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An extension of the Narver and Slater market orientation scales to early

transition economies

Conference Paper · June 2010

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Joan Llonch Rialp Josep

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 An extension of the Narver and Slater market orientation scales to early
transition economies

Abstract
While Narver and Slater’ s scale (MKTOR) was first developed for the USA, it has also
been applied to transition economies, though some management models from developed
economies do not necessarily fit in other economic context. In early transition
economies, due to the legacy of central planning, government is very powerful and its
decisions may shape the needs and expectations of customers and determine firm’s
success. Hence, the objective of the present research is to develop an extended version of
the MKTOR scale for early transition economies, with fourth dimensions: customer,
competitor and government orientation plus interfuctional coordination. The scale is
tested within a sample of 301 Cuban firms. Results attained show that the extended
version has a better fit within this environment than the traditional MKTOR scale.

Keywords: Market Orientation, Transition Economy, Cuba.

Track: Marketing in Emerging and Transition Economies

 1. Introduction
Market orientation (MO) has been considered “the very heart of modern marketing
management and strategy” (Narver & Slater, 1990, p. 20). The two most popular MO
constructs are those derived from the pioneering works by Narver and Slater (1990) and
Kohli and Jaworski (1990). Narver and Slater’ MO operationalizations (MKTOR) aim to
assess the firm’s customer and competitor orientation, as well as its degree of interfunctional
coordination. Since in a free market customer and competitor orientation are two key
external stakeholders, they shape MO construct in such an environment (Greenley et al.,
2005; Narver & Slater, 1990).
MKTOR was first developed for the USA, but it has also been frequently applied to
transition economies, although accumulating empirical evidence suggests that some strategic
management models originating in developed economies do not necessarily fit the conditions
prevalent in other economic context (Narayanan & Fahey, 2005). Thus, in order to determine
whether current Narver and Slater’ operationalizations is sufficiently comprehensive, a clear
picture of the context and manifestation of the construct being studied in that context is
required (Ellis, 2007; Soehadi et al., 2001; Subramanian & Gopalakrishna, 2001; Qu and
Ennev, 2005).
In transition economies, especially in the early phase of the transition, due to the legacy of
central planning government’s interest may shape the needs and expectations of customers
and produce a major influence in firm’s decisions. (Peng & Luo, 2000; Tan & Litschert,
1994; Wright et al., 2005). Therefore, since MO implies a firm’s external orientation and a
continuous monitoring of key factors that influence the needs and preferences of customers
(Kohli and Jaworski, 1990; Narver and Slater, 1990), in transition economies it should entail
closely monitoring government decisions and try to maintain a good relationship with them.
Hence, following Farrell and Oczkowski (1997), who state that future assessments of the MO
scales should also comprise other key players within the organization’s environment, we
propose that, in an economic transition context, Narver and Slater’s MO scales should have a
new dimension to assess the firm’s government orientation.
In summary, our research aims to develop an extended version of the Narver and Slater’
MO construct for early transition economies and compare its fit to the traditional MKTOR
scale. Since transition economies, such as China or the former Eastern Bloc, are not anymore
in the early phase of the transition process, the empirical work will take place in the early
transition economy of Cuba.

2. Market Orientation in Transition Economies

Market orientation is defined as “the organization culture that most effectively and
efficiently creates the necessary behaviors for the creation of superior value for buyers and,
thus, continuous superior performance for the business” (Narver & Slater, 1990, p. 21). MO
is a composed of three sets of activities: (1) organization-wide generation of market
intelligence pertaining to current and future customer needs, (2) dissemination of the
intelligence across departments, and (3) organization-wide responsiveness to it (Kohli &
Jaworski, 1990). To be market oriented firms should be customer and competitor oriented
and interfunctional coordinated (Narver and Slater, 1990).
Narver and Slater (1990) and Kohli and Jaworski (1990) constructs, although they are
apparently different, they share many similarities. First, both focus on the central role of the
customer in the manifestation of MO. Second, both entail an external orientation. Third, both
recognize the importance of being responsive to customers at an organizational level. Finally,
there is recognition that the interest of other stakeholders and/or other forces shape the needs
and expectations of customers (Mavondo and Farrell, 2000; Soehadi et al, 2001). However,
for Kohli and Jaworski, (1990), market intelligence is a broader concept than customers’

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verbalized needs and preferences in that it includes an analysis of exogenous factors that
influence those needs and preferences such as government regulation, technology, and other
environmental forces. Therefore, Kohli, Jaworski and Kumar (1993) criticize Narver and
Slater measure because they adopt a focused view of markets by emphasizing customers and
competition as compared with a view that focuses on these two stakeholders and additional
factors that drive customer needs and expectation (e.g. technology, regulation).
MO has also been analyzed in transition economies and Narver and Slater’s scale is the
most frequently used in such studies (Fahy et al., 2000; Hooley et al., 2000; Kaynak and
Kara, 2004; Tse et al., 2003). A fundamental conclusion from this research is that the
MKTOR scale is also applicable in such environment. However, in transition economies, the
government becomes a critical stakeholder since its interest may shape the needs and
expectations of firm’s customers and consequently its performance. For instance, it has been
reported that, despite two decades of reforms in China, officials at various levels of the
government still have considerable power to approve projects, and allocate resources (Peng
& Luo, 2000). Chinese executives stated that among eight environmental factors that have an
impact on firm performance, the state regulatory regime was the most influential, most
complex, and least predictable (Peng & Luo, 2000; Tan & Litschert, 1994). Although the
Cuban economy is much less free than the economy of China, giving the timid economic
reforms and the hybrid control mechanism (i.e., a mixture of planning and market systems)
Cuba can also be considered a mixed economy (Cerviño and Bonache, 2005; Xianglin, 2007).
Therefore, since MO is an external orientation that should include monitoring factors that
influence the needs and preferences of customers (Kohli and Jaworski, 1990; Narver and
Slater, 1990), in early transition economy as Cuba it should take into account the effect of
government decisions, in other words, the firm’s government orientation.

3. Methodology and Results

3.1. Qualitative Research
Prior to the quantitative study, a qualitative research based on in depth interviews was
performed. We interview 8 top managers from different Cuban firms (4 from state-owned
enterprises, 1 from a cooperative and 3 from foreign joint ventures) in order to assess the
importance of Government’s on firms’ decisions, strategies and success. In depth interviews
fully confirmed that Cuban government (local and central government) is still very powerful
and that their decisions heavily condition day-to-day business strategies.
All of the top managers interviewed concurred that with the timid economic liberalization
initiated in 1998 with the Economic Resolution of the 5th Congress of the Cuban Communist
Party, resolution that admitted tacitly the existence of a market in socialism (see Cuban
Communist Party, 1998, p. 25), customer orientation and market orientation began to be a
relevant strategy for Cuban firms. However, they also agreed that, since the Cuban economy
was still heavily dependent on central planning, firms should cultivate permanently their
relationships with government officials. In summary we concluded that, since the government
is a key player in such environment, it makes sense to add a government orientation as a new
dimension of Narver and Slater’s scale.
In depth interviews revealed that a government orientation basically should pursue to
obtain the necessary finance from Cuban financial institutions, to get from Cuban Central
Bank the necessary permits for buying or investing or to shorten the time needed to obtain
officials permits and approvals from government authorities. Thus, we add a government
orientation dimension to the MKTOR scale. This dimension was captured by 3 items on a
Likert-type questions ranging from 1 (totally disagree) to 7 (totally agree) as follows:

  3
 a) We actively seek good relationships with officials from state financial institutions in
order to obtain financing.
b) We actively seek good relationship with officials from the Central Bank of Cuba in
order to obtain authorization for buying or investing.
c) We actively seek good relationships with government officials in order to cut back the
terms to obtain official permits or approvals.

3.2. Quantitative Research

For developing the quantitative research, data were obtained from a personal survey that
was addressed to managers of Cuban companies with a turnover of more than € 6 million.
Since gathering marketing data is more difficult in Cuba than in most other countries,
because the government does not allow surveys to be made without the proper approval
procedures, and these procedures usually take more than a year; data was collected from a
joint research program with the Executive Business Centre (CEDET) of the University of
Havana. 301 executives from different businesses undertaking the Executive Business Master
Program in different provinces of the country were surveyed. Traditional MO was assessed
by MKTOR, a 15-item scale (ranging from 1 “totally disagree” to 7 “totally agree”) with
three components: customer orientation, competitor orientation and inter-functional
coordination.
The new instrument had 18 items, 15 from the MKTOR scale and the three additional
items to assess government orientation. A pretest on the instrument was also performed with
8 Cuban top managers that were different from those used in previous in depth interviews.
Furthermore, we checked that the MKTOR scale makes sense in Spanish, a condition than
has to be verified prior to using it in the Cuban context (Kohli, Jaworski, and Kumar, 1993).
A scale validation procedure was accomplished using (1) the analysis of item inter-
correlations, (2) the analysis of item-total correlations, (3) exploratory factor analysis, and (4)
confirmatory factor analysis (CFA). The purpose of this procedure was to “identify and
eliminate poorly performing items for the reflective measures” (Siguaw et al, 1998, p. 104).
The item-to-total correlations and the scale reliability values (coefficient α) for the
traditional MO scale are reported in Table 1. When generating an instrument, one is trying to
select a set of items that most accurately belong to the specified domain. However, it is also
important to identify poor items (items which correlate negatively or do not strongly correlate
with other items or load on more than one scale) and eliminate them from the instrument (e.g.
Churchill, 1979; Cadogan, Diamantopoulos, and Pahud de Mortanges, 1999). Based on the
coefficients showed in Table 1, there are two items related to the construct “Customer
Orientation” that do not reach a minimum level of 0.7; therefore, they are excluded from the
analysis. Once this is done, reliability for the scales exceeds 0.7, the recommended threshold
for exploratory research (Nunnally, 1978) and the three factor analyses performed confirm
that the different items related to each component are effectively concentrated in only one
dimension.
Convergent validity refers to the degree of agreement in two or more measures of the
same construct. Convergent validity is measured with confirmatory factor analysis in order to
gauge the fit of the proposed measurement model to the covariance or correlation data
available (Bagozzi and Phillips, 1982; Phillips and Bagozzi, 1986). Comparing the null
model of independence (M0), which hypothesizes that the correlations among the three
components of MO be zero with the model hypothesizing three correlated scores underlying
all measurements (M1), the latter provides a better fit to the data.

  4
 Table 1. Scale description for MKTOR
Item Cronbach’s α Item-to-total
correlation
Customer orientation 0.81
Business strategies are driven by increasing value for customers 0.72
Our commitment to serving customer needs is closely monitored 0.75
Managers from different departments regularly visit customers 0.65
Our objectives and strategies are driven by the creation of customer satisfaction 0.78
Customer satisfaction is frequently assessed 0.75
After-sale service is truly important for us 0.69
Competitor orientation 0.82
Sales people share information about competitors 0.71
We achieve rapid response to competitive actions 0.77
Competitive strategies are based on understanding customer needs 0.76
Top management regularly discuss competitors’ strengths and weakness 0.78
Customers are targeted when we have an opportunity for competitive advantage 0.80
Inter-functional coordination 0.79
Information about customers is freely communicated throughout the company 0.76
Business functions are integrated to serve market needs 0.84
Our managers understand how employees can contribute to value for customers 0.77
The different functional areas share resources 0.78

Finally, and considering the reference value for the statistics showing how well the model
fits with the available data, the evidence suggests that convergence, although it could be
improved, is quite acceptable for measures of MO as a function of three components (χ2 =
266,89; df = 88, p = 0.000; AGFI=0.86; CFI=0.92 and RMSEA=0.082).
To develop an extended version of the MKTOR scale for an early TE, the government
orientation dimension is added to the original scale. Hence a new scale with four components
is considered. However, it is not clear whether these four components tap into the same
construct, and to what extent. Therefore, the present study aims to clarify this issue by
focusing on the reliability and validity of a new construct with four components intended.
Table 2 reports the item-to-total correlation and the scale reliability value (coefficient α) for
the amplified scale. Based on the coefficients showed in Table 2, it was unnecessary to
eliminate any of them from the instrument.
Table 2. Scale description for government orientation
Item Item-to-total
Cronbach’s α
correlation
Government orientation 0.81
We actively seek good relationships with officials from state financial 0.82
institutions to get finance
We actively seek good relationship with officials from the Central Bank of 0.89
Cuba in order to obtain authorization for buying or investing.
We actively seek good relationships with government officials to cut back the 0.84
terms to obtain official permits or approvals.

Implementing the confirmatory factor analysis to gauge the fit of the proposed
measurement model to the covariance or correlation data available, and assessing the
convergent validity, the model fits the data better than the previous model (χ2 = 150.56, df =
129, p = 0.094; AGFI= 0.93; CFI=0.99 and RMSEA=0.024). In fact, considering the
indicators that allow us to compare models, the latter present better indicators than the former
(NCP = 21.56 vs. 178.89; ECVI = 0.78 vs. 1.10; AIC = 234.56 vs. 330.89 and CAIC =
432.26 vs. 481.52).

  5
 Discriminant validity, the second major type of construct validity, refers to the principle
that the indicators for different constructs should not be so highly correlated as to lead one to
conclude that they measure the same thing. Therefore, discriminant validity analysis refers to
testing statistically whether two constructs differ (as opposed to testing convergent validity
by measuring the internal consistency within one construct, as Cronbach's alpha does). There
are different methods for assessing discriminant validity. Based on correlational methods,
researchers often reject an indicator if it correlates more highly with a construct different
from the one which it was intended to measure in constructing scales. Some researchers use r
= 0.85 as a rule-of-thumb cutoff for this assessment, fearing that correlations above this level
signal definitional overlap of concepts. The available data suggests that the indicators do not
correlate highly with a construct different from the one which they were intended to measure.
Likewise, concurrent validity was also analyzed examining the correlation of the scale with
“differentiation strategy” and the results confirm the concurrent validity of the new
instrument (for space reason, we are not including the tables related to these last two analysis
but they are available upon request.).
In summary, this new scale, with four components (taking into account a government
orientation), is a better instrument for measuring market orientation in an early transition
economy, as Cuba, than the traditional MKTOR scale, because the new scale also takes into
consideration the key role that the government has in such economies.

4. Conclusions
Many scales have been developed in the literature to asses MO. They have been tested in
a lot of different environments trying to check whether the construct is equally applicable in
different context. Hence, applying one of these scales in Cuba and validating it implies
making a contribution to the marketing field, since Cuba is a completely different economy
from those where MO scales were first developed and tested.
The research demonstrates that, although Narver and Slater's construct fits the Cuban
environment acceptably, an extended MKTOR scale, including a construct that takes into
consideration the firm’s government orientation, has a better fit within this context than the
original scale. Thus, the main contribution of the present research is that in an early transition
economy, as Cuba, organizations that focus on customers, on competitors and on the
government attain a better match with the environment than those that simply focus on
customers and competitors.
From a managerial perspective, since the continuing expansion of international,
multinational or global companies has created a need for understanding management
imperatives in different national market environments instead of having ethnocentric views
about management imperatives (Sin, Tse, Yau, Chow, and Lee, 2003, 2005), in an early
transition economy such as Cuba, if management wants their companies to be market
oriented they should be also government oriented. Specifically, it implies focusing on
government officials, on official institutions and the Central Bank in order to obtain finance,
official authorizations and permits, and all of this in a time as short as possible, otherwise it
would be very difficult to operate in Cuba, even for highly customer and competitor
orientated firms.
Future research is suggested based on the above findings. For instance, the business
antecedents for this extended market orientation construct, or the relationship between the
extended market orientation and business performance in early transition economies.

  6
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