Market Orientation, Alliance Governance, and Innovation

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DOI: 10.4018/JGIM.2019010101

Journal of Global Information ManagementVolume 27 • Issue 1 • January-March 2019

Copyright©2019,IGIGlobal.CopyingordistributinginprintorelectronicformswithoutwrittenpermissionofIGIGlobalisprohibited.

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Market Orientation, Alliance Governance, and InnovationYu Li, Xi’an Jiaotong University, Xi’an, China

Yao Chen, University of Manchester, Manchester, UK

Yuan Li, Shanghai Jiaotong University, Shanghai, China

Christopher P. Holland, Loughborough University, Leicestershire, UK

ABSTRACT

Relying on resource dependence theory and transaction cost economics, this article discussesthe important roleofalliancegovernanceasamediatingmechanismin therelationshipbetweenmarketorientationandinnovation,andcomparesthedifferencesbetweentheinfluencesofdifferentdimensions. The article aims to reveal the influence mechanism of different types of alliancegovernanceontherelationshipbetweenmarketorientationandinnovation.Basedonasampleof122Chinesemanufacturingenterprises,thearticlefindsthat:(1)contractualgovernancewillincreasewhencustomerorientationandcompetitororientationbecomehigher,andcontractualgovernancewillaffectradicalinnovationinaU-shapedway;(2)trustgovernancewillincreasewheninter-functionalcoordinationbecomehigher,andtrustgovernancehasapositiveimpactonbothradicalinnovationandincrementalinnovation(II).

KeywORdSAlliance Governance, Incremental Innovation, Market Orientation, Radical Innovation

1. INTROdUCTION

Marketorientationisdefinedasorganizationgenerationofmarketintelligencepertainingtocurrentandfuturecustomerneeds,disseminationofintelligenceacrossdepartments,andorganizationwideresponsivenesstoit(Kohli&Jaworski,1990).Inrecentyears,theimpactofmarketorientationoninnovationhasattractedthesustainedinterestandattentionofscholars(Im&Workman,2004;Zhou,Yim&Tse,2005;Morgan,Vorhies&Mason,2009).However,therearedifferentviewsonthistopicthataregroupedinto threeschoolsof thought.Theearlyresearchclaimsthatmarketorientationhasadirect impacton innovation,becausemarketorientationasanorganizationalculturehelpscompaniesbetterunderstandcustomerneedsandcompetitorsandthuspromotesinnovation(Narver&Slater,1993;Jaworski&Kohli,1990).Asecondviewpointisthatmarket-orientedcompaniesaretooconcernedaboutthecurrentcustomerneedstofulfillrealinnovations(Christensen&Bower,1996;Voss&Voss,2000).Thisgroupofresearchersarguesthatinnovationwillnotbeinfluenceddirectly by market orientation as organizational culture, but through some middle mechanismssuch as organizational learning and creativity (Zhou, Yim & Tse, 2005, Li & Atuahene-Gima,2001).Specifically,theyfindthatunderdifferentlevelsoflearningorientation,marketgrowthorentrepreneurialorientation,marketorientationwillleadtodifferentinnovativeperformance(Gatignon&Xuereb,1997;Hurley&Hult,1998;Matsuno,Mentzer,&Özsomer,2002).Themost recent

Thisarticle,originallypublishedunderIGIGlobal’scopyrightonSeptember14,2018willproceedwithpublicationasanOpenAccessarticlestartingonJanuary13,2021inthegoldOpenAccessjournal,JournalofGlobalInformationManagement(convertedtogoldOpen

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thinkingadvocatesaviewofmarketorientationandinnovationasmultidimensionalconcepts,whichmeansthatthedivergentfindingsinpreviousresearchcanbeexplainedbythedifferentialeffectsofmultipledimensionsoninnovation(Atuahene-Gima&Ko,2001;Zhouetal.,2007).

Thedilemmaexistsinthemanagerialpracticesaswell.Nokia,foundedin1865,usedtobetheNO.1brandfrom1990to2003inthemobilephonemarket.However,themarketshareofNokiareducedfrom39%in2008to25%in2011,anditwassurpassedbytheAppleandSamsunginthesmartphonemarket.TheparadoxisthatNokiaalwayspaidlargeattentiontomeetcustomerneedsandinvestedhugemoneyinR&Dprojects.Asitsannualreportstated,Nokiainvestedabout€5.8billioninR&Din2010,whichismorethan4timesofthatinitscompetitorApple.ManyprofessorsinthisindustryclaimthatNokia’sfailureisrootedindeficiencyoftransformingadvancedtechniquesintorealinnovationscreatingcustomervalues.Thenthequestionemerges:whyamarket-orientedfirmlikeNokiacannotachieveinnovationsthatcustomersbuy?

Basedupontheacademicstudiesandmanagerialpractices,wearguethatthreeimportantgapsexistintheliterature.First,thepriorresearchfocusesmoreonthedirectimpactofmarketorientationoninnovation,andnotenoughattentionispaidtothemiddlemechanismsbetweenmarketorientationasatypeoforganizationalcognitionandinnovationasanorganizationalbehavior.Inamanufacturingcontext,itisoftendifficulttoacquireaccurateinformationaboutendcustomerneedsandcompetitors’activities in a timely manner in order to support their market-oriented corporate culture due tointermediariesinthesupplychain,whichcreateorganizationaldistancebetweenthemanufacturerandtheendcustomer.Therefore,inmanufacturing,governancemechanismswithdistributorsthatgivemanufacturersaccesstothemarketmaybeanimportantmiddlefactorininnovation.Second,although research has gradually viewed market orientation and innovation as multidimensionalconcepts, thedifferentialeffectsofdifferentdimensionsofmarketorientationhavenotyetbeeneffectivelyverified.Third,mostoftheexistingresearchisrootedinWesterncountriesandstudiesofChinesefirmsthatoperateinaverydifferenteconomicenvironmentarerelativelyscarce.Chinaiscurrentlyinaperiodoftransitionfromastatecontrolledtoamarketeconomy,inwhichthelegalsystemandcontractsbecomemuchmoreimportant.Chineseenterprisesthereforeparticularlyvaluerelationalgovernanceinanalliancerelationship(Gao,Wang&Chen,2012).Inthiscontext,itisimportanttoconductresearchthatcanbeusedtoguidethepracticesofChinesefirmsinthisarea.

Werelyonresourcedependencetheory(RDT)andtransactioncosteconomics(TCE)toprovideanoverviewoftheresearchframework.Thisstudysuggeststhatseekingeffectivealliancegovernanceis an important mechanism to enhance innovations for market-oriented manufacturing firms. Inparticular,weshouldtreatmarketorientationasamultidimensionalconcept.Customerorientation,competitororientationandinterfunctionalcoordinationarelikelytoleadtodifferencesinalliancegovernance,eitherascontractualgovernanceortrustgovernance.Moreover,differentgovernancepatternsmayhelpfirmsgetdifferentkindsofmarket information, resulting indifferent typesofinnovation(incrementalinnovationorradicalinnovation).Inthisstudy,weidentifytheimportantmiddleroleofalliancegovernanceintherelationshipbetweenmarketorientationandinnovation.Thedifferentialimpactsofthethreetypesofmarketorientationontwoalliancegovernancepatternsareconsidered,andweexploretheinfluenceofcontractualgovernanceandtrustgovernanceonradicalandincrementalinnovation.

2. LITeRATURe ReVIew

2.1. Market Orientation and InnovationMarket-orientedfirmspaycloseattentiontocustomerneedsandcompetitors’activities,andresponserapidlyinordertoenhancetheircompetitiveadvantages.Differingfromtraditionalproduct-drivenmarketingthatfocusesonpushingproductsintomarketsbypromotingqualityandloweringprices,marketorientationconcentratesoncontinuouslydetectingcustomerneedsandquicklyfillingthem

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(Chen&Ching,2004).Intheliterature,thetwomainperspectivesofmarketorientationarethecultureviewandthebehaviorview.Narver&Slater(1990)pointoutthatmarketorientationisatypeoforganizationalculture.Thecultureviewbelievesthatmarketorientationincludesthefollowingthreedimensions:(1)customerorientation;(2)competitororientation;and(3)interfunctionalcoordination.Jaworski&Kohli(1993)arguethatmarketorientationisanorganizationalbehavior,whichincludesthreeaspects:(1)marketinformationcollection;(2)disseminationofmarketinformation;(3)responsetomarketinformation.Weadoptanintegratedperspectiveofthesetwoviewsofmarketorientationin this study because we believe they are complementary rather than incompatible concepts. Infact,Narver&Slater’s(1990)culturalconstructofmarketorientationisantecedenttoJaworski&Kohli’s(1993)behavioralconstruct,whichinturnprovidespracticalitytothecultureviewofmarketorientation(Matsuno,Mentzer&Rentz,2005).

Innovationisasetofactivitiesthatafirmimplementstoachievecommercialsuccessbyexploitingimprovementsinproductionfactorsortechniquesbasedupontechnicalinnovationsandcreations(Li,1994).Accordingtothedegreeoftechnologicalchangeintheinnovationprocess,innovationisusuallyclassifiedintoradicalinnovationandincrementalinnovation(Dosi,1982;Munson&Pelz,1979).Radicalinnovationisaninnovationthatcanleadtosignificantorevenradicalchangesininputs,outputsorprocesses(Hage,1980).Incontrastwithradicalinnovation,incrementalinnovationreferstothegradualandcontinuousinnovationcausedbysmallimprovementinexistingtechnologies(Munson&Pelz,1979).Themajordifferencebetweenincrementalandradicalinnovationsisthedegreeofexplicitandtacitknowledgeembeddedintheinnovation(Lietal.,2008).Therefore,thecomplexity,cost,andriskofincrementalinnovationandradicalinnovationaredifferent.Incrementalinnovationiseasiertoachieveandlessriskythanradicalinnovation.

Therehasbeensubstantialinterestintheeffectofmarketorientationoninnovation(Kohli&Jaworski,1990;Narver&Slater,1990;Slater&Narver,1995;Im&Workman,2004;Zhou,Yim&Tse,2005;Morgan,Vorhies&Mason,2009).Manyscholarsarticulatethatthethreedimensionsof market orientation have divergent effects on different types of innovation. In terms of firms’innovativebehaviors,customerorientationcanbedefinedasthewillandcapabilitytoidentify,analyze,understand,andanswercustomers’needs(Gatignon&Xuereb,1997).Competitororientationcanbedefinedasthewillandcapabilitytoidentify,analyze,andrespondtocompetitors’actions(Narver&Slater,1990).Interfunctionalcoordinationcanbedefinedastheinteractionandcommunicationinandbetweentheorganizations(Grinstein,2008;Im&Workman,2004).Customerorientationfocusesoncustomers’needsandcompetitororientationoncompetitors’actions,whileinterfunctionalcoordinationemphasizesoncommunication.Differentfocalpointswillbringdivergentimpactsoninnovation.Gatignon&Xuereb(1997)demonstratethatcompetitororientationboostsinnovationinhigh-growthandlowlyuncertainmarkets,whilecustomerorientationfacilitatesinnovationinhighlyuncertainmarkets.Payingattentiontotheassociationbetweendimensionsofmarketorientationandcategoriesofinnovations,Lukas(2000)findsthatcustomerorientationcontributestothelaunchingofnew-to-the-worldproductsbutdecreasestheintroductionofme-tooproducts,whilecompetitororientationpositivelyaffectsperformanceofme-tooproducts.Moregenerally,Frambach,Prabhu&Verhallen(2003)findthatcustomerorientationpositivelyinfluencesnewproductactivitywhilecompetitororientationnegativelyinfluences.Im&Workman(2004)showthatcustomerorientationhasapositiveimpactonNPmeaningfulnessbutnosignificantinfluenceonNPnovelty.CompetitororientationenhancesNPnoveltybutnotNPmeaningfulness.Inaddition,Brettel,Heinemann,Engelen&Neubauer(2011)findthatdifferenttypesofinterfunctionalcoordinationwillresultindifferentinnovation.Thenumerousempiricalevidencesshowthatcustomerandcompetitororientations,andinterfunctionalcoordinationplayverydistinctiverolesoninnovation.

Todemonstratetheunderlyingmechanismoftherelationshipbetweenmarketorientationandinnovation,somescholarsarguethatmarketorientationhasanindirecteffectoninnovation.Theyfindseveraltypesofmiddlemechanismstodepictthiskindofindirectinfluence,i.e.,organizationlearning,knowledge,creativity.Slater&Narver(1995)indicatethatorganizationlearningmediates

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therelationshipbetweenmarketorientationandnewproductsuccess.Consistentwiththisresearch,Zhou,Yim&Tse(2005)findthatorganizationallearningplaysaroleasmediatorinthemarket-orientationbreakthroughinnovationsassociation.OtherresearchersarguethatknowledgeisamediatorinMO-Innovationrelationship(Slater&Narver,1995).FollowingDay&Wensley’s(1988)source-position-performanceframework,Im&Workman(2004)testthemediatingeffectofNPcreativityontherelationshipbetweencustomerorientationandNPmeaningfulnessandgetempiricalsupportfor theirmodel.Themediator streamof researchcontributesgreatly in theunderstandingof theinfluencemechanismofmarketorientationoninnovation.

2.2. Alliance Governance as a Middle MechanismExistingstudiessuggestthattherearetwotypesofalliances:technologyalliancesandmarketingalliances (Azriel & Small, 2003). In this study, the alliances between manufacturers and theirdistributors are categorized as marketing alliances because they are primarily about sales anddistributionactivities.Inordertoachieveinnovationsthatcanmeetcustomerneedsandoutperformcompetitors,market-orientedfirmshankerforacquiringinformationandknowledgefromthemarket(Lichtenthaler,2016;Lyu&Zhang,2016).Foramarket-orientedmanufacturerthatisoneormorestagesinthesupplychainawayfromtheendcustomer,itisdifficultandexpensivetogainaccesstodetailedandmeaningfulmarketinformationaboutcustomersandcompetitors.Distributorsthereforeplayanimportantroleingivingmanufacturersaccesstovaluablemarketinformation,whichmakesthemarketingaspectofthealliancegovernanceveryimportant.

Therearetwoalliancegovernancepatternsintheexistingresearch:contractualgovernance(alsoknownas“formalgovernance”)andtrustgovernance(alsoknownas“relationalgovernance”;Dekker,2004;Martinez&Jarillo,1989).Theyaretwoindependentcomponentsoftheoverallallianceandthereforeneedtobeconsideredseparately(Macneil,2000;Mellewigt,Madhok&Weibel,2007).Whilst contractual governance relies mainly on economic interests and fulfillment of contracts(Ferguson,Paulin&Bergeron,2005),trustgovernancedependsonrelationalmechanismsthatcanpromote informationsharing, trust andcooperationbetweenalliancepartners (Eisenhardt,1985;Hoetker&Mellewigt,2009).Throughsigningformalcontracts,alliancemembersmayregulatethemembers’responsibilitiesandobligations indetail,andconverselyoffer theirpartnerspowers toprotecttheirowninterestsfromspeculativebehaviorsofpartnersthroughenforcementofcontractlawinthecourts(Dyer,1997).Incontrast,Uzzi(1997)pointsoutstrategicalliancesdependingontrustgovernancearefeaturedasahighlevelofmutualtrust,andintegratedinformationexchanges.Therefore, trustgovernance ismore suitable for allianceswith complexcontents (Larson,1992;Dyer,1997).

Innovationisahighlyknowledge-intensiveactivityembeddedinnetworksthatspanorganizationalboundaries(Cao&Zhang,2010;Wang,Yeung&Zhang,2011).Inordertoresponsetocustomerneeds and competitive changes, market-oriented firms think highly of knowledge acquisitionespecially for innovation (Grinstein, 2008). Alliances are important sources of innovative ideasandcriticaltechnologies(Bonaccorsi&Lipparini,1994;Karniouchinaetal.,2006).Accordingtoresourcedependencetheory(RDT),theuncertaityofalliancepartners’activitieswillharmfirms’benefitsbecausemarket-orientedfirmsdependondistributors’informationheavilytodevelopnewproducts(Pfeffer&Salancik,1978).However,opportunisticbehaviors,includinglying,cheating,violatingimplicitagreements,andofferingproprietaryinformationtocompetitors,existcommonlyinalliances(Blumberg,2001;Rindfleisch&Heide,1997).Thus,transactioncosteconomics(TCE)suggestfirmsestablisheffectivegovernancemechanismstoreduceopportunismandeventuallyleadtosuccessfulinnovations(Das&Teng,1998).Manystudieshavefoundalliancegovernanceasanimportantmiddlemechanismtosafeguardinnovation(Cambra-Fierro,Florin,Perez&Whitelock,2011;Ju,Murray,Kotabe&Gao,2011;Lietal.2008;Panayides&Lun,2009).

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3. HyPOTHeSeS

Basedonresourcedependencetheory(RDT)andtransactioncosteconomics(TCE),thisresearchproposesthatalliancegovernanceisamiddlemechanismintherelationshipbetweenmarketorientationandinnovation.Thatis,marketorientationinfluencesalliancegovernance,whichfinallyleadstodifferenttypesofinnovation.TheconceptualframeworkofthisstudyandthedetailsofhowthevariablesarerelatedtoeachotherareshowninFigure1.

3.1. Market Orientation and Alliance GovernanceCustomerorientation,competitororientationandinterfunctionalcoordinationarethreedimensionsofmarketorientation,whichoperateindifferentways.Customerorientationandcompetitororientationrequire companies to obtain market information on customer needs and competitors’ activitiesrespectively(Narver&Slater,1990).Themarketinformationhelpfirmsdevelopappropriatetacticsto respond rapidly. Interfunctional coordination emphasizes more on internal coordination andparticipationamongvariousfunctionaldepartments,whichenhancestheinformationsharingamongthem,andthuscreatesgreatervalueforcustomers(Narver&Slater,1990).Tyler&Gnyawali(2009)findthatcustomerorientationandcompetitororientationaremoreimportantthaninterfunctionalcoordination in achieving innovation. Therefore, customer and competitor orientations andinterfunctionalcoordinationhavedifferentimportanceinacquiringknowledgewhichiscriticalforinnovation.

Customerorientationandcompetitororientationrequirefirmstocollect,disseminateandshareinformation about customer needs and competitors’ creativities (Tyler & Gnyawali, 2009). In amanufacturer–distributor–customercontext,thedistributorhasgoodaccesstocustomerinformationandisusuallywillingtoshareitwithmanufacturers.Inthisway,manufacturingfirmscanobtainbasicmarketinformationfromalliancepartnersthoughaconventionalcontractualgovernancearrangement,inwhichdistributorsreceiveafinancialincentiveandotherclearlydefinedrightsandobligationsinexchangeforthecustomerandcompetitorinformation(Argyres&Mayer,2007).Contractsexplicitlyprescriberolesandobligations,determinethecontentoftheexchangesandthedivisionofoutcomes,andspecifypenaltiesforviolatingcontractualspecifications(Poppo&Zenger,2002;Dyer,1997).Awell-definedcontractcanalsomakesurefirms’knowledgeacquisitionbyreducingdistributors’opportunisticbehaviorsaccordingtoTCE(Williamson,1985;Zhang&Zhou,2013).Hence,wehave:

H1a:Contractualgovernance(CG)willincreasewhencustomerorientation(CuO)becomeshigher.H1b:Contractualgovernance(CG)willincreasewhencompetitororientation(CoO)becomeshigher.

Figure 1. The conceptual framework (Notes: MO=Market Orientation; CuO=Customer Orientation; CoO=Competitor Orientation; IC=Interfunctional Coordination; AG=Alliance Governance; CG=Contract Governance; TG=Trust Governance; RI=Radical Innovation; II=Incremental Innovation)

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Comparedwithcustomerorientationandcompetitororientation,interfunctionalcoordinationrequiresmorein-depthmarketinformation(Bretteletal.,2011).AsMorgan&Hunt(1994)pointout,trustdevelopswhenthealliancemembersconsidertherelationshipimportant.Manufacturers’high-levelinterfunctionalcoordinationwillsendastrongmessagetothedistributorsthatmanufacturerspossessthewillingnessandcredibilitytodeveloplong-termandreciprocalrelationship(Shiau&Luo,2012;Zhao&Cavusgil,2006).Therefore,firmsemphasizingmoreoninterfunctionalcoordinationmaytaketrustgovernancetopromotetrust,cooperationandinformationsharingbetweenalliancemembers,andthusobtaindeep-levelmarketinformationfromdistributorsratherthanjustbasicinformationonconsumerneedsandcompetitors.Accordingtoresourcedependencetheory(RDT)andtransactioncosteconomics(TCE),firmsmoredependentonresourcesandabilitiesofalliancepartnerstomeettheirowndevelopmentneedsaremorewillingtopaybesteffortsandcoststomaintainandenhancetheinterdependentandcooperativestatus(Uzzi,1997).Itisthereforereasonabletoassertthatfirmsemphasizinginterfunctionalcoordinationaremorelikelytoprefertrustgovernancetocontractualgovernance.Thus,wehypothesize:

H2:Trustgovernance(TG)willincreasewheninterfunctionalcoordination(IC)becomeshigher.

3.2. Alliance Governance and InnovationContractualgovernanceisaformalincentivemechanismthatitisbasedonfinancialinterestsandcontracts(Mellewigt,Madhok&Weibel,2007;Ryall&Samspson,2008).Firmsadoptingcontractualgovernancedonottrustintheiralliancepartnersenough,andthustheinitiativesandcooperationintentionsofdistributorsreduce(Hao,2005).Distributorsmayfeelanxiousanddistrustedandthusarenotlikelytocooperatefullywhenmanufacturingfirmsadoptcontractualgovernanceonly,andtheymayretainimportantmarketinformationtoimprovetheirbargainingpositionwithmanufacturers(Dyer&Singh,1998).

ThisstudyproposesthattheeffectofcontractualgovernanceoninnovationmaybeU-shaped.Contractualgovernancewithinacertainlimitwillreducetheenthusiasmofdistributorstocooperate,andtherebyreducetheirparticipationinalliancerelationshipandmanufacturers’operation(Mahnke&Özcan,2006).Alowlevelofcontractualgovernancemayensurethatdistributorsdutifullyprovidebasicmarket information,butcannotencourage themtosharemorevaluableandprivatemarketinformationthatarerequiredbyradicalinnovationsurgently.Radicalinnovationonlyoccurswhentechnologiesorprocessesexperienceessentialchangesthathavetobebaseduponalargeamountofvaluableinformation(Kurt&Ding,2005).Withcontractualgovernancegrowshigh,contractualrenegotiationsfrequentlywouldincreasethetransactioncostininterorganizationaltacitknowledgeacquisition,whichmaycausethedissolutionofalliance(Reuer&Arino,2002;Li,Liu,Li&Wu,2008).

However,whencontractualgovernancegoesuptoahighlevel,distributorsmaybeencouragedtosharemoreprivatemarketinformationduetoclearanddetailedprovisionsofrightsandobligationsin contracts. The clear-claimed contracts, reducing the anxieties of distributors in the alliancerelationship,mayincreasetheirwillingnesstocooperate(Ryall&Samspson,2008).Sincetheroleofprivatemarketinformationasbargainingchipstoprotectdistributors’interestsandmaintainalliancerelationshipisnolongernecessary,distributorsarelikelytosharetheinformationaslongasfirmsprovidethemwithsatisfyingfinancialinterests.Moreover,accordingtotransactioncosteconomics(TCE),averyhighlevelofcontractualgovernancewillreducetheopportunismofdistributorsandeventuallysafeguardfirms’tacitknowledgeacquisition(Lietal.,2008;Poppo&Zenger,2002).Thus,ahighdegreeofcontractualgovernancewillenableradicalinnovation.Basedonthediscussionsabove,weproposethehypothesis:

H3:ContractualgovernancehasaU-shapedeffectonradicalinnovation.

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Trustgovernanceisbasedontherelationshipbetweenalliancepartnersandfullconfidenceinpartners(Poppo&Zenger,2002;Lee&Cavusgil,2006).Firmsadoptingtrustgovernancearemorelikelytotrustinandcooperatewiththeirdistributors,whichmayimprovedistributors’initiativesandcooperationintentions(Poppo&Zenger,2002).Manystudiesclaimthattrustgovernancewillimprovedistributors’participation,reducetheuncertaintyofinnovation,andeventuallyimprovetheenvironmentforinnovation(Mahnke&Özcan,2006).

Wesuggestthattrustgovernanceispositivelyrelatedtoincrementalinnovation.trustgovernanceisconsideredasthemostpotentialgovernancetogeneraterelationalrentsandlowerthetransactioncosts(Dyer&Singh,1998).Trustgovernancewillencouragedistributorstoprovidefirmswithmarketinformationabout customerneeds andcompetitors’ activitiesmoreconscientiously,whichhelpsfirmsachieveincrementalinnovation.Trustgovernanceallowsdeepermutual-cooperation,makingdistributorsmoreinvolvedintheinnovationprocessofmanufacturers(Poppo&Zenger,2002).Asdistributorsareclosertotheendcustomer,whetherthisisaconsumerorabusinessuser,andmayactasanagentforavarietyofcompetingproducts,distributorswillunderstandcompetitorsbetterthanmanufacturersandcanthereforeproviderelevantmarketinformationtomanufacturers.Liu,Zhao&Li(2010)arguethattrustgovernancewillcontributetoknowledgeacquisitioninalliances.Therefore,webelievethattrustgovernancewillpromoteincrementalinnovation.Hence:

H4:Trustgovernancepositivelyinfluencesincrementalinnovation.

Additionally,trustgovernancealsomakesdistributorsmorewillingtosharevaluableinformationatadeeperlevelthanbasicmarketinformationwithmanufacturerstocarryoutfullcooperation,whichmayhelpfirmsachieveradicalinnovations.Distributorsareusuallyabletoaccessvaluableprivateinformation,andthesharingofprivateinformationmaybemorelikelytopromoteessentialimprovementsincoretechnologiesorprocesses,whichproduceradicalinnovation,whendistributorsparticipate fully in the innovation process. To accomplish radical innovation, firms and theirdistributors need participate actively in the relevant organizational processes in which the tacitknowledgeisembedded(Lietal.,2008).Thisknowledgeacquiringprocess,whichispreparationforradicalinnovation,willrelyheavilyonjointdecision-makingandfrequentcommunication(Lietal.,2008).AccordingtoDyer(1997),trustgovernancecanalsopermitflexibilityandadaptabilitywhichiscriticalinthisprocess.Therefore,weassumethat:

H5:Trustgovernancepositivelyinfluencesradicalinnovation.

4. MeTHOdS

4.1. data CollectionThesourceofdataisasurveyoftheChinesetireindustryintheperiodof2012-2013.Thesamplewasbasedonastandardindustrydatabase,whichwasprovidedbythetirebranchoftheChineseRubberAssociation.Thesamplecovered13provincesinEastern,Western,Southern,NorthernandcentralChinaareas,i.e.,Shandong,Beijing,Guangdong,Guangxi,Henan,Hebei,Sichuan,Shanxi,Liaoning,Jiangsu,Zhejiang,ShanghaiandXinjiang.

The theoreticalconstructsused in thequestionnairearederivedfromstandardmeasurementframeworksinthemarketingliterature.TwoprofessionaltranslatorstranslatedtheoriginalscalesfromEnglishtoChinese.ThetranslatorswerealsofamiliarwiththeresearchandweareconfidentthattheChineseversionofthequestionnairehasthesamemeaningastheoriginalmeasurementframeworks.AfurthercheckonthetranslationconsistencywasconductedbytranslatingtheChineseversionbackintoEnglish.Acomparisonwasthenmadebetweentheoriginalquestionsandthetranslatedversion.

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Oursubjectsweregeneralmanagersofthesamplefirms.Inordertoovercomepotentialcommonmethodbias,wedividedthequestionnaireintotwopartsthatcontainedmeasurementsofindependentanddependentvariablesrespectivelyandtheninvitedtwotopmanagersofeachfirmtoanswerthetwopartsrespectively.ThismethodhasbeenwidelyusedintheliteraturetocontrolCMVproblem(Gao,Xie&Zhou,2015;Korschun,Bhattacharya,&Swain,2014).Thesurveyinvestigatedatotalof208firmsandrecovered135questionnaires.Withtheremovalofunqualifiedquestionnaires,weachieved122validquestionnaires,whichisaveryhighresponserateof59%.Toassessnonresponsebias,wecomparedearlyandlaterespondent(Armstrong&Overton,1977).Thefirst90(74%)oftheresponseswereclassifiedas“earlyrespondents”.Thelast32ofthemwereconsideredas“laterespondents”andweredeemedasrepresentativeoffirmsthatdidnotrespondtothesurvey(Li&Calantone,1998;Wu,Yeniyurt,Kim&Cavusgil,2006).Thet-testsrevealthatthereisnosignificantdifferenceonkeyvariablesbetweenthetwogroups.Moreover,werunt-testonkeycharacteristicssuchasfirmage,firmsize,performanceofresponseandnonresponsefirmstocontrolthepotentialnonresponseproblem.Theresultshowsthattheresponseandnonresponsefirmsarenotstatisticallydifferentintermsofkeyvariables.Thus,nonresponseproblemwillnotbeaconcerninthisstudy.

4.2. MeasurementThescalesinthisstudyarealldevelopedfrompriorstudies(seeTable1inAppendixA).Alllatentvariablesaremeasuredby7-pointLikertscales,where1meanstheconditionofthefocalfirmiscompletelyinconsistentwiththedescriptions,andsevenrepresentstheconditionconformstothedescriptionsexactly.

The measure of alliance governance includes measures of contractual governance and trustgovernance.ThescaleofcontractualgovernanceisderivedfromLietal.(2010)andLi,Poppo&Zhou(2010),consistingof5items.ThescaleoftrustgovernanceisderivedfromJohnsen&Ford(2006)andLi,Poppo&Zhou(2010),consistingof6items.Themeasureofinnovationincludesmeasuresofradicalandincrementalinnovations.ThescaleofradicalinnovationisdevelopedfromLi,Liu,Li&Wu(2008),consistingof4items.ThescaleofincrementalinnovationisdevelopedfromLietal.(2008),consistingof7items.Marketorientationismeasuredbycustomerorientation,competitororientation,andinterfunctionalcoordination.ThesethreescalesareallderivedfromLi,Wei&Liu(2010),consistingof6,4,and5itemsrespectively.

Accordingtotheconclusionsofpreviousstudies,wealsocontrolthemodelsbyaddingeightcontrolvariables:firmsize,firmtype,industrycategory,firmage,resourceenvironment,productadvantage,productionadvantage,andmarketingadvantage.Firmsizeismeasuredbythenumberofemployees.Firmtypeiscodedasfollowing:1=state-ownedorstate-held;2=foreign(wholly-ownedorjointventure);3=privateorindividual;4=collective.Industrycategoryiscoded:1=high-techindustry;2=non-techindustry.Firmagerepresentstheamountofyearssincethefoundationto2013.ThescaleofresourceenvironmentisdevelopedfromDesarboetal.(2005)andVoss,Sirdeshmukh&Voss(2008),consistingof6items.Thescalesofproductadvantage,productionadvantage,andmarketingadvantagesareallderivedfromRusso&Fouts(1997),consistingof1itemrespectively.Theitemmeasuringproductadvantageis:inthepast3years,ouradvantageslieinthelaunchspeedofnewproducts.Theitemmeasuringproductionadvantageis:inthepast3years,ouradvantageslieinefficiencyofproductionandorganization.Theitemmeasuringmarketingadvantageis:inthepast3years,ouradvantageslieinsalesgrowth.

4.3. Reliability and ValidityResults of reliability and convergent validity of the scales are shown in Table 1. In this study,Cronbach’sαofallscalesaremorethanthe0.7benchmark,indicatinggoodreliability.Mostfactorloadingsofthefactorsaregreaterthan0.7,indicatingthattheseitemsarereliable.Inaddition,theaveragevarianceextracted(AVE)ofallvariablesismuchlargerthanthe0.5threshold(Chin,2010;Hairetal.2006),andcompositereliability(C.R.)isgreaterthan0.8,indicatingthatthesemeasures

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arevalid.Therefore,theconvergentvalidityofthescalesisgood.Intermsofdiscriminantvalidity,asshowninTable2inAppendixA,thesquarerootsofAVEofallvariablesarealllargerthanthecorrelationcoefficientsinitsownrowandcolumnrespectively,whichshowsthatthescalesofthisstudymeettherequirementsofdiscriminantvalidity.

5. ReSULTS

TheresultsofdescriptivestatisticalanalysisandcorrelationcoefficientsareshowninTable2inAppendixA.Totestthehypotheses,weusedmultivariateOLSregressionanalysesinSPSS.Models1-4justifytheimpactsofmarketorientationonalliancegovernance,whicharedescribedashypothesesH1a,H1b, andH2.Models5-9 test the effectsof alliancegovernanceon innovation,which aredescribedashypothesesH3,H4,andH5.Inordertoavoidpossiblemulticollinearityproblems,wemean-centeredallvariablespriortoregressionanalyses.Table3inAppendixAshowstheresultsofregressionanalyses.ThemaximumVIFofallmodelsis3.499,indicatingthatmulticollinearitydoesnotconstituteaseriousproblem.Allmodelsaresignificantatp<0.001,withadjustedR2from0.183to0.578.

Model2showsthattheeffectofcustomerorientationoncontractualgovernance(β=0.387,p<0.01)andtheeffectofcompetitororientationoncontractualgovernance(β=0.247,p<0.05)arebothsignificant, supportingH1aandH1b.Model4shows that the impactof interfunctionalcoordinationontrustgovernance(β=0.288,p<0.05)issignificant,supportingH2.Model7showstrustgovernancehasasignificantpositiveeffectonradicalinnovation(β=0.367,p<0.01),supportingH5.Model7showsthesquareofcontractualgovernanceispositivelyrelatedtoradicalinnovation(β=0.222,p<0.01),suggestingthatcontractualgovernanceaffectsradicalinnovationinaU-shapedway,supportingH3.Model9showstrustgovernancehasasignificantpositiveeffectonincrementalinnovation(β=0.289,p<0.05),supportingH4.

6. dISCUSSION

This study has explored the relationships between market orientation, alliance governance andinnovationinmarketingalliancesformedbymanufacturingfirmsanddistributorsinChina.Wehaveidentifiedandtestedthemiddleroleofalliancegovernanceasamechanismtoexplaintherelationshipbetweenmarketorientationandinnovation.Twoconclusionsaredrawnfromtheresults.(1)Highlevelsofcustomerorientationandcompetitororientationleadtoincreasesincontractualgovernance,andcontractualgovernancewillaffectradicalinnovationinaU-shapedway.Existingresearchonlydemonstratesthepromotingeffectofmarketorientationonalliancegovernance(Liu,Zhao&Li,2010),butdoesnotexploretheeffectsof thethreedimensionsofmarketorientationonalliancegovernance.Thisresearchgoesfurtherandfindsmoreinstructiveresults.Inaddition,Liu,Zhao&Li(2010)proposethatcontractualgovernanceisamediatorinthelinkbetweenmarketorientationandknowledgeacquisition,butdonotanalyzethemiddlemechanismofcontractualgovernanceintherelationshipbetweenmarketorientationandinnovationfurther.Thisstudyanalysesthespecificeffectofcontractualgovernanceonaparticulartypeofinnovation,i.e.radicalinnovation.(2)Ahighlevelofinterfunctionalcoordinationwillincreasetrustgovernance,whichthenleadstoanincreaseinbothradicalandincrementalinnovation.

Thisstudy,basedonthecomparisonofdifferenteffectsofdimensionsofmarketorientationonalliancegovernance,furtherclarifiesthepositiveroleoftrustgovernanceoninnovation,whichconfirmsourresultthatalliancegovernanceisamiddlevariableandthemechanismbywhichmarketorientationinfluencesinnovation.Theseresultssuggestthatfirmscommittedtoradicalinnovationsshould adopt strong contractual governance or trust governance. Firms that focus on customerorientationandcompetitororientationarelikelytoadoptstrongcontractualgovernance,whilethosefocusingmoreoninterfunctionalcoordinationaremorelikelytodeveloptrustbasedgovernance.

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Firmsthatwishtodevelopincrementalinnovationsonlyshouldadoptstrongtrustgovernance,andincrementalinnovationisalsolikelytoresultinthosefirmsthatactivelypursueaninterfunctionalcoordination.

InthecontextofinnovativepracticesoffirmsinChina,marketorientationisalwaysanimportantstrategytoachieveinnovationsregardlessofalliancegovernancepatternsandtypeofinnovation.However,theresultsandframeworkshowninFigure1demonstratethatthereareimportantdifferencesinhowbesttoachieveinnovationintermsofthetypeofmarketorientationadoptedandthechoiceoftypeofalliancegovernance.

Thisstudymakessomeimportantcontributionstotheoryandpractice,anditisbasedonalargeempiricalsample.However,therearesomelimitationsthatshouldbeexplained:(1)therearetwoseparateorganizationsinvolvedinanallianceanddatawereonlycollectedfromthemanufacturerperspective.The resultsmay thereforebebiasedby respondents’ subjective judgments from themanufacturer perspective only. Further research may draw more reliable conclusions if data areobtained from both manufacturers and distributors. (2) This study identifies barely that alliancegovernanceisamiddlemechanismintherelationshipbetweenmarketorientationandinnovation,butitdoesnotdemonstratethemediatingeffectofalliancegovernance.Furtherresearchmayexplorethestrengthofmediatingeffectofalliancegovernance.Iftheresultsshowthatalliancegovernancewillnotfullymediatetherelationshipbetweenmarketorientationandinnovation,thenbusinesspracticeswillbefurtherguidedwhenothermediatorsareidentified.

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APPeNdIX A

Table 1. Scales and results of reliability and validity analyses

Variables Items Cronbach’s α Factor loading

AVE C.R.

Customerorientation

1)Ourbusinessobjectivesaredrivenprimarilybycustomersatisfaction.

0.928 0.783 0.740 0.945

2)Ourstrategyforcompetitiveadvantageisbasedonourunderstandingofcustomers’needs.

0.860

3)Wemeasurecustomersatisfactionsystematicallyandfrequently. 0.896

4)Wegivecloseattentiontoafter-salesservice. 0.894

5)Weoftenlookformeasurementstoincreasecustomervalueordecreaseproductcost.

0.850

6)Wegivecloseattentiontotheevaluationofcustomeronourproduct.

0.873

Competitororientation

1)Managersinthisfirmregularlyshareinformationaboutcurrentandfuturecompetitorswithinthecompany.

0.858 0.882 0.707 0.906

2)Respondrapidlytocompetitors’actions. 0.805

3)Weregularlycollectandintegrateinformationabouttheadvantageandstrategiesofourcompetitors.

0.875

4)Comparedwithcompetitors,wehavehigheradvantageintargetmarkets.

0.798

Interfunctionalcoordination

1)Wefreelycommunicateinformationaboutoursuccessfulandunsuccessfulcustomerexperiencesacrossallbusinessfunctions.

0.869 0.837 0.665 0.908

2)Allofourbusinessfunctions(e.g.marketing/sales,manufacturing,R&D,finance/accounting,etc.)areintegratedinservingtheneedsofourtargetmarkets.

0.821

3)Allofourmanagersunderstandhoweveryoneinourbusinesscancontributetocreatingcustomervalue.

0.808

4)Everyoneknowsthemarketinformationinourfirm. 0.841

5)Employeesfrommarketingdepartmentwidelyparticipateinnewproductdevelopmentprojects.

0.767

Contractualgovernance

1)Thecontractpreciselydefinestherole/responsibilitiesofthepartnerandourfirm.

0.913 0.878 0.742 0.935

2)Wehavecustomizedagreementsthatdetailtheobligationsofbothparties.

0.903

3)Wehavespecific,well-detailedagreementswiththisdistributor. 0.852

4)Thecontractpreciselystateshoweachpartyistoperformincooperation.

0.883

5)Generally,thecontractisaprimarymechanismtoregulatethebehaviorofthepartnerincooperation.

0.786

Trustgovernance 1)Thisdistributoristrustworthy. 0.900 0.812 0.692 0.931

2)Thisdistributorhasalwaysbeenevenhandedinitsnegotiationswithus.

0.862

3)Wearenothesitanttotransactwiththisdistributorwhenthespecificationsarevague.

0.771

4)Thisdistributorneverusesopportunitiesthatarisetoprofitatourexpense.

0.835

5)Webelievethatthisdistributorwillprovidehelpweneed. 0.859

6)Webelievethatthisdistributorwillfinishthepromiseintime. 0.848

Radicalinnovation 1)Inrecent3years,wecreatedradicalnewproducts. 0.887 0.888 0.749 0.923

2)Inrecent3years,weintroducedradicalnewconcepts. 0.902

3)Inrecent3years,wedevelopednewtechnologies. 0.788

4)Inrecent3years,wecreatednewtechniques. 0.880

Incrementalinnovation

1)Inrecent3years,weexploitedexistingtechnologies. 0.853 0.736 0.545 0.893

2)Inrecent3years,weimprovedexistingprocess. 0.822

3)Inrecent3years,weusedexistingmaterialstoproduce. 0.665

4)Inrecent3years,weimprovedexistingproducts. 0.764

5)Inrecent3years,weimprovedexistingproductservices. 0.777

6)Inrecent3years,weimprovedafter-salesservices. 0.707

7)Inrecent3years,weimprovedservicestosellproducts. 0.686

Page 17

Journal of Global Information ManagementVolume 27 • Issue 1 • January-March 2019

17

Tabl

e 2. D

escr

iptiv

e sta

tistic

s and

resu

lts o

f disc

rimin

ant v

alidi

ty

Vari

able

sM

ean

S. D

.1

23

45

67

89

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1213

14

1.F

irma

ge31

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163.

189

1

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irmsi

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75.2

6016

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0.76

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ent

2.79

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3.97

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106

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378

0.56

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0.41

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0.51

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080.

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201*

0.35

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0.55

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0.62

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0.84

1

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967

0.60

90.

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0.02

00.

285*

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232*

0.25

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0.53

4**

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0.58

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0.77

2**

0.81

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109

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60.

350*

*0.

246*

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300*

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444*

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501*

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441*

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630*

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677*

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700*

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832

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993

0.57

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130.

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303*

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343*

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359*

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305*

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611*

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584*

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568*

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634*

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538*

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865

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177

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8

*p <

0.05

; **p

< 0.

01; N

= 12

2; Th

e num

bers

in bo

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the d

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corre

lation

coeff

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e squ

are r

oots

of AV

E

Page 18

Journal of Global Information ManagementVolume 27 • Issue 1 • January-March 2019

18

Yu Li is a PhD candidate at the School of Management of Xi’an Jiaotong University in China. Her research interests are strategic alliances and innovation management. Her research has been published in journals such as the International Business Review, Asia Pacific Journal of Management, and Chinese Management Studies.

Yao Chen is a DBA candidate of the joint program conducted by the University of Manchester and Shanghai Jiaotong University. His research interests are innovation and strategic alliances management.

Yuan Li is a Professor of Shanghai Jiaotong University. His research area covers management science & engineering, technology economy, including the technology innovation and entrepreneur competitiveness analysis. He teaches the courses including strategic management, technology innovation, entrepreneur & entrepreneurship and project management. Since 2005, Prof. Li has published over 60 papers in international journals, including Journal of management studies, Journal of operations management, ETP, MOR, etc.

Christopher is Professor of Information Systems at Manchester Business School, University of Manchester. His research interests include strategy, legacy information systems, electronic commerce, enterprise and supply chain management systems, financial services and implementation. He has published papers in these areas in Strategic Management Journal, Sloan Management Review, Organization Science, Journal of Strategic Information Systems, Communications of the ACM, IEEE Software and Communications of the AIS. Professor Holland has lectured in the US, Holland, Switzerland, South Africa, Germany, Ireland and France to academic and business audiences. He consults with a wide variety of companies in the areas of strategic implementation of systems and the evaluation of large-scale IT projects. He is a regular presenter at international business and academic conferences and is on the editorial boards of several international journals.

Table 3. Results of regression analyses

Variables CG TG RI II

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9

Control variables

Firmsize 0.046 -0.091 0.196* 0.085 0.093 0.020 0.067 0.151 0.088

Firmtype -0.013 -0.104 0.230** 0.149* 0.058 -0.024 -0.020 0.021 -0.044

Industrycategory

0.086 -0.073 0.219* 0.086 -0.076 -0.158 -0.126 0.291** 0.215*

Firmage -0.041 -0.084 -0.010 -0.041 0.035 0.041 0.056 0.079 0.088

Resourceenvironment

0.215* 0.076 0.201* 0.088 0.285** 0.204* 0.240** 0.036 -0.053

Productadvantage

0.124 0.007 0.158 0.054 -0.005 -0.066 -0.076 0.208 0.145

Productionadvantage

0.252* 0.016 0.262** 0.105 0.186 0.081 0.111 0.047 -0.064

Marketingadvantage

0.049 -0.115 0.108 -0.044 0.374** 0.333** 0.290** 0.196 0.158

Independent variables

CuO 0.387** 0.176

CoO 0.247* 0.197

IC 0.209 0.288*

CG 0.041 0.113 0.139

TG 0.359** 0.367** 0.291*

CG2 0.222** -0.043

Fvalue 4.071*** 8.722*** 11.369*** 14.722*** 8.564*** 9.268*** 9.709*** 4.512*** 5.319***

AdjustedR2 0.183 0.436 0.430 0.578 0.355 0.429 0.466 0.203 0.282

△AdjustedR2 0.253 0.148 0.074 0.111 0.079

*p < 0.05; **p < 0.01; ***p < 0.001; N = 122.