Relationships Between the Capabilities and Export Performance of Korean Clothing and Textiles SMEs and the Moderating Effects of Export Mode on These Relationships

Abstract

The authors proposed hierarchical (stepwise) regression models to test the hypothesized relationships between capabilities and the export performance of Korean clothing and textiles small- and medium-sized enterprises (SMEs), along with the moderating effects of export mode (exporting own-brand products versus exporting products under original equipment manufacturing [OEM] contracts) on these relationships. The authors show that both technological capability (TC) and the ability to leverage foreign-distributor capabilities (ALFDCs) are positively related to strategic export performance; marketing capability (MC) is positively related to financial export performance; TC and the ALFDCs are related more strongly to strategic export performance for SMEs exporting own-brand products than those exporting under OEM contracts; and MC is related more strongly to financial export performance for SMEs exporting own-brand products than those exporting under OEM contracts. In addition, strategic export performance is positively related to financial export performance. From these results, the authors offer implications for managers and future researchers.

Keywords

marketing capability technological capability export performance export mode Korean clothing and textiles SMEs ability to leverage foreign-distributor capabilities

Small- and medium-sized enterprises (SMEs), which face intense competition in their domestic markets especially when these markets are small, may need to expand internationally to grow and ensure long-term survival (Leonidou, Katsikeas, & Samiee, 2002). Because of their limited human and capital resources, SMEs typically enter overseas markets via exporting. This entry mode requires fewer corporate resources, allows more flexibility, and involves less risk than offshore factories (Young, Hamill, Wheeler, & Davies, 1989).

In general, firms export products through two different modes: own brands or the brands of buyer firms. The export mode of a firm depends partly on its manufacturing methods, which may be characterized as original equipment manufacturing (OEM), original development/design manufacturing (ODM), or original brand manufacturing (OBM) (Chung, 2015; Hobday, 1994; Hsiao & Chen, 2013; Lee, Song, & Kwak, 2015). OEM firms manufacture products according to the specifications of buyer firms, whereas ODM firms perform most or all of the processes involved in the design and manufacturing of products, which they then sell to buyer firms that brand and market the products. ODM is an upgraded form of OEM, but both OEM and ODM firms manufacture products under contracts with buyer firms whose brands accompany the products (Hsiao & Chen, 2013). Although OEM and ODM allow firms to export without undertaking much risk, the firms depend on buyer firms for research and development (R&D) and marketing functions, rendering them vulnerable in the long run to threats from low-cost, latecomer competitors (Lee et al., 2015).

With OBM, the most advanced of the three manufacturing methods, a firm manufactures its own products and performs R&D along with sales and distribution functions. OBM firms export own-brand products and promote strong brand images and loyalty in foreign markets to add value to their products. SMEs tend to engage more frequently in OEM or ODM than OBM. Regardless of their manufacturing methods, SMEs typically rely on foreign distributors for international marketing activities because they tend to lack sufficient resources to establish their own marketing subsidiaries abroad (Knight & Cavusgil, 2004; Lee et al., 2015; Sousa & Bradley, 2009).

Firms that export through the three modes cited above require different resources to achieve successful export performance (Hsiao & Chen, 2013; Lee et al., 2015). Given their limited resources, it is critical that SMEs engaged in exporting identify the factors relevant to their export modes that will lead to optimal international performance (Bartlett & Ghoshal, 1987). Such factors have received little attention among clothing and textiles (C&T) SMEs despite their active involvement in exporting. To help fill this gap, we designed this study to examine factors related to the export performance of C&T SMEs, along with the moderating effects of export mode on the relationship between these factors and export performance.

The authors focused on C&T SMEs in South Korea (Korea hereafter) that export own-brand products and products under OEM contracts for two reasons. First, these firms urgently need to identify factors that will lead to successful export performance, for their sustainability may depend on exporting due to the small, intensely competitive domestic market in Korea (Lee et al., 2015). These SMEs face competition not only from large Korean apparel firms but also from global fashion firms that have aggressively established a presence in the country (Joo, 2013). Second, many foreign distributors and global manufacturers in the C&T industry have shifted from contracting with OEM apparel manufacturers in Korea to partnering with firms in China and Southeast Asia, where large, low-wage production bases have operated since the mid-1990s (Joo, 2013). Thus, the Korean C&T SMEs that pioneered OEM during the country’s industrialization must look beyond exporting products under OEM contracts and consider exporting own-brand products (Jin, 2004; Jin, Kandagal, & Jung, 2013). However, the majority of C&T SMEs still export products that bear the brands of buyer firms rather than their own brands (Moon & Kim, 2015), even though Korean manufacturing SMEs, including C&T firms, have rapidly increased exports of own-brand products over the past decade. According to the Korea Federation of SMEs (2016), such exports increased by an average of 18.64% during the past 5 years, though they comprised only 16.3% of the country’s total SME exports in 2014. Furthermore, Moon and Kim (2015) noted that most C&T SMEs that export products under buyer firm brands have OEM contracts instead of ODM. Therefore, the exporting of own-brand products and products under OEM contracts was examined in this study.

The conceptual framework for this study was drawn from resource-based theory (RBT), in which technological capabilities (TCs), marketing capabilities (MCs), and the ability to leverage foreign-distributor capabilities (ALFDCs) are considered valuable firm resources for gaining a sustainable competitive advantage in foreign markets, thus enhancing export performance (Barney, 1991; Knight & Cavusgil, 2004; Meyer & Utterback, 1993; Sanchez, Heene, & Thomas, 1995; Sousa & Bradley, 2009; Stalk Jr, 1992). The purpose of this study was to examine the relationships between these capabilities and export performance for Korean C&T SMEs, along with the moderating influence of export mode—either through own-brand products or products under OEM contracts—on these relationships. Because export performance is typically perceived as a two-dimensional construct that includes financial and strategic performance, these two types of export performance were employed in the study (Cavusgil & Zou, 1994; Gabrielsson, Gabrielsson, & Seppälä, 2012). Although the authors focused on the Korean C&T industry, the findings also may have implications for firms in other Asian NIEs (newly industrializing economies)¹ experiencing economic changes similar to those in Korea.

Literature Review

The C&T industry in Korea accounted for 1.9% of the country’s gross domestic product in 2013 (Park, 2014). It accounted for 2.7% of Korea’s total exports in 2016, comprising 1.8% of world exports of these products that year, with Korea ranking eighth among world exporters of C&T products (Korea Federation of Textile Industries, 2016). SMEs dominate the Korean C&T industry, accounting for 99.87% of C&T manufacturing in Korea (Korea Federation of SMEs, 2016) and comprising the majority of exporters in the industry (Kang & Jin, 2007). For example, more than 90% of textiles exporters are SMEs (Institute for International Trade, 2011). Given the predominance of SMEs in the Korean C&T industry and the intense domestic competition that they face, successful internationalization of these SMEs is critical for further development of this industry.

Despite the C&T industry’s currently minor contribution to Korea’s exports, the industry once accounted for a much higher percentage of Korea’s exports during the early economic development of the country. Internationalization of the Korean C&T industry began in the 1960s with the exporting of clothes and shoes produced by OEM (Ha-Brookshire & Lee, 2010). By the 1970s, Korea’s C&T industry accounted for 30% of its exports. Korea, along with Hong Kong and Taiwan, achieved strong export growth in the C&T industry until the mid-1980s, and as a result, these countries came to be known as the “Big Three” exporters in the global market for C&T products (Kang & Jin, 2007).

Korea’s OEM clothing exports and share of world C&T exports declined by the late 1980s because of rapid wage growth, restraints imposed on C&T exports under the Multi Fiber Arrangement, and competition from less developed countries (Cline, 1990; Ha-Brookshire & Lee, 2010; Jin & Moon, 2006). As C&T production moved from Korea to China and Southeast Asia, where large, low-wage production bases had operated since the mid-1990s, the core focus of the Korean C&T industry shifted from manufacturing to the development of global brands (Joo, 2013). Korean C&T firms began to sell own-brand products abroad in the late 1990s. A few Korean C&T SMEs, such as Beaucre Merchandising Co., Ltd., remain successful exporters today, but insufficient resources have hampered the exporting ventures of many SMEs (Jin et al., 2013). Thus, Korean C&T SMEs need to make effective and efficient use of their limited resources in such ventures based on factors relevant to export modes that will lead to optimal performance in export markets.

Conceptual Framework

RBT

According to RBT, a company possesses sustainable competitive advantage if it owns irreplaceable and valuable resources that are rare and impossible to imitate. That is, the competitive advantage of a company is determined not by the characteristics of the industry to which it belongs but rather by its resource specificity (Barney, 1991). RBT emphasizes resources as essential to firm performance (Sousa & Bradley, 2009). Firm resources include both tangible assets, such as equipment, and intangible assets, such as knowledge. Knowledge is considered to be most important because capabilities stem from regular use of knowledge-intensive activities (Teece & Pisano, 1994). Firms build capabilities and business performance by structuring such activities into their regular operating procedures (Knight & Cavusgil, 2004).

Many studies of SME export performance are grounded in RBT, offering evidence that despite their limited resources, SMEs can use MCs and TCs to strengthen competitiveness and export performance (Bloodgood, Sapienza, & Almeida, 1996; Meyer & Utterback, 1993; Sanchez et al., 1995; Stalk, 1992). The MC of a firm refers to its ability to effectively and efficiently promote and sell its products. The TC of a firm refers to its ability to develop new products using superior machines, materials, knowledge, and skills. Porter (1980) noted that these capabilities can enable product differentiation strategies of SMEs. Knight and Cavusgil (2004) and Peng and York (2001) indicated that SME’s performance in foreign markets largely depends on the ability to leverage the foreign-distributor capability of distributing products into the market because many SMEs lack the resources to market the products themselves. Because foreign distributors typically possess export market knowledge, they may perform valuable marketing and distribution functions on behalf of exporters (Knight & Cavusgil, 2004; Peng & York, 2001).

Researchers have found evidence for relationships between capabilities and export performance for C&T firms in Italy and the United States (Seyoum, 2007; Zucchella & Siano, 2014). Seyoum (2007) found that a combination of MCs and TCs can enhance the performance of U.S. C&T firms. Innovation and TCs have contributed substantially to the export performance of C&T SMEs in Campania, Italy (Zucchella & Siano, 2014). Thus, RBT formed the conceptual framework for this study on the relationships between capabilities and export performance for C&T SMEs in Korea.

Export Performance

The export performance of a firm, as measured by its growth and profit levels from product sales in foreign markets, is a key indicator of its internationalization (McDougall, Covin, Robinson, & Herron, 1994). We defined export performance in this study as “the extent to which a firm’s objectives, both economic and strategic, with respect to exporting a product into a foreign market, are achieved through planning and execution of export marketing strategy” (Cavusgil & Zou, 1994, p. 4). As mentioned earlier, export performance is conceived as a two-dimensional construct comprising financial and strategic performance. Financial performance, the most frequently applied dimension, includes metrics such as export sales and profits (Cavusgil & Zou, 1994). Strategic performance is “an important intermediary gauge that can contribute to improved financial performance” (Gabrielsson et al., 2012, p. 31), defined in this study as the extent to which a firm gains a competitive position in a foreign market via brand awareness and image among consumers. We used both financial and strategic performance to measure export performance for Korean C&T SMEs.

Antecedents of Export Performance

MC

MC is considered essential for success in foreign markets because companies with this capability can provide purchasers with more valuable products and services than do those of competitors (Knight & Cavusgil, 2004). They can use skills and other resources to collect and apply market-related knowledge to customize products according to the wants and needs of overseas consumers. This enhances their brand awareness and image among such consumers, allowing them to attain competitive positions and improve their financial and strategic performance in foreign markets (Cavusgil & Zou, 1994; Chang, 1996). Because consumer needs and preferences for fashion products tend to be more diverse and idiosyncratic across regions and cultures than are those for durable goods (Fiore, Lee, & Kunz, 2004), C&T SMEs must possess MCs to provide products that satisfy foreign consumers. These arguments led to the following hypothesis:

Hypothesis 1a and b: The greater the marketing capabilities of Korean C&T SMEs, the better will be their (a) strategic performance and (b) financial performance in export markets.

TC

TC can facilitate the creation of products superior to those of competitors and improve existing products through implementation of efficient and effective production processes (Knight & Cavusgil, 2004). Furthermore, the development of new products based on consumer wants and needs in foreign countries can catalyze increased SME market share in such countries (Bloodgood et al., 1996). Knight and Cavusgil (2004) also noted that TC functions as a bridge for creating unique products that foster export success for SMEs. The abilities of C&T SMEs to gain competitive advantages and quickly respond to rapid changes in export markets may depend on TCs because of the complex, specialized machinery required to manipulate the pliable yarns and fabrics used in C&T products (Jin, 2004). The arguments above led to the following hypothesis:

Hypothesis 2a and b: The greater the technological capabilities of Korean C&T SMEs, the better will be their (a) strategic performance and (b) financial performance in export markets.

ALFDCs

Because SMEs generally possess insufficient resources to perform marketing functions in export markets, the export market knowledge and marketing expertise of foreign distributors can be crucial for SMEs that wish to establish their presence in such markets (Gereffi, 1999; Knight & Cavusgil, 2004). Moore (1998) demonstrated that selection of quality foreign distributors can help C&T firms gain market information, generate sales, create a loyal consumer base, and identify future trading partners with relative ease. Thus, the ALFDCs may also be needed for C&T SMEs to succeed in export markets. We therefore proposed the following hypothesis:

Hypothesis 3a and b: The greater the ability of Korean C&T SMEs to leverage foreign-distributor capabilities, the better will be their (a) strategic performance and (b) financial performance in export markets.

Moderating Effects of Export Mode

OEM firms tend to take few risks in R&D and marketing because they often depend on foreign distributors to perform these functions (Lee et al., 2015). Although many firms that export own-brand products perform R&D, sales, and distribution functions, most rely on foreign distributors to market the products abroad because they lack resources to establish marketing subsidiaries in foreign countries (Knight & Cavusgil, 2004; Lee et al., 2015).

Firms that export own-brand products tend to require stronger capabilities than those of firms that export under OEM contracts (Kumar & Steenkamp, 2013). Because many SMEs that export own-brand products perform R&D as well as designing and developing original products, they critically need skills and other resources for collecting and applying market-related knowledge to customize products according to the wants and needs of overseas consumers (Knight & Cavusgil, 2004). In addition, SMEs that do not rely on foreign distributors to market their products abroad often require lavish advertising budgets for campaigns to promote brands to overseas consumers (Jin, 2004). However, SMEs that export under OEM contracts do not require vast market information because they simply manufacture export products according to buyer firm specifications. Furthermore, few would need to conduct marketing campaigns because their main customers tend to be industrial buyers that are smaller in number and more homogeneous than end consumers (Kang, Mahoney, & Tan, 2009). The relationship between export performance and MC is therefore likely to be stronger for Korean C&T SMEs that export own-brand products than for those that export under OEM contracts.

Firms that export products under OEM contracts require TCs to meet the product and production specifications of buyer firms, but the relationship between the export performance and TCs of these firms tends to be weaker than that of firms that export own-brand products. SMEs that export own-brand products perform R&D and design and manufacture new products (Hobday, 1994). Thus, they take risks and require strong TCs to introduce products that attract foreign consumers and to promote brand awareness and brand image. In addition, the relationship between export performance and the ALFDCs is likely to be stronger for firms that export own-brand products than for those that export under OEM contracts. SMEs that export own-brand products need to partner with foreign distributors that conduct marketing functions to build brand awareness and image among foreign consumers. However, SMEs that export products under OEM contracts have little need for these functions. On the basis of these arguments, we proposed the following hypotheses:

Hypothesis 4a–c: The relationship between strategic export performance and (a) MC, (b) TC, and (c) the ALFDCs will be stronger for Korean C&T SMEs that export own-brand products than for SMEs that export under OEM contracts.

Hypothesis 5a–c: The relationship between financial export performance and (a) MC, (b) TC, and (c) the ALFDCs will be stronger for Korean C&T SMEs that export own-brand products than for SMEs that export under OEM contracts.

Research Method

Data Collection and Sample Characteristics

The C&T companies in this study were drawn from a cross-sectional survey sample from a larger project² on the internationalization of Korean SMEs. The sample for that project was selected by the following process. We first identified a total of 60,000 firms that met the Korean legal definition for an SME using a data set compiled by the Korean Chamber of Commerce and Industry; according to this definition, SMEs are companies with fewer than 300 employees and 3-year average annual sales of less than US$132 million. Next, to form the sampling frame for that project, 3,000 firms from various industry sectors were selected from those 60,000 firms if they had more than 30 employees and overseas sales that accounted for more than 10% of their total annual gross sales.

After receiving approval from the institutional review board at our university, we faxed or e-mailed our self-explanatory written questionnaire to the 3,000 SMEs in our sampling frame to be completed by their managers. The questionnaire cover page indicated that only recipients who signed a form expressing their agreement to participate in the study would be included in the survey sample. Although 851 questionnaires were returned in November and December of 2014, resulting in a 28.3% response rate, we removed 36 responses because of omitted or noncredible responses. The remaining 815 questionnaires included 116 C&T SMEs, which formed the research sample. All 116 respondents were managers in their firms and thus presumably had sufficient knowledge about their firms’ export activities. Table 1 shows self-reported characteristics of those 116 SMEs. Consistent with the Korean legal definition of SMEs, most firms in the sample (83.6%) had fewer than 100 employees each, and most (62.16%) earned annual gross sales of less than US$26.3 million each. The data in Table 1 show the distribution of SMEs in the sample across the listed ranges of this percentage. The 62 (53.4%) SMEs in the 0% category generated none of their total annual gross export sales by exporting own-brand products. The 28 (24.1%) SMEs in the 100% category generated all their total annual gross export sales by exporting own-brand products and none by exporting under OEM contracts. Only 5 firms (4.3%) exported own-brand products at a rate of 25% or lower, and 21 firms (18.1%) exported at rates between 26% and 99%.

Table 1.

Characteristics of SMEs in the Sample.

Variable	Frequency	%
Number of employees
<51	61	52.6
51–100	36	31.0
101–150	6	5.2
151–200	5	4.3
201–250	5	4.3
>250	3	2.6
Gross sales (million U.S. dollars)
<26.3	72	62.1
26.3–52.6	18	15.5
52.6–78.9	11	9.5
78.9–105.2	9	7.8
105.2–132	6	5.2
Types of products exported
Clothing	84	72.4
Textiles	23	19.8
Both	9	7.8
Percent of total export sales from own-brand product exports^a
0%	62	53.4
1–25%	5	4.3
26–50%	2	1.7
51–75%	9	7.8
76–99%	10	8.6
100%	28	24.1
Total	116	100

Note. n = 116. SMEs = small- and medium-sized enterprises; OEM = original equipment manufacturing.

^a Percent of total annual gross export sales from own-brand product exports: Each of the 62 SMEs in the 0% category exported no own-brand products, and thus solely exported products under OEM contracts. Each of the 28 SMEs in the 100% category solely exported own-brand products, and thus exported no products under OEM contracts. Own-brand product exports accounted for 1–99% of the total annual gross export sales of each of the 26 SMEs in the four middle categories.

Instrument

We used previously established multi-item questions originally written in English to measure the research variables. The following procedures were to obtain face validity and accurately translate the questionnaire into Korean. After the initial translation, we asked two bilingual C&T researchers to evaluate the equivalence of the English and Korean versions. We then used our professional networks to recruit five Korean practitioners in Korean SMEs, whom we asked to evaluate the Korean version for clarity, ease of comprehension, and relevance to the industry of interest. The practitioners held export-related positions above the managerial level at Korean SMEs in the C&T, cosmetics, and consumer electronics sectors. We finalized the questionnaire by incorporating the changes that they recommended.

Strategic and financial export performance

We measured both the strategic and financial export performance of Korean C&T SMEs. Strategic performance was measured by six items from Cavusgil and Zou (1994) and Gabrielsson, Gabrielsson, and Seppälä (2012). These included four items on managers’ agreement that their brand awareness and image had improved among foreign consumers during the past 3 years and two items on their degree of agreement that their firms had expanded strategically into foreign markets and achieved global leadership in the C&T industry during the past 3 years. Financial performance was measured by three items from Knight and Cavusgil (2004) on the degree of satisfaction with market share, sales growth, and pretax profitability in export markets during the past 3 years.

MC

Four items from Knight and Cavusgil (2004) were used to measure SME managers’ perceptions about four elements of their firms’ MCs: (a) knowledge about customers and competitors, (b) the ability to apply marketing tools, (c) the ability to apply effective pricing strategies, and (d) advertising relative to competitors.

TC

Four items from Knight and Cavusgil (2004) were used to measure SME managers’ perceptions about four elements of their firms’ TCs based on whether they had (a) developed technologically, (b) achieved product innovation or introduced new operating approaches, (c) created technologically superior products, and (d) attained technological leadership in the industry relative to competitors.

ALFDCs

Three items from Knight and Cavusgil (2004) were used to measure SME managers’ perceptions about their firms’ ALFDCs based on whether foreign distributors were used to (a) establish local distribution networks, (b) collect local market information, and (c) provide after-sales services in export markets. Research participants responded to each item described above on a Likert-type scale ranging from 1 = strongly disagree to 7 = strongly agree.

Moderating variable

Export mode, either via own-brand products or products under OEM contracts, served as a binary moderating variable in this study. To collect these data, we asked respondents whether their firms exported own-brand products or products under OEM contracts, and we also asked those who claimed the former to write down the percentage of total annual gross export sales of their firms generated by exporting such products. In the obtained percentage sales data summarized in Table 1, the SMEs listed as 0% exported no own-brand products and thus solely exported under OEM contracts; we coded each of these SMEs as zero in the binary export-mode data for our regression analysis. Sixty-two (53.4%) firms in the sample belonged to this group. We coded each SME as one if its exports of own-brand products reportedly accounted for any percentage of its total export sales from 1% to 100%. The 54 (46.6%) of the sample were identified as a group exporting own-brand products.

Control variables

Although our primary interest in this study was the moderating effect of export mode on the relationships between capabilities and export performance for Korean C&T SMEs, we included in each estimated equation five control variables found in prior research to influence firms’ financial and strategic export performance. Two variables—SME managers’ self-reports of their firms’ annual gross sales volume and number of employees—were included to account for company size (Zou, Liu, & Ghauri, 2010). We measured each with an open-ended question and transformed the responses to natural logarithms. The other three control variables—SME managers’ perceptions of the competitive intensity, technological turbulence, and market turbulence of their firms’ export markets—are measures of export market conditions found in various studies to affect export performance (e.g., Boso, Story, Cadogan, Micevski, & Kadic-Maglajlic, 2013; Cadogan, Sundqvist, Puumalainen, & Salminen, 2012). Finally, we incorporated strategic export performance as an additional control variable in each estimated equation for financial export performance because a firm’s strategic performance is found to contribute to its financial performance (Gabrielsson et al., 2012).

Results

Preliminary Analyses

Independent variables on SME capabilities

We applied principal component factor analysis with varimax rotation to identify the underlying dimensions of the three independent variables on SME capabilities. The results of Bartlett’s test of sphericity at p < .001 supported rejection of the null hypothesis, which stated that the research variables are uncorrelated. In addition, the value for the Kaiser–Meyer–Ohlin measure of sampling adequacy indicated that factor analysis could be appropriately applied to our capability data. Given these results, we performed factor analysis on these data. The low factor loading of only one item (i.e., the .36 loading of pricing effectiveness to measure MC) led to the elimination of this item from further consideration. Factor analysis of the capability data after removing this item generated one factor for each capability variable, as shown in Table 2, with loadings exceeding .70 and eigenvalues greater than 1.0, indicating the acceptable construct validity of each variable (Nunnally & Bernstein, 1994). In addition, the Cronbach’s α value for the items in each factor exceeded .70, indicating that the items in each factor are internally consistent.

Table 2.

Results of Factor Analysis of the Three Capability Variables.

Factor	Factor Loading	Eigenvalue (% of Explained Variance)	Cronbach’s α
Ability to leverage foreign-distributor capabilities
Capability of establishing local distribution networks	.94	4.22 (42.23)	.91
Collecting local market information	.88
Providing after-sales service	.86
Technological capability
We invented a lot of the technology imbedded in this product	.81	1.67 (16.74)	.77
Compared with local competitors, we are often the first to introduce product innovations or new operating approaches	.77
Our firm is at the leading technological edge of our industry in this market	.72
We are recognized in our main export market for products that are technologically superior	.70
Marketing capability
Advertising effectiveness	.90	1.57 (15.66)	.82
Knowledge of customers and competitors	.81
Ability to use marketing tools (product design, pricing, advertising, etc.) to differentiate this product	.75

Dependent variables

The dependent variables in this study are the financial and strategic export performance of Korean C&T SMEs. The Cronbach’s α values of the items used to measure these variables are .90 and .94, respectively, indicating that the items for each variable are internally consistent.

Testing the Research Hypotheses

To test the research hypotheses, we conducted two sets of hierarchical (stepwise) regression analyses for the dependent variables described above. Each set included three stepwise models, which are described below.

To predict strategic export performance, our hierarchical (stepwise) regression analyses included estimation of Step 1, 2, and 3 models (see Table 3). In the Step 1 model, the independent variables were the five control variables: gross sales, number of employees, competitive intensity, market turbulence, and technological turbulence. In the Step 2 model, the three capability variables and export mode along with all the predictors in the Step 1 model were entered as independent variables. Lastly, the independent variables in the Step 3 model were the three interaction terms as well as all the predictors in the Step 2 model. Each of the three interaction terms in the Step 3 model includes one of the three firm capability variables interacting with export mode. The responses to each multiitem scale to measure any one capability variable were averaged to form a composite scale for the variable. To mitigate multicollinearity, each composite scale was then mean centered and interacted with export mode to form one of the three interaction terms in the study (Edwards & Lambert, 2007). Each of the three stepwise models had a variance inflation factor (VIF) score of <3, indicating no serious multicollinearity.

Table 3.

Hierarchical Regression Results for Strategic Export Performance.

Variable	Step 1		Step 2		Step 3
Variable	β	t Value	β	t Value	β	t Value
Number of employees	−.079	−0.775	−.163*	−2.080	−.181*	−2.373
Sales volume	.199	1.908	.016	0.192	.007	0.088
MT	−.098	−0.767	−.180	−1.817	−.263*	−2.593
TT	.093	0.723	−.057	−0.547	.044	0.419
CI	−.144	−1.447	.022	0.282	.017	0.226
MC			.092	1.097	.053	0.493
TC			.290***	3.598	.107	0.885
ALFC			.288**	3.260	.286**	2.849
EM			−.458***	−5.189	−.377***	−4.311
MC × EM					−.074	−0.597
TC × EM					.285*	2.370
ALFDCs × EM					.205*	2.005
R ²	.071		.487		.546
Adjusted R ²	.027		.442		.491
F value	1.626		10.854***		10.013***
ΔR ²	.071		.416		.059
ΔF value	1.616		42.021***		4.332**

Note. MT = market turbulence; TT = technological turbulence; CI = competitive intensity; MC = marketing capability; TC = technological capability; ALFDCs = ability to leverage foreign-distributor capabilities; EM = export mode; OEM = original equipment manufacturing. (Dummy variable: 0 = exported no own-brand products, thus only products under OEM contracts, 1 = exported only or some own-brand products, and no products under OEM contracts.)

*p < .05. **p < .01. ***p < .001.

In the Step 1 model, none of the control variables are significant. The increase in R ² value from Step 1 to Step 2 is statistically significant at p < .001, indicating that the independent variables added to the Step 2 model increase the percentage of variance in the strategic export performance variable. In the Step 2 model, MC is not related to strategic performance (β = −.092, p > .05), which does not support Hypothesis 1a. On the other hand, TC (β = .290, p < .001) and the ALFDCs (β = .288, p < .01) are two of only four independent variables in this model that are significantly related to strategic performance, indicating that greater SME TC and the ALFDCs are associated with stronger strategic export performance. Thus, Hypotheses 2a and 3a are supported. Given the specification of the export-mode variable, the negative coefficient indicates that SMEs exporting under OEM contracts achieve better strategic export performance than do SMEs exporting own-brand products.

The increase in R ² value from Step 2 to Step 3 is statistically significant at p < .01. In the Step 3 model, only two of the three interaction terms relevant to TC and the ALFDCs were statistically significant, with each yielding a positive coefficient that was significant at p < .05. These results indicate that SME strategic export performance is more strongly related to both TC (β = .285, p < .05) and the ALFDCs (β = .205, p < .05) for SMEs that export own-brand products than for those that export under OEM contracts, thus supporting Hypothesis 4b and 4c but not Hypothesis 4a.

To predict financial export performance, strategic performance was included as a control variable in addition to the five control variables described in Step 1. In Steps 2 and 3, the same procedures were taken as with the case of predicting strategic export performance (see Table 4). Each of the three stepwise models also had a VIF score of <3, indicating no serious multicollinearity.

Table 4.

Hierarchical Regression Results for Financial Export Performance.

Variable	Step 1		Step 2		Step 3
Variable	β	t Value	β	t Value	β	t Value
Number of employees	.031	0.422	.019	0.246	.027	0.354
Sales volume	.044	0.582	.029	0.374	.021	0.279
MT	−.021	−0.224	−.049	−0.519	−.004	−0.038
TT	.035	0.375	.067	0.678	.085	0.839
CI	.166*	2.305	.177*	2.431	.153*	2.131
SP	.720***	10.380	.663***	7.161	.677***	7.057
MC			.169*	2.131	−.020	−0.188
TC			.064	0.794	.031	0.267
ALFDCs			−.053	−0.606	.020	0.200
EM			−.054	−0.579	−.077	−0.839
MC × EM					.342**	2.877
TC × EM					−.019	−0.157
ALFDCs × EM					−.178	−1.786
R ²	.526		.551		.586
Adjusted R ²	.499		.507		.532
F value	19.578***		12.503***		10.801***
ΔR ²	.526		.025		.035
ΔF value	19.587***		2.131*		2.878*

Note. MT = market turbulence; TT = technological turbulence; CI = competitive intensity; SP = strategic performance; MC = marketing capability; TC = technological capability; ALDFCs = ability to leverage foreign-distributor capabilities; EM = export mode; OEM = original equipment manufacturing. (Dummy variable: 0 = exported no own-brand products, thus only products under OEM contracts, 1 = exported only or some own-brand products, and no products under OEM contracts.)

*p < .05. **p < .01. ***p < .001.

In the Step 1 model, strategic export performance is the only independent variable with a statistically significant coefficient (β = .720, p < .001), and the adjusted R ² is .499. The increase in R ² value from Step 1 to Step 2 is statistically significant at p < .05. In the Step 2 model, MC is one of the only three independent variables that are significantly related to financial performance (β = .169, p < .05). These results indicate that superior SME MC is associated with stronger financial export performance, thus supporting Hypothesis 1b but not Hypothesis 2b or Hypothesis 3b. The increase in R ² value from Step 2 to Step 3 is statistically significant at p < .05. In Step 3 of financial performance, only the interaction term between MC and export mode is statistically significant (β = .342, p < .01), thus supporting Hypothesis 4a but not Hypothesis 4b and 4c. The relationship between financial export performance and MC is stronger for SMEs that exported own-brand products than for those that exported under OEM contracts. Still, strategic export performance is most strongly related to financial export performance in both the Step 2 and Step 3 models.

Conclusions and Implications

We examined the relationships between capabilities and the strategic and financial export performance of Korean C&T SMEs, along with the moderating effects of export mode (own-brand products vs. products under OEM contracts) on these relationships in a conceptual framework drawn from RBT. First, consistent with the findings of Barney (1991), Bloodgood, Sapienza, and Almeida (1996), Chung (2015), and Knight and Cavusgil (2004), we show that the more technologically capable Korean C&T SMEs tend to have stronger strategic export performance. This implies that strengthening TCs can help SMEs improve product quality to satisfy the needs and wants of foreign consumers and thereby build brand awareness and brand image abroad. Next, in line with results in previous studies (Moore, 1998; Sousa & Bradley, 2009), we found that the ALFDCs is critical to the strategic export performance of SMEs. This suggests that Korean C&T SMEs can perform strategically well in export markets when competent and reliable foreign distributors act on their behalf to perform marketing functions, such as establishing local distribution networks, collecting local market information, and providing after-sales services in export markets. On the other hand, we found little evidence that MC is related to the strategic export performance of Korean C&T SMEs, contrary to prior researchers who found such a relationship (Cavusgil & Zou, 1994). Relative to other SMEs, C&T SMEs may have more limited resources, leading to reliance on foreign distributors instead of their own subsidiaries to perform marketing functions and build brand awareness and favorable brand image in export markets. This notion is supported by the evidence discussed above on the critical need for Korean C&T SMEs to leverage foreign-distributor capabilities to enhance strategic export performance.

Regarding the moderating effects of export mode on the relationships between capabilities and strategic export performance of Korean C&T SMEs, we found this type of export performance to be more strongly related to both TC and the ALFDCs for SMEs that exported own-brand products than for those that exported under OEM contracts. Because SMEs that export own-brand products develop these products, they require TCs to consistently meet the varied product quality expectations of consumers in different countries and regions over time. Also, SMEs that export own-brand products can enhance strategic export performance by working with foreign distributors that have deep knowledge about consumer demand conditions and effective methods to promote products in particular countries.

Next, we found a strong relationship between the financial and strategic export performance of Korean C&T SMEs, in line with a relationship believed to exist between these types of firm performance (Gabrielsson et al., 2012). We also found that MC is positively related to SME financial export performance, confirming prior research findings (Cavusgil & Zou, 1994; Chang, 1996; Knight & Cavusgil, 2004; Krasnikov & Jayachandran, 2008); however, neither of the other two capabilities in this study is significantly related to this type of export performance. To further understand these findings on TC and the ALFDCs, we performed post hoc analyses of the mediating effects of strategic export performance on the relationships between financial export performance and these two capabilities using a Sobel Test (Hair, Black, Babin, & Anderson, 2009). We discovered that strategic export performance fully mediates the relationship between financial export performance and each of the two capabilities (z = 4.01, p < .001 for TC; z = 2.53, p < .05 for ALFDC), and that financial export performance is thus indirectly related to each of these capabilities via strategic export performance for Korean C&T SMEs. Because each of these mediation effects is positive, the financial export performance of the SMEs improves with strategic export performance as either of these two SME capabilities improves.

Overall, this suggests that heightening TCs and the ALFDCs can help Korean C&T SMEs advance their strategic export performance and in turn their financial export performance. SMEs should also strengthen their own MCs to perform well financially in export markets. However, it should be noted that TCs and the ALFDCs are more crucial than MCs in enhancing SME export performance. This is because strategic export performance is far more related to financial export performance than MCs; TCs and the ALFDCs are strongly related to strategic export performance, whereas MCs are not.

On testing the moderating effects of export mode on the relationships between capabilities and the financial export performance of Korean C&T SMEs, the only statistically significant finding was a stronger relationship between MCs and financial export performance for firms that exported own-brand products than for those that exported under OEM contracts. This suggests that, relative to the SMEs that exported products under OEM contracts, those that exported own-brand products had to rely more on their ability to gather information on foreign consumer needs and preferences, apply it to product development for export markets, and effectively promote these products to foreign consumers.

The results of this research contribute to the knowledge on the internationalization of C&T SMEs by providing empirical evidence on the relationships between capabilities and the strategic and financial export performance of Korean C&T SMEs, along with the moderating effects of export mode on these relationships, using a conceptual framework based on RBT. Such relationships and moderating effects have largely been overlooked in research on C&T firms. Our findings have managerial implications for C&T SMEs in Korea and other Asian NIEs undergoing similar economic changes, as well as implications for future research. We discuss the managerial implications in this section and future research implications in the Limitations and Future Research section of our study. The former may be more relevant to SMEs that export own-brand products than those that export products under OEM contracts.

Through our findings we first suggest that, to improve strategic export performance, SMEs should prioritize allocating their limited resources to advancing TCs and cultivating working relationships with competent, reliable foreign distributors who can effectively perform marketing functions on their behalf in export markets. Secondly, enhancing financial export performance would require SMEs to strengthen MCs and TCs along with their ALFDCs. To strengthen MCs, SMEs should expand their information on consumers and competitors in export markets. However, SMEs are advised to note that TCs and the ALFDCs are more pivotal than MCs in terms of improving export performance. Thus, the limited resources of SMEs will likely prompt them to seek external assistance (e.g., from governmental export-assistance programs), or to form strategic alliances with other firms that would help secure funding to market products abroad.

Limitations and Future Research

Although we offer several important implications regarding factors related to C&T SME export performance, the following limitations should be considered. First, our export-mode data include SMEs categorized as either exporting own-brand products or products under OEM contracts. Those categorized as exporting products under OEM contracts had managers who self-reported that their firms exported no own-brand products, but those categorized as exporting own-brand products included firms in which exports of such products reportedly accounted for 1–100% of annual gross export sales (see Table 1). Because the export-mode moderating effects of interest in this study may differ for SMEs whose own-brand product exports account for any percentage of annual gross export sales between 1% and 100%, future research on such effects would benefit from the use of export-mode data that contain more finely divided categories of these exporters than in our study.

In addition, our SME data comprise self-perceptions reported by SME managers in our research sample. It may be beneficial to reduce the subjectivity of our data in future studies by using objective data on SME capabilities and other characteristics of interest, although such data may be difficult to obtain. It also may be useful to augment or replace the control variables in our study (e.g., the types of competitors, the relative intensities of competition, and the relative levels of cultural diversity in domestic and export markets). Finally, future research could be based on longitudinal data to assess the moderating effects of export mode on the relationships between SME capabilities and export performance, as changes may potentially occur, such as the relative proportions of own-brand products.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2015S1A3A2046811).

Notes

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