise. Awareness data can be used to drop low-
awareness brands from further analysis. Whether awareness and knowledge
about the brand vary across countries will also have managerial implications.
Section 3. This section is the heart of the survey where respondents rate the included
brands on a 0–10 point single-item scale for centrality or distinctiveness. For the
centrality measure, the question is accompanied by additional description of
what is meant by centrality. Specifically, the question qualifies that centrality
implies representativeness and close association with the product category.
Additionally, the question should be accompanied by examples of central brands
(e.g., McDonalds in fast-food product category). Similarly, the distinctiveness
question is accompanied by additional description of what makes a brand dis-
tinctive, either by offering something unique (horizontal differentiation) or by
offering something superior (vertical differentiation). Just like the centrality
question, the distinctiveness question is also accompanied by examples (e.g., Dr.
Pepper in soft drinks is different because of its unique flavor, and Starbucks in
coffee is distinct because of its perceived premium quality). Participants rate all
brands on the centrality and distinctiveness questions. The order in which they
respond to either the set of brand centrality questions or the set of brand distinc-
tiveness questions is randomized. Additionally, the order of brands within the set
of centrality questions and the set of distinctiveness questions is randomized.
Single-item questions are used to avoid respondent fatigue that may arise by
asking respondents to rate each brand on multi-item centrality and distinctive-
ness scales. The centrality scale we recommend has been tested as having high
convergent validity with a three-item brand centrality scale used by Loken and
Ward (1990). The distinctiveness scale has been tested as having high conver-
gent validity with a three-item brand distinctiveness scale used by Zhou and
Nakamoto (2007).
Section 4. Questions on consumer-level dependent variables may be included in this
optional section. For instance, we have used this section to collect data on con-
sumer consideration and choice. The consideration question provides respon-
dents with an exhaustive brand list and asks them to check all brands that they
may consider (or have considered) in purchase decisions involving the category.
A follow-up question on choice presents each respondent with only the short list
of brands that the respondent indicated she would consider. It will ask the respon-
dent to choose the most preferred brand from the list of considered brands. As
mentioned earlier, if the dependent variables you intend to use are market-based
brand-level variables (such as total sales per brand or average selling price for
each brand), this section can be skipped.
Section 5. This optional section is a follow-up to Section 4 and should include ques-
tions that pertain to finding the reasons why certain brands are more likely to be
considered and how they relate to centrality and distinctiveness. This section
needs exploratory research to identify the key reasons that drive brand consider-
ation and choice in a particular category. Once an exhaustive list of reasons is
created, factor analyses are recommended to obtain a lower number of underly-
ing reasons that are driving brand consideration. For instance, in the beer cate-
gory, such underlying reasons could include (a) I find the flavor of the beer
delicious, (b) I like what the beer brand stands for, (c) I like the fact that the beer
is imported and hence seems exotic, etc.
Section 6. In the final optional section, the survey can include an implicit measure-
ment exercise that allows managers to examine how tactical positioning dimen-
sions are associated with (a) category brands and (b) the dimensions of centrality
and distinctiveness. The first part of the exercise is to draw an exhaustive list of
tactical positioning dimensions that are relevant in the category. This will happen
prior to the launch of the C-D survey. For example, tactical positioning dimen-
sions in the beer category may include attributes such as ruggedness, sincere,
urbane, sophisticated, etc. In the actual C-D survey exercise, each respondent
will respond to whether she believes that certain brands are associated with cer-
tain positioning dimensions using an implicit attitude measurement method
(Perkins and Forehand 2011). Each respondent is asked to associate a randomly
chosen subset of brands with a randomly chosen subset of dimensions. This is
necessary as asking respondents to associate all brands with all dimensions will
lead to severe respondent fatigue. To illustrate, asking a respondent to associate

20 brands with 20 dimensions will require her to provide 400 responses. In
contrast, asking the respondent to associate 5 (randomly chosen) brands with 5
(randomly chosen) dimensions requires a less taxing 25 responses from the
respondent.
Step 7: Customizing and Implementing Surveys Across Different Countries
Once the master survey is complete, the researcher next needs to localize the
survey for each country. The major exercise here is to translate (and reverse or back
translate) the survey into the corresponding language for each country and pilot-test
it to ensure that participants understand the meaning of questions and that the import
of the questions is not lost in translation. Another important point to remember for
C-D map surveys across countries is to find country-relevant examples of centrality
and distinctiveness questions in each country. Where appropriate, common cross-
country examples may be used. For example, Apple is likely a highly central brand
in the smartphones category across many countries.
Ideally, the administration of the surveys should be done, either by a single mul-
tinational marketing research firm or by a centralized (internal) marketing division
within the company, which has access to respondents across the entire portfolio of
countries. Additionally, data should be collected across all countries within the
same window of time. Consumers’ representations of marketplace are dynamic over
time. Hence, appropriate cross-country comparison should be conducted within the
same period. This will allow the data to be analyzed concurrently and facilitate
cross-country comparisons.
Step 8: Analyzing Data
We propose the following analyses to draw the greatest insight from the C-D
maps.
Analysis 1 – Country-level mapping. To conduct the C-D mapping, mean-center the
centrality and distinctiveness scores for all brands for a particular country. Next,
plot all the brands on a 2-D map based on their mean-centered centrality and
distinctiveness scores. The X-axis represents centrality and the Y-axis represents
distinctiveness. The two axes intersect at the coordinate (0, 0). The magnitude of
the dependent variable can be presented as a circle on the C-D map. Label the top
right and left quadrants as the aspirational and the unconventional quadrants,
respectively. Label the bottom right and left quadrants as the mainstream and the
peripheral quadrants, respectively. Repeat this exercise for each country.
Analysis 2 – Impact of centrality and distinctiveness on the dependent variables.
Perform multiple linear regression analyses with centrality and distinctiveness
scores for each brand as the independent variable and the chosen dependent vari-
able (e.g., sales, price, consideration, etc.) as determined in Step 4. Examine
whether and how centrality and distinctiveness affect the chosen dependent
variables.
Analysis 3 – Identify your competition. The next analysis is to calculate the Euclidean
distances of your brand’s position relative to all other brands on the
two-dimensional C-D map. The brands that are closest to your brand are your
cognitive neighbors. These brands are perceived as being relatively similar in
consumers’ cognitions. In many categories, cognitive neighbors are also princi-
pal competitors. For example, in a C-D map of US passenger cars, Toyota,
Honda, Ford, and Chevy are cognitive neighbors. Similarly, Mercedes and BMW
are neighbors.
However, cognitive neighbors may not always be competitors. We have
observed this in categories where distinctiveness does not vary much between
brands. In such categories, an alternate way to find your competitive set is to
examine the consideration overlap your brand has with other brands.
Analysis 4 – How far are you from the category leader in different countries? The
next recommended analysis is to determine the market leader in each country.
The market leader will be determined by your brand’s strategy in each market. If
the intention is to increase revenue, the leader is the brand with the highest sales.
In contrast, if the intention is to increase your profitability, the leader is the brand
that has the highest profitability. Once you have identified the leaders across dif-
ferent markets, calculate the Euclidean distance of your brand from the leaders.
The country in which your brand has the least distance from the leader is the
market where your brand is best positioned to challenge the leader. In contrast,
the country in which your brand is the farthest from the leader is the most chal-
lenging for your brand.
Analysis 5 – Does your brand differ from the leader along the consumer decision
journey? The consumer decision journey begins with awareness of a brand, to
considering it and finally choosing it from within her consideration set. Therefore,
the next stage of analysis involves examining three key consumer decision met-
rics, namely, brand awareness, brand consideration, and brand choice. We rec-
ommend analyzing these metrics for both your brand and the market leader. It is
quite likely that your brand faces very different hurdles across the consumer
decision journey and that may explain why your brand is less central or distinc-
tive in certain markets than others. Diagnosing whether you are low on aware-
ness or consideration or choice in different countries will facilitate positioning
and promotional decisions in each of the countries under consideration.
Analysis 6 – What are the reasons why your brand is considered, and how do these
differ from the reasons why the category leader is considered? This stage of
analysis involves a frequency count of the various reasons because of which con-
sumers consider your brand, the market leader’s brand, and your competitors’
brands. At a minimum, you may want to examine the top three reasons because
of which consumers consider the leader and your brand for each country.
Analysis 7 – Market attractiveness. This analysis is based on data that is external to
the C-D map survey. Often multinationals operating in multiple markets already
have measures or priority rankings of their country markets. These are often
based on underlying factors that help determine future market potential and
whether the market is currently being served well. This data coupled with the
market size provides an indication of the market attractiveness.
Analysis 8 – Which tactical positioning dimensions make more sense? This analysis
involves two steps. First, examine how centrality and distinctiveness relate to
different positioning dimensions. Then, short-list those positioning dimensions
that correlate best with your desired goal (i.e., increasing centrality or distinc-
tiveness or both). Second, analyze the results of the implicit measurement exer-
cise. Examine how the leader associates with the different positioning dimensions
on the following two measures: (a) frequency count of how many times the
leader brand is associated with each of the positioning dimensions and (b) the
time latency (or the speed) of association of different positioning dimensions
with the leader brand. Identify the positioning dimensions that associate well
with the leader brand on these measures. Perform these two sets of analyses for
each country. Next, identify the intersection of the positioning dimensions that
rated well on these analyses for each country. The intersection presents those
positioning dimension(s) that are most appropriate to be used across different
markets.
Analysis 9 – Which intra-country-level differences matter for your brand? The final
set of analysis is intended to identify how segments within each country view the
product category. This involves splitting the data based on important segment
dimensions. Once the data is split, separate segment level C-D maps are created
for each segment based on the same method presented in Analysis 1 of this sec-
tion. Once this exercise is completed, a summary matrix is created that guides
management on how cognitive representations of the category differ between
segments within each country and whether certain segments need greater atten-
tion in that country. In Fig. 5.2, we illustrate the implementation of the C-D
mapping methodology in international markets.
Step 9: Deriving Strategic Implications
Implication 1: Are you in the appropriate quadrant? The first strategic implication
that you will draw from different C-D maps is whether you are in the quadrant
where you expect to be in each country (based on Analysis # 1). Each of the
quadrants offers a viable positioning that carries different implications for profit-
ability. Your decision regarding whether you intend to target the same quadrant
across countries or different quadrants in different countries will require differ-
ent business models. The business model of a brand must be consistent with its
position on the map.
Implication 2: What is your competition? How is your competition positioned
across countries? The Euclidean distance and consideration overlap analyses
(Analyses # 3 and # 4) allow you to draw the second set of strategic implications
regarding your competition. Consumer perceptions of the marketplace and the
relative positions of each of the competitors are mapped. This analysis also
informs you how far are your brand is from the market leader and the path it
needs to take (i.e., whether you need to increase its centrality or distinctiveness)
in order to get there.
Implication 3: Should you attempt to increase your centrality and distinctiveness?
Why? The regression analyses (Analysis # 2) provide an understanding of the
What is the nature of all the

Examine internationa markets?
What matters more ( centrality or
impact of
distinctiveness)? In which High Level
centrality and quadrant is your brand
distinctiveness Recommendations
located (in all Countries)?
on the How is the Market Leader’s
chosen DVs performance in different
countries?
Market Penetration Potential Product

or Skimming through
Development
increased centrality
or distinctiveness Opportunities
Which markets are more

attractive?
Who are the market

leader(s) and
competition?
Your brand’s What should your
performance in brand do to achieve its
each market strategic goals
Your performance in each Country Budgetary Implications
relative to the Leader Where to invest?
and competition
in each Country
Intra-Country Which tactical positioning

Differences dimension makes sense?
Fig. 5.2 Flow chart detailing C-D mapping implementation in international markets
impact of centrality and distinctiveness on your category. How does an increase

in centrality or distinctiveness affect your key dependent variables such as sales,
pricing, consideration, choice, etc.? Answering this question guides strategy
regarding (a) the relative importance of increasing centrality or distinctiveness in
your category, (b) the alignment of increased centrality and distinctiveness with
your strategic goals in each country, and (c) the what-if implications of increas-
ing centrality and distinctiveness.
Implication 4: What should you do to increase centrality and distinctiveness? The
next set of analyses (Analysis # 5, # 6, # 9) provides insight into ways of improv-
ing the centrality or distinctiveness of your brand. You learn the points of relative
weakness along the consumer decision journey (awareness, consideration,
choice) in each country, and this implies where the brand positioning needs
improvement.
Additionally, you learn the reasons why consumers are considering your
brand, your competition, and the market leader. Depending on the category, such
an exercise provides information about the reasons that make some brands more
central or distinctive. This provides opportunities for your brand to emulate or

outdo the leader’s and your competition’s strategy in certain countries. Finally,
the outcomes of analysis # 9 provide implications regarding whether certain seg-
ments need greater attention than others in different countries.
Implication 5: What are the budgetary implications for your brand in each country?
You can derive the budgetary implications for each country based on the out-
comes of the market attractiveness analysis and the Euclidean distance analysis
(Analysis # 4 and # 7). If the market attractiveness is high and the distance
between your brand and the leader is low for a particular country, the firm should
allocate an aggressive budget as it presents an opportunity to gain leadership in
that country. Conversely, if the attractiveness is low and the distance is far, it
makes more sense to have a cautious investment approach in that country.
Implication 6: Which tactical positioning dimension makes more sense? The tactical
positioning dimension analysis (Analysis # 8) helps draw implications about
dimensions that associate best with centrality and distinctiveness in different
countries. If you have an aggressive budget, you may consider customizing the
message on different tactical positioning dimensions across countries. Else, you
may want to find the tactical positioning dimensions that work best across most
countries and create your message on that dimension.
Case Study
We applied the C-D map methodology for a large European company that operates
actively in seven European countries. We performed the analyses for the company
in the first half of 2017. We disguise the name of the company and the category and
have disguised some of the data for proprietary reasons.
The company (fictitious name: Alpha) operates in an industry in which the cus-
tomers use the company’s product and services on a subscription-based fee model.
Once customers’ sign up, they tend to stay with their chosen brand and pay a fee
periodically in order to continue to use the company’s product. Alpha currently
operates actively in the following seven countries: France, Germany, Spain, Poland,
Germany, the Netherlands, and Sweden. There are multiple players and brands in
the product category. In each country, more than 25 brands compete. Most compa-
nies have one flagship brand. Some companies have more than one brand. The
industry is around 25 years old. Alpha was launched in the early 2000s. The nature
of competition across the seven country markets has a substantive overlap. The
competitors fall into four categories:
(a) Common incumbents: These brands operate in all seven countries where Alpha
operates. They have been around for 10–15 years longer than Alpha.
(b) Common new entrants: Multiple new brands have entered the product category
in the last 5 years. These brands bring relatively unique offerings to the
category.
(c) Country-specific regional competition: Most countries have local players that
cater to localized geographies within their countries.
(d) Country-specific new entrants: Multiple new brands have entered the product
category (that are unique to each market) within the last 5 years. These brands
bring relatively unique offerings to the category.
What Alpha Wanted to Understand
At a high level, Alpha wanted to gain an understanding of the following questions:

1. How is it positioned in each of the seven countries? Is it seen as aspirational,
mainstream, unconventional, or peripheral in each country?
2. What is the impact of centrality and distinctiveness in each of the seven

countries?
3. How is the competition positioned in each of the seven countries?
(a) Which brand is the market leader?
(b) Which brands best represents Alpha’s competition?
(c) Are the new entrants (common and country-specific) threatening Alpha’s
positioning?
4 . What should Alpha do to perform better in each of the seven countries?
5. Which markets are attractive? What should Alpha’s investment strategy be in
each country?
6. Alpha has decided to adopt a new tactical positioning strategy on the dimension
of “Authentic.” Should it pursue that across the seven countries?
Methodology that Alpha Adopted for Data Collection
We followed the methodology described above in this chapter. The first part of the
project (up to data collection) took around 3 months from project inception to the
completion of data collection.
Step 1 – Project sponsor. The sponsor of the project was the CEO of Alpha
Corporation. All countries rolled up under his management, and he became the
project champion of this methodology.
Step 2 – Category level. We performed the analysis at a basic-level category.
Consumers clearly understood what the category was and could identify brands
in this category.
Step 3 – Short list of brands for the study. Based on the consultation with the CEO,
we identified 15 brands in each country. These brands included common incum-
bents, common new entrants, country-specific regional competition, and
France Poland Spain Italy Netherlands Sweden Germany
Target Alpha Alpha Alpha Alpha Alpha Alpha Alpha
Company
Common Beta Beta Beta Beta Beta Beta Beta
Incumbents Theta Theta Theta Theta Theta Theta Theta
Delta Delta Delta Delta Delta Delta Delta
Gamma Gamma Gamma Gamma Gamma Gamma Gamma
Common Zeta Zeta Zeta Zeta Zeta Zeta Zeta
New- Eta Eta Eta Eta Eta Eta Eta
Entrants Kappa Kappa Kappa Kappa Kappa Kappa Kappa
Phi Phi Phi Phi Phi Phi Phi
Country- FRA-L1 POL-L1 SPA-L1 ITA-L1 NET-L1 SWE-L1 GER-L1
specific FRA-L2 POL-L2 SPA-L2 ITA-L2 NET-L2 SWE-L2 GER-L2
(Regional) FRA-L3 POL-L3 SPA-L3 ITA-L3 NET-L3 SWE-L3 GER-L3
Competition
Country- FRA-N1 POL-N1 SPA-N1 ITA-N1 NET-N1 SWE-N1 GER-N1
Specific FRA-N2 POL-N2 SPA-N2 ITA-N2 NET-N2 SWE-N2 GER-N2
New FRA-N3 POL-N3 SPA-N3 ITA-N3 NET-N3 SWE-N3 GER-N3
Entrants
Fig. 5.3 Details of alpha and its competition in all seven markets
country-specific new entrants. Figure 5.3 illustrates how the brands across coun-
tries were categorized based on the country and the competition type.
Step 4 – Identify the appropriate dependent variables. Market-level variables such
as pricing were not readily available for all countries. Therefore, based on our
discussions with the CEO, two consumer-level dependent variables, namely,
consideration and choice, were identified.
Step 5 – Sample type and size. The sample included both consumers of the category
and prospects. Around 500 participants per country responded to the surveys, for
a total sample of about 3500.
Step 6/7 – Designing the survey instrument and implementing surveys. The survey
instrument was composed of all the six sections that we outline in the methodol-
ogy section above. A common survey in English was developed. The survey was
translated and back translated for seven languages. The survey was conducted on
an established panel of respondents over a period of 2 weeks. The data collection

was done simultaneously in each of the seven countries.
Analysis and Findings that Alpha Obtained from the Exercise
Finding 1 – Understanding how Alpha is positioned in each of the seven countries. We
noticed that Alpha’s positioning was different in different countries. In three of the
seven countries, the brand was seen as mainstream, and in four countries, the brand
was viewed as aspirational. In Fig. 5.4, we present the C-D maps of two of the
seven countries, Italy and France. As is visible from the two maps, the nature of
category representations for Alpha and other players differs substantively.
Finding 2 – Understanding the impact of centrality and distinctiveness in each of
the seven markets. We next conducted regression analyses in which centrality
and distinctiveness were the independent variables, and brand consideration (or
brand choice) was the dependent variable. We also found that while centrality
and distinctiveness were not correlated in two of the seven countries (Germany
and France), they had relatively high correlations in the other five countries. In
addition, the variance on distinctiveness was consistently lower than the variance
on centrality.
Importantly, and consistently, we found (based on the regression analyses)
that centrality was a stronger predictor of consideration and choice than distinc-
tiveness. There were multiple takeaways from this analysis. First, the low impact
of distinctiveness in this category implies that brands are neither viewed as par-
ticularly premium nor particularly unique (there is no brand unique as a Dr.
Pepper or as premium as a Starbucks in this market). This implied that the cate-
gory was relatively undifferentiated. The high impact of centrality means that
certain brands were seen as more typical, and consumers made the decision based
on a simple heuristic: the more well-known a brand, the better it must be. We also
found that the reason centrality and distinctiveness were not correlated in some
markets was a function of country-specific local competition who were seen as
unconventional in Germany and France. This did not apply to the remaining five
countries. Based on these findings, two high-level recommendations emerged:
(a) Market penetration through increased centrality: Given the key role centrality
plays in the product category, we recommend that Alpha needs to focus on
building cognitive centrality. Centrality is not impacted much by messaging on
specific positioning attributes. It is instead a function of the volume of promo-
tions, being readily available through increased distribution, and price
competitiveness.
(b) Product development in unconventional quadrants: Given that local incumbents
such as FRA-L1, FRA-L2, and FRA-L3 perform well in certain countries (such
as France) but not in others such as Italy, we recommended to Alpha to focus on
creating new offerings like FRA-L1 in the unconventional quadrant in countries
where local incumbents are performing poorly.
Fig. 5.4 C-D maps of Italy and France. C-D map of Italy, dashed orange circle represents com-
petitive set, dashed blue circle represents cognitive neighbors. C-D map of France, dashed orange
circle represents competitive set, dashed blue circle represents cognitive neighbors
Finding 3 – Understanding Alpha’s competition and distance from market leader.
The next set of analyses looked at two measures (Euclidean distances and
consideration overlap). The first analysis involved calculating distances of Alpha
from all other brands (in each of the seven countries). This analysis yielded three
Fig. 5.5 Alpha’s cognitive neighbors and competition in Spain. Dashed orange circle represents
competitive set. Dashed blue circle represents cognitive neighbors
interesting insights. First, we learned who the cognitive neighbors of Alpha were.
These brands were closest to Alpha on the C-D map. Second, we learned that the
market leader (Beta) was the same across all seven markets. Third, we learned
how far Alpha was from Beta in each of the seven markets. The distance from the
leader is an interesting standardized cross-country metric as it helps gain an
understanding regarding how easy it is for your brand to challenge the market
leader. In the second set of analysis, we looked at the consideration overlap
between Alpha and other brands in the category. The brands with the highest
overlap formed the true competitive set. We found that cognitive neighbors are
not always the same as the competitive set. This is especially true in case of
product categories where distinctiveness is low. In Fig. 5.5, we present data from
Spain that details the C-D map, Alpha’s cognitive neighbors and competition. In
Fig. 5.6, we present distance of Alpha from Beta in each of the seven countries.
Finding 4 – What should Alpha do differently in different countries? We next exam-
ined what Alpha should do differently in each of the seven countries. The first
analysis that we conducted was to examine Alpha’s performance along the con-
sumer decision journey. We looked at three key metrics, brand awareness, con-
sideration to awareness ratio, and choice to consideration ratio.
These three metrics measured how healthy Alpha was along different points
of the consumer decision journey in each of the seven countries (see Fig. 5.7).
We noticed that Beta’s performance on these metrics was consistent across all
the countries. Specifically, the awareness for Beta was largely in the 80(%)s,
consideration to awareness ratio was in the 40(%)s, and choice to consideration
ratio was in the 70–80(%)s range. In contrast, there was a lot of variance when it
came to Alpha’s performance across the seven countries. The key implication of
this finding was the necessity of conducting an audit of consumer touch-points to
understand which controllable touch-points impact awareness, consideration,
Fig. 5.6 Distance of Alpha from Beta in each of the seven countries
Consideration to Choice to
Awareness Awareness Ratio Consideration Ratio
Alpha Beta Alpha Beta Alpha Beta
Poland 74% 85% Poland 30% 48% Poland 45% 75%
Netherlands 70% 90% Netherlands 10% 50% Netherlands 25% 75%

Italy 70% 90%
Italy 5% 40% Italy 55% 85%
Germany 61% 85%
Germany 20% 48% Germany 25% 75%
France 45% 85%
France 5% 40% France 40% 85%
Spain 50% 90% Spain 5% 45% Spain 35% 75%
Sweden 60% 95% 7% 45%
Sweden Sweden 35% 75%
Fig. 5.7 Alpha’s performance along the consumer’s decision-making journey. Dashed red circles
represent where Alpha is weak along the customer decision journey
and choice in favor of Alpha. Additionally, this provides an opportunity for Alpha
to learn from countries where it is performing better. For instance, Alpha’s choice
to consideration ratio was quite low in Germany (implying that of the people that
considered Alpha in Germany, only one-fourth chose Alpha). This was abysmal
compared to Beta in Germany where three-fourths of the people that considered
Beta chose it. In this case, Alpha in Germany has a lot to learn from its marketing
practices in Italy where its choice to consideration ratio is 55%.
The second analysis we performed was to check the reasons why Beta and
Alpha were considered in each of the seven countries. “Reputation” and “attrac-
tiveness” were common themes for people that considered Alpha. The top third
reason varied across countries. More importantly, we analyzed why respondents
were considering Beta over Alpha. Additional analysis showed that the two main
reasons for considering Beta across all seven markets were “reputation” and
“attractiveness.” “User-friendly” was also a popular reason. These three are
direct consequences of centrality. The more representative the brand, the more
reputed and attractive it is perceived to be. This again underscored why increas-
ing centrality was relevant for Alpha.
Finding 5 – Which markets are more attractive? What should Alpha’s investment
strategy be? We used secondary country-level data to categorize the seven coun-
tries into varying levels of attractiveness. We looked at two measures to deter-
mine market attractiveness. First, we looked at market potential. Given that the
industry operated on a subscription fee-based business model, we obtained the
total number of subscriptions of the product offered by all brands in each of the
seven countries. We obtained this data through an international industry research
aggregator. We next divided the total number of subscriptions in each country by
the population of that country to arrive at an estimate of number of product sub-
scriptions per capita. The second measure was the overall market size (in our
case, country’s population). The budgetary recommendations were based on two
factors, the market attractiveness analysis and the Euclidean distance analysis.
Depending on the level of market attractiveness and the distance between Alpha
and Beta on the map, we recommended the following course of action for each
of the seven countries. See Fig. 5.8. Specifically:
(a) If the market attractiveness is high and the distance between Alpha and Beta
(the market leader) is low for a particular country, we recommended that Alpha
invest in the country as Alpha has a chance of gaining leadership status in that
country. This was true for Poland and Italy.
(b) If the market attractiveness is high and the distance between Alpha and Beta
(the market leader) is also high for a particular country, we recommended that
Alpha invest (aggressively) in the country as Alpha has a high probability of
gaining leadership status in that country. The higher percentage increase in bud-
get (relative to Poland and Italy) was recommended, as it would require greater
investments to traverse the longer distance. This was true for Spain.
(c) If the market attractiveness is low and the distance between Alpha and Beta (the
market leader) is low for a particular country, we recommended that Alpha
maintain its budget in that country. While Alpha is within striking distance of
Beta in such a country, the ultimate prize is not lucrative enough, as the market
is saturated in such a country (recall that there is little switching once customers
subscribe). This situation was true for the Netherlands.
(d) If the market attractiveness is moderate and the distance between Alpha and
Beta is in a medium range, we recommend that the budget be increased
(slightly). This was recommended, as the size of the markets is large enough
Fig. 5.8 Budgetary implications for Alpha in each market
that even at moderate levels of growth, the volume of incremental sales is attrac-
tive. This was true for France and Germany.
(e) Finally, if the attractiveness is low and the distance is far, it makes sense to have
a cautious investment approach and maintain or reduce budget in that country.
This situation was true for Sweden.
Finding 6 – Alpha has decided to adopt a new tactical positioning strategy on the
dimension of “Authentic.” Should it pursue that across the seven countries?
Alpha wanted to implement tactical positioning using the “Authentic” dimension.
Therefore, in Section 6 of the survey, we included around 20 positioning dimen-
sions (e.g., independent, authentic, reliable, official, international, fun, premium,
etc.) that were relevant to the product category. The survey included an implicit
measurement exercise that examined how these tactical positioning dimensions
corresponded with (a) different category brands and (b) the dimensions of cen-
trality and distinctiveness. Our analyses at this stage involved the following steps.
First, we examined how centrality related to different positioning dimensions.
We did not examine the relationship between distinctiveness and positioning
dimensions as distinctiveness did not have much impact on consideration and
choice. Second, we analyzed how the leader (Beta) associated with the different
positioning dimensions on the following two measures: (a) frequency count of
how many times Beta is associated with different positioning dimensions and (b)
the time latency (or the speed) of association of different positioning dimensions
Fig. 5.9 Which positioning dimension makes more sense?
with Beta. We analyzed this data both at the country level and at the aggregate
European level.
Based on our analyses, we found that there are no specific attitudinal dimen-
sions (of the 20 examined) that stand out as more advantageous than others do.
Centrality (that is the key predictor of choice and consideration) correlated very
well with all attitudinal dimensions. Additional analyses of Beta at the country
level painted a similar picture. Analyses of how Beta correlated with attitudinal
frequency count data revealed that no attitudinal dimensions statistically stand
out in any of the seven markets. Finally, additional analyses of Beta at the aggre-
gate (European) level yielded similar findings. Multiple attitudinal dimensions
intersected (based on frequency count and time latency test analyses). For Beta,
we noticed the following eight attitudinal dimensions performed well on both the
frequency and the time latency measures – Official, Flexible, Premium,
Accessible, Innovative, Authentic and Fun. See Fig. 5.9.
In sum, we concluded that “Authenticity” was a good attitudinal positioning
dimension to pursue. However, we inferred that other dimensions such as innova-
tive, official, flexible, premium, fun, and accessible might work just as well. In sum,
for Alpha to perform better in this category, it would matter how loud and wide
Alpha shouted its message. What message it relayed would not matter much.
Discussion and Conclusion
C-D Methodology and the Shifting Global Marketing Paradigm
Globalization in the previous decades was largely viewed in the context of product
and service exchange (Lund et al. 2016). The advent of enabling technologies (the
Internet and social media) has shifted the traditional globalization paradigm to
include the phenomenon of digital globalization. Consumers across the world are
becoming more similar as they communicate, search, shop, and consume
information and entertainment on boundary-less social networks and digital media

platforms (Lund et al. 2016). This trend of increased consumer homogeneity across
borders is paradoxical. Logically, global brand managers should standardize com-
munication and brand positioning across countries given that consumer perceptions
across markets are converging. However, consumer perceptions of a global brand
are not created in isolation. Consumers perceive brands within the context of their
competitive context, which is very country-specific requiring localized positioning
and communication (Wong and Merrilees 2007). These crosscurrents give new
urgency to the “standardize versus localize” debate (Levitt 1983).
Levitt (1983) called global companies to ignore country-level idiosyncratic con-
sumer preferences and instead offer globally standardized products. Levitt argued
that technology, communication, and travel had led to the convergence of global
consumer tastes, which in turn had led to the emergence of global markets for stan-
dardized consumer products.
Levitt’s argument that standardization is imperative faced counterarguments.
First, a plethora of international product failures due to lack of product adaptation
suggested that the strategy of extreme standardization was flawed (Kotler 1986).
Second, theorists pointed to many impediments against standardization that included
country-level differences in consumer tastes and preferences, bureaucratic burdens
that make localization necessary, and other management challenges such as insuf-
ficient use of formal research and inflexible implementation (Kashani 1989; Kotler
1986). Finally, many local national brands with entrenched local assets and a deep
understanding of local consumer tastes continued to defend their home field advan-
tage against global brands that adopted a centralized and standardized approach
(Dawar and Frost 1999; Kapferer 2002).
Over the years, the standardization versus localization debate has reached a state
of relative equilibrium. Practitioners and researchers recognize that an appropriate
balance between standardization and localization is key, and certain elements of the
marketing mix are more conducive to standardization than others are (Das 1993;
Kapferer 2005; Steenkamp 2017). For instance, there is agreement that global firms
should have a standardized core product (with local add-ons) or have a modular
product structure to best compete in international markets. In contrast, pricing,
sales, and distribution strategy tend to be more country-specific (Steenkamp 2017).
When it comes to brand positioning and advertising, the verdict is similar: strike
a careful balance between global and local. Some of the solutions suggested include
(a) integrating the global creative strategy with locally conceived execution and (b)
developing a series of positioning messages from which local executives can choose
the one they like most (Steenkamp 2017).
However, brand positioning in international markets remains tricky. Global
brand positioning is unlikely to capture the idiosyncrasies of different markets, but
the alternative – locally developed positioning – sacrifices a consistent global mes-
sage (Matthiesen and Phau 2005; Wind et al. 2013). As discussed earlier, many
methodologies developed thus far (Holt et al. 2004; Hsieh 2004; Kish et al. 2001;
Ozsomer and Altras 2008; Roth 1992; Steenkamp et al. 2003) to assist international
positioning decisions suffer multiple shortcomings. These shortcomings include (a)
the omission of country-level competitive environment from the global brand-

positioning framework and (b) the disjointedness between country-specific brand
positioning and the brands’ marketplace performance.
We argue that these methodological challenges that global brand managers face
in the context of brand positioning can be overcome by adopting the centrality-
distinctiveness methodology. Our methodology solves the global brand-positioning
standardization-localization conundrum by integrating standardized analysis of
positioning across markets with localized implementation recommendations.
Limitations and Future Research
We note the following limitations of our research methodology. The methodology is

unsuitable for product categories that (a) are commoditized, (b) have very few
brands, or (c) are monopolistic-led in nature. Here is why. If a product category is
viewed as a commodity and consumers make purchase decisions solely on price,
brand centrality and distinctiveness are unlikely to matter much in consumer per-
ceptions. Next, brand locations on the C-D map are meaningful in relation to the
locations of other brands. The greater the number of brands, the more the con-
straints on each brand’s relative location, and the more reliable are the results.
Conversely, few brands will result in less reliable locations. Finally, monopolies that
are highly regulated and in which consumers have little choice are unsuitable, as the
consumer cognitive space in such categories is largely uncontested.
While our current methodology examines the antecedents of centrality and dis-
tinctiveness at a high level, we acknowledge a more nuanced treatment of the topic
is merited. Centrality and distinctiveness are complex super-constructs. Research
questions in this domain include the following: Do the antecedents (drivers) of cen-
trality and distinctiveness vary by product category? Do the antecedents (drivers) of
centrality and distinctiveness vary by culture and country? Which antecedents (driv-
ers) of centrality and distinctiveness are more likely to be shared (be unique)
between categories and countries? A related area of future research is to examine
whether the relationship between the constructs of centrality and distinctiveness is
moderated by consumer-level factors (e.g., need for uniqueness, risk aversion) and
category-level factors (e.g., category complexity, category involvement, etc.)
Finally, cultural differences across country markets (Alden et al. 1999; Melewar
and Walker 2003; Park and Rabolt 2009; Roth 1995) are likely to affect the
reported results. The question is whether the cultural differences are picked up by
the methodology and are reflected in the different perceptions of the same brands
across markets or whether they affect the methodology itself in some way (e.g.,
response bias) and distort the positioning maps. Our experience is that the results,
and consumer response behaviors, are comparable and that the maps accurately
reflect different perceptions across markets. However, this question merits further
research.
Conclusion
The C-D mapping methodology detailed in this chapter is mature and tested in the
real world. Real corporations in both domestic and international (multi-country)
contexts have successfully deployed the C-D mapping methodology. We hope that
the C-D map methodology will provide global brand managers a powerful tool to
examine brand positioning in international markets at a strategic level. It will also
give them a means and a vocabulary for conversations about positioning with
country-level managers and provide an implementation plan for overcoming posi-
tioning challenges in each market.
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Chapter 6
Social Network Brand Visibility (SNBV):
Conceptualization and Empirical Evidence
Aijaz A. Shaikh, Richard Glavee-Geo, Adina-Gabriela Tudor,

Chen Zheng, and Heikki Karjaluoto
Abstract Social media has become a new way of life that allows for real-time
interaction among businesses (B2B) and consumers (P2P/C2C) as well as between
business firms and consumers (B2C). Customers are increasingly accessing and
using social networking sites (SNS), making it imperative for businesses and orga-
nizations to have a presence on these platforms to enhance visibility. The main
purpose of this chapter is to provoke an agenda on the study of social network brand
visibility (SNBV). We developed and proposed a definition of SNBV and report
findings from a preliminary study. We further discuss implications for theory,
research, and practice as well as the limitations and options for future research.
Introduction
Recent market trends have suggested that innovative and highly interactive social
media platforms are increasingly becoming an integral part of consumer lifestyles.
The power of social media resulted in the tremendous success of Pokémon Go in
2016 (Wu 2017). The time that consumers spend on social media is constantly
increasing; therefore, the impact of social media on consumers’ lifestyles and busi-
nesses cannot be underestimated. Capgemini (2014) revealed that the social media
user base is expected to increase from 1.47 billion in 2012 to 2.55 billion in 2017.
Popular social media platforms include YouTube, Facebook, Twitter, LinkedIn,
Snapchat, Instagram, and the recently introduced Musical.ly. Access to these plat-
forms has become more common due to the advent and proliferation of portable
devices, including smartphones and tablets. According to Asano (2017), more than
A. A. Shaikh · H. Karjaluoto
Jyväskylä University School of Business and Economics, University of Jyväskylä,
P.O. Box 35, Jyväskylä FI-40014, Finland
R. Glavee-Geo (*) · A.-G. Tudor · C. Zheng
Department of International Business, NTNU-Norwegian University of Science
and Technology, Postbox 1517, Aalesund, Norway

150 A. A. Shaikh et al.
60% of consumers’ social media time is facilitated by a mobile device. Others (e.g.,
Agnihotri et al. 2016) have argued that the accessibility of products, services, and
information on social media is higher than ever. As a result, both present and pro-
spective customers are becoming better connected to companies, more knowledge-
able about products and/or service selections, and more powerful in buyer-seller
relationships (Agnihotri et al. 2016).
Confronted with an increasingly competitive global market and the expanding
use of social media in everyday life, global technological firms (hi-tech) now seek
to enhance their brands through carefully defined content strategy that includes not
only producing quality products but also having an active presence on interactive
social media. It is widely believed that this content strategy is primarily geared
toward creating a unique image for brands online, with the underlying objective
being to stimulate product demand from different consumer segments globally. It is
now considered imperative for marketing and digital managers to know what is
being said about their services, products, and/or brands in general on social media,
which constitutes four major domains: collaborative projects, micro-blogs, content
communities, and social networking sites (Reyneke et al. 2011; Duane and O’Reilly
2012). These important views, comments, and other information that is posted give
brand managers a valuable indication of their brands’ “visibility” on social media.
Nonetheless, no previous literature has commented on what social network brand
visibility is, its dimensionality, and how it can be measured. Regarding technology-
based products, such as smartphones, personal computers, laptops, and tablets, con-
sumers require product knowledge to make informed purchase decisions.
Additionally, for brands to achieve high visibility globally, they require an online
social media presence/platform (Michaelidou et al. 2011; Kim and Ko 2012;
McCarthy et al. 2014), which will provide a medium in terms of SNS for the
exchange of information both within and between the brand and the community of
users (Callarisa et al. 2012; Gil de Zúñiga et al. 2012; Kaplan 2012; Wang et al.
2012).
Social media marketing should be focused on entertainment, interactions, and
electronic word-of-mouth (eWOM) communication (Hoffman and Fodor 2010;
Kaplan 2012; Kim and Ko 2012). Thus, increased interactions on SNS provide
opportunities for learning about the brand, understanding product features/attri-
butes, and enhancing brand awareness regarding brand recall and recognition
(Brown et al. 2007; Chua and Banerjee 2013). The purpose of this chapter is to
synthesize the social network marketing literature; define, develop, and show how
SNBV is measured; and offer key insights into SNBV, which is a “shifting para-
digm” for global branding and marketing. Moreover, this chapter seeks to concep-
tualize SNBV and to empirically test its effects. To the best of our knowledge, only
a few studies have examined the presence of brands on SNS in terms of their visibil-
ity. However, even fewer have stressed the importance of advertising in brand
awareness (e.g., Buil et al. 2013), the influence of eWOM in consumer product
judgment (Lee and Youn 2009), and, quite recently, social media brand building
(Cawsey and Rowley 2016).
6 Social Network Brand Visibility (SNBV): Conceptualization and Empirical Evidence 151
Visibility is an important aspect of the communication channel strategy, and it is

vital to the development and implementation of brand strategy (Chen 2011). Our
study departs from that of Reyneke et al. (2011), where visibility was assessed via
third-party online data gathering platforms by using an algorithm (e.g., howsocia-
ble.com). We sought to measure SNBV from the perspective of either individuals or
key informants using a psychometric method. The implications of this study will not
only contribute to theory development but also be of practical use to social network
marketers, search engine optimizers, and user-generated content providers in assess-
ing the impact of SNS. Our explication and exposition of the mechanisms of SNBV
and its effects/outcomes will provide increased understanding and knowledge to
digital marketers on how best to overcome the challenges posed by social media and
how best to conceive, formulate, and implement global brand building and market-
ing strategies based on the concepts, findings, and suggestions in this chapter.
Next, we provide a review of the literature on social media, branding, and visibil-
ity and develop a working definition for the concept SNBV. This is followed by the
hypotheses, methods, results, and discussion. We conclude with limitations and fur-
ther research.
he Concept and Definition of Online Social Network Brand

T
Visibility
Social media platforms facilitate interactions, collaborations, and the sharing of

content, including images, audio, and videos both between and among users. The
attribute of interactivity as reciprocal interpersonal communication (Liu and Shrum
2009) is one of the key characteristics of social media because it allows individuals
to interact with various people, organizations, and online communities, who share
their interests and activities across political, socioeconomic, and geographical bar-
riers (Kim and Kim 2017).
A recent study found that 70% of consumers have visited SNS to get information
about a certain product or service, with 49% of these consumers having made a
purchase decision based on the information they found on social media and 60%
reporting that they were very likely to use SNS to share information as well as make
referrals to others. In addition, 45% of those who searched for information through
SNS engaged in information sharing by word of mouth (Kim and Ko 2012). In
another study, Michaelidou et al. (2011) reported that 93% of social media users
believed that companies should have a social media presence, while 85% believed
that companies should interact with customers via interactive social media chan-
nels. In view of these consumer expectations, most companies have “invaded” SNS
and have offered direct links from their corporate websites to Facebook, Twitter,
LinkedIn, YouTube, Google+, Pinterest, Tumblr, Flickr, and Instagram. These social
websites are now commonly used as promotional tools in support of brand com-
munities (Kaplan and Haenlein 2010). Therefore, it is quite likely that lacking
v isibility on social media will lead to serious consequences, and companies will not
be able to effectively reach out to existing and potential customers as part of their
online marketing communication strategy.
As argued by Mangold and Faulds (2009:360), consumers are turning away from
traditional advertising methods, such as radio, television, magazines, and newspa-
pers, and demanding more control over their media consumption. Moreover, con-
sumers require on-demand and immediate access to information. In summary,
unlike traditional media platforms, social media provides greater user interactivity.
Moreover, brand content (“like,” “shares,” and “comments”) is generally transmit-
ted at a quicker rate and to a much larger, more responsive, and more engaged audi-
ence than most traditional media; however, the cost is much lower (Qualman 2013).
Digital marketers are making use of SNS as an indispensable part of their online
brand strategy by raising brand awareness, driving engagement, and increasing con-
version rates of brands and products (Phua et al. 2017). Table 6.1 presents a sum-
mary of past literature on social network brand visibility.
High visibility is a necessary condition for maximum impact, and it is an impor-
tant prerequisite for effective communication and the creation of brand awareness.
International and global firms are likely to tailor their marketing communication
strategies due to the competitive nature of the global market (Wong and Merrilees
2008). Additionally, the global market’s changing dynamics dictate an integrated
approach to marketing communication; thus, a move to integrated marketing com-
munication represents an adaptation to the changing global market environment
(Chen 2011). Integrated marketing communication requires the integration of
online, offline, and traditional channels. Here, social media marketing, which is an
Internet-based communication channel, is an important source that “closes the gap”
between the online, offline, and traditional media/channels. Broadly speaking, we
define social network visibility as the degree of exposure a brand, product, service,
and/or cause receives on SNS, with the purpose of creating awareness, knowledge,
information, and value to build meaningful relationships with existing and potential
customers, including communities.
In addition to products, services, brands, and/or causes (in the case of not-for-
profit organizations), social network visibility can also be applied to political orga-
nizations, figures, and politicians. Thus, a product, a service, an individual, or an
organization that is supplanted in a social networking site, either for exposure in the
form of review, viral communication, to establish a relationship, to engage, to com-
municate, to inform, to elicit support, to provide funding for a cause, or to change
social behavior, can be gauged by the extent of its visibility. Naturally, online social
network visibility can create either a favorable (positive) or an unfavorable (nega-
tive) disposition to either the brand, object, individual, product, or service. However,
in the present chapter, we have limited this exploratory study to SNBV regarding
the brands of a tangible product (laptop), which has service elements that either are
or may be intangible, variable, inseparable, and/or perishable.
We conceptualized social network brand visibility to consist of various dimen-
sions. The first conceptualization (see Appendix 6.1) of SNBV consists of six
dimensions. Table 6.2 shows both the SNBV dimensions and definitions.
Table 6.1 Summary of past literature on SNBV

Citation Purpose of study Major findings
Reyneke This study addresses the Some of the brands studied did not have a clearly
et al. visibility of luxury wine brands defined social media strategy. Nonetheless, there
(2011) on social media are opportunities for luxury wine brand managers
to use social media as a tool in their marketing
strategies. In addition, some threats may exist
should these brands take a laissez-faire approach
to social media, particularly when it is becoming
at least as influential, if not more so, as
conventional media
Botha This study describes a tool for The findings indicate that South African university
et al. collecting brand visibility brands are not distinctly positioned in social
(2011) information by looking at the media, and none of them appears to have a
visibility of various South strategy for engaging stakeholders via a particular
African university brands and social media platform. Therefore, there are both
their relative positioning from a opportunities for enthusiastic managers as well as
social media perspective possible threats against those who ignore social
media during a time when it is dominating both
the Internet and the media
Capitello This study analyzes the The results propose a conceptual, three-
et al. relationships between the dimensional approach that integrates a business’s
(2014) orientation, communication strategic orientation with its digital marketing
strategies, and Web 2.0 tactics strategy and its social media tactics. This approach
of businesses as well as the also includes specific evaluation criteria to
social media effect on brand measure the impact on the business’s strategic
visibility objectives
Yang and This study explores the factors The findings reveal that mainstream media
Kent that drive organizational social coverage significantly affects social media
(2014) media visibility visibility, whereas organizations’ social media use
patterns have a limited impact on overall
organizational visibility
Goswami A significant amount of The matrix integrates four parameters of user
et al. research has been conducted on engagement—involvement, interaction, intimacy,
(2013) both social media usability and and influence—with four social media
user engagement. The characteristics, content, relationship, value, and
uniqueness of this research structure, to bring out the essence of
paper is its identification of interoperability. This paper has identified and
synergies between the features listed certain metrics for measuring online brand
of social media and user visibility. The authors believe that the outcome of
engagement to enhance online this paper will make a significant contribution to
brand visibility. In this paper, a the existing body of knowledge by uniquely
conceptual model is explained identifying and explaining “social media-user
by developing a social engagement synergy” and listing appropriate
media-user engagement matrix metrics for measuring online brand visibility
to explain the synergies
(continued)
Citation Purpose of study Major findings
Davis This research explores the The findings suggest that consumers expect
et al. consumers’ specific specific two-way interactions with brands, and
(2014) motivations for the purpose and social media may be the only way to deliver these
structure of the consumption of demands effectively. This study identifies five core
brands in the social media drivers of brand consumption (functional,
community. Considering the emotional, self-oriented, social, and relational) in
evolving economic relevance of a social media community via the Five Sources
social consumption, the Model. These core drivers represent unique
resulting conceptual model was opportunities for brands to enhance their
designed to give a better relationships with their customers and to increase
understanding of the unique the likelihood of an active and beneficial online
branding opportunities and community that is built around their brands
relationships that social media
present to brand managers
Table 6.2 Six-dimensional social network brand visibility conceptualization

Dimension Definition/explanation Citation
Social media The importance of either a brand, product, or service on Kim and Ko
presence social media, as perceived by individuals, social (2012), McCarthy
(SMP) networkers, communities, and/or businesses et al. (2014),
Cawsey and
Rowley (2016)
Brand The ability to recognize and recall the brand Aaker (1991),
awareness Kaplan (2012),
Kim and Ko (2012)
Value equity Benefits derived from using the product/service; value Callarisa et al.
derived from interacting with either the brand, other (2012), Gil de
community members, potential users, or customers. Value Zúñiga et al.
can be in the form of either the quality of the product/ (2012), Kim and
service or in social terms, such as social capital and social Ko (2012)
values
Knowledge Learning about the product/service and understanding Brown et al. (2007),
product use, features, etc. Chua and Banerjee
(2013)
Social media Online marketing activities in terms of entertainment, Hoffman et al.
marketing interactivity, and eWOM (2010), Kaplan
(2012), Kim and
Ko (2012)
Information Social media as a medium for communicating with Brown et al. (2007),
exchange current and/or potential customers or among peers Kaplan (2012),
Wang et al. (2012)
We propose that SNBV can have various dimensions in its assessment, depend-
ing on the number of these. Previous studies operationalized brand visibility using
only one dimension (e.g., Chen 2011; Vianna et al. 2016). In the present study, we
empirically test the four-dimensional SNBV, as shown in Fig. 6.1.
Social
media
presence
Brand
awareness
Social network
brand visibility
(SNBV)
Value
equity
(product
quality)
Product
knowledge
Fig. 6.1 Four-dimensional conceptualization of SNBV
Context: B2B, B2C, C2C, P2P

Trust (+)
Commitment (+)
Purchase intention (+)
Relationship quality (+)
Cooperation (+)
Satisfaction (+)
Norms formation (+)
Reputation (+)
Social network brand visibility Performance (+)
(SNBV) Conflict (-)
Opportunism (-)
Habitual usage (+)
Customer engagement (+)
Online or offline WOM (+)
Relationship equity (+)
Brand equity (+)
Interactions (+)
Brand image (+)
Customer equity (+)
Loyalty (+)
Fig. 6.2 SNBV-relationship variables framework

Additionally, we propose that SNBV can have either a positive or a negative

influence on one or more relationship variables. For example, an increase in SNBV
can lead to an increase in trust, commitment, purchase intention, cooperation, and
brand image among other relationship variables (see Fig. 6.2), while an increase in
SNBV can also lead to a reduction in conflict and unethical behaviors between inter-
acting businesses (B2B), a company and its customers (B2C), and among either
individual consumers (C2C) or peers (P2P). Figure 6.2 shows the SNBV-relationship
variables framework.
Country of Origin Image and Product Evaluation
Country of origin (COO) is considered as the country (or home country) with which
a manufacturer’s product or brand is associated (Wang and Yang 2008). As a multi-
dimensional construct, COO has been further defined to include country of design,
country of assembly, country of brand, country of parts, and country of corporate
ownership (Pharr 2005). More than 20 years ago, many products were “made in
Taiwan,” which conjured positive perceptions of quality similar to the highly-
positive perceptions of “made in Japan” in the technology sector. However, 20 years
later, the global outlook has radically changed, making it difficult to predict the
nature and pace of societal changes (Futurebrand 2014). The widespread growth
and usage of the Internet as a medium for both buying and selling products have
fundamentally affected many products’ availability and distribution as well as their
manufacturing, labelling, and promotion processes (Pharr 2005).
COO has been studied extensively as an extrinsic marketing cue since the 1960s,
and its effect on consumers’ product evaluations has long been established in the
literature. However, globalization has made the assessment of COO increasingly
complex (Veale and Quester 2009). In today’s globalized markets, a product can be
designed in one country and have its components sourced from other countries,
while manufacturing can be outsourced to either one or more manufacturers in
either one or more countries anywhere in the world. For example, the iPad and the
MacBook are designed in California (US) but manufactured in China (Minasians
2017). Consumers often use COO stereotypes to evaluate a product’s quality.
Consumers form opinions of quality through the evaluation of both intrinsic and
extrinsic product cues (Bredahl 2003). Therefore, COO has the power to arouse
consumers’ beliefs about product attributes and hence affect their evaluation of
products (Veale and Quester 2009).
Hypotheses
Social Network Brand Visibility (SNBV) and Purchase Intention
Using social media has become a collective social action and a part of daily life for
the consumer (Chang and Hsu 2016). A growing body of evidence suggests that the
opinions and reviews posted on social media influence consumers’ purchase deci-
sions (Shang et al. 2017). Therefore, a growing number of review and opinion sites
allow consumers to make informed decisions based on information provided by
other consumers who have had experience with either the product, company, brand,
or customer care (Karakaya and Barnes 2010). Negative online consumer reviews
result in negative consumer product attitudes due to the conformity effect (Lee et al.
2008; Karakaya and Barnes 2010). Thus, SNS are considered to have positive and
yet also many negative aspects, such as an unhappy customer posting his/her service
failure experiences online as revenge (Zhuang et al. 2013).
However, positive social media communication among potential, current, and
former customers about either a product or a firm can enhance brand awareness,
while negative communication could negatively affect the brand. A brand name
provides memory nodes in consumers’ minds; a positive brand attitude over time
creates a strong emotional association with that brand. For consumers, awareness of
a brand implies learning and formation of an attitude about the brand and hence a
strong emotional attachment, which leads to brand loyalty. Consumers must be
aware of a brand to prefer it, and social media can provide that awareness. Therefore,
visibility on social media should stimulate purchase intention. Vianna et al. (2016)
found significant positive associations between brand visibility and purchase inten-
tion in the context of viral marketing and online advertising. Hence, we hypothesize
the following:
H1 SNBV is positively associated with purchase intention.
Conceptual Model A
For validation in the present study, SNBV was conceptualized and operationalized
as a higher-order, four-dimensional construct that consists of social media presence,
brand awareness, value equity (product quality), and product knowledge. SNBV is
subsequently hypothesized to be positively associated with purchase intention.
Figure 6.3 shows conceptual model A.
Social
media Country of
presence origin image
Brand
awareness
Social network H1 Purchase

brand visibility
intention
(SNBV)
Value
equity
(product
quality)
Product
knowledge
Fig. 6.3 Conceptual model (A)
Social Media Presence (SMP) and Product Knowledge
Global technology companies are now increasingly initiating product support inter-
actions via proactive chat, click-to-talk, short message service (SMS), and web-
based social media. Most of these firms have developed and established multichannel
means of contacting current and potential customers via online communities and
social media. As argued earlier, in view of the dual nature of social media, most
technological companies have deployed resources in the form of social media ana-
lytics to both guard and moderate their online content using text analytics. These
analytic tools flag abusive language, spam, and derogatory content and identify
expert users and/or the most qualified customers to provide the most credible infor-
mation to others (Genpact 2014).
The provision of product support-related services on social media to both current
and potential customers is expected to enhance product knowledge. Here, product
knowledge refers to both general and product-specific knowledge that customers
have about the functional characteristics of the product and/or brand. Product
knowledge can also be defined as product-related information that is stored in the
memory, such as information about brands, products, attributes, evaluations, deci-
sion heuristics, and usage situations (Marks and Olson 1981; Selnes and Grønhaug
1986). Product knowledge involves either customers’ familiarity with the product or
having the expertise to process product-related information through learning and
understanding. Occasionally, consumers are not able to evaluate all the characteris-
tics of a product before purchase, and sometimes they must manage with limited
knowledge. The use of tailor-made video content on YouTube can provide product-
related information to customers, such as how to either troubleshoot or fix
s oftware-related problems for either a smartphone or laptop/PC, to introduce a new

product, to explain product features, and how to either operate or use the product.
The streaming of videos on Facebook and Twitter, among other SNS, has recently
become a popular and common feature. These videos quickly communicate infor-
mation and knowledge to online social media users and communities.
However, not all the information provided on these SNS originates from the
companies; much of it is user generated, while some also stems from third parties.
Thus, SNS have the dual role of providing product information and recommenda-
tions (Chatterjee 2001), which are important for the consumer decision-making pro-
cess. Lin and Chen (2006) claim that product knowledge enhances consumer
purchase decisions under different product involvement. Therefore, we hypothesize
the following:
H2 SMP is positively associated with product knowledge.
Brand Awareness, Product Knowledge, and Purchase Intention
Brand awareness is the customer’s ability to recognize and recall a brand under dif-
ferent conditions and time pressures (Aaker 1991). Macdonald and Sharp (2000)
argued that when a customer chooses a product, there is a strong tendency to choose
a well-known brand instead of an unknown brand. Brand is an important antecedent
for a consumer’s purchase intention (Wang and Yang 2008). Consumers are not able
to evaluate all characteristics of a product before they purchase; therefore, they
often must judge by their prepurchase evaluation (Rezvani et al. 2012). The term
knowledge can best be understood as being created through human interaction with
information (Davenport and Prusak 1998). Nonaka and Takeuchi (1995) suggested
that knowledge is a dynamic human process of justifying a personal belief toward
the truth through the two types of knowledge: tacit (personal knowledge) and
explicit (expressed in words, databases, patents, reports, and documents).
Rezvani et al.’s (2012) study suggested that consumers’ attitudes would be more
persistent and less affected by country of origin cues over time if they had high
product knowledge and the motivation to process product-related information to
inform their purchase decisions. The lack of product knowledge decreases the con-
sumer’s purchasing intention. If the consumer has never used the product before
purchasing the item, there is no “familiarity” in terms of product knowledge.
Consumers that have greater knowledge of a product/brand are expected to include
that product/brand in their consideration set. Product knowledge is therefore
expected to increase consumer purchase intention. In view of the above, we hypoth-
esize the following:
H3 Brand awareness is positively associated with product knowledge.
H4 Product knowledge is positively associated with purchase intention.

Product Quality, Brand Awareness, and Purchase Intention
A product’s ability to fulfill a need relates to its distinctive characteristics and/or

attributes, which indicate quality. The expectation that a product can fulfill the
stated need is a strong motivation for a consumer to purchase that product. Quality
attributes include both the functional and psychological benefits that are provided
by the product; they represent what the product is perceived to either do or provide
to the consumer (Steenkamp 1990). Expected quality is believed to be one of the
most important influencers of consumers’ intention to purchase. Based on a study
by Papanagiotou et al. (2013), quality expectations relate to intention to buy.
One of the key influencers of the perceived quality of a brand is brand awareness
(Aaker 1996; Keller and Lehman 2003) because consumers assign high credibility
to prestigious brands due to a lower perceived functional risk. One of the elements
that most strongly conditions the perception of a product’s quality is the brand
name. Many consumers relate recognized brand names to high quality (Rubio et al.
2014). Brand awareness provides a kind of learning advantage for the brand (Keller
2008), and brands that consumers know are more likely to be included in the con-
sumers’ consideration set (Schiffman et al. 2012). Therefore, quality products are
more likely to create a strong brand image for the product and enhance brand aware-
ness. Such products are more likely to be considered for purchase. Thus, we devel-
oped the following hypotheses:
H5 Product quality is positively associated with brand awareness.
H6 Product quality is positively associated with purchase intention.
Conceptual Model B
We developed a second research model for estimation using the individual sub-
constructs of the four-dimensional SNBV based on hypotheses (H2–H6). We
hypothesize the following: the SMP of a brand should lead to product knowledge
(H2); brand awareness should lead to product knowledge (H3); and product knowl-
edge should be positively related to purchase intention (H4). Value equity, when
operationalized as product quality, should lead to brand awareness (H5) and pur-
chase intention (H6). Figure 6.4 shows conceptual model B.
Value equity
Country of
(Product
origin image
quality)
H6 (+)
Purchase H4 (+)
intention
Social
media H2 (+) Product
presence knowledge
(SMP)
H3 (+)
Brand H5 (+)
awareness
Fig. 6.4 Conceptual model (B)
Methods
Procedure for Developing the Study’s Measures
We followed Churchill’s (1979) procedure to develop the necessary study measures,

with some adaptation. Thus, due to time constraints, we used the “single-phase data
collection approach” (see Appendix 6.3). Because the concept of SNBV is new, we
reviewed the literature using keywords such as “visibility,” “brand visibility,” “social
media,” “online marketing,” “branding,” “product evaluation,” “product knowl-
edge,” “purchase intention,” and “online interactions.” This first step helped in spec-
ifying the domain of the construct of SNBV and the development of a working
definition. Based on the literature review, we generated a sample of items, some of
which were validated scales that were adapted for the study. However, most of the
survey items were adapted from previous research, and a few new questions were
developed (e.g., social media presence measures). The sources and other informa-
tion about the survey instrument are summarized in Table 6.3. Country of origin
image (COOI) measures were adapted from Martin and Eroglu (1993); purchase
intention scales were adapted from Taylor and Baker (1994); value equity-product
quality measures were adapted from Lichtenstein et al. (1993); brand awareness
measures were developed based on Aaker (1996); and product knowledge measures
were developed based on Mark and Olson (1981). All items were anchored in a
seven-point Likert scale, from one, “strongly disagree,” to seven, “strongly agree.”
Table 6.3 Measures and items

Standardized
Measures and items loadings t-value
Social media presence (SMP)
The importance of the presence of my favorite personal (laptop) computer brand on social
networking sites:
Facebook 0.818a
Twitter 0.409 4.60
YouTube 0.976 10.20
Google+ 0.592 7.02
Country of origin, adapted from Martin and Eroglu (1993)
The level of economic development of this country is high 0.497a
The level of democratic politics of this country is high 0.535 5.85
The level of industrialization of the country where my laptop 0.632 5.88
originates is high
The level of technology of this country is high 0.915 5.76
The product quality of this country is high 0.880 5.70
Personal computers (laptops) from this country are reliable 0.711 5.22
Value equity (product quality), adapted from Lichtenstein et al. (1993)
This personal (laptop) computer brand is of high technological quality 0.920a
This computer brand manufacturer is very innovative 0.872 12.35
This personal (laptop) computer brand is highly reliable 0.719 11.51
This personal (laptop) computer brand is of high quality 0.821 12.29
Product knowledge developed, based on Mark and Olson (1981)
The level of my knowledge of this personal computer brand 0.396a
I am willing to know more about this personal (laptop) computer 0.841 4.36
brand After purchase and use of this personal (laptop) computer brand, 0.597 5.29
the accumulated level of what I know about this brand is high
I am willing to understand more about this laptop brand 0.944 4.37
Brand awareness, adapted from Aaker (1996)
I know this brand 0.785a
Regarding laptops, I can immediately recall the brand 0.760 7.14
The name of the manufacturer of my favorite laptop is a well-known 0.537 5.32
computer brand
Consumer purchase intention, adapted from Taylor and Baker (1994)
I would always consider buying this personal computer (laptop) brand 0.602a
It is possible that I will always buy this laptop brand 0.659 7.54
If I was going to buy this laptop/computer, I would buy any model of 0.506 4.85
this brand
The possibility that I would consider buying this product is high 0.825 6.98
My willingness to buy this product is high 0.897 7.32
The likelihood of me purchasing this product is high 0.839 7.06
a
Unstandardized factor loadings fixed
Table 6.4 Demographic characteristics of respondents

Demographic characteristics Category Frequency Percent
Gender Male 60 49.20
Female 62 50.80
Age 19–24 62 50.82
25–30 41 33.61
31–36 14 11.47
37–42 3 2.46
43–48 2 1.64
Monthly income (NOK) Below 5000 29 23.80
5000–10,000 58 47.50
10,000–20,000 22 18.00
Above 20,000 13 10.70
NOK Norwegian kroner
Data Gathering
The data source consisted of an online survey among former Aalesund University
College students who had attended prior to the merger with the Norwegian
University of Science and Technology. SNS offer college students the opportunity
to connect with friends, family members, and even strangers to engage in social
interactions and access information for academic use, such as e-learning. Most
users of SNS are young people, with the majority being students of higher educa-
tion. College students make use of personal computers in their academic work and
hence have some basic requirements in terms of products’ attributes and
functionality.
The proliferation of several PC brands means that college students, as current
and potential customers, have many brands from which to choose. However, not all
available brands will be included in the consideration set of college students; there-
fore, this study presents an interesting context for research. In total, 122 responses
out of a targeted 3000 students—a response rate of 4%—were obtained. Online
surveys usually have low response rates, so 4% is not an uncommon result (Fan and
Yan 2010). The sample consisted of 49.1% males and 50.8% females. The majority
(84.43%) were between 19 and 30 years of age. Close to 50% of the respondents
earned from 5000 to 10,000 Norwegian Kroner (NOK) monthly, with 10.7% earn-
ing above 20,000 NOK. The demographic characteristics of the sample are pre-
sented in Table 6.4.
Table 6.5 Correlation matrix

1 2 3 4 5 6
SMP (1) 1 0.043 0.130 −0.040 0.117 0.121
Country of origin (2) 1 0.480** 0.206* 0.202* 0.381**
Value equity-product quality (3) 1 0.485** 0.354** 0.573**
Brand awareness (4) 1 0.482** 0.419**
Product knowledge (5) 1 0.418**
Purchase intention (6) 1
AVE 0.53 0.51 0.70 0.50 0.53 0.54
Cronbach α 0.79 0.86 0.91 0.73 0.91 0.87
SMP Social media presence
*p < 0.05 (2-tailed); **p < 0.01 (2-tailed)
Measure Validation and Data Analysis
As part of the measures purification process (see Appendix 6.3), we first evaluated
the psychometric properties of the measures by performing an exploratory factor
analysis with varimax rotation. The Kaiser-Meyer-Olkin (KMO) measure of sam-
pling adequacy was 0.796, and Bartlett’s test of sphericity was significant at the
0.0001 level, indicating that the data matrix was sufficiently correlated for further
analysis. Second, we conducted a confirmatory factor analysis (CFA) using a maxi-
mum likelihood estimator in IBM SPSS/AMOS 24 (Arbuckle 2016). This yielded a
relatively adequate fit of the model to the data (Chi-square χ2 = 447.53, df = 303,
p = 0.000, χ2/df = 1.48; SRMR = 0.078, RMSEA = 0.063, 90% CI = 0.050, 0.075;
CFI = 0.924, TLI = 0.912). The assessment of the measurement model, where all the
items were loaded on the designated factor with no cross-loadings, demonstrated
both convergent and discriminant validity.
The average variance extracted (AVE) of all the constructs were above the rec-
ommended threshold of 0.50 (Fornell and Larker 1981; Hair et al. 2009), which
indicated good convergent validity. The AVEs of both COOI and the value equity-
product quality were 0.51 and 0.70, respectively. The correlation between these two
constructs, as shown in Table 6.5, was 0.48. The square of the correlation between
these two constructs was 0.23. The AVE of each construct was greater than the
squared correlation between the constructs, which further demonstrated discrimi-
nant validity. An examination of the AVEs of other pairs of constructs and their
squared multiple correlation demonstrated discriminant validity between the con-
structs. The Cronbach alpha of all the constructs was above the minimum threshold
of 0.70 (Nunnally 1978; Hair et al. 2009). Table 6.5 shows the correlation matrix
with a reliability estimate (Cronbach’s alpha) and the AVE.
Common Method Variance
Harman’s single factor test was used to assess common method variance (CMV),
which is present when either a single factor accounts for the factor analysis or one
general factor accounts for the majority (Podsakoff et al. 2003.). The exploratory
factor analysis, which was conducted with an unrotated factor solution, produced
six factors, with the largest factor accounting for 27% of the total variance. An alter-
native analysis of CMV using CFA (Malhotra et al. 2006), where all observed items
were modeled as indicators of a single factor, yielded an unsatisfactory model fit
(Chi-square χ2 = 545.42, df = 282, p = 0.000, SRMR = 0.082, RMSEA = 0.088,
90% CI = 0.077, 0.099; CFI = 0.852, TLI = 0.829), which further supported the
claim that CMV is not a potential influencing factor.
Results
valuation of Higher-Order Four-Dimensional SNBV

E
and Conceptual Model A
SNBV was both conceptualized and operationalized as a higher-order four-

dimensional construct (recall Fig. 6.3) that includes social media presence, brand
awareness, value equity (product quality), and product knowledge. The validation
of higher-order four-dimensional SNBV was conducted via IBM SPSS/AMOS 24
(Arbuckle 2016). Although the model fit was adequate (Chi-square χ2 = 104.59,
df = 72, p = 0.000, Chi-square χ2/df = 1.45; RMR = 0.222, RMSEA = 0.062, 90%
CI = 0.046, 0.077; CFI = 0.963, TLI = 0.953), the sub-construct social media pres-
ence was not as highly related to SNBV (r = 0.02) as expected. The other three
sub-constructs were highly related to SNBV [brand awareness (r = 0.95), value
equity (r = 0.62), and product knowledge (r = 0.55)]. Appendix 2 shows the results
of the evaluation of the four-dimensional SNBV, which was re-specified as a three-
dimensional SNBV and estimated. Table 6.6 shows the results of the three-
dimensional SNBV with first- and second-order loadings.
Subsequently, conceptual model A with respecification as a three-dimensional
SNBV with nomological structural relations with both COOI and purchase inten-
tion was estimated to test H1. That estimation yielded a more adequate fit (Chi-
square χ2 = 288.99, df = 197, p = 0.000, Chi-square χ2/df = 1.47; RMR = 0.178,
RMSEA = 0.062, 90% CI = 0.046, 0.077; CFI = 0.942, TLI = 0.933). Figure 6.5
shows the results of the structural model with second-order loadings, while Table 6.7
shows the results of testing H1.
H1, which hypothesizes a positive association between SNBV and purchase
intention, is supported (β = 0.86, p < 0.001, t = 3.89) with the R2 of purchase inten-
tion 0.71. Thus, SNBV has a very strong impact on purchase intention. SNBV was
also found to have a significant positive effect on COOI (β = 0.50, p < 0.01, t = 3.10).
Table 6.6 Three-dimensional SNBV, with first- and second-order loadings

Measures and items Loadings# t-values (R2)
Brand awareness (0.96b) 0.93
The name of the manufacturer of my favorite laptop is a well-known 0.537a 0.29
computer brand
Regarding laptops, I can immediately recall the brand 0.746*** 5.21 0.56
I know this brand 0.797*** 5.29 0.65
Value equity-product quality (0.61b) 0.37
This personal (laptop) computer brand is of high quality 0.804a 0.65
This personal (laptop) computer brand is highly reliable 0.709*** 12.22 0.50
This computer brand manufacturer is very innovative 0.860*** 10.95 0.74
This personal (laptop) computer brand is of high technological 0.942*** 11.80 0.89
quality
Product knowledge (0.55b) 0.30
I am willing to understand more about this laptop brand
After purchase and use of this personal (laptop) computer brand, the 0.936a 0.88
accumulated level of what I know about this brand is high
I am willing to know more about this personal (laptop) computer 0.597*** 6.96 0.34
brand 0.848*** 10.28 0.72
Chi-square χ2 = 44.97, df = 31, p = 0.000, RMR = 0.112, RMSEA = 0.061, 90% Cl = 0.000,
0.098; CFI = 0.979, TLI = 0.970
a
Unstandardized factor loadings fixed
b
Standardized second-order loadings in brackets
R2 Squared multiple correlations
# Standardized first-order loadings
***p < 0.001 (two-tailed)
R2=0.48 R2=0.25
Brand Country of
awareness origin image
(recall and
recognition)
0.49** -0.05
0.69
R2=0.69 R2=0.71
Value equity Social network Purchase

0.84 0.86***
(product brand visibility intention
quality) (SNBV)
0.49
Significant at: *** p < 0.001, ** p < 0.01 (2-tailed)
Product
knowledge (Chi-square = 288.99, df=197, p=0.000, Chi-square /df=1.47;
(learning and RMR=0.178, RMSEA=0.062, 90% CI: 0.046, 0.077;
understanding) CFI=0.942, TLI=0.933)
R2=0.25
Fig. 6.5 Results of structural model with second-order loadings (model A)

Table 6.7 Results of hypothesis testing (model A)

Hypothesis Hypothesized effect Standardized estimate t-value
H1 SNBV → Purchase intention 0.863*** 3.89
SNBV → Country of origin image 0.497** 3.10
Country of origin image → Purchase intention −0.047 0.44
*p < 0.05 (2-tailed); **p < 0.01 (2-tailed); ***p < 0.001 (2-tailed)
Country of 0.48*** Value equity

(Product quality)
origin image R2=0.23
0.02 0.61***
Purchase
0.26*
intention
(Chi- square = 449.57, df=308, R2=0.55
p=0.000, Chi-square/df=1.46;
SRMR=0.083, RMSEA=0.062, -0.04
90% CI: 0.049, 0.074;
CFI=0.925, TLI=0.915)
Social
media 0.23* Product
Significant paths presence knowledge
(SMP) R2=0.32
Insignificant paths 0.54***

-0.12
Brand
*** p < 0.001 (2-tailed) 0.60***
awareness
* p< 0.05 (2-tailed) R2=0.37
Fig. 6.6 Results of path analysis (structural model B)
No support was found for the effect of country of origin on purchase intention
(β = −0.05, p > 0.05).
Evaluation of Conceptual Model B
To test the hypotheses that are based on conceptual model B (recall Fig. 6.4), we
estimated the structural model using a maximum likelihood estimator in IBM SPSS/
AMOS 24 (Arbuckle 2016). Results yielded a relatively adequate fit of the model to
the data (Chi-square χ2 = 449.57, df = 308, p = 0.000, χ2/df = 1.46; SRMR = 0.083,
RMSEA = 0.062, 90% CI = 0.049, 0.074; CFI = 0.925, TLI = 0.915). An examina-
tion of the fit indices, including the ratio of chi-square to degree of freedom, yielded
1.46; a recommended ratio of chi-square to degree of freedom of less than three is
considered acceptable (Schreiber et al. 2006). Standardized root mean square resid-
ual (SRMR) and root mean square error of approximation (RMSEA) were 0.083
and 0.062, respectively. Comparative fit index (CFI) and Tucker-Lewis index (TLI)
Table 6.8 Results of hypothesis testing (model B)

Hypothesis Hypothesized effect Standardized estimate t-value
SMP → Brand awareness −0.117 1.28
SMP → Purchase intention −0.036 0.49
H2 SMP → Product knowledge 0.229* 2.27
H3 Brand awareness → Product knowledge 0.541*** 3.41
H4 Product knowledge → Purchase intention 0.255* 2.50
H5 Value equity-product quality → Brand awareness 0.598*** 5.56
H6 Value equity-product quality → Purchase 0.612*** 4.96
intention
Country of origin → Value equity-product quality 0.484*** 3.94
Country of origin → Purchase intention 0.021 0.25
SMP Social media presence
*p < 0.05 (2-tailed); **p < 0.01 (2-tailed); ***p < 0.001 (2-tailed)
were 0.925 and 0.915, respectively. Values of CFI and TLI that were close to 0.95
or greater were considered indicative of a well-fitting model (Iacobucci 2010; Kline
2016). Figure 6.6 and Table 6.8 show the results of the structural model and the test-
ing of the hypotheses.
The data support H2 and H4 at a 0.05 significance level. Hence, SMP has a sig-
nificant effect on product knowledge (β = 0.23, p < 0.05, t = 2.27), while product
knowledge has a significant influence on purchase intention (β = 0.26, p < 0.05,
t = 2.50). We found support for hypotheses H3, H5, and H6 at a 0.001 significance
level. Brand awareness has a significant influence on product knowledge (β = 0.54,
p < 0.001, t = 3.41), while value equity in terms of product quality has a significant
effect on brand awareness (β = 0.60, p < 0.001, t = 5.56). The hypothesized relation-
ship between value equity-product quality and purchase intention (β = 0.61,
p < 0.001, t = 4.96) was also supported by this study.
The squared multiple correlation R2, which indicates the explanatory power of
the model, showed that 55% of the variation in consumer purchase intention was
explained by product knowledge, value equity-product quality, social media pres-
ence, and COOI. The extent to which COOI serves as an extrinsic cue of value
equity-product quality was 23%, while variation in the endogenous variable brand
awareness was as much as 37% of value equity-product quality and social media
presence.
Discussion
In this chapter, we sought to provoke an agenda on the study of SNBV by reviewing

the literature extensively on social media, proposing a definition of SNBV, and
reporting findings of a preliminary study. We conceptualized SNBV as related to six
key dimensions: social media presence, brand awareness, value equity, knowledge,
social media marketing, and information exchange. We operationalized as well as
examined a four-dimensional SNBV, and the results showed validity for a three-
dimensional SNBV. Through an empirical demonstration, we showed that SNBV
can be measured psychometrically, and we found that it is a significant driver of
purchase intention. Additionally, we evaluated how the individual dimensions of
SNBV can influence each other in a more “rich” nomological structure and found
that COOI (an extrinsic cue for product evaluation) predicts value equity (in terms
of product quality), which in turn predicts brand awareness.
Brand awareness was found to be a significant predictor of product knowledge,
while product knowledge was also shown to be a significant predictor of purchase
intention. The presence of a brand on social media is key in knowledge creation.
This study was carried out using a hi-tech product (a personal computer); therefore,
we propose that for technological firms to stay competitive in today’s turbulent PC
market, in view of short product lifecycles, increasing changes in preferences of
consumers, and the globalization of the PC markets, those firms should engage con-
sumers and potential customers through digital marketing by using social network-
ing. E-commerce has created a paradigm shift in the way business is conducted and
has been responsible for blurring national borders through the expansion of busi-
nesses into far-flung areas of the globe without the associated costs (Agarwal and
Wu 2015).
The authors contend that social media has an important role to play in
E-commerce. The E-commerce revolution has occurred not only in developed coun-
tries but has spread to emerging economies, such as Brazil, Russia, India, and China,
and presents new opportunities to companies to do business on a global scale.
Therefore, social networks provide important opportunities for businesses to inter-
act and engage with their customers anywhere in the world. China’s entry into the
WTO and its impact on trade and global marketing has been the focus of previous
studies (e.g., Agarwal and Wu 2004). China, with an Internet user population of
approximately 650 million and censorship laws prohibiting its citizens from partici-
pating in the dominant SNS (e.g., Facebook), led to the creation of the country’s
own social platforms and networks (Spencer 2017), such as Tencent Weibo, QZone,
Sina Weibo, and Wechat, which each have a user base that exceeds half a billion.
International and global brands have focused large shares of their digital market-
ing budgets on ads, content, and promotions across the “major” social networks,
such as Facebook and Twitter. However, there is still a valuable opportunity to con-
nect with Chinese consumers through Chinese SNS platforms. Internet users in
China spend five to six more hours on average online per week than Americans and
almost 90 min per day on social networks. It is estimated that 38% of Chinese con-
sumers make product purchase decisions based on recommendations that they read
on social networks. Therefore, businesses must engage these users wherever possi-
ble (Spencer 2017). Social media tools are critical in generating viral effects, con-
sumer evangelism, and positive WOM advocacy (Järvinen et al. 2012). Thus, social
media is an indispensable tool that companies must implement, especially if they
want to stay competitive in today’s global marketplace.
In line with these predictions, previous research (e.g., Shang et al. 2017) has sug-
gested that Internet-based opinions that are generated and posted on social media
channels influence consumers’ purchasing decisions. Most authors (e.g., Karakaya

and Barnes 2010) are of the view that reviews and opinion sites online lead consum-
ers to make informed decisions based on other consumers’ experiences with either
the product, company, brand, or a customer service department. Although it is
debatable whether the mere presence of brands on social media gives some level of
awareness, this chapter has shown the positive role of awareness in enhancing prod-
uct knowledge. The streaming of videos on YouTube, the use of online chats, and
the pursuit of “likes” on Facebook, among other social networking and online activ-
ities, create the opportunity for both current and potential customers to learn about
a brand as well as interact with it.
Social media provides product information and recommendations that enhance
the consumer decision-making process and thus influence consumer purchase inten-
tions. The causal relationship between COOI and product quality has been estab-
lished by past research (e.g., Zeugner-Roth and Diamantopoulos 2010), while its
link with purchase intention has also been studied extensively (Zeugner-Roth and
Diamantopoulos 2010). This study provides further support for the role that COOI
plays in product evaluation; it is a sign of quality perception that helps consumers
make purchase decisions. Consumers’ willingness to purchase a product depends
not only on how they feel about the product but also on how much they know about
it. Thus, quality products enhance brand awareness, which explains the saying “a
quality product sells itself.” Value, in terms of quality products, creates strong brand
recognition and recall; thus, it helps in the processing of product-related informa-
tion and knowledge.
Conclusion
Implications for Theory, Research, and Practice
One of our key contributions is the agenda for research on social network brand vis-
ibility. Specifically, we have developed a working definition for SNBV as well as
conceptualized and operationalized the construct, although at an exploratory level.
Therefore, this calls for more research on how visibility can be measured psycho-
metrically. We have provided some direction to that effect in this chapter, which is
available to scholars. Secondly, consumers’ perceptions of the importance of either
a product, a brand, or an organization on SNS and how they process information
from these sites can influence their attitudes regarding their willingness to purchase.
The willingness to purchase a technological product, such as a PC, is strongly influ-
enced by how much consumers know about the product and what they feel are
important product quality features and/or attributes from where the product
originates.
Hence, businesses must look beyond their borders and develop marketing and
promotional programs for global markets. The optimal avenue for that is social
media marketing and promotion due to its advantages over traditional offline media.
The popularity of Pokémon Go provided an excellent opportunity to marketers (Wu
2017). Indeed some digital content and social media marketing connoisseurs argue
that Pokémon Go is a social network in disguise with its origin as the first mobile
augmented reality (AR) social media platform. It is a viable channel as a social
media platform, which provides additional opportunity for marketers to monetize
and drive their businesses through the ever popular (if somewhat ailing) mobile
phenomenon (Simpson 2016).
Another important managerial implication of this study is that, although much
has been said about the negative impact of the presence of firms on the Internet and
social media, there are also numerous opportunities for building brand awareness.
The visibility of products and services on SNS by organizations and firms is an
effective means of reaching out to current and potential customers on a global scale.
As a paradigm shift, firms need to plan, develop, and implement either a proactive
social media strategy or digital marketing strategy to fully benefit from such media.
Both the tracking of social media to determine how a formulated strategy is working
vis-à-vis the competition and monitoring competitor brands are critical to global
competitiveness (Reyneke et al. 2011). Regarding branding, social media provides
an excellent opportunity to interact with and engage customers, and it provides
opportunities for marketers and brand managers to cooperate with consumers to
increase brand visibility (Smith et al. 2012).
Thus, in the formulation of marketing strategies for innovative and techno-
oriented products, the use of SNS to reach out to market segments and to provide
product-related information is key in today’s highly competitive global market.
Global technological companies involved in the manufacture, sale, and promotion
of personal computers (PCs), including laptops, can enhance their brand awareness
by focusing on innovative products of high quality. As the old saying goes, “Great
products sell themselves.” The competitive nature of the PC market means that com-
petitiveness and profitability can only be sustained through value creation and con-
sumer engagement. Social media is an important medium for delivering value,
engaging consumers, and providing product/service-related knowledge. Consumers
with a significant amount of product knowledge are more likely to make purchase
decisions based on this knowledge rather than from where a product originates;
hence, a combination of high online social network brand visibility and a favorable
COOI of a brand can enhance purchase intentions.
This study is not without limitations. Firstly, it used data from a cross-sectional
survey that was limited to electronic products, such as personal computers.
Therefore, the results cannot be generalized, and it is suggested that further research
involving multiple products, contexts, and consumer segments should be used.
Secondly, this study solicited feedback from college students (mostly millennials)
who are not usually representative of the population in terms of demographics, such
as age and income; therefore, we advise that further studies use a more representa-
tive sample (including generations x and y and baby boomers). Thirdly, longitudinal
studies that aim to capture consumers’ changing attitudes, perceptions, and buying
intentions over a period may provide valuable findings for the industry and scholars
and are thus recommended. Fourthly, the scope of our study is limited to only one
type of social media: SNS. According to Duane and O’Reilly (2012), social media
are divided among four major domains: content communities, collaborative proj-
ects, micro-blogs, and SNS. As such, future research should consider other social
media domains when investigating social network brand visibility.
Appendix 1
Six-dimensional conceptualization of SNBV
Social
Brand
media
awareness
presence
Value
equity
(product
quality)
Social network
brand visibility
(SNBV)
Product
knowledge
Social Information
media exchange
marketing
Appendix 2
Standardized parameter estimates (second-order loadings)
Social
R2=0.00
media
presence
0.02
R2=0.91
Brand
awareness 0.95
Social network
brand visibility
R2=0.38 0.62
(SNBV)
Value
equity
(product
quality) 0.55
(Chi-square = 104.59, df=72, p=0.000,

Chi-square /df=1.45; RMR=0.222,
Product
RMSEA=0.062, 90% CI: 0.046, 0.077;
knowledge
R2=0.30 CFI=0.963, TLI=0.953)
Appendix 3
Single-phase data collection procedure for developing measures (Source: Adapted

from Churchill 1979:66)
Recommended coefficients or techniques

1. Specify domain of construct Literature search
2. Generate sample of items Literature search
3. Collect data
4. Purify measure Factor analysis
5.
Assess reliability Coefficient alpha
6.
Assess validity Criterion validity
Average and other statistics

7. Develop norms summarising distribution of scores
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Chapter 7
Reconfiguring the Marketing Mix
to Counter the Counterfeits
in the Global Arena
Karminder Ghuman and Hemant Merchant
Abstract Different strategies have been proposed to counter the global trade in
counterfeits, but there is a dearth of the conceptual framework, which coherently
organizes the varied anti-counterfeit interventions. In the present article, we employ
the construct of marketing mix and extend it further to organize various anti-
counterfeiting tactics into a holistic framework. We attempt to answer: how – and to
what extent – can the companies reconfigure their marketing mix so that it is tough
for the counterfeiters to make and sell the inexpensive replications of their original
creations? The present article makes a contribution by reconfiguring the traditional
marketing mix for bringing together disparate anti-counterfeiting tactics at the center
stage of designing the marketing program.
Introduction
The global trade in counterfeits was estimated at $200 billion in 2005 and USD 250
billion in 2007 (OECD 2009), and it further increased to USD 461 billion in 2013
(OECD/EUIPO 2016). The sheer magnitude and alarming growth have turned it into
a wicked problem for corporates as well as the governments around the world. As the
majority of efforts by state authorities to curb the trade in counterfeits have not
worked as well as expected, the companies cannot afford to remain passive and
expect other agencies to resolve the problem for them. In this context, we propose
that in addition to the macro-level institutional interventions by governments and
international institutions like the World Intellectual Property Organization (WIPO),
Interpol, and the World Customs Organization (WCO), the companies need to
K. Ghuman (*)
LM Thapar School of Management, Thapar University, Patiala, India
H. Merchant
University of South Florida in St. Petersburg, St. Petersburg, FL, USA

180 K. Ghuman and H. Merchant
augment further their efforts to lessen the extent of counterfeiting. By employing the
framework of marketing mix, we pose a research question, “How and to what extent
can the companies reconfigure their marketing-mix, so that it’s tough for the counter-
feiters to make and sell inexpensive replications of their original creations?”
For the last four decades, several researchers have proposed a multitude of anti-
counterfeiting actions; however, very little empirical research has been done to
discover what types of tactics companies employ to deter pirates (Chaudhry et al.
2005). Academic literature on counterfeiting is also fragmented, diverse, and often
incoherent, calling for synthesizing this extant knowledge (Cesareo 2015). Despite
the relative importance, little attention has been paid to the management of counter-
feiting; it is a highly under-researched topic, which needs to be tackled within a
general, consistent, and synergistic package of measures (Bosworth and Yang 2006).
Companies too are investing considerable resources to implement adequate brand
and product protection strategies, but their know-how is mostly limited to their own
experience and, at best, to some informal exchange among practitioners at brand
protection conferences (Staake and Fleisch 2008).
The present study attempts to make a contribution by proposing an extended mar-
keting mix that can be employed to organize various anti-counterfeiting strategies
under a single framework. For achieving that, an extensive review of best practices for
combating counterfeiting was undertaken, and subsequently they were categorized
under the framework of marketing mix. The rationale for employing marketing mix is
that it encapsulates all the tactical marketing decisions that the firm employs to pursue
its marketing objectives in the target market (Kotler 2000).
Theoretical Background
The pirated goods are products that are exact copies of the original and are typically
limited to technology categories (Wilcox et al. 2009). Counterfeits are illegal, low-
priced, and often lower-quality replicas of products that typically possess high
brand value (Lai and Zaichkowsky 1999). According to the Trade-Related Aspects
of Intellectual Property Rights (TRIPS) Agreement, “‘counterfeit trademark goods’
mean any goods, including packaging, bearing without authorization a trademark
that is identical to the trademark validly registered in respect of such goods or that
cannot be distinguished in its essential aspects from such a trademark, which thereby
infringes the rights of the owner of the trademark in question under the law of the
country of importation” (WTO 1994). For this study, counterfeit goods are defined
as illegitimately manufactured or adulterated goods, replica or imitation items,
pass-offs, look-alikes, and fake products.
Nearly four decades ago, Kaikati and LaGarce (1980) outlined the fundamentals
concerning the counterfeit trade by differentiating outright piracy, imitation, and
wholesale piracy and international laws protecting the trademarks. Harvey (1987)
classified counterfeits as (a) true counterfeit products (closely resemble the original
and use the same brand name), (b) look-alikes (duplicates of the original, but bear a
7 Reconfiguring the Marketing Mix to Counter the Counterfeits in the Global Arena 181
different name), (c) reproductions (not exact copies), and unconvincing imitations.
From the consumer’s awareness perspective, Grossman and Shapiro (1988) further
categorized counterfeits into deceptive (consumers unaware that they are buying a
counterfeit good) and nondeceptive (consumers aware that the product they are buy-
ing is a counterfeit) counterfeits, which are especially prevalent in luxury brand
markets (Nia and Zaichkowsky 2000).
The counterfeit producers are not a homogeneous lot. Thorsten et al. (2012) in an
empirical study identified five different groups: disaggregators, imitators, fraud-
sters, desperados, and smugglers. These groups are different from one another in
their production capabilities, visual and functional quality, and the accompanying
risk (described in detail in Table 7.1).
Table 7.1 Profile of different groups of counterfeit producers

Disaggregators Imitators Fraudster Desperados Smugglers
Capabilities Manufacturing Substantial A little Capability to Run a
network or engineering production mask forbidden network of
manufacturing skills capability actions criminals
capability
Agility to Higher-order Money
promptly production laundering
comprehend capability Isolating
latest trends the stages
in
distribution
chain
Business Serve Brand imitation Deceiving Misleading Brand
model customers with at low prices customers customers with imitation
imitated goods with brand brand imitation and evasion
reflecting imitations of dangerous of taxes
wealth and products
status
Strategic Agility Competitive Profit Profit Low
focus advantage orientation
maximization production
with no ethical costs
Products with Entrepreneurship Opportunism standards Significant
high demand power in
criminal
network
Exploiting Learning and Established
short-term growth structures
benefits
Typical Clothing, Clothing, Perfume, Pharmaceuticals Cigarettes
products accessories, accessories, cosmetics
watches, FMCGs
jewelry
Source: Thorsten et al. (2012)
Consumer Behavior
Consumers’ willingness to purchase either genuine or counterfeit brands depends

on the attribution of a product (Maldonado and Hume 2005). It was found that a
significant proportion of adult consumers would select fake garments over the origi-
nal labels when there are price advantages (Bloch et al. 1993). Price has often been
found to be among the most important factors in the purchase of pirated brands
(Cordell et al. 1996), especially counterfeit luxury goods, primarily to optimize
resources (Perez et al. 2010).
Customers’ desire for counterfeit brands is based on the extent to which such
brands fulfill the social goals; by understanding these social goals, it is possible to
influence people’s counterfeit consumption behaviors (Wilcox et al. 2009). Desires
for luxury brands may be driven by social motives such as a desire to portray a par-
ticular social class, communicate the desired self-image, or provide self-concept
reinforcement, visible proof that the consumer can afford higher prices (Nia and
Zaichkowsky 2000).
Consumers tend to attribute counterfeits with greater risk and that such risk may
mediate consumers’ evaluations and feelings toward fake purchases (Bamossy and
Scammon 1985; Chakraborty et al. 1996). Integrity, health, and low-performance
risks were found to be the most significant deterrents contributing toward lessening
the consumers’ buying intentions for counterfeits (Hamelin et al. 2013). Authentic
companies strive to upgrade the quality and build company stores after counterfeit-
ers demonstrate the value of disentangling asymmetric information for consumers
(Qian 2008).
By stressing upon the inferior quality of fake brands, their demand can be
reduced (Chakraborty et al. 1997). The manner in which advertising projects luxury
brand’s meaning can affect consumers’ desire for counterfeit versions of the brand
(Wilcox et al. 2009). Even the low-income consumers are likely to switch purchase
intention toward original versions of the counterfeit products if their level of aware-
ness is increased through appropriate consumer education and information pro-
grams (Maldonado and Hume 2005; Grossman and Shapiro 1988; Nia and
Zaichkowsky 2000). More precisely, the degree of consumer consciousness regard-
ing safety (i.e., concerns about risk-security levels related to health, law, and dura-
bility) has been found to influence attitudes toward purchasing counterfeit products
(Vitell et al. 2001).
To face price rivalry and asymmetric information, authentic producers can use
quality differentiation, price, self-enforcement, vertical integration of downstream
retail stores, signaling, non-price signals such as holograms, and enforcement devices
as strategic instruments to combat counterfeits (Qian 2014). Money-back guarantees
also serve as an effective signal for quality (Moorthy and Srinivasan 1995).
Thus, it is evident from the review of literature that a myriad of tactics, such as
the product category, brand positioning, and promotional cues, can play a major role
in countering the counterfeits (Shavitt et al. 1992). But, at the same time, it has been
observed that marketing strategies against counterfeits are still not fully understood
(Qian 2014).
Description of the Problem
Geographical Spread
The divide exists between the approaches of developed and developing nations toward
intellectual property (IP) rights due to their diverse national interests, which stem
from their different levels of economic development (Jackson et al. 2002). Although
the WTO’s TRIPS Agreement aims to narrow the gap on how IP rights are protected
in different countries and to bring them under common international rules, the extent
of protection and enforcement of rights significantly varies around the world (WTO).
The problem of counterfeiting is not only confined to the developing and underdevel-
oped countries, but more than €40 million counterfeit products (original version worth
€1 billion) were also detained at the EU external border in 2012 (Basheer and Loizides
2014). Twenty-two thousand eight hundred forty-eight consignments of pirated goods
were seized in the USA in the year 2012 (Youill 2016). The Japan Patent Office (JPO)
also reported that 21.9% Japanese companies suffered losses due to counterfeiting in the
FY 2014. They suffered the highest percentage of damages due to counterfeiting in
China followed by the Republic of Korea and the six ASEAN economies and Taiwan.
The maximum number of violations was for trademarks (56.4%), next came patents and
utility models (34.0%), designs (30.0%), and copyright works (17.4%).
As a result, companies are losing revenue on account of substitution effects by
illicit goods and constraints on product pricing (Montoro-Pons and Cuadrado-
Garcia 2006). Large numbers of low-cost counterfeits reduce the perceived exclu-
siveness of luxury goods (Wilke and Zaichkowsky 1999). The unintended IP leakage
can affect not only the company’s reputation and profitability; but it can also create
local or global competitors (Shih and Wang 2013). Preventive measures also lead to
considerable enforcement costs, and in cases of counterfeit occurrence, there is a
threat of liability claims, customer confusion, and brand dilution (Feinberg and
Rousslang 1990; Liebowitz 2005).
Counterfeiting is not just an intellectual property problem; it has also become a
criminal issue. Groups like the Maa and Camorra in Europe and the Americas and
the Triads and Yakuza in Asia involved in crimes varying from drug and human traf-
ficking to extortion and money laundering have diversified into the illicit trade in
counterfeit goods at the same time (OECD 2007; UNICRI 2008). UNODC’s
research report (2013) has recognized the strategic and operational criminal link
between counterfeiting and drug trafficking.
Drivers of Counterfeiting
Wee et al. (1995) identified product variables (image, design, and perceived quality)
as the primary drivers influencing consumers’ purchase intention toward counterfeit
goods. Brand visibility is also an important decisional factor; brands that are glob-
ally more visible are concomitantly more susceptible to counterfeiting (Bian and
Veloutsou 2007). The various drivers contributing to the trade of counterfeits are:
1. A huge gap in the price of original and the fake product. Consumers hold positive
beliefs and expectations that counterfeits are less expensive than the legitimate
product (Bamossy and Scammon 1985).
2. Widening income disparities and growing aspirations. It has been observed that
younger males of lower income are slightly more likely to be complicit (Stumpf
and Chaudhry 2010).
3. Not so strong regulatory and implementation mechanisms in a good number of
countries. Imitating proven high-tech know-how from foreign companies, with a
limited chance of punishment, is not only the most profitable but also the least
risky strategy for many businesses (Schotter and Teagarden 2014).
4. High-technology production, packaging, and printing equipment being easily
available to counterfeiters. With luxury brand marketers outsourcing their manu-
facturing, some factories may add a “ghost shift” to produce counterfeits, which
they can sell at higher margins (Phillips 2005).
Although the counterfeits thus produced continue to be typically constructed of
inferior materials, they are often made with the same designs, molds, and specifica-
tions as the genuine brands (Parloff 2006). Together these factors are creating a big
market for the look-alike of the expensive original products. Select reasons for the
persistence of this problem are as follows (Fig. 7.1):
Product Issues Place Issue

- Technology has enabled - “Economically
counterfeiters to undertake unserviceable” small
electronic frauds People Issue retailers, dealing in
- Entry barriers are very low - Some consumers think it counterfeits, especially in
as one can enter into this is fun to get fake products rural areas of developing
business with a minimal at a low price and underdeveloped
investment - A section of society countries
believes that buying fake -With the Internet, it is easier
products is not wrong to sell counterfeit products
Governance Issue
- Law enforcement being
weak
- The quantum of
Price Issue punishment is very small Promotion Issue
- Trafficking of counterfeits - Ineffective messages by the
in comparison with other
is more profitable than government, companies
illegal activities
trafficking of narcotic and industry association
drugs, people and even failing to influence
weapons (OCTA, 2011) consumers’ buying
- Larger profit margins for behavior
retailers selling fakes
product
Fig. 7.1 Counterfeiting issues affecting the brand owners

Consumers too play a vital role in this conundrum either on account of their
ignorance or willingness to buy counterfeits. The varied motivations underlying the
purchase of counterfeits can be summed up as follows (Chaudhry and Stumpf 2009):
(a) The consumer thinks that the counterfeit is as good as the legitimate product.
(b) The consumer cannot afford a genuine product.
(c) The consumers do not believe that it is illegal or immoral to buy counterfeits.
(d) The fake product is easy to obtain.
(e) The consumers do not like the big organizations that make genuine products.
In an empirical study of consumer motivation regarding counterfeit goods carried
out in seven major countries, the underlying motivations for each counterfeit goods
category were found to be different. What was important for Americans was not that
important for Russians, Indians, or Brazilians (Chaudhry and Stumpf 2009). In the
same study, significant variations were also found across the different product cate-
gories; what was perceived as important for bootlegging was not viewed as impor-
tant for drug peddling. Consumers were found to vary widely even in their beliefs
regarding the morality of counterfeit consumption (Hoe et al. 2003; Tom et al. 1998).
E-Commerce and Counterfeiting
E-commerce faces significant deception issues because sellers and buyers have low
levels of familiarity with one another, reside in different locations, and normally
interact only in a single commercial transaction (Utz et al. 2009). Counterfeiters
take full advantage of the online ecosystem to spread their business. Independent
websites, online marketplaces, and social media sites are being extensively used by
counterfeiters as they offer an easy and cheap method for selling fake goods.
The spatial and temporal separation of online stores enforces information asym-
metry as the buyers lack exact information about the product until it is delivered
(Pavlou et al. 2007). Product misrepresentation is one of the most common forms of
reported online deception (Pavlou Gefen 2005). Product presentation manipulation
in the form of exaggerating or overstating product features becomes possible
because the majority of retail websites currently convey product information
through text and pictures (Lightner and Eastman 2002). The Internet intensifies the
risk of counterfeiting because the virtual product presentation does not allow physi-
cal inspection of the products (Mavlanova and Benbunan-Fich 2010, 2011). Thus,
buyers in the online environments find it difficult to evaluate whether the offered
products meet their quality expectations (Ba and Pavlou 2002).
As e-commerce channels present an opportunity to the counterfeiters to anony-
mously move across the jurisdictions, it has led to the growth of counterfeit sales
online. The Japan Patent Office in a survey in 2015 found out that 62.3% of the
organizations that suffered from the violation of their intellectual property rights
were widely affected by counterfeits sold through the Internet.
WTO and Regulatory Framework
The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights

(TRIPS), reached during the Uruguay Round, introduced IP regulations into
the multilateral trading system. Membership of WTO requires compliance with
agreement on TRIPS and calls for adherence to some minimum standards of
sanctions and enforcement with certain flexibilities. It establishes minimum lev-
els of protection that each government has to provide to the IP of the other WTO
members. It aims at narrowing down the gaps in the manner in which IP rights
are protected in different countries of the world and to bring them under com-
mon international rules. Despite controversy regarding the creation of the WTO,
many of its provisions are regarded as instrumental to the curtailment of coun-
terfeiting (Shultz II and Saporito 1996). The IPR protection system of the devel-
oped countries closely resembled TRIPS Agreement obligations even before its
implementation, but the developing countries tightened and strengthened their
domestic IPR protection regimes after signing the agreement (Cardwell and
Ghazalian 2012).
Shadlen et al. (2005) found external and international pressures to be significant
determinants of IPR, but the government’s effectiveness was insignificant. As IPRs
are often associated with the products of intellectual capital, high rate of education
was found to have a positive correlation with patent protection (Ginarte and Park
1997). Cardwell and Ghazalian (2012) observed that domestic factors like educa-
tion, governance, and R&D intensity play important roles in generating domestic IP
and were important determinants of IPR protection and the effects of the TRIPS
Agreement vary across regions.
Therefore, the legal system cannot be singularly held responsible for weaker
enforcement of IPRs; IPRs can be enforced by changing the whole IP institutional
environment over time (Cao 2014). Rightly pointed out by Stan Hart of S. G. Hart
& Associates, a brand protection consultancy company: “One has to use multiple
protective techniques, and then keep changing them” (Makely 2005). Currently,
prevalent protection practices derived from the developed countries are not as effec-
tive to protect against the IP violations (Schotter and Teagarden 2014). Even the
executives’ perceptions of the motives of pirates and purchasers as well as solutions
that senior managers deemed most useful differ by country (Chaudhry and Stumpf
2008). There is no one-size-fits-all strategy; executives need to tailor their anti-
counterfeiting actions to the piracy and consumer demand dynamics of different
country markets.
It is evident from the discussion so far that the trade in counterfeit products is
affected by multiple constituents that pose different challenges (Fig. 7.2). The
decision-makers in organizations must perceive the problem in the context of insti-
tutions that their programs are likely to be implemented before initiating an anti-
counterfeiting program.
Fig. 7.2 Institutional context affecting trade in counterfeits
econfiguring Marketing Mix: A Framework for Countering

R
Counterfeiting
Marketing mix is usually configured by an organization at the interface of (1)

customer needs, (2) competition scenario, and (3) company competence/strategy
(Fig. 7.3), but it does not bring an adequate spotlight on the counterfeiting, which
significantly affects the attainment of marketing objectives.
The traditional marketing mix articulates various dimensions of the solution
developed by an organization to target/serve a particular market, but it does not
specifically address the concern regarding counterfeiting. In this section, extended
marketing mix has been developed by incorporating the best practices to counter
counterfeiting (Fig. 7.4).
This extension to the marketing mix brings anti-counterfeiting to the center stage
of designing of the marketing program for an organization (Fig. 7.5).
Fig. 7.3 Conventional
marketing mix
Customer
needs
Marketing-mix
Competitive Company
scenario competence/
strategy
Product Mix
i. Introducing new variants/products at a faster pace: The introduction of

counterfeits in the market induces incumbent brands to introduce new products
(Qian 2012). Innovation can be employed as a response by the authentic firms
in response to the counterfeiters. The faster the organization introduces new
products, the more difficult it becomes for the counterfeiters to match their cor-
responding counterfeits with the original brand.
ii. Proprietary shape of packaging: By developing a distinctive packaging, which
is expensive and difficult to duplicate, organizations selling premium products
can create a barrier for counterfeiters. For example, companies can develop
impact-extruded shaped cans, which have complex lithographed images and
debossed logo, thereby making them distinctive for consumers as well as harder
for counterfeiters to imitate.
iii. Tamper-evident packaging: Organizations can quickly detect any unauthorized
access by using tamper-evident packaging. These packaging technologies
include markings, film wrappers, shrinkable seals and bands, breakable caps,
bar coding, color-shifting inks, tape seals, blister packs, etc. Organizations can
also use holography on the tamper-evident bands, which would make the pack-
aging too costly to imitate. For example, “Bayer CapSeal” innovative packaging
technology of Bayer combines visual security features with a QR code, which
can be scanned with the help of the company’s interactive smartphone app to
know about the genuineness of the product.
iv. Overt and covert packaging technologies: Simplification of the manufacturing
process is making the job of counterfeiters easier (Clark 2000). Therefore, com-
panies are using taggants, tiny identification tags that cannot be identified by the
Product-mix Place-mix
- Introducing new - Review of company’s
variants/products at faster pace markets
- Proprietary shape of packaging - Closed or closely
Tamper-evident packaging supervised value chain
- Overt and covert packaging - Increasing the reach
technologies 3D holographic - Direct distribution
stamp coverage
- Controlling production, waste, - Engaging in-house sales
and disposal of damaged and People-mix force
unusable products - Setting up requisite - Store Audits and vigilant
structure and monitoring of inventories
establishing anti- - Application of IT
counterfeit teams - Monitor online marketplace
- Training & Audit and activities of potential
- High impact anti- counterfeiters
counterfeit action - Launching awards as
- Scanning for collusion positive intervention
of those in value chain
Promotion-mix - Strategic HR practices
- Customer education - Engaging customers to
- Nationalism inform brand owners
- Evoking religious sentiment and - Incentivizing informers
highlighting ethical concerns - Involving law
- Sales promotion campaign enforcement agencies,
offering redemption trade associations &
- Publicizing good works done by civil society
the corporation organizations Price-mix
- Monitoring promotional efforts - Smaller low price packs
of counterfeiters - Low Price Range with
separate brand
Fig. 7.4 Extended marketing mix constituents to counter the counterfeits
counterfeiters and which can be recognized only through proprietary equipment

with brand owners. Covert packaging includes multiple options like using a
latent image formation of multi-optical layers to exhibit various kinds of pat-
terns, nano-drip printing, customized holograms, bar codes, digital watermarks,
embedded image, and laser coding to mark or engrave an object. Organizations
then need to change the designs frequently to identify the original products and
distinguish them from counterfeits and fakes.
A 3D holographic stamp wedged between two transparent isotropic polyester
layers can be applied on the package to make the product counterfeit-proof and
give assurance to buyers that products being purchased by them are genuine.
Companies are also using authentication technologies like high-security holo-
grams with 2D and alphanumeric codes, color-changing film, and holographic
film on the package to protect their products from being duplicated. Holograms
can combine three-layered security features against counterfeiting, with holo-
grams providing evident first-level authentication. The second security layer can
Fig. 7.5 Extended
marketing mix
Customer
needs
Competitive Marketing- Company

scenario mix competence/
strategy
Countering
Counterfeiting
strategy
comprise concealed features, like scrambled images, microtext, and copy-proof

QR codes, which can be verified with the help of smartphones through the
mobile consumer and B2B apps. Companies can give a unique number to each
product, which can be checked through its blockchain technology. Microscopic
application of UV-sensitive or other specialized inks can also be used for creat-
ing second-level authentication, which skilled inspectors can decipher by using
the right devices. Serializing of holograms combines a uthentication with trace-
ability (Pharmaceutical Technology Trends 2008), and binary encrypted holo-
grams, light diffraction hologram, or a combination of a hologram, 2D
Datamatrix, and thermal monitoring (Taylor 2011) can provide an effective
measure to distinguish originals from fake products. Innovative fluorescent dia-
monds developed by DiamLite can also be used as overt or invisible permanent
markers for putting markings that can’t be forged but can be easily deciphered
with a portable device for tracking and tracing authenticated products.
TruTag Technologies has created an edible microtag, TruTag®, for identify-
ing, authenticating, and protecting brands and assuring the quality of medicines,
food articles, and consumer products. These microtags, which act as covert,
heat-resistant, “edible bar codes,” have a unique code that can be decoded
through the company’s proprietary scanners (Thomson 2016).
v. Controlling production waste and disposal of damaged and unusable products:
Companies must ensure that surplus, damaged, or unusable goods are destroyed
or disposed of properly so that their waste does not enter their distribution network
(U.S. Chamber of Commerce, & CACP 2006). In some product categories like
fashion garments, companies can even sell their slightly defective products at a
much lower price without the designer tag to ensure that counterfeiters are not
able to benefit from them.
Price Mix
i. Introducing smaller low-price packs: In the case of consumer goods, the

organizations can make their original products affordable by launching smaller
packages. By enabling the customers to try the original product in smaller quan-
tity, the organizations can make the customer understand the finer difference
between the original and the fakes. Thus, influencing some of them to adopt
genuine products over time. Branded shampoo manufacturers have successfully
employed this strategy in India by launching small-quantity sachets to attract
customers who wanted to buy original premium branded products but could not
afford to pay for them and instead were buying cheaper imitations.
ii. Introducing low-price range with a separate brand: The durable companies can
launch cheaper variants as distinct lines with different brand names and maybe
with different distribution channel so that consumers have an option of buying
branded quality products at lower prices instead of buying cheaper imitations.
Place Mix
i.
Review the company’s markets: Before launching a large-scale, organized anti-
counterfeiting action, organizations can classify their markets into the follow-
ing four categories:
–– Major markets that must be defended from fake products.
–– New markets that the organization is planning to enter, which must be
defended from counterfeit products.
–– Less important markets: smaller market size, negligible levels of damage to
original products/company’s brand/image, and costs associated with litiga-
tion and enforcement sometimes make “do nothing” or “surveillance only”
as the best strategy for this market (Shultz II and Saporito 1996).
–– The markets that have already been lost to counterfeiters.
–– This classification can help an organization to direct its efforts to the markets
which are significantly important and where these anti-counterfeiting efforts are
likely to produce optimum results for the time, effort, and resources invested by it.
ii. Closed or closely supervised value chains: Contract manufacturers have been
found to produce goods for the ordering right holder as well as for others.
Wholesalers and retailers may also buy a cheap version of original products
and pass them onto the next level. Therefore, organizations need to closely
monitor or close the entire value chain (supply chain) by conducting test pur-
chases and onsite inspections.
Brand owners need to design the contract in such a manner that the con-
cerned factory is deterred from making knock-offs in the “third shift” after
making the original products in the scheduled shifts. Organizations also need
to put in place such mechanisms that the factories are not in a position to
secretly ship the fakes out of their premises. The regular presence of brand
right holder at the plant premises and close monitoring of critical technology
resources help in preventing IP leakage. Mandatory bag checks for one and all
and prohibition of camera phones at factory premises also strengthen the pre-
ventive measures.
iii. Increasing the reach: Inadequate reach makes the underserved markets vulner-
able, especially the economically unserviceable rural markets in large coun-
tries like Brazil and India. This want of reach into the widely spread as well as
thinly populated markets is not on account of the lack of potential but because
of the high costs involved in it. Passive wholesalers serve only those small
urban/rural retailers who approach them. As a result, a good number of small
retailers in the countryside are neglected as economically unserviceable. This
creates an advantageous scenario, which is easily exploited by the manufactur-
ers of fakes, look-alikes, etc. To counter this, the companies can increase their
reach by:
–– Appointing exclusive distribution network for the rural market and creating
alternative distribution channels to target markets that are unserviceable
through traditional channels
–– Subsidizing the cost to serve rural markets by offering reimbursements for
extra cost incurred in catering to thinly populated as well as widespread
markets
Hindustan Unilever Limited, the affiliate of Unilever in India, launched
the project Shakti Amma to target tiny and economically unserviceable vil-
lages, which have a population below 2000. Under this project, the unem-
ployed rural women in villages are employed as distributors for the company
products. Subsequently, “Shaktimaans” (usually the husbands or brothers
of the Shakti Ammas) were added for selling consumer goods on bicycles
in the adjoining villages. With the involvement of more than 70,000 Shakti
entrepreneurs, who dispense the company’s products in around 162,000 vil-
lages, it can now reach out to over four million rural households every
month. Consequently, the company has been able to check and counter the
fake and pass-off products significantly in the otherwise difficult to target
rural market of India.
iv. Direct distribution coverage: Some of the organizations are replacing the
wholesaler-distributor-retailer model with direct distribution coverage in their
key markets. During the transition phase, there might be a short-term drop in
sales, but once the direct distribution is established and the beat plans are ade-
quately executed, the organization can build its capacity to counter not only the
counterfeits but also a surge in the sales.
v. Engaging in-house salesforce: By enlarging the role of the company sales-
force to provide leads regarding counterfeiting, the companies can create a
surveillance mechanism to identify where the counterfeit goods are being sold.
But mechanisms and resources also need to be instituted within the organiza-
tion to initiate a swift and planned action based on that information so that the
salesforce believes their information is being treated seriously.
vi. Store audits and vigilant monitoring of inventories: Brand owners can inspect
the retail outlets to ascertain and ensure the channel members’ trustworthiness.
This audit and vigilant monitoring of stocks at various stages in the distribu-
tion chain can enable the manufacturers to detect entry sources of diverted,
pilfered goods and pass-offs.
vii. Integrating anti-counterfeit interventions with IT applications: Increased inte-
gration of IT applications can empower the companies to track and trace their
supply chain effectively and efficiently. It also creates a mechanism to engage
all stakeholders in contributing toward checking the distribution and sale of
counterfeit and fake products. Pharmaceutical giant Purdue Pharma employs
armored vehicles equipped with GPS and supported by countersurveillance
teams to distribute their products across the retail channel to keep them out of
the reach of criminal elements.
The integration of big data and Internet of Things (IoT) also strengthens the
security harness of products. The following technologies can be employed by
companies while distributing their products to the retailers/end consumers:
–– Radio-frequency identification (RFID): It assigns an individual identity to the
packing used for carrying the goods in transit, which can be traced from a
remote location.
–– Electronic pedigree (e-pedigree) system: The e-pedigree is a tinker-proof
report of the movement of medicine through the distribution chain. Every
time the drug moves ahead, the organization records the transaction and
“signs” the pedigree employing digital certificate. These pedigree records
enable the investigators to identify the origin of a problem if any counterfeit
medicine somehow enters the distribution network. This can avert the diver-
sion of original medicines or hamper their duplication by enabling the whole-
salers and retailers to know the identity and dosage of different drugs
(Sukhlecha 2007).
–– Raman spectroscopy: This novel, low-tech device can be employed as the first
line of defense to identify the fake medicine inside their packaging through a
handheld refractometer (Sukhlecha 2007). It measures the specific gravity of
dissolved drugs, which can be used to figure out the quantity of the ingredi-
ents in the medicine.
–– Rapid Alert System (RAS) by WHO: It is the first Internet-based system for
tracking the activities of drug cheats (Sukhlecha 2007).
viii. Monitoring online marketplace and activities of potential counterfeiters:

Targeted online data collection and automated web monitoring technologies
can help the organizations to investigate a market swiftly and determine genu-
ine as well as counterfeit trading. By looking for products being sold below
their cost in a particular market, the companies can identify portals/sites sell-
ing counterfeits. Online scanning technologies can enable the organizations to
categorize the online distribution network of various sellers and products into
a classified set of legitimate/illegitimate products/organization.
Nearly 80% of all online marketplace traffic occurs at the top ten online
marketplaces. By monitoring these marketplaces through technology, organi-
zations can watch a significant share of online traffic. Organizations can get
the defaulter online marketplace companies relegated to “notorious market
list” if they fail to act on the complaint by the brand owners. Organizations
can also get the counterfeit websites removed from the search results pages of
the search engines on the Internet if they infringe upon their intellectual prop-
erty. Organizations can send takedown notices directly to Internet service pro-
viders; the web-hosting companies can be hugely penalized if they do not
respond to these notices to block the sale of counterfeits on the culprit web-
sites hosted by them. For instance, the National Food and Drugs Monitoring
Association (BPOM) of Indonesia jointly working with the Ministry of
Communications and Information (Kominfo) blocked more than 10,000 web-
sites in the country in 2014 (Santoso 2016). Alibaba Group stated that it
removed 90 million infringing listings in 1 month and spent $160.7 million in
2013 and 2014 on removing counterfeit products and improving online con-
sumers’ protection (Shu 2014).
ix. Launching awards as positive intervention: Indonesia Anti-Counterfeiting
Society (MIAP) in association with Indonesian Mall Management Association
and the University Award for Copyrights launched the “Clean Mall Award” to
encourage malls to adopt practices that would eliminate counterfeit products
from their premises. Such a certificate assures the consumers that the goods
they are buying from that particular mall are authentic, thus benefiting all the
stakeholders.
Promotion Mix
i. Customer education: Sometimes the consumers are unaware of the negative

implications of counterfeited goods. By stressing upon the fact that the coun-
terfeit goods are indirectly funding the criminal or terrorist activities and how
the fake pharmaceuticals are reducing immunity and killing people, compa-
nies can create moral pressure on consumers and retailers from buying and
selling spurious products. For instance, four Japanese enterprises that manu-
facture ED drug in Japan are collaboratively undertaking various actions to
raise the awareness regarding the perils associated with Internet purchase
(Shofuda et al. 2014).
The counterfeit antimalarial drug containing a lower dose of the active
ingredient creates a situation where the parasite develops a resistance to the
genuine medicine. There are around 3000 deaths every year in the G20 coun-
tries on account of fake consumer products (BASCAP 2011). As many con-
sumers unknowingly obtain counterfeit drugs, pharmaceutical organizations
should highlight how counterfeits hurt patients by giving them ineffective or
dangerous treatments (Chaudhry and Stumpf 2009).
Educating consumers by advertising the superiority of original products not
only devalues the status of the pirated brand but also has the salutary effect of
reinforcing retail distribution alliances (Shultz II and Saporito 1996).
ii. Nationalism: Countries and companies can associate their anti-piracy efforts
with the feeling of patriotism by demonstrating how the sale of these pirated or
counterfeited goods is hurting the nation and society as a whole. By linking
counterfeiting to organized crime and showing how the losses resulting from
piracy hit the country’s economy and industry, China has demonstrated how
successful such a strategy for anti-piracy could be.
iii. Evoking religious sentiment and highlighting ethical concerns: The Indonesia
Ulema Council on the request of Anti-Counterfeiting Society (MIAP)
included IP rights in a fatwa, stating that counterfeit goods are haram. By
appealing to people’s conscience regarding what is right and what is wrong,
by sensitizing them regarding their civic responsibilities, and by being ethical
themselves, the companies can transform the buying behavior of at least some
consumers who otherwise buy fake drugs and pirated videos, music, etc. with
a clear conscience.
iv. Sales promotion campaign offering redemption: Once it is evident that the cus-
tomer would benefit from the sales promotion campaign only by buying the
original product, the retailers would also refrain from selling counterfeit prod-
ucts. In the early 1990s, a new FMCG company with very limited resources,
selling Chik Shampoo in rural India where the literacy levels are relatively low
and the ability to read and understand the contents printed in English on sachets
is very less, launched a campaign to provide one filled shampoo sachet to those
consumers who would bring back five empty sachets. Not only the sales
increased from 35,000 to 12,00,000 sachets a month in a short time, but the
company was also able to prevent counterfeiting as consumers would not get
filled sachet for empty sachets of look-alikes.
v. Publicizing good works undertaken by the organization: Companies need to
highlight the creditable tasks they are performing for the benefit of the consum-
ers and society in general and demonstrate how part of their profits are being
channelized for the overall societal benefit through research, CSR, etc. This
would provide substantial reasons to the consumers that why the prices of origi-
nal products are so high, thereby creating an impression that they are not
exploiting their customers by charging them exorbitantly. It has been observed
that focused corporate social responsibility can build legitimacy that can help
insulate companies against IP leakage (Schotter and Teagarden 2014).
vi. Monitoring promotional efforts of counterfeiters: Counterfeiters also employ
similar effective promotional techniques as used by the genuine organizations,
like paid search advertising, posting of information in the social media, black
hat SEO tactics, cybersquatting, and spam to direct customer traffic toward their
illegitimate products. Monitoring these promotional efforts is necessary to
devise responses to counter them.
People Mix
IP leakages often occur through staff transfers or shared practices from foreign
multinational corporations to local joint ventures or supply chain partners

(Chesbrough et al. 2006). Effective anti-counterfeiting enforcement requires both a
determined top management and a perfect coordination between the in-house and
external experts. The people dimension is essential for the successful execution of
any anti-counterfeiting intervention.
i. Setting up requisite structure and establishing the anti-counterfeit team: For
taking swift and effective action against the counterfeiters, organizations need
to equip themselves with dedicated resources, budgets, training programs,
bench strength, as well as networking with other stakeholders. In one such
concerted effort against Chinese counterfeiters, eight companies participated
in the Electric Dragon project with the Electrical Installation Equipment
Manufacturers Association (EIEMA). With the support of the State Bureau of
Technical Supervision, 17 factories were raided for 3 days, and over 500,000
counterfeit products were seized and destroyed along with their molds. Seven
companies were convicted, and fines ranging from RMB 250,000 to RMB
25,000 were imposed on them (Harris 2001).
For effectively managing various anti-counterfeiting initiatives, an organi-
zation needs to create a team comprising in-house counsel, representatives
from different corporate functions, external consultants, and legal counsel.
ii. Training and audit: Organizations should invest in training, thereby raising
awareness among those who could provide information regarding the preva-
lence of counterfeits in a particular market. Periodic audits can be conducted to
assess the knowledge of employees regarding anti-counterfeiting measures and
procedures and their consequent implementation. This keeps the employees
motivated to learn and implement the best practices to prevent counterfeiting.
iii. High-impact anti-counterfeit action: Instead of numerous small-scale surprise
checks on the different vendors, it is more efficient to identify where the prod-
ucts are accumulated for assembling, packaging, or dispatching. Once a hit list
of offenders is developed, the organization can conduct enforcement action
that has a bigger impact.
iv. Scanning for the collusion of those involved in the value chain: The first target
for the large-scale anti-counterfeiting operations should be to discreetly eliminate
the possibility of collusion between the joint venture or commercial partner and
the local top management team.
v. Strategic HR practices: The most prevalent cause of IP leakage in China was
widely seen as staff turnover; strategic human resource practices (understand-
ing of local labor market dynamics and drivers of employee turnover, selecting
employees with integrity and compatible ethical values) can help mitigate IP
leakage (Schotter and Teagarden 2014). Developing reward systems that reso-
nate with local talent can also assist the organization in reinforcing the desired
behaviors among the employees (Bhattacharya et al. 2008).
vi. Offering incentives to informers: Provision of incentives to the informers may
encourage people to come out and share information about the sale of spurious/
counterfeit goods in their vicinity. Coca-Cola has set up a system of around 50
consumer response coordinators in different countries. They along with their teams
redress consumer complaints, which also include fake bottling and look-alikes.
vii. Engaging customers to inform brand owners: Companies can engage the cus-
tomers to act as the brands’ “eyes and ears” to identify, locate, and share infor-
mation about the counterfeiting. With customers taking a greater interest in the
authenticity of their purchases, providing them with tools to track provenance
can become an important part of the marketing mix (New 2010). Through
ezTRACK™, a product authentication solution electronic platform, various
stakeholders in Hong Kong can track and trace the product information via a
mobile application just by scanning the QR code with a smartphone. Brand
owners are encouraging such product authentication, through the lure of loy-
alty programs, price discounts, warranty extensions, and other incentives to
connect customers closely with their brands. Similarly, consumers in Delhi in
India can use a mobile app (mLiquorSaleCheck) to check the genuineness of
the purchased liquor bottle as well as submit their grievances.
Organizations need to identify the factors that drive people in a particular mar-
ket to buy counterfeits and what can desist them from buying the fakes. Based upon
that insight, organization can design a specific message for that particular market.
viii. Involving law enforcement agencies, trade associations, and civil society
organizations: Brand owners affected by counterfeiting can approach organi-
zations like the International Anti-Counterfeiting Coalition (IACC), Anti-
Counterfeiting Group (ACG), and industry-specific organizations, like the
American Apparel & Footwear Association (AAFA). These organizations con-
tribute both wherewithals and professional advice on best practices for con-
testing the counterfeiters. A leadership role has been taken by the World Health
Organization (WHO) to curb the prevalence of counterfeit medicines by estab-
lishing an extensive network, the International Medical Products Anti-
Counterfeiting Taskforce (IMPACT). It includes 193 member countries, global
organizations, enforcement agencies, national drug regulatory authorities, cus-
toms and police organizations, NGOs, associations of pharmaceutical compa-
nies and wholesalers, health professionals, and patient groups for improving
coordination among nations to curb the counterfeiting of drugs.
Companies can seek the help of civil society organizations in a particular territory
to counter the counterfeiters. Creative Economy Agency (Bekraf), a civil society
Table 7.2 Mapping extended marketing mix to counterfeit issues

Extended marketing mix element to address
Counterfeiting issues that issue
Product issues Product mix
Technology-enabled electronic frauds Introducing new variants/products at a faster
pace
Low entry barriers Proprietary shape of packaging
Easy availability of technology to make Tamper-evident packaging
fakes
Collusion of third-party manufacturers Overt and covert packaging technologies
Controlling production, waste and disposal
of unusable products
Price issues Price mix
Higher price for original Smaller low-price packs
Larger profit margins for retailers from fakes Low price range with separate brand
Place issue Place mix
“Economically unserviceable” small Review of company’s markets
retailers
Online counterfeit sale Closed or closely supervised value chain
Wholesalers and retailers looking for better Increasing the reach
margins Direct distribution coverage
Engaging in-house salesforce
Store audits and vigilant monitoring of
inventories
Application of IT
Monitoring online activities of potential
counterfeiters
Launching awards for distribution entities
Promotion issue Promotion mix
Ineffective messages by the government Customer education
Companies and industry association failing Projecting counterfeiting as anti-national
to influence consumers’ buying behavior Evoking religious sentiments and
highlighting ethical concerns
Sales promotion campaign offering
redemption
Publicizing good works of company
Monitoring promotion of counterfeiters
People issue People mix
Some consumers think it is fun to get fakes Setting up requisite structure and
at a low price establishing anti-counterfeit teams
Some think buying fake products is not Training and audit
wrong
Some people think companies are Scanning for collusion of those in value
overcharging chain
Law enforcement being weak in some Strategic HR practices
region/countries Incentivizing informers
Engaging consumers
Involving law enforcement agencies, trade
associations, and civil society organizations
organization in Indonesia, has set a target to increase Indonesia’s creative economy,

by working for eradicating the IPR violations through a “3Si” dubbed – creation,
protection, and commercialization. It created a Music and Film Piracy Task Force
in coordination with industry associations, content creators, and the police. It is
developing a warning system in collaboration with Telkom Indonesia and the
Ministry of Communications and Information (Kominfo) for monitoring music and
film content websites and warning the organizations against illegal downloaders.
The various constituents proposed under the extended marketing mix provide
countering tactics to the different counterfeiting issues. Table 7.2 maps the various
components of the extended marketing mix to specific counterfeiting issues to dem-
onstrate the application of this tool for countering the counterfeiting.
Conclusion
The prevalent marketing mix focusing primarily on customer needs, competition

scenario, and company competence/strategy does not provide adequate focus on coun-
terfeiting. The reconfigured marketing mix proposed in this paper brings counterfeit-
ing to the center stage for designing and managing a marketing program to resolve
various product, price, place, promotion, and people issues related to counterfeit trade.
It adds to the existing marketing literature by bringing together different anti-counter-
feiting strategies under a cogent model, which can be operationalized by a practitioner
while strategizing against counterfeiting. Counterfeiting is a global phenomenon, and
its dynamics varies both across countries and product categories. Organizations need
to deeply examine the situation and identify appropriate intervention from the pro-
posed marketing mix to deal with counterfeiting in that particular market.
Challenges and Opportunities
With simplification of manufacturing process, easier availability of technology, and

rising aspirations of consumers, the supply and demand side challenges concerning
counterfeiting are multifold. The situation calls for a holistic and integrated approach.
The proposed extended marketing mix provides a template to bring together differ-
ent stakeholders: strategic/tactical capacity building of companies, engagement of
governments, education, and empowerment of consumers for a concerted action.
Shifting Paradigm of Global Marketing
Significant developments in packaging and printing technology, IT tools for manag-

ing distribution chain, changing nature of the marketplace, and increasing adoption
of e-commerce warrant that the traditional global marketing frameworks are
reexamined and reconfigured to incorporate the effects of these developments.

Companies need to strategize for enhancing the engagement of consumers who are
empowered with Internet-connected smartphones and applications to play a more
active role regarding various facets of marketing. Thus, “people” component, which
was primarily related with marketing mix for services, can play a significant role
concerning products as well.
Policy Implications
For companies choosing to do business in the emerging economies, the foremost

concern is the protection of their IP rights especially when the technology gap is
high, and the IP protection regime is weak because local firms may tend to avoid
costly R&D and imitate MNEs’ technologies (Agarwal and Wu 2015). Therefore, to
attract foreign investment, the governments need to strengthen their IP protection
mechanisms and support R&D through appropriate policy interventions. This
becomes even more important because the country of origin affects consumers’
perceptions of product quality, brand image, and purchase decisions (Hong and
Wyer 1989). Thus, it is in the long-term interest of governments to be proactive to
both safeguard and enhance their national image as a source of original and quality
products and not from where the fakes originate.
Given the accelerating growth of counterfeits in the global trade, there is a need
to bring together different global marketing interventions under a single academic
framework. This paper is an attempt to fill this gap in the literature and to propose a
template that can stimulate further research in this important area.
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Chapter 8
Bridging Institutional Distance:
An Emerging Market Entry Strategy
for Multinational Enterprises
Ogechi Adeola, Nathaniel Boso, and James Adeniji
Abstract Despite attractive investment opportunities, multinational enterprises

(MNEs) looking to enter emerging markets face multifaceted challenges. While
much of the literature tends to infer that emerging markets of all types face similar
institutional challenges, this chapter argues that significant differences exist across
emerging markets, which may help explain variations in entry mode strategies of
MNEs to these markets. Entering an emerging market requires development of a
unique market entry strategy that focuses on narrowing the institutional distance
(i.e., regulatory, cognitive, and normative) between MNEs’ home and targeted host
markets. Within the context of the Nigerian market, cognitive and normative insti-
tutional distance likely poses a greater challenge to MNE success than regulatory
institutional distance. This chapter identifies corporate social responsibility, social
media engagement, governmental relations, and informal relational ties as key mar-
ket entry strategies that enable MNEs to build legitimacy in the Nigerian market,
which then helps minimize the costs of the cognitive and normative institutional
distances. Thus, this chapter proposes that MNEs can boost emerging market entry
success levels when they are able to build and leverage unique market entry strate-
gies to bridge the institutional distance between their home and host country
markets.
O. Adeola (*)
Lagos Business School, Pan-Atlantic University, Lekki, Nigeria
N. Boso
KNUST School of Business, Kwame Nkrumah University of Science and Technology,
Kumasi, Ghana
J. Adeniji
Leeds University Business School, University of Leeds, Leeds, UK

206 O. Adeola et al.
Introduction
Emerging market literature tends to suggest that emerging markets have similar
characteristics. For example, Xu and Meyer (2013) define emerging markets as
those that have less institutional support than North American and European mar-
kets and have middle-income status as well as rapid GDP growth. However,
Hoskisson et al. (2013) improve our understanding of such markets by providing a
typology that suggests that emerging markets globally have differing characteristics
based on institutional, infrastructural, and factor development, which may help
explain the modes of entry for multinational enterprises (MNEs). These different
characteristics in institutional development between MNE’s home markets and tar-
get foreign markets provide an explanation for MNE foreign market entry strategy,
otherwise known as institutional distance (Xu and Shenkar 2002). Institutional dis-
tance is the degree of similarity or dissimilarity between the cognitive, normative,
and regulatory institutions of two countries (Kostova 1996). In the literature, this
construct has been linked to two key aspects of MNE operations: (1) the transfer of
strategies and practices from parent companies to the foreign subsidiaries (Kostova
1999) and (2) the establishment of legitimacy in the host country (Kostova and
Zaheer 1999). Institutional distance is derived from institutional theory – a non-
efficiency perspective that sees institutional environment as the key driver of firm
behavior (DiMaggio and Powell 1983; Scott 2013; Xu and Shenkar 2002).
It is noteworthy that stakeholder engagement can mitigate the negative effects of
institutional distance on MNE entry mode choices. Stakeholder engagement has
been defined as “a firm-level set of behavioral practices aimed at exchanging knowl-
edge with the different types of stakeholders so as to incorporate their demands in
company’s decisions” (Bettinazzi and Zollo 2015). Established, long-term relation-
ships with stakeholders can allow a firm to create more knowledge-creating
exchanges than from interactions based on market transactions alone (Harrison
et al. 2010). There are many examples of companies who successfully navigated
institutional differences with stakeholders as they tried to enter or maintain a com-
petitive advantage in foreign markets, for example, McDonald’s in France and Uber
in the UK. There are just as many examples of companies that have had to abandon
foreign markets because of these same institutional differences, such as Google’s
short-lived entry into China. Firms must bridge institutional gaps in order to cement
successful market entry or at least tailor their entry strategy to mitigate potential
negative effects of these gaps (Björkman et al. 2007; Xu and Shenkar 2002). This
chapter uses Nigeria as the context of analysis on how stakeholder engagement can
overcome the drawbacks of institutional distance on entry mode choices.
Theoretical Framework: Institutional Theory
Institutional theory has emerged as the most popular line of theorizing to explain
firm strategies and local contexts (Meyer and Peng 2005; Xu and Meyer 2013).
Based on institutional economics in the fashion of North (1990), institutional theory
8 Bridging Institutional Distance: An Emerging Market Entry Strategy… 207
explains how host country institutional environments and the differences between
host and home institutions affect MNE location choices (Xu and Shenkar 2002). It
emphasizes that organizations must conform to their environment (DiMaggio and
Powell 1983; Scott 1995), because institutional isomorphism, both procedural and
structural, leads to organizational legitimacy (Dacin 1997).
Kostova and Zaheer turned to institutional theory to suggest that organizational
legitimacy is shaped by three sets of factors: “(1) the characteristics of the institu-
tional environment, (2) the organization’s characteristics and actions, and (3) the
legitimation process by which the environment builds its perceptions of the organi-
zation (1999: 67).” Any complexity in these sets of factors (the organization, the
institutional environment, and the process of legitimation) makes it more difficult
for MNEs to establish and maintain legitimacy.
Institutional theory emphasizes the effects of institutional distance (Kostova
1996), local isomorphism (Robert and Zheying 2012; Rosenzweig and Nohria
1994), and foreignness (Zaheer 1995) on firm survival and success. The deconstruc-
tion of institutional distance into the regulatory, normative, and cognitive levels
helps in the application of institutional theory to the legitimacy of challenges MNEs
encounter in the host country. Legitimacy, the anchor point of institutional theory’s
explanation of institutional distance, describes the mechanisms by which MNE
social embeddedness shapes their behaviors and structures (DiMaggio and Powell
1983). Considering that MNEs operate under multiple institutional demands
(D’Aunno et al. 1991), whether local or national in origin (Rosenzweig and Singh
1991), they have to pursue sociopolitical legitimacy and reshaping of institutional
environments (Brouthers and Brouthers 2000; Hoskisson et al. 2000) in order to
overcome regulatory, normative, and cognitive institutional distance.
Increasingly, institutional theory is being used to explain how various institu-
tional demands (Meyer et al. 1987) drive selection of vital strategic choices in com-
plex environments (Oliver 1991). This is rooted in the understanding that MNEs can
gain legitimacy from some sources based on the practices they adopt (D’Aunno
et al. 1991). The discretion of MNEs in the formulation of responses to institutional
forces is a function of contextual variables such as uncertainty and multiple environ-
mental demands (Goodrick and Salancik 1996; Xu and Shenkar 2002).
Organization theorists find that a particular concern to MNEs under multiple
institutional pressures is strategies (e.g., stakeholder engagement) to enhance legiti-
macy (Kostova et al. 2008). Local partners can help attain legitimacy in the host
context (Xu and Meyer 2013). For example, it would be easier for firms to establish
legitimacy through stakeholders (e.g., corporate social responsibility officers
(CSRs), government representatives, social media, and informal relationships) than
through direct reliance on markets because stakeholders are legitimate brand
influencers and ambassadors. Stakeholder ties serve as key market entry strategy
builders that enable MNEs to build legitimacy in a foreign market, which then helps
minimize the cost of institutional distance.
Institutional Distance
The concept of institutional distance relates to international business research seek-

ing to discern degrees of variation in the institutional context of two or more coun-
tries where an MNE operates (Salomon and Wu 2012; van Hoorn and Maseland
2016), including ways in which that variation is influenced by formal and informal
components (Scott 1995). The concept has been of concern to international business
scholars and Western multinational enterprises operating in emerging markets such
as Nigeria. According to Ionascu et al., “the more distant a host country is from the
organizational centre of a multinational enterprise (MNE), the more it has to bridge
differences in culture, in laws and regulation, and in organizational practices and
routines. The MNE has to adapt its entry strategies, organizational forms, and inter-
nal procedures to manage these differences (2004:3).” Institutional distance can
impair internal integration and coordination, particularly when dissimilar national
contexts interfere with transfer of knowledge and practices between foreign and
local Nigerian affiliates. Ionascu et al. put it thus: “The more different the MNEs
origins are from the context that they enter, the greater will be the obstacles to
attaining local legitimacy and to practice transfer (2004: 7).”
What this “liability of foreignness” (Zaheer 1995) does is reduce the profits of
MNEs compared to their Nigerian counterparts. In a bid to conform to the isomor-
phic pressures in their home markets and also gain legitimacy in the target foreign
market while striving to maintain a cohesive global strategy, MNEs are exposed to
institutional dualism (Ionascu et al. 2004). The ease of conformity is thus a function
of the MNE’s familiarity with the host country’s institutional distance (Xu et al.
2004).
Scott (1995, 2001) identified three pillars that drive business strategies in inter-
national markets. The three pillars – regulatory, cognitive, and normative – can be
seen as a framework for institutional distance (Kostova and Roth 2002). The norma-
tive pillar is the beliefs, values, and norms of a culture; the regulatory pillar refers to
laws, regulations, and enforcements; and the cognitive pillar is universally shared
social knowledge, schemata, and stereotypes (Ionascu et al. 2004).
The Normative Pillar
The normative pillar defines the “what” and “how” of the functional mode of MNEs
in the host country. The normative variations that MNEs experience are usually
associated with workplace habits and norms that are different from those that are
customary in their home countries.
The normative pillar has a direct bearing on the strategic transfer of organiza-
tional practices, which is mainly constrained by the normative distance between the
home and host countries (Xu and Shenkar 2002). The components of a normative
pillar may make the transfer of organizational practices difficult. MNEs with strong,
firm-specific, practice-based competitive advantages prefer institutional environ-

ments similar to that of the home country. Most MNEs that invest in normatively
distant markets lack strong competitive advantages but imitate local practices
(Zaheer 1995). Xu and Shenkar found that these latter firms are “not easily con-
strained by normative distance when making FDI [foreign direct investments] but
may purposefully choose to enter normatively distant markets where their freedom
to adapt will confer a competitive advantage over MNEs from the same home coun-
try that will not adapt (2002: 611).”
The Regulatory Pillar
The regulatory pillar of institutional distance encapsulates the process of stipulating

the established rules of the host country, ensuring compliance with those rules, and
enforcing the necessary sanctions for failure to meet the rules as they relate to the
MNE operational performance. The regulatory pillar, most likely, will not affect
MNEs whose organizational practices are not in violation of host country laws.
According to Xu and Shenkar, “Differences in the regulatory environment will not
have much impact on market choice, because such differences are codified and built
into the MNE’s routines. The one exception may be where regulatory requirements
are perceived to undermine core strategy – for example, where the host country
rules require mandatory technology transfer that conflicts with the MNE’s proprie-
tary strategy (2002: 612).”
While it is possible for a government to outlaw a certain practice to keep an MNE
out, this is a rare occurrence. In fact as well as practice, regulatory distance is for-
malized, easily understood by MNEs, and acceptable, according to Ionascu et al.
“as a cause for local adaptation (2004: 10).”
The Cognitive Pillar
The cognitive pillar guides the understanding of MNEs on the nature and reality of
the cultural context of the host country. This understanding reduces uncertainty
about organizational practices within the host country. Cognitive elements are usu-
ally associated with beliefs about work and roles. Cultural context guides sustain-
able organizational changes when the premise of change is internalized and valued
by organizational members (Palthe 2014). The cognitive pillar will not affect MNEs
that are practice-driven except where the practices challenge the host country identi-
ties (Xu and Shenkar 2002). Cognitive distance will have some effect where an
MNE’s global strategy constitutes a symbolic challenge to local orthodoxy.
Kostova (1999, cited in Ionascu et al. 2004) states that the higher the level of
regulatory, normative, and cognitive institutional distance between an MNE and its
host country, the more difficult it is for the MNE to transfer strategic organizational
practices. These regulatory, cognitive, and normative pillars of the institutional

framework affect the operations and strategies of MNEs, moderating the acceptance
of their practices within the host environments, in this case, Nigeria. The three insti-
tutional pillars combine to create tensions between the corporate and the Nigerian
institutional pressures.
Legitimacy is one of the critical issues faced by MNEs as they invest abroad in
multiple host environments. Scott asserts that legitimacy is “not a commodity to be
possessed or exchanged but a condition reflecting perceived consonance with rele-
vant rules and laws, normative supports, or alignment with cultural-cognitive frame-
works (2008: 59–60).” Suchman calls legitimacy “a generalized perception or
assumption that the actions of an entity are desirable, proper, or appropriate within
some socially constructed system of norms, values, beliefs, and definitions (1995:
574).” Legitimacy explains the mechanisms by which MNE social embeddedness
shapes their behaviors and structures (DiMaggio and Powell 1983); it is institutional
theory’s anchor point in the explanation of institutional distance.
Where institutional distance is a factor, legitimacy is more imperative for cogni-
tive/normative distance than regulatory distance. Regulatory distance does not cre-
ate as many obstacles to gaining local legitimacy as cognitive or normative distance.
Regulatory institutions are relatively transparent, while norms and cognition
demand rigorous cross-cultural communication because they are tacit and not easily
understood (Boyacigiller et al. 2004). Regulatory distance is formalized and thus
easier to understand by MNEs and more acceptable as a basis for local adaptation.
MNEs may find it easier to adapt to local, formalized regulatory pressures without
input from local stakeholders, even when regulatory distance is high.
In theory, normative and cognitive differences pose a greater challenge than reg-
ulatory differences MNEs who wish to adapt to Nigerian institutional pressures.
According to Boyacigiller et al. (2004), while norms and cognition demand rigor-
ous cross-cultural communication that may not be easily understood, and cultural
knowledge can be said to be tacit, regulatory institutions are quite clear. High nor-
mative and cognitive distance necessitates enhanced levels of interaction with local
peers to attain local legitimacy and access the local business networks. The capabil-
ity to gain legitimacy is inhibited when normative and cognitive distance adversely
affects the adoption of parent organization practices by affiliates (Ionascu et al.
2004; Kostova and Zaheer 1999). “A high normative and cognitive distance impedes
the adoption of an MNE’s practice and restrains the affiliate’s capacity to establish
legitimacy, while a high regulatory distance is likely to have a negative effect pri-
marily on the adoption of an MNE’s practices (Ionascu et al. 2004: 8).” For exam-
ple, Google effectively had to quit China, whose laws on censorship appear to be
politically motivated and are no doubt influenced by normative and cognitive
factors.
To obtain legitimacy in a host country, an MNE must understand normative and
cognitive distance (Kostova and Zaheer 1999), both of which pose potential con-
straints on the implementation of an MNE’s practice. For example, in Nigeria,
workers may be unwilling to adopt or understand and learn a practice if it is not
consistent with prevailing local conventions, standards, or cognitive structures.
Therefore, normative and cognitive differences are more challenging than regula-
tory differences in adaptation to local institutional pressures. However, this may not
necessarily be the case in Nigeria since one could argue that elements of the normative
and cognitive pillars are instrumental in forming the regulatory pillar and the pillars
necessarily influence themselves. For example, in accounting theory and practice, it
has been long argued that it would be difficult to have complete comparison between
financial statements of corporations belonging to different countries. Even if there
were to be a global adoption of IFRS (International Financial Reporting Standards),
countries’ differing legal frameworks and tax laws, and the effects of culture on audit-
ing practices, could significantly affect the way accounts are presented.
Foreign Direct Investment in Nigeria
As a means of controlling ownership of a business enterprise in a target country,

foreign direct investment (FDI) may be made either inorganically (i.e., the acquisi-
tion of an existing entity) or organically (i.e., the establishment of a new enterprise).
The choice of these modes of entry is crucial in international expansion. Relevant
factors influencing the viability of entry include knowledge of local conditions,
trade barriers, competition, price localization, and export subsidies. Other factors
include brand awareness, sales, and the impact on business stability created by
expansion beyond traditional markets into new markets. A high degree of control of
capital, technology, and personnel transfer can ensure optimal competitiveness.
Entering the Nigerian market requires development of a market entry strategy
which gives due consideration to all relevant factors in choosing the appropriate
mode of entry. Nigeria is a major emerging sub-Saharan African market, with
expanding financial, communications, entertainment, technology, and hospitality
service sectors. Nigeria is ranked as the 21st largest economy in the world in terms
of purchasing power parity and the largest in Africa (World Bank Databank 2016).
Riches in resources, especially hydrocarbons, have resulted in prosperity, wealth
expansion, and the development of a strong middle class (FDIIntelligence.com
2015). Nigeria’s 180 million citizens constitute 20% of the sub-Saharan Africa pop-
ulation. The United Nations anticipates that by 2050 there will be 440 million
Nigerians, far more than the 400 million population in the USA (The Economist
2014a). According to Goldman Sachs chief economist Jim O’Neill, Nigeria is now
one of the Next 11 or N-11 – Bangladesh, the Philippines, Nigeria, Pakistan, Korea,
Mexico, Turkey, Vietnam, Egypt, and Indonesia – countries he viewed as having a
high potential for economic success in the twenty-first century (Moore 2012) and
therefore highly attractive investment destinations. Considering all this, and cou-
pled with the dire need for infrastructure and a slowing European market, Nigeria
provides interesting investment opportunities for multinational enterprises looking
for new markets for growth.
Nigeria attracted the second highest share of FDI in sub-Saharan Africa (after
South Africa) between 2013 and 2014 (Fig. 8.1). Interestingly, Nigeria has the lion’s
2013 2014
8 300.1
5 712.3
5 608.5
4 783.2
4 693.8
4 192.1
3 357.0
3 226.3
2 661.1
2 483.8
1 809.8
1 488.0
1 200.0
989.0
953.0
702.0
505.0
50.0
Algeria Egypt Libya Ethiopia Kenya South Africa Ghana Nigeria Zambia
Data Source: UNCTAD: World Investment Report 2015
Fig. 8.1 FDI inflows into Africa ($ Millions) (Data source: UNCTAD: World Investment Report
2015)
share of FDI inflow into West Africa: of the $14,208.4 million inflow into the region
in 2013 and $12,763.0 in 2014, Nigeria received 39% and 37%, respectively. On the
one hand, the huge FDI inflow to Nigeria may be the result of “abundant natural
resources, a low-cost labour pool, and potentially the largest domestic market in
Sub-Saharan Africa (KPMG 2012: 17).” On the other hand, the effort to make
Nigeria one of the top 20 economies in the world by the year 2020 has impelled the
government of Nigeria to enact FDI-magnet economic reforms. The World
Economic Forum on Africa has this to say about FDI in Nigeria: “What is equally
positive is the increasingly diversified nature of the investment. Although more than
50% of the FDI capital invested into Nigeria since 2007 has been into the
capital-intensive resource sectors (primarily oil), nearly 50% of FDI projects are
service-orientated. There has been particularly strong growth in investment into
telecommunications, with the sector attracting 23.9% of FDI projects between 2007
and 2013. Growth in investment in other service sectors like financial services, con-
sumer products, tourism and business services, further highlights the growing
opportunities emerging in these sectors (2014: 2).”
Like most sub-Saharan African markets, Nigeria faces a long list of impedi-
ments: poor infrastructure, inadequate power supply, restrictive trade policies, a
weak judicial system, inefficient property registration system, the belated passage
of legislative reforms, arbitrary policy changes, pervasive corruption, and growing
insecurity. Among these often-cited impediments to doing business in Nigeria, the
biggest threats are corruption, poor infrastructure, and threats to physical security.
Nigeria has one of the lowest per capita national power supply in the world. Reliance
on fuel-powered generators adds to the cost of doing business, close to 40% in some
sectors (World Economic Forum on Africa 2014). Poorly maintained power sources
and infrastructure compel many investors to provide their own power and access
roads, adding to costs and undermining competitiveness.
The increases in opportunities on the one hand and the challenges on the other
have created a bipolar view of Nigeria. For many investors already doing business
in the country “it is an exciting, dynamic, high octane growth market; for some oth-
ers, often on the outside looking in, it seems chaotic, unstable, and uncertain […]
Nevertheless, the facts support the more positive perspective on Nigeria and its
prospects as an investment destination” (World Economic Forum on Africa 2014:
4). Despite the weak institutional environment and high levels of corruption
(Holtbrügge and Baron 2013), this large, emerging, sub-Saharan African country
has become an attractive investment destination for MNEs seeking growth in for-
eign markets.
Notably, the most significant FDI flows to Nigeria have been from the home
countries of the oil multinationals (Corporate Nigeria 2015). Key FDI partners are
Chevron and ExxonMobil from the USA and Shell from the UK. China has become
one of Nigeria’s important FDI partners via large infrastructure projects. Major
motivations of FDI are access to profitable markets, affordable skilled labor, and
natural resources, among others (Agwu 2014). Despite the availability of some of
these key factors, Nigeria and Africa at large still lag behind in attracting the com-
mensurate benefits of foreign direct investments (UNCTAD 2013).
Market Entry Modes
Though choices of market entry modes remain important to firms in international-

ization, the lack of adequate tools to determine effective entry modes remains a
challenge (Brouthers 2013). The international business literature suggests that the
choice of a market entry mode adopted by an internationalizing firm is determined
by the specific characteristics of the firm, the country of operation, and the distinc-
tive features of an industry within which a firm operates (Blomstermo et al. 2006).
According to Quer et al., “entry modes abroad can be divided into large groups
according to the generic options that are available to an enterprise in order to make
the most of its specific advantages beyond the domestic market (2007: 363).” These
options include exporting, licensing, global outsourcing, FDI via joint venture or
wholly owned subsidiary, among others (Dixon et al. 2015; Quer et al. 2007).
Exporting Exporting, regarded as the dominant mode of internationalization, is
considered beneficial for economic growth, particularly in emerging economies
(Dixon et al. 2015). This traditional method of internationalization refers to the pro-
cess of marketing goods produced by one country to other countries, to benefit from
economies of scale (Carter 1997; Fernández-Mesa and Alegre 2015). Exporting can
be direct (without intermediaries) or indirect (through domestically based export
agents). In direct exporting, the organization may use distributors or an overseas
subsidiary or act via a government agency that facilitates better control over distri-
bution and capitalizes on economies of scale in production. The advantages of

exporting are its low risks and the opportunity to test the foreign markets, while the
major disadvantage is the lack of control. Examples of MNEs exporting to Nigeria
are Toyota and Samsung. The Toyota brand’s entry into the Nigerian market was
indirect through domestically based export agents such as Elizade and Mandilas.
Currently, Toyota Nigeria Limited has become the sole distributor of Toyota vehi-
cles for Toyota Motor Corporation. Similarly, Samsung’s entry into the Nigerian
market was indirect through domestically based export agents called authorized
dealers.
Joint ventures This is a foreign market entry mode in which two independent orga-
nizational partners collaborate within a particular geographical location or product
market to create separate organizational entities (Emmanuel and David 2005;
Meschi and Wassmer 2013). These entities exist either as an incorporated joint ven-
ture contract (where two or more joint venture legal entities are established to carry
out a common activity) or as a contractual joint venture that regulates cooperation
between parties without the creation of a legal entity (Schneider et al. 2002).
The common goals of joint ventures include technology sharing, risk/reward
sharing, market entry, joint product development, government regulation compli-
ance, distribution channel access, and political connections (Foley 1999).
Joint ventures are a common entry mode in emerging markets (Meschi and
Wassmer 2013). In Nigeria, most oil exploration activities operate under joint ven-
ture contracts between multinationals such as ExxonMobil, Total, Saipem, Shell,
BP, and Chevron and the Nigerian National Petroleum Corporation (NNPC), with
the NNPC contributing 55–60% of production contracts and budgeted expenditures
and claiming the same percentage of total revenues (Table 8.1).
Franchising Franchising can be defined as “a business arrangement wherein a firm
(the franchisor) collects up-front and ongoing fees in exchange for allowing other
firms (franchisees) to offer products and services under its brand name and using its
processes (Combs et al. 2011: 100).” The advantages of franchising are low costs,
little political risk, simultaneous expansion, and pooling of financial investment and
managerial capabilities; the disadvantages are little control over franchisees and
conflicts with franchisees. Franchising in Nigeria has aided entry for some success-
ful international brands such as Avis Car Rental, Kentucky Fried Chicken,
Fastrackids, Crestcom, Signarama, Computer Troubleshooters, WSI – Internet
Consulting and Education, Precision Tune Auto Care Center, and Hawthorn Suites
(Ndumanya and Quadri 2015).
Strategic Alliance A strategic alliance is a purposive mutual association between

independent organizational entities, which allows those entities to exchange, share,
or co-develop resources, capabilities, processes, and competence with the intent of
achieving mutual economic benefits or business objectives while existing as inde-
pendent entities (Albers et al. 2016; Gulati 1995; Kale and Singh 2009). In sub-
Saharan Africa, MNEs in the areas of production, manufacturing, and digital
Table 8.1 Major Nigerian oil production joint ventures (slightly amended to reflect parent name
of the companies)
Joint venture
Consortium Shareholders operator
Shell Petroleum Development NNPC (55%), Shell (Dutch/British, 30%) Shell
Company of Nigeria Ltd. Total (France, 10%), ENI (Italy, 5%)
Mobil Producing Nigeria Ltd. NNPC (60%), ExxonMobil (USA, 40%) ExxonMobil
Chevron Nigeria Limited NNPC (60%), Chevron (USA, 40%) Chevron
Nigeria Agip Oil Company NNPC (60%), ENI (Italy, 20%), Philips ENI
(USA, 20%)
Elf Petroleum Limited NNPC (60%), Total (France, 40%) Total
Texaco Overseas (Nigeria) NNPC (60%), Texaco (USA, 20%), Texaco
Petroleum Company Chevron (USA, 20%)
Source: Nigerian National Petroleum Corporation 2016
technology have been able to leverage strategic alliances to achieve exponentially

greater economic strides as they improve levels of market penetration which has
helped to transform the nature of competition and strategy in Africa’s business
economy. An example is the strategic alliance in 2017 between JDR, a technology
provider in the global offshore energy industry headquartered in Scotland, UK, and
Proserv Instrumentation Nigeria Limited to deliver combined subsea solutions and
local content support to West African markets (Africa Oil & Gas report 2017).
It is important to note that regulatory, normative, and cognitive institutional dis-
tances complicate entry mode choices. Ionascu et al. point out that regulatory dis-
tance may be relevant when considering the desirability of greenfield investments in
a context where there are “obstacles to practice adaptation in existing local organi-
zations (2004: 11),” while joint ventures may be preferable option when there are
“obstacles to gaining legitimacy (2004: 11).” Normative and cognitive institutional
distance is an influence when the entry mode choice is a function of “the relative
importance of practice mode adoption and attaining local legitimacy (2004: 11).”
An MNE can, therefore, ease communication through a joint venture when green-
field investors possess less cultural knowledge when communicating with local peers,
which impedes the ability to earn legitimacy. High normative and cognitive distance
favors joint venture entry because, with an understanding of the Nigerian context,
adoption of behaviors and practices as well as gaining legitimacy becomes easy.
Stakeholder Engagement
Generally, emerging markets lack well-developed market-supporting institution,

constraining a firm’s strategic choices (Ramamurti 2004). In such markets, an
MNE’s knowledge of the social environment has an uncertainty-reducing effect
when entering the market (Hilmersson and Jansson 2012). To mitigate the challenge
of institutional gaps in market entry mode choices, particularly in the Nigerian
context, effective engagement with relevant stakeholders could be the key to achiev-
ing desirable results for the mutual benefit of all parties. Stakeholder engagement
and management can be utilized as an informal mechanism to manage challenges of
market entry (Freeman 1984; Marquis and Reynard 2015). Also, CSR engagement
strategies in a host country can be advantageous when utilized by MNEs to obtain
social legitimacy as this connotes an implicit commitment to local stakeholders
(Campbell et al. 2012). Therefore, we posit that stakeholder engagement can be
utilized to mitigate the drawbacks of institutional distance on entry mode choices.
Donaldson and Preston (1995) defined stakeholders as persons or groups with
legitimate interests in procedural and/or substantive aspects of corporate activity.
Greenwood (2007) described stakeholder engagement as “practices that the organi-
zation undertakes to involve stakeholders in a positive manner in organizational
activities (2007: 318)” and thus does not restrict engagement in social responsibil-
ity. The need for stakeholder engagement has been proven both in theory and in
practice, as businesses are increasingly expected to assume a broad spectrum of
social and environmental responsibilities. While observing laws, regulations, and
ethics (e.g., regulatory, normative, and cognitive distance), they are, as well,
expected to contribute tangibly to the resolution of complex social or environmental
issues (Carroll and Buchholtz 2006).
Because potential stakeholders are not a homogenous block for every business, a
solid differentiation of pertinent stakeholders is necessary (Post et al. 2002;
Hoffmann and Lutz 2013). Stakeholder engagement may take the form of building
collaborative relationships with public institutions, participating in CSR activities
within communities, or identifying with a particular community to build brand
legitimacy. MNEs could use these forms of stakeholder engagement to bridge insti-
tutional gaps and thereby cement successful market entry or at least tailor their entry
strategy to mitigate potential negative effects of identified deficiencies (Björkman
et al. 2007; Xu and Shenkar 2002). Figure 8.2 provides a hypothetical model of how
firms could use stakeholder engagement to penetrate foreign markets. The model
highlights the complementarities of the ethics and international business domains.
As shown in Fig. 8.2, through stakeholder engagements (e.g., CSR activities,
active discussions with government agencies, social media engagement, or informal
relationships), MNEs may be able to establish legitimacy with one or multiple
groups in a target foreign market. Once established, the stakeholders can then trans-
fer the firm’s legitimacy to a wider market where the firm can earn economic ben-
efits such as market share, revenue growth, diversification, and profit. It is important
to mention that the number of benefits accrued by a firm may well depend on factors
exogenous to the model such as unexpected shocks to the economy that affect con-
sumers’ purchasing power. Nevertheless, quantifying the benefits accrued from
stakeholder engagement actions helps determine the efficacy of these actions and if
the benefits met expectations regarding the return on investment (ROI) in engaging
in the foreign market. If ROI is less than expected, a firm may choose to adjust its
stakeholder engagement strategy (e.g., perhaps target a different stakeholder group
that has better access to market actors) or disengage from the market. For many
multinationals, this cost-benefit analysis is a recurring exercise.
Fig. 8.2 Using stakeholder

engagement to bridge
institutional distance
A stakeholder, as mediator, has the power to influence the success of a firm’s

foreign market entry in an emerging market such as Nigeria. The stakeholder’s posi-
tion as a mediator is based on the assumption that it is easier for a firm to establish
legitimacy through stakeholders rather than primary actors in the market.
Stakeholders are legitimate brand influencers, ambassadors, or advocates.
Within the context of the Nigerian market, stakeholder engagements can serve as
key market entry strategies that enable MNEs to build legitimacy, which in turn
helps minimize the cost of cognitive and normative institutional distances. Thus,
MNEs can boost their entry success into the Nigerian market when they build and
leverage CSR, social media engagement, governmental relations, and informal
relationships.
Corporate Social Responsibility (CSR)
With greater challenges to pursuing a globalization strategy and increased pressure

from stakeholders at the local level, firms must seek legitimacy through CSR activi-
ties to meet the sustainability expectations of consumers, governments, and share-
holders (Crilly 2011; Castelló and Lozano 2011; Hemphill and Lillevik 2011;
Campbell et al. 2012; Doh et al. 2017). Community engagement, a subset of stake-
holder management strategies, helps companies build legitimacy and gain competi-
tive advantage through continuous dialogue resulting in mutual benefits (Bowen
et al. 2010). Similarly, Harting et al. (2006) posit that firms that are able to publicize
superior efforts at stakeholder engagements vis-à-vis their competitors are more
likely to gain a competitive financial advantage. As a stakeholder engagement
strategy, CSR activities have more substance as they truly connect with consumers/
stakeholders who react favorably to sincere and proactive engagement (Fosfuri et al.
2011; Groza et al. 2011).
CSR may be a safe way to connect with new markets. When well-executed, CSR
puts in place a strategic direction for sales and human resource requirements. For
example, Schneider Electric, Cummins, and CFAO partnered with the Institut
Européen de Coopération et de Développement (IECD) and the Institute for
Technical Training (ITT) in Nigeria to organize a vocational training program,
“Seeds of Hope,” to prepare students for careers in electricity. One might speculate
that the “Seeds of Hope” project will likely benefit the companies, since the gradu-
ates are likely to endorse the sponsors’ products in the future employment. The
project was of particular importance for Cummins, a relative newcomer to the
Nigerian market. While Cummins products have been distributed across Nigeria
through its exclusive distributor, Cummins West Africa Limited, the company has
only recently attempted to fully enter the Nigerian market in earnest, following
infrastructural and policy improvements in the electrical supply industry.
Likewise, Schneider Electric has been involved in several CSR activities in
Nigeria including a rural electrification project as part of the Nigerian government’s
“Light up Nigeria” project. While Cummins and Schneider focused their CSR spe-
cifically to their industry and capabilities, Etisalat, a telecoms company, took a
wider approach to CSR to include event sponsorship such as the Etisalat Prize for
Literature and the Etisalat Prize for Innovation.
Social Media
While engagement in social responsibility activities helps companies communicate

their concern for social development, social media presents itself as a powerful tool
for “stakeholder groups to be informed, identify common interests, express and
share opinions and demands, organize, and coordinate interventions” (Hoffmann
and Lutz 2013: 1). Social media connects and bonds like-minded individuals, sup-
porting political communities, social capital formation, and discursive communica-
tion (Boyd and Ellison 2007). Through what Donath and Boyd (2004) call a “foci
of interest,” organizations can, through social media, “interact directly and within
the same paradigms (the same communication tools, the same language and a simi-
lar potential for impact) with members of the public (Hoffmann and Lutz 2013: 7).”
The literature has established that social media widens the channels and the
forms of customer engagement, increasing richness and interactivity in the exchange
relationship (Dabholkar and Sheng 2012; Sashi 2012). Some studies have found
that social media participation and interaction smooth “the interaction of producers
and consumers and allow for the collaborative creation of value (Hoffmann and
Lutz 2013: 1)” under labels that Hoffman and Lutz (2013: 10) refer to as “co-
creation,” “prosumer,” and “open innovation.” Social media has therefore birthed
professional consumers (prosumers) who “rule social media [and] who consume
companies’ products and services, but at the same time are information and opinion
producers about the very same products and services” (Meisling 2014: 7). As the
corporate image becomes a creation of online conversations, an MNE’s interaction
with prosumers becomes indispensable (Jones et al. 2009). Studies such as that
done by Burton and Soboleva (2011) have highlighted legitimacy, trust, and higher
favorability as benefits of social media engagement. Fieseler et al. (2010) empha-
sized the benefit of social media engagement as a means to build strong stakeholder
relationships.
Social media engagement proves to informed, twenty-first century stakeholders
that an MNE is serious-minded and can listen as well as fulfill their consumer
demands. Social media, with its interactive capacities, can enable MNEs to attain
and retain legitimacy (Inauen and Schoneborn 2014). For example, MTN – a South
African mobile telecommunications company – has built strong social media
engagement via Twitter and Facebook. With over 168,000 followers on Twitter and
959,000 likes on Facebook, MTN Nigeria uses social media engagement to interact
with customers, offering rewards and prizes, taking questions and suggestions, and
posting updates about their services. As well, Jumia, with over 3000 followers on its
Twitter account and over 251,000 likes on Facebook, encourages customers to order
for goods on both their Twitter and Facebook pages, interacting seamlessly with
customers and enabling customers to track their orders on their Twitter account and
Facebook pages (Imaralu 2015).
However, MNEs practicing social media engagement in an emerging market
such as Nigeria must be cognizant of inequalities in social media access, and the
miscellany of groups, and thus be able to discern their relevant demands, a ntecedents,
as well as outcomes. Considering the fluidity of social media, it is important to
identify interest groups, evaluate their demands, and design suitable stakeholder
engagement. According to Sawhney et al. (2005), open and dialogue-oriented inter-
actions can reduce asymmetries in social media engagement.
Government Relations
Government relations are another important factor in stakeholder engagement. For

reasons of policy, host governments intervene in the affairs of MNEs, often estab-
lishing rather demanding conditions in order to maintain control over their own
national economies. According to Doz and Prahalad (1980), there are two different
types of this government intervention: the first sets the fiscal and regulatory frame-
works; the second seeks to affect an MNE’s internal mechanics. These two consti-
tute a major violation of the MNE’s strategic autonomy and represent sensitive
issues in the choice of market entry. MNEs operating in the oil sector in Nigeria face
these sorts of regulatory distance. Joint venture with the government becomes the
desirable option because of “obstacles to gaining legitimacy” (Ionascu et al. 2004:
11). As mentioned earlier, most exploration activities operate under joint venture
contracts between MNEs (Table 8.1).
Since stakeholders cut across the spectrum of the Nigerian society, employees
and potential employees, nongovernmental organizations, governments and regula-
tors, business partners, investors, local communities, and the media, this spectrum
makes the Nigerian market unique and complicated, necessitating the need to speak
the language of the Nigerian market. Stakeholder engagement, therefore, under-
scores real understanding of the Nigerian market and proper positioning of the entry
product. It is no good entering a market without all stakeholders taken into consid-
eration and on board. Since studies such as Schoeneborn and Inauen (2014) have
established that stakeholder interaction can increase legitimacy, MNEs can, there-
fore, no longer attain legitimacy by mere public relations; MNEs entering an emerg-
ing market such as Nigeria must actively involve all relevant stakeholders.
The Power of Informal Relationships
The strategic marketing literature has highlighted the importance of informal rela-
tionships in a firm’s entry mode choices (Gabrielsson et al. 2008; Loane and Bell
2006; Ojala 2009; Sharma and Blomstermo 2003; Zain and Ng 2006). Informal
relationships are those that are “related to social contacts with friends and family
members (Ojala 2009: 4).” Guanxi is a classic and often studied form of informal
relationships that originated in China. While strategic management and organiza-
tional theory literature portray business relationships as impersonal and commer-
cial, guanxi demonstrates the power of personal relationships and the reciprocal
exchange of favors. Therefore, guanxi is a great resource for firms in China to
encourage cooperation, manage relationships well, alter the existing network struc-
ture, broker structural holes, marshal complementary benefits by arbitraging diverse
networks, negotiate between competing networks, and bridge gaps in resource flows
between unlinked firms and vital external stakeholders (Park and Luo 2001).
According to Park and Luo, guanxi exemplifies “the concept of drawing on a
web of connections to secure favors in personal and organizational relations…. It is
thus critical for businesses in China, whether foreign or local, to understand and
appropriately utilize guanxi in order to gain an edge over competitors (2001: 455).”
The life force of personal relationships in China (Xin and Pearce 1996) and a crucial
variable in firm performance, guanxi influences all aspects of Chinese business.
Guanxi has wide-ranging implications for international business practices. It is
well known that even in countries described as individualist, many successful busi-
ness deals have been transacted due to the influence of informal relationships.
Lagos, Nigeria’s commercial capital, has a reputation for being the country’s party
capital where millions of dollars are spent every year on life celebrations (e.g.,
birthdays, weddings, funerals). It is commonplace for business associates to be
invited to these life celebrations, which may often blur the boundaries of business
and personal relationships. For that reason, MNEs entering into emerging markets
such as Nigeria can use the concept of guanxi “to manage organizational interde-
pendence and to mitigate institutional disadvantages, structural weaknesses, and
other environmental threats (Park and Luo 2001: 456).” Yang states that “guanxi
operates in concentric circles, with close family members at the core and with dis-
tant relatives, classmates, friends, and acquaintances arranged on the periphery
according to the distance of the relationship and the degree of trust (1994, as cited
in Park and Luo 2001: 456).”
The network model of internationalization sees internationalization as a connec-
tion of relationships (Johanson and Vahlne 2003). MNEs develop and maintain their
positions in their networks, accessing each other’s resources, looking for mutual
benefits, and, in the case of internationalization, acting as a bridge to foreign mar-
kets (Ojala 2009). Moen et al. (2004) and Zain and Ng (2006) found that firms are
often led into new markets by their networks. A firm seeking to enter the Nigerian
market can therefore actively build new connections (Loane and Bell 2006), or an
importer, customer, intermediary, friends, or family members can open opportuni-
ties for the firm (Johanson and Vahlne 2003).
Informal relationships provide MNEs with “a wide range of competitive advan-
tages. When faced with uncertainty in entering new markets, decision makers typi-
cally minimize their risks by drawing on their known contacts and connections with
others (Zain and Ng 2006: 186).” A classic example is the entry of MTN into the
Nigerian market. South African MTN, a young telecoms company in 2001, was led
into the Nigerian market by its networks. At the time when the government of
Nigeria was selling mobile licenses at an auction, Nigeria, though rich in oil
reserves, had just come out of decades of military rule and was dealing with crum-
bling infrastructure and abject poverty. Confronted with uncertainty about entering
the Nigerian market, the firm’s boss drew from his web of connections, contacting
some friends from his days in pay television and discovering they had ten million
customers in Nigeria (The Economist 2014b). The analogy is that if Nigerians could
afford pay television, they could also afford a mobile phone. MTN took the gamble,
and within 5 years, it had garnered over 32 million customers in Nigeria. Today,
although the company is in both Africa and the Middle East, Nigeria remains its
largest profit machine.
In summary, for relationship strategies to succeed, an MNE must be well estab-
lished in one or more relevant networks and be regarded as in insider (Johanson and
Vahlne 2009). In Nigeria, SABMiller’s Hero lager was successfully marketed as a
result of positive interactions with the Igbos (one of the three major ethnic groups in
Nigeria) and considerable local consumer insight (Bloomberg Business 2014). “Oh
Mpa” (an Igbo phrase that means “Oh Father”) is the indigenous name for the
SABMiller’s Hero beer. “Oh Mpa” was a well-known reference to the late Ojukwu,
the hero of the Igbo race who led the failed attempt for an independent Biafra nation;
the Hero bottles bear the image of the rising sun found on the Biafran flag. SABMiller
used Hero beer to tap into Igbo’s nationalist sentiments. SABMiller thus built a
local sensation for its beverage via regional traditions, loyalties, and tastes.
The SABMiller example shows that Nigerian market is open to brands that
Nigerians trust and could call their own. Nigerians are approachable, welcoming,
and open, so MNEs who make an effort to get acquainted with the local populations
will find the endeavor worthwhile. From pre-colonization to the present, Nigerian
tribes easily adopt strangers into their midst. In fact, in large cities such as Lagos,
migrations of people from their cultural homelands have resulted in extensive inter-
actions of Nigerians of different tribes with foreigners, particularly Chinese, Indians,
Lebanese, and Europeans (Falola 2001).
Connecting via informal relationships can be a great leverage device for MNEs
operating in Nigeria. In his discussion of Chinese-African relations, Anedo offered
this observation: “Contrary to western countries which have a strong individualism
…. China and Africa have a strong collectivism. Individualism-collectivism refers
to the relative importance of the interests of the individual versus the interests of the
group. In collectivistic societies, the interests of the group take precedence over
individual interests ....People see themselves as part of in-groups, and the in-groups
look after them in exchange for their loyalty (2012: 93).” Given the strong collectiv-
ism in place, groups and institutions are of great significance to Nigerians, empha-
sizing loyalty and determining their actions. By connecting with these broad and
established networks (i.e., groups and institutions) via network relationships, MNEs
can internationalize rapidly in Nigeria (Zain and Ng 2006).
When MNEs internationalize, it is important for them to assimilate knowledge
needed to compete and grow in markets where they have little or no experience
(Gulko 2014). Therefore, MNEs “must take on completely new knowledge, includ-
ing experiential knowledge of specific foreign business practices and institutional
norms as well as general experiential knowledge of how to organize for foreign com-
petition. Network ties are the means by which this type of knowledge can be obtained,
considering that international new ventures lack time and resources to gain experien-
tial knowledge themselves (Gulko 2014: 27).” MTN and SABMiller are prime exam-
ples of how informal relationships helped access knowledge of the Nigerian market
and acquire business information. Informal relationships provide an opportunity for
MNEs to build credibility and trust when entering the Nigerian market. Establishing
such credibility and trust is “an area that a firm needs to work on in its effort to estab-
lish its international presence” [in a developing market, because] “the pace and pat-
tern of international market growth and choice of entry mode” [for MNEs is]
“influenced by close relationships with customers (Zain and Ng 2006: 187).”
Further Research
From the model shown in Fig. 8.2, we propose the following directions for future
research, which together may inform if there are cross-cultural differences in how
companies relate to stakeholders to bridge institutional gaps. An interesting out-
come of such studies (including samples from multiple sub-Saharan African (SSA)
markets) would be data that would show if there are any regional (e.g., West Africa
vs East Africa vs Southern Africa; anglophone v francophone countries) differences
in institutional distance, which may help explain why some countries receive more
FDI than others. SSA, with all its diversity, may require different market entry strat-
egies for different country markets. In this direction, researchers might seek to
explore the following research question:
Research Question 1: Which aspects of institutional distance – normative, regula-

tory, or cognitive – affect firms’ ability to meet performance targets in foreign
markets?
Three pillars of institutional distance – regulatory, cognitive, and normative –
have an effect on companies’ modes of entry into foreign markets. Over time, the
normative pillar informs the cognitive pillar, so that much of a society’s shared
knowledge stems from normative variables. For example, a society with high power
distance (i.e., lower-level staff are submissive to their superiors, particularly when
there is an age difference) may have stemmed from traditional values of respect for
elders or social hierarchy. The World Bank’s Ease of Doing Business (2017) rank-
ings provide a useful data set for operationalizing the regulatory pillar of institu-
tional distance. However, due to the qualitative nature of the cognitive and normative
pillars, any study would need to be based on perceptions. Thus, a survey method
combining the objectivity of the Ease of Doing Business rankings with foreign mar-
ket entrants’ perceptions of the host market is considered adequate.
Research Question 2: How do informal relationships bridge institutional distance?
Following economic liberalization in 1979, China was perhaps a fascinating
example of a lucrative market with significant barriers due to psychic distance,
defined by Johanson and Vahlne as “the sum of factors (cultural and institutional)
preventing the sum of information from and to the market (1977, 24).” For foreign
firms, joint venture partnerships with Chinese businesses or individuals were help-
ful in gaining intimate knowledge of the market (Beamish and Wang 1989).
However, these firms had to manage important cultural differences to reach their
goals.
In a study of 138 Canadian companies doing business in China, Abramson and
Ai (1999) found strong and significant links between variables related to local
investment, the value of foreign culture experience in a dynamic business environ-
ment, and the importance of guanxi – an informal relationship system that empha-
sizes gift giving and favors granting between business partners to ensure mutual
financial gain in spite of statutory procedures. Guanxi is not unlike compadre in
Latin America, jeito in Brazil, or jaan-pehchaan in India. The advantages of
guanxi include helping firms to navigate through uncertain economic structures
and hedging against universal access to information.
Clearly, informal relationships play a role in the business cultures of many coun-
tries, and these relationships are likely difficult to navigate given the possibility of
large institutional distances between multinationals and their target foreign market.
While many disciplines across management studies have studied and documented
the effects of informal relationships, especially guanxi, little is known about the sort
of informal relationships multinationals entering Nigeria and other African coun-
tries may need to cultivate outside of the entry barriers due to institutional distance.
An important contribution to the international business literature would be studies
that show the effect of informal relationships on business cultures in Nigeria and
across Africa, thus informing multinationals about what to expect during business
exchanges and how to build and manage relationships with market actors in their
target foreign markets.
Conclusion
While businesses can attain more brand awareness, sales, and business stability by
expanding beyond their niche market into foreign markets, entering a new market
requires developing a market entry strategy which gives due consideration to all
stakeholders, including possible competitors and potential customers. Emerging
markets around the world have differing characteristics based on institutional and
infrastructural development factors, which may explain the importance of MNEs to
carefully consider the variety and ultimate value of modes of entry. This consider-
ation is pertinent for MNEs expanding to the Nigerian market. Given the many
options available to MNEs in Nigeria, the entry modes used most frequently have
been direct and indirect exporting, joint ventures, and franchising.
Emerging markets such as Nigeria lack well-developed market-supporting institu-
tions, thus constraining a firm’s strategic choices. The determinants of business strate-
gies in such emerging markets are constituted in the three pillars – regulatory,
cognitive, and normative – which can be seen as a framework for institutional dis-
tance. The three institutional pillars combine to create tensions between the c orporate
and the Nigerian institutional pressures. Normative and cognitive differences likely
pose higher challenges than regulatory differences in adapting to Nigerian institu-
tional pressures. High normative and cognitive distance necessitates high levels of
interaction with local peers in order to attain local legitimacy and to have access to the
local business networks. High normative and cognitive distance favors joint venture
entry more than greenfield, because with the understanding of the Nigerian context,
adoption of behaviors and practices as well as gaining legitimacy is made easier.
Global managers and marketers should therefore recognize this shifting para-
digm that suggests that stakeholder engagement is fundamental to success in busi-
ness. Community engagement, a subset of stakeholder management strategies,
helps companies build legitimacy and gain competitive advantage through continu-
ous dialogue resulting in mutual benefits. Apart from engagement in social respon-
sibility, social media is a powerful tool for engaging stakeholders. Since stakeholders
of the twenty-first century are better informed through social media engagement,
such connections with MNEs demonstrate that the companies are serious-minded
and can listen as well as fulfill their demands. Social media, with its interactive
capacities, can enable MNEs to attain and retain legitimacy.
Host governments may, for reasons related to policy, intervene in the affairs of
MNEs, often establishing rather demanding conditions in order to maintain control
over their own national economies. MNEs operating in the oil sector in Nigeria face
this sort of regulatory distance. Joint ventures with the government become a desir-
able option because of “obstacles to gaining legitimacy (Ionascu et al. 2004: 11).”
Most exploration activities operate under joint venture contracts between MNEs
(i.e., Mobil, Elf, Agip, Shell BP, Chevron, and Texaco) and the Nigerian National
Petroleum Corporation (NNPC). Stakeholder engagement, therefore, underscores
real understanding of the Nigerian market and good positioning of the entry product
in order to bridge the institutional distance.
Furthermore, informal relationships can help facilitate mode of entry into the
Nigerian market. Just as guanxi in China is noted to have wide-ranging implications
for business practices in that country, informal relationships have helped MNEs
such as MTN and SABMiller to develop their Nigerian market knowledge and
acquire local business information. For that reason, MNEs entering into emerging
markets such as Nigeria can actively build new connections into the Nigerian mar-
ket by utilizing informal relations with key market players to sustain their positions
in the market.
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Chapter 9
E-Commerce in Emerging Economies:
A Multi-theoretical and Multilevel Framework
and Global Firm Strategies
Abstract Internet usage and e-commerce have taken off like wildfire in developed
countries, and emerging economies are rapidly embracing information technology
today as well. Using a multi-theoretical and a multilevel framework, this study
examines the determinants and deterrents of e-commerce growth potential in emerg-
ing economies. Based on the conceptual framework, the study highlights implica-
tions for MNEs, both from developed markets and emerging markets, operating in
emerging economies.
Introduction
A global revolution, e-commerce has brought about a paradigm shift in the way
business is conducted in developed countries as well as emerging economies such
as those of Brazil, Russia, India, and China. The growth potential and success of
e-commerce vary from country to country and market to market (Gabrielsson and
Gabrielsson 2011). Accordingly, a key question worth asking is: What are the deter-
minants and deterrents of e-commerce in emerging economies and how can global
marketers better understand the underlying processes from a multi-theoretical per-
spective so as to better develop and implement growth strategies?
Electronic commerce involves sharing information, maintaining relationships,
and conducting transactions in the business world by means of telecommunication
networks (Dutta 1997). It spans national borders and expands business opportuni-
ties into distant reaches of the planet. Marketing possibilities have burgeoned expo-
nentially. Research on e-commerce development tends to focus on specific areas,
such as adoption (Wymer and Regan 2005), strategy (Damanpour and Damanpour
J. Agarwal
T. Wu (*)
Faculty of Business and Information Technology, University of Ontario Institute of Technology,
Oshawa, ON, Canada

2001), retailing (Zhuang and Lederer 2003), security (Wang et al. 2002), and con-
sumer trust and security (Pavlou 2003; Tan and Thoen 2003). Only a handful of
researchers have attempted to develop a framework detailing the drivers and chal-
lenges of e-commerce growth (e.g., Dutta 1997; Globerman et al. 2001; Oxley and
Yeung 2001; Zwass 1996), and even fewer offer theoretical perspectives (e.g., de la
Torre and Moxon 2001; Singh and Kundu 2002). Zwass (1996) puts forth a general
framework for e-commerce; his three layers included e-commerce infrastructure,
e-commerce services, and e-commerce products and services. Dutta (1997) devel-
oped a broader approach identifying technology, social-cultural, commercial, and
government/legal infrastructures as essential factors in the growth of e-commerce,
in recognition of the importance of human and social factors; however, left unad-
dressed the underlying motivations and theories of how such factors facilitate
e-commerce activity and growth. Oxley and Yeung (2001) argued that physical
infrastructure is the most significant factor in determining e-commerce readiness of
a country and that factors related to “rule of law” were also significant.
While such frameworks are helpful, the lack of a comprehensive theoretical
approach in delineating the factors responsible for e-commerce growth is a major
limitation impeding our understanding of the global e-commerce phenomenon. Of
note, Dunning’s OLI paradigm (Dunning 1995, 1998) was extended by Singh and
Kundu (2002), who developed a framework to reflect changes engendered by
Internet-based e-commerce companies that made a significant theoretical contribu-
tion to our understanding of e-commerce activities. Their revised paradigm, the
N-OLI framework (i.e., institution-based network-ownership, location, and inter-
nalization), reflects network (N)-based advantages unique to e-commerce, namely,
embeddedness, electronic brokerages, and network economics. However, the
N-OLI framework fails to clarify the role of institutions in emerging economies
that not only have a large institutional distance but are often inflicted with institu-
tional voids. As their share of the world economy increases, emerging nations are
expected to become a major part of global economic growth in the coming years
(Khanna and Palepu 1997, 2010), a shift that is enabled largely by e-commerce.
The present work advances a multi-theoretical and multilevel framework with
implications for global marketers planning e-commerce growth strategies in emerg-
ing markets; it aims to explicate the diverse factors arising from multiple levels (i.e.,
global, national, and transactional levels) that influence the growth potential of
e-commerce in emerging economies (Agarwal and Wu 2015). We use multiple
lenses of established international business (IB) and international marketing theo-
ries that intersect, including transaction cost economics (TCE) theory (Coase 1937;
Williamson 1983, 1991), the resource- and knowledge-based view (RBV/KBV)
theory (Barney 1991; Wernerfelt 1984), and network theory (Granovetter 1985,
1992; Rowley 1997), along with the overlap of these approaches within the e-com-
merce framework of the N-OLI paradigm (Dunning 1995, 1998). Institutional the-
ory (DiMaggio and Powell 1983; North 1990) guides our understanding of the
institutional effects on firm growth behavior, especially in the context of emerging
economies, whereas entrepreneurship theory (Baron 1998; Shane and Venkataraman
2000) emphasizes the enterprising role played by entrepreneurs of opportunity rec-
ognition and exploitation amidst institutional voids.
9 E-Commerce in Emerging Economies: A Multi-theoretical and Multilevel… 233
In this chapter, the multi-theoretical framework is based on the premise that no

single theory can adequately capture all the factors that promote adoption and
expansion of e-commerce firms in the global marketplace. Each theory’s set of
assumptions possesses unique strengths and weaknesses; collectively, these theories
can offer a more complete picture of firms’ e-commerce activities (Agarwal and Wu
2015). First, the presumption that knowledge is not equally and universally distrib-
uted as in RBV theory (or KBV view theory) in electronic markets has been largely,
in principle, debunked. Second, the TCE theory effectively explains vertical integra-
tion decisions for e-commerce firms. The theory is limited because firms assess the
merits of control not only through reductions in transaction costs but also based on
other non-TCE-related features such as capabilities development, value creation,
global integration, and market power (Dunning 2000; Madhok 2006). Issues of con-
trol and integration as in TCE theory may not be completely relevant (especially in
the case of e-commerce firms), because it is possible to simultaneously disinternal-
ize through alliance capitalism and to exercise control due to technological advances
and innovation. Finally, the strategic behavior of firms helps explain isomorphism
as in institutional theory (DiMaggio and Powell 1983). The advantages of oligopo-
listic firms—for example, information asymmetry and market imperfections (Hymer
1970)—are minimized for firms engaged in e-commerce activities. Unlike institu-
tions that ultimately tend toward isomorphism, individual and institutional entrepre-
neurs seek unique opportunities and creative business models (Agarwal and Wu
2015). In general, e-commerce is particularly conducive to business models with
low entry barriers and potentially high returns (Amit and Zott 2001). According to
the network theory, the speed and extent to which new ventures are established
depend on the network density, patterns of relationships, and the alliances formed
(Baron 1998; Rowley 1997).
The synergistic combination of multiple theoretical approaches enables us to
better understand how e-commerce growth potential results from technological
innovation and entrepreneurial activities (Agarwal and Wu 2015). This potential
includes minimizing transaction costs and leveraging network and firm-specific
resources, along with adapting firm-specific resources and strategies to match dif-
fering institutional environments. The next section briefly addresses the institution-
based N-OLI framework for e-commerce in emerging economies.
E-Commerce: A Brief Review of the Multiple Theories
Transaction Cost Economics (TCE) Theory
Rooted in the work of Ronald Coase (1937), this theory was notably advanced by
Williamson (1983, 1991). It argues that firms exist to provide products and services
at lower transaction costs than the market would naturally present. TCE theory iden-
tifies conditions specific to firms such as environmental uncertainty, asset
specificity, and frequency of transactions—conditions that justify the need for net-
work governance. The level of analysis of TCE is transactions, and the explanatory
variables include transaction characteristics of environmental uncertainty, asset
specificity, and frequency. Assumptions of TCE are rooted in bounded rationality
and opportunism, with the source of competitiveness based on efficient manage-
ment of transactions, accomplished through minimizing transaction cost. TCE
effectively explains vertical integration decisions across firms. However, its weak-
ness lies in its static orientation; furthermore, the theory does not consider non-
transaction costs and benefits, and it presents an inherent difficulty in measuring
transaction cost.
Resource- and Knowledge-Based View Theory
The growth of e-commerce companies can be explained by RBV and KBV theory
of the firm. E-commerce firms tend to be small- or medium-sized entrepreneurial
firms with a global competitiveness based on the unique set of resources resident in
networks (Singh and Kundu 2002). Today resource-based ownership is increasingly
concerned with intangible assets and intellectual property rights as MNEs in OECD
economies become asset- light and knowledge-intensive (Mudambi 2004).
According to KBV theory, firms are able to take advantage of unique and superior
knowledge transfer capabilities based on “higher-order organizing principles”
(Kogut and Zander 1993). The level of analysis of RBV/KBV is individual/firm,
and the resource characteristics include valuable, rare, inimitable, and nonsubstitut-
able (VRIN) attributes. The assumptions of RBV/KBV are based on resource explo-
ration and exploitation, while the source of competitiveness depends on efficient
management of resources.
Network Theory
With its level of analysis as the organizational field, this theory focuses on explana-
tory variables that include patterns of relationships between members of the net-
work, the firm’s behavior as influenced by the network structure, and its position in
the network (Rowley 1997). The networks of social, professional, and economic
relations enable the embedded firms to adopt various strategies, products, ideas, and
innovations (Granovetter 1985, 1992). Such embeddedness allows adoption and
expansion of e-commerce, which is also facilitated by low entry and exit costs as
well as low coordination and search costs. The assumptions underlying network
theory are rooted in relational orientation, and its source of competitiveness is based
on development and exploitation of formal and informal networks.
Ownership-Location-Internalization (OLI) Theory
According to this theory (or paradigm), a firm’s international growth and mode of
entry depend on advantages of ownership (O), location (L), and internalization (I),
which serve as explanatory variables. The level of analysis of OLI theories is the
firm. The OLI paradigm stands on bounded rationality and opportunism as assump-
tions in its effort to explain the growth of e-commerce firms. The sources of com-
petitiveness include O, L, and I advantages for foreign direct investment, at least O
advantage for contractual agreement, and O and I advantages for export operation
(Agarwal and Wu 2015). In the e-commerce context, the source of O advantage lies
in entrepreneurship and innovation, knowledge, and intangible resources; the source
of L-advantage is technology-based infrastructure, social capital, and knowledge,
interactivity, and IP protection; and the source of I-advantage is vertical or horizon-
tal integration. The OLI paradigm integrates RBV theory, TCE theory, and interna-
tional trade theory in its multi-theoretical approach, which is a strength.
Institutional Theory
Institutions are built on formal rules (e.g., constitutions, laws, and regulations) and
informal constraints (e.g., norms, conventions, and self-imposed codes of conduct)
that operate at both national and firm/individual levels (North 1990, 2005).
Institutions provide the structure in which firms operate, setting the “rules of the
game” and dictating the behavior of individuals and organizations through regula-
tions, collective constructions of social reality, and social obligations. A theory of
isomorphism was suggested by DiMaggio and Powell (1983) that explains homoge-
neity of firms in an organizational field. The level of analysis of institutional theory
is macro institutional and the firm’s organizational field and the explanatory vari-
ables include isomorphism, i.e., coercive, mimetic, and normative isomorphism.
The strength of institutional theory is its useful explication of homogeneity across
firms; the weakness is its inability to test the effectiveness of individual-level deci-
sions upon collective constructs such as firms in an organizational field.
Entrepreneurship Theory
While institutions devise and enforce rules and regulations, entrepreneurs are the
main players in the business world, constantly seeking, identifying, and evaluating
fresh opportunities to commercialize new products and services (Shane and
Venkataraman 2000). They welcome risk, uncertainty, innovation, and change while
also embracing improved methods of allocating resources. Because of entrepre-
neurs’ great need for information search capabilities to assess risk, e-commerce
facilitates their pursuit of entrepreneurial opportunities. The adoption of e-commerce
also allows entrepreneurs to interact with others in the venture creation process, thus
potentially reducing the high knowledge asymmetry that characterizes e-commerce.
Furthermore, e-commerce is conducive to business models that feature high com-
petitiveness, low entry barriers, and potentially high returns, all of which are found
in entrepreneurial endeavor (Amit and Zott 2001). This theory’s level of analysis is
the individual or the institution, and the explanatory variables include factors sur-
rounding opportunity recognition, alertness, individual cognitive factors, and oppor-
tunity exploitation.
Multilevel Framework for E-Commerce in Emerging

A
Economies
Which factors at the global, national, and transactional levels help or hinder the
growth of e-commerce in emerging economies? Answering this question requires
multiple theoretical considerations. Figure 9.1 presents a multilevel framework for
e-commerce in emerging economies1.
Global-Level Factors
Relevant influences on e-commerce at the global level are explored in this section,
including multilateral agreements, strategic behavior of firms, and technological
innovation.
Multilateral Agreements
The game-changing advent of the Internet grabs the most academic and media
attention these days, but it is by no means the only important driver of economic
growth in emerging economies. Developments in trade and investment liberaliza-
tion, regional integration, and the activity of the World Trade Organization (WTO)
all play influential roles (Agarwal and Wu 2004, 2015). All WTO member countries
have committed to applying WTO rules to international trade in goods and services.
The principle of nondiscrimination and national treatment is applied to e-commerce
activities. Emerging economies gain from increased access to international markets
without trade barriers. Many e-commerce transactions involve technology-related
products, and under the framework of the WTO Agreement on Trade-Related
Some parts of this paper have been adapted and extended from Agarwal and Wu (2015).
1
National Level
National Level
Infrastructure
Multilateral Trade
Strategic Behavior
Environment
Institutional
Global Level
Global Level
Agreements
Transactional of Firms
Level
Institution Integrity
Intermediaries
Network
Externalities
National Level
Culture
Global Level
Technological
Innovations
Fig. 9.1 E-commerce in emerging economies: a multilevel framework
Aspects of Intellectual Property Rights (TRIPS), member countries are obligated to

protect intellectual property rights.
The opportunities created by multilateral trade agreements under the rubric of
the WTO and other trade agreements can be viewed through the lens of institutional
theory. The WTO serves as an exogenous global institution with the aim of creating
a level playing field for emerging economies traditionally saddled with institutional
voids and market imperfections. Its framework ideally reduces market imperfec-
tions through collective commitment to the principles of national treatment, trans-
parency, and judicial reviewability. In addition, the WTO attempts to address and
overcome information asymmetry in issues related to e-commerce in global markets

(Agarwal and Wu 2015).
Trade liberalization achieved through regional trade agreements (RTAs) also
triggers and supports growth of e-commerce in emerging economies. Many RTAs
include provisions on e-commerce, particularly in the areas of services and invest-
ment (Herman 2010).
Institutional changes open doors for entrepreneurial opportunity. Because multi-
lateral agreements reduce most transaction and coordination costs for e-commerce
firms to conduct international business transactions, developed-market MNEs have
taken advantage of gradual reductions in trade and investment barriers in emerging
economies by focusing on their firm-specific and country-specific advantages.
Meanwhile, amidst ever-increasing international competition, emerging-market
MNEs have followed an alternative model of growth by exploring new resources,
capability development and competitive advantage (Dunning 2000; Luo and Tung
2007). Overcoming their late entry into the market through linkages to acquire new
technological and financial resources that are leveraged on their path to internation-
alization (Mathews 2006), emerging-market MNEs tend to expand initially in local
markets and then progress to global markets. With phased-in liberalization of the
foreign ownership of e-commerce as a result of multilateral trade agreements, the
growth trend in e-commerce is likely to continue for both emerging and developed-
market MNEs (Agarwal and Wu 2015). While smaller firms from emerging econo-
mies may be new in their exploration of e-commerce, spurred by global competition
and a desire to catch up with developed-market MNEs (i.e., convergence goals—see
next section), these firms tend to rapidly seize e-commerce opportunities in the
initial phase of their growth to close the gap.
Strategic Behavior of Firms
Emerging markets are favored foreign direct investment (FDI) destinations, with
entrepreneurial entrants into these markets largely depending on e-commerce to
conduct their business. This positively impacts the growth of e-commerce in emerg-
ing markets, and a mimetic trend multiplies the effect when others follow the indus-
try leaders in their respective field (Zhao and Wang 2009). This form of imitation
occurs either because firms perceive other firms to have more information or because
they want to converge to maintain competitive parity (Lieberman and Asaba 2006;
Wu et al. 2003).
Such a trend can be explained in part by institutional theory (DiMaggio and
Powell 1983; North 2005). MNEs that have adopted e-commerce in their home
country encourage their global subsidiaries to follow their mandate across geo-
graphic borders, thereby fostering isomorphism.
In addition to mimetic isomorphism, a pattern of normative isomorphism is seen
among firms influenced by informal institutions that arise externally, such as per-
ceived subjective norms, or internally from social referents within the firm (Agarwal
and Wu 2015). For example, in the context of small firms, Iacovou et al. (1995)
identified external pressures from partners, rather than perceived benefits or organi-
zational readiness, as an important determinant of IT-related technology adoption.
These external pressures ultimately lead to industry standards and best practice
models, which help facilitate the adoption and expansion of e-commerce. In gen-
eral, the convergence of industry standards tends to result in more e-commerce in
emerging economies.
Technological Innovations
Technological innovations and knowledge-based experience are key drivers of any

firm’s strategy and performance (Alon et al. 2013; Gregory et al. 2007; Zhu 2004).
Adoption of new technology helps firms gain a competitive advantage, and firms in
emerging economies are no exception. Most theories on international knowledge
and R&D spillovers focus on transmissions via cross-country trade and FDI, as well
as interfirm employee mobility from MNE subsidiaries to local firms. Some studies
indicate the positive spillover effects of MNEs on local firms’ capacity to innovate
(see Buckley et al. 2002; Tian 2007). It should be noted, however, that a high repre-
sentation of MNE subsidiaries in emerging markets may increase local competition,
consequently decreasing the local firms’ incentive to innovate (Spencer 2008). It is
possible that where the technology gap is high, local firms may try to avoid costly
R&D by imitating the technologies of MNEs, especially in economies with a weak
IP protection regime. Yet as emerging economies narrow the technology gap over
time through technological accumulation, the collective motivation of local firms to
innovate will probably increase (Agarwal and Wu 2015).
We noted earlier that entrepreneurial ventures involving opportunity recognition,
evaluation, and allocation of resources are driven by individuals and not institutions
(Baron 1998). The launching of new ventures is influenced by patterns of relation-
ships and network density.
National-Level Factors
Moving down from the global level of our framework to review some key national-
level factors of emerging economies that can help or hinder the growth of
e-commerce, this section assesses the influence of government policies and laws,
national infrastructures, and local culture.
I nstitutional Environment: Government Policies

and Regulations
Providing significant incentives or disincentives for investment in a particular

country, government policies and regulations establish a structure for firms to con-
fidently participate in e-commerce activities or to wisely opt out. The fundamental
theoretical basis for government’s role can be attributed to institutional theory
(DiMaggio and Powell 1983; North 2005). Favorable policies naturally attract
business, a phenomenon that Dunning (1995, 1998) attributes to the location or “L
pull factor.” As firms move in, the location advantage that accrues from govern-
ment policies can create a critical mass for accelerated growth, as demonstrated by
the results of positive e-commerce strategies adopted by several emerging econo-
mies (Agarwal and Wu 2015). An open and interrelated set of e-commerce poli-
cies and activities further promotes and enables accelerated growth of
e-commerce.
However, given complex institutional differences worldwide (i.e., developed ver-
sus emerging markets), organizations must adapt their e-commerce practices to fit
the institutional environment of the host country—a facet of the neo-institutional
theory (Greenwood and Hinings 1996). Ultimately, isomorphic behavior will pre-
vail among organizations in the same environment due to coercive, mimetic, and
normative pressures (Agarwal and Wu 2015).
Although governments in emerging economies may enthusiastically promote
e-commerce for economic development, some nations remain suspicious of its
potential impact on social and political stability, contributing to entrepreneurial
uncertainty, problems with asymmetric information and monitoring, and unstable
or nonexistent agency relationships within a foreign governmental structure
(Agarwal and Wu 2015). Transaction cost economics or TCE theory (introduced
early in the chapter and which explains economics-based decisions) is relevant for
understanding the cost-benefit situation of political governance and the likely politi-
cal hazards in emerging markets (Delios and Henisz 2000). When political risk is
high, firms may still decide to invest in FDI by considering other arrangements such
as forming a regulatory agency or public-private partnership that will mitigate polit-
ical hazards (Henisz and Zellner 2004). Political alliances constitute firm-specific
advantage (based on RBV theory) that developed-market MNEs gain from deep
local embeddedness in a given political system, resulting in greater transparency of
and access to political information (de la Torre and Moxon 2001). Ample research
evidence shows that political connections greatly facilitate economic exchange and
firm performance in emerging economies (see Li and Zhang 2007; Li et al. 2008).
Such embeddedness and connections give emerging-market MNEs an immediate
edge to apply country-specific advantage in order to enhance their firm-specific
advantage.
Legal Environment
A political and legal environment offering transparency and protection in online

markets is obviously a key driver of e-commerce growth in emerging economies
(Oxley and Yeung 2001; Zhou et al. 2008). Not surprisingly, Zhou et al. (2008)
conclude that the rule of law has a positive impact on e-commerce diffusion. This
effect is more pronounced in emerging economies (Agarwal and Wu 2015); Zhu and
Thatcher (2010) note that its importance diminishes as a country reaches a mature
stage of e-commerce expansion. Borrowing from institutional theory, Martinez and
Williams (2010) found that the quality of national institutions, namely, an open
society with a strong rule of law, political stability, regulatory quality, and control of
corruption, fosters ICT adoption in both developed and developing countries.
The foremost concern for many firms is protection of intellectual property (IP)
rights. When opportunism and uncertainty are high, firms tend to choose hierarchies
instead of markets and are likely to initiate internationalization activities in coun-
tries with minimal regulatory hazards and a similar legal framework to their own
(Coeurderoy and Murray 2008; Hagendoorn et al. 2005). Thus, to attract e-commerce,
emerging economies need to develop cyber laws defining a legal framework for
Internet transactions. While there is some movement in this direction among emerg-
ing economies, other governments are lagging behind (Agarwal and Wu 2015). The
main concern is IP protection. Specifically, the quality of the legal environment
serves as a key locational determinant (L-advantage) of e-commerce growth
(Dunning and Wymbs 2001).
A related issue in terms of legal environment is consumer protection. When gov-
ernments fail to put sufficient protections and safeguards in place, consumers in
emerging economies are reluctant to conduct e-commerce activities. Inadequate
consumer rights protection creates an institutional void and barrier to the expansion
of e-commerce in emerging economies.
Infrastructural Environment
This section addresses three important forms of infrastructure in any country that
affect e-commerce prospects and implementation: physical infrastructure, financial
and market infrastructure, and social infrastructure (Agarwal and Wu 2015). All
three contribute to what is known as absorptive capacity of a firm, defined as the
ability to value, assimilate, and apply new information to commercial ends (Cohen
and Leventhal 1990). Zahra and George (2002) distinguished two types of absorp-
tive capacity: “potential” and “realized.” The potential absorptive capacity indicates
the firm is receptive to acquiring and assimilating external knowledge (Agarwal and
Wu 2015).
Taking full advantage of absorptive capacity depends on features of the emerging-
nation’s economy as well as MNE characteristics. Absorptive capacity differs across
firms based on their past experience, knowledge, and organizational learning (Delios
and Henisz 2000). Because knowledge accumulation is path-dependent, firms are
heterogeneous in their ability to recognize and exploit e-commerce opportunities.
While some emerging economies have significantly exploited absorptive capacity in
one or more of the infrastructural pillars, others are still exploring and assimilating
the future potential of e-commerce. Despite the global reach of the Internet, there
remains a gap in the ability MNEs to fully exploit the absorptive capacity of infra-
structures in emerging markets.
Physical Infrastructure
Most developed-market MNEs want to invest in countries where resources, capa-

bilities, and physical infrastructure (L-advantage) can enable them to exploit their
ownership (O-level) advantage (de la Torre and Moxon 2001). The vital physical
components necessary for e-commerce include information technology and tele-
communications infrastructure—both hard infrastructure and a telecommunications
network—in order to develop and maintain Internet access and hence e-commerce
(Dubosson-Torbay et al. 2002; Oxley and Yeung 2001). Poor physical infrastructure
results in a stagnant situation where Internet service providers in emerging econo-
mies often are unable to justify the cost of investment due to limited activity via
e-commerce, even though Internet access is acknowledged as a conduit to economic
development.
Financial and Market Infrastructure
One of the chief obstacles to e-commerce activity (including foreign investment) in

many emerging economies is the poorly developed nature of financial and market
infrastructure. E-commerce requires a network of financial intermediaries to link
electronic banking and payment systems including credit and debit card networks
with new retail interfaces (Agarwal and Wu 2015). Many nations have to start from
the ground up to create an electronic network of banking and investment services,
insurance, brokerage, credit rating companies, and other services. Because banks
and financial institutions do not support online payment in some countries, citizens
are accustomed to paying by bank draft or cash on delivery. While cultural charac-
teristics, history, and politics shape the development of a nation’s institutions, both
in form and function, it is the government that generally must take the lead in iden-
tifying and addressing these institutional voids that impede e-commerce (North
2005).
Social Infrastructure
Social infrastructure refers to the education level of the general population as well
as the skilled labor force in a nation (Agarwal and Wu 2015). Relatively recent stud-
ies focusing on the human-capital aspects of business recognize the critical contri-
butions of entrepreneurs and other employees (Agarwal and Wu 2015; Graf and
Mudambi 2005). While international business models explaining FDI decisions
have historically failed to include human capital, the importance of investments in
human capital (O-specific advantage) is now more generally acknowledged. For
example, in addition to innovation, entrepreneurs often map the institutional context
in a foreign country to identify infrastructural voids as entrepreneurial opportuni-
ties, thereby promoting the spread of e-commerce. At the firm level, other aspects of
human capital make the wheels of business turn. Knowledge is integrated at all
levels primarily through human resources, and thus a firm’s absorptive capacity
largely depends on the absorptive capacity of its employees (Cohen and Levinthal
1990; Kogut and Zander 1993). Many studies suggest that investments in human
capital are critical to the expansion of e-commerce in emerging economies (allow-
ing them to “catch up” to more developed economies); studies in this area also note
that the rate of economic growth declines as the economies gain more wealth
(Contractor and Mudambi 2008; Zhao 2002).
Culture
A nation’s infrastructure and formal institutions are largely based upon informal
systems of cultural norms and values, and the role of culture is no less important in
the adoption and expansion of e-commerce (Agarwal and Wu 2015; Zhu and
Thatcher 2010). For example, cultures that hold traditional and survival values as
opposed to secular-rational and self-expression values are less ready for e-commerce
adoption (Berthon et al. 2008). Furthermore, the distinction between individualistic
and collectivistic cultures carries important ramifications for understanding the
norms of society as well as the tendencies of individuals in a foreign country. Based
on the Hofstede framework (Hofstede 1991), the dimension of individualism-col-
lectivism influences IT adoption in that solitary applications such as online shop-
ping may not be appealing in collectivist cultures, while online community-building
sites may prove to generate more interest (Zhou et al. 2007).
Trust is perhaps the most important element of any transaction, and it is certainly
a key consideration for an individual to engage in e-commerce. Trust must be pres-
ent for the adoption of e-commerce because it affects consumers’ willingness to
participate in online shopping. Since e-commerce is a faceless transaction, trust
deficit can slow the growth of e-commerce in emerging economies (Agarwal and
Wu 2015). In collectivist societies, people will enter into a transaction only with
other people whom they trust. This kind of trust is difficult to develop in a relatively
new area like e-commerce, which is not a face-to-face medium. However, network
resources often help build a culture of norms and trust, in addition to providing
rapid dissemination of information and exchange of complementary assets.
Structured relationships do not serve to bridge disparate groups or subgroups,
and therefore change occurs slowly in the society (Granovetter 1983). For this
reason, resistance to change (or cultural inertia) is greater in collectivist societies
(Agarwal and Wu 2015), and therefore adoption of e-commerce is likely to be
slower.
Transactional-Level Factors
Integrity of Transactions
While trust is particularly important in collectivistic cultures or emerging econo-

mies where consumers do not have prior trust capital built, integrity of online trans-
actions is critical to the success of e-commerce anywhere (Agarwal and Wu 2015).
According to a study by Malhotra et al. (2004), Internet users are concerned with
collection of personal data, the control they have over the data, and the awareness of
privacy practices. And TCE holds that firms perceiving greater risk in transactions
are likely to protect their interests and proprietary knowledge rather than dissemi-
nate over the Internet. In short, lack of trust and/or less than full integrity in online
transactions will continue to impede the growth of e-commerce in emerging econo-
mies (Agarwal and Wu 2015).
Online Intermediaries
Another aspect of e-commerce that emerging economies must supply or create is

the network of online intermediaries facilitated by the Internet to enable the effi-
ciencies of e-commerce. This “electronic brokerage” allows firms to engage in part-
nerships to increase efficiency and avoid redundancies (Agarwal and Wu 2015).
Other advantages include quick dispersal of tacit knowledge, lower coordination
cost, enhancement of allocative efficiency, and emergence of a network culture of
trust (Uzzi 1997). Such a system generally requires reconfiguring industry value
chains (Singh and Kundu 2002). Thus, adoption of e-commerce is an important
business decision for any MNEs because it calls for significant financial investments
and business process changes. Online intermediaries for MNEs based in a foreign
country with an emerging economy can help MNEs to overcome cultural and lin-
guistic barriers, acting as a one-stop shop providing comprehensive services.
Viewed through the lens of RBV theory, the advantage afforded to firms as a result
of their position in networks (cyber and otherwise) is an inimitable resource (Gulati
1999).
Network Externalities and Value Clustering
Network externalities and value clustering are powerful benefits that the network
delivers to participating firms. When firms can harness these benefits, e-commerce
in emerging economies is enhanced (Agarwal and Wu 2015). The open nature of the
Internet and its network externalities is a strong motivation for firms engaging in
e-commerce to form alliances in order to explore complementary assets (Agarwal
and Wu 2015). In the case of emerging markets where formal institutions are weak,
informal institutions such as norms governing interpersonal relationships and net-
works play a key role in enhancing firm strategies and performance (Peng and Heath
1996; Peng et al. 2008).
Leamer and Storper (2001) suggested that the effect of de-agglomeration and
global dispersion of routine and standardized tasks is offset by forces that establish
clustering of complex and innovative tasks. Not being embedded in local interac-
tions, historical and cultural nuances, and identity-specific artifacts, differences in
norms, values, and beliefs are difficult to detect and manage. Singh and Kundu
(2002) argue that the content and type of relationship in the online community are
as important as the position and extent (i.e., structural embeddedness) to which
firms are interconnected.
Chen and Kamal (2016) examined information and the impact of communication
technology (ICT) on a firm’s foreign boundary decision to make or buy, and they
proposed that ICT adoption reduces both internal and external coordination costs ex
post through two effects (a) lowering of communication and search costs and (b)
lowering of economic incentive costs in terms of moral hazards and opportunistic
behavior.
E-Commerce in Emerging Economies: Firm Strategies
Given similar potentials of e-commerce, firms from developed nations operating

internationally and firms within emerging economies exploring their growth possi-
bilities through e-commerce have different advantages, disadvantages, and opportu-
nities. This chapter has explored factors affecting the growth of e-commerce such as
cultural differences, institutional voids, different levels of absorptive capacity, and
protection of intellectual property rights, among others. Which of these factors can
create strategic opportunity, and for which type of firm?
Strategies for Developed-Market Multinationals (DM-MNEs)
1. International agreements, in their effort to standardize business procedures and

reduce barriers to trade, serve as a basic framework to dictate and enforce some
global rules of the game. Established procedures of the World Trade Organization
(WTO), along with regional trade agreements (RTAs), help reduce market imper-
fections and information asymmetries. These umbrella organizations and treaties
create opportunities for DM-MNEs to exploit their firm-specific assets and for
emerging-market MNEs (EM-MNEs) to explore firm-specific assets.
The gradual inclusion of more and more individual markets in the global busi-
ness sphere, and particularly the e-commerce realm, continues to widen the win-
dows of opportunity. Brazil and India were among the first to join the WTO, then
China and later Russia’s memberships continued to level the playing field for
multilateral trade and investment (Agarwal and Wu 2015). The Chinese govern-
ment actively promotes domestic firms’ technological innovation processes by
establishing supportive policies (e.g., national innovation system or NIS), mak-
ing institutional arrangements, and even engaging in direct intervention. Through
incremental organizational learning, Chinese firms are gradually shifting from
production capability to technological innovation capability to compete with
DM-MNEs.
2. DM-MNEs must adapt their approach to e-commerce in each new country due to
large variations in culture and institutional structure. While many governments
in emerging economies have adopted an open-door policy for foreign firms and
encourage privatization and decentralization (Child and Tse 2001), national
security concerns remain a major consideration in public policy and can impede
both growth of e-commerce and investment. In China, for example, the govern-
ment censors and monitors through its four-tier system all kinds of subject mat-
ter in its society, including news, publications, radio broadcasts, TV programs, as
well as the Internet (Yao 2006). Global managers from DM-MNEs need to be
aware of the political hazards in their transaction cost assessment, as well as the
benefits of political knowledge and alliances with the government. Even power-
ful DM-MNEs (e.g., Google in China) are not exempt from political hazards
(Agarwal and Wu 2015). In this regard, DM-MNEs can invest in internal and
external networking.
3. Continuing with the issue of intellectual property rights (IPR), this is a serious
problem when laws protecting these rights are not enforced, which tends to be
the case in emerging economies more than developed nations. Properly address-
ing these valid concerns will open up many opportunities for firms of all types.
For developed-market MNEs operating in emerging economies, neither formal
methods of protection nor complementary methods are effective safeguards
against IPR violation (Agarwal and Wu 2015). In addition, it is clear that devel-
oped-market MNEs are unlikely to win lawsuits because institutions in emerging
economies are plagued by nepotism and corruption, and the court system lacks
judicial independence and transparency. However, DM-MNEs from multiple
countries can jointly lobby with global institutions such as the WIPO (World
Intellectual Property Organization) to attempt to work out treaties with different
nations to agree on common guidelines. Consumer rights constitute another
arena where strict enforcement is lacking (Agarwal and Wu 2015). Laws protect-
ing consumers exist in both countries, but they are not strictly enforced so con-
sumers do not receive much protection.
4. Because local culture dominates consumer attitudes toward online shopping in

emerging economies, DM-MNEs often fare better by using online local interme-
diaries to overcome the complexities of cultural and other social barriers. Firms
practicing marketing orientation to generate and disseminate intelligence regard-
ing customers and competition need to adopt high-touch intelligence generation
activities instead of large-scale marketing studies that may not work in some
countries due to large institutional distance and institutional void (Agarwal and
Wu 2015). Establishing trust between companies and customers is a key problem
in many countries, due to both cultural constraints and lack of consumer
protections.
Strategies for Emerging-Market Multinationals (EM-MNEs)
1. Emerging-market MNEs must actively work to close institutional voids in order

to catch up with developed economies. Hence, EM-MNEs are forced to be inno-
vative and gain “adversity advantage” and “latecomer advantage” by circum-
venting institutional voids, thus acquiring greater levels of firm-specific
advantage (Khanna and Palepu 2006; Mathews 2006). Further, emerging-market
MNEs rely heavily on DM-MNEs that have entered their country to set examples
and take initial risks. The presence of DM-MNEs facilitates isomorphic behavior
among domestic firms, leading to convergence in industry standards and reduc-
tion in technology gaps through technological accumulation.
2. Domestic firms in emerging markets can creatively utilize structural and cultural
factors in their home country to gain advantage where foreign entrants cannot.
For the latter, these factors are hindrances. For instance, relative to DM-MNEs,
EM-MNEs are better placed to circumvent their home country’s institutional
voids. Emerging-market entrepreneurs have an advantage over foreign multina-
tionals in dealing with local institutional voids due to their cultural familiarity.
Both the adoption of new technology and the advantages of the Internet itself
facilitate emerging-market domestic firms to innovate and to diffuse their inno-
vations rapidly. E-commerce enables entrepreneurs in emerging economies in
their information search capabilities, risk assessment, and interaction with other
actors in the venture creation process. E-commerce provides a number of oppor-
tunities for local entrepreneurs to create “cultural capital” as a source of com-
petitive advantage (e.g., Buscape in Brazil, Flipkart in India, and Taobao in
China) that will position these economies advantageously in their path to eco-
nomic development (Agarwal and Wu 2015).
3. EM-MNEs can capitalize on the fact that DM-MNEs tend to be reluctant to
adapt their brands, business models, and organizational culture in foreign
markets, and as a result they seldom reach beyond the “global” segment in the
host-country markets. This creates an opportunity for EM-MNEs. In the e-com-
merce industry, the codification of knowledge is further allowing EM-MNEs to
fill information gaps and to tap into the global knowledge base, making it easier
for them to move up the value chain and compete against foreign MNEs. New
technologies keep operating costs low for EM-MNEs and enable companies to
deliver high-quality products and services.
4. Exploiting absorptive capacity in one or more of the infrastructural dimensions
could also be an effective business strategy for EM-MNEs. As noted earlier,
emerging economies are at different levels of absorptive capacity along the
dimensions of physical infrastructure, financial and market infrastructure, and
social infrastructure (Agarwal and Wu 2015). Financial and market infrastruc-
ture seems to be the most immediately pressing barrier for DM-MNEs. The
development of intermediaries and marketing institutions that provide credibility
and transparency is vital to the development of e-commerce in emerging econo-
mies (Ramamurti and Singh 2009). For e-commerce transactions, credit cards
are considered to be the most acceptable means of payment, yet this is a major
problem in most emerging economies. To address the deficiencies in payment
systems (a financial infrastructure issue), many EM-MNEs allow cash on deliv-
ery for larger items and both payment and pick-up at the local postal office
(Martinsons 2008).
5. Calming consumer concerns around trust is a cultural issue that can often be
accomplished more successfully by a domestic firm compared to a DM-MNE,
and this can serve as another source of advantage and opportunity for firms in
emerging markets. As mentioned earlier, many consumers are reluctant to shop
online in emerging economies given security and privacy concerns over online
transactions. Contrary to conventional wisdom, this may create an opportunity
for EM-MNEs, as demonstrated by eBay and Alibaba in China (Agarwal and Wu
2015).
Conclusion
This chapter presents a multi-theoretical foundation to explore multiple factors

influencing e-commerce in emerging economies. With this multilayered approach
to understanding the growth potential of e-commerce, the salience of each factor
depends largely on the specific circumstances of each emerging economy. This
chapter has several managerial implications. First, the e-commerce development in
emerging economies can be explained by multiple theories in IB, marketing, man-
agement, and economics. Second, the growth potential of e-commerce is not influ-
enced by a single factor. Rather, it is influenced by diverse factors, including global,
national, and transactional ones. Third, firm strategies for DM-MNEs and EM-MNEs
are quite different with respect to e-commerce. Specifically, EM-MNEs have a dis-
tinct advantage over DM-MNEs in dealing with institutional voids due to their
knowledge over local conditions.
In sum, DM-MNEs who wish to succeed in the Internet space would best stick to
areas that focus on job creation and economic gain that do not overlap with broader
social and political challenges. While the research presented here is anchored in a
multi-theoretical template, it is exploratory in nature, and the entrepreneurial efforts

of firms around the world are vital to advancing knowledge about how e-commerce
can and will be conducted in the future.
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Part IV
Global CSR, Sustainability, and
Macromarketing Issues
Chapter 10
CSR-Driven Entrepreneurial
Internationalization: Evidence of Firm-
Specific Advantages in International
Performance of SMEs
Maria Uzhegova, Lasse Torkkeli, Hanna Salojärvi, and Sami Saarenketo
Abstract This study examines an emerging yet somewhat neglected theme in

international and global marketing literature, namely, the role of corporate social
responsibility (CSR) and market-sensing capability in international enterprises.
Specifically, we illustrate how CSR and market-sensing capability impact interna-
tional performance in the context of small- and medium-sized enterprises (SMEs).
The results from a sample of 85 internationalized Finnish SMEs indicate that social
responsibility serves as a mediator of market-sensing capability on international
performance. Moreover, market-sensing capability along with social responsibility
also has a positive direct effect on an SME’s international performance. Thus, the
study links global marketing, strategic management, and sustainability literatures to
explain the emerging paradigm of sustainable international entrepreneurship.
Introduction
A major emerging issue in global marketing is the role of corporate social responsi-
bility (CSR) in international entrepreneurial firm growth and expansion. Today,
companies are increasingly expected to exhibit CSR, i.e., the “duty of every corpo-
rate body to protect the interest of the society at large” (Holme and Watts 1999).
However, as we have seen from the public scandals of companies that in some cases
have previously been on top of CSR rankings (e.g., Volkswagen), societal and cus-
tomer expectations related to CSR can have a complex impact on the behavior of
corporations globally. Moreover, the extant research on CSR in the context of global
marketing has prevalently aimed to explain the phenomenon in the context of large
multinational companies (MNCs; e.g., Jamali et al. 2009; Kolk and Van Tulder
M. Uzhegova (*) · L. Torkkeli · H. Salojärvi · S. Saarenketo

School of Business and Management, Lappeenranta University of Technology,
Lappeenranta, Finland

258 M. Uzhegova et al.
2010), leaving several topics mostly unexplored. However, the majority of the com-
panies in the world, particularly in the EU, are small- and medium-sized companies,
with SMEs being responsible for 99.8% of all business in the nonfinancial sector in
the EU. Being important employers, with 66.8% of jobs and accounting for more
than half of the gross value added generated, they are critical for the growth and
social integration of the region (European Commission 2015/2016).
With CSR having emerged previously as an issue for MNCs, nowadays SMEs
witness that CSR has grown to be a global concern that they need to address, espe-
cially if they are involved in international operations. Hence, the first of these unex-
plored gaps is the impact of CSR on international entrepreneurial growth and
internationalization. Studies of international entrepreneurship (IE) have not included
CSR as part of the research ontology (see Jones et al. 2011). The IE as a research
field is defined by McDougall and Oviatt (2000: 903) as “…a combination of inno-
vative, proactive and risk-seeking behaviour that crosses national borders and is
intended to create value in organizations,” with the topics of firm behavior and value
creation being the primary focus of the field. Yet, in SMEs, CSR is manifested dif-
ferently from MNCs (Perrini et al. 2007), and despite a growing body of literature
on socially responsible practices of large firms engaged in business globally, the
role of SMEs remains under-researched (Hoogendoorn et al. 2014). For instance,
while large companies are known for extensive marketing of their CSR practices,
leading to an increased corporate reputation and differentiation from competitors
(Gallego-Álvarez et al. 2010), SMEs do not tend to articulate their CSR commit-
ment widely (Nielsen and Thomsen 2009). Moreover, even though CSR is more
often attributed to the large firm, the research field of international business (IB),
which primarily has a large multinational company as a research unit, is still lacking
a holistic approach to CSR issues (Pisani et al. 2017).
Second, with most of the studies focused on investigating the antecedents of
CSR in large corporations (i.e., Yang and Rivers 2009; Crilly et al. 2008), in the
context of SMEs and IE, this topic is currently under-researched. The extant litera-
ture in the emerging IE research field does not explain the role of CSR, which is
playing an increasingly important role in business today in the internationalization
of SMEs. Economic, political, and social factors are shaping CSR activities around
the world (Baughn et al. 2007) as consumers have become more interested in CSR
in the past two decades (Carrigan and Attalla 2001; Maignan 2001). Not only are
SMEs the important business players in home markets, they are also increasingly
involved in international operations and sustainability efforts, thereby presenting a
rich context for studying CSR.
Third, international entrepreneurial growth and expansion strategy may come to
depend on both CSR and other firm-specific advantages, such as the extent of their
organizational characteristics and capabilities (Torugsa et al. 2012). SMEs may be
engaged in CSR because of family tradition, the entrepreneur’s personal values,
community embeddedness, or feeling the need to contribute to the wider society
(Ellerup Nielsen and Thomsen 2009; Looser and Wehrmeyer 2015). However, until
now there has been scant evidence of either in the international context; hence, there
10 CSR-Driven Entrepreneurial Internationalization: Evidence of Firm-Specific… 259
is still a limited understanding of whether and how CSR affects international perfor-
mance of SMEs.
On top of all that, a recent literature review of Eteokleous et al. (2016) pointed
out that the research field of international marketing still lacks evidence of perfor-
mance outcomes of CSR activities. In addition, the integrative models incorporating
mediators and moderators are called upon to identify the conditions under which
CSR leads to specific outcomes. On a firm level, a competitive intensity may serve
as an enabling condition for CSR being a moderator in the marketing capability–
performance relationship (Kemper et al. 2013).
We seek to respond to these omissions by illustrating how CSR drives entrepre-
neurial internationalization among SMEs and how firm-specific advantages in the
form of market-sensing capability and the orientation toward responsible practices
are intertwined with these dynamics. This study presents a view into the shifting
paradigms in international and global marketing. This is done by illustrating global
marketing in a transition stage from being primarily a concern of large corporations,
which have already learned how to operate under the grown concern for business
responsibility, to SMEs. At the same time, the traditional approach of SMEs to
internationalization is nowadays challenged toward the need to communicate their
commitment to the stakeholders globally in the host countries. This study reveals
that responsible business behavior opens the new opportunities if combined with the
responsiveness toward the global market needs and thus presents a shifting para-
digm with SMEs in global marketing. In doing so, we apply regression modeling on
a data of 85 internationally operating SMEs originating from Finland and adapt
Turker’s (2009) CSR measure while conducting mediation analysis.
This study continues as follows: First, we outline the literature suggesting the
role of CSR and market-sensing capability in the context of SMEs, with particular
focus on internationalizing SMEs. We then follow that with the quantitative study,
where we examine the dynamics of market-sensing capability and CSR on SME
internationalization in detail. We conclude by discussing the results and their impli-
cations on the theory and practice of SME internationalization and growth.
Literature Review
CSR
The definitions of the concept of CSR are many. In the research papers and in the
practitioners’ reports, it is ambiguous and sometimes referred to as a “complex
jungle of CSR definitions” (Crane et al. 2013: 9). One of the early definitions is “the
conduct of a business so that it is economically profitable, law-abiding, ethical and
socially supportive in order to fulfill economic, legal, ethical and philanthropic
responsibilities” (Carroll 1983: 608). Another definition, also used in the interna-
tional marketing field according to the review of Eteokleous et al. (2016), captures
the issue of CSR activities being something more than what is already required by
law: “actions that appear to further some social good, beyond the interests of the
firm and that which is required by law” (McWilliams and Siegel 2001a, b: 117).
Often, research papers adopt the definition of the European Commission, “a concept
whereby companies integrate social and environmental concerns in their business
operations and in their interaction with their stakeholders on a voluntary basis”
(Commission of the European Communities 2001: 8), which emphasizes the volun-
tary nature of these actions. The voluntary aspect is also seen in this definition used
in the Marcel van Marrewijk (2003: 102) review: “company activities – voluntary
by definition – demonstrating the inclusion of social and environmental concerns in
business operations and in interactions with stakeholders.” In the study of SMEs’
CSR communications, Parker et al. (2015: 364) define CSR as “voluntary values,
technologies and practices which directly or indirectly result in a positive (or reduce
negative) impact on the environment, employees or external stakeholders.”
Key concepts from the above definitions of CSR are economic, interaction with
stakeholders, social and environmental concerns, and voluntariness. Indeed, in the
attempt of systematization, Dahlsrud (2006) has analyzed 37 definitions and out-
lined five dimensions of the CSR concept, with those dimensions used most often
being stakeholder and social, followed by economic and voluntariness, with envi-
ronmental being the least used.
Moore and Spence (2006) argue that CSR, as a term, does not capture the
approach required for SMEs. Studies of CSR in the SME context adopt the various
definitions of CSR: some of the definitions are not that specific about the size of the
company as Wood (1991) explains – “company’s configuration of social responsi-
bility, social responsiveness, policies, programs, and observable outcomes as they
are related to the company's relationship with society.” Others emphasize the impor-
tance of entrepreneurs’ personal values as Maclagan (1998) does: “a process in
which business owner-managers take responsibility for identifying and accommo-
dating stakeholder interests.”
The differences in the CSR definitions used in the studies of large companies and
SMEs are embedded in the organizational characteristics of different-sized firms. A
number of characteristics in regard to CSR are listed in Table 10.1.
The updated definition from the European Commission does not refer to volun-
tary nature or “going beyond the regulation” features, nor does it address the issue
of size, stating that CSR is “the responsibility of enterprises for their impacts on
society” (European Commission 2011:6). In line with Cavusgil and Cavusgil’s
study (2012) which claims that “stakeholders are more vocal and actively seek solu-
tions to a wide array of environmental and social issues,” we propose that SMEs are
able to answer this call, though not through the implementation of standardized and
formalized CSR practices but rather through responsible business behavior (RBB).
Used in Avram and Kühne’s (2008) study of Austrian SMEs, RBB is “an instrument
to develop a sustained competitive advantage by relating social and environmental
issues to the value chain of the company.” Adopted in this study in place of CSR,
RBB, being universal, isn’t constrained by size, sector, or geographical scope and
can therefore be applied to SMEs operating in an international context. In its core,
Table 10.1 Differences in CSR between MNCs and SME

MNC SME
Conceptual Often includes one or several of Often includes one or several of the
definition of CSR following dimensions: same five dimensions, but also the
stakeholder, social, economic, individual dimension such as
voluntariness, and environmental responsibility of firm’s owner–
manager, leader, or entrepreneur is
emphasized
CSR integration into Explicit leadership support by the The owner–manager, often highly
the company CEO and the board, the existence involved into SME’s operations, has
of CSR coordination unit (person an influence on the values and
or a department) which is culture of the company and thus may
responsible for dealing with CSR expose CSR throughout the company
Incentive systems and trainings to Low hierarchy in management and
promote CSR awareness among more open and fluid communication
employees, as well as for within the company facilitate the
performance evaluation and involvement of all employees in CSR
reporting through the informal measures
CSR’s integration Integrated approach – the brand Use involvement and
with marketing and CSR operate in synchrony communication-oriented activities
strategy (firm tells one compelling story) such as cause-related marketing and
corporate advertising
Selective approach – CSR Having high adaptability, SMEs are
manifests itself in very specific, able to quickly respond to the market
targeted ways, i.e., in the form of needs with the products or services
sub-brands with the environmental/social
Invisible approach – CSR is benefits in their value
present only in strategic level
guiding the company but hidden in
external communications and
initiatives
Public expectations Proactive participation and Collective involvement with other
in terms of CSR “activity level” by which they SMEs or suppliers to mutually
contribute to collaborative CSR address CSR issues, i.e., in the form
initiatives (i.e., UN global of CSR-related networks, such as
compact) industry associations
Maintaining the relationships with
the external stakeholders such as
NGOs
(continued)
MNC SME
Communications and Develop solutions for issues of SMEs run by informal management
positioning strategy global public concern on human approaches lack proper
of CSR rights or climate change, such as communication tools for reporting
codes of conduct or corporate
policies
Make extensive public Transparency of activities toward
commitments to CSR and third parties is disclosed only on
regularly publish CSR reports demand
Account on indirect word-of-mouth
communication with internal and
local stakeholders
Form of Support initiatives which involve Small firms implement responsible
implementation “material” support such as giving behaviors toward specific categories
and sponsorships of stakeholders through owner’s
personalized relations between firm
and the society
Medium-sized firms commit to their
community through volunteering
Adapted from Baumann-Pauly et al. (2013), Blomkqvist and Posner (2004), Jenkins (2009),
Nielsen and Thomsen (2009), and Russo and Tencati (2009)
responsible business behavior constitutes the consciousness about the environment

and society. With it, the firm’s competitive advantage can either be facilitated or
constrained by the strategic and operational decisions taken.
Global Marketing and CSR
Marketing and CSR are intertwined topics, especially in the area of global market-
ing and multinational corporations. In their reflection about the future of interna-
tional marketing in the era of transformations and a truly global marketplace,
Cavusgil and Cavusgil (2012: 210) note that CSR “will rise as a marketing theme
and will drive strategies.” Indeed, the study of Hadjikhani et al. (2016) illustrates
how CSR is used as an MNC’s marketing strategy, which aided the firm’s entry
through investments into the social and environmental issues in the target country.
Such tracking of the customers’ social concerns and further application of them
into the marketing strategy for the good of the company are referred to as a social
marketing concept (Crane and Desmond 2002). CSR, in the form of the triple bot-
tom line (social, environmental, and economic), does not include the customers as
the stakeholders. However, firms that have market-focused sustainability, by inte-
grating the customers among other stakeholders into their marketing strategy, have
an opportunity to create a marketing strategy that is valuable, rare, inimitable, and

difficult to substitute (Barney 1991; Wernerfelt 1984). Customers’ trust, loyalty,
and perceptions of corporate reputation are influenced by the perceived CSR
(Stanaland et al. 2011). CSR can serve as a tool for the positive perception of the
company. Company’s products or services are positively perceived especially by
those consumers seeking identification with the firm (Bhattacharya and Sen 2004),
with this kind of customer loyalty leading to wider customer support (Luo and
Bhattacharya 2006).
Besides being attentive to customers, companies also need to be able to adapt
their CSR practices on a global scale. The importance of maintaining an image of
social responsibility can vary between both emerging and developed markets (Li
et al. 2010) and within different developed economies (Maignan and Ralston 2002).
CSR also brings added challenges to global marketing. This is due to the cultural
disposition of customers, which can determine how they view CSR activities of
foreign firms compared to domestic ones. This can cause the effectiveness of cause-
related marketing to vary at the global level (Choi et al. 2016). At the same time,
having a global brand can still have a positive impact on consumer perceptions,
assuming that the foreign company is sufficiently agile to account for local culture
and taste (Becker-Olsen et al. 2011).
An emerging paradigm in this discussion is the role of CSR in international
entrepreneurship, which seeks to explain how entrepreneurial internationalization
drives companies to international and global markets. The context of SMEs is par-
ticularly in need of further clarification, as the ways in which small companies
address the issues related to CSR are different from the large corporations (Perrini
2006), which means that extant research conducted with large multinationals is not
generalizable for SMEs. For instance, the CSR communication, as a part of market-
ing activities, is addressed by MNCs in a more systematic way compared to small
firms: through the wide variety of channels such as corporate web sites, annual
reports, and other publicly available documents (Baumann-Pauly et al. 2013). Thus,
from the global marketing standpoint, SMEs present a phenomenon that is both
emerging and distinct from most of the extant research on international and global
marketing. Having business activities which are less visible to the wider public and
media, SMEs are less likely to see a significant benefit in a publicity-driven approach
to CSR communication and reporting (Baumann-Pauly et al. 2013), preferring
instead to have an informal reporting in the form of face-to-face interaction with
stakeholders (Spence 2004). Moreover, firms in manufacturing industries tend to
communicate more CSR, being exposed to a wider variety of environmental, labor,
and social issues compared to service firms (Lattemann et al. 2009). In sum, for all
of the reasons mentioned above, clarifying the role of CSR in internationalization
outcomes of SMEs provides a novel contribution to both literature on global mar-
keting and to that of international entrepreneurship.
Hypothesis Development
Through the empirical part of this study, we aim to posit three factors that drive
international SMEs to achieve higher international performance: market-sensing
capability, social responsibility, and environmental responsibility. These linkages
suggested in our conceptual model are elaborated in the following sections, thereby
deriving the testable hypothesis.
According to the resource-based view (RBV), every organization has unique
resources (Barney 1991) and capabilities (Song et al. 2007). Capabilities are defined
by Day (1994) as “complex bundles of skills and collective learning, exercised
through organizational processes that ensure superior coordination of functional
activities.” Such organizational capabilities are an integral part of how MNCs oper-
ate at the international and global level (Augier and Teece 2007; Teece 2014).
Particularly, market-sensing capability is critical among other capabilities for
successful business development (Day 1994). According to capability classification
by Hooley et al. (1999), a market-sensing capability is one of the strategic market-
ing capabilities – a group of capabilities which is defined as the ability of senior
management to examine the surroundings. The concept of market-sensing capabil-
ity refers to a firm’s ability to learn about its market environment, be aware of
change in it, and to use this knowledge in a way to guide its marketing actions (Day
1994). These abilities to sense the markets have been found particularly important
when entering international markets (Armario et al. 2008a, b).
According to Day (1994), market-sensing capability precedes market orientation
which has been regarded as the foundation and thus a central concept in the market-
ing discipline (Drucker 1954; Gebhardt et al. 2006; Kotler 2000). Market orienta-
tion concept includes two major subdimensions: customer orientation and competitor
orientation (Hagen et al. 2012). In the literature, there are two mutually comple-
menting perspectives of market orientation (Armario et al. 2008). A cultural per-
spective conceptualizes market orientation as a part of organizational culture that
includes creation and delivery of value to the customers (Narver and Slater 1990),
whereas a behavioral one considers market orientation in terms of specific behav-
iors of the organization (Kohli and Jaworski 1990).
In line with that, Lindblom et al. (2008) stresses that market-sensing capability
is an essential element of market-oriented behavior since it includes organizational
learning regarding, e.g., customers’ explicit and latent needs. Market orientation, in
turn, according to the previous literature has a positive impact on business perfor-
mance, including the financial performance (Han et al. 1998; Kirca et al. 2005;
Kohli and Jaworski 1990; Narver and Slater 1990; Slater and Narver 1994) and
customer-centric performance (O’Cass et al. 2012). Although market orientation
research in the international context remains relatively sparse and recent, support
for the positive relationship between market orientation and international perfor-
mance has also been found, for example, by Kwon and Hu (2000), Cadogan et al.
(2003), and Armario et al. (2008).
However, despite the positive performance outcomes, the ability of market orien-
tation to explain market performance has also been criticized as such positive out-
comes are often directly explained by constructs that either mediate or moderate the
relationships, rather than by the status of market orientation (Olavarrieta and
Friedmann 2008). As a result, it has been suggested that more attention should be
paid to market-sensing capability as a key antecedent of firm performance, as ulti-
mately it is market-sensing capability that captures well the main elements of the
market orientation construct as defined by Kohli and Jaworski (1990). At the same
time, however, it is likely to provide a more direct path to explaining why some
firms perform better than others (see Olavarrieta and Friedmann 2008).
In general, marketing capabilities, such as the capabilities for brand management
(e.g., Angulo-Ruiz et al. 2014; Merrilees et al. 2011; Möller and Anttila 1987), inno-
vation (e.g., Ngo and O’Cass 2009), customer linking (O’Cass et al. 2012; Fahy
et al. 2000), channel bonding (e.g., Prasad et al. 2001; Ripolles and Blesa 2012),
networking (e.g., Perez-Cabanero et al. 2012), external and internal marketing capa-
bilities (Morgan et al. 2012), and specialized marketing capability (Elango and
Pattnaik 2007), all are found to relate positively to the firm’s performance. In addi-
tion, dynamic marketing capabilities such as global marketing capabilities (Chang
1996; Kotabe et al. 2002) and market-sensing capability (Day 1994, 2002) have
been found to have performance implications in the global context (Prange and
Verdier 2011).
According to Lindblom et al. (2008), high level of market-sensing capability of
entrepreneurs can lead to higher growth in firms. Market-sensing capability has also
a positive effect on the speed to market (Ardyan 2016) and product innovativeness
(Zhang and Wu 2013). Firms with sensing capabilities are known for their ability to
constantly detect the emerging trends and thus behave proactively rather than
responding only to the clear signals (Day 2011). Following this, it can be assumed
that market-sensing capability may also influence the international performance of
the company.
An emerging theme is the role of dynamic capabilities in internationalization of
SMEs (see Knight and Cavusgil 2004; Autio et al. 2011; Torkkeli et al. 2012), where
marketing strategy in general (Knight 2000) and marketing-related capabilities in
particular (Lee and Hsieh 2010; Weerawardena et al. 2007) influence the ways in
which the enterprises conduct marketing and operations abroad. Based on Day
(2002) and Vorhies and Morgan (2005), it is assumed that firms with developed
market-sensing activities gain competitive advantage and superior business
performance.
International performance is one of the main outcomes that research on entrepre-
neurial internationalization has sought to explain (e.g., Knight 2001; Kuivalainen
et al. 2004; Leonidou et al. 2002; Zou and Stan 1998). It can be explained either
through the degree of internationalization (cf. Sullivan 1994) or through subjective
assessments of how well a given enterprise has succeeded in their operations abroad
and to what extent they have reached their goals for internationalization.
International performance measures in the literature are mainly of the latter type
(Leonidou et al. 2002) and should be favored when aiming to operationalize
international performance in this type of research (Zou and Stan 1998). Thus, in
this study we also refer to international performance as the extent of success inter-
nationally as assessed by the managers of the enterprises and aim to operationalize
it through a Likert scale measure.
As market-sensing capability can be linked to increased overall performance, we
propose that it is also linked to increased international performance: other types of
organizational capabilities have been linked to international performance in extant
literature (e.g., Jantunen et al. 2005; Lu et al. 2010; Torkkeli et al. 2012). There is
also some evidence of the relationship between market orientation and international
performance (Armario et al. 2008). Moreover, marketing capabilities in general can
foster international commitment and, subsequently, performance (Blesa and
Ripolles 2008). While the extant studies have neither assessed market-sensing capa-
bility directly nor examined the role of CSR as part of their study setting, they pro-
vide a basis to hypothesize the following:
H1 Market-sensing capability will increase firm’s international performance.
Since the CSR practices as applied in large corporations are hardly applicable to
the small firms as such, there was an attempt to reposition the CSR concept to better
fit SMEs by Ryan et al. (2010). They reconsider CSR to the concept of responsible
business practice in order to apply it for the small firms. The difference between
these two concepts is that the former is understood by the authors as an organiza-
tional response of large corporations to prominent calls for businesses to not only
avoid doing harm but to also have a positive impact on the society. Consequently, in
a large firm, CSR involves a wide variety of practices, which SMEs are hard put to
replicate and implement due to the resource constraints. On contrary, an SME’s
owner/manager, on account of their central role in the SME, can make personal
decisions about the issues related to the engagement of the firm to the elements of
responsible business practices (RBPs), such as environmental and/or social respon-
sibility. The concept of RBP is also in line with the responsible business behavior
(RBB) concept we picked up for this study. RBP topology in a form of matrix is
presented in Table 10.2.
In this topology, small firms are differentiated according to the RBPs they adopt,
which in turn are dictated by the firms’ unique features. Environmentally responsi-
ble firms, sometimes also referred as to ecopreneurs, are involved in environmen-
tally sustainable practices due to various reasons which can be categorized into five
Table 10.2 A typology of responsible business practice orientation

Environmental mission
High Low
Social High Sustainable enterprises Socially responsible enterprises
mission Low Environmentally responsible Market-driven responsible
enterprises enterprises
Adapted from Ryan et al. (2010)
groups: resistant, reactive, anticipatory, innovation-based, and sustainability-driven

behavior (Klewitz and Hansen 2014). Out of these, the reactive behavior of SMEs
is rooted in the answer to the external pressure to engage in responsible practices.
Such stimuli may be environmental regulations (Bianchi and Noci 1998) or actors
in public–private partnerships that SMEs are involved in (Hansen and Klewitz
2012). Post and Altman (1994) divide the environmentalism according to its drivers,
one of which is market-driven environmentalism, i.e., adhering to market incentives
in the firm’s actions.
The same logic may be applied to socially responsible enterprises which, in the
context of SMEs, are referred to as social entrepreneurship. Compared to entrepre-
neurship, social entrepreneurship is different in terms, i.e., measuring the perfor-
mance through social impact rather than financial indicators (Spear 2006). However,
even if they are not engaged in social entrepreneurship, SMEs are known to have
strong relationships between the firm, its employees, and the local community
(European Commission 2003).
Different SMEs are attributed to different types of RBP, and they can change
their type depending on the time and situation. For instance, RBP may be initiated
for market reasons; thus, the enterprise will be called market-driven responsible
enterprise, meaning a firm that has made significant changes to the processes or
products in order to be considered responsible. While shifting from such a short-
term competitive response to more strategic adaptations, such firms may change to
another type of RBB throughout the company’s operations. However, market-driven
RBB is a first step in this process. In other words, these firms are responsive to
external, market-driven influence and therefore need to possess a market-sensing
capability which may drive their responsible behavior further toward sustainable
enterprise. Based on these notions, we hypothesize that:
H2a Market-sensing capability will increase the social responsibility of an inter-
national SME.
H2b Market-sensing capability will increase the environmental responsibility of

an international SME.
Derwall et al. (2005) claim there are a number of benefits associated with envi-
ronmental initiatives, such as business risk reduction, reputation increase, and new
markets development. Focusing on large US firms, several quantitative studies have
demonstrated the positive linkage between environmental performance of large
firms and their financial performance (Russo and Fouts 1997; Karagozoglu and
Lindell 2000; Clarkson et al. 2011).
The scarce amount of recent studies shows mixed results in this regard in the
international and global context. CSR can either facilitate or hinder innovation and
internationalization efforts depending on their type (Costa et al. 2015), while the
impact of environmentally friendly export strategies on competitive advantage in
foreign markets is complex (Leonidou et al. 2015). For instance, since the firm’s
responsibility increases consumer and employee trust in the organization, it can be
assumed that this will positively affect the firm’s activities also in the foreign mar-
kets. Indeed, a support for it was demonstrated in the study of MNC in Hadjikhani
et al. (2016), with a reason for this being that CSR “creates a reputation that a firm
is reliable and honest” (McWilliams and Siegel 2001: 120).
Overall, there is a lack of empirical evidence when it comes to the environmental
performance of smaller firms (Qian and Xing 2016). Molina-Azorín et al. (2009), in
their review of the impact of green management on financial performance, found
that most of the studies show a positive impact. However, all these studies that were
reviewed have a large listed company as a unit of analysis, whereas there is as yet
no research proving that the same positive trend is prevalent in privately owned
firms. In the same vein, there is a lack of research that investigates the link between
a company’s responsibility and international performance, with the rare evidence
indicating that CSR can have a positive impact on performance (Ben Brik et al.
2010). Thus, we hypothesize that:
H3a Social responsibility will increase SMEs’ international performance.
H3b Environmental responsibility will increase SMEs’ international performance.
Research Framework
Based on the literature review and the subsequent hypotheses developed, this study
argues that market-sensing capability and responsible business practices are impor-
tant in the internationalization processes of SMEs, contributing to their interna-
tional performance. In this research framework, a firm’s responsibility for the
environment and for the society is considered to be two parts of business
responsibility.
The framework proposes a direct relationship between market-sensing capability
and the responsibility to the society and the environment, as well as the mediating
role of business responsibility between the market-sensing capability and an SME’s
international performance. Overall, the research framework implies that a firm’s
market-sensing capability improves the responsibilities to society and the natural
environment, which then improve international performance. The research frame-
work is presented in Fig. 10.1, showing the interrelations and five hypotheses dis-
cussed above.
Research Design
Data Collection
First, in order to test the hypotheses, we collected data through an online survey.
The sample data for this study was collected in May–September 2014 via a web-
based survey instrument. The initial sample of SMEs with the employee head
Social
responsibility
H2a H3a
Market-sensing H1 International
capability performance
H2b H3b
Environmental
responsibility
Fig.10.1 A research framework
count within the limits of 10–250 employees was drawn from the Amadeus online
database of Finnish small- and medium-sized companies. The yielded sample of
1130 companies was a cross-industrial one including firms from several industries:
forest industry, chemical industry, metal industry, other manufacturing activities
and mining and quarrying, energy supply, water supply, waste management, and
construction.
As a result, we identified a total of 1130 firms to be contacted by phone. A total
of 78 of them were judged non-eligible, with the eligibility determined by the
requirement that the respondents needed to have independence in terms of strategic
decision-making. Because of this, subbranches and Finnish subsidiaries of foreign
firms, for example, were excluded from the study. The respondents were typically
CEOs or other higher-level managers. Three hundred eleven firms declined to par-
ticipate in the study, with the most common reason being the lack of time. Three
hundred six firms were not reached despite several efforts. At the end, final responses
were received from 148 firms, thus resulting in a 14% response rate (148/1052).
After clearing the data from duplicates, allowing only one filled-in survey per com-
pany, 141 companies constituted a sample. Out of this sample, 85 SMEs with inter-
national operations constituted the final sample used in this study. The distribution
of the final sample by industry is presented in Fig. 10.2.
Concerning international operations, companies had on average 20.3 years of
international operations in an average of 8.5 countries. The countries of the first
international entry were Sweden for 31% of companies, Germany for 12%,
Russia for 11%, Estonia for 9%, and the Soviet Union for 4% of companies. On
average, the international operations constituted 26.9% of turnover at the
moment of data collection. As shown in Fig. 10.3, own exports (58%) were the
most used primary international entry mode, followed by exports with a retailer/
distributor (24%).
Fig. 10.2 Distribution of sample by industry, % from total sample
Fig. 10.3 A primary international entry mode

Measurement of Key Variables
International performance was evaluated based on the decision-maker’s perception

of the firm’s performance in foreign markets. The six-item scale was borrowed from
Nummela et al. (2004) study, and one item was added and measured on a seven-
point Likert scale (1 = strongly disagree to 7 = strongly agree).
This and other scales in this study were measured on a seven-point Likert scale
(1 = strongly disagree to 7 = strongly agree). The international performance scale
items converged on a single factor that explained 66.8% of the total variance.
Kaiser–Meyer–Olkin (KMO) measure of sampling adequacy value was 0.81, and
Bartlett’s test of sphericity was statistically significant (sig. <0.01).Communality
values ranged between 0.53 and 0.75, while the individual factor loadings ranged
between 0.72 and 0.91 (see Appendix 1 for the detailed listing). The Cronbach’s
alpha value of this resulting scale was 0.92, indicating a reliable measure. We fur-
ther ensured reliability and convergent validity through calculating composite reli-
ability (CR) and average variance extracted (AVE) values for each scale. CR values
should in general be above 0.60 (Bagozzi and Yi 1988), while AVE values of 0.50
or higher indicate sufficient convergent validity (Hair et al. 2009). For the interna-
tional performance scale, the CR value was 0.93 and AVE 0.66, indicating sufficient
convergent validity. The resulting scale items were the following:
1. Generally speaking, we are satisfied with our success in the international
markets.
2. We have achieved the turnover objectives we set for internationalization.
3. We have achieved the market share objectives we set for internationalization.
4. Internationalization has had a positive effect on our company’s profitability.
5. Internationalization has had a positive effect on our company’s image.
6. Internationalization has had a positive effect on the development of our compa-
ny’s expertise.
7. The investments we have made in internationalization have paid themselves
back well.
Five items measuring social responsibility were adapted from Turker’s (2009)
study. CSR to society was regarded as a responsibility to social and nonsocial stake-
holders. The items for CSR converged in a single factor explaining 71% of the total
variation. Communalities ranged from 0.59 to 0.79 and individual factor loadings
between 0.77 and 0.89. KMO value was 0.74, and Bartlett’s test is again significant.
Cronbach’s alpha value for the resulting measure was 0.90, AVE value was 0.71,
and CR was 0.92, altogether suggesting a sufficiently reliable and valid scale, with
the following items:
1. Our company participates to the activities which aim to protect and improve the
quality of the natural environment.
2. Our company makes investment to create a better life for the future generations.
3. Our company implements special programs to minimize its negative impact on
the natural environment.
4. Our company targets a sustainable growth which considers to the future

generations.
5. Our company contributes to the campaigns and projects that promote the well-
being of the society.
Environmental responsibility has been measured by eight self-developed items
based on reviewing available literature on sustainability (e.g., Menguc and Ozanne
2005). For the environmental responsibility scale, again, the factor analysis con-
verged on a single scale explaining 52% of the total variation, with a KMO value of
0.82 and a significant (p < 0.01) Bartlett’s test of sphericity. Communality values of
the individual items ranged between 0.39 and 0.65, with factor loadings ranging
between 0.62 and 0.81. The corresponding AVE value was 0.55 and CR 0.89.
Cronbach’s alpha value was 0.85, indicating sufficient reliability of the scale with
the following items:
1. We pay much attention to the environmental hazards resulting from the manufac-
ture of our products.
2. We apply the lifecycle analysis when we assess the environmental friendliness of
our products.
3. We set waste reduction goals for our suppliers.
4. We actively advance the recycling and reuse of our products.
5. Our products are part of the process reducing environmental hazards and/or
climate change.
6. Our company utilizes clean technology (incl. products, services, processes, tech-
nologies), which prevents or reduces negative environmental effects of business
activities.
7. Preventing damage to nature is a central goal of our business activities.
8. Production that saves natural resources is a central goal of our business
activities.
Items measuring market sensing were conceptualized on the basis of Day’s
(1994, 2002) work. The items of the market-sensing capability similarly converged
in a single factor, explaining 54.7% of the total variation. KMO value was 0.74 and
Bartlett’s test again significant at the 0.01 risk level. Communalities ranged
between 0.38 and 0.76, while individual factor loadings ranged between 0.62 and
0.87 (see Appendix 1). Cronbach’s alpha value for the resulting scale was 0.77,
AVE value was 0.54, and CR was value 0.85. The resulting measure included the
following five items:
1. We have systematic processes, with which we interpret prevailing trends in the
market environment.
2. We actively follow our competitors’ procedures.
3. Our company’s employees regularly discuss the effect of market trends and new
products on our activities.
4. We quickly analyze and interpret changes taking place in market demand.
5. We regularly envision what our industry will look like after the next 20 years.
In addition, two control variables – firm age and firm size – were included. A
firm’s size was measured by the number of its employees, and the firm’s age was
operationalized by the number of years passed since the firm’s establishment; thus,
the effects on dependent variables (social responsibility, environmental responsibil-
ity, and international performance) are controlled. The choice for the control vari-
ables in this case was clear, as firm size and firm age are the control variables that
are used most often in marketing studies (Kamboj and Rahman 2015). The firm size
difference, even within the SME category, was noticed in the study of Preuss and
Perschke (2009), where medium-sized firms differed from small and micro firms in
their approach to CSR, while the study of Hoogendoorn et al. (2014) demonstrated
that an SME’s age is not related to the environmental practices of the firm. Firm age
may relate to the level of experience and managerial competences of the firm; hence,
it may affect the firm’s performance (Zhan and Luo 2008).
Finally, we accounted for several potential biases and ensured further validity of
the survey setting through several means: In order to minimize potential common
method variance (CMV) and increase data reliability, we took both ex-ante and
post-hoc measures, seeking to adhere to the guidelines set forth by Podsakoff et al.
(2003). Namely, we guaranteed confidentiality and anonymity to respondents, and,
as the survey was part of a larger project covering a variety of issues relevant to
SMEs, it is unlikely that the responses would have been consciously aligning them-
selves with the expected theoretical linkages. Some questionnaire items were nega-
tively worded in order to avoid the halo effect, and the scales used in this study were
also inquired upon in different parts of the questionnaire. Moreover, we conducted
Harman’s single-factor test as a post-hoc test against CMV. In the test, the first fac-
tor accounted for 33.4% of the variance, indicating that CMV should not have been
a concern in the analysis. In addition to testing for CMV, we tested for convergent
validity of the scales through the examination of AVE and CR values as mentioned
above. For discriminant analysis, we compared AVE values of constructs to the
squared correlations between them, with the former being higher than the latter in
all cases, thus indicating discriminant validity.
Results
Hypotheses Testing
Table 10.3 reports the descriptive statistics and zero-order correlations associated
with study variables. The mean age of the firms in our sample is 34 years, and their
size in terms of employees is relatively small with a mean of 60 employees. The
correlation coefficients and variance inflation factors (VIF; not tabulated, but all
below 10; Hill and Adkins 2001) do not raise a concern for multicollinearity.
Models 1 and 3 (Table 10.4) included only control variables – firm size and firm
age. Neither firm age nor firm size was significantly related to social or e nvironmental
responsibility. In Model 2, with the inclusion of control variables, social responsibility
Table 10.3 Descriptive statistics and correlations of key variables

Mean Std. dev. 1 2 3 4 5 6
1. Market-sensing capability 4.22 0.98 1
2. Environmental responsibility 4.05 1.29 0.34** 1
3. Social responsibility 4.22 1.35 0.42** 0.74** 1
4. International performance 4.26 1.37 0.24* 0.18 0.36** 1
5. Firm age 34.18 25.78 0.06 0.02 0.08 0.19 1
6. Firm size 59.078 53.09 0.05 0.17 0.20 0.27* 0.25* 1
*p < 0.05, **p < 0.01
Table 10.4 Results of hypotheses test

Model 1 Model 2 Model 3 Model 4 Model 5
social social environmental environmental international
Independent responsibility responsibility responsibility responsibility performance
variables β t-value β t-value β t-value β t-value β t-value
Market- – – 0.42 4.25*** – – 0.34 3.23** 0.23 2.12*
sensing
capability
Environmental – – – – – – – – −0.19 −1.31
responsibility
Social – – – – – – – – 0.32 2.11*
responsibility
Control variables
Firm age 0.03 0.33 0.03 0.33 −0.01 −0.13 −0.01 −0.17 0.19 1.95
Firm size 0.20 1.75 0.19 1.84 0.17 1.52 0.16 1.54 0.24 2.30*
Model estimation
R2 0.04 0.22 0.03 0.14 0.29
adj. R2 0.02 0.19 0.00 0.11 0.24
F 1.80 7.51*** 1.18 4.36** 5.91***
*p < 0.05, **p < 0.01, ***p < 0.001
regressed on market-sensing capability. In Model 4, with the inclusion of control

variables, environmental responsibility regressed on market-sensing capability. In
Models 2 and 4, market-sensing capability positively affected the social responsibility
(β = 1.80, t = 4.59, p < 0.001) and environmental responsibility (β = 0.38, t = 3.66,
p < 0.001) of the firm. Thus, H2a and H2b were supported.
Model 5 considered a firm’s environmental responsibility, social responsibility,
and market-sensing capability as sources for international performance. The result
showed that both market-sensing capability (β = 0.23, t = 2.12, p < 0.05) and social
responsibility (β = 0.32, t = 2.11, p < 0.05) positively affected perceived interna-
tional performance, whereas environmental responsibility (β = − 0.19, t = −1.31,
p > 0.05) did not. Thus, H3a and H1 were supported, but H3b was not. It was found
that firm size was positively associated with international performance. The SMEs
with more employees may possess a variety of resources including human resources
and capital to maintain international operations and, consequently, be more satisfied
with the international business goal execution.
Mediation
Since the links between social responsibility–market-sensing capability and social

responsibility–international performance were positive, this study further analyzed
the mediating role of social responsibility in the relationship between market-
sensing capability and international performance. For these purposes, multiple
regression analyses were run to asses each component of the proposed mediation
model (Fig. 10.4).
It was found that all paths in Fig. 10.2 were significant: path a (market-sensing
capability–social responsibility) (β = 0.50, t = 3.95, p < 0.001), path b (social
responsibility–international performance) (β = 0.28, t = 2.41, p < 0.05), and path c
(market-sensing capability–international performance) (β = 0.38, t = 2.89, p < 0.01).
Next, mediation analyses were tested using the bootstrapping method with bias-
corrected confidence estimates (MacKinnon et al. 2004; Preacher and Hayes 2004).
In this study, the 95% confidence interval of the indirect effects was obtained with
5000 bootstrap samples (Preacher and Hayes 2008). Figure 10.5 displays the results.
As a result, it was found that the mean indirect effect from the bootstrap analysis
is positive and significant (a × b = 0.141), with a 95% confidence interval excluding
zero (0.0389–0.3115). In the indirect path, a unit increase in market-sensing
capability increases social responsibility by a = 0.5012 units. Since b = 0.2813, with
market-sensing capability staying constant, a unit increase in social responsibility
increases international performance by 0.2813 units on a 0–1 scale. The direct effect
c’ (0.2461) became nonsignificant (p = 0.0872), meaning there is no direct effect of
market-sensing capability on international performance in this case. The results of
the mediation analysis confirmed the mediation role of social responsibility in the
Social responsibility
Path a Path b
Path c
Market-sensing International
capability Performance
Fig. 10.4 A mediating model
0.50∗∗∗ 0.28∗
0.24
(0.38∗∗)
Market-sensing International
capability performance
Fig. 10.5 Indirect effect of market-sensing capability through social responsibility on interna-
tional performance (Note: *p < 0.05, **p < 0.01, ***p < 0.001)
0.76∗∗∗ 0.49∗∗∗
-0.18
(0.19)
Environmental International
responsibility performance
Fig. 10.6 Indirect effect of environmental responsibility through social responsibility on interna-
tional performance (Note: *p < 0.05, **p < 0.01, ***p < 0.001)
relation between market-sensing capability and international performance, and

since a × b is significant and c’ is nonsignificant, it is an indirect-only mediation
(Zhao et al. 2010) or “full mediation.”
Even though the environmental responsibility was nonsignificant in regression
model 5, we conducted an additional mediation analysis using the aforementioned
bootstrapping method with bias-corrected confidence estimates, a 95% confidence
interval, and 5000 bootstrap samples. This mediation analysis tests if there is an
indirect effect of environmental responsibility through the social responsibility on
international performance. For this mediation analysis, the model is the following:
path a is environmental responsibility–social responsibility (β = 0.76, t = 9.44,
p < 0.001), path b is social responsibility–international performance (β = 0.49,
t = 3.13, p < 0.01), and path c is environmental responsibility–international perfor-
mance (β = 0.19, t = 1.62, p > 0.05). Figure 10.6 displays the results.
The results of the analysis indicated that mean indirect effect is positive and sig-
nificant (a × b = 0.3779), with a 95% confidence interval excluding zero (0.1208–
0.6707). The direct effect c’(−0.1854) remained nonsignificant (p = 0.2635), and
since a × b is significant with c’ being nonsignificant, an indirect-only mediation
was found, meaning environmental responsibility increases international perfor-
mance through the mediation of social responsibility in this case.
Discussion and Implications
Theoretical Implications
The results of this study highlight how the combination of firm-specific advantages
in the form of organizational characteristics and capabilities is intertwined with
responsible business practices, which together enhance international entrepreneur-
ial growth. The results suggest that responsible business behavior results from sens-
ing the market; however, responsible behavior does not necessarily facilitate SMEs’
international performance. The findings demonstrated that market-sensing capabil-
ity led to both higher social responsibility and environmental responsibility. While
market-sensing capability, socially responsible behavior, and firm size together
directly enhance international performance (H3a), environmentally responsible

behavior does so through social responsibility only. In addition, social responsibil-
ity was confirmed to be a mediator between market-sensing capability and interna-
tional performance. Thus, the empirical part of this study provided evidence that
market-sensing capability serves as a source for international performance (H1) as
well as for both social responsibility (H2a) and environmental responsibility (H2b).
The direct positive relationship found between market-sensing capability and
international performance is contrary to the studies that considered the market-
sensing capabilities among the SMEs. These studies have not found strong evidence
for market-sensing capability directly influencing firm performance, as in the study
of Lindblom et al. (2008) where positive effect on profitability was not confirmed.
However, that study did not assess the international dimension, and thus our results
extend those findings to also account for performance and growth of international-
izing SMEs.
Market-sensing capability had a positive relationship on both types of responsi-
bilities in the sample firms as hypothesized. This result suggests that it is easier for
a company to notice and incorporate the responsible practices into its operations
when it is responsive to customers and competitors. Contrary to evidence in extant
literature supporting the positive role of environmental responsibility on a firm’s
performance, this study found no direct relationship between environmental respon-
sibility and international performance (H3b). This insignificant finding implies that
environmental responsibility by itself has no direct effect on the international per-
formance of the SME. Contrary to environmental responsibility, higher levels of
social responsibility were found to predict better international performance (H3a).
The explanation for that might be is that social responsibility involves less resource-
consuming actions, as it may occur along with the embeddedness of the SME to the
local community and may be maintained through the interaction with it.
Environmental responsibility, on the other hand, may require major operational
changes, i.e., during the process of obtaining the environmental certifications or
standards. Hence, these differences may become crucial for an SME with relatively
scarce resources at its disposal and thus indirectly impact the international perfor-
mance. As noted by Gelbmann (2010), SMEs often find sustainable practices
challenging, as adhering to such practices may require significant additional time
and investment for communicating them to stakeholders, leaving less resources for
the company for use in its internationalization process, most notably its marketing
abroad.
Moreover, we found a mediating role of social responsibility between market-
sensing capability and international performance in the analysis, as well as between
environmental responsibility and international performance. In the first case, this
means that market-sensing capability should help SMEs achieve social responsibil-
ity in order to achieve a better international performance. The role of market-sensing
capability indirectly impacting the performance of an SME is visible in the study of
Ardyan (2015), who found that market-sensing capability has a positive effect on
the success of product innovativeness, which then serves as a mediator between
market-sensing capability and the performance of an SME. In the second case, this
means that environmentally friendly practices executed by the company contribute

to the well-being of the local society and enhanced international performance.
The higher international performance in this study resulted partially from firm
size, meaning SMEs with more employees may be more successful in managing
activities in multiple international locations. This result is in line with Manolova
et al. (2010), where firm size in terms of employees was positively associated with
an SME’s export intensity. Increased human resources allow for the broadening of
the firm’s consumer base, hence decreasing the coordination costs and potentially
achieving a higher sales volume, which results in economies of scale and scope
(Aulakh et al. 2000; Gomes and Ramaswamy 1999). This is also contrary to find-
ings that indicate that small firms perform better than medium-sized firms (Wolff
and Pett 2000).
This study therefore has implications on the emerging issues in global marketing
in several ways: First, it clarifies the role of CSR in a form of responsible behavior
toward society and toward the environment in the context of international entrepre-
neurial growth. Then, it also posits the necessity of strategic management through
social responsibility and market-sensing capability. This provides an opportunity
for internationalizing SMEs to align with the global market dynamics and perform
better when internationalizing.
The greatest impact of responsible business behavior in the internationalization
of SMEs would be on product development decisions. By sensing the demand of
host markets, the same product could be sold simultaneously in several countries to
groups with similar levels of demand for social and environmental issues. Moreover,
products in line with a certain level of standards for responsibility being in demand
in one country can be targeted in the future to countries that now have lower respon-
sibility requirements. Such a lower level of responsibility requirements in some
countries, combined with the current product alternatives being unaffordable for
consumers, may launch a product redesign or adaptation processes, in order to con-
sider entry into this market as a step of international entrepreneurial growth.
In terms of promotion, SMEs often tend to have a lack of disclosure of their
responsible practices. The market sensing brings the knowledge of a consumer type
on the host market and thus allows the adjustment of communication of
responsibility-related issues while internationalizing. Depending on the needed
communication type, SMEs may maintain their image and facilitate the acceptance
of their products in host countries if matched right.
Then, dictated by the international entry mode, the distribution should also be
adjusted to the market conditions and to the partners’ strategies concerning the
responsible business practices if resellers are involved. Consequently, pricing policy
for different markets might be built taking into account, in addition to the market
knowledge, such factors as different pricing for products marketed as “responsible”
or “sustainable” (as a differentiation strategy) or requirements from a distribution
channel.
As a result, the SME’s marketing strategy, including product, promotion, distri-
bution, and pricing, should be carefully planned in accordance with the knowledge
received from target markets. The responsible business practices used should match
the varying levels of demand in various countries while considering new market
entry.
Academically, this study extends previous approaches to the organizational
capability–international performance relationship in a few aspects. First, this study
confirms that market-sensing capability has a critical role in the SME’s international
performance, providing empirical evidence for it being an antecedent of organiza-
tional change in behavior.
Second, while integrating the IE and CSR perspectives, this study enhances our
understanding of the market-sensing capability–international performance relation-
ship by employing social responsibility as a mediator, since it appears partially in
response to the market situation and contributes to the performance in international
markets. Given the limited research on both market-sensing capability and respon-
sible business practices in the internationalization of SMEs, this finding is unique in
the literature since the mediating roles of responsible business behavior have not
been examined when explaining the market-sensing capability–international perfor-
mance relationship.
Third, it links the SMEs’ internal firm-specific advantages in social responsibil-
ity as major determinants of their responsible business behavior. In doing so, it
extends the studies in global marketing on CSR (Becker-Olsen et al. 2011; Choi
et al. 2016) and marketing-related capabilities (e.g., Prasad et al. 2001) to the SME
context, thus bringing forth additional contribution to complement those from the
large MNC context (Jamali et al. 2009; Kolk and Van Tulder 2010). CSR and the
increasing prevalence of software start-ups and other SMEs in the markets globally
bring forth emerging themes also for research on international marketing. As the
results of this study show, both are relevant and linked to marketing through specific
marketing-related dynamic capabilities.
In sum, we found that the impact of market-sensing capability on international
performance is mediated by the extent of social responsibility exhibited by the
SME. Thus, social responsibility has a central role in entrepreneurial international-
ization, and this impact is both fostered and tempered by organizational capabilities
and operational characteristics of the enterprise. The results help clarify the mixed
evidence in previous literature concerning the effect that CSR activities can have on
company performance (Ben Brik et al. 2010; Husted and Allen 2007; Margolis and
Walsh 2003; McWilliams and Siegel 2000; Orlitzky and Benjamin 2001; Orlitzky
et al. 2003), specifically by outlining how the two elements of CSR, namely, social
responsibility and environmental responsibility, affect the international performance
of SME. Clarifying the role of market-sensing capability brings up another novel
finding: Even though extant literature has investigated the mediating role of innova-
tion capabilities and competitive advantages in the market orientation–performance
relationship (Han et al. 1998; Zhou et al. 2005, 2008), there is still limited knowl-
edge about the processes which are influenced by market-sensing capability and
implications for the international performance of firms. This study contributes to
adding to that knowledge and linking it to CSR and performance specifically.
Managerial Implications
The findings of this study can help SMEs develop effective management strategies.
Our findings – that market-sensing capability improves responsible business behav-
ior which then contributes to international performance of SMEs – may improve the
understanding of SME managers regarding the importance of the development of a
firm’s capabilities. This study posits that market-sensing capability is not only a key
for better international performance, but, combined with social responsibility, it
brings more results for the company. As this study demonstrated, the market sensing
may serve as a source for improvement of responsible practices in the firm; thus,
SMEs need to find ways to develop and maintain the market sensing both at home
and in host countries, from diverse perspectives. Consequently, paired with the
well-developed market-sensing capability, the international operations of the SMEs
may become better. To achieve this, market sensing should be strategized and main-
tained so that the acquisition of the needed market knowledge can be achieved.
Social responsibility is often operationalized in small companies through their
strong embeddedness with the local community and employment of the locals
affecting the well-being of the local community. Entrepreneurs and owner–manag-
ers in charge of decision-making in small businesses should consider the advantages
of responsible business behavior for international performance. For SMEs, both
internationalization and responsible business practices are activities which require a
contribution of often limited resources and prioritizing; hence, managers are assess-
ing in what way RBB and “doing good” will influence their company as they con-
duct internationalization strategy. Our finding that social responsibility contributes
positively to international performance suggests that managers can obtain competi-
tive advantages and benefit by contributing resources into issues related to social
responsibility while already having international operations. For instance, they can
improve their international operations by explicitly emphasizing the socially impor-
tant issues for the host market’s local community.
Our findings also suggest that firms are not always able to benefit from respon-
sible business behavior. Environmentally responsible behavior will pay off and
improve international performance only through social responsibility and thus
shouldn’t be totally ignored despite not showing a direct effect. Rather, it should be
combined with social responsibility. Indeed, internationalized SMEs should realize
that contribution to responsibility can represent a beneficial strategy, particularly in
recent times, when the stakeholders are expressing their social and ecological con-
cerns. To managers, this means that improving the business’ responsible practices is
an important intermediate step in converting organizational capabilities into perfor-
mance gains.
It is an emerging issue that SMEs involved in responsible business practices
neither have them prominently positioned within the company’s strategy nor in the
external communication. Though SMEs are not advised be pushed by policies to
disclose this information as opposed to large companies, government officials and
policymakers should take a step further in order to lead the SMEs toward more open
communication about their commitments. Starting from the home countries, the
bodies and state agents that provide consultation about exports and internationaliza-
tion for SMEs should include advice on what would be the most beneficial tactic for
a particular SME when going abroad, especially regarding the responsibility issues
in the host market with the use of international marketing instruments.
The results and their interpretation must be considered in the context of this study’s
limitations. One of the limitations is that this study is a one-country study with
Finland having its own specific features, making the results less generalizable for all
countries. Thus, future studies might consider the differences of the host markets for
the internationalization strategies of SMEs and, consequently, different socially
responsible behavior in regard toward what the customers’ values and expectations
are in this market. Also, the research which compares developed and emerging
economies as both home and host countries may reveal interesting insights.
Several methodological limitations may restrict the generalizability of our find-
ings, including using a relatively small sample size and applying Likert scale items
across the variables. Hence, expanding the scale of the sample and incorporating
objective measures for international performance are beneficial for future studies.
Moreover, since the dynamics of the effect of responsible practices over interna-
tional performance may differ along with the internationalization process, the lon-
gitudinal study that examines the effects of internationalization over several years
may reveal certain differences. For a further investigation, it is advised to measure a
firm size as a composite measure combining number of employees with i.e., few-
year average yearly revenues.
Conclusion
The aim of this study was to highlight an emerging area linking global marketing
and international entrepreneurship research, the impact of CSR, and dynamic capa-
bilities related to marketing in an international and global context. Specifically, the
empirical part of the study examined how market-sensing capability and CSR are
interlinked in explaining the international performance of SMEs. In doing so, the
present study has contributed, by linking together global marketing, strategic man-
agement, and CSR-themed research, to explaining how SMEs operating interna-
tionally and globally can benefit from developing marketing-related capabilities
while maintaining socially responsible business practices in the process.
Appendix 10.1
International performance, market-sensing capability, social responsibility, and

environmental responsibility
International performance
AVE = 0.66, CR = 0.93
Communalities Factor loadings
IP1 ,740 ,860
IP2 ,559 ,748
IP3 ,633 ,796
IP4 ,750 ,866
IP5 ,610 ,781
IP6 ,528 ,727
IP7 ,833 ,913
Market-sensing capability
AVE = 0.54, CR = 0.85
MS1 ,437 ,661
MS2 ,562 ,750
MS3 ,764 ,874
MS4 ,590 ,768
MS5 ,385 ,620
Environmental responsibility
AVE = 0.55, CR = 0.89
ER 1 ,654 ,809
ER 2 ,590 ,768
ER 3 ,410 ,640
ER 4 ,412 ,642
ER 5 ,529 ,727
ER 6 ,387 ,622
ER 7 ,583 ,764
ER 8 ,662 ,814
AVE = 0.71, CR = 0.92
SR 1 ,792 ,890
SR 2 ,737 ,859
SR 3 ,639 ,800
SR 4 ,784 ,885
SR 5 ,587 ,766
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Chapter 11
Case Study of Corporate Social
Responsibility in Japanese Pharmaceutical
Companies: A Comparison with Western Firms
Terry Wu and Yuko Kimura
Abstract In recent years, the awareness of corporate social responsibility (CSR)

and its role have been on the rise in the business world. Japanese pharmaceutical
companies got a late start on CSR activities compared to their Western counterparts.
This study focuses on CSR in the pharmaceutical industry utilizing a comparison of
Japanese and Western firms. We examine a sample of eight pharmaceutical compa-
nies: four Japanese-based firms and four Western-based firms. Our objective is to
assess whether there is any difference between Japanese and Western firms in terms
of the level of CSR.
Introduction
In recent years, there has been a growing awareness of corporate social responsibil-
ity (CSR) in the business world. In the past, profit-focused businesses paid little, if
any, attention to the environment, education, health, poverty, or sustainable develop-
ment. There was a perception that these social issues did not affect business firms,
directly or indirectly, nor did these firms bear responsibility for a common good.
Nevertheless, the topic of business ethics has received increasing attention in the
news media, and today, companies are under tremendous pressure to practice CSR
given the extensive media coverage of ethics as well as the environment, child labor,
and other pressing issues of sustainability in developing nations and worldwide. In
most countries, CSR is gaining growing acceptance in the corporate sector. Many
companies have adopted CSR as an integral part of their business strategy and pub-
lic value offering.
T. Wu (*)
Faculty of Business and Information Technology, University of Ontario Institute
of Technology, Oshawa, ON, Canada
Y. Kimura
School of Business, University of Leicester, Leicester, UK

292 T. Wu and Y. Kimura
CSR is not a new concept in business. Levitt (1958) introduced the concept of
social responsibility in business more than 60 years ago. Extending Levitt’s notion
that “government’s job is not in business” (Levitt 1958), Friedman applied the
agency theory to explain the role of CSR in business (Friedman 1970), arguing that
a firm’s primary objective is to increase profits, thus implying that there is no need
for CSR, which is a waste of corporate resources. Using the stakeholder theory,
Freeman (1984) argued that a firm is not just responsible to the shareholders or own-
ers of the firm. Rather, a firm is required to include all stakeholders such as custom-
ers, employees, suppliers, and the public. Kotler and Lee (2004) defined CSR as “a
commitment to improve community well-being through discretionary business
practices and contributions of corporate resources.”
Building on the stakeholder theory, Donaldson and Preston (1995) asserted that
it is good business to be socially responsible in conducting business. Jones (1995)
combined the stakeholder theory and classical economic theory to postulate that
trust and ethical behavior result in high returns due to repeated business. The insti-
tutional theory was used to stress the role of institutions in establishing “ecologi-
cally sustainable organizations” (Jennings and Zandbergen 1995).
In a pioneering study on resource-based view (RBV) of the firm, Barney (1991)
argued that a firm is able to possess “sustained competitive advantage derived from
resources and capabilities it controls,” providing a useful framework analyzing
competitive advantage and performance. The RBV framework can be applied to the
study of CSR because it offers insights into how a firm’s resources are being used to
influence performance (Barney 1991, 2001). Using RBV, Hart (1995) analyzed a
firm’s performance from an environmental perspective. Similarly, Russo and Fouts
(1997) applied the CSR from a RBV perspective and argued that a firm’s competi-
tive advantage is reflected by its corporate environmental performance. McWilliams
and Siegel (2001) modified the theory of the firm by adding the “social” component
to business as a competitive advantage.
Being socially responsible is not only important for business firms, but it is also
advantageous for them to enhance values for stakeholders. In particular, marketers
can use CSR to strengthen relationships with customers, improve ties with suppli-
ers, and increase brand equity. There is a consensus that CSR and marketing are
closely linked. One relevant group of stakeholders is consumers, who may influence
firms to conduct CSR activities (Lii and Lee 2012; Sen et al. 2006). Companies need
to create a positive corporate image when consumers expect and demand ethical
behavior and philanthropic activities of business entities. CSR is a key factor in
enhancing a company’s image and public value, while also ensuring corporate suc-
cess both at home and abroad.
The marketing literature ties CSR-related activities to marketing strategy.
Marketing studies have focused on several streams of research: corporate marketing
(Balmer and Greyser 2006), brand extension (Kitchin and Schultz 2002), marketing
communication (Jahdi and Acikdilli 2009), consumer reactions (Sen and
Bhattacharya 2001), and purchase intentions (David et al. 2005). Of particular inter-
est is that most studies focus on the impact of CSR on domestic marketing (Lai et al.
2010; Luo and Bhattacharya 2006). While CSR is crucial to enhancing corporate
11 Case Study of Corporate Social Responsibility in Japanese Pharmaceutical… 293
image in international markets, there are only a few studies on international market-
ing with respect to CSR (Muller 2006; Polonsky and Jevons 2009). Some studies
suggest that CSR may enhance global brand image in emerging markets (Torres
et al. 2012). However, when entering foreign markets, global companies may not
achieve cause-related marketing results by spending on CSR due to cultural differ-
ences in attitudes toward CSR (Choi et al. 2016).
One of the issues that has generated considerable interest related to CSR is its
impact on a firm’s performance. A business case can be made by linking CSR activi-
ties to corporate performance outcomes. Since the 1990s, there has been a great deal
of research on CSR. Some studies suggest a link between corporate success and
CSR activities (Orlitzky et al. 2003; Waddock and Graves 1997). This perspective is
based on an underlying assumption that CSR activities may improve a company’s
image, thereby enhancing consumer trust in its products and services (Turker 2009).
Some scholars explore the effects of CSR activity on numerous stakeholders (Sen
and Bhattacharya 2001; Smith 2003; Waddock and Smith 2000). Building on the
idea of CSR as a competitive advantage, Greening and Turban (2000) found a posi-
tive relationship between CSR activity and job-seeking intention. This is consistent
with the reputation literature, in which corporate reputation is the organization out-
come of CSR (Agarwal et al. 2014; Walker 2010). Some management scholars have
argued that CSR has a positive impact on decisions of professional investors (Sen
and Bhattacharya 2001).
Despite numerous studies on the relationship between social responsibility and
financial performance, the empirical results are somewhat inconclusive and incon-
sistent (McWilliams and Siegel 2000; Orlitzky et al. 2003; Ullman 1985; Waddock
and Graves 1997). Although some studies indicate a positive relationship (Margolis
and Walsh 2003; Orlitzky et al. 2003), other studies suggest a negative relationship
(Aupperle et al. 1985; Friedman 1970). Several studies conclude that the relation-
ship is insignificant (Aupperle et al. 1985; Surroca et al. 2010). Other scholars have
found the relationship in asymmetric form (Jayachandran et al. 2013), U-shaped
form (Barnett and Salomon 2012), and even inverted U-shaped form (Lankoski
2008).
Given CSR is used as a business strategy, research is still needed due to these
inconclusive and contradictory results (Orlitzky et al. 2003). Some scholars even
suggest that previous research work was futile since it did not provide conclusive
and clear answers (Ullmann 1985; Margolis and Walsh 2001). Moreover, a review
of the literature reveals that most studies are based on industrial and financial firms
(Surroca et al. 2010). Yet none of the studies examines the relationship between
CSR and firm performance in the pharmaceutical industry especially in the Japanese
context. This research void is not surprising for three reasons. First, in general, little
academic research is conducted on the business approach of Japanese pharmaceuti-
cal industry due to secrecy surrounding the confidential nature of new drugs and
product developments. Second, CSR data are not readily available in the Japanese
pharmaceutical industry due to less rigorous reporting requirements in Japan. Third,
the time frame for CSR involvement in Japanese pharmaceutical industry is much
shorter. To fill the research gap, this study explores the nature of the relationship
between CSR and firm performance for Japanese pharmaceutical companies in

comparison with their Western counterparts. The pharmaceutical market is a typical
case of global marketing because prescription drugs are sold on a worldwide basis.
The reason for choosing Western firms for comparison is that they currently domi-
nate the global pharmaceutical market.
This study examines CSR in the pharmaceutical industry, using a case study to
explore the reach and importance of CSR in Japanese pharmaceutical firms in com-
parison with Western firms, as well as the impact of CSR on the financial perfor-
mance of Japanese versus Western firms. The study is organized as follows. The
next section discusses research on CSR in the pharmaceutical industry. Using a
sample of four Japanese and four Western pharmaceutical firms, we offer some
preliminary results from our investigation of the CSR activities of these firms.
Concluding remarks are presented in the last section.
CSR in the Pharmaceutical Industry
The pharmaceutical industry is a key industrial sector that is vital to most developed
economies such as the United States, U.K., Germany, Japan and even emerging
economies such as China and India. This industry develops new drugs and biophar-
maceutical products, as well as a variety of generic drugs. The industry is multifac-
eted, with numerous stakeholders ranging from patients, doctors, pharmacists,
scientists, employees, shareholders, health professionals, drug stores, hospitals, and
government to the general public. Unlike most other consumer products, people are
willing to pay a higher price for pharmaceutical products to maintain good health
and long life. This sector generates substantial profits for pharmaceutical companies
while also providing significant foreign exchange earnings for high-producing
countries in the industry. More importantly, this sector is critical to innovation and
scientific discovery in developed and emerging economies.
However, the pharmaceutical industry is facing negative publicity all the time.
There are questions about the reliability of clinical trial data for new drugs and their
safety. There is also a perception of questionable marketing behavior by pharmaceuti-
cal companies in terms of financial relationships involving manufacturers, physi-
cians, and teaching hospitals. While the pharmaceutical industry is highly profitable,
many people believe that the industry is inclined to restrict access to its products. Of
particular note is the observation that pharmaceutical companies are reluctant to offer
inexpensive drugs and medical supplies to developing countries; it is widely per-
ceived that big pharmaceutical and biopharmaceutical companies are partly respon-
sible for the lack of access to basic medicine in those countries. According to the
Ipsos Global Reputation Centre, the pharmaceutical industry is viewed negatively in
many key markets such as the USA, Canada, China, and Germany (Ipsos Public
Affairs 2012). One study concluded that pharmaceutical companies are often regarded
with considerable suspicion by the general public in the Western world, which has a
tendency to think that the industry overcharges for its products and that it carries out
irresponsible animal testing (Esteban 2008). It is widely believed that the pharmaceu-
tical industry is highly profitable because it controls the supply of medicine world-
wide (Kreiner 1995).
Members of the general public often do not recognize that the pharmaceutical
industry invests heavily in R&D and takes significant risks in developing drugs,
many of which never reach the market. For pharmaceutical companies, finding the
right balance between provision of healthcare and the generation of profits is a chal-
lenging one. Most companies are under pressure to reduce costs and improve access
to their products. While CSR has been recognized as a central issue in business,
there is no consistent approach to CSR in the pharmaceutical industry. In the USA,
CSR is related to the environment or “sustainable development.” In Japan, the focus
of CSR is on social contributions. In most European countries, the emphasis is on
socially responsible activities.
The pharmaceutical industry has maintained that it is required to operate a profit-
able business with an objective to improve people’s health. However, beginning with
the global HIV/AIDS pandemic, large drug companies have received negative pub-
licity due to a perception that they are not being socially responsible (Leisinger 2005;
Smith 2008). In 2000, in terms of global access to basic medical supplies, the United
Nations and 189 nations made a commitment to free people from extreme poverty
and multiple deprivations. This pledge was later converted into the eight Millennium
Development Goals (MDGs) for the year 2015. These goals were intended to (i)
eradicate extreme poverty and hunger; (ii) achieve universal primary education; (iii)
promote gender equality and empower women; (iv) reduce child mortality; (v)
improve maternal health; (vi) combat HIV/AIDS, malaria, and other diseases; (vii)
ensure environmental sustainability; and (viii) develop a global partnership with
companies for development (United Nations 2015). Many of these initiatives are
health-related and thus require pharmaceutical companies to support the goals.
In response to these MDGs, large pharmaceutical companies have started to
develop strategies for implementation. Moreover, Kofi Annan, the Secretary-
General of the United Nations, announced the UN Principles for Responsible
Investment in 2006 (Principles of Responsible Investment 2006), emphasizing the
need for corporations to consider a more long-term perspective for their investment
decisions and the implications for investors. Against this backdrop, there is a higher
expectation for companies to incorporate transparency, environment, governance,
and social responsibility in their business operations.
In light of these initiatives and activities, several Western pharmaceutical compa-
nies have begun to formulate CSR strategy as an integral part of their business
operations. It was recognized that it is relatively risky to allocate extensive resources
to CSR activities in “big pharma” due to the existing burden of R&D expense in the
already high cost structure (Smith 2008). While it is not mandatory to report CSR,
many large pharmaceutical companies have chosen to publish CSR reports.
In 2012, the London Declaration was launched to represent a new, coordinated
push to accelerate progress toward eliminating or controlling ten neglected tropical
diseases (NTDs) by the end of the present decade (World Health Organization
2012). Partners pledged to work together to improve the lives of the 1.4 billion
people affected worldwide, most of them among the world’s poorest. Original
endorsers include more than ten global pharmaceutical companies as well as the
Bill & Melinda Gates Foundation, the World Bank, UK Aid, US Aid, Drug for
Neglected Disease Initiative (DNDi), and other important endorsers (World Health
Organization 2012). The Japan-based pharmaceutical company Eisai endorsed this
declaration. Other major pharmaceutical companies such as GlaxoSmithKline,
Johnson & Johnson, and Merck also supported this initiative by carrying out more
strategic and comprehensive thinking in CSR arenas such as R&D, intellectual
property, affordable pricing, corporate governance, and social contribution activi-
ties and to act globally.
The Japanese Pharmaceutical Industry
Japan is not a global leader in the pharmaceutical industry, though it is one of the
few countries in the world that discovers new prescription drugs (Umemura 2014).
Prior to the 1990s, the Japanese pharmaceutical industry focused primarily on its
domestic market. However, during the last two decades, this sector has started to
globalize and to explore international markets. Due to the removal of trade barriers,
the Japanese pharmaceutical industry has experienced a large number of mergers
and restructuring initiatives (Nivoix and Nguyen 2012).
In contrast to their Western counterparts, Japanese pharmaceutical companies have
formulated CSR strategy later, due to differences compared to Western companies in
market outreach and historical and geographic distances to emerging markets. The
Japan Business Federation (Nippon Keidanren) defined CSR as the effort “to under-
stand economic, environmental and social aspects comprehensively to make them
sources of competitiveness and improve corporate values” (Japanese Business
Federation 2004). This definition was received as a reactive declaration compared to
the attitude of other countries. In this context, the UN Global Compact (2000) pledged
to promote activities by companies with a strategic policy initiative for businesses
committed to aligning their operations and strategies with ten universally accepted
principles in the areas of human rights, labor, environment, and anti-corruption
(United Nations 2000). In 2010, the International Organization for Standardization
(ISO) released a document entitled ISO26000 Guidance on Social Responsibility,
providing guidance on how businesses and organizations can operate in a socially
responsible way, although this compliance cannot be certified, unlike some other
well-known ISO standards (International Organization for Standardization 2010). In
response, Japanese corporations have started to participate in the UN Global Compact
and declare they will follow ISO26000 in their future business plans.
The Japan Association of Corporate Executives (Keizai Doyukai) is a private,
nonprofit, nonpartisan organization that was formed in 1946 by 83 farsighted busi-
ness leaders united by a common desire to contribute to the reconstruction of the
Japanese economy. In consideration of the emerging global CSR activities and
market paradigm shift, the Japanese Association of Corporate Executives proposed
very active declarations in both 2011 and 2012 on how to evolve companies toward
a corporation for co-creating social value aimed at sustainable, synergetic develop-

ment of society and businesses (Japan Association of Corporate Executives 2011,
2012). With the influence of these declarations and the impacts of the severe finan-
cial recession and rapid business paradigm shift within emerging countries, CSR-
based business strategy began to penetrate Japanese companies in a convincing way.
Therefore, it is starting to be recognized in Japan that CSR can and should be
expanded beyond social contribution or regulatory compliance to become a strate-
gic investment and set of embedded activities situated at the core of any business
proposition. CSR is integral to public reputation, public value, and future competi-
tiveness. Furthermore, Japanese companies have long practiced a traditional phi-
losophy of business ethics known as sanpou-yoshi (trilateral good), guaranteeing a
“three-way satisfaction” among key stakeholders: buyers, sellers, and society
(Oshika and Saka 2017). In recent years, many Japanese executives have done some
soul-searching and self-reflection about corporate social responsibility, especially
in the aftermath of the Tohoku earthquake in 2011. There is some evidence that
Japanese companies have become more active in their philanthropic activities in an
attempt to contribute positively to society and promote a more responsible corporate
image with a broader and longer-term orientation.
While there are no regulatory or statutory requirements for pharmaceutical com-
panies to adopt CSR in Japan, there is a growing recognition that CSR is actually
good for business. In 1981, the Japan Pharmaceutical Manufacturers Association
(JPMA) introduced an industry-wide Code of Practice in line with the ethical crite-
ria for industry developed by the World Health Organization (JPMA 2013).
Specifically, since 2013 JPMA has published regularly updated transparency guide-
lines for the relation between corporate activities and medical institutions and the
disclosure of such relations. The trend towards increased transparency has been
accelerated by two factors: (1) big pharmaceutical companies’ unethical activities
for sales and marketing in the USA and (2) US government requirements for pay-
ment disclosure. Ethical behaviors should be the baseline of any business implemen-
tation; however, this is now part of the discussion related to the CSR perspective.
Although JPMA does not specify the components of CSR, it recognizes its
importance for the industry as a whole in its Code of Practice:
It is also important for the pharmaceutical industry to perceive Corporate Social
Responsibility (CSR), which has recently been requested by society as an important mis-
sion. (JPMA 2013)
In order to remain globally competitive, Japanese pharmaceutical companies started

to focus on R&D and internationalization after the 2008 global financial crisis
(Douai and Wu 2014). In the decade of the 2000s, the Japanese pharmaceutical
industry experienced substantial transformation including rapid mergers and acqui-
sitions, patent cliffs in 2010, and a paradigm shift to sell drugs to emerging markets.
Of the 20 largest pharmaceutical companies in the world, 4 of them are Japanese
firms with headquarters in Japan. These four Japan-based multinational pharmaceu-
tical companies are not only leaders in the Japanese pharmaceutical market; they are
active players in the global market.
1. Takeda
With more than 29,000 employees worldwide, the Osaka-based Takeda
Pharmaceutical Company Ltd. (Takeda Yakuhin Kōgyō Kabushiki Kaisha) is the
largest pharmaceutical company in Japan in terms of global sales (Takeda 2016).
Takeda is a public company that was originally founded in 1781 and incorporated in
1925. It has offices around the world with R&D centers in many countries.
2. Astellas Pharma Inc.
Astellas Pharma Inc. (Asuterasu Seiyaku Kabushiki Kaisha) is the second largest
pharmaceutical company in Japan, headquartered in Tokyo (Astellas Pharma 2016).
The public company was established in 2005 after a merger of Fujisawa
Pharmaceutical Company and Yamanouchi Pharmaceutical Company. It used to
specialize in a variety of post-transplant and antifungal pharmaceutical products
such as Prograf and Mycamine in the past. The company has 17,000 employees
worldwide, with research and development offices in Japan, Europe, and the USA.
3. Daiichi Sankyo
Daiichi Sankyo Company (Daiichi Sankyō Kabushiki Kaisha) is a leading
Japanese pharmaceutical company based in Tokyo with more than 14,670 employ-
ees (Daiichi Sankyo 2016). Formed in 2005 after a merger of Daiichi Pharmaceutical
Company and the century-old Sankyo Company Limited, the combined Daiichi
Sankyo is actively involved in global operations. Daiichi Sankyo produces and mar-
kets a large variety of pharmaceutical products and drugs globally. The company
has research centers mainly in Japan.
4. Eisai Co., Ltd.
Eisai Co., Ltd. (Eisai Kabushiki Kaisha) was originally established as Nihon
Eisai in 1941 (Eisai 2016). A few years later in 1944, the company chose to merge
with Sakuragaoka Research Laboratory. Eisai is currently a public company with its
headquarters in Tokyo. There are nearly 10,000 employees.
Research Propositions
Dunning’s institution-based ownership-location-internalization (OLI) theory pro-

vides a solid framework for describing the situation of international firms entering
foreign markets (Dunning 1998, 2003). Most pharmaceutical companies are exploit-
ing their location, along with any internalization advantages in foreign markets as
they sell pharmaceutical products on a global basis. In the pharmaceutical industry,
the source of competitiveness also includes ownership (O-level) advantage, which
is critical because most pharmaceutical companies are R&D intensive. Reputation
and public perceptions would be an important factor when entering a foreign mar-
ket. Since the pharmaceutical industry has been the target of constant criticisms for
unethical behavior, it has recognized that adoption of CSR may mitigate or even
reverse a negative corporate image.
A company’s investment in CSR can be beneficial because of positive impact on

the image of a company (Sen and Bhattacharya 2001; Waddock and Smith 2000).
Hence, consumers are more willing to purchase the company’s products and ser-
vices. This suggests that CSR activities generate returns to the company (Luo and
Bhattacharya 2006; Luo and Homburg 2008). Acknowledging that CSR can be used
as a competitive advantage, the world’s top 20 pharmaceutical companies have
positioned the CSR approach as their overall business strategy. Dow Jones
Sustainability Index and FTSE4GOOD would be recognized as among the most
important indexes to measure and identify companies that meet globally approved
corporate responsibility standards (Dow Jones Sustainability Index 2012;
FTSE4GOOD 2012).
The concept of CSR is rooted in the philosophy and ideology of Anglo-American
and European principles of liberal democratic rights, justice, and societal structures
(Fukukawa and Teramoto 2009). An obvious question is whether it is appropriate to
apply the Anglo-American corporate values to Confucian-oriented societies (Miles
2006). While Japanese companies appear to endorse CSR, they are also uneasy
about its uncritical adoption (Fukukawa and Teramoto 2009). Nakano (2007) argues
that the uniqueness of Japanese business could be at odds with Western values due
to differences in Japanese social customs, employee motivations, as well as organi-
zational values.
As discussed before, most studies on the relationship between CSR and firm
performance are contradictory and inconclusive over the last three decades (Orlitzky
et al. 2003). A number of studies have attempted to provide theoretical explanations
for this causal pattern without success (Aupperle et al. 1985; McWilliams and
Siegel 2001; Ullmann 1985). Most research focus on industrial and financial firms
(Surroca et al. 2010). Although the subject of CSR has gained an increasing atten-
tion in Japan, there is scant research in this area. A review of the literature reveals
that there are only a few studies on CSR with respect to Japanese firms (Fukukawa
and Moon 2004; Fukukawa and Teramoto 2009; Nakano 2007). However, none of
the research is on Japanese pharmaceutical industry. As Japanese pharmaceutical
companies become more international-oriented and increasingly globalized, they
have gradually adopted and adapted CSR in the context of Japanese social customs
and organization values. It is unclear whether adoption of Anglo-American theoreti-
cal framework of CSR for Japanese pharmaceutical companies will yield better
financial performance. Thus, we posit:
Proposition 1 With increasing globalization and overseas operations, Japanese
pharmaceutical companies are inclined to adopt the Anglo-American CSR prac-
tices in global markets. Thus, an increase in CSR activities will lead to better finan-
cial performance for Japanese pharmaceutical companies.
In 2000, the Japanese pharmaceutical industry experienced a major transforma-
tion due to rapid mergers and acquisitions, accompanied by increased innovation
through patents. To achieve a stronger international market presence, Japanese firms
established R&D centers and marketing divisions in major markets (Mahlich 2007).
Currently, four Japanese-based multinational pharmaceutical companies such as
Takeda, Astellas, Daiichi Sankyo, and Eisai lead the market in Japan and expand
internationally to global markets. On the one hand, globalization has brought new
overseas markets for Japanese pharmaceutical products. On the other hand, they
must compete with more established Western firms. In Japan, a company is closely
tied to the formation of a local community, forming the basis of a society to which
an individual employee belongs (Fukukawa and Moon 2004). Unlike the Anglo-
American model of community, both individuals and companies are responsible to
society as members in this society (Tange 2001). Fukukawa and Teramoto (2009)
argue that Japanese CSR is different from the Anglo-American styles of CSR.
Specifically, the current Japanese CSR management by Japanese multinational
companies is balanced in terms of the three dimensions of the triple bottom line:
economic, environmental, and social dimensions (Fukukawa and Teramoto 2009).
The pharmaceutical industry presents a unique case study to analyze whether there
are any differences between sample Japanese companies and Western firms. It is
expected that there are significant differences in financial performance between
Japanese firms and Western firms. Thus, we posit:
Proposition 2 In light of the differences between Japanese CSR and Anglo-American
CSR practices, Japanese pharmaceutical firms are expected to have a weaker
financial performance than Western firms.
Case Study
There are three underlying problems in collecting data for this study. First, most
Japanese pharmaceutical companies do not provide details of their philanthropic
contributions. In the absence of reliable information, it is difficult to compare them
with Western pharmaceutical companies. Second, there is no commonly accepted
standard in CSR activities across countries. What is accepted as CSR in Japan may
not be acceptable in the USA and in Europe. Third, the financial disclosure rules for
listed companies in Japan differ significantly from those of the USA and Europe.
Hence, the financial performance indicators are not consistent for comparison
purposes.
Since Japanese pharmaceutical companies have undertaken their CSR activities
only in the last few years, there are not enough data for any statistical analysis.
However, we can use some preliminary data for an exploratory study. We have used
available data in the Access to Medicine Index, a widely accepted index for analyz-
ing access to medicine in developing countries. Specifically, the Access to Medicine
Index provides rankings for the world’s 20 largest pharmaceutical companies on
seven performance indicators: access to medicine, market compliance, research and
development (R&D), pricing, patents, capacity building, and donations (Access to
Medicine Index Foundation 2016).
Of the 20 largest pharmaceutical companies in the world, four of them are Japan-
based multinational firms: Takeda, Astellas, Daiichi Sankyo, and Eisai. Takeda has
undertaken a holistic approach to CSR activities, introducing the “Takeda Initiative”

healthcare support program as part of the global fund to fight AIDS, tuberculosis,
and malaria in Africa (Takeda 2016). Astellas has focused on new drugs and offered
support to a local healthcare system in Indonesia (Astellas 2016). Daiichi Sankyo
started to provide mobile healthcare vans to deliver medical care in India, Cameroon,
and Tanzania in 2011 in collaboration with international NGOs (Daiichi Sankyo
2016). Eisai offered a comprehensive access to medicine with free supply of
diethylcarbamazine citrate (DEC) tablets to eliminate lymphatic filariasis. The first
shipment was sent to India in November 2013 (Eisai 2016).
Using the definition by Kotler and Lee (2004), we consider all corporate resources
that are used to improve social well-being as CSR. The measurement of CSR activi-
ties can utilize corporate spending or third-party ratings (Graves and Waddock
1994). In order to compare the level of CSR activities between Japanese and Western
pharmaceutical companies on a consistency basis, we decided to use company
ranking index and donation data reported in the Access to Medicine Index (Access
to Medicine Foundation 2016). We selected eight companies for analysis: four
Japanese firms and four Western firms. In addition to the Access to Medicine Index,
we have used annual reports of various companies for the financial performance.
When measuring financial performance, other studies suggest a number of indica-
tors such as sales revenue, return on investment (ROI), market share, and profits
(Pentina et al. 2009; VanderWerf and Mahon 1997). We decided not to use profits
and return on investment as indicators of financial performance given the unique
nature of the pharmaceutical industry with its high costs of R&D. Due to availabil-
ity of data in our sample, we selected sales revenue as the financial performance
indicator for consistency purposes.
Discussions
Drawing on the data collected from company annual reports and the Access to
Medicine Index, we examine a sample of eight pharmaceutical companies: four
Japanese-based firms and four Western-based firms. The four Japanese firms are Eisai,
Takeda, Astellas, and Daiichi Sankyo. For comparison, we chose four non-Japanese
leading Western firms: GlaxoSmithKline (GSK), Johnson & Johnson (J & J), Novartis,
and Merck. Our objective is to assess whether there are any differences between
Japanese and Western firms in terms of the level of philanthropic activities.
The Access to Medicine Index ranks companies on their efforts to provide access
to medicine, vaccines, and diagnostic tests to people living in 88 countries (Access
to Medicine Foundation 2016). Table 11.1 shows the company rankings and ratings
in access to medicine of four Japanese pharmaceutical firms as well as four Western
firms. All four Japanese companies are in the last ten positions, ranging from 11th
for Eisai to 20th for Astellas. Of the 20 largest pharmaceutical companies,
GlaxoSmithKline (GSK) and Johnson & Johnson (J & J) are ranked first and sec-
ond, respectively.
Pharmaceutical companies are increasingly aware of their public image. To meet

their CSR commitments, they have engaged in drug donation programs and other
health-related infrastructure activities. Table 11.2 shows the product donations and
philanthropic activities of Japanese and Western firms. With the exception of Eisai
in the 4th position, the other three Japanese firms are low in ranking, with Takeda
16th, Daiichi Sankyo 18th, and Astellas 20th. In contrast, GlaxoSmithKline, Merck,
and Johnson & Johnson are ranked as the top three, followed by Novartis at fifth.
It is evident that Japanese pharmaceutical companies are not able to reach the level
of Western firms in terms of donations and philanthropic activities, as reflected by
the level of CSR.
We have used company annual reports to compile some financial data for compari-
son. Table 11.3 provides financial information for these eight companies for the fiscal
year 2016. It is interesting to note that GlaxoSmithKline, Johnson & Johnson, and
Novartis are leaders in terms of sales. Johnson & Johnson, for example, sold more
products than the four Japanese companies combined. It is noteworthy that the profit
after taxation is very low for all the Japanese firms in comparison with Western firms.
Over the last three decades, many scholars have examined the relationship between
CSR and firm performance (Aupperle et al. 1985; McWilliams and Siegel 2001;
Waddock and Graves 1997). Their results are contradictory and inconclusive
(Grewatsch and Kleindienst 2017; Orlitzky et al. 2003), though many studies suggest
a small but positive relationship between CSR and firm performance (Margolis and
Walsh 2003; Orlitzky et al. 2003). Siegel and Vitaliano (2007) argue that CSR is
influenced by the type of products and market profits trends. By all accounts, Japan is
a step behind the global trends in CSR practices. Given the Japanese traditional focus
on customers and employee relationships, there are some doubts about the universality
of CSR causal relationship that is based on an Anglo-American conceptual frame-
Table 11.1 Overall ranking and rating (2016)

Japanese firms Company ranking Index Non-Japanese firms Company ranking Index
Eisai 11 2.34 GlaxoSmithKline 1 3.43
Takeda 15 1.77 Johnson & Johnson 2 2.93
Daiichi Sankyo 18 1.61 Novartis 3 2.87
Astellas 20 1.32 Merck 4 2.83
Source: Access to Medicine Foundation (2016)
Table 11.2 Product donations and philanthropic activities index (2016)

Japanese firms Company ranking Index Non-Japanese firms Company ranking Index
Eisai 4 3.5 GlaxoSmithKline 1 4.0
Takeda 16 1.7 Merck 2 3.8
Daiichi Sankyo 18 1.1 Johnson & Johnson 3 3.8
Astellas 19 1.1 Novartis 5 3.5
Source: Access to Medicine Foundation (2016)
Table 11.3 Company financial information for fiscal year 2016
Firms Eisai Takeda Astellas Daiichi Sankyo GSK J&J Novartis Merck
Net sales 539 1,732 1,312 955 37,929 71,890 48,518 39,807
(bil. yen) (bil. yen) (bil. yen) (bil. yen) (US$mil.) (US$mil.) (US$mil.) (US$mil.)
(US$ bil.) 4.6 14.8 11.2 8.2 37.9 71.9 48.52 39.81
Cost of products sold or cost of sales 36% 32.3% 24% 36.6% 33.3% 30.2% 36.1% 34.9%
Cost of selling, general, and 33% 35.7% 36% 31.7% 33.6% 27.7% 29.3% 24.5%
administrationa
R&D expense 21% 18.0% 15.9% 22.4% 13.0% 12.7% 18.6% 18.1%
Profit for the year 39.4 115 219 47.5 1,240 16,540 6,698 5,691
(bil. yen) (bil. yen) (bil. yen) (bil. yen) (US$mil.) (US$mil.) (US$mil.) (US$mil.)
Diluted earnings per share 137.41 yen 146.26 yen 103.55 yen 79.44 yen US$0.253 US$6.76 US$2.80 US$2.04
Stock price (year-end) 6,638 yen 4,835 yen 1,624 yen 2,392 yen US$38.51 US$115 74.1 CHF US$58.87
No of employees 9,877 29,900 17,202 14,670 99,333 126,400 123,000 69,000
Ranking in ATM 2016 11th 15th 20th 18th 1st 2nd 3rd 5th
Product donation index 3.5 1.7 1.1 1.1 4.0 3.8 3.5 3.5
Sources: Access to Medicine Foundation (2016), 2016 Annual Financial Reports of Each Company
a
For Japanese company: selling, general, and administration cost-R&D expense
11 Case Study of Corporate Social Responsibility in Japanese Pharmaceutical…
303
work. Thus, there is a need to verify the validity of this causal pattern in the context
of Japanese pharmaceutical companies vis-à-vis their Western counterparts. Due to
lack of sufficient data for an empirical analysis, this study is exploratory in nature.
The relationship between philanthropic activities and corporate performance is
illustrated in the donation-performance matrix in Fig. 11.1. The four Western phar-
maceutical firms (GSK, Merck, Johnson & Johnson, and Novartis) are rated highly
in CSR with an index of more than 3.5 in each case. In fact, GSK and Johnson &
Johnson obtained huge revenues with US$37.9 billion and US$71.9 billion, respec-
tively. In contrast, the Japanese firms are located in the first and third quadrants with
lower revenues. With the exception of Eisai, the other three Japanese firms recorded
low scores in donations and philanthropic activities. While CSR is no guarantee for
positive financial results, the data suggests a possible relationship between CSR and
financial performance.
Among the eight pharmaceutical companies, the Western companies ranked in the
top four in the Access to Medicine Index. Novartis ranked fifth in the product dona-
tions and philanthropic activities index. GSK remained at the top of the league
according to the Access to Medicine Index but by a narrower margin due to newcom-
ers’ efforts such as Johnson & Johnson and Sanofi. Japan-based pharmaceutical com-
panies’ efforts gradually came to the evaluation in the Access to Medicine Index.
There are still significant differences between Japanese and Western pharmaceutical
companies. This trend relates to the companies’ financial performance. Looking at
Product Donations Index
5.0
GSK
J&J
Merck
Eisai Novartis
2.5
Takeda
Astellas
Daiichi Sankyo
0.0
US$40b US$80b
Performance (Revenue)
Fig. 11.1 Product donations-performance matrix

the number of employees, we see that recently Takeda increased its size to be compa-
rable with the level of their Western counterparts, by acquiring global pharmaceutical
company of Nycomed. Japanese pharmaceutical companies will be pressured to be
increasingly more CSR-conscious in their business strategies and operations in order
to meet their responsibility in the global society.
Using a case study, this study explores the impact of CSR on firm performance in
the Japanese pharmaceutical industry. This is a case study based on a small sam-
pling of Japanese and Western pharmaceutical companies which appeared to have
achieved positive performance resulting from CSR. One conclusion drawn from this
study is that CSR can affect business performance in the pharmaceutical industry
worldwide. It is evident that CSR can be an element of the marketing strategy that
can yield positive firm performance (Maignan and Ferrell 2004).
It would be beneficial for Japanese pharmaceutical firms to refer to the Anglo-
American mode of CSR and adapt it to Japanese business practices. While Japanese
business ethics can be quite different from the Western norms, Japanese senior man-
agement can modify their management behavior by adapting CSR in their firms.
This is particularly true for those Japanese pharmaceutical companies that are
expanding globally.
The Japanese pharmaceutical industry is experiencing tremendous changes in the
global market. The combination of economic stagnation and declining population
has forced Japanese firms to expand internationally in search for overseas markets
and increased customer base. The industry has shifted from pursuing a closed, small
domestic market to an open, large global system. For Japanese firms, the traditional
approach to CSR with a focus on “sanpou-yoshi” (trilateral good) may not be suffi-
cient to address the complexities of the global economy. Japanese companies need
to consider a new approach to CSR in light of global competition and market oppor-
tunities. Due to increasing globalization, there is evidence that Japanese firms are
willing to incorporate the Western concept of CSR. Facing a paradigm shift in global
marketing, Japanese pharmaceutical companies are likely to adopt marketing strate-
gies from a domestic-based system to a global-based orientation.
Conclusion
The pharmaceutical industry has long been criticized for ever-escalating drug prices
and excessive profits at the expense of consumers. However, prescription drugs are
not ordinary goods on the market. Consumers are vulnerable to these products that
can potentially save lives and preserve health. Thus, many pharmaceutical
companies face a host of economic, moral, and legal issues in relation to their activi-
ties for the production and distribution of drugs.
A review of the literature reveals that there is currently no study on CSR relating
to Japanese pharmaceutical companies. Understanding the complex issues of CSR
in the Japanese pharmaceutical industry is not an easy task due to availability of
limited data. This study is a first attempt to analyze the CSR for Japanese pharma-
ceutical firms in comparison with Western firms. In this study, we have used some
preliminary data to compare Japanese pharmaceutical firms and Western pharma-
ceutical firms.
The findings in this study are exploratory in nature. As with any research, this study
has several limitations. First, due to lack of data for empirical work, we have adopted
a simple framework to analyze the complexities of CSR. However, the relationship
on CSR and firm performance is a very complex one, involving an array of multiple
factors. Hence, our analysis has oversimplified the CSR situation. Second, our current
sample size is relatively small, with four Japanese pharmaceutical firms and four
Western firms. These eight firms may not be representative of the pharmaceutical
industry in both Japan and the West. Hence, caution must be taken in interpreting
these results on the relationship between CSR and firm performance. Third, we have
chosen several large Western firms for our sample. There could be some sampling
biases when we use them to compare with Japanese firms. A more meaningful com-
parison would be Western firms that are of similar size to those Japanese firms. Lastly,
given the Japanese tradition of social norms and organizational values, this study is
unable to capture the impact of these variables on CSR. Despite the difficulties in
obtaining company data, future studies should focus on empirical analysis in order
to understand the impact of CSR on firm performance in the Japanese pharmaceuti-
cal industry. It is hoped that this study will lead to further research in this area.
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Chapter 12
How Do Western Luxury Consumers Relate
with Virtual Rarity and Sustainable
Consumption?
Anne-Flore Maman Larraufie and Lucy Sze-Hang Lui
Abstract Despite the fact that different industries have been putting efforts into
promoting sustainability in their businesses, little effort was initially shown in the
luxury industry. Even though some companies have included responsibility and sustain-
ability as a source of competitive advantage, thus becoming central to their strategic
vision, the sector has been regularly criticized for its lack of sustainable development
imperatives. It has led to an extensive discussion in the academic field on whether
luxury and sustainable development are by nature compatible or not. It is the objec-
tive of the present chapter to challenge this hypothesis, confronting it with the market
perspective. Studying the views of Western regular luxury consumers toward the
two concepts should ultimately help luxury managers design more efficient, and
hopefully effective, strategies to promote sustainability in their companies.
Introduction
Ever since sustainable development was brought up in the United Nations in 1987,
sustainability has been one of the top priorities in the policy-making process of dif-
ferent governments as well as different companies. Despite the fact that different
industries have been putting efforts into promoting sustainability in their businesses,
little effort was initially shown in the luxury industry. Even though some companies
have included responsibility and sustainability as a source of competitive advan-
tage, thus becoming central to their strategic vision (Pavione et al. 2016), the sector
has been regularly criticized for its lack of sustainable development imperatives. It
has led to an extensive discussion in the academic field on whether luxury and
sustainable development are by nature compatible or not. Some scholars suggest
A. -F. Maman Larraufie (*)

SémioConsult® & ESSEC Business School, Paris, France
L. S. -H. Lui
Fendi, Paris, France

312 A. -F. Maman Larraufie and L. S. -H. Lui
the two concepts can indeed coexist as they share many similarities. They suggest
that virtual rarity is the key to increase the motivation of luxury consumers for sus-
tainable luxury purchase. However, no further studies have concerned the relation
between virtual rarity and sustainable luxury. It is the objective of the present chap-
ter to challenge this hypothesis, confronting it with the market perspective. Studying
the views of Western regular luxury consumers toward the two concepts should
ultimately help luxury managers design more efficient, and hopefully effective,
strategies to promote sustainability in their companies. This chapter does not refer
to any luxury company or brand in particular. We rather explore the concept of
luxury facing sustainability and drive implications about how to take advantage of
that for a luxury company.
To achieve this objective, the chapter is organized into the following parts. First,
a thorough literature review helping define the concepts of virtual rarity and of
sustainable luxury, and ultimately merging both. Then, the qualitative methodology
used to conduct the study is explained, along with a detailed description of the
methods used for data collection and data analysis. The chapter then focuses on the
most important theoretical and managerial findings, still acknowledging further
research developments due to research limitations.
Background
The Concept of Luxury
The concept of luxury is quite hard to define and has been explained via different
approaches. Mortelmans (2005) has made a detailed summary of the discussion
around this debate and suggests that four elements contribute to luxury: scarcity,
extra value, high quality, and price. He states that luxury must be limited in produc-
tion and highly exclusive, having a unique design that provides aesthetic value and
displaying a high-quality control as well as a detailed craftsmanship on the products
that end up being expensive (Mortelmans 2005). People tend to purchase luxury
products to make a social statement (Wattanasuwan 2003), from group-fitting to
distinguishing from other groups lower on the status scale. Purchasing luxury goods
can also help achieve an “ego ideal” that commands the respect of others and
inspires self-love. Furthermore, luxury is also a primary source of excitement as a
unique experience and enjoyment. These are the reasons that led philosophers such
as Plato and Aristotle to condemn luxury that they considered by nature negative
and immoral (Mortelmans 2005) and thus unnecessary and superficial. Needs are
limited to the three basic necessities of survival (Plato 1945), i.e., food, shelter, and
clothing, and the demand for luxury would break the harmony of the polis1. It would
erode their society’s strength and lead to some unending struggle for wealth and
City in ancient Greek

1
12 How Do Western Luxury Consumers Relate with Virtual Rarity and Sustainable… 313
material possessions. No matter which approach one adopts, it seems that luxury is
more of a desire serving different purposes than a basic necessity one needs to rely
on to survive (Mortelmans 2005).
Luxury branding is composed of five different dimensions: conspicuousness,
uniqueness, perceived extended self, hedonism, and quality (Fionda and Moore
2009; Patrick and Hagtvedt 2015; Vigneron and Johnson 2004). Conspicuous con-
sumption suggests that the consumption of luxury products is very important to
individuals in search of social representation and position, while the sense of
uniqueness is a way to enhance self-image (Vigneron and Johnson 2004). The
extended self refers to the fact that consumers tend to purchase luxury products to
distinguish themselves from others with social referencing and the construction of
one’s self, thus being decisive to luxury consumption (Vigneron and Johnson 1999).
Hedonism means that the purchase of luxury products allows consumers to have
personal reward and fulfillment: they focus on their subjective satisfaction rather
than on the functional values of the luxury products they purchase (Patrick and
Hagtvedt 2015). Lastly, quality is also a key component in luxury branding: it is
expected from luxury companies to offer superior product quality and performance
(Mortelmans 2005).
Luxury Facing Sustainability
While luxury focuses on excessive desires, sustainability relates more to fundamen-

tal human needs (Maslow 1943). Sustainability is the result of some growing aware-
ness upon environmental problems and socioeconomic issues that deal with the
future welfare of humanity (Hopwood et al. 2005). It is commonly associated with
values of altruism, sobriety, and moderation, in contrast to those of personal plea-
sure and superficiality for luxury. Even when related to luxury, sustainable develop-
ment is approached as a way to promote the conservation of biodiversity and natural
resources and to strengthen social equity (Kapferer 2010). Hence, luxury companies
include CSR through the design of materials used for manufacturing or through sav-
ing consumption of natural resources during the conduct of their operations (Doval
et al. 2013).
Some scholars suggest that the two concepts are conflicting and are thus incom-
patible. The lifestyle of excess, indulgence, and waste that luxury embraces would
hinder sustainable development, for it encourages every human being to live a life
disconnected from needs and environmental-focus, which lessens the influence of
sustainability and ethics in the decision-making process for luxury consumers (Davies
et al. 2012). Besides, the demand for secondary desires of showing-off and of unique
experiences exceeds the limits of being focused only on core basic needs. As these
two concepts are suggesting two different kinds of lifestyle, it would be impossible to
produce sustainable luxury (DeWeese-Boyd and DeWeese-Boyd 2007).
Other scholars advocate a positive correlation between luxury and sustainability.
Kapferer (2012) suggests that even if luxury highlights social inequality, it does not
create it. In fact, there are similarities between the two concepts as they both focus
on durability. Despite the fact that luxury is associated with wastefulness, there are
luxury products that are inherited through generations. Many luxury products focus
on the durability and everlasting timepieces that can be passed from generation to
generation (Kapferer 2012). This exact same idea is embraced by sustainable devel-
opment: the environment should be preserved to guarantee sufficient resources for
future generations (Hasna 2006).
Apart from durability, the concept of rarity is also shared by luxury and sustain-
ability (Kapferer 2012). Mortelmans (2005) suggests that luxury value is based on
the objective rarity of materials. He states that scarcity is one of the most important
elements in defining luxury: limited production preserves the notion of exclusivity.
This is mainly achieved by transforming rare materials, e.g., exotic skins, into high-
quality products. Thus, luxury production relies upon rare natural resources. This
should encourage luxury companies to focus on the sustainability of their resources
instead of simply exploiting them (Kapferer 2010). Ensuring sufficient supply of the
materials is the underlying factor of the organic growth of luxury companies, so
luxury itself requires sustainability. This makes the two concepts compatible.
Some other scholars also suggest that consumers’ change of concerns and
sources of satisfaction also fosters luxury to be tied in with sustainability (Moscardo
and Benckendorff 2010). Luxury products standing in one’s extended self, one’s
values should affect one’s decision to buy luxury (Hennings et al. 2013; Parker
2009). Luxury consumers would then be the major force fostering luxury compa-
nies to adopt sustainability within their corporate strategies. Actually, buying sus-
tainable luxury products is triggered by three values: social cultural, ego-centered
and eco-centered values (Cervellon and Shammas 2013). As it is a way for consum-
ers to show their concern for the environment and eco-friendly practices, it com-
municates positively about their personality (Griskevicius et al. 2010).
However, bad management of “sustainable actions” done by luxury companies
might backfire. For instance, using CSR components has a negative impact on the
quality perception of luxury goods when communication is made about social-
oriented CSR and not about environmental-oriented CSR (no impact in that case)
(Alharbi et al. 2017). Besides, the owner of non-sustainable luxury goods would be
endowed with more status, social power and prestige (Beckham and Voyer 2014), so
for luxury brands associated with the self-enhancement concept CSR activities
might have negative consequences (Torelli et al. 2011). Therefore, it is important for
luxury companies to understand up to which point they can communicate with their
consumers on their CSR actions, and which “aspects” they should stress out.
Luxury and Rarity
Rarity plays some active role in luxury consumers’ decision-making process (Joy
et al. 2012). This is to be linked with the natural desire that people have to be unique
and distinctive (Snyder and Fromkin 1980). The possession of scarce goods (due to
low supply) helps a lot in this vein. Low supply might be real or virtual, with virtual
rarity being introduced to keep the dream and desirability for luxury products alive
(Kapferer and Bastien 2012). Virtual rarity builds some perception of scarcity
instead of strengthening real scarcity. It is naturally correlated with the perception
of desirability, value, and purchase intention (Brock 1968; Sevilla and Redden
2014), as long as the rare products are priced more (Lynn 1989).
Managing rarity is thus a strategic issue for luxury companies, which articulate
it through limited editions, individualized approaches, special events, and one-to-
one and two-step marketing actions (Catry 2007). Some subjective rarity is built as
well, thanks to price, distribution, and advertising choices.
Rarity is naturally associated with scarcity, esp. in link with limited quantity as
far as luxury goods are concerned. Scarcity messages interact with the brand con-
cept and will positively affect the purchase intention for a symbolic brand (i.e., all
luxury ones) without cheapening its image (Aggarwal et al. 2011). Besides, per-
ceived uniqueness has also a strong impact on purchase intention for scarce prod-
ucts (Wu et al. 2012); and scarcity appeals that enhance value perception increase
purchase intention through a self-serving motivation related to an enhanced per-
ceived influence on the self vs. others (Eisend 2008; Gunther and Mundy 1993).
We therefore argue that luxury companies could package sustainable luxury
through promoting rarity in the production process and at the retail and communica-
tion levels.
Research Question
The objective of this study is to investigate the importance of virtual rarity in pro-
moting sustainable luxury in luxury companies by studying how consumers relate
and merge the concepts of virtual rarity and sustainable luxury. By studying the
relations of these two concepts, it is expected that luxury companies can set their
marketing strategies in successfully promoting sustainable luxury in the market,
which directly increase the sustainability in the luxury industry.
Methodology
In order to investigate Western luxury regular consumers’ standpoints toward vir-

tual rarity and sustainable luxury, an interpretive qualitative interview research
methodology was adopted, as it is considered to be the most appropriate approach
for exploratory research (Legard et al. 2003). With no previous works dealing with
the topic, this study aimed at gathering rich and descriptive data, exploring the
views, experiences, beliefs, and/or motivations of individuals on specific matters.
Besides, qualitative methods, such as interviews, are believed to provide a deeper
understanding of social phenomena than would be obtained from purely quantita-
tive methods (Silverman 2010).
Table 12.1 List of participants

Name Sex Age Country Occupation Education Income (per month)
Pierre-Yves M 38 France Acoustic technician University 2300
Karla F 30 Mexico Shop owner Master 1500
Vincent M 31 Belgium Computer consultant University 3200
Sarah F 27 Brazil Boutique director University 4500
Simone M 39 Italy Interior designer College 2000
Alex M 40 USA Property manager University 4600
Magalie F 32 France Consultant College 2000
Sophia F 25 UK Flight attendant College 2500
Raymond F 31 Spain Store manager Master 4500
Andrea F 34 Peru Hotel receptionist College 1200
Yan F 28 USA Sales assistant Master 2200
Laura F 29 Belgium Bank customer service University 1800
Carla F 36 Brazil Psychiatrist University 1900
Helen F 25 USA Freelancer University 1800
Cindy F 36 UK Secretary University 1600
Nael F 28 USA Brain researcher University 3500
Mario M 30 Mexico Chocolatier College 1500
Pier M 38 Denmark Doctor University 4400
Francesco M 33 Italy Chef College 3400
Sarah F 25 USA Music teacher Master 2800
Twenty males and females from 25 years old to 40 years old were interviewed on
their views toward virtual rarity and sustainability in luxury (see Table 12.1). They
were all regular luxury consumers. Their understanding of the luxury concept as
well as the driving motivation for purchasing luxury products served as an indicator
to understand the relations between virtual rarity and sustainable luxury. They were
all Western consumers, as sustainability is still a topic more studied in Western
countries. Respondents were European (10), North American (5), and Latin
American (5). Data has been collected until no new information emerged from the
respondents’ verbatims, following the saturation principle.
The interview was structured in three main parts. At the beginning of the inter-
view, participants were asked about their basic information including their names,
nationalities, age, and occupation. The interview continued with asking participants
about their purchasing habits in luxury products including the frequency of their
luxury purchases and eventually brands. This part is to make sure the participants fit
with the sampling stated above. The third part was the core part of the interview and
was divided into three sections. The first section aimed at understanding the views
of the participants toward the concept of luxury as well as the importance of rarity
in luxury products. Questions such as photo comparisons of luxury and premium
bags, word associations with rarity, and their purchase motivations were asked to
understand how they see rarity in the luxury industry. The second section aimed at
understanding their knowledge of sustainable luxury and how they look at the con-
cept. The final section was set to understand how participants correlate the concepts
of rarity and of sustainable luxury. Questions such as the importance of rarity in

sustainable luxury and sustainable luxury launching strategy were asked.
All interviews were conducted in a private setting and transcribed. Content anal-
ysis was used to analyze the data (Cole 1988). Some inductive approach was used
(Elo and Kyngäs 2008) following the three standard steps of open coding, concep-
tualization, and then theorization. During the open coding process, data is organized
and examined. Important points and pieces of information are identified as different
codes and phrases for different sections. These codes and phrases normally sum-
marize participants’ views and opinions toward the concept of virtual rarity, the
concept of sustainable luxury as well as the relation between the two concepts. By
doing this, we can understand how participants share the same views or diverge.
During the data-sorting process, the codes and phrases taken down are identified
into different themes and concepts. Through identifying different themes and con-
cepts, data from different participants was connected and related. By doing this, we
can summarize all the similar data that appeared in the 20 interviews and get a better
understanding of participants’ positive or negative opinions. Abstraction is the last
step in content analysis. During this process themes and concepts, as generated in
the previous categorization process, are interpreted to make explanatory accounts
and meanings on how participants view the two concepts and how they relate the
two concepts together.
Results and Findings
The purpose of this study is to understand Western regular luxury consumers’ per-
spective upon virtual rarity and sustainable luxury as well as to identify how they
merge the two concepts together. The findings are broken down into three parts that
relate to the research question: (1) the view of virtual rarity, (2) the view of sustain-
able luxury, and (3) the view toward merging the two concepts.
View of Virtual Rarity
Western regular luxury consumers hold four different views toward the concept of
virtual rarity in luxury: (1) it serves as a symbolic effect, (2) it is a driving factor for
conspicuous consumption, (3) rarity as a marketing tool, and (4) quality and design
as the driving forces of luxury purchase.
Rarity as a Symbolic Effect
As shown by the literature review, rarity is a very important element naturally inter-
twined with the luxury concept: it suggests some exclusivity. Such exclusivity
makes luxury a luxury. To the participants, apart from the exclusivity that it
generates, rarity is shown as a symbolic component, also highly essential in luxury

(Mortelmans 2005).
Well, I think rarity is the first thing you think about luxury. For a brand it is very important,
it makes you buy a brand. You don’t need to hard sell luxury, but for a brand you need to
have rarity. (Yan, USA)
Some participants also think that rarity is the core of a brand as it makes custom-
ers dream for the brand so that they are motivated to buy premium products from the
company.
You must have luxury, then you have that image and this image attracts customers to buy
the products at the bottom of the pyramid. You know those perfumes and make up and stuff.
People may not necessarily buy products that are rare, but this is a must to keep the image
and you buy the cheap products in the brand. They are products that can really earn money.
(Helen, USA)
In terms of virtual rarity, participants also suggested that it serves as an attraction

to introduce a new brand to the consumers and the market.
There are so many brands in the world and how do I know they are good or not if I have
never heard of the name? I would just look at some magazines and see if any brand is spe-
cial. If I know oh that brand has one of the most limited productions or they have some
skills that other brands don’t have, of course I will pay more attention to that. (Francesco,
Italy)
Based on the above statements, we can conclude that to Western regular luxury
consumers, rarity is an important brand component that can be leveraged to intro-
duce some brand to the market or to maintain the desire of consumers to purchase
the products of the brand.
Rarity Contributing to Conspicuous Consumption
In the interviews conducted, many participants suggested that rarity is a driving fac-
tor for conspicuous consumption.
If I have one Kelly bag I am like in a different world you know. Looking at the others which
are still asking for the bag every time they go to the store, but look I already have one.
(Karla, Mexico)
Some participants also stated that purchasing rare products is a way to distin-
guish themselves from others.
When I think about luxury, that is what I think. I don’t want everybody to have it… It’s
like… it is difficult to get, to me at least. And that is what I call luxury so I don’t want
everybody to have it. (Karla, Mexico)
From the above analysis, we can see that rarity plays a role in conspicuous con-
sumption. As rarity often implies high price and exclusivity, consumers would asso-
ciate the purchase of the rare luxury products to a way of showing the others that
they have high economic power and that they are different from others.
Rarity as Marketing Tool
Rarity is not a driving factor that encourages luxury purchase for the respondents.
Most of them suggest that it serves as an attraction, some marketing tool to attract
consumers’ attention. In other words, it is a very useful tool to communicate with
the consumers and raise their interest for the brand.
I will be interested in knowing the products if you tell me they are rare. Like I would do
some research on them and see how rare they are. (Helen, US)
If a product is rare, I will focus more on that and I would want to know more about that.
(Magalie, France)
Therefore, rarity in this case is not a motivation to buy a luxury product, but more
of a given feature of any luxury retail or product characteristics.
Quality and Design as the Driving Forces of Luxury Purchase
When asked whether rarity is the main driving force that encourages luxury purchase,
many participants suggested that it is not a driving force but a good marketing tool
for a company to catch people’s attention. So, the interviewer elaborated upon this
statement, trying to understand the participants’ driving force(s) behind luxury
consumption.
I think the design is very important. If the design is not good, even it is rare, I don’t care I
won’t buy it. (Vincent, Belgium)
Apart from the design, some participants also emphasized the importance of
quality in luxury products. They suggested that durability as well as good crafts-
manship would be the main criteria for good quality luxury products.
Of course, the quality has to be good, if I have to pay so much money, I would expect to buy
something I can use for a long time, with the good quality. I don’t just buy the crocodile skin
or any other material, I buy when it is really with good quality, when the production process
is good, the sewing and finishing is good. (Pierre-Yves, France)
View on Sustainable Luxury
In the second part of the interview, participants were asked about their views toward
sustainable luxury. Three opinions emerged: (1) sustainable luxury is doubtful; (2)
encouraging sustainability in different forms should be done, instead of making
sustainable products; and (3) quality and design as the driving forces behind luxury
purchase (again).
Sustainable Luxury Is Doubtful
Although the literature review suggests that consumers are well-aware of the
sustainability concept, they do not think it could be applied in the luxury business.
Many consumers still see the luxury business as one of the exceptional industries
that should not emphasize on sustainability.
What do you mean by sustainability? I don’t think it can be done. Because luxury is about
precious leather, it is about waste, excess. You cannot emphasize on sustainability if a lot of
your products are about excessive materials and production. I think sustainability is just a
slogan. (Yan, USA)
I don’t even pay attention to sustainability. I don’t think it has anything to do with luxury. I
don’t find luxury products with this sustainability concept very attractive. Maybe to some
people it is very important, just like people who eat organic food. But for me, I simply don’t
care. (Sophie, UK)
Therefore, even if the sustainable concept has been encouraged in the luxury
industry, the acceptance of this concept (as far as it deals with the product itself) by
its consumers is not as high as scholars were predicting.
Sustainability in Different Form
Many participants suggested that adding the sustainability concept to luxury prod-
ucts would not increase their motivation to buy the products.
I don’t really care about whether the products are sustainable or not. I mean, if I like it, I
will buy. It is not because the product is sustainable. It is because I like it. (Yan, US)
I won’t think about that really. I just respond to my impulse. If I have a desire to buy a
leather product, I will do so. I won’t ask myself not to buy because it is not good for the
environment. (Simone, Italy)
However, some participants suggested that there are different ways to support
sustainability instead of buying sustainable luxury goods, such as donating money
to environmental associations.
I don’t want to buy sustainable luxury goods. I can pay more money and the brand can
donate some of the money to preserve sustainability. I think this is more practical. (Laura,
Belgium)
I think donating money to some organizations to me is a more attractive way to preserve the
environment. Like I want to take care of the environment. But if I have to sacrifice my want
of buying luxury products, I cannot. (Karla, Mexico)
Hence, it sounds that regular consumers are reluctant to change their ways of
purchasing to match the sustainability concept, at least when it deals with luxury.
But that does not mean that they do not care. Rather than purchasing sustainable
luxury products, they would prefer to use other ways to support this concept.
Quality and Design as the Driving Forces of Sustainable Luxury Purchase
When asked about what would mostly encourage them to purchase a sustainable
luxury product, participants mentioned quality and design once again as the most
important driving forces in their decision-making process. For regular customers,
quality is the key element that attracts them to buy certain luxury products, including
sustainable ones.
I am more interested in classical products, but if it is presented properly, why not? But the
quality has to be good. (Pierre-Yves, France)
I think luxury products, sustainable or not, quality is always the most important thing.
Because this is why we call it luxury. (Karla, Mexico)
Apart from quality, the design is also a driving factor that makes consumers buy
certain luxury products.
Having sustainable design is good, but not enough. I will look at the design, the design and
sustainable, I will buy only when the two things are present in the products. (Helen, US)
Of course the design should be good, otherwise why should I choose you? There are so
many brands in this industry and I don’t need to stick with this brand. (Francesco, Italy)
Therefore, it appears that regular luxury consumers still hold quality and design
as the driving forces that make them buy luxury products, even if sustainable.
Virtual Rarity vs. Sustainable Luxury
At the end of the interview, participants were asked about the importance of virtual
rarity in sustainable luxury as well as about their opinions toward launching a sus-
tainable luxury product. The findings were twofold: (1) rarity serves as a marketing
strategy and (2) sustainability serves as an added value in sustainable luxury.
Rarity as Marketing Strategy
Same as previously found regarding the role of rarity in the concept of luxury, rarity
is essential, but not the most important factor in encouraging sustainable luxury
purchase.
I really don’t think I will buy sustainable luxury products just because you tell me the pro-
duction is limited and the materials are so rare that you don’t find it in anywhere else. I
mean I won’t respond to that even when I buy normal luxury products. So why would it be
exceptional for sustainable luxury products? (Yan, USA)
Even though rarity is not the driving factor of sustainable luxury purchase,
according to many participants, rarity is a very good tool to increase people’s attention
to a certain campaign or certain product, which is useful to promote the product.
I will put this rarity concept into the promotional campaign because even they don’t want
to buy, at least they know this thing exists. You know you have so many new products
launching every year, if you want to stand out from the crowd, you have to speak louder
than the others. I think rarity is a microphone. (Vincent, Belgium)
After all, I think the quality and the design are the most important, whether it is a normal
luxury product or it is the sustainable luxury product. But I think you can still add this ele-
ment. Because you don’t know if anyone would be interested in rare products. It is a good
communication tool, especially to the new luxury consumer. (Helen, USA)
In terms of communication tools, participants also suggested that rarity can be

backed up by a history. They stated that it is a very good way to create a good image
to the consumers and this packaging tool would increase the consumer’s desire to
know more about the company as well as the products.
History. Really beautiful history. And how good it is. Show me that it worth buying. I will
say something about the sustainable luxury crap but I will put more my effort in creating the
desire. (Karla, Mexico)
You have to have a very good packaging when it comes to sustainable luxury. Rarity does
not have to be about very rare materials or very rare production process. You can simply say
that having this sustainable concept is already unique. This idea of buying sustainable prod-
ucts is rare. I think rarity can be presented like this in sustainable luxury. (Vincent, Belgium)
Therefore, rarity serves as a very important marketing tool from the consumers’
perspective, and it appears essential to promote sustainable luxury.
Sustainability as Added Value in Sustainable Luxury
In the interview, participants suggested that sustainability is not an important factor

in the sustainable luxury concept. There is no doubt that the sustainability part is
essential as it is the only factor that distinguishes sustainable luxury goods from
other ordinary luxury goods. However, sustainability is not a motivating attraction
for consumers to purchase the products as it is only one of the essences in sustain-
able luxury.
I think sustainability is important because this is the main focus of sustainability. However,
I don’t think you can sell people just like this. I think it is one part of sustainable luxury.
After all, you are still in the luxury business. Sustainability is only an added value. I don’t
think you can motivate people to buy just because it is sustainable. (Pierre-Yves, France)
Some participants also mentioned that paying attention at the audience’s

perspective is fundamental to understand how much added value is the sustainable
nature of the luxury product.
I am skeptical. If I am to launch a sustainable luxury product, I focus on how the product is
desired by individuals. We are not selling the product to the environment. If I am selling this
to the environment I will say how this product is good for itself. But we are not. We are
selling that to individuals. Of course you say the product is good for them! You have to pay
attention to the audience after all, in any business! (Yan, USA)
I will launch the product like how I launch other normal luxury products. Maybe I will men-
tion a bit about the sustainability of course. But I think that’s it. I won’t spend my money
showing how the product is good to the environment. I show them how consumers should
have the product because it changes their lives. (Helen, US)
Based on the above arguments of sustainability being just an essence in sustain-

able luxury, some participants stated that luxury should be put with more emphasis
than sustainability. They suggested that the luxury part of the products should over-
ride the sustainability part and should be more communicated upon.
Even you are sustainable, you are still a luxury product. If you are a luxury product, you
have a specific way to make consumers buy. You emphasize on the quality, the design, the
rarity, maybe or even the high price. Because these are the things that make you a luxury.
These are the things that differentiate you from other cheap products. (Laura, Belgium)
Some participants even suggested that sustainability can be neglected in the

communication process.
You can say that. But there is nothing wrong even you don’t say that. It is after all just a
credit. You need to build up a name first. And then when people start having the buying
desire and they keep buying the products, you can say this additional value to reinforce their
desire. (Carla, Brazil)
The literature review has explained that there is some active debate in the aca-
demic field on whether sustainable luxury is feasible. Many scholars have proven
that the two concepts have a lot of factors and dimensions in common. Sustainable
luxury would therefore be some feasible solution for luxury companies to increase
their social responsibility to the environment. However, despite all the arguments
suggested by the scholars in terms of promoting sustainable luxury, luxury consum-
ers are still feeling uncomfortable with the idea. In fact, in the present study a lot of
participants express doubt as to the feasibility of sustainable luxury. Most of them
suggest that the luxury business is mostly about unusual materials, such as exotic
leathers and furs, and that these raw materials are the fundamental ingredients for
luxury products. They also suggest that the preciousness of raw materials is the
major distinction between luxury products and ordinary products and that it stands
as a strong driving force for luxury purchase. Such a view toward sustainable luxury
shows that there is a gap between theory and practice, when having a consumer-
centric approach.
Besides, despite some of the regular luxury consumers declaring they pay little or
no attention to sustainable luxury, some participants in the interview suggest that they
do realize the importance of sustainability for the environment. This echoes with the
literature suggesting luxury consumers are aware of sustainability. The literature also
suggests that with such awareness, luxury consumers would be willing to purchase
sustainable luxury goods as part of the luxury’s essence. This is not supported by the
findings from the present study which shows that while luxury consumers agree that
the level of sustainability should be increased in the luxury business, they are reluc-
tant to purchase sustainable luxury goods. Instead, they would prefer to donate to
some environmental organizations to do something for the environment as they are
not willing to give up their choices around some luxury goods.
Importance of Brand Name
In the process of understanding how luxury consumers view the concepts of virtual
rarity and sustainable luxury, the importance of brand name to luxury consumers is
discussed. In the interview, participants have been asked about what would encourage
them to purchase a sustainable luxury product. Surprisingly, when the importance of
brand name in luxury industry was evoked, all the 20 participants suggested that
brand name is not a determining factor for them to purchase a luxury product. They
suggested that they pay little or even no attention to brand names as it does not mean
anything to them. They explained that they have a long and solid experience in pur-
chasing luxury goods and they understand how the industry works. They also sug-
gested that they do not need to purchase a luxury product with big brand names
because they do not need to distinguish themselves from others by a brand name.
Therefore, they would not spend money just to buy a product with a famous brand
name. Rather, they would focus on the products themselves in the purchasing process.
They focus more on the quality and design of the products than the brand name. This
is consistent with the literature (Mortelmans 2005) that posits scarcity, extra value,
high quality, and price as the four elements contributing to the luxury-building.
Rarity as Marketing Tool
Scholars suggest that virtual rarity is the key for developing sustainable luxury in
the near future (Gault et al. 2008): enacting rarity through the production process or
artificially inducing it through limited editions and communication, luxury consum-
ers’ dream and desirability for the products should increase. The findings from the
present study sound contradictory. In fact, the respondents are aware of the com-
munication strategy of luxury companies. Including rarity in it does not necessarily
increase the motivation for purchasing. Many of the participants suggested that if a
specific luxury product is portrayed as rare, due to its limited production or rare
materials, it will only increase their motivation to look for the product and find out
more details about that specific product. In other words, the concept of virtual rarity
only serves as an effective marketing tool to communicate with the consumers but
not as a driving force to increase the motivation of purchasing that product. More
refined research should be conducted with experimental design to double-check
such finding.
Quality and Design as Driving Forces for Luxury Purchase
As mentioned previously the present study shows that instead of virtual rarity, other
factors affect consumers’ decisions about purchasing a sustainable luxury good. As
Mortelmans (2005) has suggested, one of the most important elements of luxury is
the quality of the product. And this is exactly what respondents (regular luxury
consumers) are looking for. Nearly all participants mentioned that when they try to
purchase a luxury good, they will look at the quality of the product. If they do not
find quality, whatever the price of the product, the brand name, and the sustainable
aspect of it, they are reluctant to buy it. In their eyes, quality is the only thing that
can differentiate luxury products from ordinary ones. And this element of quality
serves as a strong driving force for them to buy luxury products.
Apart from quality, the design of the products is a driving force. This finding is
consistent with past literature (Joy et al. 2012). The prerequisite for buying thus
appears as being quality, while design would be more of an emotional driver.
Implication: Shifting Paradigm in Luxury
Figure 12.1 summarizes the findings of our study, pointing on the conceptual frame-
work that may disrupt how luxury business conduct might be shifting based on the
evolving definition of the concept of luxury as shown previously, when confronted
to the notion of sustainability.
Luxury consumers do not appear so much convinced about sustainable luxury if
it is not carefully managed by luxury companies. The “dream” has to be kept true
whatever the circumstances for purchase or usage of the products. Virtual rarity
shares the conspicuity nature of luxury goods in the eyes of the consumers and
brings some added value to their sustainable nature.
Still, quality and design appear as two fundamental components when
approaching sustainable luxury if companies want to trigger purchase intention.
Fig. 12.1 Conceptual
framework
Sustainability
Added
Doubtful Value
Quality
Design
Conspicuous Virtual
Luxury
Consumption Rarity
This is some shift in the luxury concept management for luxury companies.
Traditionally, managers have taken these two brand characteristics as a given,
something they could not compromise upon, but have very little used them in their
strategic processes toward consumers. They have been focusing upon exploiting
the brand imagery and meaning. It would appear that if luxury companies want to
speak about sustainability, they have to go back to basics and reassure consumers
on their brand characteristics. We provide practical managerial recommendations
hereafter in this direction.
The objective of this study was to investigate the importance of virtual rarity in
promoting sustainable luxury in luxury companies by studying how consumers
relate and merge the concepts of virtual rarity and sustainable luxury. Through
studying the relationships between these two concepts, there are a few implications
that can help luxury companies to set their marketing strategies to successfully pro-
mote sustainable luxury in the market.
Marketing Implications
In terms of marketing actions, there are two points that luxury companies could take
from this study: (1) launch sustainable luxury products as any ordinary luxury prod-
ucts and (2) do not overestimate the effect of brand names.
1. In this study, luxury regular consumers sound little aware of sustainable luxury
or tend to discount this information. A luxury company trying to launch sustain-
able luxury products should always keep in mind that sustainable luxury is sold
in the luxury industry, and not like in any other industry. Given that the target
audience is “ordinary” luxury consumers, they should be addressed as luxury
consumers rather than environment activists. In other words, luxury companies
should not put too much emphasis on the sustainability part of the sustainable
luxury product. Rather, luxury companies should focus on creating the dream
and desire of the product to increase purchase motivation. When the consumers
have the desire of owning those sustainable luxury products, sustainable luxury
will be ready to be pushed in the industry. This is already being done in one sec-
tor of activity: luxury hospitality. It has been empirically found by managers that
it was more productive to discount the existence of “sustainable” actions in the
hotel when selling it. However, lots of public relations and press releases are
issued on a continuous pace by luxury resorts/lodges/hotels to still show their
stakeholders (including their clients) that they care about the CSR-related topics.
However, in the rest of the industry, esp. in fashion/accessories/shoes, etc., all

exemplars of luxury companies designing and selling a sustainable product have
done it in some “activist” way. The success of these products remains mitigated
(e.g., the “synthetic fur coat” by Stella McCartney).
2. Apart from creating the dream and the desire for sustainable luxury products,
luxury companies should avoid focusing and emphasizing the brand name. This
is valid not only for sustainable luxury products but also for the other ordinary
luxury products. It is important not to focus on the brand name, especially when
the target audience is regular luxury consumers as they pay little attention to it.
It is more essential for companies to focus on the products themselves instead of
taking advantage of the brand name and expect consumers to purchase the new
sustainable luxury products because of a famous brand name. While for tradi-
tional goods a brand name is a signal of quality (Rao and Monroe 1989), for
luxury goods it conveys more imaginations and values that are not associated
with quality (quality being a prerequisite for belonging to the luxury category,
like a filter), especially for Western consumers or third generation of luxury con-
sumers in Asia (Ozcan et al. 2012). Therefore, caution should be put on associat-
ing the brand name with the “sustainable” nature of a given product as the brand
identity and values might be non-compatible with sustainability. For instance,
Chanel’s values are around the aesthetics of disruption (Floch 1990) and of con-
trol, two values that cannot be so easily reconciled with sustainability which is
ontologically longitudinal (vs. disrupting) and linked to some adaptability/fit
with the environment (vs. controlling it). This does not mean that Chanel cannot
issue a luxury sustainable product, but just that the brand name should not be too
much associated with the product. In some way that might be one of the reason
that refrain luxury companies to expand their brand in sustainability.
Communication Implications
In the present study, rarity is found a useful communication tool to promote sustain-
able luxury. Regular luxury consumers respond to the virtual rarity principle and
generate interest in luxury products if portrayed as rare. It might not necessarily be
the driving force of luxury purchase, but it serves as an attraction to consumers who
would then try to look for more details about the specific products. Therefore, rarity
is a very important communication tool to increase attention as well as to create
some word-of-mouth in the luxury market. Luxury companies could emphasize pro-
duction processes, quality-focused, savoir faire, and craftsmanship. Such communi-
cation could be exclusive to create a sense of rarity and exclusiveness to the regular
luxury consumers, recreating some sense of rarity around sustainable products.
Some companies have already engaged in the process (e.g., LVMH with the “Journées
particulières” event once in a year that allows clients to visit the factories), but rarely
in link with their sustainable actions, these being touched upon briefly during the
visits, for instance (e.g., visiting the Guerlain factory, visitors learn about the orchid
plantation management in Asia, made to preserve the natural ecosystem of the area).
No examples of sustainable-dedicated communication using rarity could be found,
even in other studies related to luxury hospitality that is quite in advance compared
to the other sectors in the luxury industry (Maman Larraufie 2017).
Besides, sustainability can be communicated upon by creating the perception
that owning a sustainable luxury product is a rare and exclusive concept that not
many consumers have access to. In that sense, the concept of sustainability is
packaged-based on the concept of rarity under the main goal of luxury – to create a
dream or desire to purchase certain luxury products. This is a possible method to
relate sustainability and virtual rarity. However, it is noted that no matter how lux-
ury companies communicate with their consumers, they should keep in mind the
target audience and communicate in the way they communicate in luxury in general.
Thus, they should still aim at creating desire and dream, otherwise any attempts of
promoting or communicating about sustainable luxury would be vain. Again, to our
knowledge, this communication strategy has not been already used by luxury com-
panies. It has rather been used by premium ones or in fast fashion (e.g., H&M).
Opportunities and Costs for Managers
The marketing and communication solutions we propose in this chapter should help
luxury managers to better tackle their love and hate relationship with sustainability,
focusing on their clients’ perceptions that are also shifting and becoming more and
more prominent in the luxury consumption landscape (Cervellon and Shammas
2013). We believe that if done properly such actions would not damage luxury
brands’ images and respective identities but rather propose their clients with new
ways to strengthen their relationship with the brand thanks to some enhanced per-
ception of exclusiveness (rarity communication) and enhanced product experience
(with some unexperienced disconnection between the product and the brand name).
Besides, designing sustainable products without stressing their sustainable nature is
a good way to address the cognitive dissonance that exists in clients’ minds when
consuming luxury goods, downsizing the guilt feeling (Cervellon 2013). And even
if this might not be the primary objective, acting in such ways should reconcile the
environment activists that criticized the luxury industry with these, why not engag-
ing them to consume sustainable luxury products as well.
Such actions are not cost-free, but these costs are no more than the usual costs
associated with product-development and communication-design plans. We believe
the most important cost will be a human one as all this requires some change of
mindsets, since few luxury companies do inscribe in their very operational DNA
(including HR processes, i.e., choice of employees) features of sustainability and
CSR, with Kering being an exception (Maman Larraufie 2016).
Limitations of the Study
The current study has some limitations, mainly due to its explorative nature. First,
the sample was only composed of Western consumers, which limits the results to
such set, even though research has shown that wealthy Asian consumers share the
same concerns of sustainability than Western ones (Chadha and Husband 2010), but
they might express it in a different way than through virtual rarity. The small size of
the sample is also quite problematic if one wants to get results that could be statisti-
cally representative. However, since the focus of the research was not to generalize
findings but to go deep in the understanding of one phenomenon thanks to theoreti-
cal sampling and stop of data collection thanks to the saturation principle, we
believe the results are still valid in the validity definition of qualitative research
(Mucchielli 1991).
Then, there is a natural bias that may happen when interviewing people on sensi-
tive and socially related topics (social desirability bias). That may have limited the
set and nature of the replies and unstated thoughts could remain unexplored.
Projective techniques could help in that direction. Finally, our sample was mainly
composed of Generation X and older consumers. Therefore the results do not reflect
what Millennials and Generation Z might have said and cannot be generalized to
these sets of consumers.
Conclusion
Since the luxury industry has often been criticized for its lack of motivation to pro-
mote sustainability, this study aimed at finding ways to encourage luxury companies
to increase their social responsibility. The literature review suggested that the con-
cept of virtual rarity would serve as a driving force for more luxury purchases of
sustainable luxury. We then tried to study the relationship between the concepts of
luxury and sustainability, from regular luxury consumers’ standpoints. Several con-
clusions have been reached, each of them being eligible as a source of inspiration
for managerial implications.
First of all, even if sustainability sounds trendy nowadays, in hypermodern times
of consumption (Lipovetsky 2004), Western regular luxury consumers are still reluc-
tant to accept the concept of sustainable luxury in the luxury industry. This is prob-
ably the reason why luxury companies are not as responsive as other industries in
terms of promoting sustainability. Secondly, this study shows that, unlike what past
academic research suggested, virtual rarity is not the main driving force for luxury
purchase to regular luxury consumers. Rather, it serves as a communication tool that
arouses the attention of regular luxury consumers to know more about the sustain-
able luxury product. Thirdly, regular luxury consumers are extremely attentive to the
quality as well as to the design of luxury products. These are the underlying motiva-
tions for them to purchase certain luxury good, including sustainable ones.
Therefore, luxury companies that would like to promote sustainable luxury need
to pay attention to their target audience and keep in mind that sustainable luxury is
still in the sphere of luxury and should be communicated upon in certain ways, such
as aiming at creating the dream and the desire for that product instead of emphasiz-
ing on the sustainability aspect of the products. Besides, virtual rarity would be a
good tool to increase the attention or even cause a stir in the market. Finally, the
results have shown that quality and design are the most important qualities in luxury
products and that every luxury company should make sure their products are of
good quality and good design to maintain its market share in the industry.
Of course, this study is a first step in understanding a little explored area.
Therefore, further studies should be conducted to have a deeper knowledge about
consumer behavior facing sustainable luxury. This research proves that quality and
design are the underlying factors of luxury purchase to regular luxury consumers.
However, further investigation should be conducted to understand how quality and
design play a role in the consumer decision-making process as well as what exactly
consumers are looking for in quality and design when it comes to sustainable
luxury.
This study chose to focus on Western and regular luxury consumers and studied
their views toward the concepts of virtual rarity and sustainable luxury. Based on
their opinions, recommendations are made to luxury companies. However, apart
from Western consumers and regular luxury consumers, Asian consumers as well as
non-regular consumers should also be considered in setting luxury marketing strate-
gies to promote sustainable luxury. The conduct of further studies examining the
views of these two groups of consumers is suggested to get a holistic picture of the
target audience in the luxury industry. The studying of the consumer behavior of all
the types of consumers is the only way to truly promote sustainable luxury, and in
the long run, to increase the sustainability of the whole luxury business.
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Chapter 13
Putting African Country Development into
Macromarketing Perspective
Mark Peterson and Saman Zehra
Abstract Macromarketing takes a holistic approach to marketing activity in order

to understand the interactions among markets, marketing, and society. Using the
Sustainable Society Index, this study performs an analysis of country and regional
development for Africa. Accordingly, the human, environmental, and economic
well-being for societies across Africa will be compared with (1) the rest of the
world, (2) other developing countries, and (3) regions of the world. In terms of the
sustainability dimensions of people, planet, and profit, Africa does well on the
planet (environmental) dimension but lags in the people and profit dimensions
(human and economic development).
African Mystery
Africa remains a mystery to many in global marketing. Mahajan (2009) has led an
“Africa Rising” narrative (ARN) by reminding business persons about the market
potential of African countries based on the millions of consumers on the African
continent who are gradually moving out of poverty and into roles of purchasers of
goods and services year after year. Other authors such as Berman (2013), Rotberg
(2013), as well as Bright and Hruby (2015) have reinforced the ARN.
While all authors acknowledge that challenges and obstacles to genuine develop-
ment in Africa remain, Chitonge (2015) questions whether the recent cheering about
the prospects for development in Africa will be another false start for Africa.
Likewise, Onyeiwu (2015) asks whether the proposed African Renaissance is
merely a mirage. Sheth (2017) sees promise in an African awakening but asks
“When will the giant wake up?” This book chapter will address these questions of
Chitonge, Onyeiwu, and Sheth. The chapter will put country development in Africa
M. Peterson (*) · S. Zehra

College of Business, University of Wyoming, Laramie, WY, USA

334 M. Peterson and S. Zehra
into macromarketing perspective by analyzing the triple bottom line for sustainable
development of human well-being, environmental well-being, and economic
well-being (Peterson 2013).
A special focus on this study will be on assessing the sustainability achievements
in African societies. One notable achievement is South Africa’s mandate for publicly
traded firms to produce annual nonfinancial reporting on topics, such as the impact
on the natural environment, as well as the impact on employees and other stakehold-
ers (Eccles and Kruz 2015). This is a remarkable move by South Africa. In December
2016, the European Commission issued a directive requiring nonfinancial reporting
similar to South Africa (Oxford Business Law Blog 2017). This series of events sug-
gests how Africa can jump to the lead in certain aspects of sustainability.
The core of the study’s assessment of African societies’ sustainability achieve-
ments (or lack of achievements) will use the Sustainable Society Foundation’s
Sustainable Society Index (SSI) (Van de Kerk and Manuel 2013). Large-scale global
indexes such as the Sustainable Society Index (SSI), which has been published bian-
nually since 2006, offer valuable insights into important issues related to macromar-
keting and sustainability. Simkins and Peterson (2016) assessed the value of the SSI
for macromarketing research. These researchers found that the SSI compared favor-
ably to three other society-level indexes, such as (1) the Legatum Prosperity Index,
(2) Transparency International’s Corruption Perceptions Index, and (3) the
Euromoney Country Risk Index. In this way, Simkins and Peterson recommend the
SSI to researchers interested in analyzing countries on the sustainability dimensions
of the SSI.
Focus of the Study
The Sustainable Society Index and Four Research Questions
The core of the study’s assessment of Africa’s sustainable development will use the
Sustainable Society Foundation’s Sustainable Society Index (SSI) (Van de Kerk and
Manuel 2013). The SSI has been published biannually since 2006 and offers valu-
able insights into important issues related to macromarketing and sustainability. As
part of a shifting paradigm today, firms are increasingly adopting sustainable busi-
ness practices because of consumers’ concern for the natural environment and firm
leaders’ awareness that business can be a positive influence in addressing problems
for societies and local communities (Peterson 2013).
The SSI is an index including 154 countries of the world, and it is particularly
well-suited to measure and study sustainability on a global scale. The SSI is one of
the very few indexes that includes all three well-being dimensions: (1) human, (2)
environmental, and (3) economic. All three dimensions of well-being complement
each other in examining issues of sustainability. Quality of life or well-being studies
have served as important dimensions of macromarketing scholarship since the
inception of macromarketing (Fisk 1981).
13 Putting African Country Development into Macromarketing Perspective 335
1. Sufficient Food
Basic Needs 2. Sufficient to Drink
3. Safe Sanitation
4. Education
Wellbeing
Personal Development 5. Healthy Life
Human
& Health
6. Gender Equality
7. Income Distribution
Well-balanced Society 8. Population Growth
Sustainable Society Index
9. Good Governance
10. Biodiversity
Natural Resources
Environmental
11. Renewable Water Resources

Wellbeing
12. Consumption
13. Energy Use

Climate & Energy 14. Energy Savings
15. Greenhouse Gases
16. Renewable Energy
17. Organic Farming

Transition
18. Genuine Savings
Economic
Wellbeing
19. Gross Domestic Product

Economy 20. Employment
21. Public Debt
Fig. 13.1 The SSI’s 3 dimensions, 7 categories, and 21 dimensions (Source: Sustainable Society
Foundation http://www.ssfindex.com/ssi/framework/)
The SSI includes 21 dimensions for rating sustainability across seven categories
and three dimensions of well-being. Figure 13.1 depicts the framework of the
SSI. Table 13.1 presents the measures and sources of the measures representing the
dimensions of the SSI.
Table 13.2 presents the SSI dimensions and the corresponding Sustainable
Development Goals (SDGs) of the United Nations (2017). As can be seen, 16 of the
21 SSI dimensions have a corresponding SDG. There are no corresponding SDGs
for (1) population growth, (2) renewable water resources, (3) organic farming, (4)
genuine savings, and (5) public debt. Similarly, there are no SSI dimensions for the
SDGs of (1) industry, innovation, and infrastructure, (2) sustainable cities and com-
munities, (3) life below water, and (4) partnerships for the goals. In sum, an analysis
of Table 13.2 suggests that the SSI and the UN’s SDGs overlap significantly. This
suggests the relevance of the SSI to issues of country development.
Table 13.1 SSI dimensions, measures, and source of measures

Name Measure Source
Sufficient food Number of undernourished people in percent of total Food & Agr.
population Org. of UN
Sufficient to drink Number of people in percent of total population, with Food & Agr.
sustainable access to an improved water source Org. of UN
Safe sanitation Number of people in percent of total population, with Food & Agr.
sustainable access to improved sanitation Org. of UN
Education Gross enrollment ratio for primary, secondary, and UNESCO
tertiary education (combined)
Healthy life Life expectancy at birth in number of healthy life WHO HALE
years
Gender equality Gender Gap Index WEF
Income distribution Ratio of income of the richest 10 percent to the World Bank
poorest 10% people in a country
Population growth 5-year change in total population size (percent of World Bank
total population)
Good governance Sum of the six worldwide governance indicators World Bank
Biodiversity part 10-year change in forest area Protected Planet
a—forest area
Biodiversity part Size of protected land area (in percent total land area) Protected Planet
a—protected area
Renewable water Annual water withdrawals (m3 per capita) as percent FAO Aquastat
resources of renewable water resources
Consumption Ecological footprint minus carbon footprint GFN
Energy use Energy use (tons of oil equivalent per capita) IEA
Energy savings Change in energy use over 4 years (percent) IEA
Greenhouse gases CO2 emissions per person per year IEA
Renewable energy Consumption of renewable energy as percent of total IEA
energy consumption
Organic farming Area for organic farming in percent of total FiBL
agricultural area of a country
Genuine savings Genuine savings (adjusted net savings) as percent of World Bank
gross national income (GNI)
GDP Gross domestic product per capita, PPP, current IMF
international $
Employment Number of unemployed people in percent of total World Bank
labor force
Public debt The level of public debt of a country in percent of IMF
GDP
Four research questions shape the analysis in this study focused on SSI ratings
for 2016. First, how does Africa compare to the rest of the world on SSI ratings?
Second, how does Africa compare to other developing countries of the world on SSI
ratings? Third, how do the five regions as defined by the United Nations compare
against each other in terms of changes in the SSI ratings from 2006 to 2016. Fourth,
how do the regions of Africa compare against the regions of the world as defined by
Table 13.2 The dimensions of the SSI and corresponding dimensions of the UN’s sustainable
development goals
SSI dimensions UN’s sustainable development goals
Sufficient food 2. Zero hunger
Sufficient to drink 6. Clean water and sanitation
Safe sanitation 6. Clean water and sanitation
Education 4. Quality education
Healthy life 3. Good health and well-being
Gender equality 5. Gender equality
Income distribution 10. Reduced inequalities
Population growth
Good governance 16. Peace, justice, and strong institutions
Biodiversity part a—forest area 15. Life on land
Biodiversity part a—protected area 15. Life on land
Renewable water resources
Consumption 12. Responsible consumption and production
Energy use 7. Affordable and clean energy
Energy savings 7. Affordable and clean energy
Greenhouse gases 13. Climate action
Renewable energy 7. Affordable and clean energy
Organic farming
Genuine savings
GDP 1. No poverty
Employment 8. Decent work and economic growth
Public debt
9. Industry, innovation, and infrastructure
11. Sustainable cities and communities
14. Life below water
17. Partnerships for the goals
the United Nations? By answering these research questions, one can better under-
stand how global marketing strategies for firms might need to change because of
new realizations about sustainable development in Africa.
frica Compared to the Rest of the World and to Other

A
Developing Countries
Figure 13.2 depicts the SSI ratings for Africa (solid line) and the rest of the world
(dotted line). These ratings represent the average for 40 African countries and the
average of the 110 non-African countries. A scale of 0–10 is used with higher values
representing increasingly favorable ratings for sustainability. Reviewing Fig. 13.2
by beginning at the top of the radar chart and moving in a clockwise direction, one
Africa Rest of the World
Sufficient Food
Public Debt 10 Sufficient to Drink
Employment 9 Safe Sanitation
8
7
GDP Education
6
5
Genuine Savings 4 Healthy Life
3
2
Organic Farming 1 Gender Equality
0
Renewable Energy Income Distribution
Greenhouse Gases Population Growth
Energy Savings Good Governance
Energy Use Biodiversity

Consumption Renewable Water Resources
Fig. 13.2 Africa and the rest of the world on the 21 dimensions of the SSI in 2016
can see how close Africa comes to the rest of the world regarding sufficient food.
However, Africa markedly lags the rest of the world on the dimensions of (1) suffi-
cient drinking water, (2) safe sanitation, (3) education, and (4) a healthy life. Another
noticeable gap for Africa comes in terms of having a less favorable score on popula-
tion growth (which represents a burgeoning population for Africa). Africa also lags
on good governance but has parity with the rest of the world on biodiversity and
renewable water resources.
Continuing moving in a clockwise direction, Africa begins posting better scores
than the rest of the world on (1) consumption, (2) energy use, (3) greenhouse gases,
and (4) renewable energy. Africa’s slightly lower score on energy savings represents
Africa’s slightly less favorable increase in energy consumption in the last 4 years
than the rest of the world. Finally, the economic dimensions show the rest of the
world’s better results on (1) genuine savings and (2) GDP. Africa scores similarly to
the rest of the world on (1) organic farming, (2) employment, (3) and public debt.
Researchers of this study used a series of one-sample t-tests to compare the 114
countries of the world with Africa’s value on each of the 21 dimensions. These
t-tests disclosed that the average of the world’s countries and Africa were the same
for only three dimensions: (1) biodiversity, (2) renewable water resources, and (3)
public debt. All the other t-tests returned t-values that were statistically significant
at p = 0.05. In sum, the separations between the points representing Africa and the
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
People
Sufficient Food 9.3
8.3
Sufficient to Drink 9.1
7.4
Safe Sanitation 8.0
3.8
Education 7.8
6.3
Healthy Life 7.4
5.8
Gender Equality 6.9
6.5
Income Distribution 4.9
3.9
Population Growth 6.1
2.8
Good Governance 4.5
3.6
Planet
Biodiversity* 6.0
6.2
Renewable Water Resources* 8.4
8.7
Consumption 5.6
6.3
Energy Use 6.9
8.6
Energy Savings* 4.0
4.4
6.6
Greenhouse Gases 9.0
Renewable Energy 2.6
6.6
Profit
Organic Farming 2.7
1.4
Genuine Savings 7.4
6.1
GDP 5.6
2.7
Employment* 4.9
4.6
Public Debt* 6.3
5.9
Other Developing Countries Africa
Fig. 13.3 Africa and the other developing countries on the 21 dimensions of the SSI in 2016. * =
group means are statistically the same (others are statistically different at p = 0.05)
rest of the world in Fig. 13.2 are meaningful differences—except for the three
dimensions just mentioned.
Figure 13.3 depicts the average SSI ratings for the 40 African countries in the
analysis (solid bar) and 80 other developing countries (bar with diagonal lines).
Again, a scale of 0–10 is used with higher values representing increasingly favor-
able ratings for sustainability. As with the comparisons of Africa to the rest of the
world (Fig. 13.2), Africa tends to do comparatively better on most of the environ-
mental dimensions (planet) but lags the other developing countries on the human
dimensions (people) and the economic dimensions (profit).
9.0
8.0
8.0
7.0 6.7 6.6
5.8
6.0
5.0 4.8 4.8

4.6
4.0
3.4
3.1
3.0
2.0
1.0
0.0
Human Well-being Environmental Well-being Economic Well-being
Africa Other Developing Countries Developed Countries
Fig. 13.4 Africa, other developing countries, and developed countries on averages for well-being
Using a grouping variable of African/non-African countries, researchers ran a

series of independent sample t-tests across the 21 dimensions of the 2016 SSI. Only
five dimensions did not register a statistically significant difference at p = 0.05: (1)
biodiversity, (2) renewable water resources, (3) energy savings, (4) employment,
and (5) public debt.
Comparing Africa to other developing countries, Africa’s favorable position on
environmental well-being and its unfavorable position on human well-being and
economic well-being can be seen in Fig. 13.4. This figure depicts the averages for
Africa and the other developing countries, as well as the developed countries on the
aggregated dimensions of the SSI that correspond to (1) human well-being, (2) envi-
ronmental well-being, and (3) economic well-being.
These results resonate with observations about Africa as being a well-endowed
continent with mineral and natural resources but in need of development that can
only be done through human institutions, such as markets and government, as well
as culture that nurtures and reinforces the operation of such institutions (Gane
2014). In fact, the results for Africa and the developed countries are the obverse of
each other. Africa has the highest rating on environmental well-being (the devel-
oped countries the worst), but Africa has the worst rating on human and economic
well-being (the developed countries have the best rating).
Africa’s Performance on the Indicators of SSI
Human Well-Being
Africa performs quite low on the human well-being dimension. The SSI scores for
the African and other developing countries are 4.8 and 6.7, respectively.
Sufficient Food The SSI score on sufficient food for African countries is 8.3. The
corresponding score for other developing countries in the world is 9.3.
Africa has only 8% arable land and only 3.6% of that land is irrigated (Rotberg
2013). By comparison, the average of the world’s countries for arable land is 10.0%,
while that of the United States is 16.9% (World Bank 2014). In Sub-Saharan Africa,
65% of the arable land is depleted and undernourished making it difficult for the
region to meet food security goals (Conway 2014). The poor quality of soil coupled
with other environmental shocks (such as poor rainfall, high temperature catalyzing
soil demineralization, leaching of essential organic compounds, and soil erosion)
exacerbates problems for food production in the region.
Food insecurity is closely related with poverty. The poor and vulnerable sections
of African societies rely on subsistence agriculture for their availability of food. The
agricultural production is subject to environmental, economic, and social variables
such as famine, infestations, governmental policies, and civil wars. Not surprisingly,
food consumption across Africa can be highly variable.
The fight against hunger continues, but gains have been made this century. The
Global Hunger Index score for the developing world has declined from 30.0 (in
2000) to 21.3 (in 2016) (International Food Policy Research Institute/
Welthungerhilfe/Concern Worldwide 2016). In Sub-Saharan African countries, this
has declined from 44.4 to 30.1. While the overall progress in reducing hunger is
notable, five out of the seven countries with “alarming” levels of hunger and 28 out
of the 43 countries with “serious” levels of hunger are African.
There is a marked difference in the success of hunger mitigation efforts made by
African countries. The African Development Bank Group (2017) reports that from
1990 to 2012, three African countries (Ghana, the Democratic Republic of the
Congo, and Mauritania) reduced hunger by 50% or more, 19 by 20.0–49.9%, and 13
by 0.0–19.9%. However, five countries (Burundi, Swaziland, Comoros, Cote
d’Ivoire, and Botswana) experienced setbacks and chronically suffer from food
insecurity. Figure 13.5 depicts the countries of Africa.
Sufficient to Drink The mean score of Africa on this indicator, measured as the
number of people with sustainable access to an improved water source, is 7.4. It is
lower than the score for the other developing countries score, which is 9.1.
The World Health Organization defines an improved drinking water source as a
source that by nature of its construction adequately protects the water from outside
contamination, in particular from fecal matter. Piped household water connections,
protected wells, and springs qualify as improved drinking water sources.
Fig. 13.5 Political map of Africa (GeoCurrents 2017)
Despite an abundance of water on planet Earth, around 1.2 billion people grapple
with the problem of scarcity of water (United Nations Department of Economic and
Social Affairs 2014). The number of people facing absolute water scarcity is
expected to go up to 1.8 billion by 2025—an increase of 50%. Although water is a
renewable resource, its availability for drinking use is limited by freshwater
resources which are unevenly distributed across the world. In Sub-Saharan Africa,
the Democratic Republic of the Congo has an abundance of water that far exceeds
what the inhabitants require. However, there are also countries such as Kenya,
Malawi, and South Africa that struggle to secure adequate freshwater and are chron-
ically stressed for water (United Nations Development Program 2006).
The United Nations’ seventh Millennium Development Goal (7c) committed to
reducing by half the proportion of people without sustainable access to safe drink-
ing water and sanitation in the world. The target had to be achieved by the end of
2015. While the goal has been met globally (World Health Organization 2015),
African countries are still making progress toward achieving it. Most North African
countries (Algeria, Egypt, Morocco, and Tunisia) have met this target in urban areas
(Mutasa and Paterson 2015). In Sub-Saharan Africa, the proportion of people with
access to clean drinking water has increased.
Regarding the availability of clean drinking water, a wide disparity exits across
the African regions. The safe water coverage is as high as 92% in North Africa and
as low as 61% in Sub-Saharan Africa. Presently, the Sub-Saharan Africa alone has
around 783 million people without access to safe drinking water (United Nations
2016).
Safe Sanitation Access to safe drinking water and availability of safe sanitation are
closely related. The mean SSI score for safe sanitation for African nations is 3.8,
which is less than half of the other developing countries’ mean score of 8.0. Clearly,
the availability of safe sanitation facilities remains a huge challenge for Africa.
The WHO/UNICEF Joint Monitoring program for water supply and sanitation
takes into account improved sanitation facilities to assess the availability of safe
sanitation. An improved sanitation facility is defined as one that prevents human
excreta from coming into contact with humans. Shared sanitation facilities may
have a number of persons using them. It may not be an adequately safe facility
because such a facility would not prevent air or water borne diseases arising out of
lack of hygiene. Therefore, they do not qualify as improved sanitation. According to
the WHO/UNICEF 2015 update and Millennium Development Goal (MDG) assess-
ment, 68% of people have access to improved sanitation facilities around the world.
In Africa, the northern region has met sanitation targets set by MDGs for the year
2015. Sub-Saharan Africa lags far behind. Only 30% of persons living in Sub-
Saharan Africa have access to improved sanitation. The lack of proper sanitation is
related to the outbreak of diseases (such as diarrhea, malaria, dengue, and cholera)
that claim millions of lives.
The overall progress of Africa on safe sanitation has been sluggish due to the
high costs of building sanitation infrastructure and the relatively low returns on such
investments for the private sector (Onyeiwu 2015). Open dumping of rubbish can
result in fly infestation and rapid spread of disease. Even large dumping sites near
urban areas in Africa are typically oversized and become the source of disease to
those living (in the dump sites) or near them (Vidal 2014).
Education African countries lag their developing counterparts across the world as
shown by the SSI score for education (measured as combined enrollment into pri-
mary, secondary, and tertiary education). The mean score for African region is 6.3
as compared to 7.8 for other developing countries.
Africa’s public education expenditure is 5% of its total GDP making its share of
GDP spending on education the second highest among all continents in the world.
The global public expenditure on education is 4.7% of the world’s GDP per capita
(Africa-America Institute 2015). Despite the African governments devoting rela-
tively large proportion of their resources on education, the continent has not been
able to reap the benefits of human development. The education sector requires more
funding to overcome the challenges posed by (1) population growth, (2) the need to
maintain quality standards, and (3) ensuring equity in access to education services.
Yet, compared to where it was, Africa has made remarkable progress in educa-
tion in the last two decades. The net primary enrollment increased by 14% since
1999 and reached 76% in 2008 (Bright and Hruby 2015). Secondary school enroll-
ment rose by 10% in a period of two decades since 1999 and stood at 35% in 2008.
Exceptional progress in primary school enrollment was seen in the Sub-Saharan
Africa, which was the highest for any world region between 2000 and 2012.
However, a simultaneous increase in population meant similar growth in school
facilities (including both the construction and staffing of such schools) did not keep
pace with population growth. This shortfall resulted in many children not having
access to schools in many parts of Africa. Also, due to financial constraints or for
not meeting the eligibility requirements for secondary and tertiary education, only a
small percentage of students enroll in colleges or universities.
Education is emerging as one of the fastest and promising sectors in Africa as
many countries on the continent are now attracting investment by private organiza-
tions. Tertiary school enrollments have surged with the growing education opportu-
nities. The need for establishing a sound and sustainable education is also pressing
as Africa’s population is increasing, and the population must be equipped with the
required knowledge and skillsets to be able to create a productive workforce. For
harnessing the potential of African youth, it is important that the education system
be structured to provide for the holistic development of students and offer them
vocational skills for future jobs.
Healthy Life The Social Sustainability Index assesses healthy life in terms of life
expectancy at birth in number of healthy life years—defined as the number of years
that a newborn is expected to live minus the number of years spent in poor health.
Africa needs much improvement on this front. Its mean SSI score is 5.8 versus
7.4 for other developing non-African nations. WHO’s conceptualization of health
goes beyond mere absence of disease or infirmity. The state of being healthy means
presence of complete physical, mental, and social well-being.
Sadly, Africa has the highest incidence of undernourishment in the world. More
than one quarter of persons living in Sub-Saharan Africa are undernourished, and
the number of those who experience hunger has been rising by 2% per year since
2007 (World Hunger Education Service 2016). Today, Africa is home to more than
a quarter of the total number of undernourished people in the world (Mutasa and
Paterson 2015). Child-maternal health in many parts of Africa needs much improve-
ment. Half of the world’s child deaths under the age of 5 years are in Africa (United
Nations Children’s Fund 2013). Due to malnutrition, at least one in every three
African children under the age of 5 years was estimated to be stunted in 2011. South
Sudan, Nigeria, Chad, Mali, and Sudan had more than 5% of its children showing
evidence of severe wasting. Sadly, around 3.1 million children under the age of five
were infected with HIV in Africa according to 2011 statistics.
Niger was declared as the “worst place to be a mother” in 2012 by Save the
Children’s thirteenth annual mother index after it replaced Afghanistan at the bottom
of this ranking (BBC News, 2012). Seventy-four percent of AIDS-related deaths

reported globally in 2013 came from the Sub-Saharan Africa. Thankfully, this num-
ber has declined between 2005 and 2013 with the increased access to antiretroviral
coverage (UNAIDS 2014). Africa has seen a significant decline in new HIV infec-
tion, as well. This has led to stabilized rates of HIV infection in many African
countries.
Malaria caused by P. falciparum, particularly rampant in tropical Africa, accounts
for 91% of deaths due to malaria around the world (World Health Organization
2012). Encouragingly, governments in Africa are committed to combat the disease
and have pledged 15% of their budgets, under the Abuja Declaration (World Health
Organization 2011).
Gender Equality There is the least disparity on gender equality indicator between
African and non-African developing countries than on any other indicator of human
well-being. The mean SSI scores are 6.5 and 6.9, respectively. SSI measures gender
equality in terms of the Global Gender Index published annually by the World
Economic Forum (WEF).
In 2015, Rwanda made it to the 6th place on global rankings in the Global Gender
Gap Report outperforming developed countries like the United Kingdom (which
ranked 18th), the United States (28th), France (15th), and Canada (30th) which did
not even make it to the top 10 (World Economic Forum 2016). Rwanda’s fresh entry
to the list in 2014 at rank number 7 was surprising because the country had never
made it previously onto the list. It is likely that the efforts made by the country to
boost equal rights for women after the 1994 Rwanda genocide have begun to take
effect. (A painful memory for the country associated with the trauma of this upheaval
in the country is the rape of an estimated one quarter million to half a million women
who experienced rape.) Today, women comprise 64% of Rwanda’s parliament—the
highest in the world (World Economic Forum 2016). Other African countries that
appearing in the top 30 of the Global Gender Gap are Namibia (which ranked 16th),
South Africa (17th), Burundi (23rd), and Mozambique (27th).
The United Nation’s Millennium Development Goal 3 (MDG 3) focuses on gen-
der equality and the empowerment of women. At primary school level, the enroll-
ment of women increased from 72% to 96% from 1999 to 2010 in Sub-Saharan
Africa (United Nations 2012). Comparatively, the progress has been slower in
enrollment in the secondary level of education and the slowest for enrollment in
tertiary education. The representation of women in nonagricultural wage employ-
ment in the Sub-Saharan Africa is markedly below the global average. Gender
inequality is also reflected in terms of the pay disparity between male and female
employees, the female-to-male pay ratio being higher than 0.70 in countries like
Egypt, Gambia, Ghana, Malawi, Nigeria, Uganda, and Malawi (Mutasa and Paterson
2015). By comparison, the female-to-male ratio for pay in the United States in 2015
was .80 (Swartz and Jones 2017). Notably, female representation in African parlia-
ments has improved substantially because of legal policies that ensure seats for
women (United Nations Economic Commission for Africa 2015).
Income Distribution SSI considers the ratio of income of the richest 10% to the
poorest 10% of persons in a country as a measure to assess income distribution. The
mean SSI score of the African countries for this indicator is 3.9 as compared to a 4.9
score for other developing countries of the world.
Although six out of the world’s ten fastest-growing economies were in Africa in
the 2000s, the gap between the rich and the poor as far as income distribution is
concerned has not been bridged (African Development Bank Group 2012). In 2010,
six of the ten countries worldwide, with the most uneven concentration of wealth
between the rich and the poor, were in the Sub-Saharan African region. In 2011,
60.8% of the African population lived on less than USD 2 per day and held 36.5%
of the total income. On the other hand, the nonpoor living on more than USD 20 per
day (amounting to 4.8% of the total population) held 18.8% of the total income.
As of 2012, South Africa had the most unequal income distribution in the world.
The Gini coefficient for the country has remained consistently high between 1990
and 2011 (Euromonitor International 2012). After the end of the Apartheid era in
1990, the inequality between racial groups in South Africa narrowed. However, the
income inequality within the racial groups became wider (Whiteford and van
Seventer 2000). The result of this can be seen in a relatively high Gini coefficient of
0.69 meaning that 69% of wealth would have to be reallocated to have everyone in
the country have equal wealth (Forslund 2016). By comparison, the United States
posts a Gini coefficient of 0.39 (OECD 2017).
Population Growth The mean SSI score of the African countries for the population
growth indicator is 2.8 as compared to the world’s other developing countries’ aver-
age of 6.1.
Population growth makes Africa attractive for firms around the world for future
marketing efforts. However, it also stresses many countries’ weak infrastructure
such as schools, hospitals, and safe water and sanitation facilities required for
human development.
While most of the developed countries of the world have been seeing a drop in
fertility rates since the 1960s (South China Morning Post 2014), Africa as a region
has undergone a population explosion. While only one African country (Nigeria) is
included among the top 10 most populous countries of the world, the continual
population growth will likely lead to 40% of the world’s population being African
by the end of this century. According to some estimates, the continent might qua-
druple its numbers by 2100 (African Globe 2014). These are astounding
predictions.
On the way to becoming the most populous continent by 2050, it is and will
remain the youngest of all continents in the coming decades. By 2050, 1.3 billion
people will be added in Africa—which will double the African population (United
Nations 2015). Five African countries (Congo, Egypt, Uganda, Nigeria, and
Ethiopia) will be among the top 15 most populous countries of the world (Population
Reference Bureau 2016). However, Africa has not been able to harness its demo-
graphic dividend, yet. Its population could prove to be a significant asset or a
liability that worsens the effect of persistent poverty. Currently, there is a pressing
need to develop institutional and infrastructural capacity to keep pace with the bur-
geoning population.
Good Governance The World Bank’s six indicators of good governance are (1)
voice and accountability, (2) political stability and absence of violence, (3) govern-
ment effectiveness, (4) regulatory quality, (5) rule of law, and (6) control of corrup-
tion (World Bank Group 2015). The Sustainable Society Index (SSI) considers the
sum of these indicators as a measure to assess good governance. The mean SSI
score of African countries is 3.6, while the corresponding score for the other devel-
oping countries in the world is 4.5, suggesting another dimension for improvement
for African countries.
Africa’s journey to democracy has been difficult. The transitions to more demo-
cratic societies have improved over the past two decades when authoritarian regimes
began to be overthrown. Good governance is more than just democracy, but democ-
racy is an important and integral part of good governance. Encouragingly, the con-
tinent has made significant advancements in the way of institutionalizing democracy
(CNN 2013). The World Bank attributes recent improvements in economic perfor-
mance to better governance.
Botswana, Namibia, and Ghana are consistently well-governed countries. Good
governance in these countries is evidenced by (1) low crime rates, (2) relatively high
GDPs, (3) a fair distribution of wealth compared to other African countries, (4) a
good network of transport facilities, (5) an exemplary law enforcement system, (6)
comparatively lower corruption rates, and (7) respect for human rights (Rotberg
2013). These three countries bring some hope for other countries across the Sub-
Saharan African region to improve on this important dimension of human
well-being.
On the other hand, countries like Somalia, Sudan, Guinea Bissau, and the
Democratic Republic of the Congo represent the worst cases of governance in
Africa mostly because of the persistent civil wars there. Guinea Bissau has not been
able to have an elected president finish a 5-year term since its independence from
Portugal in 1974. Such instability contributes to the poor governance in the
country.
Overall, there has been a reduction in the prevalence of violent conflicts across
the continent. The number of countries that experienced violence and conflict
declined to five in 2007 (compared to 26 in the 1990s) (Dowden 2009).
Environmental Well-Being
As can be seen in Fig. 13.4, African countries lead other developing countries in the
environmental well-being category comprising seven dimensions of the SSI. As
depicted in Fig. 13.4, the mean rating on environmental well-being dimension for
Africa is 6.6, while the average for the other developing countries is 4.8.
Biodiversity This indicator has two components: (1) biodiversity forest area (mea-
sured as a 10-year change in forest area) and (2) biodiversity protected area (mea-
sured as the size of protected land area) (in percent total land area). SSI utilizes
statistical data from the Protected Planet Report 2016 for computing the score of
this indicator. The International Union for Conservation of Nature (IUCN) defines
protected area as “a clearly defined geographical space, recognized, dedicated, and
managed through legal or other effective means, to achieve long-term conservation
of nature with associated ecosystem services and cultural values.” The mean SSI
scores for African countries and the other developing countries of the world are 6.2
and 6.0, respectively. Hence, Africa posts a slight advantage.
In April 2002, as a part of the Convention on Biological Diversity’s (CBD) action
plan, a significant reduction in biodiversity loss had to be achieved. The Aichi
Biodiversity targets of the strategic plan 2011–2020 were adopted to address the
causes of biodiversity. UN researchers note that biodiversity in Africa continues to
decline because of human intervention in nature (UNEP 2010).
According to those UN researchers, deforestation and threat to biodiversity are
the top environmental issues in Africa. Nearly 1% of Africa’s tree cover is lost each
year due to (1) population increase and (2) climatic factors, such as low rainfall and
the effects of global warming. The conversion of forests into pasturelands is the
main reason for tree loss in the Sub-Saharan Africa. Disturbingly, it is estimated that
by 2025 the wide savannah belt from Mauritania in West Africa to Ethiopia in East
Africa will turn treeless (Rotberg 2013).
Land and coastal water protected areas, on the other hand, are being increased in
number and size. For example, protected areas now account for substantial portions
of African regions (14.6% of the Eastern and the Southern African regions, 10.5%
of the Western and the Central African regions, and 7% of the North African regions)
(United Nations Environment Programme 2010). Transboundary protected areas
that span the boundary of more than one country are becoming susceptible to illegal
activities like poaching that endanger the sustainability of these areas. There is a
pressing need for multinational collaborative efforts to tackle such threats.
Renewable Water Resources The Sustainable Society Index measures renewable
water resources as the annual water withdrawals (m3 per capita) as a percent of total
available renewable water resources. Africa’s mean SSI score is 8.7 compared to 8.4
for the other developing countries.
Aquastat, a global information system on water and agriculture of the Food and
Agriculture Organization (FAO), considers inland waters renewed by the global
water cycle as a renewable water resource. This is the main source of available
water to people. In Africa, the renewable water resources are 3930 km3, that is, 9%
of the global renewable water resources (Food and Agriculture Organization of the
United Nations 2016). While the Democratic Republic of the Congo and countries
along the Gulf of Guinea from Gabon north to Cameroon and across to Liberia are
well supplied with water, the North African region is the most disadvantaged (UN
Water/Africa 2009).
In Africa, 85% of water withdrawals is for agriculture, 9% for community use,

and 6% for industry (UN Water/Africa 2009). The withdrawal of water is signifi-
cantly lower than would be expected given the higher rainfall amounts outside des-
ert areas. This suggests a low level of development and use of water resources on the
African continent.
The water-related issues in Africa are either due to supply and demand for water.
Low incidence of rainfall and poor management of water resources are two leading
problems of supply. Competing demands for water lead to demand-side issues (UN
Water/Africa 2009).
Consumption Ecological footprint (measured in global hectare) is a metric of
human impact on Earth’s ecosystems. Carbon footprint is the total set of greenhouse
gas emissions caused by an individual, an organization, or a product that is expressed
as a carbon dioxide equivalent. SSI calculates consumption as the difference
between ecological and carbon footprints. The SSI score for African consumption is
6.3, while the score for developing countries is 5.6.
Africa’s ecological footprint is almost equal to its bio-capacity (World Economic
Forum 2015). This means the continent is neither ecologically deficient nor in sur-
plus. However, some countries cannot make this claim. Some North African coun-
tries (such as Libya, Egypt, and Algeria) and some Sub-Saharan countries (such as
Burundi, Djibouti, Swaziland, Tunisia, South Africa, Kenya, and Uganda) are in
ecological deficit. This means that these societies are exerting more pressure on
nature than nature can bear.
Some countries are not stressing nature. Gabon’s ecological surplus is the high-
est in the continent. It is using only one-tenth of its bio-capacity. Three other coun-
tries with an economic surplus are (1) the Democratic Republic of the Congo, (2)
the Central African Republic, and (3) the Republic of the Congo.
Although Africa’s consumption is significantly lower as compared to other coun-
tries in the world, the growing African population will increase ecological degrada-
tion. This underscores the need to adopt sustainable ways to utilize the demand for
natural resources.
Energy Use SSI assesses energy use in tons of oil equivalent per capita, a unit of
energy. The mean SSI scores for African and other developing countries are 8.6 and
6.9, respectively. Hence, Africa performs well most likely because of the lack of
economic development across much of Africa.
Sub-Saharan Africa, despite having 15% of the world’s population, uses only 3%
of the world’s energy output (Anyaogu 2016). With recent discoveries of 64 oil and
natural gas fields and with growing economies, Africa’s energy consumption is
growing faster than anywhere in the world (Pflanz 2013).
Electricity consumption in the Sub-Saharan Africa (except for South Africa) is a
fraction of electricity consumption rates in Brazil, India, and South Africa. Forty-
eight percent of the global population without access to electricity lives in Sub-
Saharan Africa (McKinsey & Company 2015). It is estimated that this region’s
demand in 2040 will be the same as what India and Latin America’s combined
demand was in 2010. A capital investment of $ 835 billion will be required to meet
this demand. Regarding energy resources, the Sub-Saharan region has a rich poten-
tial for coal, gas, geothermal, hydro, solar, and wind resources to deliver more than
12 terawatts of energy.
Energy Savings The SSI index assesses energy savings by change in energy use
over 4 years in percentage terms. The score for African countries is 4.4 and that for
developing countries is 4.0.
Because of recent economic development in these countries, neither of these
scores is favorable. One African country is attempting to address this deficient per-
formance in energy savings. The Department of Minerals and Energy for the
Republic of South Africa has recognized the physical and economic benefits of
sustainable energy sources. This ministry drafted an energy efficiency strategy for
the country. This initiative represents governmental concern, but time will tell if
such guidance for the country proves effective.
As of 2012, only 35% of Africa had the access to electricity (World Bank Group
2016). However, deliberate attempts to save energy are being taken in Africa by
encouraging sustainable consumption through replacement of traditional fuels with
alternative renewable resources.
Greenhouse Gases To represent greenhouse gases, SSI uses CO2 emissions per
person per year. The mean score of African countries for this indicator is 9.0—an
excellent score. For the other developing countries, it is 6.6. In the period between
1990 and 2012, the Sub-Saharan Africa was responsible for only 1.8% of the total
CO2 emission, a third of which was contributed by South Africa (International
Energy Agency 2014). However, temperatures across the continent are expected to
rise faster than the global average in coming years (James and Washington 2012).
In 2012, 28 billion cubic meters of natural gas (mainly consisting of methane, a
greenhouse gas) was vented without producing power in Sub-Saharan Africa. Out
of this amount, Nigeria accounted for 60%, with the remaining 40% accounted for
by Angola, Congo, and Gabon (Organization for Economic Co-Operation and
Development/International Energy Agency 2014). In sum, Africa wastefully flares
and vents gas equal to half its power consumption. Better practices in oil and gas
extraction could drastically reduce such waste and such potent greenhouse gas
emissions. The Global Gas Flaring Reduction (GGFR) program that supports
national efforts is expected to reduce vented gas in the Sub-Saharan Africa.
Renewable Energy The SSI uses renewable energy as a percentage of total energy
consumption. The mean scores for the African nations and the other developing
countries are 6.6 and 2.6, respectively. The wide gap in the SSI scores shows that the
African countries are far ahead of their developing country counterparts in the
application of renewable energy technology. As the world moves toward green
energy consumption, Africa shall benefit economically, ecologically, and
biologically.
South Africa (although now also dependent on coal) has been making remark-
able progress toward incorporating alternative energy systems such as solar, bio-
mass, and wind. South Africa has become a success model by adding 4322 MW of
renewable energy generation capacity from 2011 to 2015 (Barbee 2015).
Following the rise in oil prices in the first years of the twenty-first century and
the subsequent power crises in many African countries, alternative sources of energy
were explored by African countries. The most promising sources of renewable
energy in Sub-Saharan Africa are (1) biomass energy (sugarcane residue having the
potential to meet significant power requirements), (2) geothermal energy (first har-
nessed in Kenya significantly, followed by Ethiopia), and (3) hydropower (massive
hydropower potential, more evident in eastern and southern parts of the continent)
(Karekezi and Kithyoma 2003).
Economic Well-Being
The composite mean SSI score for African nations is the lowest of the three well-
being dimensions. Africa posts a low score of 3.1 compared to a 4.6 average for the
other developing world countries.
Organic Farming This indicator is measured as the area for organic farming as a
percent of the total agricultural area of the country. The mean scores of the African
countries and the other developing countries are 1.4 and 2.7, respectively. No
African countries score well on this dimension. Egypt posts the highest score of 5.0
followed by Uganda with 4.0 and Tunisia with 3.6. The other African countries
score 2.1 or below.
According to the World of Organic Agriculture 2009 report, Uganda and Ethiopia
are among the countries with the highest number of producers. About half of the
world’s organic producers are in Africa. Compared to 2006, organically measured
land increased by 27% (0.18 million hectares) in Africa. Almost 900,000 ha of land
that constitutes 3% of the global organic agricultural land was certified as organic.
Despite having a major proportion of organic producers, the domestic organic prod-
ucts’ market is very small in Africa. Thus, the organic produce from Africa must
find markets in industrial economies (International Federation of Organic Agriculture
Movements 2009).
Genuine Savings Genuine savings or adjusted net savings (ANS) measure the true
rate of savings in an economy after taking into account investments in human capi-
tal, depletion of natural resources, and damage control caused by pollution
(Sustainable Society Foundation 2017). For the calculation of SSI, genuine savings
or adjusted net savings are measured as a percent of gross national income (GNI).
The SSI scores for the African countries and the other developing countries are 6.1
and 7.4, respectively.
The adjusted net savings (in percent of GNI) inclusive of particulate emission
damage for the world in 2015 were 11.67. Two African countries—Algeria and
Botswana—occupied ranks 9 and 10 in the top 10 countries with highest adjusted
net savings (as percent of GNI) (World Bank 2016). Tanzania, Morocco, and
Botswana’s adjusted net savings were higher than the world average. Angola, the
Democratic Republic of the Congo, Zimbabwe, Malawi, Ghana, and Mauritius fea-
tured in the list of bottom ten countries with the lowest adjusted net savings. Their
adjusted net savings for these countries were in negative numbers indicating that
their spending is more than the available resources. This implies that the economic
growth in these countries is not sustainable (World Bank 2013). The Sub-Saharan
region saw positive genuine saving rates in most years from 1990 to 1999. However,
it has been negative for the most part in the twenty-first century.
GDP The mean scores of African countries and the other developing countries are
2.7 and 5.6, respectively. The SSI uses GDP per capita based on purchasing power
parity (PPP) published by the International Monetary Fund to calculate SSI scores.
According to the International Monetary Fund (2017), the ten African countries
with the highest GDP (PPP) occupy ranks within top hundred countries in the world.
In order of decreasing GDP within Africa, these are Equatorial Guinea, Seychelles,
Mauritius, Gabon, Botswana, Algeria, Libya, South Africa, Egypt, and Namibia.
The World Bank reports that the Sub-Saharan African region’s GDP growth has
shrunk from 4.5% in 2014 to 3% in 2015 because of the fall in commodity prices,
rise in borrowing costs, weak growth in trading partners, and unfavorable develop-
ments in many countries (World Bank Group 2015). This is particularly painful for
the region as commodities (such as oil and metal) comprise about 60% of the
region’s exports. Countries such as Nigeria, Equatorial Guinea, the Republic of the
Congo, South Sudan, Cameroon, Chad, Botswana, South Africa, and Zambia are
witnessing a deceleration in GDP growth owing to various reasons (such as the
fluctuations in commodity prices, political instability, and natural disasters).
Employment SSI uses the number of unemployed people as a percent of the total
labor force to gauge employment. The mean SSI score for the African developing
countries is 4.6, while for the other developing countries, it is 4.9.
The average unemployment rate for the world from 2010 to 2016 was 5.89%
(World Bank 2017). Fourteen Sub-Saharan countries (including Benin, Madagascar,
Uganda, Niger, Tanzania, Sierra Leone, Rwanda, and Burkina Faso) had lower
unemployment rates than the world average during this period. For the majority of
countries in the Sub-Saharan region, the mean unemployment rates have been con-
sistently higher than the world average. For Gambia, Swaziland, Namibia, Lesotho,
South Africa, and Mozambique, unemployment rates are the worst, that is, more
than 20%. These statistics present an extremely challenging situation for the conti-
nent as population growth has created a youth bulge that calls for a commensurate
increase in job opportunities in the near future. Africa’s unemployment is a conse-
quence of factors (such as many seasonal jobs in agriculture and lack of vocational
skills/industrial experience among the youth).
Public Debt This dimension of the SSI is measured as the level of public debt of a
country as a percent of its GDP. The mean SSI score is 5.9 for African countries and
6.3 for other developing countries in the world. When measured in relation to the
GDP, public debt indicates the capacity of a country to repay its creditors. Although
a low debt to GDP ratio is preferred, it may not necessarily mean a good economy
(World Atlas 2017). Developed countries can better handle a higher debt as a per-
cent of its GDP, while developing countries with debt more than 60% of GDP can
expect growth rates to be reduced by half of what they would be without such debt
loads for the government (Reinhart and Rogoff 2010).
Historically, Senegal, South Sudan, Republic of the Congo, and Equatorial
Guinea have had very low national debts (International Monetary Fund 2015).
Three African countries with the highest public debt as a percent of GDP in
decreasing order are Eritrea (137.6%), Gambia (107.7%), and Egypt (90%). These
countries are among the top 25 countries in terms of the national debt.
Analysis of Africa’s Five Regions
Comparing Africa’s Five Regions
The United Nations’ classification of African countries into five regions is presented
in Fig. 13.6. This geoscheme of five regions will be used to analyze the different
geographical grouping of countries in Africa.
Figure 13.7 depicts the change in the 21 SSI dimensions for the five regions of
Africa from 2006 to 2016. The changes in Fig. 13.6 range from more than 4 points
on a 10-point scale to −3 points. Moving from the top in a clockwise direction, the
region of the South African countries posts a noticeably lower change score than the
other regions on the education dimension but posts higher change scores for biodi-
versity and renewable water resources. Both the South and the North regions post an
almost 3.0 change score on energy savings. The West region spikes out more than 4
change points on genuine savings. Finally, near the top again, the Central region
posts an improvement of 3 change points on the dimension of public debt, while the
South registers a negative movement during the same period of −2 points on public
debt.
Figure 13.8 is a radar chart depicting the 2016 SSI ratings for all the regions of
the world on the three dimensions of well-being: (1) human well-being, (2) environ-
mental well-being, and (3) economic well-being. The five African regions are
located on the left side of the radar chart. At the top of the chart is the composite of
all the non-African countries. Here, one can see that generally, the African regions
underperform the other regions on human well-being (with the exception of the
North African region) and economic well-being. However, the African regions do
better than the other regions on environmental well-being. The story emerging from
an analysis of Fig. 13.8 is one of African being an underdeveloped continent (in
Fig. 13.6 United Nations Statistics Division’s geoscheme for Africa’s five regions
human and economic terms) with abundant natural resources that have not yet been
spoiled (which is evident in the above average scores for the African regions on the
environmental dimension).
Figure 13.9 depicts the regions ranked on the combination of the average scores
for the three well-being dimensions. While the African regions can be seen in the
bottom of the figure as solid bars, some African regions (such as East, West, and
North Africa) outperform the North American region. This comparison suggests
that despite challenges in developing the human-made dimensions of sustainability
(human and economic), some regions in Africa can be said to have better ratings of
sustainability than a developed region of the world, such as North America. This
should be encouraging to those who live in Africa or seek to preserve or to improve
Africa’s sustainability.
East Central North South West
Sufficient Food
Public Debt 5.0 Sufficient to Drink
Employment 4.0 Safe Sanitation
3.0
GDP 2.0 Education
1.0
Genuine Savings 0.0 Healthy Life
-1.0
-2.0
Organic Farming Gender Equality
-3.0
Renewable Energy Income Distribution
Greenhouse Gases Population Growth
Energy Savings Good Governance
Energy Use Biodiversity

Consumption Renewable Water Resources
Fig. 13.7 2006–2016 change in 21 SSI dimensions for the 5 regions of Africa
Discussion
Four research questions about sustainable development shaped the analysis in this
study comparing (1) Africa to the rest of the world, (2) Africa to other developing
countries, (3) Africa’s regions on changes over a 10-year period, as well as (4)
Africa’s regions to the other regions of the world. By answering these research
questions, one can better understand how global marketing strategies for firms and
the perspectives of those in the media and public sector might need to change
because of new realizations about sustainable development in Africa.
For the first two research questions, a general pattern characterizing Africa’s
performance on the three dimensions for well-being is that Africa lags the rest of the
world and the other developing countries in human well-being and economic well-
being, but Africa compares favorably in environmental well-being. With the excep-
tion of gender equality, Africa lags the rest of the world and other developing
countries in terms of human well-being. This can be seen by the separation of the
two lines in Fig. 13.2 on the right side of this figure. The widest separations can be
seen for (1) sufficient drinking water, (2) safe sanitation, (3) education, (4) healthy
life, and (5) population growth. When comparing Africa to other developing coun-
tries, a similar pattern can be discerned. In Fig. 13.3, one can see that Africa posts
Human Wellbeing Environmental Wellbeing Economic Wellbeing
Non-African World
Africa-West 9.0 Europe-North
8.0
Africa-South Europe-West
7.0
6.0
Africa-North Europe-South
5.0
4.0
Africa-Central 3.0 Europe-East
2.0
1.0
Africa-East 0.0 Asia-West
Oceania Asia-Central
America-South Asia-East
Amerca-Carrib Asia-South
America-Central Asia-SE
America-North
Fig. 13.8 2016 SSI ratings on three dimensions of well-being for UN regions of the world
better scores on each of the seven dimensions for environmental well-being (planet)
than the other developing countries. Four of these differences are statistically sig-
nificant at p = 0.05.
To close the gaps Africa has with the rest of the world and with other developing
countries, hard infrastructure needs to be developed for assets, such as water treat-
ment plants and delivery systems, schools, and hospitals (Shultz et al. 2012).
Additionally, cultural change is needed in the form of (1) respect for the rule of law
and governance, (2) adoption of healthy living practices in households, (3) develop-
ment of public sanitation practices, (4) increased commitment to keeping children
in school, and (5) appreciating the beauty of smaller families. In these ways, African
countries can make needed gains in human well-being.
Regarding the rule of law and governance, the independent watchdog organiza-
tion Freedom House reports that 12% of Africa’s 1.02 billion persons live in coun-
tries Freedom House rates as free, 49% live in partially free countries, and 39% live
in countries rated “not free” (Freedom House 2017). A comparison of the average
for Africa’s countries in 1977 and those in 2017 for political rights, as well as civil
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

Europe-North 6.1
6.0
Asia-SE 5.8
5.8
Oceania 5.7
5.6
Europe-South 5.6
5.5
Asia-East 5.3
5.2
America-South 5.2
5.2
Asia-Central 5.1
5.0
Asia-West 4.8
4.8
America-North 4.7
4.4
Africa-South 4.3
Fig. 13.9 Average of three well-being dimensions for UN regions of the world
liberties, shows that both groups of countries improved 1.1 and 0.8, respectively, on
these dimensions using Freedom House’s 7-point scale (with 1 representing most
free and 7 the least free). This is the identical amount that other countries of the
world improved on these dimensions over the same time period. This suggests that
Africa is improving on political rights and civil liberties at the same rate as the rest
of the world. This is good news. However, the bad news is that Africa remains
noticeably behind the rest of the world’s countries in the 2017 data (in political
rights, other countries of the world have an average score of 3.1 compared to a
worse score for Africa’s countries of 4.9; and in civil liberties other countries earn
an average score of 3.1 compared to a lower score for Africa’s countries of 4.6).
At the same time as human well-being gains are made, African countries must
protect the natural environment from overdevelopment while encouraging the
development of sustainably minded businesses. Of course, tension typically charac-
terizes a society’s conservation efforts when these imply changes for its economic
development. Sheth (1992) has proposed an important idea of macromarketing as
the harmonization between society’s interests and business’ interests. According to
Sheth, the objective for these three sectors should be goal convergence through a
process of (1) win-win value creation, (2) mutual interdependence, (3) networked
structure, (4) mutually accepted practices, and (5) frontline information systems
(which today might be in the form of mobile phone technology). African leaders in
business, government, and civil society would do well to focus on these in order to
realize important benefits from such a macromarketing approach to country
development.
For the last two research questions about the regions of Africa, regions have
changed from 2006 to 2016 only slightly on most of the 21 dimensions, while (with
9.0
8.0
7.0
6.0 5.7
5.3
4.8
5.0
4.0
3.0
2.0
1.0
0.0
Africa Other Developing Countries Developed Countries
Fig. 13.10 Overall sustainability scores for Africa, other developing countries, and developed
countries
notable exceptions) Africa’s regions underperform on human and economic well-

being but perform better than the rest of the world on environmental well-being. The
notable exceptions are (1) North Africa’s better performance than the average for
the rest of the world on human well-being, (2) the regions of North and South
Africa’s worse performance than the average for the rest of the world on environ-
mental well-being, and (3) East Africa’s better performance than the average for the
rest of the world on economic well-being.
These findings highlight the heterogeneity across regions of Africa for well-
being. North African countries can offer some best practices for developing human
well-being to other regions of Africa. Some African regions, such as North Africa
and South Africa, need to improve in terms of environmental well-being and can
look to East Africa, West Africa, and Central Africa for insights on how to do this.
While no African region clearly eclipses other regions in terms of economic well-
being, some are edging ahead, such as East Africa, North Africa, and West Africa.
When combining the average scores for the three well-being dimensions, com-
parisons can be made across Africa, the other developing countries, as well as devel-
oped countries. Figure 13.10 depicts these results which should be sobering to those
who read and hear hype about Africa and its development prospects. Such prospects
could be favorable, but the current position overall for sustainable development is
lower than in other developing countries and the developed countries. This view
should be valuable for marketers in African-based and non-African-based firms, as
well as for those in the media, the public sector, and academia who study Africa.
A Macromarketing Assessment of Africa’s Future Development
Macromarketing researchers have noted that economic development is likely to

occur under certain conditions. Such conditions would include (1) natural resources,
(2) transportation and communications infrastructure, (3) institutions to protect
individual property rights, (4) stable and business-friendly political environment,
(5) educational resources, and (6) a cultural ethos that values work, entrepreneur-
ship, and material progress (Klein and Nason 2000, p. 288).
Regarding the first condition for economic development, Africa boasts abundant
mineral resources and is a leading supplier of crucial commodities for the global
economy, such as oil, cobalt, copper, diamonds, gold, platinum, titanium, and coltan
(used in manufacturing electronic capacitors) (Carmody 2016). Regarding the next
four conditions for economic development, both physical and institutional infra-
structure in Africa have markedly improved this century (Berman 2013). Although
Africa still lags in income growth, it has made marked improvement in health, edu-
cation, gender equality, security, and human rights (Kenny 2011, p. 4). Regarding
the final condition for economic development, reinforcing cultural values (that
esteem work, entrepreneurship, and material progress) remains a challenge across
Africa (Gane 2014).
The Importance of Values Values, beliefs, and attitudes are commonly shared by
members of a cultural group (Harrison 2006, p. 6). These can support and promote
prosperity because they strongly affect perceptions of individuals and organizations
about the way to win (Porter 2000). In 2009, Zambian economist Dambisa Moyo
asserted that foreign aid has undermined the mindset of too many in Africa (Solomon
2009). “I believe it’s largely aid,” Moyo said. “You get the corruption—historically,
leaders have stolen the money without penalty—and you get the dependency, which
kills entrepreneurship.”
Table 13.3 presents the framework proposed by (Grondona 2000) to explain the
differences between progress-prone cultures and progress-resistant cultures. For
Africa to develop economically, more in Africa will need to embrace values that
encourage and nurture societal progress (the left column of Table 13.3). A world-
view of progress-prone cultures includes personal agency for the individual, as
compared to fatalism for the progress-resistant culture. The expandability of wealth
characterizes progress-prone cultures, as opposed to a peasant mentality that wealth
is finite (if someone gains, someone else must lose). In terms of values and virtues,
progress-prone cultures reinforce trust in public or commercial activities with lesser
values like punctuality being important. By comparison, progress-resistant cultures
reinforce mistrust and give little emphasis to lesser values, such as punctuality.
Economic behavior in progress-prone cultures is influenced by regard given to
entrepreneurial effort in competitive markets. Progress-resistant cultures see rent
seeking (taking advantage of what their position allows for self-gain) by cultural
elites in government as the privilege granted to those who attain power.
Table 13.3 Typology of progress-prone and progress-resistant cultures (Grondona 2000)

Dimension Progress-prone culture Progress-resistant culture
World view
Destiny I can influence my destiny for the Fatalism, resignation, sorcery
better
Wealth Product of human creativity is What exists (zero-sum) is wealth;
wealth expandable (positive sum) not expandable
Values, virtues
Ethical code Rigorous within realistic norms; Elastic, wide gap twixt utopian
feeds trust norms and behavior. Mistrust
reinforced
The lesser values A job well done, tidiness, and Lesser virtues unimportant
punctuality matter
Economic behavior
Entrepreneurship Investment and creativity Rent seeking: income derives from
government connections
Competition Leads to excellence Is a sign of aggression and a threat
to equality—and privilege
Advancement Based on merit, connections Based on family and/or patron
connections
Social behavior
Rule of law/ Reasonably law abiding; corruption Money, connections matter;
corruption is prosecuted corruption is tolerated
Family The idea of “family” extends to the The family is a fortress against the
broader society broader society
Gender If gender equality not a reality, at Women subordinate to men in most
relationships least not inconsistent with value dimensions of life
system
Social behavior in progress-prone cultures can be characterized by a self-

governing citizenry in which half the population (women) are able to function as the
equals of the other half (men). Progress-resistant cultures tend to carry patriarchal
hierarchy in which male chiefs or strong men dominate others because of their place
in the tribe or kinship group. Women might run the home, but usually not business,
government, or civic organizations.
Guarded Optimism While daunting challenges remain for development in Africa,
these challenges can focus the efforts of firms—both foreign-based and local—and
provide some of the most meaningful and exciting advances. For example, one of
the most acute challenges faced by the continent is the education and training of its
ever increasing youth population. In the period from 1990 to 2007, the number of
public universities in the Sub-Saharan Africa doubled from 100 to 200, while the
increase in private universities was about 20 times (from 24 to 468) (World Bank
2009). Pearson Education has expanded its Affordable Learning Fund (for schools
and material providers) in African countries such as Ghana, Kenya, and South
Africa (Mance 2015). In January 2016, the entire preprimary and primary education
system in Liberia was announced to be outsourced to Bridge International
Academies, a private American firm (Mungai 2016).
In the healthcare sector, multinational corporations have made collaborative

efforts in combating life-threatening diseases such as HIV/AIDS, malaria, and
Ebola. In South Africa, leading automotive manufacturers, such as General Motors,
Volkswagen Group, Mercedes-Benz, BMW, Toyota, and Nissan, are making con-
tinuous efforts to fight HIV/AIDS (Müller-Debus and Thauer 2013). Additionally,
firms such as Chevron, Marathon Oil, and ExxonMobil have developed effective
initiatives to reduce the incidence of malaria (Ollong 2016). Spurred by the 2014
outbreak of Ebola in West Africa, IBM committed to employ big data analytics to
identify Ebola virus-infected carriers (Monegain 2017).
In the telecommunications sector, Kuwait-based Zain became one of the world’s
largest telecommunication firms by targeting developing countries, such as those in
Africa (Khanna and Palepu 2010, p. 170). When operating in Sub-Saharan African
countries, Zain discovered that it needed to fill voids in the infrastructure by gener-
ating its own power with thousands of small generators. With such agility, Zain
went from a government-controlled monopoly with just 600,000 customers in
Kuwait in 2002 to becoming the world’s fastest-growing telecommunications pro-
vider with 42 million customers in 15 countries of Africa in 2008. In 2010, Zain sold
its African operations—then in 15 African countries—to Bharti Airtel of India for
$10.7 billion, posting a $3.3 billion profit on the sale (Daily Nation 2010). Zain’s
story in Africa highlights the potential rewards for firms committed to success in
African infrastructure development.
In a similar way, quality and quantity gaps in public goods (such as roads and
railways, electricity grids, and water systems) offer firms opportunities to join in
African development and to benefit themselves, as well. For example, electrification
in rural parts of Sub-Saharan Africa is only 14% (Lindermann 2015). Firms can also
play a major role in reducing unemployment by moving young Africans from the
self-employed, informal sector (subsistence agriculture, small household enter-
prises, and street vending) to formal sectors such as skill-based jobs in the public
and private sectors. To attract such firms that will assist in this movement of Africans
into the formal sector, countries in Africa must provide improved access to finance
and easy entrance to foreign businesses (McKinsey 2012).
Political Risk Political risk is a factor that threatens sustainable development in
Africa more than any other. One political risk report asserts that only nine African
countries can be classified as “moderately unstable” (Marsh 2017). These are Egypt,
Tunisia, Algeria, Morocco, Senegal, Ghana, Namibia, Botswana, and South Africa.
The rest are classified as “unstable” which means that business conditions in these
countries could markedly change in the event of a shock, such as an economic crisis
or a sudden change in the political environment within the country. To put this into
perspective, the only countries rated as “stable” in this report are the developed
countries of Northern Europe, Australia, New Zealand, Japan, Malaysia, United
Arab Emirates, Chile, South Korea, Taiwan, Canada, and the United States. This
suggests that firms wishing to do business outside these countries rated as “stable”
take on a measure of political risk when they do so.
Government corruption contributes to political risk in many ways. It diverts

resources from their best use for a community or society and exacerbates poverty,
as the most marginalized in a society lose access to health, education, sanitation,
and water resources they would have had without the diversion of resources.
Additionally, corruption foments resentment among citizens who would later agi-
tate for regime change or energetically pursue such change in order that they them-
selves or their group should enjoy the financial gains associated with the rents
imposed by corrupt governments (Burgis 2016). José Ugaz, the Chairman of
Transparency International asserts that “With corruption, there’s no sustainable
development” (Transparency International 2017).
Transparency International generates its Corruption Perceptions Index (CPI) by
using 13 different data sources from 12 different institutions that capture percep-
tions of corruption for a country within the past 2 years. It uses a 0–100 scale (with
higher numbers representing less corruption). The CPI is moderately and positively
correlated with the SSI which supports the assertion of Ugaz—the Chairman of
Transparency International—that corruption harms sustainable development for a
country (Simkins and Peterson 2016).
In the 2016 CPI, African countries posted a median value of 30 with Botswana
and Rwanda having the most favorable ratings (60 and 54, respectively). South
Sudan and Somalia received the worst ratings in Africa on the CPI (11 and 10,
respectively). By comparison, the OECD countries had a median value of 72 on the
CPI. These findings suggest that non-African firms will likely find themselves in a
different context for corruption when operating in Africa. Such firms need to make
sure their employees understand and follow the policies of the firm when conduct-
ing business in Africa. Encouragingly, Berman (2013) reports that improvement in
good governance in Africa is the trend, rather than the exception across the conti-
nent. However, firms developing their entry strategies for Africa would do well to
consult the CPI and the historical trend of the CPI in countries being considered for
their new operations.
Conclusion
In the African context, macromarketing has relevance for practitioners because mar-
keting and society can be seen to influence each other in clear ways. Such a macro-
marketing view can help visionary leaders of firms develop their own vision of
success in Africa and realize the commitment needed to realize such success.
This study has provided evidence for Africa’s lagging economic development
relative to other regions of the world that has resulted in less environmental degra-
dation in Africa. Fewer factories, roads, and industrial areas mean less harm to the
environment. But those new to Africa should remember that economic activity is
lively in many parts of Africa. Arnould (2001) presented evidence of this in his
ethnographic study of onion marketing in the West African countries of Niger,
Benin, Togo, Ghana, and the Ivory Coast. Here, entrepreneurs—many of them
women—grew a large regional consumer market over the years, fueled local devel-
opment, and increased nonfarm incomes.
In the manufacturing sector, foreign-based businesses, such as China’s C&H
Garments, have established successful factories in Africa. C&H Garments located
its factories in Ethiopia, Kenya, Senegal, and Rwanda (Manson 2015). Helen Hai,
one of the founders of C&H Garments, has become the goodwill ambassador for the
United Nations Industrial Development Organization and CEO of the Made in
Africa Initiative. “Every country has its own comparative advantage—you just need
to find it,” Hai said.
Hai believes that because of rising wages in China, firms will be seeking lower-
wage countries like those in Africa to establish new manufacturing facilities. She
predicts that firms will move 85 million jobs from China to Africa by 2015. In this
way, Africa’s need to develop economically can become an attractive aspect to firms
in the future. This is part of the global shift that forward-looking and savvy business
leaders, such as Hai, envision. These firm-level global/regional strategies may not
be focused on sustainable business practices (Peterson 2013), but they could help
Africa develop along all three of the sustainability dimensions (people, planet, and
profit).
Based on Africa’s history after colonialism in the last 70 years, one could expect
that the business activity will be uneven across the countries of Africa because of the
heterogeneity of markets and cultures across Africa (Shultz et al. 2012; Hosley and
Wee 1988). A study of the top African brands found that of the top 25 brands, all but
one—Kenya’s Safaricom—came from Nigeria or South Africa. Seven of the top 10
brands came from South Africa (Kulish 2014).
The titans of the consumer products field, Unilever and Procter & Gamble, have
shifted their geographic priorities to include Africa (Reingold 2011) because of the
population growth forecasted for the continent. By 2040, Africa’s current popula-
tion of more than one billion will surpass that of India and China (Figueiredo et al.
2015). With this knowledge of the future in mind, one can understand the shift in
attitude of business leaders around the world to target Africa for their future opera-
tions. Non-African firms such as Zain of Kuwait earned billions in profits from its
10 years in the African telecommunications market. Kenya’s Safaricom developed
M-PESA the “mobile wallet” that has become enormously successful because of
the scarce banking services in many parts of Africa (Eyring et al. 2011).
No doubt, African-based firms will emerge to lead Africa’s economic develop-
ment. Such firms have to become resilient and develop the know-how needed to
succeed in the demanding conditions of African markets characterized by a lack of
infrastructure, by extreme weather, and by customers constrained by poverty.
Whit Alexander, from Seattle, Washington, came to Ghana and launched his for-
profit firm Burro in order to serve the poor by selling rechargeable AA batteries to
off-grid villagers (half of Ghana’s population) (Alexander 2012). Over 3 years,
Alexander had to become not only an expert on the technology of his product but
also to be alert and flexible enough to pivot toward new products, such as a lantern
with four lighting levels and cell phone chargers, that his poor consumers wanted
enough to buy.
However, as electrification unfolds across Ghana, Burro’s customers will no lon-

ger need the Burro products that are suitable for those living off the electrical grid.
In this way, one can glimpse how markets can lead the way to economic develop-
ment (consumers can create value in better lit dwellings and with charged cell
phones) and then how such development can change markets (governments and
public utilities gain the revenue to build electrical grids). This interaction is the kind
of phenomenon macromarketing scholars seeks to explain. Africa will offer rich
opportunities for studying such macromarketing phenomena far into the future.
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Index
A D
Africa, 333, 336–364 Developed-market multinationals, 245–247
Anti-counterfeiting, 180, 186, 187, 191, Digital managers, 150
194–197, 199 Digital marketing, 153, 169, 171
Automated content analysis, 31–33, 35, 55 Discriminant validity, 164
Average variance extracted (AVE), 164
E
B E-commerce, 93–115, 169, 231–249
Brand, 149–174 Electronic word-of-mouth (eWOM), 150, 154
Brand awareness, 150, 152, 154, 155, Emerging economies, 231–249
157–162, 164–173 Emerging market multinationals, 247–248
Brand centrality, 130, 146 Emerging markets, 205–225
Brand distinctiveness, 124, 130 Emerging trends in global marketing, 4–6
Entertainment, 150, 154
Etic vs. emic framework, 83
C Exploratory factor analysis (EFA), 18, 20–22,
CBEC pilot cities, 102, 104, 105, 115 25, 27–33, 54
Collaborative projects, 150, 172
Conceptualization, 149–174
Consumer behavior, 330 F
Corporate social responsibility (CSR), Facebook, 149, 151, 159, 162, 169, 170
257–282, 291–306 Fakes, 180, 182, 184, 185, 189–195, 197, 198,
Counterfeiting, 180, 183–187, 189–191, 200
193–199 Firm performance, 293, 294, 299, 302, 305,
Country development, 333–364 306
Country of origin (COO), 156–159, 161, 162, Flickr, 151
164, 166–168
Cronbach alpha, 164
Cross-border e-commerce (CBEC), 93–115 G
Cross-cultural model, 65–67, 69, 70, 74, 77, Global brand mapping, 122, 124–126
78, 80, 84 Global brand positioning, 122, 145, 146
Cross-national model, 67, 69, 70, 77 Global brands performance, 126
Culture, 61–86 Global CSR, sustainability, 6, 9

https://doi.org/10.1007/978-3-319-74129-1
370 Index
Global firm strategies, 231–249 Multinational enterprises (MNEs), 205–225

Global market, 150, 152, 156, 169–171 Musical.ly, 149
Global marketing scholarship, 15–56
Global marketing strategies, 6, 7, 11
Global trade, 93–115 N
Nigeria, 206, 208, 210–215, 217–225
H
Higher-order, 157, 165–167 P
Hypothesis, 167, 168 Personal computers, 150, 162, 163,
169, 171
Pharmaceutical industry, 293–301, 305, 306
I Pinterest, 151
I-based N-OLI framework, 96–98 Piracy, 180, 186, 195, 199
Information, 150–154, 157–159, 161, 163, Pokémon Go, 149, 171
168, 170–172 Purchase, 150, 151, 155–162, 164–171
Instagram, 149, 151
Institutional distance, 205–225
Integrate marketing communication, 152 Q
Intention, 155–162, 164–172 Qualitative research, 329
Interactions, 150, 151, 153–155, 158, 159,
161, 163
Interactivity, 151, 152, 154 R
International, 152, 169 Reliability, 164, 174
International Country Risk Guide (ICRG)
political risk data, 17–22, 24, 27,
29, 30, 33, 35–37, 39, 42–43, S
45–47, 49, 51–56 Satisfaction, 61–86
Internationalization, 257–282 Service quality, 61–86
International marketing, 121, 122, 125, Shifting paradigm, 6, 7, 11
126, 133, 134, 145, 147, 259, 262, Small-and medium-sized enterprises
279, 281 (SMEs), 257–282
Smartphones, 149, 150, 159
Snapchat, 149
J Social media, 149–155, 157–159, 161, 162,
Japan, 293–302, 304, 306 164, 165, 167–173
Social media marketing, 150, 152, 154, 168,
171, 172
K Social media presence, 150, 151, 155, 157,
Knowledge, 150–155, 157–162, 164–173 158, 161, 162, 164, 165, 167, 168,
172, 173
Social network brand visibility
L (SNBV), 149, 174
LinkedIn, 149, 151 Social networking, 150, 152, 162, 169, 170
Luxury, 311–330 Social networking sites (SNS), 150–152, 157,
159, 162, 163, 169–172
Stakeholder engagement, 206, 207, 215–217,
M 219, 220, 224, 225
Macromarketing, 6, 9, 10, 333–364 Sustainability, 334, 335, 337, 339, 344, 348,
Market entry strategy, 205–225 354, 358, 363
Marketing mix, 179–200 Sustainable consumption, 311–330
Micro-blogs, 150, 172 Sustainable development, 334, 335, 337, 355,
Model fit, 165 358, 361, 362
Index 371
T Value equity, 154, 155, 157, 158, 160–162,

Trends in political risk, 15–59 164–169, 172, 173
Tumblr, 151 Visibility, 149–174
Twitter, 149, 151, 159, 162, 169
Y
V YouTube, 149, 151, 158, 162, 170
Validation, 157, 164, 165

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James Agarwal

Emerging Issues in Global

ISBN 978-3-319-74128-4 ISBN 978-3-319-74129-1 (eBook)

Library of Congress Control Number: 2018933598

© Springer International Publishing AG, part of Springer Nature 2018

Printed on acid-free paper

Georgia Institute of Technology (Georgia Tech), Naresh K. Malhotra

Part II Emerging Trends in Global Markets

Part III Global Marketing Strategies

7 Reconfiguring the Marketing Mix to Counter

Part IV Global CSR, Sustainability, and Macromarketing Issues

Fig. 2.1 EFA path diagram for Russia, 2001–2005.................................... 22

Fig. 2.18 Distribution of ICRG topics per journal, 1986–2015.................... 45

Fig. 6.1 Four-dimensional conceptualization of SNBV............................. 155

Fig. 13.6 United Nations Statistics Division’s geoscheme

Table 2.1 Rotated factor loadings for Russia, 2001–2005............................ 22

Table 7.1 Profile of different groups of counterfeit producers...................... 181

Appendix 6.1 Six-dimensional conceptualization of SNBV....................... 172

James Adeniji Leeds University Business School, University of Leeds, Leeds, UK

Hemant Merchant University of South Florida in St. Petersburg, St. Petersburg,

James Adeniji is a doctoral researcher in the Marketing Division of Leeds

Ogechi Adeola teaches marketing management at the Lagos Business School (Pan-

James Agarwal (PhD, Georgia Tech) holds the Haskayne research professorship

Review in 1996–2006, and coauthored Xu et al.’s (2008) article published in Asia

Charan K. Bagga is an assistant professor of marketing at the Haskayne School of

Nathaniel Boso is an associate professor of marketing and executive dean at

Niraj Dawar is professor of marketing at the Ivey Business School, Canada. His

Karminder Ghuman has been the area chair in marketing and entrepreneurship

competency development programs at prestigious institutions like the University of

Heikki Karjaluoto is a professor of marketing at the University of Jyväskylä,

Yuko Kimura is currently a PhD candidate of social science in the School of

Lucy Sze-Hang Lui graduated with an MBA in luxury business degree jointly at

Naresh K. Malhotra is a senior fellow of Georgia Tech CIBER and a regent’s pro-

Anne-Flore Maman Larraufie graduated from the Military Academy of ­Saint-Cyr

Hemant Merchant (PhD, Purdue University) is professor of global business at the

Sami Saarenketo is a professor of international marketing at the School of Business

Hanna Salojärvi is an associate professor at the School of Business and Management

Aijaz A. Shaikh is a university lecturer (in marketing) at the Jyväskylä University

G. Shainesh is professor of marketing, Indian Institute of Management (IIM)

Joe Z. Shangguan is an associate professor of accounting at the School of Business,

Lasse Torkkeli is an associate professor at the School of Business and Management

Yanbin Tu is a professor of marketing at the School of Business, Robert Morris

Commerce Research, International Journal of Internet Marketing and Advertising,

Adina-Gabriela Tudor is a graduate student at the Department of International

Maria Uzhegova is a junior researcher at Lappeenranta University of Technology

Tatiana Lukoianova Vashchilko is an assistant professor in strategy and global

Terry Wu is professor of business at the University of Ontario Institute of

Saman Zehra is a marketing doctoral student at the University of Wyoming. She has

Chen Zheng is a graduate student at the Department of International Business

1. This well-crafted research volume is an excellent addition to the growing lit-

2. Emerging trends in institutions, markets, and societies, accompanied by new

© Springer International Publishing AG, part of Springer Nature 2018 3

While globalization of markets and production creates new market opportunities,

Emerging Trends in Global Marketing

ethical value chains, social and environmental responsibility of companies, sus-

International Review, International Business Review, Journal of Marketing, Journal

guidelines for implementation and is applied to a large European company operat-

James Agarwal, Tatiana Vaschilko, and Elena Loukoianova

© Springer International Publishing AG, part of Springer Nature 2018 15

7 Reconfiguring the Marketing Mix to Counter

Anne-Flore Maman Larraufie graduated from the Military Academy of Saint-Cyr

Emerging Trends in Global Marketing

ection 1: Country, Cluster and Global-Level Trends

companies to systematically incorporate information on country-specific latent

Country-Level Political Risk Trend: An Illustrative Example

EFA for Russia in 2001–2005

EFA-Based Index for Russia in 2001–2005

Cluster-Level Political Risk Trends: BRICS and MINT

Global-Level Political Risk Trends: Geographic Map

ection 2: Research Trends in Global Marketing and Political

Automated Content Analysis Approach

Research Trends in Global Marketing in 1986–2015

esearch Trends in ICRG Political Risk in Global Marketing

Research on BRICS and MINT in 1986–2015

Content Analysis of Research Trends in 1986–2015

ection 3: Political Risk and Global Marketing – Implications

Service Quality and Satisfaction

Culture, Service Quality, and Satisfaction

Cross-National Versus Cross-Cultural Models

oderating Effects in Cross-National and Cross-Cultural

Modeling of Service Quality

CMV and Measurement Equivalence Test