Relationship Between Exporters and Their Foreign Sales and Marketing Intermediaries: Volume 16

This special volume of Advances in International Marketing is focused on international marketing channels. Specifically, it explores substantive issues relating to the role of foreign intermediaries in export channels. Independent distributors or agents are commonly engaged by exporting manufacturers, yet academic research in this area is very limited. We are delighted to feature the latest research findings and insights on this topic contributed by authoritative colleagues from around the world. It is guest edited by Carl Author Solberg of BI Norwegian School of Management.

This part contains four papers. Even though this volume of AIM primarily concerns exporter–intermediary relations, the first two contributions deal with channel choice and partner selection. The first chapter by Kent Eriksson, Jukka Hohenthal and Jessica Lindbergh, “SME export channel choice in international markets”, tests some of the fundamental factors proposed by the IP model explaining choice of entry mode (accumulation of knowledge of foreign markets determining foreign operation modes). Later developments of the model claim that experience and knowledge of local business relationships are also essential elements of the IP model. Whereas the IP model has been found to hold well for incremental resource commitments, it has – in contrast to transaction-cost theories – produced mixed results concerning its ability to explain operation modes. The authors present findings from research in 494 firms from Sweden, Denmark and New Zealand: factors included in the initial explanation of the IP model explain choice of channel, but later developments of the model do not. Implications are that the foreign market knowledge is, and that more incremental experiential knowledge accumulation is not relevant for export channel choice as regards integrated or non-integrated channel. The results show that for Small and Medium Sized Businesses (SMEs), expected market growth lead to use of integrated channels. Integrated channels make it possible to reap more of the profits from a growing market and to learn faster about what is going on in the market. They also found that use of integrated channels is correlated with cultural distance, contradicting the findings of Johanson and Vahlne (1977) and Kogut and Singh (1988). The IP model therefore offers a rather weak explanation of choice of integrated channel.

Determining market channels is usually considered a discrete decision made by the expanding firm (e.g., Anderson & Coughlan, 1987; Bello & Gilliland, 1997; Solberg & Nes, 2002). In reality, this decision is often limited by knowledge constraints and customer demands. We find an example of this in Gamma's attempt at entering the Italian market (Hohenthal, 2001).

The realities of economic life have forced most export-capable firms to “go global” because they will either “export or die” (Czinkota, Ronkainen, Moffett, & Moynihan, 2001). Exporting is the very first step of internationalization for many firms (Johanson & Vahlne, 1977; Cavusgil & Nevin, 1981) and most small businesses (Osborne, 1996). It continues to be an important mode of internationalization for firms (Charles & Beamish, 2003) and management research on export development has become “one of the most pioneering, established and mature streams of the export literature” (Leonidou & Katsikeas, 1996).

Given the confluence of opportunism, bounded rationality, and asset specificity in a partnership, the participants may attempt to expropriate certain rents. This type of rent is called the quasi-rent, and it is the reason for participating in the relationship in the first place (Alchian & Woodward, 1988). A quasi-rent is the excess above the returns necessary to sustain the current use of resources. It can be the means to recover sunk costs, such as investments in assets in general, and relational assets in our context. A relational quasi-rent is that portion of the quasi-rent generated by a resource that depends on the partner's resources (Hill, 1990). It stems from investment in specialized assets to support a partnership. Also this rent is the amount, which a partner can expropriate without destroying the relationship.

In an international setting, the potential conflict between the trading partners is thought to be more acute than in the domestic market, as cultural distance and ensuing misunderstandings make trading relations more complicated and demanding: the international marketer is confronted with the challenges of not only understanding the culture but also interpreting the local market information. This situation is often aggravated by limited resources put into the international marketing endeavour by the marketer.

The concept of market orientation has attracted attention from both academics and managers and it has been widely used in the marketing discipline to explain marketing phenomena in business and consumer markets (Deshpande, Farley, & Webster, 1993; Jaworski & Kohli, 1993; Kohli & Jaworski, 1990; Steinman, Deshpande, & Farley, 2000). The most common output or effect attributed by the literature to the market orientation concept has been the firm's achievement of good or superior financial performance by delivering superior value to customers (Deshpande et al., 1993; Hunt & Lambe, 2000; Kohli & Jaworski, 1990; Narver & Slater, 1990). The market orientation concept has also generated a stream of research in both domestic and international markets (Breman & Dalgic, 2001; Cadogan & Diamantopoulos, 1995; Cadogan, Diamantopoulos, & de Mortanges, 1999; Dalgic, 1994; Siguaw, Simpson, & Baker, 1998).

This paper investigates the role of the foreign local middleman in the information flows between the market and the exporter. Whereas a number of studies have examined the information behaviour of exporters (Benito, Carl, & Lawrence, 1993; McAuley, 1993; Hart, Webb, & Jones, 1994; Diamantopoulos og Souchon, 1996, 1997, 1998), limited attention has been given to the role of the local foreign partner¹ in this context. Once established in a market with a foreign intermediary as a partner, there are at least two reasons why information is needed by the exporter. First, the scope as well as the extent of information needed will depend upon the functional “division of labour” between the exporter and the middleman. The less responsibility left to the partner the more information is needed by the exporter to make appropriate decisions. Second, the exporter may want information to control the performance of the partner. Fear of opportunistic behaviour is the driving force in the latter case.

Exporting manufacturers that pursue international expansion via foreign distributors face a trade off. Their decision to utilize international distributors as a market entry mode reduces some risks; however, the manufacturers do not enjoy control of the foreign channel. Given heterogeneity in global environments and often a significant geopolitical separation between manufacturers and international distributors, the ability to control the behavior of channel partners is inherently reduced. Consequently, natural conditions for opportunistic behavior are created (Karunaratna & Johnson, 1997; Klein & Roth, 1990).

Channel management deals with the establishment of an efficient and effective distribution channel. It implies the stepwise development of channel leadership and channel relations. International channel management and the establishment of cross-border relations between exporting suppliers and their foreign subsidiaries and intermediaries are key in international marketing performance (Madsen, 1989; Cavusgil & Zou, 1994; Solberg & Nes, 2002). Li (2003) proves that an export channel is a very complicated phenomenon and a number of factors, both contextual and historical, affect simultaneously the exchange modes and their operation.

Research within the inter-organizational field has until recently focused on the formation and maintenance of business relationships, while less research has been directed toward the study of relationship ending. Lately, however, research on dissolution and related constructs, such as exit intention and switching has emerged (Halinen, Havila, & Tähtinen, 1999a; Prim-Allaz, 2000; Tähtinen & Havila, 2004; Vaaland, Haugland, & Purchase, 2004). Some literature focuses on the reasons and antecedents to relationship dissolution (Ping, 1999; Haugland, 1999; Wathne, Biong, & Heide, 2000), while other research investigates the process and consequences of relationship dissolution (Grønhaug, Henjesand, & Koveland, 1999; Giller & Matear, 2001; Alajoutsijärvi, Möller, & Tähtinen, 2000). Yet, few studies have investigated relationship dissolution in cross -national dyads. Specifically, the current research examines how supplier reps’ cultural knowledge, cultural adaptation and communication affect buyer tolerance of conflict in cross-national business relationships. The construct tolerance of conflict refers to the intention to discontinue the business relationship with the current partner given conflict situations. This construct is therefore conceptually close to exit intention; a construct frequently used in relationship dissolution studies (e.g. Ping, 1993,1995; Halinen & Tähtinen, 1999b).

In the literature on relationships, many important aspects such as relationship outcomes (e.g. relationship quality, customer satisfaction) (Holmlund & Kock, 1995; Crosby, Evans, & Cowles, 1990; Homburg & Rudolph, 1997), antecedents (e.g. power, trust, commitment) (Kaufmann & Dant, 1992; Doney & Cannon, 1997; Morgan & Hunt, 1994), or the structure of relationships (e.g. processes, organizational approaches) (Parvatiyar & Sheth, 2000; Homburg, Workman, & Jensen, 2000) have been discussed as well as analyzed empirically.

Power is the potential ability of one individual or organization to directly influence another (Dahl, 1957; Emerson, 1962, French & Raven, 1959). The potential to influence another emanates from a number of social power bases. Six bases of power have been enumerated in the literature: reward, coercive, legitimate, referent, expert, and informational (French & Raven, 1959; Raven, 1965, 1992). Reward power emanates from the capability of one party to reward another. Coercive power originates from one party's expectation that he/she will be punished by his/her partner if he/she fails to conform to the influence attempt. Legitimate power is derived from the internalization of values that dictate his/her partner has a legitimate right to influence him/her and he/she has an obligation to accept this influence. Referent power is defined by the identification of one partner with the other. Expert power is the extent that the knowledge that one partner attributes to the other provides for influence. Informational power is defined as the logical argument that a partner presents to another in order to implement change. The aggregation of the six power bases determines an individual's or organization's overall power.

Management, over time, takes a series of specific strategic actions. As strategic actions we define actions aimed at influencing how the actor is related to other actors. We propose that when a strategic action is committed affects the outcome of the action. An important reason for this is that strategic actions over time can be regarded as interdependent sequences of actions. Timing and sequences may be more or less – or is not at all – preplanned by an actor. In a network perspective a focal actor is dependent on other actors that commit strategic actions. This creates interdependencies that vary over time, which a focal actor influences in a proactive, interactive and/or reactive way. The timing of strategic actions is a general, quite complex and elusive phenomenon to be handled in practice and theory. Despite its importance, very little research has been published.

For many exporting firms, success in foreign markets hinges to a large extent on the performance of their foreign intermediaries (Albaum, Strandskov, & Duerr, 2002; Ellis, 2000; Root, 1987). In spite of the key role played by intermediaries in foreign markets – i.e. sales agents and independent distributors (Solberg & Nes, 2002) – exporters often regard them as temporary arrangements and second-best alternatives to conducting foreign marketing, sales, and service activities in-house. The typical assumption is that foreign intermediaries are low-control entry modes (Hill, 2003; Root, 1987) that do not have the potential of exploiting the full sales potential of export markets. In other words, foreign intermediary arrangements could have inherent limitations that foster mediocre rather than excellent market performance. Several studies report that exporters generally distrust foreign intermediaries and suspect them of shirking at any given occasion (Beeth, 1990; Nicholas, 1986; Petersen, Benito, & Pedersen, 2000). Poor performance is sometimes expected. On the other hand, foreign intermediaries often find that exporters put in place incentive structures that do not induce them to achieve excellent performance. Hence, it is asserted that foreign intermediaries may deliberately seek mediocrity rather than very poor or outstanding performance.

In later years a number of articles have been published on the issue of exporter–importer relations either from the exporter viewpoint (Bello & Gilliland, 1997; Mortanges & Vossen, 2000; Solberg & Nes, 2002; Bello, Christitan & Li, 2003; Zhang, Cavusgil & Roath, 2003) or from the importer perspective (Lye, 1998; Skarmeas & Katsikeas, 2001; Skarmeas, katsikeas, & Schlegelmilch. 2002). The main focus has been on how to develop relations with and control of the foreign partner. Taking a principal-agent view of the channel management issues, Bello and Gilliland (1997) suggest a model where they test how unilateral (through process control or outcome control) and bilateral governance structures (flexibility) are being influenced by a number of antecedents, and how they in their turn impact on exporter performance. Process control may be described as the principal's influence on the way in which distributors/subsidiaries carry out the marketing activities (advertising, sales calls, etc), whereas with outcome control the firm is content with controlling the result of these activities (profit, sales volume, market share, etc). They found that outcome control and flexibility of the trading partners correlate positively with performance, whereas no significant relationships were established between process control and performance. Other models have later been introduced, where the effects of relational controls or relational norms have been explored (Bello et al. 2003; Zhang et al. 2003).