International Marketing Review

Proactive learning culture: A dynamic capability and key success factor for SMEs
entering foreign markets
Itzhak Gnizy William E. Baker Amir Grinstein
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Proactive
Proactive learning culture learning culture
A dynamic capability and key success factor
for SMEs entering foreign markets
Itzhak Gnizy 477
Department of Marketing, University of Haifa, Haifa, Israel
William E. Baker Received 23 October 2013
Revised 13 March 2014
College of Business Administration, University of Akron, Akron, 26 May 2014
Ohio, USA, and 3 June 2014
Amir Grinstein Accepted 11 June 2014
Ben-Gurion University of the Negev, Beer Sheva,
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Israel and VU University Amsterdam, Amsterdam, The Netherlands

Abstract
Purpose – Although small and medium sized enterprises (SMEs) account for a significant portion of
international trade, little is known about the role of strategic orientation culture in improving their
foreign launch success. Three orientations – market, entrepreneurial, and learning are all related
to organizational learning priorities and reflect a higher order dynamic capability (DC), proactive
learning culture (PLC). The authors assert that PLC is particularly important to SMEs whose lack of
market power and resources render them vulnerable in risky foreign market launch. Marketing
program adaptation and local integration are examined as behavioral mediators of the impact of PLC
on foreign market launch success. The paper aims to discuss these issues.
Design/methodology/approach – The DC framework guides the study. The authors employ a
model with a higher order PLC, two mediating behaviors, and firm foreign market launch success to
report on an empirical study of US SMEs that operate in foreign markets. The authors used
hierarchical regression analysis and extensive post hoc analyses/robustness checks.
Findings – Consistent with the DC framework, SMEs’ foreign launch success is driven by higher and
lower order behaviors. The impact of the higher order PLC construct was mediated by two lower order
behaviors, marketing program adaptation and local integration. Notably, PLC’s influence is stronger
than the influence of any subset of its one/two/three first order components.
Practical implications – SMEs need to pay attention to an array of organizational learning
processes that combine to engender a PLC, which help optimize the deployment of more tangible,
lower order behaviors required for foreign launch success.
Originality/value – Introducing PLC as a DC that enables firms to proactively develop market-
oriented, innovative capabilities using a knowledge-based approach. The elements of PLC reflect a
more complete view of the role of learning in driving the assembly of lower order behaviors in foreign
market launch, which requires both a market-oriented approach and the ability to innovate under
conditions of uncertainty. While each element of PLC is valuable, the higher level impact of all three
facilitates a more effective culture for those firms, which choose to enter new markets.
Keywords International marketing, SME, Learning, Strategic orientation, Dynamic capabilities,
Foreign launch success
Paper type Research paper

International Marketing Review

Vol. 31 No. 5, 2014
The authors would like to thank the Center for International Business Research and the Faculty pp. 477-505
r Emerald Group Publishing Limited
Development Grant Program, both at the San Diego State University for the generous support of 0265-1335
this research. DOI 10.1108/IMR-10-2013-0246
 IMR Introduction
31,5 Although small and medium sized enterprises (SMEs) account for a significant portion
of international trade (Soininen et al., 2012), there is a need to better understand the
organizational factors related to successful foreign market launch (Brouthers and Nakos,
2004; Laforet, 2008). Compared to large established corporations, SMEs typically do not
have the luxury of making strategic mistakes. They need to overcome high barriers to
478 foreign launch and to the establishment of a sustainable marketplace position, often with
limited resources. The strategic decisions made by the management team and specifically
the strategic orientations that guide these decisions are of vital importance (Deshpandé
et al., 2013; Hult et al., 2003; Laforet, 2008).
Strategic orientations reflect the means by which firms choose to attempt to create a
sustainable presence in the markets in which they compete. These orientations are
embedded in the firm’s corporate culture and are viewed as central organizational
resources (Hult et al., 2003; Slater and Narver, 1995), but more recently as dynamic
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capability (DC), higher order capabilities, which facilitate the development or

reconfiguration of more tangible capabilities and behaviors (Barreto, 2010; Teece, 2007;
Teece et al., 1997). Prior research in the areas of international marketing/business and
strategic orientations has focussed on the role of strategic orientations in large established
multinational corporations (MNCs) rather than on SMEs (Cadogan et al., 2002; Li et al.,
2008; Zhou et al., 2007). Further, this line of research has typically studied the impact of a
single strategic orientation, typically market orientation (MO), on firms’ performance (e.g.
Cadogan et al., 2002; Kara et al., 2005). While MO has proven to be a critical success factor
in firms of all sizes, there are other related orientations that shape how a firm interacts
with the external environment. In particular, those strategic orientations that are relevant
to the process of foreign market launch should be considered. Since foreign market
launch involves the pursuit of opportunity in markets which may be relatively unfamiliar
to firms, we propose that entrepreneurial orientation (EO) (Lumpkin and Dess, 1996), and
learning orientation (LO) (Sinkula et al., 1997) are germane. We also propose that MO, EO,
and LO are complementary orientations whose shared impact is greatest when firms
are pursuing market launch in relatively unfamiliar circumstances. In a recent article, Day
(2011) noted that MO in isolation may reinforce an exploitative rather than an exploratory
mindset. Day advocates a robust MO, but also an open-minded exploratory approach
to learning that loosen rigidities of thought as well as an experimental approach to
optimizing marketplace adaptation. Such assertions map well onto the need to aggregate
orientations embodying the complementary effects of MO, EO, and LO[1].
Research has understudied the synergistic effects of MO (Grinstein, 2008), EO
(Lumpkin and Dess, 1996), and LO (Sinkula et al., 1997) all of which address the
means by which firms utilize market-focussed learning to interface with the external
environment. Each orientation influences organizational learning priorities and the
associated knowledge they produce – key success factors for firms in general and
SMEs in particular (Day, 1994; Hult et al., 2003). The call to research how multiple
strategic orientations in complex foreign environments are valuable and useful for
firms’ international success (Cadogan, 2012) is tied to a recognition that a bundling
of orientations (e.g. MO, EO, and LO) has the potential of leveraging multiple forms of
market-focussed learning to create new and effective business strategies and operation
processes.
The DC framework offers theoretical support for aggregating MO, EO, and LO into
a higher order construct as all three strategic orientations fit the definition of a DC.
The DC framework is an extension of the resource-based view (RBV) of the firm
 (Barney, 1991). In this research we assert that “proactive learning culture” (PLC), a Proactive
higher order construct built from three first order constructs – MO, EO, and LO – is learning culture
a DC, through which SMEs can configure other capabilities and behaviors directly
related to foreign launch success.
DC emphasize the importance of embedded capabilities (Teece, 2007) that impact
performance indirectly by facilitating the (re)configuration of firms’ tangible capabilities
and behaviors (Teece et al., 1997). We argue that as a DC, PLC emphasizes the need to 479
understand the nature of new opportunities, the market forces that impact them, and
the quality of learning necessary to realize them. In this study, two tangible marketing
behaviors related to foreign launch are expected to mediate the effect of PLC on foreign
launch success. These are marketing program adaptation (e.g. of product, sales and
promotion, channel) and local integration in foreign markets (i.e. the propensity to
integrate production, distribution and/or marketing activities with local providers).
Intense and increasing competition in foreign markets elevates the importance of these
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behaviors in achieving foreign launch success.

Overall, our paper makes a number of contributions to the international marketing
literature. First, we introduce the PLC construct as a DC that more completely explains
the role of market-based learning in foreign launch success than the influence of
MO, EO, and LO in isolation. Second, within the DC framework, the study improves
our understanding of the role of higher order capabilities on the optimal configuration
of lower order capabilities and behaviors in the foreign launch process. Third, the
study fills the gap of the understudy of DC on the ability of SMEs to successfully enter
foreign markets.

Theoretical background and construct definition

DCs and orientation resources
DC extend the RBV of the firm (Barney, 1991). Firms’ ability to uniquely configure
bundles of resources and capabilities is a primary source of competitive advantage
(Shane and Venkataraman, 2000) and firms achieve above normal returns because of
the distinctive capabilities that emanate from deploying resources optimally (Day, 1994).
The tenets of RBV apply equally to the pursuit of competitive advantage in domestic and
international markets (Zou and Cavusgil, 1996) and to large firms as well as SMEs
(Hessels and Parker, 2013; Street and Cameron, 2007). The RBV does not explain how
firms sustain competitive advantage in changing and uncertain environments. The DC
framework was developed to fill these gaps. DC are higher order capabilities that enable
firms to inculcate processes to evaluate, reconfigure and innovate tangible capabilities
that evolve to behaviors (e.g. production, R&D, distribution, marketing) to remain
competitive, particularly in new or changing environments (Wilden et al., 2013).
Building on his prior research (Teece et al., 1997), Teece (2007) most recently defines
DC as “[y] the capacity (a) to sense and shape opportunities and threats, (b) to seize
opportunities, and (c) to maintain competitiveness through enhancing, combining,
protecting, and when necessary, reconfiguring the business enterprise’s and tangible
assets” (p. 1319). DC differ from operational capabilities. DC are not specific capabilities
such as manufacturing, marketing, supply chain, or R&D. Instead, they are agents of
evaluation and change that permit firms to assess what changes to their resource and
capabilities base is needed to remain competitive, particularly in the face of changing
market environments (Wilden et al., 2013). The absence of DC are seen as threats that
may hinder the ability of firms to maintain performance levels in new and changing
environments. DC are characterized by persistent long term patterns of firm behaviors
 IMR that facilitate adaption (Zollo and Winter, 2002) yet they do not directly impact
31,5 firm performance. Instead, their effects are mediated by the more tangible capabilities
whose (re)configuration they influence.

PLC
The characteristics of DC – higher order, future-oriented, resource and capability
480 changing, persistent, embedded, behavioral implications, strategy making – align with
several highly researched strategic orientations in the marketing and management
literature including MO ( Jaworski and Kohli, 1993; Narver and Slater, 1990), EO
(Lumpkin and Dess, 1996), and LO (Baker and Sinkula, 1999a ,b). MO in particular has
recently been labeled a DC (Barreto, 2010) because the focus on customers, competitors
and the external market environment imbues firms with the ability to make informed
proactive adjustments to capabilities. We will argue that EO and LO also imbue firms
with insights that lead firms to productively (re)configure capabilities.
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Market-based learning is a central dimension of marketing and is critical to firms’

sustainable competitive advantage (Day, 1994; Sinkula, 1994). This need could be even
more acute for SMEs. Unlike large firms, they do not have the resources to absorb
repeated failures. Like large firms, SMEs need to be market focussed and can be
hindered by rigidity caused by inflexible corporate cultures and organizational
structures (Laforet, 2008). Such rigidity also stifles innovation and adaptation. DC
hinder the formation of core rigidities, i.e. resources that have not been well adjusted,
renewed, or restructured. Indeed, knowledge and learning about international markets
has been found to be an important determinant of SMEs’ international sales growth
and survival (Autio et al., 2000).
We argue that three central strategic orientations may be combined to create a
PLC – MO, EO, and LO. These three orientations share a market-based outside-in
perspective (Day, 1994); require and promote effective market-based learning to be
actualized (Sinkula et al., 1997) and reflect a proactive approach to addressing the
market with the goal of developing competitive advantage (Baker and Sinkula, 2009).
In line with the DC framework, each of these orientations facilitates the (re)configuration
of capabilities designed to improve market performance. The advantage of combining
these orientations into a single higher order construct lies in the fact that each promotes
slightly different, but related market-based performance objectives and each
requires slightly different, but related market-based learning. The following section
describes each orientation in somewhat more detail.
MO. MO reflects the degree to which firms rely on maximizing customer
satisfaction and loyalty as an organizing principle of the firm. Kohli and Jaworski
(1990) define it as, “the organization-wide generation of market intelligence pertaining
to current and future customer needs, dissemination of the intelligence across departments,
and organization-wide responsiveness to it” (p. 6). To be employed successfully, MO
requires firms to proactively acquire, disseminate and rely on market information when
developing marketing strategy and tactics ( Jaworski and Kohli, 1993; Narver and Slater,
1990). A strong MO reflects a business culture that it is rooted in organizational values and
norms that put the customer at the center of the firm’s activity (Homburg and Pflesser,
2000; Slater and Narver, 1995). In recent years, some authors have partitioned the MO
construct into two forms of MO, responsive and proactive MO (Narver et al., 2004).
The former is not related positively to firm performance, the latter is so related. The former
is associated with more reactive customer-led decision-making characterized by adaptive
learning that produces only incremental innovations. The latter is associated with
 proactive lead-the-customer decision making that facilitates generative learning and Proactive
radical innovation (LaMore et al., 2013; Narver et al., 2004). Related research reports, learning culture
however, that firms with strong MO tend to engage in both types of learning and
innovation, that is, they balance incremental and radical innovation behaviors (Baker and
Sinkula, 2002). This latter finding reinforces the proactive nature of the construct in firms
with high MO. Still, as Day (2011) points out, a MO alone may not be sufficient to motivate
the deep, ongoing and open-mined inquiry and experimental mindset that is now required 481
of an optimal marketing organization.
A large body of research relating to the effects of MO on new product success,
profitability and competitive advantage has accumulated (see Baker and Sinkula, 2005)
including several studies on its effect in SMEs (e.g. Kara et al., 2005; Horng and Chen,
1998). These studies consistently report a positive MO-performance relationship.
They also suggest that MO’s effect on performance in SMEs is stronger than that of
business strategy, industry characteristics or other firm characteristics.
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Scholars acknowledge complementary effects of MO with both EO (Hong et al.,

2013; Slater and Narver, 1995) and LO (Baker and Sinkula, 1999a). Slater and Narver
(1995) theoretically argued that optimal performance, particularly higher order
innovation, requires firms to possess both a strong MO and strong EO. Baker and
Sinkula (2002, 2009) corroborated this assertion empirically and other researchers
have demonstrated the empirical link between the two constructs (Atuahene-Gima and
Ko, 2001; Matsuno et al., 2002). Likewise, empirical research has established that a
strong LO improves the impact of MO on both market share (Baker and Sinkula,
1999a), innovation (Baker and Sinkula, 1999b) and MO behaviors are conditioned
by LO (Diamantopoulos and Cadogan, 1996). A handful of studies have examined the
integrative effects of all three (Hult and Ketchen, 2001; Hult et al., 2003; Kropp et al.,
2006; Liu et al., 2002) with a general insight that these constructs are related in the
sense that they focus on market learning. Hult et al. (2003) used the term cultural
competitiveness to describe their effect and defined it as a firm’s ability to fill the
market void between what is possible and what is currently offered.
EO. EO reflects the degree to which firms prioritize identifying and exploiting new
product or market opportunities as an organizing principle of the firm. Central to EO is
the concept of organizational renewal. Miller (1983) defined entrepreneurship as
“the process by which organizations renew themselves by pioneering, innovation and
risk-taking” (p. 770). Covin and Miles (1999) view entrepreneurship as exploiting the
opportunity to renew and rejuvenate the firm.
The three traits most commonly associated with EO are risk-taking, proactiveness,
and innovativeness (Atuahene-Gima and Ko, 2001; Lumpkin and Dess, 1996). A strong
EO, through the first mover behaviors it motivates and the innovations it engenders,
can create a fast track to competitive advantage. It facilitates firms’ ability to capitalize
on emerging opportunities, and therefore is an important driver of new products and
organizational growth (Slater and Narver, 1995). Firms with strong MO are likely adept
at effectively developing and launching innovations in established products and
markets; firms with strong EO are more likely to introduce wholly new products and
be the first firm in a category to enter new markets (Slater and Narver, 1995). As both
DC and EO are explicitly related to opportunity identification, organizational renewal
and success in dynamic markets, the argument that EO is a specific example of a DC
is relatively straightforward. EO, like MO and LO, is positively related to firm
performance (Rauch et al., 2009) including SME performance in international contexts
(Georgiou et al., 2005). The impact of EO on performance has shown to be driven by
 IMR learning (Keh et al., 2007; Li et al., 2009). This result holds in the case of EO effects
31,5 on foreign launch success (Zhou et al., 2007). Research on SMEs suggests that EO
complements MO’s effect on performance, particularly effects on innovation and new
product success (Hult et al., 2003; Li et al., 2008). The anchoring role of MO among
SMEs highlights their special need to ground a strong EO with a strong MO. In the
absence of a strong MO, EO firms are more likely to develop wholly new products that
482 are not specifically tailored to market dynamics. Smaller firms are less able to absorb
the financial consequences of failed ideas than large firms and, therefore, must choose
their initiatives carefully (Li et al., 2008).
LO. LO refers to the ability of firms to proactively surface, reconcile and, if
necessary, change the market-based beliefs that anchor strategic and tactical decision
making. It is defined as “an organizational characteristic that reflects the value that
a firm places not only on adroitly responding to changes in the environment but
on constantly challenging the assumptions that frame the organization’s relationship
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with the environment” (Baker and Sinkula, 1999a, p. 412). Firms with strong LO
challenge status quo market-based beliefs as organizing principle of organizational
culture. Firms with weak LO rarely challenge the status quo until crises mandate it
(Sinkula, 1994).
LO reflects a set of values that influence the quality and depth of firms’ organizational
learning process. While the primary learning related focus of MO is the priority that
firms place on gathering and utilizing market information, LO focusses on the values
that influence the quality of those market information processing activities (Baker and
Sinkula, 1999a). Firms with a strong LO do not just learn more, they learn better.
A strong LO leads firms to question long-held assumptions about fundamental
operating philosophies and to examine the mental models (e.g. assumptions about
customers, competitors) and theories-in-use (e.g. approaches to establishing and
implementing marketing strategy) that guides their decision making. The superior
learning outcomes created by unlearning enables firms to better tailor their operational
capabilities with the demands of the external environment, which in turn improves
performance (Baker and Sinkula, 1999a, 2002; Liu et al., 2002; Calantone et al., 2002;
Slater and Narver, 1995). The ability of LO to motivate capability reconfiguration
which reflects a changing understanding of the marketplace lends strong support
to the notion that it is a DC.
A strong LO in SMEs is critical to their ability to gain a competitive edge over larger
rivals with greater financial resources and superior market power (Autio et al., 2000).
A LO in conjunction with an MO increases SMEs’ innovation performance, particularly
in competitively intense markets (Keskin, 2006).
Summary. MO, EO, and LO all influence firms’ learning priorities. MO is a specific
form of learning, organized around the objective of customer satisfaction. EO is a
specific type of learning, organized around the objective of identifying and exploiting
new market opportunities. LO reflects firms’ overall commitment to proactive learning.
We suggest that the three strategic orientations described above reflect a higher
order corporate culture, PLC which is viewed as a DC, through which SMEs can
configure resources and capabilities, which evolve into behaviors that directly related
to foreign launch success. The value of DC derives from their outcomes as creators
of new valuable resources. This is consistent with the view of DC as higher order
capabilities enabling firms to renew resources and adapt to changing environments.
Slater et al. (2006) depict higher order orientations associated with strategy making
capability as key DC. Firms with a strong PLC benefit from synergistic contributions
 of MO, EO, and LO: a complementary set of orientations that increase the quality of Proactive
learning that is related to the development of marketing-related firm behaviors. learning culture
There are strong literatures that have developed and continue to develop around
MO, EO, and LO. It is not our contention that the independent effects of these
constructs should be aggregated in all occasions. The specific focus of each is relevant
in many research scenarios. However, it is also evident from the research that has
modeled two or all three of the constructs that their effects are not orthogonal. 483
They influence one another in complex ways and, together, they positively influence
firm performance, each by facilitating the development and implementation of
marketplace capabilities. In research aimed to examine the impact of DC on
performance, it is parsimonious to aggregate these constructs into a higher order
construct (Gnizy and Shoham, 2014; Riefler et al., 2012). The theoretical DC framework
offers a parsimonious means to aggregate constructs that together facilitate the
reconfiguration of more tangible capabilities. Both MO and EO have already been
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linked to the DC framework (Barreto, 2010; Jantunen et al., 2005) and LO as a facilitator
of a transformative learning culture also fits the definition of a DC. A higher order
construct such as PLC provides greater parsimony and bandwidth, are better
predictors of outcomes that span multiple domains ( Johnson et al., 2011), and reduce
model complexity (MacKenzie et al., 2005).

Firm behaviors related to foreign launch success

Marketing program adaptation. One of the most widely studied topics in international
marketing involves the adaptation vs standardization decision (Ryans et al., 2003).
This refers to the balance between cultural diversity and economies of scale
advantages (Dow, 2006). While research today discusses the need for multinational
firms to balance adaptation and standardization as well as the need to identify the
conditions under which adaptation is specifically beneficial (Hultman et al., 2011)
it still stresses the important role of adaptation – especially marketing program
adaptation, suggesting that standardization per se is not superior for all type of firms
(Schilke et al., 2009). In a complex and changing environment, multinational firms
often under-adapt (Alashban et al., 2002; Dow, 2006). Successful adaptation requires a
keen understanding of the targeted market, openness for change, continuous
learning, proactiveness, and risk-taking on behalf of managers, and is associated with
changes in product attributes, manufacturing processes, marketing content and
distribution (Calantone et al., 2004; Dow, 2006). Empirical research shows how product
and promotion adaptation contribute to the international activity of American, Korean,
and Israeli manufacturers (Calantone et al., 2004; Shoham, 1999). Further, some studies
demonstrate that adaptation is especially valuable for SMEs (Schilke et al., 2009).
Specifically, it is argued that SMEs’ competitive advantage often rests on their flexibility
in providing customized marketing solutions, whereas MNCs employ worldwide
corporate policies that enable them to roll out standardized marketing strategies
effectively.
Local integration. Local integration in the foreign market – the propensity to
integrate production, distribution and/or marketing activities with local providers – is
emerging as an important capability for many multinational firms including SMEs.
Such embeddings in the foreign country can take the form of market and technology
ties with customers, suppliers, strategic alliances, and government agencies
(Andersson et al., 2002; Keeble et al., 1998). Enabling companies to efficiently gain
access to local markets should lead to a positive effect on business performance and
 IMR reduce costs associated with such a process (Andersson et al., 2001; Brouthers
31,5 and Nakos, 2004; Eriksson et al., 1997). Local integration is also an effective mean for
multinational firms to build external social capital in foreign markets (Hitt et al., 2002);
and when created through partnerships, alliances or the creation of subsidiaries
accelerates the flow of information between markets (Inkpen and Tsang, 2005) and the
specific knowledge about the target market (Eriksson et al., 1997) overall enhancing
484 the rate of organizational learning (Knight and Kim, 2009). Given the differences in
culture, technology, organizational structure and business practices between
multinationals (whether MNCs or SMEs) and local foreign affiliates, the knowledge
they possess is likely to be heterogeneous. The sharing of such diverse knowledge
not only promotes learning, it promotes the type of exploratory learning that is most
related to successful innovation (Atuahene-Gima and Murray, 2007) also among SMEs
(Knight and Kim, 2009). Local integration is especially valuable for SMEs and they can
increase their competitiveness on international markets on the basis of a strong local
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integration. This is done by setting close ties with local partners; these external
resources substitute for the lack of internal resources (Keeble et al., 1998).

Hypotheses development
PLC and SMEs’ behaviors
Empirical research consistently demonstrates in general a positive relationship
between strategic orientations and organizational behaviors (Lisboa et al., 2011)
and reports independent and complementary effects of MO (Baker and Sinkula, 2005),
EO (Hong et al., 2013; Li et al., 2008), and LO (Autio et al., 2000) on new product
development efforts, a dimension of adaptation, and performance in both large firms
and SMEs. Adaptation is closely related to learning as firms’ ability to adjust and be
flexible is likely to be the result of an organizational learning mechanism (Lages et al.,
2008). It follows that multinational firms whose corporate culture reflects all three
of these orientations, i.e. firms with strong PLC, are more likely to seek out and exploit
foreign market opportunities (Liu et al., 2002) and to engage in learning and in the
creation of new knowledge related to these markets (Autio et al., 2000). From a DC
perspective, it is expected that the effects of these resource-based constructs on foreign
launch operate at least partially through the more tangible firm capabilities that
they enhance.
Firms with strong PLC put a high value on updating their knowledge of customers,
competitors and market conditions (Baker and Sinkula, 1999a). Specifically, SMEs are
likely to pay close attention and be sensitive to the central actors in the local
environment such as customers and competitors (Cadogan et al., 2002; Rose and
Shoham, 2002). Market sensitivity plays an important role in their ability to effectively
modify marketing plans and behaviors, develop customized products and services, and
react to changing market conditions (Kara et al., 2005; Rose and Shoham, 2002). For the
purpose of satisfying customer needs, these firms are more likely to recognize
the differences in norms, customs and behaviors across cultures that can affect product
and brand demand (Liu et al., 2002). In foreign markets, therefore, they are likely to
exhibit greater marketing program adaptation. Overall, we expect SMEs with strong
PLC to be more adaptive, sensitive to country-specific market conditions, legal
restrictions, competitors, cultural diversity, communication, and technical standards
(Dow, 2006; Ryans et al., 2003). Formally stated:

H1. An SME’s PLC is positively related to its marketing program adaptation.

 Learning, which is enhanced qualitatively and quantitatively by firms with Proactive
strong PLC, is based on interactions with the environment (Andersson et al., 2001; learning culture
Baker and Sinkula, 1999a). In the case of multinational firms, learning from local
markets is highly beneficial. Indeed, international research has devoted considerable
attention to issues of learning among subsidiaries, within MNCs, and between parent
firms and subsidiaries (e.g. Özsomer and Genctürk, 2003; Pedersen and Petersen, 2004).
Multinational firms engage in learning for the purpose of obtaining new knowledge, 485
ideas, and opportunities mostly in the context of technology, product or market
development (Andersson et al., 2002; Street and Cameron, 2007). This is especially
important for SMEs, for which external resources are of vital importance for growth
and survival (Street and Cameron, 2007) as they can lower the costs of the
internationalization process (Eriksson et al. 1997).
RBV acknowledges that firms can rely on external resources by establishing
relationships or coalitions with other organizations (Eriksson et al., 1997; Hessels
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and Parker, 2013). Integration with and reliance on external resources is often used
by SMEs operating in foreign markets since these firms do not have the ability to send
their own people to a foreign country for extended periods of time (Brouthers and
Nakos, 2004). Central sources of learning for multinational firms can be found in the
foreign market, especially in the context of actors with which the firm has long-lasting
relationships such as customers, suppliers, government agencies, and strategic alliances
(Özsomer and Genctürk, 2003; Street and Cameron, 2007). PLC is likely to be related to the
firm’s ability to leverage external ties – gaining new insights on the market (i.e. being
market sensitive), and developing new products or accessing new business areas (i.e.
showing market adaptation) (Andersson et al., 2001). Overall, we thus hypothesize that:

H2. An SME’s PLC is positively related to its local integration.

SMEs’ behaviors and foreign launch success

While research in international business and marketing on the adaptation vs
standardization decision is still divided as to the appropriate balance between the two
(Ryans et al., 2003), or suggests that a contingency approach is often the most realistic
strategy (Hultman et al., 2011) there is an abundance of research on the importance and
effectiveness of adaptation in foreign markets, especially on marketing program
decisions. Indeed, it has been found by a large number of empirical studies that
marketing program adaptation positively influences multinational firms’ performance
in foreign markets. Recently, for example, a number of studies show how product
or marketing mix adaptation of MNCs and SMEs contributes to the profitability of
manufacturers entering foreign markets, positively affects export performance,
increases foreign subsidiary performance, and positively impacts overall performance
in the foreign market (Calantone et al., 2004; Shoham, 1999).
The main advantage of adaptation is the value it creates to customers (Dow, 2006).
A flexible marketing program permits firms to better meet the specific needs of
customers in different international markets. This, in turn, is likely to increase sales
and profit margins (Alashban et al., 2002; Autio et al., 2000). Whereas adaptation is
often more difficult to implement, as well as less beneficial for MNCs, it is especially
beneficial for SMEs (Schilke et al., 2009). SMEs do not enjoy large-scale advantages and
therefore find it more difficult to benefit from price reduction or intensive distribution.
However, tailoring the marketing program to the specific need of the targeted segment
 IMR with the help of flexibility and creativity is critical to SMEs foreign success (Knight
31,5 and Kim, 2009). We therefore suggest that:

H3. An SME’s marketing program adaptation is positively related to its foreign

launch success.

486 Firms that enter foreign markets are usually disadvantaged in relation to local actors
in terms of familiarity with the local business environment. These firms, especially
SMEs that are resource-poor and lack international experience, face the ‘liability of
foreignness’ (Street and Cameron, 2007) because typically the targeted market is highly
different from other markets in which the firm operates on characteristics such as
customer preferences, local culture and language, government regulations, competitor
and distributor behaviors, and business practices (Lord and Ranft, 2000). Local ties
are crucial in firms’ ability to overcome this liability. They enable firms to gain
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fine-grained, new, and tacit information, they act as sources of learning for the local
representative as well as for the entire SME, they provide access to new business
opportunities and new ideas, and they can lead to new competencies (Andersson et al.,
2001, 2002; Eriksson et al., 1997). Further, local integration with market actors such as
customers, suppliers, and alliances often improves trust and commitment between the
partners, and is expected to contribute to the SME’s competitive advantage and
performance in foreign markets (Street and Cameron, 2007). Finally, local integration
is likely to reduce the costs of the foreign launch process (Eriksson et al., 1997).
Formally stated:

H4. An SME’s local integration is positively related to its foreign launch success.
The mediating effect of firm behaviors
DC are higher order capabilities, which enable firms to renew resources and
capabilities (Eisenhardt and Martin, 2000). Their impact on performance is not direct
but flow through lower order behaviors that evolve from the capabilities to influence
performance outcomes (Day 1994; Özsomer and Genctürk, 2003; Zollo and Winter,
2002). According to the DC framework, possessing DC is a necessary but insufficient
condition to obtain performance advantages (Teece, 2007). Firms need mechanisms
to convert DC into desired outcomes. Distinctive capabilities emanate from DC that
facilitates the optimal deployment of resources, which in turn, lead firms to achieve
above normal returns (Day 1994). In our context, DC impact two key behaviors in the
foreign launch process, program adaptation and local integration, which in turn,
impact foreign launch success. PLC is an organizational resource upstream of firms’
specific capabilities. Per the DC we propose that SME marketing program adaptation
and local integration, at least partially mediate the effect of PLC on performance. Since
marketing program adaptation and local integration represent only two of a myriad of
product, distribution, promotion, R&D and manufacturing capabilities that SMEs may
possess and which may be influenced by PLC, we do not explicitly predict that
capabilities fully mediate the effect of PLC on foreign launch success. Formally stated:
H5a. The positive effect of PLC on SMEs’ foreign launch success is mediated by
marketing program adaptation.

H5b. The positive effect of PLC on SMEs’ foreign launch success is mediated by
local integration.
 The conceptual model Proactive
The above discussion is summarized by the conceptual model appears in Figure 1. learning culture
It depicts the study’s constructs and the expected relationships. SMEs’ DC, specifically
their PLC, affect firm marketing-related behaviors – marketing program adaptation
and local integration – which in turn, affect SMEs’ ability to successfully enter
new foreign markets.
487
Methods
Sample and data collection
Data were collected from a commercially acquired (Market Tools, Inc.) sample of US
business executives. The sample was selected to represent a cross-section of industries,
executives and executive function. A total of 12,500 invitations were sent to executives
participating in an opt-in online research panel. A total of 4,628 completed surveys
were returned over a two-day period. Among these responses, 830 respondents did
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not meet the company rank criterion (i.e. were not part of their firm’s management).
This left 3,798 complete surveys from qualified respondents, an effective response rate
of 30.3 percent. The sample was evaluated on three dimensions for which national data
were available, age of the firm, number of employees and industry. The Pearson
correlation between our sample and US averages was 0.98 ( po0.0001). Given this, the
sample was deemed to be an accurate representation of US firms.
The survey was developed for multiple purposes, one of which was the execution of
this study. Given this, the sample relevant to this study was extracted from the larger
base of qualified respondents. The appropriate sample was extracted from the general
sample using three criteria. First, given our focus on SMEs, executives were screened
for employment in firms with 11-250 employees. Second, executives were screened for
their firm’s participation in at least one foreign launch in the past five years. They were
asked, “Has your firm/business unit introduced or attempted to introduce products
or services into a foreign country in the past five years?” If “yes,” they were asked,
“Are you familiar with at least one such introduction?” If “yes,” they were asked to

Organizational Resources: Firm Behaviors Organizational Outcomes

Strategic Orientation

H5
Proactive Learning
Culture

Market Marketing Program

Orientation H1 Adaptation H3
Foreign Launch Success
Learning H2 H4
Orientation Local Integration

Entrepreneurial
Orientation

Figure 1.
Firm and Industry
Control Variables
The conceptual model
 IMR answer all questions in the context of that launch. Finally, respondents were asked to
31,5 clarify the role of e-commerce in the launch. If it involved creating an e-commerce
presence only, then the observation was removed from the sample. This process
gleaned 155 executives to participate in the full survey.
Although respondents were not required to divulge the country that was the subject
of the launch they reported, about two thirds volunteered this information. The final
488 sample represented a broad cross-section of the international entrepreneurship
activities of US SMEs. Major US trading partners, China, Mexico, Canada, Japan, and
the UK comprised the majority of reported launches, but a broad cross section of
nations in Europe, Asia, South America, the Middle East, and Central America were
included. The sample also reflected a cross-section of executive rank, experience and
job function. The sample was well represented by members of their firm’s top/senior
management team (61 percent) and lower-middle management (39 percent). Almost
two thirds of the sample, 62 percent had more than ten years of management
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experience; only 18 percent had less than five years of experience. In all, 37 percent of
executives worked in manufacturing industries, 63 percent in service industries. Firms’
primary customers skewed toward B2B (79 percent) vs B2C (21 percent). Almost 55
percent of the firms reported e-commerce and conventional presence in the foreign
launch and 45 percent reported conventional presence only.

Measures
All primary measures (Appendix 1) were based on existing scales in the literature.
PLC. The construct was operationalized as a higher order construct comprised of
three lower constructs: MO, LO, and EO. In line with Jarvis et al ’s. (2003) decision
criteria for distinguishing between formative and reflective models specification, the
PLC construct lend itself to a formative measurement. Wilden et al. (2013) used a
formative index to measure DCs and followed these criteria. For example, our three
orientations are causal as opposed to effect indicators, thus each contributes and can
affect PLC. In a formative construct, as opposed a reflective in which the exact number
of the sub-dimensions is irrelevant, all sub-dimensions of the construct need to be
included. We conceptualized PLC as a combination of all three orientations (linear sum
of its equal weightings indicators) where each of the three addresses aspects that
cannot be substituted by others. We contend that its influence is stronger than the
influence of any subset of its first order components, thus the deletion of one orientation
would alter the domain of the PLC. In addition, this approach of aggregating distinct but
correlated organizational culture constructs that share common traits is most similar
to Hult and Ketchen’s (2001) operationalization of positional advantage, a higher order
construct including four lower order orientation constructs: market, organizational,
entrepreneurship, and innovativeness. There are, however, substantive differences. The
MO scale was constructed to be consistent with both Narver and Slater (1990), Kohli et al.
(1993), and Matsuno et al ’s. (2002) revision of MARKOR. Their elements capture Narver
and Slater’s (1990) dimensions of customer orientation, competitor orientation and inter-
functional coordination as well as Kohli et al ’s. (1993) dimensions of market information
acquisition and dissemination. The responsiveness component of MARKOR was omitted
from the MO measure as responsiveness is a conceptual characteristic of the PLC
construct as a whole, not one element of the construct. It is also the case that our
emphasis is on the learning qualities of PLC, which fits well with the notion that open
learning drives a market-oriented organization (Day, 2011). EO was operationalized by
borrowing elements of both Naman and Slevin’s (1993) and Matsuno et al ’s. (2002) scales.
 Rather than employ Hurley and Hult’s (1998) measure of organizational learning, Proactive
we employed elements of the more culturally based and widely employed LO scale learning culture
(Baker and Sinkula, 1999a; Sinkula et al., 1997).
In addition to Jarvis et al ’s. (2003) decision criteria, we follow Johnson et al’s. (2011)
guidelines for developing, validating and using higher-order constructs by providing
theoretical and empirical justifications to identify lower-levels indicators, specifying
the nature of the higher-order constructs, ruling out alternative explanations for the 489
emergence of the higher-orders, and demonstrating incremental prediction. We note
that modeling PLC as a formative construct could be challenged. Thus, we consider
alternatives in post hoc analyses.
Marketing program adaptation. The construct was measured using the work of
Lages and Montgomery (2004) and Zou et al. (1997). It was designed to capture a range
of marketing related capabilities that are associated with each element of the
marketing mix. Executives were asked, “To what extent were each of the following
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elements of the marketing program adapted prior to the launch or within 12 months of
the launch.” On a seven point scale anchored by “no adaptation at all” and “extensive
adaptation,” executives rated the degree of adaptation to ten elements of their marketing
effort: size of product/service line, product/process design, product positioning, brand
name and/or packaging, price, advertising and/or sales promotion, sales force structure
and management, upstream supply chain (parts/process suppliers), downstream supply
chain (wholesalers, retailers) and customer service. The measure consisted of ten items.
Local integration. Assessing the degree of local integration was based on the work
of Eriksson et al. (1997). Similarly to Eriksson et al. (1997) that associated local
integration with the ability of firms to connect with local business partners or
subsidies, and by the market knowledge that these and local marketing or sales efforts
were able to generate, our focus was to capture the extent to which firms were able to
integrate and harness a broad range of local expertise. On a seven point scale anchored
by “no reliance at all” and “heavy reliance,” executives rated their reliance on using or
establishing local production facilities, local distributors, local suppliers, a local sales
force, and local marketing support services (advertising, sales promotion, public
relations). The measure consisted of five items.
Foreign launch success. The study’s dependent measure asked executives to indicate
on a seven point scale anchored by “far below expectations” and “far above expectations”
“the degree to which the launch exceeded, met or fell below expectations” on four
dimensions of performance: sales revenue, profitability, market share and management
satisfaction. This operationalization is similar to Zou et al ’s. (1998) three-dimensional
conceptualization of international performance (performance on finance and strategic
goals, as well as satisfaction with international performance) which is widely used in the
international business and marketing literature (e.g. Gnizy and Shoham, 2014; Kropp
et al., 2006). Composite measures of performance are well established in the literature
( Jaworski and Kohli, 1993; Hult et al., 2005) and recent research shows a strong
correlation between executives’ subjective perceptions and objective financial measures
(Morgan et al., 2004).
Control variables. A number of variables known to be related to performance were
used in the analysis to control for alternative explanations of any observed effects
( Jaworski and Kohli, 1993; Narver and Slater, 1990) and for ruling out alternative
explanations for the emergence of the higher-order construct ( Johnson et al., 2011).
Firm level controls included basic demographics, age, size and revenue, and product/
service line characteristics, basic vs premium and undifferentiated vs differentiated.
 IMR Each of these five controls was assessed with a one-item measure. Technological
31,5 turbulence was assessed with multiple item measures based on the work of
Jaworski and Kohli (1993). On a seven point scale anchored by “low” and “high,”
technological turbulence was measured with four items, “the speed at which
production service technology was changing,” “the impact of technology on product/
service innovations and operations,” “the degree of technological disparity among
490 competitors” and “the turbulence in product/process leadership.” We also controlled
for type of operation in foreign country: e-commerce and/or conventional presence.
These were assessed with two items (e-commerce and conventional presence, conventional
presence only).

Results
The means, standard deviations, coefficient a’s, composite reliabilities (CR), average
variance extracted (AVE) and inter-construct correlations are provided in Table I. The
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a’s and CRs were all well 40.70. The higher order construct is viewed as a formative
scale; hence, we do not report its a-reliability and CR. In addition, principal components
factor analysis and confirmatory factor analysis (CFA) were used to assess common
method variance (CMV), convergent validity and discriminant validity. Hierarchical
regression analyses were employed to test the study hypotheses in which all multi-item
constructs were input into the regression models as the average of the individual items
used to measure them (Baker and Sinkula, 1999a). Notably, hierarchical regressions
are appropriate tool to demonstrate that higher order constructs account for variance
in outcomes incremental to their first order dimensions ( Johnson et al., 2011).

Data and measure validation

Since our data were collected from a single source, CMV was a potential explanation
for observed construct relationships. To rule this out, several ex ante (implemented
in the research design and are preferred for CMV) and ex post (implemented during
the data analysis stage) procedures have been undertaken (Chang et al., 2010). These
included using executive informants with high levels of confidence, assuring informants
with anonymity, explaining to informants that there are no rights or wrong answers,
constructing the questionnaire’s items to ensure they are not ambiguous or vague,
creating methodological separation among the measures and their heterogeneity.
In addition, since CMV is more likely in models that are overly simple, we specified the
relationships among the variables in our model as not simple (e.g. mediation) which
reduced the likelihood of such bias.
To further ruling out CMV, we also employed statistical tests. First, Harman’s single
factor test was conducted. CMV is likely to be a problem if a single factor accounts
for the majority of the covariance among the study’s variables (Podsakoff et al., 2003).
An exploratory factor analysis (EFA) of all multi-items constructs yielded eight factors
in which the first accounted for only 35.7 percent of the variance. Second, following
Podsakoff et al. (2003), we tested for a common method factor that included all
indicators of the main variables and calculated each indicator’s variances substantively
explained by the main and by the method constructs. Results demonstrate small
magnitude and insignificance of the method factor variance since some of its
indicators’ loadings are insignificant and importantly, the average explained variance
of the substantive factors is 0.71, which is nearly 54 times higher than the variance
explained by the method factor. Third, we later demonstrate the discriminant validity
of all constructs. Given these results, we concluded that CMV was not a problem.
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Correlation matrix
Study constructs Mean STD CR a AVE 1 2 3 4 5 6 7 8 9 10 11 12

1 Foreign launch success 4.77 1.31 0.95 0.93 0.80 1 –

2 Firm agea 3.15 0.97 n/a n/a 2 0.03b –
3 Firm size (employees)a 2.90 0.90 n/a n/a 3 0.07b 0.45 –
4 Firm revenuea 2.43 1.62 n/a n/a 4 0.09 0.44 0.82 –
5 Product differentiation 5.51 1.29 n/a n/a 5 0.38 0.01b 0.01b 0.01b –
b
6 Product quality 5.24 1.32 n/a n/a 6 0.30 0.01b 0.02 0.02b 0.64 –
7 Technological turbulence 4.56 1.33 0.91 0.81 7 0.31 0.10 0.13 0.12 0.28 0.23 –
8 Market orientation 5.06 1.26 0.87 0.94 0.88 8 0.36 0.06b 0.24 0.26 0.37 0.28 0.41 –
9 Learning orientation 5.51 1.20 0.91 0.88 0.66 9 0.38 0.04b 0.04b 0.03b 0.44 0.41 0.27 0.53 –
10 Entrepreneurial orientation 4.64 1.19 0.86 0.79 0.45 10 0.38 0.06b 0.01b 0.06b 0.41 0.43 0.32 0.42 0.52 –
11 Local integration 4.47 1.50 0.91 0.95 0.61 11 0.41 0.08b 0.25 0.23 0.20 0.18 0.48 0.41 0.29 0.29 –
12 Marketing program adaptation 4.74 1.41 0.95 0.95 0.65 12 0.46 0.05b 0.13 0.13 0.25 0.19 0.61 0.44 0.34 0.36 0.52 –
13 Proactive learning culture 5.05 0.99 13 0.43 0.04b 0.07b 0.04b 0.53 0.50 0.40 0.82 0.88 0.80 0.38 0.48
Notes: aNot significant at the 0.05 a level, n ¼ 155; bfirm age, size and revenue were categorical variables. For age, category 3 was 11-20 years and category 4
was more than 20 years. For size, category 2 was 11-50 employees and category 3 was 51-100 employees. For revenue, category 2 was $11-$25 million and
category 6 was $26-50 million, n/a single item measures
491
learning culture
Proactive

Table I.
Study measures
 IMR PLC was conceptualized as a higher order construct comprised of three lower
31,5 orders constructs. MO consisted of two elements; market information acquisition and
dissemination. LO consisted of three elements, commitment to learning, open-mindedness
and shared vision (Baker and Sinkula, 1999a). EO consisted of a single element represented
by the five measures reported in Appendix 1. A CFA of the operationalization of PLC
demonstrated a very strong fit (w2/df ¼ 35.4/32 ¼ 1.11, TLI ¼ 0.991, CFI ¼ 0.995,
492 RMSEA ¼ 0.026). Notably, the CFA’s w2 was not significant ( po0.312), serving as the
strongest single indicator of superior model fit ( Jarvis et al., 2003).
As per Table I the high coefficient a and AVE scores for each construct was
supportive of uni-dimensionality. To test for convergent validity, a CFA of the study’s
measurement model (all multi-item constructs) was conducted. The measurement
model fits were acceptable (w2/df ¼ 2.34, TLI ¼ 0.868, CFI ¼ 0.894, RMSEA ¼ 0.093).
All item loadings on each constructs were highly significant ( po0.0001; all loadings
exceeded 0.60 and averaged 0.80). To assess discriminant validity, we contrasted the
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squared correlation of each factor pair with the variance extracted from each factor
(Fornell and Larcker, 1981). In each case, the AVE exceeded the squared correlation,
supporting discriminant validity.
Additional steps assured the regression models met established guidelines (Hair
et al., 2010). First, the sample size meets guideline for a minimum ratio of observations/
independent variables. Second, multicollinearity of the predictors can be a problem
in multiple regressions and might affect the results. In this case, however, all model
construct inter-correlation were in the moderate range or lower, i.e. o0.60, with only
one exceeding 0.60. In addition, the vast majority of the variance inflation factors for
each independent variable in the models were below 2 (very few below 3), well below
the acceptable cutoff of 10. Thus, multicollinearity did not affect the results.
Higher order further validation. The variables that make up a higher order construct
should relate to other outcomes that are conceptually related (Hair et al., 2010). Hence,
the inter-correlations of each of the first order orientations with the variables of interest,
i.e. marketing program adaptation, local integration and foreign launch success are
moderate (Table I). Table I shows in addition that the correlations of the higher order PLC
with these variables are at least moderate. Moreover, we ran an EFA of the first order
orientations. The three constructs loaded highly on the higher order construct (X0.80)
and a single factor was extracted capturing 68 percent of the variance.
The following additional tests are based on Johnson et al ’s. (2011) guidelines.
The usefulness of a higher order construct is contingent on its capability to capture the
majority of variance in their set of lower orders. The proportion of variance extracted
by PLC (calculated via the adequacy coefficient; Johnson et al., 2011) is 0.694, thus
capturing 70 percent of the variance in the set of causal indicators. Furthermore, using
regressions in which the outcome variables were regressed on the first orders in an
initial step, followed by the higher-order construct in a second step showed that the
construct explained variance equal to or greater than that explained by its first orders,
thus supporting the usefulness test and indicating that the higher-order accounts for
variance in outcomes incremental to its first orders (Johnson et al., 2011). In addition to
this analysis that provided evidence of incremental importance, we show below the
relative importance of the higher order in which its contribution to the total R2 for
outcomes exceeds that of its first orders ( Johnson et al., 2011). Additionally, the absence
of CMV supports ruling out competing explanations for the emergence of our higher-
order construct. Notably CMV was assessed at the first order level rather than the
levels of the higher-order construct ( Johnson et al., 2011).
 Hypotheses testing Proactive
Table II reports the results of the hierarchical regressions used to test H1 and H2. H1 learning culture
predicted that PLC is positively related to marketing program adaptation; H2 predicted
that PLC is positively related to local integration. Both hypotheses were supported.
The standard regression coefficients for the PLC-marketing program adaptation and
PLC-local integration relationships were 0.305 ( po0.0001) and 0.178 ( po0.048),
respectively. The change in adjusted R2 from the based regression model including the 493
firm and environmental control variables to the model which added PLC was
statistically significant for both marketing program adaptation and local integration.
Table III reports the results of the hierarchical regression used to test H3 and H4.
H3 predicted a positive relationship between marketing program adaptation and

Marketing program adaptation Local integration

Model 1 Model 2 Model 1 Model 2
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Firm and environment control variables

Firm age 0.131* 0.145* 0.074 0.066
Firm revenue 0.103 0.078 0.213* 0.199*
Firm size (employees) 0.184* 0.170* 0.059 0.051
Product quality 0.011 0.072 0.092 0.043
Product differentiation 0.010 0.068 0.034 0.011
Technological turbulence 0.569*** 0.480*** 0.418*** 0.366***
Independent variable
Proactive learning culture 0.305*** 0.178**
R2 0.370 0.425 0.286 0.305
DR2 0.055 0.019
Table II.
Sig. of DR2 po0.0001 po0.048
Effect of proactive
Notes: Standardized regression coefficients reported for mean centered data. A “*” adjacent to learning culture on firm
coefficient signifies statistical significance at po0.05; “**” signifies po0.01; “***” signifies po0.001 behaviors

Foreign launch success

Model 1 Model 2 Model 3

Firm and environment control variables

Firm age 0.039 0.029 0.059
Firm revenue 0.083 0.057 0.022
Firm size (employees) 0.112 0.099 0.039
Product quality 0.335** 0.246* 0.267**
Product differentiation 0.038 0.118 0.101
Technological turbulence 0.189** 0.126 0.093
E-commerce/conventional presence 0.096 0.076 0.009
First level; independent variable
Proactive learning culture 0.307*** 0.151
Second level; independent variables
Marketing program adaptation 0.298***
Local integration 0.276***
R2 0.208 0.252 0.363
DR2 0.043 0.111 Table III.
Sig. of DR2 po0.004 po 0.0001 Effect of proactive
learning culture and
Notes: Standardized regression coefficients reported for mean centered data. A “*” adjacent to firm behaviors on
coefficient signifies statistical significance at po0.05; “**” signifies po0.01; “***” signifies po0.001 foreign launch success
 IMR foreign launch success; H4 predicated a positive relationship between local integration
31,5 and foreign launch success. Both hypotheses were supported. Model 3 in Table III
reports strong statistically significant relationships between both adaptation and
integration, and foreign launch success: 0.298 ( po0.0001) for marketing program
adaptation and 0.276 ( po0.0001) for local integration. Also, the change in adjusted R2
between each of the three models in the hierarchical regression was large and
494 statistically significant ( po0.001).
H5a and H5b predicted that the positive PLC-foreign launch success relationship
would be mediated by marketing program adaptation and local integration, respectively.
First, we tested for full mediation. A full mediation of these two behaviors on the effect
of culture should predict first, a PLC-marketing program adaptation relationship and
a positive PLC-local integration relationship; second, a positive PLC-foreign launch
success relationship; third, a positive marketing program adaptation-foreign
launch success and a positive local integration-foreign launch success relationship;
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and fourth, a non-significant PLC-foreign launch success relationship after the effects of
marketing program adaptation and local integration are controlled. The findings support
these conditions. As per Table II, Model 2, the first condition was met. As per Table III,
Model 2, the second condition was met. As per Table III, Model 3, the third and fourth
conditions were met. In this latter model, the effect of PLC on foreign launch success
became statistically insignificant after marketing program adaptation and local
integration, both statistically significant, were added to the analysis.

Post hoc analyses and robustness checks

To gain further insights into the collected data and the relationship aspects of the
study’s model, and to asses the stability of the findings, we conducted several post hoc
analyses and robustness checks.
Main model. Since the model encompasses multiple dependent variables and
to further supports the main hierarchical regression analyses, a path analysis using
AMOS 7.0 was conducted. All hypothesized relationships were included in the model.
All covariates in the hierarchical regression were used as covariates in the AMOS 7.0
analysis. The results are reported in Appendix 2 and corroborate the findings of the
hierarchical regressions. We note that the slightly sub-optimal results of this analysis
stem from the limited sample-size and the long list of tested relationships.
Additional models. The higher order PLC construct consists of three lower order
constructs, MO, EO, and LO. We expected that a model that disaggregated the three
lower order constructs would have less explanatory power and less parsimony
than the model including a single higher order construct. In the fully disaggregated
model, each of the three constructs was related to each intermediate construct,
marketing program adaptation and local integration, and to the ultimate outcome,
foreign launch success. Results are reported in Table IV. As can be seen, the fully
disaggregated model explains less of the variance in the intermediate and terminal
constructs, particularly the intermediate constructs, and has a weaker fit than the
primary model.
Next, three models were tested with one each using MO, EO, or LO as the exogenous
variable. The model fit and R2 explained by each of these three models underperformed
the primary model. Finally, all two of the three construct combinations of MO, EO,
and LO were tested as the exogenous variables with the same results; the model fit and
R2 underperformed. Notably, the R2 of the primary higher order model, with PLC,
is higher than in analyses including any combination of the lower order orientations
 Model fit R2
Proactive
Model 2
w /df TLI CFI RMSEA Local Adapt Success learning culture
Primary model w/PLC 2.38 0.863 0.889 0.095 0.23 0.31 0.36
Fully disaggregated 3.06 0.796 0.838 0.116 0.09 0.18 0.26
MO only 2.56 0.862 0.891 0.101 0.11 0.22 0.30
LO only 2.55 0.863 0.891 0.100 0.11 0.14 0.33 495
EO only 2.59 0.859 0.889 0.102 0.19 0.13 0.30
MO and EO 2.63 0.845 0.878 0.103 0.12 0.20 0.28
MO and LO 2.86 0.826 0.862 0.110 0.09 0.18 0.29 Table IV.
EO and LO 2.80 0.830 0.865 0.108 0.09 0.11 0.29 Lower order models

(MO, EO, LO), demonstrating the contribution of the higher order construct to the
total R2 that exceeded that of its indicators ( Johnson et al., 2011). The additional
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analyses also reinforce our theoretical perspective that PLC is a more complete
and parsimonious DC than models that disaggregate or limit the inclusion of MO, EO,
and LO as strategic orientations that positively impact foreign launch success.
Alternative models. As noted previously, it could be argued that alternative construct
specification, i.e. interaction interplay among the three orientations, might compete with
the proposed model. To rule out this alternative explanation for the emergence of the
higher-order construct, we re-ran the models reported in Tables II and III with orientation
interaction terms (the product of the mean-centered variables to reduce multicollinearity).
None of the R2 of the models exceeded the parallel R2 in the original models. Further, the
DR2 is lower and in some cases is insignificant. Finally, in some models in which PLC
was expected to be significant, it is insignificant. In other cases the significance level of
PLC as an interaction is lower than as a higher order. Thus, we infer that our original
model best explains the relationships between the orientations.

Discussion and implications

Per the DC framework, this research attempts to shed light on the interrelationship
between SME’s international resources and foreign market launch. Specifically, we
focus on a central market-based knowledge producing DC, the firm’s PLC, and two key
behaviors related to international launch, marketing program adaptation and local
integration. As predicted by the DC framework (Teece, 2007) our study finds that
foreign launch success is driven by higher and lower order capabilities. As expected,
the impact of a higher order capability, i.e. PLC, was mediated by two lower order
constructs, i.e. marketing program adaptation and local integration.
SMEs cannot absorb failures. Thus, it is critical for SMEs to marshal all potential
advantages when engaging in risky ventures. The results of this research support the
perspective that a corporate culture that balances its entrepreneurial instincts with a
strong commitment to open-minded learning and a strong MO is foundational to
developing the capabilities that are required to succeed in new foreign markets or
endeavors. It appears that a PLC reduces the risk of foreign launch by facilitating
the creation and utilization of key capabilities associated with foreign launch success.
We study in conjunction two central dimensions of firms’ behavior in foreign markets
that have typically been studied in isolation. Prior international research has studied
how success in foreign markets is affected by either broad organizational resources
such as strategic orientation or by firm behaviors such as local integration (Özsomer
and Genctürk, 2003; Rose and Shoham, 2002). Utilizing the DC framework, we propose
 IMR and find that firm behaviors mediate the effects of PLC on foreign launch performance.
31,5 The joint study of higher order capabilities and lower order behaviors within an
established theoretical framework provides a more complete view of SMEs’ behavior
and performance in foreign markets. Our findings correspond with the logic of the
DC framework which predicts that DC leverage more tangible capabilities (Day, 1994;
Özsomer and Genctürk, 2003).
496 We integrate the impact of three central orientations, i.e. MO, EO, and LO.
The SMEs in the sample use and implement these orientations (means of 5.06, 5.51,
4.64; respectively). We show that these resources form a higher order construct – PLC
(mean of 5.05). This construct studied in the context of DC enables researchers and
managers to assess more holistically the firm’s corporate culture and its practical effect
on performance. Mere possession of DC does not imply a better performance unless
firms realize how to use them. The “glue” that binds market, learning and EOs into a
higher order construct is market-based learning. MO and EO establish firm learning
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priorities; LO influences the quality and dynamism of the learning process. Firms
that integrate these orientations are creating a culture capable of configuring and
reconfiguring unique bundles of capabilities, especially those that reflect knowledge
creation. It appears to be a critical piece of the puzzle for SMEs attempting to find the
most effective means to compete in complex markets and against firms with superior
resources. Our research supports the point of view that SME success, in this case the
pursuit of opportunities in foreign markets, begins with a PLC that enables firms
to develop and refine the capabilities that are required to succeed in a given situation.
Importantly, the combination of a market, learning and EOs helps SMEs to acquire
the knowledge and insights needed to discriminate the right opportunities and to
develop the right capabilities to realize these opportunities. Calantone et al. (2002)
pointed out that the combination of strategic orientations, which affects performance
collectively rather than in isolation, is required for long-run profits. Similarly, Hult and
Ketchen (2001) suggested that MO, EO, LO, and innovation orientation, collectively
rather than independently, contribute to the creation of a new and unique resource.
This leads us to the synergistic effects of strategic orientations on SMEs in our
research that appears to be important findings. While the business literature discusses
in general the need for synergies among firm’s activities, we show a specific manifestation
of this need. Synergy is a key strategy component and is achieved by better managing
ongoing business-level activities ( Jari, 1996). SMEs, like other firms, face the reality of
managing multiple complex processes. Strategic orientations might be managerially
dispersed in the organization and led by different organizational functions (e.g. MO by
marketing, EO by R&D and LO by HR). When they are managed separately, replication,
and thus waste of resources might result. This complexity and dispersion could result in
less synergistic effects of orientations which especially SMEs should realize and avoid.
Thus, while firms in general need to work out strategic orientations, we show that SMEs
that use these three orientations should combine them, at least when launching endeavors
in foreign markets and at least in their international context, with relationship to foreign
behaviors. Such a combination can be used by SMEs to establish a baseline level of
PLC. The binding element of these orientations is knowledge, derived from market-based
learning, and joint management of these orientations might result in enhanced decisions
based on the creation of relevant knowledge. SMEs’ managers need to pay attention to
aspects of their organizational learning process such as inter functional teamwork and
existence of mechanisms (e.g. procedures, information systems) for sharing knowledge
and experiences. Indeed, learning is regarded as an important source of sustainable
 competitive advantage, and one of the key determinants of organizational effectiveness. Proactive
In the same vein, our research proposes a new direction in the form of a new construct, learning culture
PLC. It provides a rational to why the three strategic orientation resources should be
studied in tandem, in the context of foreign capabilities and foreign success.
Finally, our findings also provide insights into the adaptation-standardization
debate in international business and international marketing research. While prior
research is not conclusive as far as the effectiveness of adaptation or standardization 497
activity in foreign markets (Dow, 2006) under different environmental conditions
(Hultman et al., 2011), without concluding on standardization, our findings support the
view that adaptation generally enhances foreign launch success. Indeed, we find that
using the help of, and integration with local resources and stakeholders, and even more
than that, adapting marketing activities, characterize the most successful SMEs in
our sample. Further, it is important to note that our conceptualization of adaptation
went beyond basic marketing mix program flexibility to include factors such as
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sales force structure and management as well as upstream/downstream supply chain

management. Since large MNCs typically under-adapt (Dow, 2006), SME adaptation in
foreign markets offers a means to differentiate and better serve specific foreign market
segments.

Limitations and future research directions

This research suffers from a number of limitations that may evoke future research
opportunities. As the bulk of research in this area, our sample was cross-sectional
rather than longitudinal and our dependent measure of performance was subjective
rather than objective. While this can be problematic, recent research shows a strong
correlation between executives’ subjective perceptions and objective financial measures
in cross-sectional data (Morgan et al., 2004).
This research studies the performance of US SMEs in international markets. It is
important to generalize our findings regarding the interrelationship among PLC, firm
behaviors and firm performance across a number of contexts. The framework should
be applied to the success of purely domestic initiatives such as radical innovation,
new product success and new market entry. Internationally, the research should be
replicated in the context of foreign firms launching products in the USA or other
nations. It would be especially interesting to examine the interaction between PLC and
national culture on SME success or on the development stage of nations (e.g. emerging
markets vs first world nations).
We examine here the role of two key behaviors, marketing program adaptation
and local integration. These two are widely studied in an international context. They
are examined here as mediators of the impact of PLC on foreign launch success.
From the DC perspective one could argue that different levels of these capabilities is the
most effective and based on learning DCs firms should optimize these levels. In this
case the relationship between capabilities and foreign launch success could be
curvilinear (U-shaped, for example). In a preliminary analysis we tested this potential
relationship and found support for such a behavior. Future research can focus on this.
Additionally, Future research may consider studying the role of additional capabilities
and/or behaviors, perhaps devoting attention to those receiving less research attention.
One important behavior could be management rigidity. In many multinational
firms, managers often hold the belief that replication of previous successful business
practices and products will lead to success in a new or foreign market (Gupta et al.,
1999). This, as well as the fact that many managers in these firms often fall into an
 IMR ethnocentric orientation trap (Özsomer and Genctürk, 2003), is likely to enhance
31,5 management rigidity in MNCs as well as SMEs. Management rigidity is interesting
because it is likely to have a negative effect on multinational firms’ consequences.
Note
1. It is important to note that Day (2011) proposes that DC, perhaps inadvertently, promote
an inside-out mindset. He addresses this issue by advocating that firms adopt what he
498 calls “adaptive capabilities,” capabilities that focus on anticipating and responding more
quickly and effectively to changing environments through a strong outside-in perspective.
We disagree that DC necessarily promote inside-out thinking. Presuming that strategic
orientations meet the criteria for being DC and acknowledging that key strategic orientations
such as MO, EO, and LO either reflect or support outside-in perspectives, it follows that DC
should not be labeled as necessarily inside-out. We would argue that Day’s proposed adaptive
capabilities represent a category of DC that are outside-in and, which align with the types
of activities that we would assign to a proactive learning culture.
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Appendix 1. Measurement of proactive learning culture

Market information acquisition (seven point likert scale)
Please indicate the degree to which you agree or disagree with each of the following statements
about the ACQUISITION of market information:

(1) We regularly conduct research with our customers to assess the performance of our
products and services.
(2) Intelligence on our competitors is frequently collected.
(3) Intelligence on our distribution network is frequently collected.
(4) We frequently review the likely effect of changes in our business environment (e.g.
regulation, technology) on customers.
(5) We frequently collect and evaluate general macroeconomic information (e.g. interest rates,
exchange rates, GDP, industry growth rate, inflation).
Market information dissemination (seven point Likert scale)
Please indicate how much you agree or disagree with the following questions about the
DISSEMINATION of market information:

(1) Marketing personnel in our firm/business unit frequently spend time discussing customers
and preferences with other functional departments.
(2) Our firm/business unit frequently circulates information about our markets and customers
(e.g. reports, memos, newsletters).
 IMR (3) We frequently have cross-functional meetings to discuss market trends and developments
(e.g. customers, competitors, suppliers).
31,5
(4) We frequently have interdepartmental meetings to update our knowledge of the business
environment (e.g. regulation, economic trends).
(5) New customer or market information usually disseminates quickly throughout are firm/
business unit.
504
Learning orientation (seven point Likert scale)
Please indicate how much you agree or disagree with each of the following statements about the
priority that your firm/business unit places on CONTINUOUS LEARNING:

(1) Our basic values include learning as a key to improvement.

(2) The collective wisdom in this enterprise is that once we quit learning we endanger our
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future.
(3) There is a well-expressed vision of who we are and where we are going as an
enterprise.
(4) There is little agreement on our business vision across all levels, functions and divisions.a
(5) Management does not want their “view of the world” questioned.a
(6) We place a high value on open-mindedness.
Entrepreneurial orientation (seven point semantic differential scale)
Please tell us about your organization’s approach to PURSUING MARKET OPPORTUNITIES.
In each scenario below, please select the number that best represents your firm/business unit.
For example, circling “2” for the first scenario means you mostly market “tried and true”
products and services but also infrequently market “new to the market products and services,”
while circling “4” means your company puts equal priority on both:

(1) Market tried and true products and servicesyMarket new to the market products and
services.
(2) Innovate products and services only after others have shown these innovations to be
successfuly..Innovate products and services before others even if that means some will
fail.
(3) Respond to actions that competitors initiateyInitiate actions to which competitors
respond.
(4) Serve our existing customers and marketsyPursue new opportunities even if that requires
developing new customers and markets.
(5) Pursue high risk projects with chances of very high [Link] low risk projects with
normal and certain rates of return.a
(6) Engage in gradual and cautious behavior to pursue new opportunitiesyEngage in bold,
wide ranging acts to pursue new opportunities.
a
Low loading on construct led to elimination of item from measure.
 Appendix 2 Proactive
learning culture
Relationship Standardized regression coefficient t-value (sig.)

Proactive learning culture-local intg. 0.262 3.10***

Proactive learning culture-adaptation 0.415 4.70***
Proactive learning culture-launch success 0.132 1.38
505
Local intg.-launch success 0.314 3.32***
Adaptation-launch success 0.322 3.22**
Covariate effects on terminal dependent variable
Firm age-launch success 0.043 0.55
Firm revenue-launch success 0.045 0.50
Firm size (emply.)-launch success 0.025 0.29
Product quality-launch success 0.304 3.11**
Prod differentiation-launch success 0.114 1.19
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Tech turbulence-launch success 0.128 1.31

Goodness of fit indicators
w2 697.63
po 0.001
w2/df 2.19
CFI 0.869
TLI 0.833
RMSEA 0.088
Notes: Standardized regression coefficients reported for mean centered data. A “*” adjacent to Table AI.
coefficient signifies statistical significance at po0.05; “**” signifies po0.01; “***” signifies po0.001 Path analysis results

Corresponding author
Dr Itzhak Gnizy can be contacted at: itzikgn@[Link]

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