Networking, marketing activities, and firm performance: a survey of Thai construction firms.
Abstract:
This paper examines the relationships between networking, the extent to which firms adapt their marketing activities and firm performance. Regression analyses of a sample of 112 construction firms suggest that networking significantly affects firm performance. More specifically, we find that there are positive relationships between the extent to which firms engage in networking activities and (1) firm performance and (2) the extent to which firms make changes to marketing activities. Moreover, the changes in marketing activities also have a positive relationship with firm performance. These findings shed light on the importance of networking in firm performance, particularly in emerging economies, and strongly suggest that firms should foster and enhance their ability to engage in relevant and useful networking activities. The firm's ability to network with different stakeholders should be deemed a crucial source of competitive advantage that will enhance the likelihood of earning an above-average industry return.

Keywords: Networking, Marketing Activities, Firm Performance, Construction Firms, Thailand

Subject:
Building (Marketing)
Construction industry (Marketing)
Authors:
Boonchoo, Pattana
Tongurai, Jittima
Pub Date:
09/22/2012
Publication:
Name: European Journal of Management Publisher: International Academy of Business and Economics Audience: Academic Format: Magazine/Journal Subject: Business, international Copyright: COPYRIGHT 2012 International Academy of Business and Economics ISSN: 1555-4015
Issue:
Date: Fall, 2012 Source Volume: 12 Source Issue: 3
Topic:
Event Code: 240 Marketing procedures Computer Subject: Company marketing practices
Product:
Product Code: 1500000 Construction; 8910000 Engineering & Architectural Svcs NAICS Code: 23 Construction; 54133 Engineering Services SIC Code: 1500 GENERAL BUILDING CONTRACTORS; 1600 HEAVY CONSTRUCTION, EX. BUILDING
Geographic:
Geographic Scope: Thailand Geographic Code: 9THAI Thailand
Accession Number:
312171930
Full Text:
1. INTRODUCTION

Networking plays an important role in business, particularly in emerging markets where the level of environmental uncertainties is relatively high (Luo, 2003). A firm's ability to engage in relevant and useful networking activities, such as participation in trade, social and professional organizations, as well as the exchange of information with different stakeholders in the industry, can be a source of competitive advantage that will boost performance. However, the effect of networking activities on firm performance is not straightforward. While networking can exert direct influence on firm performance, it can also affect firm performance indirectly through a wide array of business strategies, such as marketing, human resources, etc. The existing literature primarily examines the relationship between networking and firm performance in the context of developed countries (e.g., the United States, European countries, and Canada), and inconclusive results have been found (see for example Bonner et al., 2005; Babakus et al., 2006; Kandemir et al., 2006; Lechner et al., 2006).

To date, empirical studies that seek to investigate the effect of networking on firm performance through marketing strategies are still scant. Therefore, it is a main goal of this paper to address this gap in order to broaden the boundary of research on the networking activities of firms. More specifically, this paper seeks to scrutinize the interrelationships among networking, marketing activities, and firm performance, providing more empirical evidence on this line of research. The research question we seek to answer is whether firms with a high level of engagement in networking activities will exhibit better performance than those with a low level of engagement in such activities. We also substantiate the indirect effect of networking by enquiring into the linkages between networking activities, changes in marketing activities, and firm performance. To control for the homogeneity of firms, this study uses a single-industry sample, specifically the Thai construction industry.

The paper is structured as follows. The next section reviews literature on network relationship and firm performance, while the data collection and methodology are described in the subsequent section. Section 5 presents and discusses our empirical results. The paper concludes with limitations and suggestions for future research in the final section.

2. LITERATURE REVIEW

Networking is one of the key elements of business in its effect on organizational growth and performance (Lee and Tsang, 2001). Conceptually, networking includes all activities carried out by network actors, how network relationships are created, maintained, and managed, and all of the exchanges between network actors such as information, money, and friendship (Conway and Jones, 2006). Improvement in marketing effectiveness can be achieved through the use of networks. Networking has been found to provide firms with the necessary and reliable information that helps them understand and cope with environmental uncertainty (Gilmore et al., 2006; Shaw, 1999), and make effective marketing decisions (Hill and Wright, 2000). More specifically, networking activities can help firms to create new, situation-specific ways of coping with turbulent environments (Eisenhardt and Martin, 2000; Miles and Darroch, 2006), and to acquire, retain, and create value for customers (Bjerke and Hultman, 2002; Eisenhardt and Martin, 2000; Morris et al., 2002). Networking also offers firms a way to access critical resources, both tangible (e.g., financial) and intangible (e.g., knowledge) (Tsang, 2006). With networks, firms can mobilize and leverage the resources embedded throughout the network and take advantage of resources developed in connected relationships (Bjerke and Hultman, 2002; Kandemir et al., 2006). Empirical evidence indicates that networking has played an important role in business, especially in emerging markets. Birley (1985) and Ostgaard and Birley (1994) found that firms' survival depends substantially on the strength of the relationships in their networks and on the capability of their networks to provide necessary support and resources.

Extant literature, however, has provided inconclusive findings when exploring the relationships between firm performance and networking. On one hand, the results of the US data are rather consistent. That is, all studies observed a positive relationship between networking and firm performance. Bonner et al. (2005), for instance, found that strategic networking is positively correlated with firm performance as measured by sales growth, market share, market development, and product development. Likewise, Kandemir et al. (2006) found that alliance orientation is positively associated with the alliance network performance and market performance of firms. In addition, Sorenson et al. (2008) found a positive relationship between collaborative network orientation and firm performance (i.e., profitability, overall performance, profit growth, and market share). Nevertheless, Sawyerr et al. (2003) found both a positive relationship and no relationship between network activities and firm performance (i.e., net income after taxes, sales growth, and ROA).

On the other hand, studies on the other side of the Atlantic have revealed mixed results in relation to the relationship between the firm performance and networking of European firms. While Babakus et al. (2006) found a positive relationship between domestic and foreign networking and export performance of manufacturing SMEs in the Nordic region, Ostgaard and Birley (1996) found that networking has both positive and negative relationships with growth in the sales and profitability of owner-managed companies in England. Studying venture capital financed firms in Europe, Lechner et al. (2006) found that networking has both positive and negative effects on firm performance as measured by time-to-break-even and sales.

Studies using data from other regions have also reported inconclusive results. Studying ethnic entrepreneurs in Canada, Kariv et al. (2009) found that transnational networking is positively associated with firm performance as measured using business turnover and business survival. The findings in Watson (2007)'s study suggested that networking positively affected firm survival and profit growth, but negatively affected the ROE of the sampled Australian firms. Lee et al. (2001) examined technological start-up firms in Korea and found both a positive and no relationship between external networks and sales growth. Investigating Sub-Saharan African firms, Biggs and Shah (2006) found that networking is positively correlated to performance of firms in the business group but negatively correlated to performance of firms outside the group.

3. CONCEPTUAL FRAMEWORK AND HYPOTHESIS DEVELOPMENT

Figure 1 shows the conceptual framework that will be empirically tested in this paper. Theoretically, networking can increase firm performance due to many factors such as cost reduction (Brush and Chaganti, 1996; Buckley and Casson, 1988), increasing market power of collaborating firms (Burgers et al., 1993), and better accessibility to external resources (Brush and Chaganti, 1996; Child and Faulkner, 1998; Gulati, 1998; Oliver, 1990). Even though the results of empirical studies are not conclusive, there is ample evidence suggesting that networking is positively associated with firm performance (Babakus et al., 2006; Bonner et al., 2005; Kandemir et al., 2006; Kariv et al., 2009; Sorenson et al., 2008). We therefore make the following hypothesis:

H1: Firms with a high level of engagement in networking activities tend to achieve better performance than those that have a lower level of engagement in networking activities. More specifically, firms that have large and diverse marketing networks and actively participate in marketing activities through their network linkages tend to have better performance than firms that have smaller networks and use them in a limited way regarding marketing activities.

Firms can usually take advantage of their network linkages to survive in competitive business environment. Firm managers usually exchange information and resources with their network members. The information and resources they gather could be beneficial in the planning, formulation, and implementation of firm strategies, and should encourage firms to maintain active participation in the activities that are useful to the growth of the firm. We therefore expect firms with extensive networks to exploit their networks and engage more in marketing activities than firms with smaller networks. Additionally, the existing literature also points out that firms that actively make changes to their marketing strategies are more likely to achieve a sustainable competitive advantage and better performance than other firms (Dickinson and Ramaseshan, 2008; Kandemir et al., 2006; Leonidou et al., 2002; Schindehutte and Morris, 2010; Tantong et al., 2010). We therefore make the following hypotheses:

H2: Firms that have large and diverse marketing networks tend to engage more in marketing activities than do firms that have smaller networks.

H3: An increase in the level of changes made to a firm's marketing activities positively affects firm performance.

[FIGURE 1 OMITTED]

4. DATA AND METHODOLOGY

The data for this study were collected from construction firms throughout Thailand. Based on the list of registered firms in Thailand in the Ministry of Commerce's database, there are approximately 28,970 construction firms in Thailand. To distribute our surveys, we randomly selected 1,200 firms, and addressed the questionnaires to the owner or the marketing manager of the firms. One hundred and forty-eight firms responded to our survey. Unluckily, however, 36 of the returned questionnaires included more than 80% missing values, and thus needed to be discarded, leaving a final sample size of 112 firms (a 7.4% response rate).

Measures

A firm's level of engagement in networking activities was measured by scales adapted from Ostgaard and Birley (1994; 1996). These scales capture five aspects of network and networking activities: size of network, network activities, network density, network intensity, and network content. Network size is measured using the number of memberships in trade, social and professional organizations. Network activities are measured by asking the respondents the amount of time they spent in making contacts with their old/new customers, suppliers, and investors. While network density measured the proportion of people in close contact that do not know each other, network intensity measured the amount of time managers spent on communicating with the closest members in their networks. Finally, network content exchange measured the extent to which managers exchanged various types of information, including market information, customer contacts, etc.

The extent to which firms engage in marketing activities was measured in terms of participation in marketing activities and the amount of change made to marketing activities (Friel, 1998; Gilmore et al., 2006; Kotler and Keller, 2006). The 7-point Likert scale for marketing activity measurement contained 26 items (i.e., 19 items for measuring marketing activity participation and seven items for measuring the level of adaptation in marketing activities). Respondents were asked to rate the extent to which they engage in the marketing activities from 1 (not at all) to 7 (to a very large extent).

In this study, firm performance was measured using subjective (perceptual) measures, as employed in many previous studies (see for example Birley and Westhead, 1990; Chandler and Hanks, 1993; Wiklund and Shepherd, 2003). Respondents were asked to compare their firms' performance against that of their major competitors and to indicate their level of satisfaction with their firms' performance. An 11-item scale adopted from Tan and Litschert (1994) was used, where the scores of all 11 items were combined and averaged to provide an overall picture of firm performance.

Each of the three major constructs in this study with its corresponding items showed high overall internal consistency, with Cronbach's alphas of 0.88, 0.86, and 0.94 for networking, marketing activities, and firm performance, respectively. All hypotheses in this study were tested using simple linear regression analysis.

5. RESULTS AND DISCUSSION

Our final sample mostly consisted of partnerships (56.3%) and corporations (33.9%) aged 1-20 years (88.4%), with between 1 and 100 full-time employees (94.6%). Sixty-five percent of the respondents were owners and 33.9% were managers. Males constituted 75% of the respondents while the other 23.2% were females. The majority of the respondents were in the age range of 31-60 years (86.7%), with 1-20 years of industry experience (69.6%) and business experience (76%). Most of them held a bachelor's (64.3%) or master's (19.6%) degree.

The regression analyses were conducted to test all three hypotheses in this study. Hypothesis 1 is supported by the data gathered from the construction industry. As shown in Table 1, there is a significant and positive relationship between networking and firm performance. That is, our study finds that firms with a high level of engagement in networking activities exhibit better performance than those with a lower level of engagement in networking activities (t= 3.12, [beta] = 0.29, p < 0.01). Firms that actively participate in networking activities such as spending time with different stakeholders (e.g., suppliers, investors, customers, etc.) and exchanging information with managers' close networks could realize more benefits in terms of growth in revenue, profit, market share, etc. Information exchange with close contacts in terms of various aspects of business such as sharing market information and customer contacts can be useful in helping firms cope more effectively with fast-changing business environments, thereby improving their performance. Our result is in line with prior findings that networking is positively associated with firm performance (e.g., Babakus et al., 2006; Bonner et al., 2005; Kandemir et al., 2006; Kariv et al., 2009; Sorenson et al., 2008).

As can be seen in Table 2, there is a significant and positive relationship between networking and the extent to which firms make changes to marketing activities (t = 4.9, [beta] = 0.43, p < 0.001). More specifically, we found that construction firms that participate more in networking activities, such as by meeting people in trade organizations, might in general keep themselves abreast of market trends and constantly adjust their marketing strategies to cope with the on-going changes in business environments. This finding is also consistent with prior studies (e.g., Eisenhardt and Martin, 2000; Miles and Darroch, 2006).

Firm performance was also found to be significantly explained by the extent to which firms make changes to marketing activities (t = 5.54, (3 = 0.47, p < 0.001) (see Table 3). That is, an increase in the level of changes made to a firm's marketing activities positively affects firm performance. This finding is consistent with existing literature, which has noted a positive relationship between the level of adaptation in marketing activities and performance (e.g., Dickinson and Ramaseshan, 2008; Tantong et al., 2010).

Overall, the empirical testing illustrated the important role of networking activities in stimulating changes in marketing activities and firm performance. More specifically, networking activities have both a direct effect (i.e., hypothesis 1) and an indirect effect on firm performance through changes in marketing activities (i.e., hypotheses 2 and 3). From the resource-based perspective, the results of our study suggest that the firm's ability to engage in relevant and useful networking activities should be fostered and emphasized. Ability to network with different stakeholders in the industry will be a source of competitive advantage that will increase the likelihood of earning an above-average industry return. In light of these findings, managers should allocate their time wisely in different networking activities. The major networking activities include participation in trade and professional organizations, as well as the exchange of market information, which leads to necessary improvements in organizational strategies and tactics.

6. CONCLUSION

Overall, the empirical results confirm the important role of networking activities in stimulating changes in marketing activities and increasing firm performance. The results of regression analysis support hypothesis 1, suggesting that firms that have a high level of engagement in networking activities are likely to achieve higher performance than firms that do not. The findings also support hypotheses 2 and 3. More specifically, firms that have large and diverse marketing networks are likely to engage more in marketing activities than firms that have smaller networks. The degree of engagement in marketing activities is a significant determinant of firm performance. Given empirical evidence that supports hypotheses 2 and 3, we have been able to capture the effect of networking on firm performance through changes in marketing strategies. That is, firms with extensive networks tend to exploit their networks and engage more in marketing activities than firms with smaller networks. By actively engaging in marketing activities, firms are more likely to gain a competitive advantage and achieve better performance than firms that are passive or reactive in their marketing activities. Our findings are consistent with those in the previous literature, thus providing additional evidence in this line of research.

This study provided empirical evidence on the relationship between networking, marketing activities, and firm performance in the context of emerging markets; such evidence is still scant. The paper contributes importantly to this strand of research in at least two ways. First, the findings in this paper can enhance managers' understandings of how firm performance can be improved through the use of networking activities. Second, with more understanding on the linkage of networking activities and firm performance in the construction industry, the government can formulate policies and develop planning to foster the growth of the industry.

There are at least three key limitations in this study. First, we treat the interrelationships among networking, marketing activities, and performance in a linear fashion. Future research should also investigate a possible non-linear relationship, since the benefits derived from networking activities may decline after a certain level. That is, too much networking activity may cause the firm to deviate its resources from value-added management activities, thereby causing a resource allocation problem in the firm (Zhao and Aram, 1995). Second, because this research is based on a single-industry sample (i.e., the Thai construction industry), it involves some degree of homogeneity among the firms evaluated; however, the degree of generalization of the results may be limited. Future research could examine how firms in other industries use networking activities to improve marketing strategies and firm performance. Finally, due to the cross-sectional design of this study, the boundaries for data analysis and interpretations are limited. To study the level of marketing changes in a more insightful manner, future research should also apply a longitudinal design, which will enable the more effective investigation of the complexity of marketing change processes over time.

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Pattana Boonchoo, Thammasat Business School, Thailand Jittima Tongurai, National Institute of Development Administration, Thailand

AUTHOR PROFILES:

Dr. Pattana Boonchoo is a lecturer in marketing at Thammasat Business School, Thailand. He obtained his Ph.D. in International Business and Strategy with specialization in marketing and entrepreneurship from Henley Business School, University of Reading, UK. His major research interests include entrepreneurial marketing, SME marketing, marketing in family-owned business, and international marketing.

Dr. Jittma Tongurai is a lecturer at the Center of Integrated Tourism Management Studies, National Institute of Development Administration, Thailand. She received her doctorate from Osaka City University, Japan. Her primary research interests include corporate finance, international finance and international economics.
TABLE 1

SUMMARY OF SIMPLE REGRESSION ANALYSIS FOR THE RELATIONSHIP BETWEEN
NETWORKING AND FIRM PERFORMANCE (N = 112)

Variable            SE

Constant     18.5   4.2
Networking   0.3    0.0   0.2

[R.sup.2]= 0.09, F = 9.75, p < 0.01

TABLE 2

SUMMARY OF SIMPLE REGRESSION ANALYSIS FOR THE RELATIONSHIP BETWEEN
NETWORKING AND MARKETING ACTIVITIES (N = 112)

Variable            SE

Constant     11.0   3.8
Networking    0.4   0.0   0.4

[R.sup.2]= 0.18, F = 23.66, p < 0.001

TABLE 3

SUMMARY OF SIMPLE REGRESSION ANALYSIS FOR THE RELATIONSHIP BETWEEN
MARKETING ACTIVITIES AND FIRM PERFORMANCE (N = 112)

Variable            SE

Constant     17.0   2.7
Networking    0.5   0.0   0.4

[R.sup.2]= 0.22, F = 30.67, p < 0.001
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