Resources and performance: the firm's recovery from economic crisis.

Brahmasrene, Tantatape ; Tansuhaj, Patriya ; Ussahawanitchakit, Phapruke 等

ABSTRACT

A firm's response to economic volatility is a topic of interest to managers and academics alike. This study examines the relationship between resources for marketing and financial capabilities and performance of firms in recovery from economic crisis in Thailand. The authors researched this timely topic by collecting data from the Thailand market. Marketing capabilities (market orientation & strategic flexibility) and financial capabilities (financial strength & financial diversification) were chosen as independent variables. The results indicated that financial strength and financial diversification, as well as strategic flexibility, had positive influences on firms' performance. However, financial capabilities had greater influences on performance than marketing capabilities. Comparing these two types of capabilities sheds light on the resource allocation decision between the two functional areas when firms operate amid an economic crisis.

INTRODUCTION

In the global economy, domestic and international firms become more susceptible to economic crises, regardless of where they originate. Increased globalization and emergence of the network economy bring more direct and indirect effects of an economic crisis to firms (Achrol & Kotler, 1999). Although the Asian financial crisis, which began in Thailand in 1997, has passed, it continues to impact market conditions and firm performances in Asia and beyond. Among firms that have survived such a difficult time, it seems important to address the question of why some have recovered and now perform well while others do not. What we learn on how they have utilized certain strategies and resources will provide much insight to practitioners and researchers. Here we draw from a resource-based view in strategic management for identifying and justifying key determinants (Morash & Lynch, 2002). An understanding of the importance of the relationship between resources and performance and how these resources can be used to help a firm respond effectively to major crises may shed light on resource allocation decisions between the two functional areas: marketing and financial capabilities. This study also examines whether marketing capabilities play a more critical role than financial capabilities in explaining changes in a firm's recovery from economic crisis.

LITERATURE REVIEW AND HYPOTHESES

Relevant literature on economic crises, marketing capabilities and financial capabilities are reviewed in this section. Economic crises affect the ability of firms to manage a critical event. We use the resource-based view to help us understand how these firms exploit their capabilities to face the challenges of an economic crisis. Comparable effects of marketing and financial capabilities in managing this critical event are also considered.

Economic Crisis

International economic crises have emerged many times over the past decades. In the Central and South America crisis of 1982-1983, Mexico, Brazil, and Argentina were unable to make regular payments to international creditors. In 1992, a wave of speculation attacked the European Monetary Systems (Kim & Haque, 2002). When the Mexican government devalued its currency against the U.S. dollar in 1997, the crisis had widespread effects on currencies of both Latin and non-Latin American countries (Koo & Kiser, 2001).

The Asian financial crisis which emerged in Thailand in 1997, rapidly affected economic systems and stability in many countries in Asia and beyond (Wong, 2001). It was a surprise to people, managers, and researchers because economic growth of these countries had been fast and showed healthy signs since 1990. This crisis raised many questions. Why had the crisis occurred? How can we prevent an economic crisis from recurring? How do we manage if it recurs? Thus, the emergence of the Asian financial crisis has become an interesting academic study.

To clearly understand and learn from the Asian financial crisis, many studies have investigated causes of the crisis and its effects. Crisis occurs from the vulnerability of speculative attacks, the instability of apparent economic fundamentals, and the inability to sustain domestic macroeconomic policies (Dekle, Hsiao & Wang, 2002; Long & Tian, 2002). Its major features include government policies in those countries, overinvestment, disintermediation, inflated asset priced, unstable foreign exchange rates and high interest rates.

How did the Asian financial crisis affect firms' business operations? Pearson and Clair (1998) describe a crisis as a high impact situation that is perceived by critical stockholders to threaten the viability of the organization. Some firms have gone bankrupt and unemployment rates have risen steeply in the crisis-affected countries (Manning, 2002). Many of the firms which survive have worked very hard to achieve competitive advantage and succeed in doing business. In Singapore, large firms pursuing the prospector-oriented strategy (high innovation) have a lower uncertainty in financial results, a more long-term orientation for decision making, and more decentralized control (Shih & Young, 2001). The prospector-oriented strategy seems to have helped these firms survive during the Asian financial crisis. Agami (2002) also investigated how firms in Thailand, the Philippines, Malaysia, Indonesia, and South Korea survived during the crisis. He noted that cross-border mergers and acquisitions caused these firms to eliminate inefficient companies, reduce debt, and enhance economic, operation, and strategy performance. In order to survive, firms need to better concentrate on local activities, such as exploiting local borrowing, importing inputs from several local suppliers, exporting products and services to markets in unaffected countries, and building up local ownership of assets (Mudd, Grosse & Mathis, 2002).

Many studies have attempted to explain and understand why the crisis had happened, how it affected firms in their businesses and operations, and how firms survived during the crisis. Few studies have paid attention to how firms respond to it. Our research focuses on what characteristics of resources help firms recover from an economic crisis by emphasizing marketing and financial capabilities. After a significant period in crisis firms have more opportunity to make sense of the crisis and learning can ensue. We apply the resource-based view to conceptualize the relationships between firm resources and performance in the context of recovery from the crisis. The resource-based view focuses on the strengths and weaknesses of firms and then analyzes a pool of their internal resources to strategic-factor markets rather than external environments (Barney, 1986; Eisenhardt & Martin, 2000; Wernerfelt, 1984). This theoretical framework helps us understand how firms survive and succeed in the turbulent time. Next, we review literature on the resource-based view and present our theoretical model.

Resource-Based Determinants of a Firm's Performance in an Economic Crisis

According to the resource-based view, firms' internal resources are keys to creating and sustaining competitive advantage and to achieving superior performance (Barney, 1991; Morash & Lynch, 2002). The resources that sustain competitive advantage are valuable, rare, imperfectly imitable, and imperfectly substitute (Wernerfelt, 1984). Differences in resources not only allow firms to achieve competitive advantage and to survive and succeed through the crisis but also influence performance before and after the crisis. Efficiently managing and exploiting their resources seem to play significant roles in explaining the level of performance.

Marketing capabilities and financial capabilities are proposed here as enhancing firms' performance. Under the umbrella of marketing capabilities we include market orientation and strategic flexibility. Market orientation becomes key to help firms achieve competitive advantage and increase performance through highly and rigorously competitive environments (Matsuno & Mentzer, 2000). Strategic flexibility affects firms' survival and performance and greatly influences their superior performance in turbulent times (Subbanarasimha, 2001). Financial capabilities include both financial strength and financial diversification. Financial strength is a necessary prerequisite of any business activity and operation and strategic implementation (Barney, 1986). Financial diversification reflects the ability of firms to minimize uncertainty of competitive environments through exploiting several products, markets, and funding (Barney, 1995). Financial strength also includes a firm's investment in human capital, research and development. Figure 1 presents our theoretical model, which summarizes the hypothesized relationships of marketing and financial capabilities to performance. Next, we discuss and develop hypotheses on how these capabilities relate to firms' performance.

[FIGURE 1 OMITTED]

Marketing Capabilities

Marketing capabilities represent the ability to screen, use, and disseminate market information, to deal with competitive situations, and to manage an uncertain future (Verona, 1999). They help firms better understand the constantly changing consumer characteristics. Firms with greater marketing capabilities seem to easily meet customer needs, requirements, and expectations, through identifying and exploiting marketing concepts and activities to gain competitive advantage (Hooley et al., 1996). Accordingly, we propose that marketing capabilities help firms efficiently and effectively survive in a crisis and achieve performance in doing business. Both market orientation and strategic flexibility are key marketing capabilities of firms to deal with uncertain competitive environments of crises and maximize performance (Pelham, 1999; Subbanarasimha, 2001).

Market orientation.

Market orientation has been a buzzword in North America for about ten years. Market orientation refers to the generation and dissemination of market intelligence that is composed of information about customers' current and future needs, and exogenous factors that influence those needs, such as competition and government regulation (Kohli & Jaworski, 1990). It becomes a key determinant of competitive advantage and performance. Much strategic management research has been devoted to investigating the relationships between market orientation and performance. Market orientation plays a significant role in explaining firms' performance in doing business (Dawes, 2000; Harris, 2001; Hult & Ketchen, 2001). Firms with market-oriented strategy tend to emphasize a philosophy of marketing concepts, which include customers, marketing activities, and profit-oriented goals. Firms gather and use information more actively and openly to better serve customer needs. In the context of small firms, market orientation also directly and significantly influences firms' effectiveness and has a great impact on their profitability (Appiah-Adu, 1997; Pelham, 2000). With rigorously competitive environments and highly dynamic markets, the market orientation-performance relationships tend to be stronger (Homburg & Pflesser, 2000; Matusno & Mentzer, 2000). Further, market orientation also directly influences firms to generate innovations in products, procedures, and systems (Baker & Sinkula, 1999). How does market orientation help firms survive and succeed through the crisis? During the crisis, business environments vary and continuously change. They are uncertain and unpredictable. Competition in markets is also more aggressive. Firms must know what customers and markets want and have abilities to fulfill their needs. They need to understand the strengths and weaknesses of competitors. Knowledge about the customers, markets, and competitors in the critical time effectively encourages firms to achieve competitive advantage and gain superior performance. Marketing-oriented firms seem to better survive through the crisis. The first hypothesis is established below.

H1: Market orientation is likely to have a positive influence on performance after the crisis.

Strategic flexibility.

Strategic flexibility is a proactive part of a firm's competitive advantage and a critical component of a firm's ability to deal with turbulent environmental conditions and highly competitive environments (Pauwels & Matthyssens, 1999). It refers to a capability of firms to be proactive or respond quickly to changing competitive conditions and develop and/or maintain competitive advantage (Hitt, Keats & DeMarie, 1998). Increased flexibility helps firms adjust to situations of changing competition quickly, and implement decisions under conditions of uncertainty effectively. In a turbulent environment, strategic flexibility is needed to help firms respond to changing market conditions (Subbanarasimha, 2001). Sanchez (1997) also suggested that firms can manage their businesses and operations through creating strategic flexibility and leveraging to prepare for an uncertain future. For advancing hyper-competitive conditions such as in the telecommunication industry, flexibility is required for firms that want to exist in the business (Smith & Zeithaml, 1996). Thus,

H2: Strategic flexibility is likely to have a positive effect on performance after the crisis.

Financial Capabilities

Financial capabilities are one of a firm's resources for gaining competitive advantage and performance (Barney, 1995). They represent the ability of firms to manage, to search for sources of funding instruments such as debt, equity and retained earnings, to serve all their operations and activities, and to support their strategic implementation (Wernerfelt, 1984). Financial capabilities, including financial strength and financial diversification, enable firms to survive and succeed during a crisis. According to Greene, Brush, and Hart (1999), external funding sources are often unavailable. Firms' financial strength and diversification enable them to implement appropriate strategies during a turbulent environment.

Financial strength.

Financial strength refers to firms' financial backing. It allows the firms to enter a strategic factor market and to acquire the resources needed to implement a product market strategy (Barney, 1986). These financial advantages include more sources of funding, low interest rates, and high liquidity of financial operations. Firms with financial strength can improve existing products and services and develop new products and systems to better serve their customers (Greene, Brush & Hart, 1999). Financial strength encourages firms to gain competitive advantages in an imperfect market and achieve high performance in a perfect market.

During a recovery from crisis, financial strength explicitly plays an important role in enhancing firms' performance. The Asian financial crisis in 1997 was caused by unstable currencies, high interest rates, and short-term capital inflows (Chan-Lau & Chen, 2002; Deckle, Hsiao & Wang, 2002). In general, firms have a hard time improving their financial strength in the short run. However, firms that have the ability efficiently to manage their sources of funding and exploit their financial strength tend to survive in the crisis. Hence,

H3: Financial strength is likely to have a positive influence on performance in a recovery from the crisis.

Financial diversification.

Diversification refers to the ability of firms to reduce risks from uncertainty of competitive environments through expanding activities from one to many products, markets, and funding (Hoskisson & Hitt, 1990). Firms with greater diversification seem to achieve competitive advantage and perform better than firms without diversification. The concept of financial diversification here also reprensents a combination of product and international diversity. Product diversification concentrates on an expansion into new products. International diversification represents an expansion across the borders of global regions and countries into different geographic locations or markets (Hitt, Hoskisson & Kim, 1997). Firms with extensive product lines might make use of their brand equity to sell a lower-priced item. Firms with much product breadth might be able to find domains less affected by the crisis. Financial diversification reflects firm-specific sources of revenues and materials that normally yield lower risks and rents (Mahoney & Pandian, 1992). An expansion of sources of revenues and materials into different customers, products, and suppliers reduces risks from operations. By and large,

H4: Financial diversification is likely to have a positive effect on performance after the crisis.

There are different influences of these capabilities on performance after a crisis. Marketing capabilities emphasize how firms meet customer needs to increase their performance; financial capabilities pay more attention to how firms manage and exploit their funding sources to support their strategic implementation. It is conceivable that financial capabilities precede marketing capabilities, as the former makes financing of the latter possible. In recovery from the Asian financial crisis, firms explicitly needed to have long-term sources of funds, low interest rates and flexible payment by currencies other than U.S. dollars. Less attention was directed toward selling products and services. Therefore,

H5: Financial capabilities are likely to have more positive influences on performance after the crisis than marketing capabilities.

Moderating Effect of Governmental Regulations

In general, governmental regulations can be either advantageous or disadvantageous to firms' operations. The Thai government has introduced numerous policies and regulations to improve the nation's stability and help firms survive and succeed (Chotigeat & Lin, 2001; Kim & Haque, 2001). First, it accepted the economic reform program under International Monetary Fund (IMF) guidelines to maintain its financial system. For instance, the Thai government was required to have a balanced budget by increasing the consumption tax, reducing government spending, and maintaining high interest rates to stabilize the Thai baht and to reverse capital outflows. Second, restricted offshore forward-trading in baht was implemented to stabilize the currency. Third, it closed down many its own domestic financial companies and local banks to reorganize the financial sector. Fourth, it created new government agencies to handle the assets of the now defunct financial companies. Fifth, a new bankruptcy law was passed to speed up the bankruptcy process. Finally, it introduced a special spending package aimed at jump-starting the stalled economy, encouraging consumer spending, and creating a half million jobs. The changes in governmental regulations stemming from the crisis suggest the important influence of such regulations. Governmental regulation measure in this paper is idiosyncratic in nature, as it measures the firm's interface with the government and seemingly affects all businesses in varying degree throughout Thailand. According to the implementations during the crisis, we expect governmental regulations to manifestly enhance the relationships between firms' capabilities and performance.

H6: Governmental regulations have positive moderating effects on marketing capabilities-performance after the crisis.

H7: Governmental regulations have positive moderating effects on financial capabilities-performance after the crisis.

In light of these hypothesized relationships, a survey was conducted and the empirical models are constructed, as explained in the next section.

EMPIRICAL FRAMEWORK

Sample

The data source used in this study is an original survey conducted from small to medium size firms in four regions of Thailand: central, eastern, southern and northern regions. The hypotheses posit a relationship between specific capabilities and firm performance after the crisis. In order to include the notion of crisis and examine the importance of these capabilities with regard to recovery from the crisis, the 1998-2001 time period surveyed was chosen. Data were collected through personal interviews with managers and owners of the firms from February to April of 2002. Of 250 firms contacted to participate in the study, 98 surveys were completed. The actual response rate of the surveys obtained was 39 percent. The responding firms were characterized as small to medium size firms.

Variables

All of the variables were obtained from the survey. A dependent variable was a continuous variable representing performance after crisis. The longitudinal measures of the performance of the firm average profit margin after the economic crisis reported in this survey was 3.5 percent with the range of -1 to 6 percent. Independent variables include three different categories: marketing capabilities (market orientation & strategic flexibility), financial capabilities (financial strength & financial diversification) and governmental regulation. Market orientation consists of four sub-constructs: information generation, information dissemination, response design and response implementation. Thirty one items were used to measure market orientation, introduced by Jaworski and Kohli (1993). They include ten items of information generation, seven items of information dissemination, seven items of response design, and seven items of response implementation. Strategic flexibility was measured via six items, developed by Grewal and Tansuhaj (2001). These items evaluated the degree to which firms deal with market changes through organizational adjustment and flexibility. Financial capabilities are made up of financial strength and diversification. Four items were used to capture financial strength (Greene, Brush & Hart, 1999). The first item mirrored the sound financial plan while the next two items measure continued improvement of financial position as assessed by sufficient cash flows and working capital. The last item appraised support of financial institutions and related authorities or agencies as suggested by resource based theory. Furthermore, financial diversification was measured via five items (Mahoney & Pandian, 1992). Overall, these five items gauged the degree of firms' dependence on one key customer, supplier and product line.

Governmental regulations were added as a moderating effect of the relationship between firm resources and export performance. In order to examine variation in these government regulations and to test for the importance of this effect, executives' perceptual differences on the same government policy instrument are employed due to difficulty in data collection across different Asian countries. Governmental regulations have a threefold impact on a firm through research and development, enforcement action and ability to respond to change in regulations. Other exogenous control variables that may impact the hypothesized relationships include performance before crisis, industry type, international dependence, firm size or number of employees (Burgel & Murray, 2000), and firm age or number of years a firm has been in existence (Zahra, Ireland & Hitt, 2000).

Method

First, factor analysis was utilized to investigate the underlying relationships of a large number of items and to determine whether they can be reduced to a smaller set of factors. The factor analyses conducted were done separately on each set of items representing a particular scale due to few observations. Then, the ordinary least squares (OLS) method is used to estimates factors affecting a firm's performance after crisis (Aulakh, Kotabe & Teegen, 2000). A model is structured as shown in Tables 3.

RESULTS

The results from factor analysis are presented in Table 1. Given the difficulty of using Western-designed scales in other cultures, the four dimensions specified by Kohli and Jaworski for market orientation were found. All factor loadings are greater than the .4 cutoff as recommended by Nunnally and Bernstein (1994). In addition, the statistical analysis suggests adequate levels of fit. Table 2 shows correlations and descriptive statistics of all constructs. Seven measurement models according to seven hypotheses are estimated as shown in Table 3. Interaction terms induced by governmental regulation along with the main effects are included in the last two models.

All market orientation components are insignificant: information generation ([H.sub.1]: b = -.005, p < .97), information dissemination ([H.sub.1]: b = .168, p < .17), response design ([H.sub.1]: b = -.080, p < .49) and response implementation ([H.sub.1]: b = .032, p < .77). If the coefficients are not statistically different from zero, the sign of those coefficients is irrelevant. In light of insignificant market orientation variables, strategic flexibility is crucial and directly affects firm navigation out of the crisis ([H.sub.2]: b = .258, p < .01).

The most interesting aspect of these results is the manner in which financial capabilities significantly and positively influence firm performance after crisis as is evident from two significant components: financial strength ([H.sub.3]: b = .277, p < .01) and financial diversification ([H.sub.4]: b = .272, p < .01). Are these financial capabilities likely to have more positive influences on performance after the crisis than marketing capabilities? All variables are based on the same scale and only two variables: strategic flexibility ([H.sub.5]: b = .212, p < .05) and financial diversification ([H.sub.5]: b = .266, p < .05) are significant. Therefore, the size of coefficients of these two variables may suggest that financial diversification have more direct effect on performance after the crisis than strategic flexibility. Of course, these two variables are a subset of financial capabilities and marketing capabilities. Moreover, in this particular equation, all market orientation components: information generation ([H.sub.5]: b = -.079, p < .48), information dissemination ([H.sub.5]: b = .053, p < .65), response design ([H.sub.5]: b = -.114, p < .30), response implementation ([H.sub.5]: b = .128, p < .22) and financial strength ([H.sub.5]: b = .175, p < .13) are insignificant.

When governmental regulation is introduced into model 6, strategic flexibility and its interaction with governmental regulation significantly influence performance after crisis. While strategic flexibility directly affect performance after a crisis ([H.sub.6]: b = .289, p < .01), its interaction term with governmental regulation imposes a negative influence ([H.sub.6]: b = -.242, p < .10). All market orientation components: information generation ([H.sub.6]: b =.039, p < .74), information dissemination ([H.sub.6]: b = .042, p < .77), response design ([H.sub.6]: b = -.139, p < .24) and response implementation ([H.sub.6]: b = .125, p < .26), governmental regulation and its interaction with market orientation components market orientation components are insignificant. The last model shows that while both financial strength ([H.sub.7]: b = .180, p < .10) and diversification ([H.sub.7]: b = .198, p < .10) are significant, their interaction with governmental regulation and governmental regulation itself are insignificant.

DISCUSSION

The 1997 Asian financial crisis started in Thailand. In so far as it is dynamic, its aftermath continues to affect market conditions and a firm's performance in that region. It is imperative to address the disparity between firms that have survived such a crisis and those that failed. This study highlights two major insights into a resource-based view in strategic management: marketing and financial capabilities. The critical role of a firm's marketing and financial capabilities in recovery from economic crisis was examined. Giving the boundary spanning nature of marketing one would expect the marketing constructs to be more highly related to governmental regulation. In fact, the high correlations of governmental regulation with financial variables were found. This may be because the crisis in Asia was a financial crisis. Furthermore, strategic flexibility had a direct impact on performance after the crisis while market orientation was not statistically significant. Our research found that among firms in recovery from the economic crisis only strategic flexibility and financial capabilities tend to enhance a firm's performance. In addition, financial diversification reveals a stronger impact on firm's performance than strategic flexibility. Although the determinants of strategic flexibility and financial capabilities are essential, this presentation does not mean that a fully integrated resource-based view has been developed. It does provide a consistent way of analyzing the effects of marketing and financial capabilities on firm's performance. The allocation of the future marketing and financial resources, or the evaluation of current policies and the program promoting firm's performance and stability requires an understanding of these determinants.

IMPLICATIONS

Theoretical Implication

This research adds to the knowledge and the literature on economic crisis and the resource-based view (market orientation, strategic flexibility, financial strength, and financial diversification). Among marketing capabilities (market orientation and strategic flexibility), our study seems to indicate that strategic flexibility is in fact a key determinant of the firm's recovery from an economic crisis. However, market orientation is not statistically significant in explaining firms' performance. Further, our study shows that financial capabilities have a stronger positive influence on performance than marketing capabilities.

Policy Implication

We also provide important implications to firms' executives and managers. Our study helps managers identify key resources that may be more critical during a turbulent time of an economic crisis. Managers should focus on the importance and development of skills for marketing capability (strategic flexibility). Strategic flexibility plays a significant role in helping managers survive during a crisis. Greater strategic flexibility encourages firms to achieve more competitive advantage and gain higher performance. Likewise, managers should give more attention to building the knowledge and skills to manage their funding sources and diversify revenue sources. Additionally, firms with high financial strength and diversification seem to better manage and recover from the crisis. More financial strength helps firms implement appropriate strategies to fulfill customer needs and expectations, and to maintain and increase performance. Unlike the other capability variables, financial strength cannot be changed in the short run. Therefore, financial diversity seems to be more important than strength. Further, more diversified sources of revenues enable firms to reduce their operations' risks and gain more benefits from uncertain business environments.

Understanding how firms have utilized certain resources over the period of resource scarcity during an economic crisis should provide insight for practitioners and researchers. The practical implication of this research is that in recovery from economic crisis, especially in financial crisis environment, a firm's financial capabilities are relatively more important than strategic flexibility. Firms need to diversify such that their revenues will not depend solely on one key customer and product line or limit their production to a single supplier. However, sound financial position involves more than just diversification. Firms seeking financial strength must maintain not only sufficient cash flows and working capital, but also support of financial institutions and related authorities, or agencies as suggested by a resource-based view.

CONCLUSIONS

Economic crises and the proper firm reactions make for interesting issues. The Thai experience in recent years is rich and capable of providing insight. This study attempted to find out what resources are more critical to firms as they recover from a major economic crisis. The empirical tests indicate clearly that although strategic flexibility as a marketing capability is significant, financial capabilities are more influential to firm's performance after the crisis. Yet, there is room for future research to include other capabilities from the marketing and financial functions, as well as other areas of a business. There should also be more studies across national markets for generalization of these results. Such research will contribute significantly toward our understanding of how firms deal with a more frequently occurring phenomenon of the economic crisis that comes with increased globalization.

NOTE

The authors acknowledge financial support from the Fulbright Scholar Program, Thailand-U.S. Educational Foundation and Washington State University's International Business Institute.

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Tantatape Brahmasrene, Purdue University North Central Patriya Tansuhaj, Washington State University Phapruke Ussahawanitchakit, Mahasarakham University Table 1: Results from Factor Analysis Measurement Model Range of Standardized Factor Loadings Information Generation (IG) .53-.77 Information Dissemination (ID) .44-.79 Response Design (RD) .57-.80 Response Implementation (RI) .44-.84 Strategic Flexibility (SF) .61-.81 Financial Strength (FS) .72-.84 Financial Diversification (FD) .71-.81 Governmental Regulation (GR) .71-.82 [x.sup.2] (d.f., p Value) Information Generation (IG) 138.81 (45, P < .01) Information Dissemination (ID) 98.91 (21, P < .01) Response Design (RD) 111.78 (21, P < .01) Response Implementation (RI) 79.30 (21, P < .01) Strategic Flexibility (SF) 174.17 (36, P < .01) Financial Strength (FS) 118.59 (66, P < .01) Financial Diversification (FD) 94.64 (10, P < .01) Governmental Regulation (GR) 247.85 (45, P < .01) Table 2: Descriptive Statistics Variables IG ID RD Information .450** .274** Generation (IG) Information .422** Dissemination (ID) Response Design (RD) Response Implementation (RI) Strategic Flexibility (SF) Financial Strength (FS) Financial Diversification (FD) Governmental Regulation (GR) Profit Margin (PM) Mean 3.71 3.87 3.85 Standard deviation 0.66 0.62 0.68 Variables RI SF FS Information -.145 -.032 .127 Generation (IG) Information -.173* .098 .219* Dissemination (ID) Response Design (RD) -.174* .182* .205* Response -.151 -.188* Implementation (RI) Strategic .383** Flexibility (SF) Financial Strength (FS) Financial Diversification (FD) Governmental Regulation (GR) Profit Margin (PM) Mean 0.54 3.69 3.81 Standard deviation 0.65 0.62 0.63 Variables FD GR PM Information .336** .068 .046 Generation (IG) Information .336** .319** .130 Dissemination (ID) Response Design (RD) .114 .181* -.014 Response -.191* -.197* .000 Implementation (RI) Strategic .034 .297** .258** Flexibility (SF) Financial Strength (FS) .228* .305** .277** Financial .299** .272** Diversification (FD) Governmental .215* Regulation (GR) Profit Margin (PM) Mean -0.95 -1.05 3.50 Standard deviation 0.72 0.43 1.12 Note: ** Correlation is significant at the 0.01 level (1-tailed) * Correlation is significant at the 0.05 level (1-tailed) Table 3: Results from the Ordinary Least Squares Model (Dependent Variable = Firm's Performance) Independent Variables Hypotheses 1 2 3 4 Market orientation: Information Generation -.005 (.134) Information Dissemination .168 (.143) Response Design -.080 (.132) Response Implementation .032 (.119) Strategic Flexibility .258 *** (.113) Financial Strength .277 *** (.112) Financial Diversification .272 *** (.110) Governmental Regulation IG x GR ID x GR RD x GR RI x GR SF x GR FS x GR FD x GR R2 .024 .066 .076 .074 F-Statistics .546 6.61 *** 7.78 *** 7.43 *** Independent Variables Hypotheses 5 6 7 Market orientation: Information Generation -.079 .039 (-.130) (-.139) Information Dissemination 0.053 0.042 (.139) (.166) Response Design -.114 -.139 (.126) (.140) Response Implementation .128 .125 (.115) (.123) Strategic Flexibility .212 ** .289 *** (.126) (.132) Financial Strength .175 .180 * (.127) (.124) Financial Diversification .266 ** .198 * (.122) (.116) Governmental Regulation .123 0.069 (.157) (.122) IG x GR -.036 (.165) ID x GR .192 (.130) RD x GR -.109 (.137) RI x GR .018 (.162) SF x GR -.242 * (.124) FS x GR -.165 (.106) FD x GR -.068 (.096) R2 .185 .191 .164 F-Statistics 2.72 *** 1.68 * 3.41 *** Note: Standard error is in parentheses. * P < .10, ** P < .05, *** P < .01