MO and Enterpreneurship Orientation

Journal of World Business 46 (2011) 381393
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Journal of World Business

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Ownership, strategic orientation and internationalization in emerging markets

Yi Liu a,1, Yuan Li a,*, Jiaqi Xue b,2
a
b
Antai College of Economics & Management, Shanghai Jiaotong University, School of Management, Xian Jiaotong University, Xian 710049, Shaanxi, China
International Business School, University of International Business & Economics, Beijing 100029, China
A R T I C L E I N F O
A B S T R A C T
Article history:
Available online 31 August 2010
For rms from emerging economies, market orientation and entrepreneurial orientation are two of the
most important strategic orientations to consider when entering the global marketplace. This study
explores how, in emerging markets, ownership structure affects these strategic orientations and their
effectiveness in facilitating international business success. Our ndings, based on survey data from
Chinese rms, suggest that ownership structure, specically ownership concentration and CEO
ownership, can lead rms to choose different strategic orientations. Furthermore, we nd that
entrepreneurial orientation directly promotes a rms internationalization activities, whereas market
orientation has an inverse U-shaped relationship with internationalization activities.
2010 Elsevier Inc. All rights reserved.
Keywords:
Internationalization
Ownership concentration
CEO ownership
Strategic orientation
Entrepreneurial orientation
Market orientation
1. Introduction
The past ten years have witnessed rapid growth of internationalization in rms from emerging markets. The World Investment
Report (UNCTAD, 2006) suggests that, as a group, rms from
emerging markets have emerged as signicant outward investors,
and scholars have therefore recently engaged in theoretical
inquires into the phenomenon of internationalization by such
rms. They argue that special institutional characteristics which
the transformation of the economic system engenders drive these
rms to pursue distinctive approaches to successful internationalization (Child & Rodrigues, 2005; Luo & Tung, 2007; Yamakawa,
Peng, & Deeds, 2008). From this perspective, institutional factors
and specic strategic orientations are the key triggers for achieving
international goals in rms which operate in emerging markets.
At rst, strategic patterns of rms from emerging markets, such
as the former Soviet Union and China, followed centralized, stateplanned business approaches that are not appropriate for success
in a global economy which is characterized by a free market and
intense competition (Boisot & Meyer, 2008; Yamakawa et al.,
2008). As reform has been taking place in these economic systems,
emerging economies have been experiencing massive and complex
changes in institutions, including government, economic systems,
This study is supported by KPCEM (09JZD0030) and NSFC (70872090;

70741420172) and Program for Innovative Research Team in UIBE.
* Corresponding author. Tel.: +86 29 82665093; fax: +86 29 82668957.
E-mail addresses: [email protected] (Y. Liu), [email protected] (Y. Li),
[email protected] (J. Xue).
1
Tel.: +86 29 82665029; fax: +86 29 82668382.
2
Tel.: +86 10 64493511.
1090-9516/$ see front matter 2010 Elsevier Inc. All rights reserved.
doi:10.1016/j.jwb.2010.07.012
and enterprise ownership structures (Child & Tse, 2001; Peng, Tan,
& Tong, 2004). Privatization has encouraged more new entrants to
come into the market as entrepreneurial startups (Peng, 2003).
Firms which are inclined to pursue new opportunities, initiate
changes and take risks have led to the prevalence of entrepreneurial activities in emerging markets. The open and free market has
thus fostered a competitive business environment.
Many rms have realized that they must put more emphasis on
customers needs and satisfaction in order to remain viable and
even to survive (Golden, Johnson, & Smith, 1995). Furthermore, an
open door policy leads rms from emerging economies to enter
international markets in order to obtain a competitive advantage
in the global economy (Boisot & Meyer, 2008). These changes as
well as the results they lead to have forced rms to recognize that
successful internationalization cannot be achieved using the
means and approaches of the old economic system, but instead
require rms to learn new business approaches in a global market
and adopt appropriate strategic orientations (Li, Liu, & Zhao, 2006;
Mathews, 2006).
Previous studies suggest that entrepreneurial orientation (EO)
and market orientation (MO) provide the foundations on which a
rm can build its interactions with dynamic foreign markets. These
orientations determine the rms behavior and international
performance (e.g., Knight & Cavusgil, 2004; Luo, Sivakumar, &
Liu, 2005). Recently, research in strategy and marketing has shown
that EO and MO are crucial for superior performance by rms from
emerging markets (Lau & Busenitz, 2001; Li, Liu et al., 2006; Liu,
Luo, & Shi, 2003; Subramanian & Gopalakrishna, 2001), and that EO
is especially helpful for achieving success in foreign markets (Luo &
Tung, 2007; Yamakawa et al., 2008; Zhou, 2007). However, until
now research has not identied the different roles that EO and MO
382
Y. Liu et al. / Journal of World Business 46 (2011) 381393
play in a rms internationalization, and has not explored the

specic driving effects of EO and MO on a rms internationalization behavior.
More importantly, the constant changes taking place in
emerging markets have also caused institutional factors to become
important drivers of a rms choice of strategic postures
(Hoskisson, Eden, Lau, & Wright, 2000). One especially important
reform is that rms formerly owned only by the government in a
centrally planned economy have been allowed to have other
owners, including the CEOs (Filatotchev, Dyomina, Wright, & Buck,
2001; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008). Such changes
in ownership structure may well inuence the strategic posture of
rms (Peng, 2003) and may also change the progress of their
internationalization. However, precisely how these reforms in
ownership structure differently affect strategic orientations such
as EO and MO has been ignored in existing literature.
To ll these research gaps, this study attempts to address two
questions: What are the roles of (i) ownership structure and (ii)
particular strategic orientations, in the internationalization of
rms from emerging markets? The main contributions of this
study are the following.
From a theoretical viewpoint, by taking into account the
different characteristics of EO and MO, this article explains the
differences between the effects of ownership concentration and
CEO ownership on both EO and MO, as well as the different effects
of EO and MO on the internationalization activities of rms. We
provide a theoretical explanation about how ownership concentration and CEO ownership affect the internationalization activities
of rms from emerging markets through their choice of EO or MO.
From an empirical viewpoint, unlike existing studies which
have been conducted in developed economies, we here shift the
focus to the context of rms in emerging economies, and
investigate the case of rms in China. China, as the largest
emerging market in world, has a long history of a centrally planned
economy and state ownership of enterprises. Yet today, China is
changing from a centrally controlled society into a market-driven
economy. Many Chinese MNEs are emerging and posing a major
challenge to Western MNEs (Child & Tse, 2001; Young et al., 2008).
During internationalization, these Chinese MNEs have to face not
only complex and competitive foreign markets but also turbulent
institutional and economic environments. Thus China represents a
unique opportunity to test internationalization theory. By using
data painstakingly collected through face-to-face interviews with
senior executives in charge of 607 Chinese rms, we provide
evidence to show that ownership concentration and CEO ownership have different effects on EO and MO. Further, this study
examines the positive effect of EO on internationalization activities
and the inverse U-shaped relationship between MO and internationalization activities.
2. Theoretical background and conceptual model
2.1. Internationalization
Internationalization, which is dened as a process of increasing
involvement in international operations across borders (Welch &
Luostarinen, 1988), comprises a wide variety of activities including
exporting, licensing, OEM, and direct foreign investment. Here, we
are interested in those substantive forms of outward internationalization associated with rms from emerging markets. Seeking
and selling in foreign markets are the most common and important
outward activities adopted by rms from emerging markets as
they begin to internationalize (Child & Rodrigues, 2005; Filatotchev et al., 2001; Zhou, Wu, & Luo, 2007). A majority of these
rms are still in the early stages of the internationalization process,
with exporting being their dominant mode of foreign market
participation (Aulakh, Kotable, & Teegen, 2000). FDI is another

important form of outward activity. FDI outow from emerging
markets has increased from 3% of the worlds total FDI outow
(19781980 average) to over 17% ($133 billion) in 2005, and is
projected to grow even further (Yamakawa et al., 2008). Previous
studies also suggest that FDI is the most effective way for rms
from emerging markets to access and source strategic assets (Deng,
2009; Luo & Tung, 2007). Therefore, in this study, we view seeking
and selling in foreign markets and FDI as the most important
outward activities in the internationalization of rms from
emerging markets.
The big progress toward internationalization by rms from
emerging markets began after the reform of the economic system
(Child & Tse, 2001; Mathews, 2006). Firms in the old economy
followed centralized, state planning approaches which were not
appropriate for success in a global economy characterized by a
market-oriented system and intense competition (Boisot & Meyer,
2008; Yamakawa et al., 2008). As these economies reformed and
became transitional, rms had to develop more sophisticated
strategies and identify new approaches to make space for
themselves in markets that were already crowded with very
capable rms (Bonaglia, Goldstein, & Mathews, 2007; Wright,
Filatotchev, Hoskisson, & Peng, 2005). Luo and Tung (2007) show
that rms from emerging markets tend to use a series of aggressive
and risk-taking measures to compensate for their competitive
weaknesses in order to overcome their latecomer disadvantage on
the global stage. Firms based in emerging markets therefore need
to choose an effective strategic orientation for internationalization
to overcome their relatively limited resources and to improve their
performance (Mathews, 2006).
2.2. Strategic orientations of rms from emerging markets
The strategic orientation of rms is the deeply rooted set of
values that guide their strategy-making (Gatignon & Xuereb,
1997). It creates proper behaviors to interact with the marketplace
(Noble, Sinha, & Kumar, 2002), and provides a critical mindset for
rms to survive and prosper in the competitive global market
(Knight & Cavusgil, 2004). Existing literature has shown that MO
and EO are important strategic orientations (Noble et al., 2002;
Zhou, Yim, & Tse, 2005), because they provide rms with
capabilities to achieve competitive advantages (Bhuian, Menguc,
& Bell, 2005; Day, 1994), and success in internationalization
(Knight & Cavusgil, 2004; Weerawardena, Mort, Liesch, & Knight,
2007; Zhou, 2007). From a resource-based view, distinctive
resources or capabilities are rm specic, difcult to imitate,
and they generate a competitive edge in the market, particularly in
highly competitive or challenging environments, e.g. the global
market (Barney, 1991; Grant, 1996; Teece, Pisano, & Shuen, 1997).
These resources or capabilities can be used to drive subsequent
strategies and fund continued development of new capabilities
needed for international expansion (Luo, 2000). These capabilities
can help rms identify opportunities and respond quickly to them
in foreign markets. For rms based in emerging markets, resources
and capabilities are critical to the success of internationalization.
MO and EO build the rms learning capabilities (Slater & Narver,
1995) and accumulate knowledge resources about international
markets and operations (Autio, Sapienza, & Almeida, 2000). Since
most rms from emerging markets are young and tend to lack
substantial nancial, human and physical resources, these
intangible resources are especially critical in the entering new
foreign markets. Furthermore, because these rms may deal with
diverse environments across numerous foreign markets, they can,
by themselves, replicate market-based knowledge and innovation
capabilities which derive from MO and EO across varied markets
(Luo, 2000). Making use of these capabilities offsets the weakness
due to poor tangible resources and supports international

expansion. MO and EO are particularly relevant for internationalization of rms from emerging markets (Lau & Busenitz, 2001;
Subramanian & Gopalakrishna, 2001; Yamakawa et al., 2008).
Emerging markets have liberalized their economies by embarking upon an economic reform program to move from a command
toward a more free-market economy. Such transformations tend to
break up oligopolistic control and create a shift to a buyers market,
which in turn fosters a competitive business environment
(Filatotchev et al., 2001). As a result, management attitudes
towards customers and markets have changed. Firms now not only
have to put strong emphasis on customer satisfaction through
enhancing quality in production and improving the responsiveness
of services offered and promoting, but also must increasingly rely
on market research to recognize changes in economic systems and
in the market environment (Golden et al., 1995). It is important for
rms from emerging markets to adopt a market orientation in
order to survive the competition and gain competitive advantages
during the transition to a market economy (Zhou, Yim et al., 2005).
Moreover, since governments have started to loosen restrictions on
the private sector, more new entrants have come into the market
as entrepreneurial startups (Peng, 2003). Because EO promotes the
renewal of existing practices and the pursuit of new opportunities
(Lumpkin & Dess, 1996), it is quite appealing to emerging-market
rms that aim to rejuvenate themselves and distinguish themselves in a highly turbulent market. Therefore, rms from
emerging markets can emphasize either MO or EO or both in
order to adapt to the development of a market economy.
EO, which reects a rms propensity to pursue new market
opportunities, is associated with innovativeness, managerial
vision, and proactive competitive posture (Covin & Slevin, 1989;
Lumpkin & Dess, 1996). Paying more attention to the intersection
of international business and EO, some scholars point out that
international EO implies that rms make the leap into international markets by a posture of aggressiveness, innovativeness and
boldness because of unique entrepreneurial competencies and
outlook (e.g., Autio et al., 2000; McDougall & Oviatt, 2000). In this
study, we use Millers (1983) conceptualization of EO and view EO
as a multidimensional construct, consisting of dimensions of
innovativeness, proactiveness and risk-taking (Covin & Slevin,
1989; Miller & Friesen, 1982; Zahra, 1991).
A substantial amount of research has emphasized the inherent
value in EO and the linkage between this strategic orientation and
desired organizational outcomes (Barringer & Bluedorn, 1999;
zsome, 2002;
Jennings & Young, 1990; Matsuno, Mentzer, & O
Miller & Friesen, 1982). Specically, EO can allow a rm to see and
exploit opportunities in foreign markets, can enable it to
successfully enter the global market (Weerawardena et al.,
2007), and can provide international rms with dynamic
capabilities to engage in cross-border activities and trade (Jones
& Coviello, 2005; McDougall & Oviatt, 2000; Zahra & George, 2002).
For instance, Nummela, Saarenketo, and Puumalainen (2004)
suggest a positive relationship between a managerial global
mindset (i.e., proactive and visionary behavior) and the degree of
internationalization. Zhou (2007) nds that international entrepreneurial proclivity drives the pace of early internationalization in internationalizing rms from China.
In emerging markets, EO is a particularly critical force for
pushing rms to enter foreign markets (Yamakawa et al., 2008;
Zhou, 2007). Fierce competitiveness in domestic markets forces
rms to identify and pursue opportunities in international markets
(Luo & Tung, 2007). When expanding internationally, rms from
emerging markets need to develop a posture that is innovative,
visionary, and proactive to pursue these new opportunities and
respond quickly to them, in the face of relatively limited resources
(Bonaglia et al., 2007; Yamakawa et al., 2008). This strategic
383
posture should make it easier for these rms to circumvent

environmental uncertainties, and therefore it constitutes a
potential source of competitive advantage in a foreign market.
Accordingly, EO should be instrumental in motivating rms from
emerging markets to enter onto the global stage, in spite of the
uncertainty and risk.
Unlike EO, MO places great emphasis on customer pull and
places the highest priority on the protable creation and
maintenance of superior customer value (Kohli & Jaworski,
1990; Slater & Narver, 1995). Firms with a high degree of MO
focus on customers, competitors and internal coordination, based
on market demands (Narver & Slater, 1990). In this study, we view
MO as a strategic mindset that determines the priority placed on
seeking and using market information to create and deliver
superior customer value (Noble et al., 2002; Zhou, Yim et al., 2005).
Both academic scholars and business practitioners have pointed
out the importance of MO and activities related to it, in
organizational performance. They argue that a rm with a high
degree of MO aims to continuously provide superior buyer value
and attain superior performance (Baker & Sinkula, 1999; Kohli &
Jaworski, 1990; Narver & Slater, 1990). MO drives the rm to
expand and develop new markets, such as the international
marketplace. Knight and Cavusgil (2004) argue that MO provides
the foundation from which the rm interacts with diverse foreign
markets. Firms with this strategic posture create specic marketoriented activities aimed at overcoming challenges and maximizing performance.
In international markets, rms from emerging economies suffer
from some weaknesses, relative to global and local competitors,
because of their unfamiliarity with the foreign market (Child &
Rodrigues, 2005; Luo & Tung, 2007). These rms need to nurture
MO because it gives better results by taking into consideration
customer attitudes and benets, analyzing information about
competitors, and providing the required products and services at
the right time and place. MO can make the rms focus on
knowledge derived from analyses of customers and competitors
and thereby respond more appropriately to foreign markets
(Narver & Slater, 1990). Market-oriented rms can recognize
events and trends in a market ahead of their competitors,
assimilate it, and apply it to direct decision-making and operations
in the foreign market (Day, 1994). Thus, MO will favorably impact
decisions made by emerging-market rms during international
expansion.
2.3. Ownership structure in emerging markets
In this study, we focus on two major types of ownership
structureownership concentration and CEO ownershipbecause
they are salient features of corporate governance in rms based in
emerging markets (Li, Guo, Liu, & Li, 2008; Peng, Wang, & Jiang,
2008; Young et al., 2008). Ownership concentration represents the
distribution of the size of stockholdings (Hill & Snell, 1989). The
larger the proportion is, the more concentrated the ownership is
(Coles, McWilliams, & Sen, 2001; Tuschke & Sanders, 2003).
Although rms from emerging markets struggle to transform
themselves into protable modern corporations, a weak governance environment in which ineffective formal institutions and
their enforcement have led to concentrated rm ownership is more
common in emerging markets (Dharwadkar, George, & Brandes,
2000). Young et al. (2008) posit two reasons why dominant
ownership is more prevalent in emerging markets. First, because
institutions are often lacking or ineffective, it is difcult for rms
from emerging markets to trust professional managers and outside
investors and to share sensitive information with them, thus
making crossing the threshold from dominant to dispersed
ownership more difcult. Second, as boards of directors lack
384
formal and informal institutional support, they are less likely to

play a strong monitoring and controlling role. Firms from emerging
markets have to depend on dominant ownership to keep potential
managerial opportunism in check. Therefore, ownership concentration plays a great role in shaping corporate governance in
emerging markets.
CEO ownership refers to the percentage of total company stock
held by the CEO (Zahra, Neubaum, & Huse, 2000). The purpose of
stock-based incentives is to reduce managerial opportunism and
promote shareholder-wealth maximizing behavior (Jensen &
Meckling, 1976). In the past, most emerging-market rms had
only weak incentive schemes to motivate managers. With the
advent of economic reform, managers were allowed to share the
prots generated as a way of motivating them to achieve superior
corporate performance. Furthermore, in emerging economies,
labour markets, takeover markets and other factors are corrupted
or ineffective, and thus less effective in governing CEOs (Djankov &
Murrell, 2002; Groves, Hong, McMillan, & Naughton, 1995). CEO
shareholdings are essential measure to align owners and
executives interests, and thus CEO ownership is a product of
economic reform and has signicance for corporate governance in
rms from emerging markets.
Previous research, primarily conducted in developed economies, has examined how ownership structure inuences a rms
strategy and performance (Hill & Snell, 1989; Tuschke & Sanders,
2003; Zahra et al., 2000). However, ever since central governments
began initiating their reforms of corporate governance and
encouraging privatization, emerging economies have provided a
more interesting context for research. As a result, the strategy
implications of the ownership structure in emerging markets have
received increasingly more attention from scholars (Peng, 2004).
Prior literature has shown the effects of ownership structure on
a rms strategic orientation as well as its ability to adapt to
environmental changes and uncertainties (Gedajlovic, 1993; Peng
et al., 2004). Especially in emerging markets, economic liberalization is the primary engine of a rms growth (Hoskisson et al.,
2000). Ownership structure plays a particularly important role in
affecting organizational routines and determining strategic
orientations (Peng, 2003). For example, Peng et al. (2004) note
that different ownership leads to different managerial outlook and
mentality. They also found that state-owned enterprises and
privately-owned enterprises tend to adopt defender and prospector strategies, respectively.
Combining these views together, we argue that during an
emerging-market rms internationalization process, institutional factors such as ownership concentration and CEO
ownership inuence the rms strategic orientations and further
affect the rms internationalization activities. Therefore, we
propose the conceptual model in Fig. 1 to explain that, in an
emerging market, how ownership structure affects these

strategic orientations and their effectiveness in facilitating
international business success.
3. Hypothesis development
3.1. Ownership structure and entrepreneurial orientation
High ownership concentration means that major shareholders
possess controlling power in a rm. The effect of ownership
concentration on entrepreneurial activity depends on whether a
major powerful shareholder encourages the CEO to pursue risky
long-term ventures (Zahra et al., 2000). Firms from emerging
markets are characterized by large shareholdings in the hands of
family and state in countries of the former Soviet Union and China
(Cuervo-Cazurra, 2006; Young et al., 2008). Private ownership has
been prevalent in emerging markets, but private rms, especially
in the absence of effective formal institutional and nancial
support, often lack the ability to reduce contextual uncertainties
and risks (Young et al., 2008). In an emerging market where
reforms have brought about turbulence and uncertainty, family
owners tend to be risk-averse. They tend to pursue steady prots
for survival rather than engage in risky ventures, and they thereby
jeopardize the rms entrepreneurial orientation (Zahra, 1996). In
such a situation, shareholders are likely to pressure the CEO not to
participate in innovative and entrepreneurial activities with long
payback periods (Graves, 1988).
Moreover, in emerging markets, rms controlled by the
government as the largest shareholder may choose not to pursue
innovation, risk-taking and proactiveness, because state-controlled companies prefer a stable and conservative strategic
orientation (Peng et al., 2004). Compared with the domestic
market, the international market is riskier and more challenging.
Often times the largest shareholders know little about how to
operate overseas due to lack of international experience (Child &
Rodrigues, 2005; Child & Tse, 2001). Therefore, they will see the
high risk and cost of internationalization (Eriksson, Johanson,
Majkgard, & Sharma, 1997) and not encourage entry into the
complex foreign market. Under this condition, a CEO will confront
much pressure to avoid highly risky decision-making, pressure
which will decrease the CEOs willingness to seek new opportunities and undertake innovative activities during internationalization. From the above evidence, it appears that, in rms from
emerging markets, major shareholders including family and state
are often risk-averse, and this aversion becomes stronger as
ownership concentration increases. Therefore we suggest:
Hypothesis 1. In rms from emerging markets, a high level of
ownership concentration is negatively related to EO.
Fig. 1. A model of internationalization in rms from emerging markets. Note: \ presents the relationship between the independent (x) and the dependent (y) is inverse Ushape, i.e., too high and too low level of x has a negative correlation with y, and a moderate level of x has a positive correlation with y.
According to agency theory, CEO ownership is an incentive

mechanism which closely aligns executives interests with those of
other shareholders (Jensen & Meckling, 1976). A rational increase
of CEO ownership can promote managerial support for entrepreneurial orientation and lead the CEO to pursue entrepreneurial
projects (Jones & Butler, 1992). Since the wealth of executives and
that of their shareholders are closely aligned through CEO
ownership, the shareholders are willing to support innovative
and risky projects chosen by the CEO, thus helping to increase the
EO (Zahra et al., 2000). This result is especially apparent in
emerging markets which often have inefcient external governance mechanisms and therefore are not challenged by product
market competition, a managerial labor market, and the threat of
takeover. In this kind of situation, internal mechanisms such as
CEO ownership are relied on more heavily to substitute for or
complement external governance (Young et al., 2008). When CEO
ownership notably increases, the incentive effect on the innovation
and proactiveness of CEOs should be more signicant (Jenkins &
Seiler, 1990), thereby strengthening the EO of emerging-market
rms. Therefore, we propose:
Hypothesis 2. In rms from emerging markets, an increase in CEO
ownership is positively related to EO.
3.2. Ownership structure and market orientation
The effect of ownership concentration on MO, as compared with
that on EO, is more complex. When ownership concentration is
very low, dispersed owners often lack the necessary internal
information and motivation to monitor managements actions and
decisions effectively (Hill & Snell, 1989). This is especially true in
emerging markets, because the market system is incomplete and
market monitoring of rms is weak. Shareholders cannot implement effective internal monitoring of the CEO and the CEO may
focus on short-term prot and not attend to the long-term benet
of the rm (Xu & Wang, 1999; Young et al., 2008). Such
considerations can lead to CEO opportunism and can lead CEOs
to refrain from taking part in market competition and from
devoting time and resources to meeting the needs of customers. As
ownership concentration increases, however, larger shareholders
have a stronger incentive to deal with information about the
market and the rms production, and to monitor the behavior of
top managers (Coles et al., 2001; Lee & ONell, 2003). The market
environment in emerging economies is highly uncertain and
therefore can cause a rms strategy to change rapidly (Li & Peng,
2008). Under such conditions, because power in control and
decision-making can be more efciently balanced among a few
larger shareholders, top managers have to pay more attention to
changes in market competition and customers demands. They
need to continuously work to obtain benets from the market
through greater efciency in meeting the needs of customers. As a
result, the MO of an emerging-market rm will be strengthened.
Further, when ownership concentration is at a moderate level,
some larger shareholders obtain more power in the rms board of
directors (BOD). If CEOs deviate from the rms interest and do not
manifest a long-term commitment to developing their markets,
the majority shareholders can re-direct them to place more
emphasis on market orientation. In this way, ownership concentration will further strengthen the market orientation of the rm
(Jaworski & Kohli, 1993). Moreover, moderately concentrated
ownership implies that there is no shareholder who can absolutely
exercise control over the rm. If majority shareholders try to
compel management to adopt strategies which can maximize their
benets at the expense of the rms long-term prots, they will be
monitored by minority shareholders, who will instead encourage
behaviors that create superior customer value (Narver & Slater,
385
1990). In emerging markets, the demands of customers change fast

and therefore require that the CEO have more exibility (Li, Liu
et al., 2006). Thus, moderately concentrated ownership can ensure
an increase of MO in emerging markets.
On the other hand when ownership is too highly concentrated
in a specic group, the largest shareholder may have excessive
control power over the BOD. Especially in emerging markets, the
BOD is controlled by major shareholders, such as family and state
(Cuervo-Cazurra, 2006; Young et al., 2008). These shareholders are
risk-averse, and prefer to choose low-risk projects which are less
responsive to the needs of potential customers and which slow the
speed of attending to customers. These behaviors to reduce the risk
of incurring the higher costs involved in responding promptly to
customer demands (Qu & Ennew, 2005). The CEO is motivated to
make decisions mainly based on the wishes of the largest
shareholder rather than on information about changes in market
competition and the demands of customers (Grosfeld & Tressel,
2002). As a result, the CEO does not pay enough attention to market
information and does not actively respond to customer demands,
and the MO of the rm becomes weak (Webster, 1988). Therefore,
we suggest:
Hypothesis 3. In rms from emerging markets, the relationship
between ownership concentration and MO is an inverse U-shape.
Existing literature reveals conicting perspectives on the
relationship between CEO ownership and MO in developed
economies. For example, Donaldson and Lorsch (1983) assert that
executives are interested primarily in the nancial health and
survival of their rms and therefore, when making decisions, do
not give much consideration to the impact on their personal
nances. Sanders (2001) disputes this argument and notes that
once executives have ownership, they will avoid investments that
do not increase the wealth of shareholders. In this study, we argue
that whether CEO ownership is or is not benecial to the
improvement of MO in emerging markets mainly depends on
the level of CEO ownership.
When CEO ownership increases from a low to a moderate level,
executives will engage in improving shareholders wealth because
doing so will also improve their own wealth, and on the other hand,
MO which emphasizes customer value and helps to capture and
retain customers can also create this kind of wealth for other
owners of the rm (McNaughton, Robert, Morgan, & Kutwaroo,
2001). Hence, the CEOs have a motive to encourage individuals in
the rms to track changing markets, share market intelligence with
others, and be responsive to market needs, thereby strengthening
MO.
When ownership by executives exceeds a moderate level, the
rms market orientation may decrease. In such a case,
executives, when making a decision, consider not what they
might gain but what they might lose, such as the value of their
stock (Sanders, 2001). Following this logic, when executives
hold a large amount of stock, they may pay more attention to the
price of the stock and cut various costs that could reduce the
rms short-term benets. Since collecting and disseminating
market intelligence often require the commitment of considerable human and physical resources, and since the introduction
of new products, services and programs often runs a high risk of
failure (Jaworski & Kohli, 1993), large stock ownership is likely
to cause executives to pursue stock value which can add to their
wealth in the short term at the expense of the rms long-term
health. Particularly, because the threat of takeovers is virtually
absent in emerging markets (Young et al., 2008), CEOs are not
concerned about termination of employment even when doing
things which may damage long-term development. Thus CEOs
would not adopt a market-orientated mindset. We therefore
suggest:
386

between CEO ownership and MO is an inverse U-shape.
3.3. Strategic orientation and internationalization of rms from
emerging markets
In accord with previous sections which suggest that internationalization is certainly an act of entrepreneurship (Jones &
Coviello, 2005; Zahra & George, 2002), we argue that, in emerging
markets, entrepreneurially oriented rms are innovative, risk
taking, and proactive (Bhuian et al., 2005). These rms should have
a higher propensity to expand their cross-border activities.
While many rms from emerging markets cannot afford to
compete on tangible resources (e.g. funds and equipment), they
excel in intangible resourcefulness (Yamakawa et al., 2008), such
as new ideas, novelty, and creative processes. They generally
possess dynamic capabilities to integrate and synthesize internal
resources and external learning and to apply both to the
competitive environment (Zhou, 2007). Such ability is vital to a
rms survival and growth in a foreign market (Kogut & Zander,
1992). For example, some rms from emerging markets, like Mabe
(Mexico), Arcelik (Turkey) and Haier (China), have invested heavily
in R&D and innovation in order to generate their own distinctiveness, as witnessed by numerous national and international
awards and registered patents (Bonaglia et al., 2007).
Decisions with regard to international expansion imply a high
level of uncertainty as rms enter physically or culturally distant
markets or become more dependent on revenues generated in
markets different from the more familiar domestic market (Calof &
Viviers, 1995). While most rms from emerging markets probably
will stay in their home market, a relatively small number of
entrepreneurially oriented rms which are willing to undertake
risky decisions (Lumpkin & Dess, 1996; Miller, 1983). Entrepreneurially orientated rms may more readily accept the uncertainty
embedded in further increasing cross-border activity. One prominent example of a rms internationalization offers a clue: Chinas
Lenovo undertook a series of aggressive, risk-taking measures,
such as acquiring IBMs PC division, to compensate for its
competitive disadvantages and to facilitate internationalization
(Biediger et al., 2005; Luo & Tung, 2007). Therefore we propose:
Hypothesis 5. In rms from emerging markets, EO is positively
related to the level of internationalization.
The generally positive performance inuence of an MO is well
supported (Jaworski & Kohli, 1993; Matsuno et al., 2002) particularly
in international rms (Knight & Cavusgil, 2004; Luo, Zhou, & Liu,
2005). However, other researchers have contended that, for marketoriented rms, the tyranny of the served market can result in
overlooking potential markets (Slater & Narver, 1995) and may
increasingly prioritize the gathering and distribution of decient
information over time (Baker & Sinkula, 1999). Some studies
concerning the link between MO and performance in emerging
markets also report inconsistent ndings (e.g. Appiah-Adu, 1998; Li,
Sun, & Liu, 2006). Judging from these conicting conclusions, we
surmise that the relationship between MO and the internationalization of rms from emerging markets is more complex.
As a rms MO increases from a low to a moderate level, its
degree of internationalization is likely to increase accordingly. In
an emerging market where the market is open and the business
environment is competitive, a market-oriented rm is likely to
take on a learning attitude. This attitude will lead it to an
increased understanding about how to operate in a free,
competitive marketplace and how to update its knowledge base
with regard to customers and competitors in the current market
(Appiah-Adu, 1998). Such an attitude involves a continuous search
for ways of adapting to new situations, and it encourages rms to

apply this knowledge to new conditions (e.g., foreign markets)
where similar problems probably exist.
When market orientation goes beyond a moderate level,
however, international involvement may decrease. Christensen
and Bower (1996) note that rms with a high level of MO tend to
listen too carefully to their current customers and are therefore more
sensitive to risks. Because of high transaction costs, rms are usually
cautious about committing rm-specic resources when perceiving
a highly uncertain environment (Williamson, 1985). This cautiousness is even more apparent for rms from emerging markets. It is
well known that rms need to have long-haul investments in the
process of international expansion, since it is costly to withdraw
invested resources (Luo, 2000). However, most rms from emerging
markets lack key resources and international experience (Child &
Rodrigues, 2005; Yamakawa et al., 2008). As a result, rms with a
high MO are more likely to operate in stable and predictable
environments. They tend to allocate more resources to the current
market to ensure safe adaptability, rather than to increase
investments in foreign markets where potential risks exist. Such
resource deployment does not help a rm take advantage of
emerging opportunities in an international market, and thus
impedes the rms internationalization. Therefore we propose:
between MO and internationalization is an inverse U-shape.
4. Methodology
4.1. Sample and data collection
To test these hypotheses, survey data were collected by means
of a questionnaire administered to executives from a sample of
representative rms in the Shaanxi, Sichuan, Liaoning, Shanghai,
Guangdong, Shandong, Henan and Shanxi provinces of China.
These provinces (and the city) were selected because the rms in
these regions reect economic development and internationalization practices in China. Additionally, these provinces and this city
share cultural commonalities based on their history and geographic regions.
First, we developed a set of questionnaires following the
research literature. Second, after consulting extensively with
several executives, we modied the instrument to accurately
reect conditions that rms face in China. Using preliminary draft
questionnaires, a pilot test was conducted with 15 rms from the
Shaanxi, Henan, and Shandong provinces; these responses were
excluded from the nal study. The questionnaire was revised using
feedback from the pilot study and also in accordance with a sample
frame provided by the Economy Commerce Committee (ECC, a
special administrative unit of the government for managing rms)
of the eight provinces, which was created by randomly selecting
various types of enterprises. The sample was cross-sectional. The
instrument was administered through a structured interview. In
addition to reading the background references, the interviewers
had been briefed on the objectives of this study and trained in
interviewing techniques. These interviewers thoroughly explained
how to complete the questionnaire and assured the respondents
that their responses would be condential, thus minimizing the
possibility of misinterpretation of the questions and concerns
about completing the survey.
A total of 850 enterprises were approached. Unfortunately,
some rms were not able to participate for reasons that included
company policy of non-participation in surveys or company
liquidation. Also, some rms data were discarded because of
inadequate completion of the survey instrument. A total of 607
enterprises had all the necessary data. The effective participation
rate thus was 71.4 percent (607 out of 850), which is excellent for
survey research of this type.
A common concern with survey methodology is non-response
bias. To check for non-response bias, we obtained information
about ownership type and sales of 171 non-responding rms, and
compared the responding and non-responding rms along these
major rm attributes using t-tests. All t-statistics were statistically
insignicant. Finally, we compared the responding rms with the
non-responding rms and found no signicant differences in terms
of rm size. Along with the high response rate, these results
suggest that there is no non-response bias in this study.
4.2. Measurement
4.2.1. Ownership structure
Basing our work on prior research by Pedersen and Thomsen
(1999), together with consideration of Chinese rm ownership
reform (Li, Sun et al., 2006), we measured ownership concentration
as the ownership share of the largest owner (%). Another variable of
ownership structure is CEO ownership. Using the criterion
developed by Tuschke and Sanders (2003), we measured CEO
ownership by the proportion of the rms shares owned by the
CEO. Because ownership structure, especially CEO ownership, is a
sensitive question in Chinese rms and most executives are not
willing to provide objective data directly, ownership concentration
and CEO ownership were scaled from 1 (015%) to 7 (91100%) for
the purpose of reducing the sensitivity of the questions and making
them easier to answer.
4.2.2. Entrepreneurial orientation
Our entrepreneurial-orientation scale was modied from the
ones developed by Khandwalla (1977) and Covin and Slevin (1989)
and adapted to the context at hand, with the addition of one item
used by Li, Liu et al. (2006). The nal measure included six items, all
assessed on a seven-point Likert scale with the anchors 1 = totally
disagree, 7 = totally agree: (1) a strong emphasis on R&D,
technological leadership and innovation; (2) a strong tendency
to seek high-risk high return innovation projects; (3) a strong
tendency to adopt an active posture when facing uncertainty; (4) a
strong tendency to initiate action that competitors respond to; (5)
a strong tendency to be a leader, always being the rst to introduce
new products, services or technology; and (6) a strong tendency to
adopt a competitive undo-the-competitors posture.
4.2.3. Market orientation
This scale was measured on fteen items adapted from Kumar,
Subramaniam, and Yauger (1998) and assessed on a seven-point
scale, including customer orientation, competitor orientation, and
inter-functional coordination. The items of customer orientation
are the following: (1) we put strong emphasis on customer
satisfaction, (2) we put strong emphasis on understanding
customer needs, (3) we make use of frequent and systematic
measures of customer satisfaction, (4) we pay close attention to
after-sales service, (5) we frequently increase customer value or
reduce costs, and (6) we emphasize high quality of products. The
items of competitor orientation are as follows: (1) we respond
rapidly to competitors actions, (2) we share competitors strategic
information within the company, (3) top managers discuss
competitors strength and strategies frequently, and (4) we have
a competitive advantage in targeting customers. Inter-functional
coordination consists of these items: (1) we share customer
information among functional departments efciently, (2) we
respond to customer calls inter-functionally, (3) all functional
departments contribute to customer value, (4) all employees know
market information well, and (5) employees in the marketing
department take part in new product development.
387
4.2.4. Internationalization
Following Zahra et al. (2000) and Zhou et al. (2007), three items
were developed to measure internationalization specically for
rms from emerging markets, evaluating the extent of the rms
actual outward activities along a seven-point scale (1 = very small
extent, 7 = very large extent): (1) aggressively seek foreign
markets; (2) sell products or services in foreign market; and (3)
enter into overseas locations funded by outward FDI. In this study,
the scale of internationalization indicates the intensity of outward
activities that a rm has undertaken.
4.2.5. Control variables
In all tests, we controlled for several variables that could
possibly affect strategic orientation and internationalization as
well. This group of variables includes the rms characteristics,
domestic market strategy, industrial factors, government interference and policy inuence. Firm size, measured by the number of
full-time employees, was controlled because of its potential impact
on entrepreneurial orientation (Luo, Zhou et al., 2005; Zahra et al.,
2000), market orientation (Liu & Eddie, 1995) and internationalization (Zhou, 2007). Firm age, measured by the number of years in
business, is important in an emerging market, because older rms
are more risk-averse and inertial with respect to EO, MO, and
international activities (Yiu, Lau, & Bruton, 2007; Zhou, Gao, Yang,
& Zhou, 2005). Domestic market strategy was measured with the
question How much effort does your rm make to enter into a new
domestic market? (1 = very little; 7 = very much). This variable
can impact EO and MO because it shows that the managers have a
favorable attitude toward change and innovation and therefore are
more likely to adopt EO and MO (Powpaka, 1998; Zahra, 1991).
Domestic market strategy also affects internationalization because
putting more resources into building a domestic power base and
competence, for the purpose of constraining activities in new
foreign settings, is not conducive to international growth (Autio
et al., 2000).3 Competitive intensity and industrial regulation have
been considered as key determinants of market orientation (Li, Sun
et al., 2006; Powpaka, 1998) and entrepreneurial orientation (Lee &
Peterson, 2000; Luthans, Stajkovic, & Ibrayeva, 2000) in emerging
markets, and propel rms to seek fortunes abroad (Luo & Tung,
2007; Yamakawa et al., 2008). Competition intensity was
measured with the question How competitive is the domestic
market of your main product/industry? (1 = not competitive at all;
7 = very competitive), while industrial regulation was measured
with the question How great is the extent to which industrial
regulation constrains your rms development? (1 = does not
constrain at all; 7 = constrains to a large extent). Government
interference and policy inuence are controlled because these two
institutional factors, which are typical characteristics of emerging
markets (Li, Liu et al., 2006; Peng, 2000), may either support or
inhibit a rms strategic orientation and internationalization.
Government intervention, measured with the question How great
is the extent to which your rm independently makes decisions
(1 = completely independent; 7 = completely controlled by government), can weaken entrepreneurial actions through promoting
a conservative attitude (Child & Rodrigues, 2005), can reduce
initiative in developing market orientation due to excessive
protection (Li, Sun et al., 2006), and also can give encouragement
3
In their study of early internationalization in the Finnish electronics industry,
Autio et al. (2000) argue that the more time managers put into developing domestic
competencies which focus on learning about domestic issues and building a
domestic power base, the more resistant they will be to shifting the major attention
of their rms to full-edged efforts in foreign markets. Thus we consider strategic
choice of entry into new domestic market as a control variable inuencing
internationalization, because this variable makes it difcult for rms to move away
from focusing exclusively on the domestic market in terms of resource constraints
and organizational inertia.
388
Table 1
Measurement validity assessment.
Constructs
Items
Factor loadings
CEO ownership
Entrepreneurial orientation (a = .86; AVE = 0.52)
The ownership share of the largest owner

The proportion of rms shares owned by CEO
1. A strong emphasis on R&D, technological leadership and innovation
2. A strong tendency for high-risk high-return innovation projects
3. A strong tendency to adopt to an active posture when facing uncertainty
4. A strong tendency to initiate actions that competitors respond to
5. A strong tendency to be a leader, always introducing new products, service or technology rst
6. A strong tendency to adopt a competitive undo-the-competitors posture
.79
.61
.72
.79
.84
.84
Market orientation (a = .86; AVE = 0.77; x2 = 244.15;GFI = 0.95; AGFI = 0.93; NFI = 0.95; NNFI = 0.96; CFI = 0.97; RMSEA = 0.06)
Customer orientation (a = .87; AVE = 0.49)
1.
2.
3.
4.
5.
6.
Customer satisfaction objectives

Emphasis on understanding customer needs
Measure customer satisfaction
Give close attention to after-sale service
Frequently increase customer value or reduce costs
High quality of products
Competitor orientation (a = .87; AVE = 0.55)

7. Respond rapidly to competitors actions
8. Share competitors strategic information in company
9. Top managers discuss competitors strength and strategies
10. Have competitive advantage in targeting customer
Interfunctional coordination (a = .89 AVE = 0.58)
11.
12.
13.
14.
15.
Internationalization of rm (a = .68; AVE = 0.45)
Efcient sharing of customer information among functions

Inter-functional customer calls
All functions contribute to customer value
All employee knowing market information
Marketing employee taking part in new product development
1. Aggressively seek foreign markets

2. Sell product/services in foreign market
3. Enter into overseas locations funded by outward FDI
.87
.84
.85
.85
.81
.57
.73
.89
.83
.82
.85
.80
.89
.89
.83
.87
.76
.76
.70
.84
.75
Goodness-of-Fit Statistics (x2 = 192.85; x2/df = 2.26; GFI = 0.95; AGFI = 0.92; NFI = 0.96; NNFI = 0.97; CFI = 0.97; RMSEA = 0.07)
and support for overseas expansion through government-sponsored programs (Child & Rodrigues, 2005; Luo & Tung, 2007). Policy
inuence was measured with the question How do policy changes
affect your rms creative activities? (1 = completely adverse
effect; 7 = completely favorable effect). National policies in favor of
rms innovation will encourage market-oriented activities and
entrepreneurial potential (Lee & Peterson, 2000; Qu & Ennew,
2005) and are very likely to be an inuential force in MNE decisionmaking as to internationalization (Dikova & Witteloostuijn, 2007).
4.3. Reliability and validity assessment
Table 1 reports estimates of construct reliability, factor
loadings, and average variance extracted. As detailed in the
following sections, the ve latent constructs, involving 26 items,
were found to be reliable and valid in the context of this study.
We rst diagnosed item-to-total correlations for each construct. None were below 0.4, and therefore all items continued to
remain in the study. Although the construct measures used in this
study are based primarily on previously validated measurement
items and are strongly grounded in the literature, they were
modied partly to t the Chinese context. Inter-item consistency
was assessed by Cronbach alphas. Typically, reliability coefcients
of a = 0.70 or higher are considered adequate. Nunnally (1978)
further states that permissible alpha values can be slightly lower
(>a = 0.60) for newer scales. Therefore, an alpha value over a = 0.6
can be accepted to assess reliability in our study. As can be seen
from Table 1, Cronbach alphas values of all factors were above
a = 0.65, which suggests that the theoretical constructs exhibit
good internal consistency.
To further test the reliability of the measures, we obtained data
from paired informants representing 270 of the 607 sample rms.
We categorized these informants into two groups: CEO/general

manager and senior managers (such as marketing or business
development managers).
We found substantial congruence between answers to the same
questions by the two separate respondents for the same rms
(Pearson correlation coefcients were all statistically signicant
and ranged from 0.36 to 0.79). We then conducted a series of t-tests
to determine if there were any differences among the responses of
the two groups on each of our constructs and found no statistically
signicant differences. These data provide evidence that the
interviewees responses are reliable.
We subsequently examined the convergent validity of the
constructs with a CFA, using LISREL (Joreskog & Sorbom, 1993). The
t indexes indicate that the model ts the data well (x2 = 192.85;
x2/df = 2.26; GFI = 0.95; AGFI = 0.92; NFI = 0.96; NNFI = 0.97;
CFI = 0.97; RMSEA = 0.07). All items loaded on their respective
constructs, and each loading was beyond 0.7 except for two items.
Considering new items or items used in a new context, this value
can be reduced to 0.4, a common threshold for acceptance
(Atuahene-Gima & Li, 2004). We analyzed the explained total
variance of the constructs, and average variance extracted
exceeded 42%. These results imply both the statistical signicance
of relationships between the items and constructs and the
reliability of individual items.
Furthermore, in order to test difference between a subjective
scale of internationalization and the objective indicator of a rms
internationalization using multiple secondary data sources, we
succeeded in obtaining objective indicators, namely international
sales as a percentage of total sales (Sullivan, 1994; Walters &
Samiee, 1990). We were able to obtain data concerning 155
overlapping rms, and the measurement of internationalization
was signicantly correlated with this indicator (r = 0.245,
389
Table 2
Descriptive statistics and correlations.
1. Firm age
2. Firm size
3. Competition intensity
4. Domestic market strategy
5. Industrial regulation
6. Government intervention
7. Policy inuence
8. CEO ownership
9. Ownership concentration
10. EO
11. MO
12. Internationalization
Means
S.D.
*
**
10
11
12
1
0.45**
0.03
0.00
0.10*
0.13**
0.07
0.06
0.21**
0.07
0.02
0.06
3.34
1.46
1
0.06
0.00
0.03
0.09*
0.09*
0.09*
0.25**
0.07
0.03
0.10*
21.65
15.78
1
0.16**
0.07
0.07
0.04
0.04
0.08
0.06
0.04
0.05
4.67
3.87
1
0.16**
0.21**
0.14**
0.02
0.11**
0.30**
0.40**
0.38**
3.87
0.88
1
0.52**
0.31**
0.03
0.04
0.14**
0.13**
0.17**
3.80
1.31
1
0.29**
0.00
0.04
0.21**
0.21**
0.28**
4.25
1.50
1
0.02
0.00
0.29**
0.21**
0.18**
4.71
1.39
1
0.15**
0.03
0.03
0.05
4.36
2.25
1
0.12**
0.11**
0.01
2.17
4.86
1
0.39**
0.33**
4.86
0.89
1
0.30**
4.66
1.05
1
3.15
1.39
p < 0.05.
p < 0.01.
p < 0.01), validating this subjective measure (Zahra & Hayton,

2008). We also conducted t-tests to determine if there were any
differences between the responses of the overlapping rms and
those of the other rms and found no statistically signicant
differences. This result shows that the scale of internationalization
used in this study reects the reality of Chinese rms internationalization.
Finally, we conducted the procedure recommended by Fornell
and Larcker (1981) to test discriminant validity among the
constructs. Average variance extracted (AVE) of each construct
exceeds the squared correlation between construct pairs, demonstrating discriminant validity between the latent factors.
5. Results
The data in Table 2, which includes means, standard deviations,
and correlations for all variables, shows that most of the
correlations are low to moderate. We next examined the variance
ination factors for all the regression models. The values of VIFs are
below 2 in all of the models, suggesting that multicollinearity is not
a problem in this study. Table 3 presents the results of the
regression analysis. We tested the hypotheses using Optimal

Scaling Regression analysis (Didow, Keller, Barksdale, & Franke,
1985). We chose this approach rather than SEM, because the
presence of interaction effects does not satisfy the requirements of
multivariate normality required by maximum likelihood estimation (Wuyts & Geyskens, 2005).
For entrepreneurial orientation as a dependent variable, Model
1 is the base model, including only the control variables. When
ownership concentration and CEO ownership are introduced as
independent variables in Model 2, the results suggest that
ownership concentration is negatively related to entrepreneurial
orientation and that CEO ownership is positively related to
entrepreneurial orientation. The R2 increase from 0.14 to 0.16,
and the change in the R2 between Model 1 and Model 2, were also
statistically signicant, providing support for H1 and H3.
For market orientation as a dependent variable, Model 3
includes only control variables. Because Model 4 shows that the
squared terms of both ownership concentration and CEO ownership are negatively and signicantly related to MO, we know that
the relationships between MO and both ownership concentration
and CEO ownership are an inverse U-shape. The R2 increase from
Table 3
Results of regression analysis.
Independent variables
Control variables
Firm size
Firm age
Domestic market strategy
Competition intensity
Industrial regulations
Government interference
Policy inuence
Ownership concentration2
CEO ownership
CEO ownership2
EO
MO
MO2
Model R2
Adjusted R2
Model F
DR2
F for DR2
F
*
DR2 =DKNK 2 1
,
1R2
p < 0.1. 2
**
p < 0.05.
***
p < 0.01.
EO
MO
Internationalization
Model 1
Model 2
Model 3
Model 4
Model 5
Model 6
0.09**
0.08**
0.23***
0.13***
0.11***
0.12***
0.20***
0.06
0.08**
0.22***
0.12***
0.12***
0.12***
0.19***
0.07*
0.02
0.09**
0.37***
0.11***
0.11***
0.15***
0.06
0.09**
0.37***
0.10***
0.15***
0.10***
0.15***
0.14***
0.07*
0.23***
0.17**
0.13***
0.06
0.31***
0.06
0.08*
0.21***
0.11***
0.15***
0.05
0.25***
0.06
0.06
0.16***
0.07**
0.12***
0.14
0.10
4.18***
0.16
0.12
4.06***
0.02
7.11***
where K is the number of predictors and N is the total sample size.
0.18
0.16
8.69***
0.25
0.21
6.43***
0.07
13.88***
0.18
0.15
5.33***
0.18***
0.13***
0.08**
0.23
0.19
5.41***
0.05
12.90***
390
0.18 to 0.25, and the change in the R2 between Model 3 and Model
4, were also statistically signicant. Thus ownership concentration,
CEO ownership and their squared terms are signicant predictors
of market orientation, providing support for H2 and H4.
Finally, we tested the effect of entrepreneurial orientation and
market orientation on the internationalization of a rm, after
introducing control variables in Model 5. Consistent with H5 and
H6, the results of Model 6 show that entrepreneurial orientation is
positively related to internationalization, and that the squared
term of market orientation is negatively related to internationalization. The R2 increase from 0.18 to 0.22, and the change in the R2
between Model 5 and Model 6, were also statistically signicant,
providing support for H5 and H6.
6. Discussion
This study focuses on the relationships between ownership
structure, strategic orientations and internationalization of rms
from emerging markets. Our results show that in emerging
markets, a difference in ownership structure can lead rms to
choose different strategic orientations, and further that different
strategic orientations affect the internationalization success. This
study extends the current literature in the following ways. First,
this study brings into sharper focus the differing impacts of
ownership concentration and CEO ownership on both EO and MO,
the key antecedents affecting the internationalization of rms
from emerging markets. If indeed EO and MO represent important
parts of a rms strategic orientation, the theoretical delineation
and empirical testing offer useful insights into factors contributing
to both EO and MO formation during internationalization in the
context of emerging markets. Second, by examining the different
effects of EO and MO on the internationalization of rms from
emerging markets, this study provides additional richness to the
extant research. The positive effect of EO on the internationalization of rms corroborates the entrepreneurial nature of younger
international rms in the context of emerging markets and thus
extends the international entrepreneurship literature. The inverse
U-shaped effect of MO on a rms internationalization challenges
extant research and more effectively explains the complex
inuence of MO on the internationalization of rms from emerging
markets. Thus, our study provides signicant insights concerning
the international development of rms based in emerging markets
from the perspective of institutional ownership, thereby making a
contribution to the literature on international business. Major
ndings are as follows.
We nd that ownership concentration is negatively related to
EO in rms from emerging markets. This result shows that high
ownership concentration is a disadvantageous factor which
impedes entrepreneurial activities in rms from emerging
markets. From this nding, we can conclude that high ownership
concentration denitely constrains top managers use of innovation and proactiveness, because the largest shareholder is often
averse to the risks involved in the internationalization of rms.
Further, this result supports and further extends the research of
Peng et al. (2004), which asserts that rms from transitional
economies like China may not provide sufcient incentives to top
managers to undertake entrepreneurial activities. We also nd that
CEO ownership is consistently and positively related to EO in rms
from emerging markets. The result suggests that CEO ownership is
clearly relevant to a rms decision-making direction and process,
and that it can be used to provide incentives for the CEO to
strengthen the rms EO. This nding is consistent with the study
by Zahra et al. (2000), who nd that managers owning an equity
stake in a medium-sized rm promote entrepreneurial activities.
Obviously, these two ndings clearly describe the different effects
of ownership structure on EO, a conclusion which further enriches
the literature about how ownership and corporate governance

affect entrepreneurial activities.
The second group of ndings concerns the association between
ownership structure and market orientation. As predicted ownership concentration has an inverse U-shaped effect on market
orientation. This result shows that when ownership is moderately
concentrated among shareholders, the distribution of ownership
and control power not only can lead the main shareholders to
monitor the executives decision more efciently, but also can
provide institutional space for top managers to identify and take
advantage of market demands more effectively. Meanwhile,
another nding is that the relationship between CEO ownership
and MO is an inverse U-shape. This result shows that lower and
higher levels of CEO ownership do not lead executives to increase
MO, but that a moderate level of CEO ownership can ensure
enhancement of MO. From this result, we can rationally explain
reason why there are conicting opinions about the relationship
between CEO ownership and MO in the literature (Donaldson &
Lorsch, 1983; Sanders, 2001). When CEO ownership is higher,
share-holding executives will avoid investments that might
negatively inuence the short-term increase of shareholders
wealth (Sanders, 2001), and therefore may make the rm lose
market opportunity and decrease its future market competitiveness. Yet when, at the opposite end of the spectrum, CEO
ownership is very low, the executives will again be interested
primarily in quick growth of the rms market share (Qu & Ennew,
2005), an emphasis which may lead the rm to enhance its
competitiveness but still ignore improvement in its return on
investment. This nding also explains the reason why stock
ownership sometimes does not motivate executives to support
certain strategic orientations, such as MO, and thus extends the
theory of corporate governance.
We nd different effects of strategic orientation on the degree
of a rms internationalization. The results suggest that EO is
positively related to internationalization, but that MO has an
inverse U-shaped relationship with internationalization. The
former result provides a conclusion similar to the studies of
Nummela et al. (2004), Knight and Cavusgil (2004) and Zhou
(2007), who found that EO is important for born-globals and small
and medium-size enterprises. Our study further indicates that the
internationalization behavior of rms from emerging markets,
which have some common traits with born-globals in international
expansion, can also be described as entrepreneurial. This nding
corroborates the entrepreneurial nature of younger international
rms from emerging markets, and thus extends the international
entrepreneurship literature.
However, differing from prior studies which suggest that MO is
positively related to a rms internationalization (Knight &
Cavusgil, 2004; Luo, Sivakumar et al., 2005), our ndings indicate
an important limitation of an overly strong market orientation
during the internationalization process in the context of emerging
markets. That is, rms with a high level of MO listen too carefully to
their current customers (Christensen & Bower, 1996). This leads
managers to emphasize current customers needs and not to spend
enough time and resources exploring the potential opportunities
in overseas markets. This is especially true because rms often do
not have sufcient resources to accomplish these two tasks at the
same time. How to meet existing demands efciently in the
domestic market becomes the main issue these rms focus on,
because the main customers of such rms are often located in the
domestic market at the early stages of the internationalization
process.
Our results provide insights into the comparative effects of EO
and MO on internationalization of rms from emerging markets,
thereby expanding the research of previous scholars who found
that either EO or MO might have direct or indirect positive
associations with a rms internationalization (e.g., Knight &

Cavusgil, 2004; Weerawardena et al., 2007). Our results make a
signicant contribution to the literature on the internationalization of rms.
Finally, accompanying the rise of the emerging economies to
become new global challengers, top rms from emerging markets
increasingly pose competitive challenges to companies from the
developed economies. A study by Boston Consulting Group (2006)
found 100 companies from emerging markets with total assets in
2006 of $520 billion, more than the worlds top 20 car companies
combined. Although these challengers possess several core
capabilities that drive them to develop into contenders for global
leadership, such as vision of their ambitions founders and the
ability to reach outside their home markets (Boston Consulting
Group, 2009; The Economist, 2008), many of them are still in the
early stages of globalization. For these rms in particular, it will be
important to move beyond opportunistic steps toward globalization and develop appropriate and well-dened strategies. This
paper may offer the theoretical guidelines for new global
challengers in shaping the strategic postures which are helpful
to successful internationalization.
7. Managerial relevance
Besides its theoretical contributions, this article has several
practical managerial implications as well. First, our study suggests
that a stronger EO can improve an emerging-market rms
internationalization, and, with respect to antecedents, that CEO
ownership is benecial for strengthening EO but that ownership
concentration decreases EO. Thus, when rms hope to increase EO
for the purpose of improving their internationalization, their BODs
should increase CEO ownership and reduce ownership concentration in order to motivate CEOs to take more innovative measures
and to proactively grasp opportunities in the international market,
thereby helping rms from emerging markets to improve their
competitive position in global markets.
Second, from the results of the inverse U-shaped relationship
between ownership structure and MO, rms should understand
that either a very high or a very low level of ownership
concentration and CEO ownership is not helpful in improving
market orientation. Therefore, when rms markets want to
improve their MO, ownership should be moderately concentrated
in shareholders so that the governance mechanisms not only
ensure efcient monitoring of executives decision-making but
also establish a suitable constraint system among shareholders.
Meanwhile, the BOD should require the CEO to hold an appropriate
level of ownership, since either too little or too much CEO
ownership can decrease a rms market-oriented activities.
Third, because of the different effects of EO and MO on the
degree of internationalization, rms from emerging markets
should increase their EO in the process of internationalization
and rationally balance their MO. In this way, these rms can
improve the development of their internationalization, because
top managers will be encouraged to take proactive actions in
international competition by introducing innovative products and
services and by taking more risks in the global market. Meanwhile,
rms from emerging markets should balance the demands of
current customers in the domestic market with those of potential
customers in international markets, and effectively allocate
resources, deploying them between current and new foreign
markets when implementing their market orientation.
8. Limitations and future research directions
This study has the following limitations which should be
addressed in future research. Clearly, the results of the current
391
study are context-specic. Although it is theoretically feasible to

extend this study to other contexts, the specic differences
between China and other emerging economies may restrict the
generalizability of the ndings. Therefore, a useful extension
would be to conduct this study in other emerging-market settings
such as eastern European countries. Further, in emerging markets,
internationalization may take many forms (e.g., licensing, OEM,
joint venture, and strategic alliance). In future research, it is
necessary to overcome any constraints in measuring this factor. A
more valid measure to describe the various situations in which
rms are internationalizing is needed. Moreover, the rms
experience, length of involvement internationally, international
sales ratio and or international protability could inuence the
relationships between governance mechanisms and strategic
orientations. For most rms from emerging markets, the progress
of internationalization can help them to adjust the inuence of
governance mechanisms on the choice of strategic orientation, and
further inuence the performance of their internationalization.
Future research should focus on the moderating effects of these
factors on the relationships between governance mechanisms and
strategic orientations, and/or the moderating effect of ownership
structure on the relationships between other strategic behaviors
and rm internationalization performance. Finally, in addition to
its contributions to an understanding of strategic orientation, we
hope that this article can provide an important rst step for further
examination of key antecedents and consequences of the
internationalization of rms and thereby promote future studies
in this important area.
Acknowledgement
The authors would like to thank Professor Peter W. Liesch and
the two JWB reviewers for their insightful comments.
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Journal of World Business 46 (2011) 381393

Contents lists available at ScienceDirect

Journal of World Business

Ownership, strategic orientation and internationalization in emerging markets

This study is supported by KPCEM (09JZD0030) and NSFC (70872090;

Y. Liu et al. / Journal of World Business 46 (2011) 381393

play in a rms internationalization, and has not explored the

participation (Aulakh, Kotable, & Teegen, 2000). FDI is another

Y. Liu et al. / Journal of World Business 46 (2011) 381393

due to poor tangible resources and supports international

posture should make it easier for these rms to circumvent

Y. Liu et al. / Journal of World Business 46 (2011) 381393

formal and informal institutional support, they are less likely to

emerging market, how ownership structure affects these

Y. Liu et al. / Journal of World Business 46 (2011) 381393

According to agency theory, CEO ownership is an incentive

1990). In emerging markets, the demands of customers change fast

Y. Liu et al. / Journal of World Business 46 (2011) 381393

Hypothesis 4. In rms from emerging markets, the relationship

for ways of adapting to new situations, and it encourages rms to

Y. Liu et al. / Journal of World Business 46 (2011) 381393

Y. Liu et al. / Journal of World Business 46 (2011) 381393

The ownership share of the largest owner

Customer satisfaction objectives

Competitor orientation (a = .87; AVE = 0.55)

Efcient sharing of customer information among functions

1. Aggressively seek foreign markets

We categorized these informants into two groups: CEO/general

Y. Liu et al. / Journal of World Business 46 (2011) 381393

p < 0.01), validating this subjective measure (Zahra & Hayton,

regression analysis. We tested the hypotheses using Optimal

where K is the number of predictors and N is the total sample size.

Y. Liu et al. / Journal of World Business 46 (2011) 381393

the literature about how ownership and corporate governance

Y. Liu et al. / Journal of World Business 46 (2011) 381393

associations with a rms internationalization (e.g., Knight &

study are context-specic. Although it is theoretically feasible to

Y. Liu et al. / Journal of World Business 46 (2011) 381393

Y. Liu et al. / Journal of World Business 46 (2011) 381393

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