Governance of Export Channels to Eastern Europe: Impact of Market Characteristics on Business Performance

1. Governance of Export Channels to Eastern Europe:Impact of Market Characteristics on Business Performance Cristian Chelariu, York University Daniel C. Bello, Georgia State University David I. Gilliland, Colorado State University

2. Environment in Transitional Economies Central Planning Market Competition Poor infrastructure Obsolete production facilities Need for institution building / law enforecment Unstable political environment Unethical business climate Few local firms with Western business skills

4. Sampled Export Country-Markets • Russia 40% • Poland 20% • Czech Republic 9% • Hungary 5% • Less than 5% of sample: • Romania • Bulgaria • Baltic (Estonia, Latvia, Lithuania) • Slovakia, Slovenia • Others from former Yugoslavia, Kazahstan, Ukraine

5. Performance: Market Development Goals Export Channel Governance Environmental Uncertainty

6. Environmental Uncertainty Unanticipated changes in circumstances surrounding an exchange Williamson 1981 • Fundamental Facets: • Volatility • Munificence • Complexity Sharfman and Dean 1991

7. Market Volatility Unexpected change reducing partners ability to predict outcomes, renders agreements incomplete Demand Munificence Certainty that potential for product is & remains high Regulatory Complexity Diversity of trade regulations & institutions implementing trade rules

8. Market Development • Not just sporadic export sales • Systematically developing Eastern European market for exporter’s brand • Increasing Operational Interdependence • Increasing Non-market governance

9. Operational Integration Continuum Discrete Joint Action by exporter & importer Increasing Operational Interdependence

10. Joint Actions Operations interdependent and complex Importer Exporter Calls on F. customers Attends Trade Fairs Sets wholesale price Designs products Pre-sale market analysis & promotion Modified product for local conditions Salesforce training, Post-sale services

11. Complexity requires Governance Non-market Governance Mechanisms Operational Interdependence • Governance resolves increasingly complex decisions • Resource allocation • Role responsibility • Operational issues

12. Governance “the approach employed by parties to organize and regulate exchange conduct” Gundlach 1994 Unilateral: One partner establishes rules & rewards to elicit compliance by target Bilateral: Parties collaborate & share control based on mutual interests Heide 1994

13. Research Questions • Does intensified governance improve business performance? • Do facets of uncertainty intensify governance? • Does governance mediate the Uncertainty—Performance relationship?

14. Market Volatility ξ1 Bilateral Relationalism η1 Demand Munificence ξ2 Business Performance η3 Unilateral Incentives η2 Regulatory Complexity ξ3

15. Methods • USA export managers; from J. of Commerce & Dept. of Commerce lists • 747 firms phoned; only 353 export to Eastern Europe • 188 questionnaires back (180 useable, 51% response rate)

16. Volatility • Environment changes Slowly…changes Fast • Stable Environment…Erratic Environment • Certain Environment…Uncertain Environment • (scale: 7-point Semantic Differential ) • Demand Munificence • In that country, there is a high potential for our products • The customer demand for our product category is increasing in that country • In that country, the demand in our industry is growing • (scale: 1= Strongly Disagree to 7= Strongly Agree) • Regulatory Complexity • Doing business is complex because many entities (agencies, courts, bureaucrats) are involved in regulating business • Various government bodies with divergent agendas regulate business in that country • Doing business is subject to many approvals from a variety of officials at various levels • (scale: 1= Strongly Disagree to 7= Strongly Agree)

17. Bilateral Relationalism • Problems that arise in this relationship are treated by the parties as joint rather than as individual responsibilities • Both parties share in the problems that arise in the course of our dealings • When some unexpected situation arises, the parties would rather work out a new deal than hold each other to the original terms • Both parties are flexible in dealing with each other • Unilateral Incentives • When interacting with our partner, we provide incentives to motivate our partner to follow our suggestions • We offer specific incentives to our partner to encourage changes in its marketing and/or operating procedures • We emphasize what we will offer in return for their cooperation or participation

18. Business Performance • How effectively do you and your partner • accomplish your firm’s market development • goals in this Eastern European country: • Sales Goals • Profit Goals • Growth Goals • (scale: 1= Very Poor to 7= Very Well)

20. Market Volatility ξ1   Bilateral Relationalism η1 Demand Munificence ξ2 Business Performance η3 Unilateral Incentives η2 Regulatory Complexity ξ3

21. Implications • Channel management positively associated with performance • Governance matters; has performance consequences • Both U, B contribute uniquely

22. Implications • Volatility weakens B (close collaboration), U (mfg. incenting) • Uncertain, erratic environments are not “overcome” by stronger channel management • Unpredictability a key public policy problem

23. Implications • Exporter incentive-investing in E. European partner: • Encouraged by demand potential • Encouraged by regulatory complexity • Do exporters rely more on local partner?