1

Export Market Location Decision and Performance: The Role of External Networks and

Absorptive Capacity

1. INTRODUCTION

Choosing which market to enter is a critical step in a firm’s internationalization1

(Doherty, 2009, Ellis and Pecotich, 2001, Papadopoulos et al., 2002, Papadopoulos and Martín,

2011, Sousa and Lages, 2011) and it has an important effect on firm performance

(Papadopoulos and Martín, 2011). The decision entails large sunk costs including the

non-recoverable time, efforts and costs in gathering and learning information and knowledge

on demand conditions overseas, upgrading product quality, establishing marketing channels,

and negotiating and enforcing new contracts, and ongoing resource commitments. Reversing it

may involve considerable loss. The decision-making, however, is complex and difficult since

firms are confronted with a multitude of diverse markets (Papadopoulos and Martín, 2011).

This paper aims to study managers’ propensity to enter psychically/culturally close or distant

markets and the international performance implication of this strategic decision.

Broadly speaking, there are two strands of research that has sought to investigate how

the export market location decision is made. One considers the decision as a rational response

to and a result of systematic research into market and country conditions (e.g. Brouthers and

Nakos, 2005, Cavusgil, 1985, Doherty, 2009, Douglas and Craig, 2011, Erramilli, 1991,

O'Farrell and Wood, 1994). The other, noticeably encompassing those studies built on the

Uppsala model, cites psychic/cultural distance2 as the key variable in influencing the decision

1
Other aspects of international market entry include the timing of market entry (e.g. Mitra and Golder, 2002, Zhao and Hsu,
2007), the sequence of market entry (e.g. Ellis, 2007), entry mode choice (e.g. Brouthers et al., 2003, Brouthers et al., 2008,
Burgel and Gordon, 2000, Edwards and Buckley, 1998, Ellis, 2007, Tihanyi et al., 2005) and the commitment of resources
(e.g. Zhao and Hsu, 2007).
2
The terms psychic distance and cultural distance have been used and continue to be used interchangeably in the literature
 2

and argues that firms are likely to use psychic/cultural distance as a “rule of thumb” and

gradually increase their internationalization from close markets to distant markets (e.g.

Andersen and Buvik, 2002, Dow, 2000, Ellis, 2007, Johanson and Vahlne, 1977, Johanson and

Vahlne, 2009).

Insightful as these studies, there remain several shortcomings. On the one hand, the

rational perspective mainly lays emphasis on the external environment of firms and overlooks

their resources and capabilities. The resource-based view (RBV) suggests that firm resources

and capabilities are key dominants of strategies like market entry (Barney et al., 2001).

Ignoring these factors may seriously bias our understanding on how firms export and

internationalize. On the other hand, the Uppsala approach may have ignored many cases where

firms enter distant markets from the very early stage of their internationalization for strategic

reasons to reach market opportunities and acquire complementary assets (Ellis, 2000, Evans

and Mavondo, 2002, Ojala, 2009, Oviatt and McDougall, 1994).

This research aims to overcome these shortcomings and draws on the RBV and

network theory to establish an integrative resource-strategy-performance model (Figure 1). It

examines three specific questions: (1) how external networks (a firm’s external resources)

impact on the location decision of an emerging economy firm (EEF), or more precisely,

managers’ propensity to enter psychically/culturally close or distant markets? (2) how

absorptive capacity (a firm’s internal resources and capabilities) moderate the relationship

(e.g. Ellis, 2007, Håkanson and Ambos, 2010, Sousa and Bradley, 2006, Sousa and Bradley, 2008, Sousa and Lages, 2011).
For example, Tihanyi et al. (2005) find that 55 out of the 66 samples reviewed use Hofstede’s index for cultural distance as
an indicator of psychic distance. On the other hand, Sousa and Bradley (2006) and Sousa and Lages (2011) argue that they
are indeed different with the former existing at the individual level and the latter applying to the group or country level.
Nevertheless both studies find a strong positive relationship between the two concepts. Dow and Karunaratna (2006) suggest
that cultural distance is only one component of psychic distance. The debate of these two terms is beyond this paper. Here
we do not differentiate these two terms.
 3

between ENs and the location decision? (3) what are the synergetic effects of external networks,

absorptive capacity and the location decision on international performance?

Figure 1 here.

External networks, as a web of personal and organizational connections and relations

with external actors including suppliers, customers, competitors and governments for social or

economic purposes, help firms decrease information and knowledge barriers and transaction

costs, improve access to vital information and complementary resources, and improve

international business operations (Contractor et al., 2006). External networks are a unique and

distinguishing aspect of EEFs’ internationalization (Gaur and Kumar, 2010, Peng and Luo,

2000). In an emerging economy, the institutional environment is characterized by resource

scarcities, continuous economic liberalization, and the lack of an adequate legal and regulatory

framework (Hoskisson et al., 2000). External networks are often used as a substitute for the

underdeveloped or imperfect product and factor markets and for dealing with market volatility

and “institution voids” (a lack of market supporting institutions) (Peng and Luo, 2000).

Following Peng and Luo (2000), we look at two types of external networks, business

networks (i.e. the firm’s contacts with other business managers in suppliers, buyers and

competitors), and formal institutional networks (i.e. the firm’s contacts with government

officials including political leaders at various levels of the domestic government and officials

in domestic industrial bureaus, domestic regulatory and supporting organizations such as tax

bureaus, state banks, commercial administration bureaus). In developed countries, networks

are supported by market-supporting institutions. Managers mainly focus on their business

networks (e.g. Ford and Mouzas, 2010, Henneberg et al., 2010, Smirnova et al., 2011a,
 4

Smirnova et al., 2011b). In contrast, Managers in EEFs relies on both types of external

networks (Peng and Luo, 2000). Managers with extensive resources associated with external

networks may exhibit a preference for distant markets even as newcomers in the international

markets in order to capitalize on more market and strategic opportunities (Ojala, 2009).

Possessing external network resources merely gives firms potential to be successful in

internationalization. To realize this potential, they must have the requisite absorptive capacity

to effectively recognize, understand, exploit, assimilate and integrate the acquired valuable

resources (Cohen and Levinthal, 1990). For example, the interaction between external

networks and absorptive capacity is critical in sharing information and knowledge of foreign

markets that is essential to surmount the economic, institutional and cultural barriers associated

with the internationalization process. Without such an interaction, firms cannot fully benefit

from the information and knowledge they acquired through external networks.

Consistent with the strategic fit perspective of RBV (Barney et al., 2001, Brouthers et

al., 2008, Wei and Lau, 2008), we discuss the performance implication of export market

location decisions that fit with firms’ external networks and absorptive capacity. Despite wide

acknowledgement that the right choice of market location has a major impact on firm

performance, little is known about the normative value of firms’ export market location

decisions (Brouthers et al., 2009). To provide prescriptive implications, we seek to explore

whether firms whose location decisions are predicted by our models enjoy better performance.

Our research makes several important contributions to the literature. First, it extends

the export market selection research by linking firms’ resources and capabilities to the

managers’ propensity to enter psychically/culturally close or distant markets. We develop an

 5

integrated framework based on RBV and network theory to focus on two important

resources/capabilities of the firm (external networks and absorptive capacity) and their

synergetic effects on export market location selection. Second, we theorize and test the

performance implication of the export market location decision using the strategic fit paradigm.

It connects organizational resources/capabilities (external networks and absorptive capacity) to

a strategy (export market location) where resources are positioned, and then to export

performance. Thus this research adds a normative model of export market location decision to

the literature, which is rarely seen so far (Brouthers et al., 2009).

In the following section, we review the relevant literature and develop novel

hypotheses. Section 3 discusses data collection, sample, variables, measures and statistical

methods. The final two sections discuss the results, consider the limitations and draw

conclusions and theoretical and managerial implications.

2. LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT

In reviewing conceptual and methodological issues in international market selection

studies, O’Farrell and Wood (1994) and Papadopoulos and Martin (2011) demonstrate the

complexity and multifaceted nature of the topic as firms can potentially expand to all foreign

countries in the world, with a vast range of different characteristics. Many take a rational

approach and suggest that firms consider market location on systematic research into market

and country conditions e.g. market size, market potential, country risk, competition, trade

barriers, regional, economic or cultural variations within a country, local population density,

infrastructure, local education or social institutions and living arrangements (e.g. Brouthers

and Nakos, 2005, Cavusgil, 1985, Doherty, 2009, Douglas and Craig, 2011, Erramilli, 1991,
 6

O'Farrell and Wood, 1994). Another conventional view focuses on psychic/cultural distance,

the key concept in the Uppsala internationalization process model (Andersen and Buvik,

2002, Dow, 2000, Johanson and Vahlne, 1977, Johanson and Vahlne, 2009, Sousa and Lages,

2011). Firms are likely to use psychic/cultural distance as a “rule of thumb” and gradually

increase their internationalization from close markets to distant markets. The logic is that, for

two countries with low psychic/cultural distance, the transaction costs of handling

international business between them are expected be small. Familiarity in language, culture

and business practices can enhance information flow between firms and markets, thereby

reduce the necessity for adapting product offerings and relevant marketing activities to

foreign markets. The larger the cultural distance between home and target markets, the

greater the uncertainties and costs associated with operating in that market. Therefore close

markets are more attractive than distant markets and a negative relationship between firm

performance and psychic/cultural distance between home and target markets is expected.

However, firms seem to go beyond the rational perspective and the Uppsala approach and

show a taste for distant markets for strategic reasons including new market opportunities and

complementary assets acquisition (Ellis, 2000, Evans and Mavondo, 2002, Ojala, 2009,

Oviatt and McDougall, 1994).

Empirical evidence also fails to provide conclusive support to the hypothesized

negative relationship between performance and distance (Tihanyi et al., 2005). On the

contrary, a number of studies find strong positive effects from psychic/cultural distance on

organizational performance. Stottinger and Schlegelmilch (1998) find that, in some cases,

export sales to psychically distant countries were greater than to psychically close countries.
 7

Evans and Mavondo (2002), Evans et al. (2008), and Sousa and Lengler (2009) show a

positive relationship between psychic/cultural distance and firm performance. The

performance-enhancing argument of psychic/cultural distance suggests that firms benefit

from psychically/cultural differences between home and target markets for a number of

reasons.

First, these differences provide a strong basis for differentiation that can be a source

of competitive advantage (Evans and Mavondo, 2002). Second, firms are likely to perceive a

higher level of risk when entering into psychically/culturally distant markets rather than

psychically/culturally close markets. This risk perception elicits a strong desire for the

acquisition of information and knowledge of the new markets (O’Grady and Lane, 1996).

Organizational resources/capabilities help firms undertake a differentiation strategy and

leverage new market information and knowledge. The integration of newly acquired

knowledge and skills with a firm’s existing resources can lead to unique resource and

capability combinations, as a result, enhance organizational performance (Evans and

Mavondo, 2002). Emerging evidence suggests the strong role of external networks as an

aspect of firms’ resources (e.g. Adler and Kwon, 2002, Ellis, 2000, Peng and Luo, 2000).

Absorptive capacity helps firms manage, adapt, integrate, and reconfigure resources

associated with external networks so as to achieve congruence with the changing business

environment in a timely manner.

2.1 External Networks as Firm-Level Resources

The term network describes “the structure of exchange relationships and

interdependencies within which a process of interaction among actors takes place” (Mouzas
 8

and Ford, 2009, p. 495). Networks can be differentiated into internal and external networks. In

the internationalization process, an original business actor may grow from one unit into several.

Even though the firm remains as one legal and administrative entity, it consists of several

business actors. They are interrelated, but each is embedded in differentiated networks

(Andersson et al., 2002, Meyer et al., 2011). Internal networks therefore refer to intra-firm

relationships. External networks are a web of personal and organizational connections and

relations with external actors. One distinguishing feature of the exporting EEFs is that they are

relatively small in size and scale and have limited international scope, therefore the focus of the

paper is on external networks.

Most of the network literature stresses inter-firm networks, frequently termed business

networks (e.g. Ford and Mouzas, 2010, Henneberg et al., 2010, Mouzas and Ford, 2009,

Smirnova et al., 2011a, Smirnova et al., 2011b). Firms operate in networks of connected

business relationships with other firms such as suppliers, customers and competitors. Such

long-lasting relationships are crucial as they ensure effective sourcing, marketing, and

collaborating. However, in emerging economies like China, where the institutional

environment is characterized by resource scarcities, continuous economic liberalization, and

the lack of an adequate legal and regulatory framework (Hoskisson et al., 2000), firms not only

rely on formal institutions to work effectively in supporting business activities, but also

cultivate relationships with government officials and build connections with government

institutions for the purpose of securing favors in personal and/or organizational actions. For

example, firms may attempt to create a more favorable environment and gain institutional

support for themselves through the use of mechanisms such as lobbying the government for
 9

favorable regulation, contracts enforcement and entry barrier erection or networking with

government officials for project approval and access to scarce resources (Li and Zhou, 2010,

Luo, 2007, Peng and Luo, 2000). We refer to firms’ interface with governments and

intermediaries as “institutional networks”.

RBV suggests that external networks are a core strategic resource because they are

valuable, rare, inimitable and non-substitutable (Adler and Kwon, 2002, Andersson et al., 2002,

Foss, 1999, Lavie, 2006, Li and Zhou, 2010, Peng and Luo, 2000). Through external networks,

firms can gain an array of benefits ranging from access to resources (including knowledge and

information) and advice from other members in the network, to referral, trust and solidarity.

Well-networked firms possess resources and capabilities to interact with external actors so as to

collect and evaluate information and knowledge about current and future customer demand,

marketing and technologies, plans and capabilities of competitors and changes in the nature of

the business environments, to acquire external resources to produce goods and services at

competitive prices while maintaining the quality standard, and to identify opportunities and

threats (Ellis, 2000). Social and political capital, the resulting benefits of high involvement in

networks (Adler and Kwon, 2002, Li and Zhou, 2010), acts to alter firms’ opportunity set.

Therefore, resources related to external networks are valuable to firms that share in them.

Uzzi (1999) argues that networks are a private good, where they primarily benefit those

who possess them. A firm creates its external network from its interactions with many

organizations and through path-dependent processes, therefore, it has unique and idiosyncratic

patterns of linkages with network partners (Andersson et al., 2002). As a result, networks are

rare because different networks are unlikely to possess the same level of resources.
 10

The resources which are accessible through external networks are inimitable and

non-substitutable because of complexity and ambiguity arising from the unique interactions

between the focal firm and others in the network and the difficulty of replacing network

resources by either similar or different resources for the same outcome (Foss, 1999). Networks

cannot be purchased in the market and their associated social and political capital and

trust-building take time to form. This valuable, rare, inimitable and non-substitutable nature

makes external networks a strategic resource in contributing to competitive advantage.

Empirical studies have documented the significant role of external networks in

initiating exports (e.g. Ellis, 2000, Ellis and Pecotich, 2001), amassing knowledge of

international markets (e.g. Styles and Ambler, 1994), obtaining access to international markets

(e.g. Ellis, 2000), and improving performance (e.g. Andersson et al., 2002, Li et al., 2008, Park

and Luo, 2001, Peng and Luo, 2000). To the best of our knowledge, no study yet links firms’

external organizational resources to export market location decision.

2.2 External Networks, Absorptive Capacity and Export Market Location Strategy

In the context of internationalization, external networks help facilitate firms to explore

an international market because of a range of network-related benefits. Foreign and domestic

markets differ along a range of dimensions. Firms tend to have less adequate information about

customers, suppliers, competitors, institutions and the like in foreign markets than in domestic

markets. A firm’s capabilities to internationalize successfully and to overcome the liability of

foreignness are determined by its ability to acquire and use information and knowledge that can

be adopted from the development, establishment and maintenance of external networks.

Rauch and Trindade (2002) note that co-ethnic networks promote exports by providing
 11

international market information and supplying matching and referral services. Ellis (2000)

asserts that firms often obtain knowledge of international market opportunities through

existing interpersonal links rather than systematic analysis via market research. Thus external

networks can feed firms with valuable information and knowledge about export markets

(Acquaah, 2007). Resources related to networks may be particularly relevant to EEFs because

they are used to operating in institutional voids, and external networks provide them with

much-needed social and political capital for internationalization (Peng and Zhou, 2005, Yiu et

al., 2007).

EEFs also need institutional networks to provide the resources for effective business

operations. For example, government intervention is still prevalent in business and economic

activities through controls, regulations or subsidies (Li and Zhou, 2010, Luo, 2007).

Institutional supports help firms discover opportunities, secure resources (at competitive

prices) and gain legitimacy. EEFs may find that it is difficult to secure loans in international

capital markets and have to rely on domestic banking systems that are relational in nature in

most emerging economies (Yiu et al., 2007). Networks with domestic financial institutions

are essential for a firm’s successful internationalization.

Even firms a priori without highly internationalized networks can benefit from

domestic-based networks that improve their capabilities and confer an advantage for

internationalization. A network typically embeds in a local social fabric that lacks

international connections. Zhou et al. (2007) demonstrate that firms can use domestic-based

networks to effectively facilitate internationalization. Relationships in a domestic market may

be a driving force for entering into foreign markets, creating a mechanism which allows firms
 12

to selectively search and benefit from information acquired through existing ties that are in

some way connected to target markets (Ellis and Pecotich, 2001). The transitivity property of

networks (Contractor et al., 2006), especially when the relationship is one of sentiments, can

also explain the international transferability of favors and relationships among network

members (Park and Luo, 2001, Standifird and Marshall, 2000).

Managers in firms with extensive external networks may prefer distant markets to

close ones even as newcomers in the international markets in order to capitalize on market

opportunities and acquire complementary assets (Evans and Mavondo, 2002, Ojala, 2009).

Firms can overcome the obstacles inherent in distant markets through a range of benefits

associated with external networks including cooperation, information sharing, acquisition of

knowledge of international market opportunities, advices and experiential learning, and

referral, trust and solidarity (Acquaah, 2007, Welch and Welch, 1996, Zhou et al., 2007).

First, external networks constitute an important source of information and knowledge

that is critical for obtaining complementary assets and identifying market opportunities.

Business transactions are embedded in inter-organizational networks and business ties are

likely to take place within the context of pre-existing social relationships (Ellis, 2000, Uzzi,

1999). Exporting firms therefore can readily draw on their links with customers, partners and

suppliers to gain trust, information, knowledge and leverage in international markets.

Business networks thus increase their capabilities to generate market intelligence, to respond

to international markets via personal ties and referrals efficiently and effectively, and to

reduce information asymmetry and the uncertainties associated with international operations,

in particular in distant markets.

 13

In emerging economies characterized by uncertain and rapidly developing

environments and the absence of market-supporting institutions, firms also benefit from their

links with government officials and intermediaries. “Links with domestic trade associations

and professional bodies can provide intelligence on different markets and access to those

markets for international operations” (Yiu et al., 2007, p. 524). Institutional networks thus

also increase firms’ capabilities to identify and take advantage of market opportunities.

Second, external business and institutional networks bring in advice and experiential

learning related to international operations. Advice and experiential learning can both lower

the risks and uncertainties inherent in international operations (Zhou et al., 2007) and reduce

information acquisition costs (Ellis, 2008). Networks are capable of effectively disseminating

personal and experiential information from network partners, which is otherwise available only

through engaging in international operations in a costly and time-consuming way (Elango and

Pattnaik, 2007). With the recurrent interactions between partners, networks offer them

opportunities for passing advice onto each other and engaging in experiential learning. As a

result, firms in the network can be more flexible and swift in responding to a dynamic and

uncertain business environment. For example, flexibility and speedy response, a result of

trust-based interpersonal ties and interactions, have underpinned the good reputation of

Chinese manufacturers with this capability in international markets (Zhou et al., 2007). With

the decreased risks and uncertainties due to the advice and experiential learning associated with

external networks, firms are more likely to capitalize on opportunities in distant markets.

Third, referral trust and solidarity, through the establishment of reciprocity and moral

obligations which guarantee the implementation of transactions with bonds of interpersonal

 14

trust, can help improve transaction efficiency (Peng and Luo, 2000, Zhou et al., 2007) and lead

to firms selecting distant markets. Referral trust and solidarity are important because the

information and knowledge transferred among network partners is private knowledge which is

commonly inaccessible through arm’s-length ties and is shared only within an array of

trustworthy network partners (Uzzi, 1999). Networks make possible trust-based and

reliance-based business relationships3 that would otherwise be difficult to build. Network

member firms and contacts with connections to the focal firm make referrals in the interest of

the focal firm to third parties which are searching for partners to explore new opportunities

(Lee et al., 2001). “Referral and solidarity benefit(s) can be an effective means to enhance

legitimacy and credibility, and reduce inferred uncertainty by external parties” (Zhou et al.,

2007, p. 6). Pre-existing social ties with trust and solidarity may help to decrease the effects of

cultural distance by lowering the uncertainties connected with specific market entry (Ellis,

2008).

In summary, we propose the following hypotheses:

H1: There is a positive relationship between the level of domestic external networks

firms possess and managers’ propensity to enter markets culturally distant from home

countries.

H1a: There is a positive relationship between the level of domestic business networks

firms possess and managers’ propensity to enter markets culturally distant from home

countries.

H1b: There is a positive relationship between the level of domestic institutional

3
Mouzas et al. (2007) draw a clear distinction between trust and reliance. Trust is more applicable at the level of
inter-personal relationship while reliance applies to inter-organizational relationships. Networks involve both inter-personal
and inter-organizational relationships.
 15

networks firms possess and managers’ propensity to enter markets culturally distant

from its home countries.

Firms with external networks also need certain levels of absorptive capacity to

recognize, understand, assimilate, adept and integrate new information and knowledge

acquired from the networks through learning processes (Cohen and Levinthal, 1990). Some

firms located in networks that are rich in information and knowledge may lack the insight and

ability to deal with the complexity and ambiguity of this information and knowledge. Learning,

on the other hand, increases the efficiency with which firms convert externally acquired

information and knowledge from networks into the creation of new knowledge and the

improvement of internal routines to generate more knowledge from the same stock information

and knowledge. The high level of absorptive capacity is more likely to help firms identify

market opportunities, tap into information and knowledge bases associated with external

networks as a source of ideas, advice and inspiration to take action in markets and draw on their

internal resources and external network resources to better respond and adapt to the complexity

of international markets. Consequently, firms’ absorptive capacity will moderate the

contribution that external networks make to export market location decisions.

H2: Absorptive capacity moderates positively the effect of domestic external networks

on managers’ propensity to enter culturally distant markets.

2.3 Export Market Location Decision and Export Performance

The literature is replete with arguments that external networks and absorptive capacity

are critical to gaining competitive advantages and have direct positive impact on firm
 16

performance (e.g. Acquaah, 2007, Andersson et al., 2002, Cohen and Levinthal, 1990,

Kostopoulos et al., 2011, Li et al., 2008, Park and Luo, 2001, Peng and Luo, 2000, Singh, 2009,

Uzzi, 1999, Wang et al., 2011, Zahra and George, 2002, Zhang and Li, 2008). External

networks and absorptive capacity provide various benefits to help firms keep up with the

opportunities and challenges. Lower uncertainty in close business relationships leads firms to

lower inventory and selling costs, more efficient purchasing and marketing activities and better

value creation through combining the resources and activities in a way that goes beyond the

simple pooling of resources. These arguments are clearly in line with the central proposition of

the RBV, i.e. a firm’s superior performance relative to its competitors can be attributed to its

resources and capabilities.

External networks and absorptive capacity also influence export performance

indirectly through their ‘coalignment’ or ‘fit’ with market location decision. The strategic fit

perspective of RBV (e.g. Barney et al., 2001, Beleska-Spasova et al., Brouthers et al., 2008, He

and Wei, 2011, Wei and Lau, 2008) indicates that organizational success relies on how well the

firm’s resource, strategy and structure fit with and support each other. A resource-performance

link would be more prominent in a favorable strategy because the strategy where the resources

are deployed helps to get the best out of the resources and then improve performance. Thus,

given the focus on resources associated with external networks and absorptive capacity, this

study proposes that firms can enhance export performance through coalignment or fit between

their location decisions and the levels of external networks and absorptive capacity they

possess.

H1 is about a positive relationship between the levels of external networks and mangers’
 17

propensity to choose markets distant from home countries. In the ‘fit’ situation, firms with

extensive networks entering into distant markets and those with limited networks entering into

close markets are likely to perform well. As argued above, firms with extensive networks

entering into distant markets can benefit from psychical/cultural differences between home and

target markets because of reasons including the strong basis for differentiation and the high

perception of risk associated with psychically/culturally distant markets, and consequently,

enjoy enhanced performance results. Firms with limited networks entering into close markets

are also expected to perform well. The logic here is that for firms with limited networks, close

markets imply familiarity with language, culture and business practices that enhances

information flows, thereby reducing the transaction costs of doing business, and limited

networks mean that firms have to be particularly cautious in their decision-making. As a result,

this has a positive impact on performance.

A ‘misfit’ arises when firms with limited networks enter into distant markets or firms

with extensive networks enter into close markets. Firms with limited networks entering into

distant markets are unlikely to have superior performance. This is because even if they are

particularly cautious in their decision-making, the costs and uncertainty inherent in distant

markets mean that they have limited capability to leverage against the costs of doing business

there. This therefore has detrimental effects on performance. For the scenario of firms with

extensive networks entering into close markets experiencing poor performance, evidence is

readily available in the literature. O’Grady and Lane (1996) suggest that entering low distance

market can result in failure due to overconfidence and biases in the perception of distances. We

argue that firms with higher external network resources can suffer more than those with lower
 18

external network resources in such a case. First, networks can worsen the consequences of

overconfidence and the biases in the perception. External networks provide access to resources

for the firm to implement strategies based on the misunderstanding of the markets. The more

invested, the deeper would the firm suffer from the misunderstanding and biases. Second,

developing and maintaining networks can be costly in terms of the reciprocal and utilitarian

demands; the obligations to personal attachments and ties sometimes obstructs business

changes that are necessary to improve firm profitability (Park and Luo, 2001). Network

development requires large investments. Entering closer markets may lose higher rents that are

available when leveraging opportunities in distant markets and can offset the costs of

networking. As a result, firms with high external network resources can be disadvantaged

vis-à-vis rivals without the costly assets in a close market.

In summary, we propose the following hypothesis:

H3: Superior performance in the main market results from the fit between managers’

propensity to enter culturally distant markets and the firms’ levels of domestic external

networks and absorptive capacity.

3. DATA AND METHOD

3.1 Sampling and Data Collection

Data were collected through a mail survey of export manufacturing firms in Fujian

Province, a Southeast coastal province of China. Fujian is one of the most

intensively-exporting provinces with an export volume of US$ 67 billion, ranked the sixth

among Chinese provinces (NBSC, 2011). 600 export manufacturers were randomly selected
 19

from 7,300 firms listed in the Exporting Firms Directory of Fujian Province. A high level of

personal involvement was involved in the data collection process to ensure managers’ active

participation as many Chinese managers are reluctant to participate in surveys due to fear of

leaking proprietary information and frequent requests by researchers (Brouthers and Xu, 2002).

Through multiple telephone calls, the researchers identified 501 firms which were export

manufacturers and consented to participate in the survey. Of the 99 firms excluded, 49 were

export intermediaries, 43 could not be contacted or refused to cooperate and seven had ceased

exporting.

Because constructs in this study were adapted from previous research in English, a

back-translation process was employed to translate the questionnaire into Chinese.

Questionnaires with cover letters and prepaid postage envelopes were mailed to the

CEOs/MDs of participating firms.

The initial mailing and two following waves produced 285 responses. Of these, 55

were excluded because of excessive missing data. Thus the final dataset consists of 230

exporting firms for a response rate of 38%. Table 1 provides summary of the salient

characteristics of the sample firms.

Table 1 here.

To assess potential nonresponse bias, the study follows Armstrong and Overton (1977)

and compares early and late respondents with respect to various firm characteristics and the

construct measures. The t statistics for variables including international performance,

absorptive capacity, export scope, and export experience4 are 0.155, 1.533, 1.105 and 0.274,

4
Variable measurements are explained below and in the Appendix.
 20

respectively, suggesting that there are no significant differences between these two groups.

Thus, nonresponse bias is unlikely to be a significant problem. We also compared

characteristics of our population of exporting firms to the respondent firms. In this analysis we

noted no significant differences on key factors such as export experience, export sales, export

scope and firm size (p > 0.05). Overall, analyses tend to indicate that our respondent firms are

representative of firms exporting from China.

3.2 Measures

The individual measurement items for dependent, independent and control variables

are listed in Table 2 and the Appendix. All statement-style items are measured on a 7-point

scale ranging from “1 = strongly disagree” to “7 = strongly agree” or from “1 = very little” to “7

= very extensive”.

Dependent Variables

Two dependent variables are used in the study: manager’s propensity to enter an

export market location (EM) and export performance in the most important export market

(EP). EM is a latent variable as it cannot be directly observed but has to be inferred from

other observed variables. A wide range of literature agrees about the significant role of

cultural distance (CD) and psychic distance (PD) in managers’ decision regarding

internationalization (Dow, 2000, Edwards and Buckley, 1998). The indicators used here are

cultural distance (CD) and psychic distance (PD) between China and the export market.

We considered multiple aggregated measures of CD and PD in our model5. Hofstede

5
A variety of definitions and measurements for CD and PD is used in the literature (e.g.Ellis, 2008, Shenkar, 2001, Sousa
and Bradley, 2006). It is not the intention of this paper to engage in the debate about the conceptualization and
operationalization for both concepts. On this, please see, for example, a special issue on “Culture in International Business
Research” in Journal of International Business Studies (2010). Our position is to use available data to test our conceptual
framework and check result robustness.
 21

(2010) is most widely used indicators of culture in the literature. Another two recent

developments of culture measurements include GLOBE (House et al., 2004) and Schwartz

(Ralston et al., 2011). Unfortunately, Schwartz (Ralston et al., 2011) does not cover Japan

which accounts for more than 22% of our sample firms (see Table 1). We use South Korea as

a replacement instead. CD is computed as a Euclidean distance following Morosini et al.

(1998) on the basis of Hofstede6, GLOBE7, and Schwartz respectively.

where subscripts i, j, and C represent the ith construct, jth country and China. Iij is the

score on ith construct for country j.

In operationalizing PD, again we need aggregated indicators. This requirement leads

us to use the Hakanson and Ambos (2010) approach that captures PD as a single item

perceived by practicing managers. There are merits to adopting such an approach (Dow and

Karunaratna, 2006). First, many international business decisions are linked to the

decision-maker’s perception of psychic distance. Second, measuring the distance by

perception allows for discrimination between overlapping factors. Due to Hakanson and

Ambos’s (2010) relatively low coverage of countries under examination, we have to exclude

Hong Kong, Singapore, Thailand, and Taiwan from the sample, which reduces the final

sample size to 196 firms.

Export performance is an important area of research and there is no agreement on the

6
We use culture data from Hofstede’s website (http://www.geerthofstede.nl/research--vsm.aspx).
7
Data were obtained from http://business.nmsu.edu/programs-centers/globe/instruments/.
 22

best way to assess it (Katsikeas et al., 2000, Katsikeas et al., 2006, Oliveira et al., 2012,

Sousa, 2004). Researchers use both objective and subjective indicators to capture

performance. Chinese managers are unwilling to offer objective data due to concerns about

leakage of business secrets (Brouthers and Xu, 2002). Thus, as in previous export studies (e.g.

Brouthers and Nakos, 2005, Cavusgil and Zou, 1994, Katsikeas et al., 2000, Rose and

Shoham, 2002, Sousa, 2004, Zhou et al., 2007), a subjective composite indicator is used to

evaluate EP. A four-item scale was developed to measure the respondents’ levels of

agreement with a comprehensive set of statements concerning the achievement of several

export objectives including profitability, sales growth, sales volume and the firm’s initial

strategic objectives in its most important market in the last three years (see Table 2). They are

aggregated to one construct using factor analysis (FA). FA ensures that the set of measured

items achieves scale unidimensionality (Hair et al., 2006). The result shows that the items can

be loaded to a single factor with an Eigenvalue of 3.28. EP achieves a high construct

reliability of 0.93 (see Table 2). In confirmatory factor analysis (CFA) using AMOS, the

goodness-of-fit is shown to be satisfactory.

Table 2 here.

Independent Variables

Two key independent variables are external networks (EN) and absorptive capacity

(AC). Peng and Luo’s (2000) constructs for external networks have been widely used, e.g.

Acquaah (2007), Griffith and Harvey (2004), Li (2005), Li et al. (2008), Luo (2003), and

Zhou et al. (2007), to name a few, and is adopted here. Two types of EN are identified:

business networks (BN) (i.e. the firm’s contacts with other business managers in suppliers,
 23

buyers and competitors) and formal institutional networks (IN) (i.e. the firm’s contacts with

government officials including political leaders at various levels of the domestic government

and officials in domestic industrial bureaus, domestic regulatory and supporting organizations

such as tax bureaus, state banks, commercial administration bureaus). The respondents were

asked to assess the extent to which their firms had used networks in these dimensions. These

items are combined into one construct to measure EN using FA. The result shows that the

items can be loaded to a single factor with an Eigenvalue of 3.16. EN achieves a high

construct reliability of 0.86 (see Table 2).

Absorptive capacity has been measured in various ways in the literature (Zahra and

George 2002). Veugelers (1997) use the attributes of R&D department; Chang et al. (2012)

focus more on knowledge acquisition, transfer and exploitation among the organization. We

follow Cohen and Levinthal (1990), whose definition and measurement have been the most

widely cited (Zahra and George 2002), to measure absorptive capacity as R&D intensity, i.e.

the percentage of R&D investment to total revenue in the previous year. As R&D intensity

reflects a broad technological and knowledge platform, a high level of R&D intensity is thus

an indication of high absorptive capacity that increases the potential to extract and exploit

more information and knowledge from external networks.

To test H2, we need to use a product term. However, the introduction of a nonlinear

product term is problematic given potential multicollinearity issue. We employ the widely

applied mean-centering approach (e.g. Aiken and West, 1991, Cadogan et al., 2006, Marsh et

al., 2004) to address this because of its capability of alleviating the ill-conditioning of the

correlation matrix and guaranteeing the stability and robustness of regression estimates and
 24

standard errors and the interpretability of the estimates (Little et al., 2006, Marsh et al.,

2007)8.

Control Variables

The study controls for variables that may influence EM and EP. Following the existing

literature, control variables employed in EM analysis include size (Erramilli, 1991, Park and

Luo, 2001), export experience (Andersen and Buvik, 2002, Erramilli, 1991, O'Farrell and

Wood, 1994), export scope/degree of internationalization (Erramilli, 1991), export dependence

(Brouthers and Nakos, 2005), and export channel modes (Klein et al., 1990). Those used in EP

analysis consist of size (Brouthers and Xu, 2002), exporting experience (Brouthers and Xu,

2002), export scope (Cadogan et al., 2002), external uncertainty (Cadogan et al., 2002, Zou and

Stan, 1998), and export channel modes (Bello and Gilliland, 1997).

Because EM and EP may vary simply due to firms’ different ownerships or firms

being in different industries (Andersen and Buvik, 2002, Brouthers and Xu, 2002, Park and

Luo, 2001, Peng and Luo, 2000), ownership and industries dummies are also included. See the

Appendix for description of variable measurements.

Common Method Variance (CMV)

The collection of data from the same respondents at the same time could lead to the

so-called common method variance (CMV) which creates a false internal consistency (Chang

et al., 2010). Several methods to control for CMV are employed (Podsakoff et al., 2003,

Podsakoff and Organ, 1986). First, some independent variable items were reverse-scaled to

8
An alternative to the mean centering approach is the residual centering method (Little et al., 2006). There is a debate in the
literature about their respective merits. As demonstrated by Marsh et al. (2007) both unconstrained approaches result in
similar results. Because Little et al. (2006)’s approach is a 2-step approach involving a large number of separate analyses
prior to estimating the SEM and the Marsh et al. (2004) is a 1-step approach though it includes a mean structure, we choose
to use the latter approach.
 25

avoid the occurrence of response patterns affecting data accuracy. Second, dependent variable

– EM can be independently verified from other sources and thus are “objective” in nature.

Third, dependent, independent and control variables in this study are not similar in content.

Fourth, multiple scales were used for cognitive independent constructs. Finally, we employ

Harmon’s one-factor test to assess whether a single latent factor could account for all the

manifest variables. The result shows a seven-factor solution in which the largest factor explains

only 17.65% of the variance. Despite its popularity in addressing CMV, Harman’s test may be

inadequate (Chang et al., 2010). Following Morgan et al. (2004), CFA is used to test a

single-factor model. The fit indices for this model are TLI = 0.31; CFI = 0.36; IFI = 0.32;

RMSEA = 0.349, suggesting a poor model fit. CMV alone therefore is unlikely to explain

observed relationships between model variables in this study.

Construct Validity

Content validity of the instruments is tested during the development process by

excluding items considered irrelevant (Cavusgil and Zou, 1994). Following Anderson and

Gerbing (1988), construct validity of the latent constructs is assessed with a 3-factor CFA

model which includes all the theoretical measures (see Table 2). The model statistics suggest

that it fits data satisfactorily, which supports the dimensionality of the constructs. The measures

of standardized factor loading, composite reliability, and average variance extracted (AVE)

demonstrate adequate convergent validity and reliability except for BN. The AVE for BN is

0.48 which is slightly below the cutoff of 0.5 (Hair et al., 2006). Because of its validity in terms

of its content, we retain BN for use in estimation.

9
TLI = Tucker-Lewis index; CFI = comparative fit index; IFI = incremental fit index; RMSEA = Root mean square error of
approximation.
 26

Two methods to assess the discriminant validity of the measures are employed. First,

pairwise tests are conducted for all the scales to examine the chi-square differences and to

determine whether the freely estimated model (in which the correlation is estimated without

restriction) fits the data significantly better than the restricted model (in which the correlation is

fixed at 1.0). All chi-square differences are highly significant, providing evidence of

discriminant validity (Anderson and Gerbing, 1988). Second, the shared variances between all

possible pairs of constructs are calculated to determine whether they are lower than the AVE

for the individual constructs. Table 2 indicates that for each construct the AVE is much higher

than its highest shared variance with other constructs, providing additional evidence of

discriminant validity (Fornell and Larcker, 1981). Overall, these results show that satisfactory

reliability and validity of measures in our study.

3.3 Statistical Method10

We employ structural equation modeling (SEM) based on the maximum likelihood

(ML) method in AMOS to test our hypotheses. Based on Cadogan and Lee (2013), we treat EM

as an endogenous composite variable of CD or PD whose variance is set at zero. The

exogenous antecedent latent variables (EN/BN/IN and AC in addition to other control

variables) work to shape the four CD or PD formative indicators of EM. SEM is also used to

address the interaction effect following Cadogan et al. (2006). To model this effect, the product

term is developed as a latent variable with a single item with the error term of the item set at

zero.

In prior studies that examine the implication of strategic fit-performance (e.g.

10
We thank the editor and referees for valuable suggestions in developing this section and the SEM application.
 27

Brouthers et al., 2003, Brouthers et al., 2009, He and Wei, 2011), a two-stage regression

analysis is often employed. The first stage is to determine whether or not the theoretically

predicted decision is made, then a set of dummy variables (often named as Fit) is established,

taking the value of 1 when a decision is consistent with the theoretical prediction and 0

otherwise. The second stage investigates the effect of Fit on performance, controlling for

relevant factors. However a (0,1) Fit score may overlook the magnitude of misfit. Following

existing literature that examines fit-performance relationship (e.g. Drazin and Ven, 1985,

Katsikeas et al., 2006), we employ the residual analysis method to measure fit and assess its

impact on performance in order to test H3. We first save the absolute values of the standardized

residuals from the regressions results of the models used above to test H1 and H2. Because

high levels of such values indicate misalignment or misfit between export market location

decision and firm’s internal and external resources, they are termed as Misfit. Misfit is a latent

variable that represents distance from the notional “ideal” distances. We then incorporate this

Misfit variable to performance analysis using SEM, controlling for relevant factors. H3

suggests a negative relationship between Misfit and performance.

Decisions, like EM, is likely to be self-selected based on unobserved firms’ attributes

and industry conditions (Hult et al., 2008). Regressing performance on strategic choice

variables may cause model misspecification and misleading normative conclusions (Shaver,

1998). Self-selection problems, therefore, should be controlled for. Following Brouthers et al.

(2003) and Shaver (1998), the analyses will include the variable self-selection correction (also

known as “inverse Mills ratio”) which is calculated from the estimated parameters of EM

equations.
 28

4. EMPIRICAL FINDINGS

Table 3 reports the descriptive statistics and correlation matrix. Overall the correlation

coefficients between key independent variables including the interaction terms and control

variables are low except those between different network variables, i.e. between the

aggregated network variable (EN) and its components (BN and IN), indicating no serious

potential multicollinearity problems since EN does not enter into an equation simultaneously

with BN and IN. In addition no variance inflation factors (VIF) score is greater than 4, again

suggesting that multicolinearity is of little concern.

Table 3 here.

Tables 4a and 4b presents SEM results of the EM models using different measures of

CD/PD for dependent variable. In table 4a, the aggregated measure of external networks, EN,

is used to test H1. In table 4b, the disaggregated measures, BN and IN, are used to test H1a and

H1b. The goodness-of-fit statistics indicate that all models provide a good fit. The percentage

of variance explained for EM ranges between 13.2%-42.5%. These figures compare well with

another study (Erramilli, 1991) that uses a single measure of Hofstede’s cultural distance for

market location.

Tables 4a and 4b here.

The standardized regression weights for EN, BN, and IN are all positive and

statistically significant at the 5% level, indicating that external networks, both aggregated and

disaggregated measures, are positively associated with managers’ propensity to choose distant

markets, supporting H1, H1a and H1b. Put differently, external networks, both business

networks and institutional networks, are of strategic value in a firm’s internationalization.

 29

Firms that are widely connected in the business community and with government leaders and

officials are more likely to explore distant markets in return for more financial and strategic

opportunities or better economic rents. External networks assist them to deal with the risks and

uncertainties in culturally or psychically distant markets and make informed decisions.

H2 states that absorptive capacity moderates positively the relationships between

external networks and managers’ propensity to enter distant export markets. This is tested by

including the interaction terms between network variables and AC. The interaction variables

are all positive and statistically significant, indicating strong support to H2. In addition, the

squared multiple correlations for models using network variables and their interaction terms

(i.e. 4a.5-4a.8 and 4b.5-4b.8) are higher than those that include network variables only (i.e.

4a.1-4a.4 and 4b.1-4b.4). For example, when EM is based on Hofstede’s CD, model 4a.1’s

squared multiple correlation is 13.2% and the inclusion of the interaction term of EN and AC

increases the squared multiple correlation to 26.7%. It is worth noting that AC is statistically

insignificant in all models. Taken together, these results suggest that absorptive capacity does

not directly affect managers’ propensity to enter culturally/psychically distant/close markets,

but its effect is through moderating the nexus between external networks and export market

location decision. Although networks provide a firm important access to resources (including

knowledge, information, advices, referrals and learning), their impact on EM depends on the

extent to which it can appropriate these network-related benefits and utilize them for export

market location decision. The process from accessing to appropriating and utilizing

network-related resources requires a firm to have adequate absorptive capacity.

In testing H1 and H2, the standardized regression weights of several control variables
 30

are significantly positive: export sales for Hofstede CD (p< 0.01) and Schwartz CD (p< 0.05),

export scope for GLOBE CD (p< 0.01), Schwartz CD (p< 0.01) and PD (p< 0.05), food

industry for GLOBE CD (p< 0.05) and PD (p< 0.05), and state ownership for GLOBE CD (p<

0.05).

Regarding H3, table 5 reports the results of networks variables, AC and Misfit on

export performance. The self-selection correction and other control variables are included in

estimation but not reported here11. The models explain between 28.4%-30.4% of the variance

of EP. These figures are comparable with export performance studies (e.g. Babakus et al., 2006,

Filatotchev et al., 2009, Yeoh, 2004). Network variables and AC are positively related to

performance in all models, that is, a firm’s external networks, including business networks and

institutional networks, and absorptive capacity affect its performance directly.

All Misfit variables negatively and significantly affect performance. This suggests that

small residuals in absolute term – an indication of fit between a firm’s internal and external

resources and capabilities and export market location decision – are related to relatively high

levels of performance and vice versa. This supports H3. In other words, longer distances from

the “ideal” export market locations as predicted by network models make the exporting firms

worse off, while shorter distances from the “ideal” export market locations make the exporting

firms better off. External networks and absorptive capacity as an element of resources and

capabilities indirectly influence firm performance through the impact on firms’

decision-making - EM.

Across performance models, hierarchical channel mode (p< 0.05) and R&D (p< 0.01)

11
The self-selection correction variables are statistically insignificant. We also exclude them from estimations and find that
the results do not differ qualitatively from those in Table 5.
 31

significantly increase export performance, while electric (p< 0.05) and cloth industries (p<

0.01) and external uncertainty (p< 0.01) significantly decrease performance.

Table 5 here.

5. CONCLUSION

This study addresses the issues of firms’ export market location decision and

performance implications in the context of firms’ considerations associated with external

networks and absorptive capacity. Based on the RBV and network theory, we develop an

analytical framework based on resources-strategy-performance, linking external networks and

absorptive capacity to export market location decision and examining the effects of the fit of

external networks, absorptive capacity and export market location decision on firms’

performance. The conceptual model receives empirical support from Chinese exporting firms.

Managers’ propensity to choose markets that are culturally/psychically distant from the home

country increases with the level of external networks (including both business and institutional

networks) that the firm possesses, though the relationship is moderated by the firm’s absorptive

capacity. The export market location decision determined by external networks and absorptive

capacity has a significant role to play in influencing performance.

External networks, including business and institutional networks, are of strategic value

because of their role in complementing internal resources and capabilities, building up

credibility and legitimacy, and providing an efficient and effective way of doing business

(Jansson et al., 2007, Luo, 2007, Peng and Luo, 2000). In an environment with high levels of

uncertainty and ambiguity, networks enable firms to trade upon ambiguity, select and interpret

information and knowledge about complex external phenomena and alleviate uncertainty
 32

(Babakus et al., 2006). They, therefore, influence firms’ decisions on export market location.

Firms with extensive external networks select distant markets to exploit financial and strategic

opportunities. This effect is moderated by absorptive capacity. The fit of a firm’s external

networks, absorptive capacity and export market location decision has a positive implication

on its international performance.

For EEFs, it is important to recognize not only their networks with other businesses but

also their relationship with governments (Li et al., 2008, Li and Zhou, 2010, Luo, 2007, Peng

and Luo, 2000). After economic liberalization and the withdrawal of government intervention

and subsidies, EEFs are more dependent on each other. Business networks become heightened

in order to deal with market and operational volatility during economic transition and

overcome the underdeveloped or nonexistence of factor and product markets (Peng and Luo,

2000). Moreover, EEFs need to rely on their networks with government officials and agencies

in order to compensate for institutional voids (Li et al., 2008, Li and Zhou, 2010, Luo, 2007,

Peng and Luo, 2000). Emerging economies will take time to build market-supporting

institutions. Until then, firms have no choice but to rely on their institutional networks as

valuable assets. In summary, the strategic use of external networks through inter-firm links and

contacts with government provides an important mechanism for a firm’s success in

internationalization. The study lends support to the resource-strategy-performance framework

(Barney et al., 2001, Brouthers et al., 2008, Peng, 2001, Wu et al., 2007) and enriches our

knowledge of a firm’s market location decision and performance.

Contributions

A fundamental interest in assessing the linkages between firms’ resources and

 33

capabilities, strategy and performance motives this research. This research forms two

important contributions to the literature. First it enriches the export market location research by

incorporating firm resources and capabilities, which have been overlooked in past research,

into consideration. Firm resources and capabilities like external networks and absorptive

capacity can impact important firm decisions such as market location and entry (Barney et al.,

2001). Our research deepens the understanding of how firms with rich network resources can

generate benefits ranging from access to resources and advice from other network members, to

referral, trust and solidarity that reduce risks entailed with entering distant markets. Absorptive

capacity further enables firms to tap on the benefits associated with external networks and to

take action to better respond and adapt to the complexity of international markets.

Second, it extends the literature by theorizing and testing the performance implication

of the export market decision from the strategic fit perspective. Past research is dominated by

descriptions providing little value of how firms can benefit from the location decisions

(Brouthers et al., 2009). Our research steps forward to explore if firms making location

decisions aligned with our theory can perform better. Thus it adds to the literature by

suggesting theory how exporting firms should decide on market locations for better export

performance.

Managerial Implications

This study is beneficial to practitioners in several ways. First, external networks

represent important resources that can transform performance both directly and indirectly

when they are employed in strategies such as entry into appropriate export markets. In the case

of emerging economies in general and China in particular, the economic liberalization of the
 34

economy implies that there is more competition from both local and foreign rivals. To

successfully internationalize, managers should recognize the importance of external

embeddedness, deploy resources for networks, develop abilities to interact with economic

counterparts and governments, and actively manage firms’ social capital to stimulate

information and knowledge acquisition.

Second, absorptive capacity determines the extent to which firms can effectively

recognize and evaluate resources and capabilities acquired through external networks,

transform them and apply them for their own use in internationalization. Absorptive capacity

not only impacts export performance directly, but also fuels the decision on export market

location which in turn has an effect on performance. Firms therefore must take measures to

build absorptive capacity by engaging in organizational activities requiring prior related

knowledge (Cohen and Levinthal, 1990).

Third, the decision (export market location) should be closely linked to and compatible

with organizational resources and capabilities (external networks and absorptive capacity). A

given market location decision leads to superior performance only to the extent that the

exporting firm has successfully achieved a fit between the organizational resources and

capabilities and market location decisions. Networking with other businesses and government

officials and increasing the level of absorptive capacity make it possible for decision-makers to

identify, acquire, assimilate and deploy new information and knowledge and to translate them

into value in aid of making the right decision on international market entry.

Limitations and Future Research

This study is subject to limitations that also reveal directions for future research. First,
 35

though the theoretical discussion is general, the empirical context is for Chinese exporting

firms. Given the dominance of Chinese business networks in East and Southeast Asia (Jansson

et al., 2007), these results are likely to generalize to those firms. To what extent are the results

also applicable to firms from other countries is unknown. Therefore replicating the study is

necessary in different contexts to cross-validate the results reported in this study and to broaden

our knowledge base.

Second, there is a large body of literature on networks. Carpenter et al. (2012) place

them into two levels – interpersonal (where the focal actors are individual actors) and

interorganizational (where the focal actors are organizations, e.g. firms, subunits and teams)

and two directions of causality – social capital research focusing on the outcomes and

consequences of networks and network development research focusing on the patterns and

determinants of network formation and change. “Different research categories may have

distinct patterns of construct selection.” (p. 1330) Our research falls into the category of social

capital research at the inter-organizational level and we adopt one of the two popular constructs,

i.e. Peng and Luo (2000)’s measure focusing on top managers,12 as firms’ inter-organlizational

networks are often the upper echelon executives who represent the firms (Carpenter et al.,

2012). However, interactions in networks tend to occur at multiple levels of the organization

and involve different kinds of staff. In addition, given the rapid changing environment of

emerging economies, networks are rapidly changing in relation to institutional changes

(Jansson et al., 2007). The literature could benefit from further investigation of alternative

constructs of networks from the perspectives of network possession and utilization, network

12
The other construct by Ahuja (Ahuja, 2000) emphasizes inter-firm ties and embedded resources.
 36

structure, the process of networking, the skills of networking and network dynamics.

Third, in measuring managers’ propensity to enter into an export market, the question is

narrowed to focus on the decision regarding the firms’ most important markets in order to

highlight their systematic choices. However, some firms may simultaneously emphasize more

than one market if they have sufficient resources. Future work could establish more effective

measurements for the variable.

A further limitation of this study may be the way we measure export performance. As

argued by Oliveira et al. (2012), the level at which a theoretical model is developed and at

which measurement occurs must be commensurate in export performance research. Our

conceptual model is one that is broadly at the export function level, and so would ideally call

for data at the export function level to generalize the findings. To have a full understanding of

firm’s export performance at the export function level would require a high level of researcher

commitment to particular firms or an attempt to obtain objective measures of export

performance through other secondary sources. The results of our research should for that

reason be interpreted with caution.

 37

Appendix: Control Variable Measurements

Variable Definition Description
Ownership The firm’s ownership structure Three dummy variables were
including four categories: created and each was set to be 1 if
state-owned enterprises (SOEs), the firm’s ownership matches the
private firms, foreign firms and variable and 0 otherwise.
other firms.
Size Firm size The number of employees in the
firm.
Export experience The length of experience in The number of years of
exporting participation in exports.
Export scope The geographic scope of The number of markets to which
internationalization the firm exports.
Industry type The industry to which the firm Industry dummies were created
belongs. based on Standard Industrial
Classification of Chinese Export
Commodities (MOFCOM, 2008).
Firms were classified into five
categories: Domestic articles
industry; Electrical & electronic
industry; Clothing industry; Food
industry and others.
Export dependence Export intensity The firm’s ratio of export to the
total sales.
Export channel The mode of export arrangements Respondents were asked to identify
modes including three options: which of the descriptions best
hierarchical exchange, market matches their export arrangements.
exchange, and hybrid exchange The variables are coded as dummy
(Klein et al., 1990) variables equaling to 1 if the firm’s
export channel matches the
variable and 0 otherwise.
External uncertainty The extent to which it is difficult A four-item semantic differential
to accurately predict future states scale adapted from Shervani et al.’s
of the world (2007). See table 2 for full
information.
 38

References:
Acquaah, M. (2007). "Managerial Social Capital, Strategic Orientation, and Organizational
Performance in an Emerging Economy", Strategic Management Journal, 28, 12,
1235-1255.
Adler, P. S. and Kwon, S.-W. (2002). "Social Capital: Prospects for a New Concept", Academy
of Management Review, 27, 1, 17-40.
Ahuja, G. (2000). "Collaboration networks, structural holes, and innovation: A longitudinal
study", Administrative Science Quarterly, 45, 425-455.
Aiken, L. S. and West, S. G. (1991). Multiple Regression: Testing and Interpreting Interactions,
Sage.
Andersen, O. and Buvik, A. (2002). "Firms' Internationalization and Alternative Approaches to
the International Customer/Market Selection", International Business Review, 11, 3,
347-363.
Anderson, J. C. and Gerbing, D. W. (1988). "Structural Equation Modeling in Practice: A
Review and Recommended Two Step Approach", Psychological Bulletin, 103, 3,
411-423.
Andersson, U., Forsgren, M. and Holm, U. (2002). "The strategic impact of exernal networks:
subsidiary performance and competence development in multinational corporation",
Strategic Management Journal, 23, 976-996.
Armstrong, J. S. and Overton, T. S. (1977). "Estimating Nonresponse Bias in Mail Surveys",
Journal of Marketing Research, 14, 3, 396-402.
Babakus, E., Yavas, U. and Haahti, A. (2006). "Perceived uncertainty, networking and export
performance: A study of Nordic SMEs", European Business Review, 18, 1, 4-13.
Barney, J., Wright, M. and Ketchen, D. J., Jr. (2001). "The Resource-Based View of the Firm:
Ten Years after 1991", Journal of Management, 27, 6, 625-641.
Beleska-Spasova, E., Glaister, K. W. and Stride, C. (2012). "Resource determinants of strategy
and performance: The case of British exporters", Journal of World Business,
forthcoming.
Bello, D. C. and Gilliland, D. I. (1997). "The Effect of Output Controls, Process Controls, and
Flexibility on Export Channel Performance", Journal of Marketing, 61, 1, 22-38.
Brouthers, K. D., Brouthers, L. E. and Werner, S. (2003). "Transaction Cost-Enhanced Entry
Mode Choices and Firm Performance", Strategic Management Journal, 24, 12,
1239-1248.
Brouthers, K. D., Brouthers, L. E. and Werner, S. (2008). "Resource-Based Advantages in an
International Context", Journal of Management, 34, 2, 189-217.
Brouthers, L. E., Mukhopadhyay, S., Wilkinson, T. J. and Brouthers, K. D. (2009).
"International Market Selection and Subsidiary Performance: A Neural network
Approach", Journal of World Business, 44, 3, 262-273.
Brouthers, L. E. and Nakos, G. (2005). "The Role of Systematic International Market Selection
on Small Firms' Export Performance", Journal of Small Business Management, 43, 4,
363-381.
Brouthers, L. E. and Xu, K. (2002). "Product Stereotypes, Strategy and Performance
Satisfaction: The Case of Chinese Exporters", Journal of International Business
Studies, 33, 4, 657-677.
 39

Burgel, O. and Gordon, C. M. (2000). "The International Market Entry Choices of Start-Up
Companies in High-Technology Industries", Journal of International Marketing, 8, 2,
33-62.
Cadogan, J. W., Cui, C. C., Morgan, R. E. and Story, V. M. (2006). "Factors facilitating and
impeding the development of export market-oriented behavior: A study of Hong Kong
manufacturing exporters", Industrial Marketing Management, 35, 5, 634-647.
Cadogan, J. W., Diamantopoulos, A. and Siguaw, J. A. (2002). "Export Market-Oriented
Activities: Their Antecedents and Performance Consequences", Journal of
International Business Studies, 33, 3, 615-626.
Cadogan, J. W., and Lee, N. (2013). "Improper use of endogenous formative variables",
Journal of Business Research, 66, 233-241
Carpenter, M. A., Li, M. and Jiang, H. (2012). "Social Network Research in Organizational
Contexts", Journal of Management, 38, 4, 1328-1361.
Cavusgil, S. T. (1985). "Guidelines for export market research", Business Horizons, 28, 6,
27-33.
Cavusgil, S. T. and Zou, S. (1994). "Marketing Strategy-Performance Relationship: An
Investigation of the Empirical Link in Export", Journal of Marketing, 58, 1, 1-22.
Chang, Y.-Y., Gong, Y. and Peng. M. W. (2012). "Expatriate Knowledge Transfer, Subsidiary
Absorptive Capacity, and Subsidiary Performance", Academy of Management
Journal, 55, 4, 927-948.
Chang, S.-J., Van Witteloostuijn, A. and Eden, L. (2010). "From the Editors: Common method
variance in international business research", Journal of International Business Studies,
41, 178-184.
Cohen, W. M. and Levinthal, D. A. (1990). "Absorptive capacity: A new perspective on
learning and innovation", Administrative Science Quarterly, 35, 1, 128-152.
Contractor, N. S., Wasserman, S. and Faust, K. (2006). "Testing Multitheoretical, Multilevel
Hypotheses about Organizational Networks: An Analytic Framework and Empirical
Example", Academy of Management Review, 31, 3, 681-703.
Doherty, A. M. (2009). "Market and partner selection processes in international retail
franchising", Journal of Business Research, 62, 5, 528-534.
Douglas, S. P. and C. Samuel Craig, T. R. O. C. I. a. I. M. O., International Marketing Review,
Vol. 28 Iss: 2, Pp.150 - 162 (2011). "The role of context in assessing international
marketing opportunities", International Marketing Review, 28, 2, 150-162.
Dow, D. (2000). "A note on psychological distance and export market selection", Journal of
International Marketing Review, 8, 1, 51-64.
Dow, D. and Karunaratna, A. (2006). "Developing a multidimensional instrument to measure
psychic distance stimuli", Journal of International Business Studies, 37, 5, 578-602.
Drazin, R. and Ven, A. H. V. D. (1985). "Alternative Forms of Fit in Contingency Theory",
Administrative Science Quarterly, 30, 4, 514-539.
Edwards, R. W. and Buckley, P. J. (1998). "Choice of location and mode: the case of Australian
investors in the UK", International Business Review, 7, 5, 503-520.
Elango, B. and Pattnaik, C. (2007). "Building Capabilities for International Operations through
Networks: A Study of Indian Firms", Journal of International Business Studies, 38, 4,
541-555.
 40

Ellis, P. (2000). "Social Ties and Foreign Market Entry", Journal of International Business
Studies, 31, 3, 443.
Ellis, P. and Pecotich, A. (2001). "Social Factors Influencing Export Initiation in Small and
Medium-Sized Enterprises", Journal of Marketing Research, 38, 1, 119-130.
Ellis, P. D. (2007). "Paths to foreign markets: Does distance to market affect firm
internationalisation?", International Business Review, 16, 5, 573-593.
Ellis, P. D. (2008). "Does Psychic Distance Moderate the Market Size-Entry Sequence
Relationship", Journal of International Business Studies, 39, 3, 351-369.
Erramilli, M. K. (1991). "The Experience Factor in Foreign Market Entry Behavior of Service
Firms", Journal of International Business Studies, 22, 3, 479-501.
Evans, J. and Mavondo, F. T. (2002). "Psychic Distance and Organizational Performance: An
Empirical Examination of International Retailing Operations", Journal of International
Business Studies, 33, 3, 515-532.
Evans, J., Mavondo, F. T. and Bridson, K. (2008). "Psychic Distance: Antecedents, Retail
Strategy Implications, and Performance Outcomes", Journal of International
Marketing, 16, 2, 32-63.
Filatotchev, I., Liu, X., Buck, T. and Wright, M. (2009). "The export orientation and export
performance of high-technology SMEs in emerging markets: The effects of knowledge
transfer by returnee entrepreneurs", Journal of International Business Studies, 40, 6,
1005-1021.
Ford, D. and Mouzas, S. (2010). "Networking under uncertainty: Concepts and research
agenda", Industrial Marketing Management, 39, 6, 956-962.
Fornell, C. and Larcker, D. F. (1981). "Evaluating Structural Equation Models with
Unobservable Variables and Measurement Error", Journal of Marketing Research, 18,
39-50.
Foss, N. J. (1999). "Networks, capabilities, and competitive advantage", Scandinavian Journal
of Management, 15, 1, 1-15.
Gaur, A. S. and Kumar, V. (2010). "Internationalization of Emerging Market Firms: A Case for
Theoretical Extension ", Advances in International Management: The Past, Present
and Future of International Business & Management, 23, 603 - 627.
Gerbing, D. W. and Anderson, J. C. (1988). "An Updated Paradigm for Scale Development
Incorporating Unidimensionality and Its Assessment", Journal of Marketing Research,
25, 2, 186-192.
Griffith, D. A. and Harvey, M. G. (2004). "The Influence of Individual and Firm Level Social
Capital of Marketing Managers in a FIrm's Global Network", Journal of World
Business, 39, 3, 244-254.
Hair, J. F., Black, B., Babin, B., Anderson, R. E. and Tatham, R. L. (2006). Multivariate Data
Analysis, Pearson Education, Upper Saddle River.
Håkanson, L. and Ambos, B. (2010). "The antecedents of psychic distance", Journal of
International Management, 16, 3, 195-210.
He, X. and Wei, Y. (2011). "Linking Market Orientation to International Market Selection and
International Performance", International Business Review, 20 5, 535-546.
Henneberg, S. C., Naudé, P. and Mouzas, S. (2010). "Sense-making and management in
business networks — some observations, considerations, and a research agenda",
 41

Industrial Marketing Management, 39, 3, 355-360.

Hofstede, G., Hofstede, G. J. and Minkov, M. (2010). Cultures and Organizations: Software of
the Mind, McGraw-Hill, New York.
Hoskisson, R. E., Eden, L., Lau, C. M. and Wright, M. (2000). "Strategy in emerging
economies", Academy of Management Journal, 43, 3, 249-267.
House, R. J., Hanges, P. J., Javidan, M., Dorfman, P. W. and Gupta, V. (2004). Culture,
Leadership, and Organizations: The GLOBE Study of 62 Societies, Sage, Thousand
Oaks.
Hult, G. T. M., Ketchen, D. J., Jr., Griffith, D. A., Chabowski, B. R., Hamman, M. K., Dykes, B.
J., Pollitte, W. A. and Cavusgil, S. T. (2008). "An Assessment of the Measurement of
Performance in International Business Research", Journal of International Business
Studies, 39, 6, 1064-1080.
Imf (2010). World Economic Outlook: Rebalancing Growth, International Monetary Fund,
Washington, D.C., U.S.A.
Jansson, H., Johanson, M. and Ramström, J. (2007). "Institutions and business networks: A
comparative analysis of the Chinese, Russian, and West European markets", Industrial
Marketing Management, 36, 7, 955-967.
Johanson, J. and Vahlne, J.-E. (1977). "The Internationalization Process of the Firm-A Model
of Knowledge Development and Increasing Foreign Market Commitments", Journal of
International Business Studies, 8, 1, 23-32.
Johanson, J. and Vahlne, J.-E. (2009). "The Uppsala internationalization process model
revisited: From liability of foreignness to liability of outsidership", Journal of
International Business Studies, 40, 9, 1411-1431.
Katsikeas, C. S., Leonidou, L. C. and Morgan, N. A. (2000). "Firm-Level Export Performance
Assessment: Review, Evaluation, and Development", Journal of the Academy of
Marketing Science, 28, 4, 493-511.
Katsikeas, C. S., Samiee, S. and Theodosiou, M. (2006). "Strategy fit and performance
consequences of international marketing standardization", Strategic Management
Journal, 27, 9, 867-890.
Klein, S., Frazier, G. L. and Roth, V. J. (1990). "A Transaction Cost Analysis Model of Channel
Integration", Journal of Marketing Research, 27, 2, 196-208.
Kostopoulos, K., Papalexandris, A., Papachroni, M. and Ioannou, G. (2011). "Absorptive
capacity, innovation, and financial performance", Journal of Business Research, 64, 12,
1335-1343.
Lavie, D. (2006). "The Competitive Advantage of Interconnected Firms: An Extension of the
Resource-Based View", Academy of Management Review, 31, 3, 638-658.
Lee, C., Lee, K. and Pennings, J. M. (2001). "Internal Capabilities, External Networks, and
Performance: A Study on Technology-Based Ventures", Strategic Management Journal,
22, 6/7, 615-640.
Leonidou, L. C. and Katsikeas, C. S. (1996). "The Export Development Process: An
Integrative Review of Empirical Models", Journal of International Business Studies,
27, 3, 517-551.
Li, J. J. (2005). "The Formation of Managerial Networks of Foreign Firms in China: The
Effects of Strategic Orientations", Asia Pacific Journal of Management, 22, 4, 423-443.
 42

Li, J. J., Poppo, L. and Zhou, K. Z. (2008). "Do Managerial Ties in China always Produce
Value? Competition, Uncertainty, and Domestic vs. Foreign Firms", Strategic
Management Journal, 29, 4, 383-400.
Li, J. J. and Zhou, K. Z. (2010). "How foreign firms achieve competitive advantage in the
Chinese emerging economy: Managerial ties and market orientation", Journal of
Business Research, 63, 8, 856-862.
Little, T. D., J.A., B. and K.F., W. (2006). "On the Merits of Orthogonalizing Powered and
Product Terms: Implications for Modeling Interactions Among Latent Variables",
Structural Equation Modeling: A Multidisciplinary Journal, 13, 4, 497-519.
Luo, Y. (2003). "Industrial Dynamics and Managerial Networking in an Emerging Market: The
Case of China", Strategic Management Journal, 24, 13, 1315-1327.
Luo, Y. (2007). Guanxi and Business, World Scientific, Singapore.
Marsh, H. W., Wen, Z. and Hau, K.-T. (2004). "Structural equation models of latent
interactions: Evaluation of alternative estimation strategies and indicator construction",
Psychological Methods, 9, 3, 275-300.
Marsh, H. W., Wen, Z., Hau, K.-T., Little, T. D., Bovaird, J. A. and Widaman, K. F. (2007).
"Unconstrained Structural Equation Models of Latent Interactions: Contrasting
Residual- and Mean-Centered Approaches", Structural Equation Modeling: A
Multidisciplinary Journal, 14, 4, 570-580.
Meyer, K. E., Mudambi, R. and Narula, R. (2011). "Multinational Enterprises and Local
Contexts: The Opportunities and Challenges of Multiple Embeddedness", Journal of
Management Studies, 48, 2, 235-252.
Mitra, D. and Golder, P. N. (2002). "Whose Culture Matters? Near-Market Knowledge and Its
Impact on Foreign Market Entry Timing", Journal of Marketing Research, 39, 3,
350-365.
Morgan, N. A., Kaleka, A. and Katsikeas, C. S. (2004). "Antecedents of Export Venture
Performance: A Theoretical Model and Empirical Assessment", Journal of Marketing,
68, 1, 90-108.
Morosini, P., Shane, S. and Singh, H. (1998). "National Cultural Distance and Cross-Border
Acquisition Performance", Journal of International Business Studies, 29, 1, 137-158.
Mouzas, S. and Ford, D. (2009). "The constitution of networks", Industrial Marketing
Management, 38, 5, 495-503.
NBSC (2011). China Statistical Yearbook 2011. In: CHINA, National Bureau of Statistics of
China.
O'farrell, P. N. and Wood, P. A. (1994). "International Market Selection by Business Service
Firms: Key Conceptual and Methodological Issues", International Business Review, 3,
3, 243-261.
O'grady, S. and Lane, H. W. (1996). "The Psychic Distance Paradox", Journal of International
Business Studies, 27, 2, 309-333.
Ojala, A. (2009). "Internationalization of knowledge-intensive SMEs: The role of network
relationships in the entry to a psychically distant market", International Business
Review, 18, 1, 50-59.
Oliveira, J. S., Cadogan, J. W. and Souchon, A. (2012). "Level of analysis in export
performance research", International Marketing Review, 29, 1, 114-127.
 43

Oviatt, B. M. and Mcdougall, P. P. (1994). "Toward a Theory of International New ventures",

Journal of International Business Studies, 25, 1, 45-64.
Papadopoulos, N., Chen, H. and Thomas, D. R. (2002). "Toward a Tradeoff Model for
International Market Selection", International Business Review, 11, 2, 165-192.
Papadopoulos, N. and Martín, O. M. (2011). "International market selection and segmentation:
perspectives and challenges", International Marketing Review, 28, 2, 132-149.
Park, S. H. and Luo, Y. (2001). "Guanxi and Organizational Dynamics: Organizational
Networking in Chinese Firms", Strategic Management Journal, 22, 5, 455-477.
Peng, M. W. (2001). "The Resource-Based View and International Business", Journal of
Management, 27, 6, 803-829.
Peng, M. W. and Luo, Y. (2000). "Managerial Ties and Firm Performance in a Transition
Economy: the Nature of a Micro-Macro Link", Academy of Management Journal, 43, 3,
486-501.
Peng, M. W. and Zhou, J. Q. (2005). "How Network Strategies and Institutional Transitions
Evolve in Asia ", Asia Pacific Journal of Management, 22, 4, 321-336.
Podsakoff, P. M., Mackenzie, S. B., Lee, J.-Y. and Podsakoff, N. P. (2003). "Common Method
Biases in Behavioral Research: A Critical Review of the Literature and Recommended
Remedies", Journal of Applied Psychology, 88, 5, 879-903.
Podsakoff, P. M. and Organ, D. W. (1986). "Self-Reports in Organizational Research: Problems
and Prospects", Journal of Management, 12, 4, 531-544.
Ralston, D., Egri, C., Reynaud, E., Srinivasan, N., Furrer, O., Brock, D., Alas, R., Wangenheim,
F., Darder, F., Kuo, C., Potocan, V., Mockaitis, A., Szabo, E., Gutiérrez, J., Pekerti, A.,
Butt, A., Palmer, I., Naoumova, I., Lenartowicz, T., Starkus, A., Hung, V., Dalgic, T.,
Molteni, M., De La Garza Carranza, M., Maignan, I., Castro, F., Moon, Y.-L.,
Terpstra-Tong, J., Dabic, M., Li, Y., Danis, W., Kangasniemi, M., Ansari, M., Riddle, L.,
Milton, L., Hallinger, P., Elenkov, D., Girson, I., Gelbuda, M., Ramburuth, P., Casado,
T., Rossi, A., Richards, M., Van Deusen, C., Fu, P.-P., Wan, P., Tang, M., Lee, C.-H.,
Chia, H.-B., Fan, Y. and Wallace, A. (2011). "A Twenty-First Century Assessment of
Values Across the Global Workforce", Journal of Business Ethics, 104, 1, 1-31.
Ramamurti, R. (2011). "Impact of the crisis on new FDI players: past, present and future of
sovereign wealth funds, private equity and emerging market transnational
corporations", Transnational Corporations, 20, 1, 39-68.
Rauch, J. E. and Trindade, V. (2002). "Ethnic Chinese Networks in International Trade",
Review of Economics & Statistics, 84, 1, 116.
Rose, G. M. and Shoham, A. (2002). "Export Performance and Market Orientation:
Establishing an Empirical Link", Journal of Business Research, 55, 217- 225.
Shaver, J. M. (1998). "Accounting for Endogeneity When Assessing Strategy Performance:
Does Entry Mode Choice Affect FDI Survival?", Management Science, 44, 4, 571-585.
Shenkar, O. (2001). "Cultural Distance Revisited: Towards a More Rigorous Conceptualization
and Measurement of Cultural Differences", Journal of International Business Studies,
32, 3, 519-535.
Singh, D. A. (2009). "Export performance of emerging market firms", International Business
Review, 18, 4, 321-330.
Smirnova, M., Henneberg, S. C., Ashnai, B., Naudé, P. and Mouzas, S. (2011a).
 44

"Understanding the role of marketing–purchasing collaboration in industrial markets:

The case of Russia", Industrial Marketing Management, 40, 1, 54-64.
Smirnova, M., Naudé, P., Henneberg, S. C., Mouzas, S. and Kouchtch, S. P. (2011b). "The
impact of market orientation on the development of relational capabilities and
performance outcomes: The case of Russian industrial firms", Industrial Marketing
Management, 40, 1, 44-53.
Sousa, C. M. P. (2004). "Export Performance Measurement: An Evaluation of the Empirical
Research in the Literature", Academy of Marketing Science Review, 9, 1-23.
Sousa, C. M. P. and Bradley, F. (2006). "Cultural Distance and Psychic Distance: Two Peas in a
Pod?", Journal of International Marketing, 14, 1, 49-70.
Sousa, C. M. P. and Bradley, F. (2008). "Cultural distance and psychic distance: refinements in
conceptualisation and measurement", Journal of Marketing Management, 24, 5-6,
467-488.
Sousa, C. M. P. and Lages, L. F. (2011). "The PD scale: a measure of psychic distance and its
impact on international marketing strategy", International Marketing Review, 28, 2,
201-222.
Sousa, C. M. P. and Lengler, J. (2009). "Psychic distance, marketing strategy and performance
in export ventures of Brazilian firms", Journal of Marketing Management, 25, 5-6,
591-610.
Standifird, S. S. and Marshall, R. S. (2000). "The Transaction Cost Advantage of
Guanxi-Based Business Practices", Journal of World Business, 35, 1, 21-42.
Stöttinger, B. and Schlegelmilch, B. B. (1998). "Explaining export development through
psychic distance: enlightening or elusive?", International Marketing Review, 15, 5,
357-372.
Styles, C. and Ambler, T. (1994). "Successful Export Practice: the UK Experience",
International Marketing Review, 11, 6, 23-47.
Tihanyi, L., Griffith, D. and Russell, C. J. (2005). "The effect of cultural distance on entry
mode choice, international diversification, and MNE performance: a meta-analysis",
Journal of International Business Studies, 36, 3, 270-283.
Uzzi, B. (1999). "Embeddedness in the Making of Financial Capital: How Social Relations and
Networks Benefit Firms Seeking Financing", American Sociological Review, 64, 4,
481-505.
Veugelers, R. (1997). “Internal R&D Expenditures and External Technology Sourcing”,
Research Policy, 26, 303-315.
Wang, G., Jiang, X., Yuan, C.-H. and Yi, Y.-Q. (2011). "Managerial ties and firm performance
in an emerging economy: Tests of the mediating and moderating effects", Asia Pacific
Journal of Management, 1-23.
Wei, L.-Q. and Lau, C.-M. (2008). "The Impact of Market Orientation and Strategic HRM on
Firm Performance: the Case of Chinese Enterprises", Journal of International Business
Studies, 39, 6, 980-995.
Welch, D. E. and Welch, L. S. (1996). "The Internationalization Process and Networks: A
Strategic Management Perspective", Journal of International Marketing, 4, 3, 11-28.
Wu, F., Sinkovics, R. R., Cavusgil, S. T. and Roath, A. S. (2007). "Overcoming Export
Manufacturers' Dilemma in International Expansion", Journal of International
 45

Business Studies, 38, 2, 283-302.

Yeoh, P. (2004). "International Learning: Antecedents and Performance Implications Among
Newly Internationalizing Companies in an Exporting Context", International
Marketing Review, 21, 4/5, 511-535.
Yiu, D. W., Lau, C. and Bruton, G. D. (2007). "International venturing by emerging economy
firms: the effects of firm capabilities, home country networks, and corporate
entrepreneurship", Journal of International Business Studies, 38, 4, 519-540.
Zahra, S. A. and George, G. (2002). "Absorptive Capacity: A Review, Reconceptualization,
and Extension", Academy of Management Review, 27, 2, 185-203.
Zhang, S. and Li, X. (2008). "Managerial ties, firm resources, and performance of cluster
firms", Asia Pacific Journal of Management, 25, 4, 615-633.
Zhao, H. and Hsu, C.-C. (2007). "Social ties and foreign market entry: An empirical inquiry",
Management International Review, 47, 6, 815-844.
Zhou, L., Wu, W.-P. and Luo, X. (2007). "Internationalization and the Performance of
Born-Global SMEs: The Mediating Role of Social Networks", Journal of International
Business Studies, 38, 4, 673-690.
Zou, S. and Stan, S. (1998). "The Determinants of Export Performance: A Review of the
Empirical Literature between 1987 and 1997", International Marketing Review, 15, 5,
333-356.
 46

Table 1: Profile of Sample Firms

1. Average number of years of exporting 9.7 years
2. Average number of international markets 12.3
3. Employee numbers (% of total)
a
<500 58.7
500-5000 35.7
>5000 5.7
4. Firm ownership (% of total)
State-owned enterprises 3.0
Private firms 45.2
Foreign invested firms 41.3
Joint ventures 10.5
5. Export market (% of total)
Australia 1.3
Canada 0.9
Denmark 0.4
Egypt 1.3
France 2.6
Germany 6.5
Hong Kong 1.3
India 1.3
Indonesia 0.9
Iran 1.7
Italy 4.8
Japan 22.2
Malaysia 3.0
Netherlands 5.2
Panama 0.4
Russia 1.3
Saudi Arabia 1.7
Singapore 0.4
South Korea 1.3
Spain 3.5
Sweden 0.4
Switzerland 0.4
Taiwan 2.2
Thailand 0.9
UK 5.7
US 28.3
Note: Sample size = 230
a This group of firms averagely have 196.3 employees, 7.8 years of exporting
experience, and 7.8 international markets, and consist of state-owned enterprises (2.2%),
private firms (58.5%), foreign invested firms (32.6%), and joint ventures (6.7%).
 47

Table 2: Measure items and validity assessment

Item SFL
International Performance: CR=0.93, AVE=0.76, HSV=0.09
Our most important market has been very profitable during the past three years. 0.81
Our most important market has achieved rapid sales growth during the past three years. 0.88
Our most important market has very satisfactory export performance during the past 0.90
three years.
Our most important market has achieved our company’s initial strategic objectives 0.90
during the past three years.
External Networks: CR=0.86
Businesses Networks: CR=0.72, AVE=0.48, HSV=0.27
The extent to which your company has utilized personal ties, networks, and connections 0.54
during the last three years with top managers of domestic buyer firms.
The extent to which your company has utilized personal ties, networks, and connections 0.73
during the last three years with top managers of domestic supplier firms.
The extent to which your company has utilized personal ties, networks, and connections 0.78
during the last three years with top managers of domestic competitor firms.
Institutional Networks: CR=0.91, AVE=0.78, HSV=0.27
The extent to which your company has utilized personal ties, networks, and connections 0.87
during the last three years with political leaders in various levels of the domestic
government
The extent to which your company has utilized personal ties, networks, and connections 0.93
during the last three years with officials in domestic industrial bureaus.
The extent to which your company has utilized personal ties, networks, and connections 0.84
during the last three years with officials in domestic regulatory and supporting
organizations such as tax bureaus, state banks, commercial administration bureaus.
External Uncertainty: CR=0.79, AVE=0.51, HSV=0.03
Easy or Difficult to monitor trends 0.71
Sales forecasts are accurate or inaccurate 0.82
Easy or Difficult to gauge competition 0.61
The market is well known to us or not 0.68
Goodness-of-fit: χ2(71)=94.54, p<0.03; IFI=0.98; TLI=0.98; CFI=0.98; and RMSEA=0.04
Notes: Sample size = 196. SFL=standardized factor loading; CR=composite reliability;
AVE=average variance extracted; HSV=highest shared variance with other constructs; HSV =
highest shared variance with other constructs; IFI = incremental fit index; TLI = Tucker-Lewis
index; CFI = comparative fit index; RMSEA = Root mean square error of approximation.
Table 3: Descriptive Statistics and Correlation Matrix
Variables Mean s. d.
1 Export market location decision (EM): Hofstede 14.9 5.2
2 Export market location decision (EM): GLOBE .99 .22
3 Export market location decision (EM): Schwartz .18 .04
4 Export market location decision (EM): PD .82 .52
5 Export performance (EP) 4.2 1.5
6 Size 1194.8 2633.8
7 Export experience 9.7 6.6
8 Export scope 12.3 14.5
9 Export dependence 0.8 0.3
10 External uncertainty 3.7 1.1
11 Absorptive capacity (AC) 0.1 0.1
12 External networks (EN) 4.1 1.5
13 Business networks (BN) 3.9 1.6
14 Institutional networks (IN) 4.2 1.8
15 EN x AC .0052 0.1
16 BN x AC .0011 0.1
17 IN x AC .0092 0.1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
1
2 0.22**
3 0.60** 0.47**
4 0.35** 0.81** 0.48**
5 -0.01 -0.06 0.02 0.01
6 0.03 0.05 -0.04 0.13 -0.01
7 0.47** 0.38** 0. 40** 0.41** -0.06 0.29**
8 0.24** 0.19** 0.14* 0.23** 0.05 0.33** 0.25**
9 0.26** 0.25** 0.21* 0.18* -0.00 -0.07 0.02 0.02
10 0.09 -0.11 -0.08 -0.05 -0.15* -0.04 0.06 -0.06 0.14
11 0.05 0.03 -0.02 0.09 0.20** -0.10 -0.05 -0.08 0.04 0.08
12 0.64** 0.41** 0.11* 0.26* 0.24** 0.07 -0.02 0.19** -0.11* -0.09 -0.01
13 0.18* 0.21* 0.16* 0.23* 0.13* 0.09 0.01 0.17* -0.23** -0.13* -0.04 0.86**
14 0.18* 0.13* 0.14* 0.17* 0.27** 0.04 -0.04 0.16* 0.02 -0.03 0.02 0.90** 0.55**
15 0.23** 0.23** 0.11* 0.21* -0.04 -0.04 0.01 -0.04 0.01 -0.04 -0.13 -0.09 -0.09 -0.07
16 0.13* 0.20* 0.18* 0.23* -0.02 -0.06 0.03 -0.00 -0.04 -0.08 -0.17* -0.09 -0.14* -0.03 0.88**
17 0.20** 0.16* 0.24** 0.24** -0.05 -0.02 -0.01 -0.06 0.04 -0.01 -0.08 -0.07 -0.03 -0.09 0.92** 0.63**
Notes: Sample size = 196. * p < 0.05, ** p < 0.01 (two tails)
Table 4a: SEM results for H1and H2 (Dependent variable = EM)13
4a.1 4a.2 4a.3 4a.4 4a.5 4a.6 4a.7 4a.8
Dependent variable Hofstede CD GLOBE Schwartz CD PD Hofstede GLOBE Schwartz PD
measurement CD CD CD CD
EN 0.146* 0.138* 0.215** 0.169* 0.136* 0.110* 0.202** 0.140*
(2.027) (1.877) (2.903) (1.854) (2.088) (1.740) (2.750) (1.725)
Standardized regression AC 0.067 0.039 0.012 0.084 0.070 0.044 0.008 0.091
weights (t-value) (0.938) (0.583) (0.033) (1.293) (0.994) (0.673) (0.006) (1.400)
EN x AC 0.375* 0.715** 0.488* 0.814**
(1.888) (2.141) (1.940) (2.122)
Squared multiple 0.132 0.237 0.153 0.258 0.267 0.348 0.387 0.392
correlation
Goodness-of-fit statistics χ2(120)= 218.83 p<0.00; IFI=0.95; TLI=0.91; χ2(139)= 259.84 p<0.00; IFI=0.90; TLI=0.94;
CFI=0.94; RMSEA=0.06 CFI=0.93; RMSEA=0.05
Notes: Sample size = 196. * p < 0.05, ** p < 0.01. EN = external networks; AC = absorptive capabilities. Control variables – size, export experience,
export scope, export dependence, export channel model and dummies for ownership and industry – are included in SEM.

13
The full sets of regression results for tables 4a, 4b, 5a and 5b are not presented here owing to space consideration, but are available upon request.
 50

Table 4b: SEM results for H1a, H1b and H2 (Dependent variable = EM)
4b.1 4b.2 4b.3 4b.4 4b.5 4b.6 4b.7 4b.8
Dependent variable Hofstede CD GLOBE CD Schwartz CD PD Hofstede CD GLOBE CD Schwartz CD PD
measurement
BN 0.648** 0.158* 0.140* 0.131* 0.521* 0.107* 0.182* 0.105*
(2.615) (1.919) (2.167) (1.919) (2.182) (1.940) (1.987) (1.848)
IN 0.185* 1.980* 0.335* 0.159* 0.123* 0.133* 0.260* 0.108
(1.826) (2.121) (2.027) (1.921) (1.926) (1.890) (2.332) (1.775)
Standardized regression AC 0.065 0.035 0.002 0.081 0.097 0.055 0.002 0.097
weights (t-value) (0.926) (0.532) (0.026) (1.235) (1.424) (0.841) (0.035) (1.505)
BN x AC 0.411* 0.652** 0.537* 0.343**
(1.981) (2.034) (2.022) (2.026)
IN x AC 0.378* 0.552* 0.434* 0.268*
(1.931) (1.901) (1.920) (1.916)
Squared multiple 0.220 0.237 0.287 0.290 0.274 0.347 0.385 0.425
correlation
Goodness-of-fit statistics χ2(115)= 196.73 p<0.00; IFI=0.90; TLI=0.90; CFI=0.90; χ2(153)= 301.63 p<0.00; IFI=0.91; TLI=0.90; CFI=0.91;
RMSEA=0.06 RMSEA=0.06
Notes: Sample size = 196. * p < 0.05, ** p < 0.01. BN = business networks; IN = institutional networks; AC = absorptive capabilities. Control variables – size,
export experience, export scope, export dependence, export channel model and dummies for ownership and industry – are included in SEM.
 51

Table 5a: SEM results for H3 (Dependent variable = EP)

Model 4a.5 4a.6 4a.7 4a.8 4b.5 4b.6 4b.7 4b.8
used to
derive
Misfit
EN 0.307** 0.283** 0.310** 0.273**
(3.907) (3.374) (3.941) (3.156)
BN 0.303** 0.274** 0.315** 0.233**
(3.448) (3.439) (3.611) (3.451)
Standardized IN 0.324** 0.323** 0.333** 0.325**
regression (4.634) (4.627) (4.779) (4.650)
weights
(t-value)
AC 0.211** 0.202** 0.210** 0.209** 0.210** 0.214** 0.210** 0.214**
(3.085) (3.007) (3.090) (3.080) (3.099) (3.100) (3.110) (3.102)
Misfit -0.201** -0.219** -0.224** -0.245** -0.193** -0.217** -0.219** -0.246**
(-2.227) (-2.299) (-2.496) (-2.705) (-2.012) (-2.269) (-2.423) (-2.725)
Squared 0.284 0.286 0.289 0.296 0.293 0.296 0.304 0.296
multiple
correlation
Goodness-of-fit χ2(183)= χ2(183)= χ2(183)= χ2(183)= χ2(182)= χ2(182)= χ2(182)= χ2(182)=
statistics 305.75 p<0.00; 298.40 p<0.00; 306.75 p<0.00; 306.28 p<0.00; 328.68 p<0.00; 321.350 329.430 329.181
IFI=0.94; IFI=0.95; IFI=0.94; IFI=0.94; IFI=0.93; p<0.00; p<0.00; p<0.00;
TLI=0.90; TLI=0.91; TLI=0.90; TLI=0.90; TLI=0.90; IFI=0.94; IFI=0.93; IFI=0.93;
CFI=0.94; CFI=0.94; CFI=0.94; CFI=0.94; CFI=0.93; TLI=0.90; TLI=0.90; TLI=0.90;
RMSEA=0.06 RMSEA=0.06 RMSEA=0.06 RMSEA=0.06 RMSEA=0.06 CFI=0.93; CFI=0.93; CFI=0.93;
RMSEA=0.06 RMSEA=0.06 RMSEA=0.06
Notes: Sample size = 196. ** p < 0.01. EN = external networks; BN = business networks; IN = institutional networks; AC = absorptive capabilities. Control
variables – Size, Export experience, export scope, Export channel mode, External uncertainty and dummies for ownership and industry – are included in SEM.
Figure 1: Conceptual Model

Absorptive
Capacity

H2 Manager’s propensity to
H3
External international market Export
Networks H1 location choice Performance

Note: Solid line: hypothesized relationship. Dashed line: controlled effects

The authors wish to thank the Professor John Cadogan for the valuable suggestions
and the three anonymous reviewers for their insightful comments on previous version
of the manuscript. The paper also benefits from helpful comments and suggestions by
Frank McDonald and Chengang Wang at University of Bradford, Xiaohui Liu at
Loughborough University, Hongwei He at University of Warwick and participants at
Academy of International Business UK & Ireland Chapter 2011 Conference and
Academy of Marketing 2011 Conference, where it was awarded the Best Paper in
International Market Track. The authors alone are responsible for all limitations and
errors that may relate to the study and the paper.