Introduction
The concept of market and nonmarket integration was first mentioned in literature by Baron (
1995) who opines that successful internationalization hangs on strategic integration of market and nonmarket strategies (NMS) into a firm business framework. Prior to now, market strategies (MS) have been a prominent force in crafting and leveraging the international market, given its extensive focus on competitors and the deployment of firm capabilities to enhance firm performance (Salavou
2015). Research on market strategies has been very novel given its extensive focus on managing customers/suppliers’ expectations, competitors’ actions, and inaction using either differentiation, cost-leadership, and other market-oriented competitive strategies to influence the desired market performance (Madanoglu et al.
2014). However, the uncertainty surrounding the international business environment, especially in the wake of the recent COVID-19 pandemic, has weakened the effectiveness and the sole use of market strategy in an international context giving prominence to the emergence and the need for strategy integration (MS-NMS) into a firm business framework (Gonzalez-Rodriguez et al., 2018; John and Lawton
2017; Charoensukmongkol
2022). Scholars have argued that the dynamic competitive business environment makes it impossible for a firm to sustain a market-oriented performance strategy on a long-term basis (Oliver and Holzinger
2008; Barney
2014; Kim,
2022), hence the need for strategy integration (MS-NMS) emphasized in this study. Nonmarket strategies (NMS) refer to the tactics adopted by organizations especially multination corporations (MNEs) to influence host country strategic policies through lobbying, campaign contributions, and setting up a political action committee (PAC) among others to the advantage of an organization.
Uncertainty in the business environment may force changes in firm services, production arrangements, customer-demand and technology adoption, and organizations’ needs to craft sustainable strategic responses (MS-NMS) to survive and achieve competitive advantage in the host market (Arora et al.
2016; Parnell
2018; Vaitoonkiat and Charoensukmongkol
2020a,
b). The work done by Zhang et al. (
2020) shows that there is a relationship between market uncertainty, firm innovation, and high firm performance. This shows that environmental uncertainty may act as a driver of strategic change which may or may not affect the competitive positions of firms depending on the strategy configurations in the host market. Similarly, anti-globalization sentiments and the global environmental uncertainty give credence to strategy integration as firms now deploy resources to influence policies in the favor of organizations. Empirical findings have established a significant positive relationship between MS and firm performance while NMS and firm performance linkage are currently growing (see Köseoglu et al.
2013; Parnell
2018; Parnell and Brady
2019; van Kranenburg and Voinea
2017; Zhang et al.
2020); however, literature on MS-NMS (strategy integration) configuration to enhance firm internationalization performance remains scanty. Hence, this research provides insight and expands knowledge on the importance of strategy integration (MS-NMS), especially in uncertain/volatile international market contexts.
Organizations are incorporating NMS emphasis (understand stakeholders and leverage policies) into their strategic business framework to complement market strategy for successful internationalization performance (Yin et al.
2016; Parnell
2018). NMS research and particularly corporate political activities (CPAs) have gained significant momentum in literature as organizations are integrating CPA practices into their strategic business framework, and this has led to the linkage of NMS with firm performance (Dorobantu et al.
2017; Parnell and Brady
2019; van Kranenburg and Voinea
2017). Similarly, organization emphasis on NMS is factored toward understanding the political, legal, social, environmental, regulatory-institutions, interest-groups, and media-agency embedded in international context each of which may assert policies and influence the success and sustained competitive position of firms especially in an uncertain/volatile international market contexts (Köseoglu et al.
2020).
Furthermore, the resource-based view (RBV) perspective emphasizes the importance of firm resources and dynamic capabilities as a useful tool for positioning and competing in a turbulent and uncertain business environment, but how these capabilities can be used to enhance performance under a strategy integration framework remains unsettled (Wei et al.
2015a,
b, c). Similarly, Parnell (
2018) examined strategic capabilities with specific reference to marketing and management capabilities and their relative effects on NMS practices of the firm but failed to capture the integrative effect of MS-NMS linkage and how it can drive high-performance advantage in an uncertain/volatile market contexts.
Thus, based on a survey conducted among the top management staff of multinational corporations (MNEs) in Portugal, our findings show that a firm that uses strategy integration performs better and has a higher chance of achieving sustainable internationalization performance than a firm that competes separately with either strategy. Our findings contribute to NMS literature in the following ways: first, the study responds to calls and suggestions made by Baron (
1995), Parnell (
2018),and Zhang et al. (
2020) on the need for strategy integration, especially in a developed market context. Secondly, the study provides insight and understanding of the moderating effect of environmental uncertainty and firm capabilities on the need for strategy integration and helps to explore and understand the changing conditions of this strategy conundrum.
Methodology
The research instruments were designed and administered online using survey monkey to the management staff of selected multinational corporations in Portugal. The survey was sent to over 1900 management staff who are decision-makers in these organizations, and only 302 responses were received and used for our analysis. Management staff from these multinational corporations’ data were assessed from (BoldData.nl) services. BoldData.nl is an organization that provides data services (managers, CEO, among others) across several industries to facilitate SME businesses integration, new market development, and these data can be used for academic purposes. Also, Portugal’s economy was chosen as our sampling scope for the following reasons: Portugal’s economy after the 2013 economic crisis made several attempts to encourage entrepreneurship and enhance foreign direct investment (FDI) by implementing numerous policies aimed at cost reduction (cheap labor cost) for setting up businesses, seed financing for new firms, and creating an entrepreneurial ecosystem among others (Braguinsky et al.
2013). Nevertheless, the increasing birth of most of these new firms is now proportional to the mortality rate experienced in the country. These happened for two reasons: first, most of these start-ups are unable to experience actual growth given the influx of product market competition. Between 2010 and 2014, 41% of these new firms were required to pay in interest more than the company’s annual generated income without considering tax evasion and other operational financial obligations as peculiar to each firm (Dias et al.
2015).
The resource misallocation and lack of standardization gave rise to a high exit barrier and mortality rate. Second, discrimination exists between medium and large firms concerning labor law which serves as a disincentive to growth for these new firms. Only a few firms in Portugal can boost more than 50 employees, and this is due to inefficient labor law and resource misallocation (Lentz and Mortensen
2008; OECD
2015). To resolve some of these issues, efforts were made to enhance firm standardization and regulations which however led to excessive business regulations, strenuous environmental licensing, changing tax conditions, and new levies among others (Portugal Statistics
2015). These changes in labor law and firm standardization made the economy home to many MNEs as the country is now seen as a low labor cost country that possesses a high-skilled workforce. Furthermore, the country’s foreign direct investment started gaining significant momentum in 2014, and as of May 2022, the country’s FDI had a $1.2 billion increase which is compared to a $370.2 million increase in April of 2022. The influx of these multinational corporations in Portugal and the suggestion made by Parnell (
2018) justifies the need to conduct the study in Portugal and to understand how MNEs are battling with the market and nonmarket policies.
Following the work of So et al. (
2016), the online survey was appropriate to gather data for this study considering the restriction and lockdown that started in 2020 in Portugal. The justification for selecting management staff was due to the technicalities required in understanding and providing relevant answers to each of our construct items in the survey, hence the reason for the stratified sampling technique adopted in the study. Also, we used a 5-point Likert scale response type (i.e., 1 = greatly improved performance, 5 = deteriorated performance significantly) for each construct item in our survey. A structural equation model (SEM) was used to test our hypotheses, and confirmatory factor analysis was used to determine the fitness of the model. SEM was appropriate for testing our hypotheses because it is capable of showing the relationship between measured and latent variables (market, nonmarket, strategy integration, environmental uncertainty and firm capabilities) in the study (Hair et al.
2012). The survey instrument was made available in both English and Portuguese for ease of understanding to the managers. The survey distribution took approximately 2 months and 1 week to gather 302 responses from top-level management staff. Medium- and large-scale enterprises were included in the data collection which shows validation and credibility from a diverse pool of knowledgeable managers about the market and nonmarket strategic issues faced in their organization (Balogun and Johnson
2004). The survey instruments were validated by three professors of international business, and the pilot study results used to assess the reliability and validity of the instrument show 0.88 which exceeds the threshold of 0.70 recommended by (Nunnally,
1978).
Results measurement model
To test our hypotheses, we first checked some important assumptions in our model to determine the model fitness, such as multicollinearity, sample size, missing values, normality, reliability and validity, and common method bias (Kline
2005). Our sample size was 302; therefore, we do not violate the recommended value of 200 before carrying out a structural equation model (Iacobucci
2010) to test our hypotheses. On normality, we checked for skewness and kurtosis from all our questionnaire items, and the values were within the suggested threshold of − 1 to + 1 (Bagozzi and Yi
2012). Multicollinearity was assessed using correlation analysis. A value above 0.5 is deemed good, and all our variables have value above 0.5 (Field
2005). All our scales were checked for reliability and validity, and the results show that Cronbach alphas exceeded 0.7, composite reliability exceeded 0.8, and average variance extracted exceeded 0.5 for all our construct as recommended by Bagozzi and Yi (
2012) (see Table
2). Finally, we check for common method bias first, by assuring respondent data anonymity and differentiating between independent and dependent variables for easy understanding. Second, the data was collected from multiple sources knowing fully well that collecting data from one single source could result in common method bias (Podsakoff et al.
2012). Third, following Harman’s single‐factor test, our results show chi-square = 31.347, IFI = 0.65, CFI = 0.62, TLI = 0.53, NFI = 0.67, and RMSEA = 0.28; hence, a single factor was not responsible for majority of the variance in our data. Therefore, common method bias was not a problem in this study.
Findings
Before testing our model, we assessed the general fitness of the model using confirmatory factor analysis. A good fit is measured using goodness of fit index (GFI), comparative fit index (CFI), normed fit index (NFI), Tucker-Lewis index (TLI), and root mean square error of approximation (RMSEA) (Guimaraes et al.
2016; Bagozzi and Yi
2012). Our results reveal that the fit statistic using the recommended threshold was acceptable as (i.e., χ2 = 2.412; GFI = 0.920; TLI = 0.943; CFI = 0.912; NFI = 0.914; and RMSEA = 0.073). All the hypotheses were tested using a structural equation model with a bootstrapping indicator set at 2000 for the moderators (environmental uncertainty and firm capabilities) to determine the extent of influence and indirect effect on each of the constructs. R2 coefficient for firm capabilities, environmental uncertainty, market and competition, and customers are 0.626, 0.270, 0.916, and 0.857, respectively. Strategy integration was achieved by selecting the number of times respondents agreed that the firm took a market and nonmarket simultaneous action as a competitive strategy in their organizations to achieve particular market advantage. Thus, following Wei et al. (
2015) integrated model formulation, the following market and nonmarket competitive actions (EMS1-ENMS1, EMS4-ENMS3, and EMS3-ENMS2) were mostly used concurrently by sampled respondents in their firms (see Table
3).
Findings for the direct hypotheses show that
H1a and
H1b were supported (see Table
4); that is, emphasis on market strategy contributes significantly to market and competition and customer satisfaction. Similarly,
H2a was supported whereas
H2b was not supported, showing that emphasis on NMS contributes significantly to market and competition but not directly to customer satisfaction and also shows a negative relationship. Interestingly,
H3a and
H3b were supported, showing that integrated MS-NMS actions contribute significantly to markets and competition, and customer satisfaction which leads to sustainable internationalization performance.
Table 4
Result of hypotheses testing—direct effect
H1a | MS → MC | 0.216 | 3.832 | *** | Supported |
H1b | MS → CS | 0.376 | 4.628 | *** | Supported |
H2a | NMS → MC | 0.225 | 3.527 | *** | Supported |
H2b | NMS → CS | − 0.185 | − 1.268 | 0.07 | Not supported |
H3a | MS-NMS → MC | 1.114 | 5.225 | *** | Supported |
H3b | MS-NMS → CS | 1.122 | 8.601 | *** | Supported |
On the moderation effect,
H01c was supported but
H01d was not supported (see Table
5), showing that environmental uncertainty positively moderates the relationship between market strategy, market, and competition but not with customer satisfaction and likewise shows a negative relationship. Also,
H02c was supported but
H02d was not supported, showing that environmental uncertainty positively moderates the relationship between NMS and market and competition but not customer satisfaction and also shows a negative relationship. Interestingly,
H03c, H03d, H03e, and
H03f were supported, showing that both environmental uncertainty and firm capabilities significantly moderate the relationship between integrated MS-NMS, market and competition, and customer satisfaction. However, the moderated relationship between environmental uncertainty and MS-NMS and customer satisfaction shows a negative relationship.
Table 5
Result of hypotheses testing—moderation effect
Ho1c | MS → EU → MC | .145 | .113 | .045 | .002 | Supported |
Ho1d | MS → EU → CS | − .002 | − .005 | − .007 | .106 | Not supported |
Ho2c | NMS → EU → MC | .189 | .069 | .050 | .001 | Supported |
Ho2d | NMS → EU → CS | − .004 | − .002 | − .006 | .136 | Not supported |
Ho3c | MS-NMS → EU → MC | .514 | .024 | .035 | .024 | Supported |
Ho3d | MS-NMS → EU → CS | − .409 | − .018 | − .025 | .000 | Supported |
Ho3e | MS-NMS → FC → MC | .313 | .011 | .064 | .004 | Supported |
Ho3f | MS-NMS → FC → CS | .614 | .014 | .032 | .001 | Supported |
Discussion
The call for strategy integration especially for multinational organizations rekindles long-term debates on how a firm can achieve and maintain sustainable competitive advantage regardless of a firm and industry-level competitive factors (Baron
1995; Bonardi
2004; Schuler et al.
2002; Shaffer and Hillman
2000; Parnell
2018). This call reveals the weakness of firms competing separately with either market and or nonmarket strategies, especially in today’s dynamic business environment. Responding to the call, our findings show that strategy integration helps a firm to achieve and maintain sustainable firm performance without neglecting the individual relationship that market and nonmarket strategies have on firm performance (Henisz and Zelner
2012; Cavazos and Rutherford
2012; Vázquez-Maguirre and Hartmann
2013; Mellahi et al.
2016). We found a similar notion in Wei et al. (2015) who found that rival response and speed of competitive actions or retaliation in the market were very low when firms adopt integrated actions and high when firms adopt either MS or NMS separately in the international market.
Our results show that market strategy has a significant impact on firm performance (market and competition, and customer satisfaction), and this aligned with the findings of scholars on similar constructs (Köseoglu et al.
2013; Parnell
2018; Zhang et al.
2020). These findings show that regardless of the complementary nature of NMS practices in today’s dynamic business environment, the importance of market-oriented strategies to firm performance cannot be downplayed, although the moderating effects of environmental uncertainty on the relationship between market strategies and customer satisfaction were not supported and even show a negative relationship. This, however, is very intriguing given the findings of Köseoglu et al.
2013,
2020) who found that organizations especially multinationals engage in market-oriented strategies such as differentiation and or cost leadership to compete favorably and differentiate their offerings in an uncertain market context. Nonetheless, the heterogeneous company selections for data gathering or the environmental context of Köseoglu et al.
2013,
2020) research might be responsible for the differences in findings.
Also, our findings show significant positive support between NMS practices and market and competition but show a negative insignificant relationship with customer satisfaction. These results are very intriguing but not surprising. As earlier stated, many of the issues that a firm needs NMS practices to resolve are created by market-oriented strategies. Also, the moderating effects of environmental uncertainty on the relationship between nonmarket strategies and market and competition were supported but customer satisfaction was not supported and even show a negative relationship. These findings also conflict with the position of Köseoglu et al.
2013,
2020) but take a cue from Kim (
2022)’s work which states that NMS practices can influence directly market and competitive position of a firm but may have little or no direct influence on customer satisfaction. Similarly, Dewnarain et al. (
2019) found that the satisfaction of customers is directly related to the customer experience of company products and services which can only be achieved through market-oriented strategies aimed at meeting customers’ needs and wants.
Interestingly, integrated actions of MS-NMS strategy show a significant positive relationship with firm performance (market and competition and customer satisfaction). We anticipated these results following the call for papers by Baron (
1995), Parnell (
2018), and Köseoglu et al. (
2020) to statistically address strategy-integration-performance linkages in developed market contexts. Furthermore, we found that most MNEs in Portugal favor strategy integration due to the high level of business standardization and regulations as it enables organizations to influence policies that may affect their sustainable market advantages. Furthermore, the moderating effect of environmental uncertainty and firm capabilities on the integrated actions (MS-NMS) of organization and firm performance constructs examine in this study also affirms the importance of strategy integration for the international market. Environmental uncertainty is a firm worst challenge when market and nonmarket strategies are used separately and may act as an opportunity for a firm to differentiate its services and enhance its political and market capabilities when a firm adopts strategy integration. Recent findings by Parnell (2017) and Zhang et al. (
2020) show that market uncertainty enhances a firm innovative business decision and market-oriented differentiation strategy, thereby improving firm performance. A firm needs to be able to develop political and market capabilities to enjoy a sustainable competitive advantage in a dynamic market context. Hence, environmental uncertainty regardless of whether high or low can be viewed from the strength of a firm competitive knowledge and capability development (Teece et al.
2016). Based on these findings, we, therefore, conclude that integrated actions are key to a firm sustainable competitive advantage and even support decades of a conceptual proposition on strategy integration in international business literature (Baron
1995; Schuler et al.
2002; Shaffer and Hillman
2000; Bonardi
2004).
Managerial implications
Several important managerial action points can be lured out from our findings. First, managers need to work on developing and strengthening their capabilities configurations to create and capture sustainable market-oriented strategies for organizations (Parnell
2015; Köseoglu et al.
2013). This is because of the multilayered interactions effect of environmental uncertainty in a developed and developing market context which may harm a firm sustainable market advantage. The findings in this study reinforce the importance of capability development and provide insight into the relevance and ways it can serve as a differentiating factor for a firm in an uncertain market environment and under a strategy integration framework to improve firm performance (Wu et al.
2012; Theodosiou et al.
2012). Second, managers need to understand that the same level of resources and planning required for engaging market-oriented strategies is quite similar to that required for engaging nonmarket strategies. This is why most multinational firms view MS and NMS as complementary, hence the emphasis on strategy integration.
Although the difference exists in the level of financial resources commitment required for both MS and NMS engagement, this is why some managers favor market-oriented strategies over NMS practices (Hadani et al.
2015). Also, environmental contexts are another underpinning factor for managers in deciding between MS, NMS, and/or strategy integration; nevertheless, managers need to evaluate and assess the business needs in line with the prevalent host market realities and decide on the best NMS practices (e.g., lobbying, campaign contributions) to undertake that will drive sustainable market performance. Finally, MNEs in Portugal especially those in highly regulated industries (services, hospitality, and manufacturing) are favoring strategy integration to influence host government policies that affect market and nonmarket activities to create a sustainable market performance (Singer
2013; Frynas et al.
2017). Managers, therefore, need to understand the nature and culture of their industry businesses and the relative policy changes and strategically position firm activities to navigate the challenging market and nonmarket risks in the host market.
Theoretical implications
Based on Baron (1995)’s proposition with support from Oliver and Holzinger (
2008) and Parnell (
2018), engaging with the host country’s political and regulatory structure provides a source of competitive advantage for the organization, because it allows an organization to withstand and benefit from the changing environmental conditions and continuously help to create and maintain their value proposition for the international market. Advancing the logic of the behavioral theory of the firm and stakeholders theory, it shows that organizations will adopt CPA practices such as (lobbying, campaign contributions, and donations among others) to complement market strategy to enhance internationalization performance (improve market and competition and customer satisfaction) especially when international market performance and profit maximization are below aspiration level (Du, Bai and Chen, 2019). Scholars have shown that organizations can manage effectively the relationship embedded with strategic nonmarket actors and as depicted by stakeholders’ theory that organizations must focus on satisfying a wider range of interest groups including political and host market regulatory structures in the international market. Following these assumptions, we argue that a firm should take a proactive position in pursuing strategy integration for the international market as it aimed to achieve a sustainable internationalization performance.
Furthermore, the strategic interaction between market and nonmarket practices not only depicts a distinct unseparated line of research especially due to the global environmental uncertainty (Mellahi et al.
2016) but additionally provides a holistic view of corporate NMS practices (Dorobantu et al.
2017), as it emphasizes on how an organization can create, maintain, and reconfigure numerous NMS practices to achieve sustainable competitive advantage in the international market. Although it is established knowledge that the factors affecting the changing political and regulatory conditions of the host market are extremely difficult to predict due to the cause and effect variations, they are not impossible to manage (Frynas et al.
2017). This implies that organization needs to be aware that they might not be able to generate all their returns on nonmarket investment. However, the integrated perspective emphasized in this study suggest that organization may need to choose some nonmarket approaches (e.g., lobbying, campaign contributions) that aligned with their corporate market objectives and strategically configure them to satisfy a broader interest group to maximize profit in the international market. Thus, our empirical findings and theoretical arguments demonstrate the importance of strategy integration as it depicts the benefits and difficulties embedded in engaging with host market political and regulatory structure and how organizations need to differentiate their market and nonmarket objectives for favorable international market advantage.
Limitations and future research
We recognize two limitations in this study. First, we collected data from different (medium and large) MNEs without paying significant attention to peculiar industry characteristics which may have an impact on MS, NMS, and strategy integration approaches adopted by these firms. Second, data from this study were subjected to firms with operational presence in Portugal. Hence, operations in other European countries, the USA, and the UK were not included, although our study was a response to the suggestion for further study made by Baron (
1995) and Parnell (
2018) in developed European countries. Therefore, our findings are applicable to other European countries with highly regulated and standardized practices for entrepreneurship development. Nevertheless, future researchers can extend these findings to other developed and developing European countries to examine the impact that strategy integration has on firm internationalization performance in a regulated and less regulated market and industries.
Also, this study used a cross-sectional research design; thus, data were collected within a single period even though common method bias shows no significant impact (Kobrin
2015). We encourage future researchers to engage in longitudinal research given its detailed orientation to uncover the long-term impact of strategy integration on firm internationalization performance. Similarly, the relationship between firm size, firm characteristics, strategy integration (MS-NMS), and firm performance requires further research. This is probably because of resource discrepancies which may affect the response rate of medium and large organizations to NMS practices, even though the negative relationship between NMS, environmental uncertainties, and customer satisfaction in this study suggests that large organizations will prefer strategy integration as a way to curb environmental uncertainties given their latent resource advantage.
Conclusion
Our findings show that MS, NMS, and strategy integration enhance firm performance (market and competition, and customer satisfaction) in different and unique ways (Köseoglu et al.
2020; Parnell
2018). We established before now that the relationship between market strategy and firm performance has long been established in the literature and our results show no discrepancies. However, we found that the relative direct impact of market-oriented strategies on customer satisfaction as examined in this study is not the same when compared to nonmarket strategies. This further shows the uniqueness of the two approaches/strategies to firm performance and reinforces the need for strategy integration for the international market. Interestingly, findings from our integration hypotheses support many years of conceptual proposition in international business literature (Baron
1995; Bonardi
2004; Schuler et al.
2002; Shaffer and Hillman
2000; Wei et al.
2015a,
b, c) and provide insights and enhanced understanding to researchers in the field of sustainable competitive market advantage and firm internationalization.
Similarly, environmental uncertainty provides mixed reactions. First, it shows support for the work of Zhang et al. (
2020) who found that uncertainty in the market environment affects firm innovative decisions and differentiation strategies thereby improving firm performance. Second, we found that environmental uncertainty has a direct and indirect negative relationship with nonmarket strategies on customer satisfaction. This, however, negates the findings of Köseoglu et al. (
2020) and depicts self-interest as the ultimate motive of organizations engaging in nonmarket strategies especially during market turbulence or uncertain market contexts to achieve sustainable competitive advantage and outwit competitor’s market strategies (Wood and Frynas
2006; Harrison and Wicks
2013). Our study is unique given its response to the long-term call to statistically address the relationship between strategy integration and firm sustainable market performance in a developed market. It also becomes the first to enhance MNEs manager’s understanding of the role of environmental uncertainty and firm capabilities and its impact on market, nonmarket, and integrated actions of the organization and how the organization needs to deploy, interact and configure internal and external capability to achieve sustainable internationalization performance. The study is also very unique owing to the fact that its results can be applied to other European countries that have a highly regulated and standardized business practices through the fostering of a cordial interrelationship between market and nonmarket orientation that serve to favor both the host-home government, consumers, and shareholders.
Acknowledgements
We would like to specially appreciate the editor of this journal and the two peer reviewers who took out time from their busy schedules to help improve the quality and presentation of this manuscriptl; we say thank you very much. Also, we appreciate the review and positive comments of Associate Professor Ana Maria, Soares, of the department of Marketing and Strategy, University of Minho, on this manuscript.
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