Strategic choice during economic crisis: Domestic market position, organizational capabilities and export flexibility
Section snippets
Korean economic crisis and strategic response via export
In Chinese, the term “crisis (weiji)” is expressed with two characters, the first meaning “danger” and the second “opportunity” (Kim, 1998b). This means that while there is downside of crisis, one can also find that crisis is an opportunity. Some firms view a crisis as an opportunity to change. Gilbert (2006) finds that competing frames of threat and opportunities can co-exist. For example, Kirzner (1973) argued that in a situation of market disequilibrium, there exists opportunities for
Theoretical development
Among the dominant viewpoints for explaining a firm's strategy in the field of strategic management are the IO and RBV perspectives. The IO perspective emphasizes the importance of market power in generating monopolistic rents for firms and the RBV perspective emphasizes heterogeneous firm capabilities in generating efficiency rents for firms (Bain, 1956, Barney, 1991; Morgan, Kaleka, & Katsikeas, 2004). Neither perspective, however, explicitly considers how firms flexibly use their
Domestic market position and export intensity under a stable environment
According to IO economics, a firm's domestic market position is an important determinant of its strategy (Porter, 1985, Porter, 1990). Previous research suggests two competing hypotheses about the effect of a firm's domestic market position on its export intensity. The first stream suggests a negative relationship (Ito & Pucik, 1993). The argument here is that domestic market leaders would not have such a strong incentive to expand abroad because of their greater domestic market position.
Data and sample
The sample for this study consists of Korean manufacturing firms for the 1994–2000 period. Service firms were excluded because of their lack of exporting activity and their inconsistency of accounting practices compared with manufacturing firms (Chang & Hong, 2000). We obtained our sample using the following procedure. First, we relied on the Korean Standard Industry Classification (KSIC) code at the four-digit level and identified 54 manufacturing industries. Second, for each industry, we
Results
Table 2 contains the descriptive statistics and the correlation matrix for all the variables included in this study. All the variables were checked for normality using the skewness–kurtosis test and the analysis revealed no serious departures from uniform variance, suggesting that the assumption of a normal distribution was maintained (Hamilton, 1992). To check for multicollinearity, we calculated the variance inflation factors (VIF) for all the variables. The average VIFs were less than
Discussion
We find that the tendency of domestic leader firms to have greater export intensity was more pronounced in the post-crisis than in the pre-crisis period. The Korean economic crisis served as a wake-up call for domestic leader firms to increase their export intensity. Consistent with the boiling frog phenomenon, our results show that dominant firms were most affected by the unexpected decrease in domestic market share and thus had a larger incentive to look beyond their domestic market (Tichy &
Conclusion
Salomon and Shaver (2005) argue that exporting is associated with domestic sales. We specifically examined how sudden domestic market shrinkage can push firms to increase their level of export to recoup the loss incurred during such a period, using as a context Korean firms before and after the Asian economic crisis. We found that domestic market leaders have a greater incentive to increase their level of export, because they lost the most from the domestic market shrinkage. In addition, we
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