5 th African International Business and Management AIBUMA

5 th African International Business and Management (AIBUMA) Conference 2014 Dr. Winnie Njeru Ph. D & Dr. Justus Munyoki Ph. D

MARKET ORIENTATION, EXTERNAL ENVIRONMENT AND PERFORMANCE OF TOUR FIRMS IN KENYA 19/03/2018 2

Introduction • Changing customer preferences, rapid technological advances and complex competitive landscape. • Focus is on the customer satisfaction, emerging market trends, monitoring competitor activities which are crucial factors for firm survival. • Market oriented firms are assumed to assure superior performance (Agarwal , Krishna & Chekitan, 2003). • Various approaches to analyze market orientation and firm performance exist. • Market orientation is a tool for strategic decision making

Introduction • Different theories have been viewed as complementary in explaining firm performance. The Industrial Organizational (IO) theory, the Resource. Based view (RBV) and its Dynamic Capabilties (DC) • The approach brings together both external and internal determinants and provides a macro industry and micro firm basis to explore strategic marketing strategies and firm performance

Introduction • Rapid growth of the tourism industry contributing approximately 9 % of the global GDP and 8% total employment (World Travel and Tourism Council, 2012) • In Kenya, tourism sector contributed 10 % of the Country’s GDP and 9% total employment (Kenya Vision 2030, 2007) • The third largest contributor to GDP after agriculture and manufacturing • The leading foreign exchange earner

Introduction • The tourism sector is the leading sub-pillar in the Economic pillar of Vision 2030 • Unique characteristics' of the tourism productconsumed “in situ” (Dieke, 2001). • Tour operators a crucial intermediary in tourism product delivery

Research Questions • What is the relationship between market orientation and performance of tour firms in Kenya? • What is the moderating role of the external environment on the market orientation and performance of tour firms in Kenya?

Research Problem • Theoretical • Different scholars have used different theories • The study linked 3 theories in a unified framework (Industrial Organisational, Resource-Based View, Dynamic Capabilities) • Conceptual: • A void exists with respect to the implementation of a market orientation • Dissimilar conceptualization and assessment resulting to different measurement and performance implications

Research Objectives • Assess the relationship between market orientation and performance of tour firms in Kenya. • Establish the moderating effect of external environmental factors on the relationship between market orientation and performance of tour firms in Kenya

Literature Review • The Industrial Organizational (IO) theory, the Resource-Based view (RBV) and its Dynamic Capabilties (DC) • Two complementary perspectives on market orientation: behavioural and cultural (Homburg and Pflesser, 2000).

Literature Review • Specific behaviours related to the organisation-wide generation of market intelligence pertaining to current and future customer needs, dissemination of this intelligence across departments and organisation -wide responsiveness to it (Kohli and Jaworski , 1990) • The cultural perspective depicts market orientation as a culture that commits the organisation to the continuous creation of superior value for customers (Narver and Slater 1990). (Customer orientation, competitor orientation and inter-functional Orientation)

Conceptual Hypothesis H 1: There is a statistically significant relationship between market orientation and performance of tour firms in Kenya. H 2: The relationship between market orientation and firm performance is statistically and significantly moderated by the external environment.

Methodology • Study adopted Descriptive cross-sectional survey. • Was a census study of 104 category A to D tour firms (KATO, July 2012) • Semi-structured questionnaire was used • Key-informant method: Managing Director/owner and/or marketing or sales manager • Research instrument was administered by the researcher assisted by trained research assistants • Data Analysis: Descriptive statistics and inferential statistics.

Methodology • Descriptive analysis, correlation and regression analyses were computed to determine the expected relationships between market orientation, external environmental factors and firm performance. • Pearson Moment Correlation (r) was derived to show the nature and strength of the relationship among variables. • Coefficient of determination (R 2) was used to measure the amount of variation between the study variables.

Reliability • Cronbach’s coefficient Alpha cut-off was set at 0. 6 • Cronbach’s coefficient Alpha: Exceeded 0. 6 level of acceptability (Hair et al. , 1998) Variable Measures No. of Items N Cronbach's Alpha Coefficient Market orientation Customer orientation Competitor orientation Inter-functional coordination Five competitive forces Market turbulence Government policy Customer satisfaction Customer retention Employee satisfaction Effectiveness Efficiency Relevance Financial Viability 14 59 . 690 39 59 . 664 51 58 . 700 External Environmental Factors Firm Performance The results suggest that the scales were of robust measure and were considered for further analysis.

Results • Population of study: 100 tour firms • Response rate: 60 % • Descriptive statistics: Different sets of questions anchored on a five point Likert-type scale ranging from 1=Not at all to 5= To a very large, were used to measure the market orientation, environmental factors and firm performance sub-constructs. • Standard error of mean (measure of reliability of the study results) was computed

Summary of Market Orientation Dimensions N Overall SE Mean Score Customer orientation 59 4. 32 . 089 Competitor orientation 59 4. 33 . 092 Inter-functional coordination 58 4. 31 . 093 4. 32 . 091 Average Score Results suggest that tour firms are market orientated (M=4. 32, SE=0. 091).

Summary of Individual External Environmental Factors. Individual external environmental N Mean Score SE Five competitive forces 59 4. 27 . 094 Market turbulence 59 4. 20 . 097 Government policy 60 4. 49 . 087 4. 32 . 093 factors Average Scores

Summary of Individual Measures of Firm Performance Indicators N Mean Score SE Customer satisfaction 59 4. 40 . 099 Customer retention 59 4. 40 . 107 Employee satisfaction 59 3. 62 . 161 Effectiveness 59 4. 15 . 114 Efficiency 59 4. 13 . 113 Relevance 59 4. 19 . 112 Financial viability 59 4. 32 . 100 4. 17 . 115 Overall Mean Scores

Regression Analysis Model R R 2 β Significance P-value (α=. 05) Market orientationperformance (H 1) 0. 575 0. 330 0. 575 0. 000

Moderating Effect The method proposed by Baron and Kenny (1986) was used X β 1 Z Β 2 Β 3 XZ Y

Regression Analysis H 2 Model Market Orientation. External Environmental Factors-Performance (H 5) R R 2 Change Significance( p-value) MO F 0. 627 0. 393 0. 000 K (MO*F) 0. 650 0. 422 0. 029 0. 001

Regression Analysis Significance Model Standardized Coefficients t-value (p-value) 109. 939 . 000 . 426 2. 520 . 017 . 279 1. 650 . 109 97. 972 . 000 . 368 2. 108 . 044 . 249 1. 466 . 153 -. 187 -1. 221 . 232 β 1 (Constant) . 852 Market orientation External environmental factors 2 (Constant) . 857 Market orientation External environmental factors Product of Market orientation and external environmental factors Predictors: (Constant), external environmental factors, market orientation Predictors: (Constant), external environmental factors* market orientation Dependent Variable: Firm performance

Findings • The results show that market orientation and external environmental factors explained 39% of the variation in firm performance (R 2=. 393). • Under change statistics, the results reveal that the R 2 change increased by 3% from. 393 to. 422 (R 2 change=. 029) when the interaction variable (market orientation*external environment) was added. • However, the change was not statistically significant at α=. 05 (p-value=. 232). The results show a statistically significant relationship between market orientation, external environmental factors and the interaction (F=7. 298, pvalue=. 001).

Findings • The results also show statistically significant regression coefficients for market orientation (β=. 368, p-value=. 044) indicating that there is a linear dependence of firm performance on market orientation. • No statistically significant relationship between the external environmental factors and firm performance was detected (β=. 249, pvalue=. 153). Similarly, no statistically linear relationship of firm performance on the multiplicative term of market orientation and external environmental factors was detected (β=-. 187, p=. 232). • This suggests that changes in the external environment may negatively influence the market orientation and performance relationship as the direction of the relationship is now negative

Summary of Research Objectives, Hypotheses and Conclusions Objective Hypotheses Findings Level of significance (α=. 05) Conclusion 1. Assess the relationship between market orientation and performance of tour firms in Kenya H 1 Positive and statistically significant relationship 0. 000 H 1 was Supported 2. Establish the moderating effect of external environment on the relationship between market orientation and performance of tour firms in Kenya H 2 Interaction term statistically significant 0. 001 H 5 was Supported

Conclusion • Firms exist within a business environment consisting of other players and actors outside the control of the firm. • The external environment presents opportunities and poses threats that may affect performance. • The pertinent results confirm that market orientation associates positively with various non- financial dimensions of firm performance. • The external environmental factors revealed a moderating effect on the relationship between market orientation and firm performance as the moderating strength and direction was reduced when the interaction term of market orientation and external environmental factors was introduced.

Implication for Further Research • Theoretical • Integrated framework of market orientation, external environmental factors and performance • Unified linkage of three theories as the overarching theoretical foundation • Policy • Offer marketing management skills and capabilities to ensure superior service delivery • Understanding the environment dynamics • Importance of implementing market orientation to obtain a sustainable competitive

Limitations of the study • Study variables not exhaustive • Self reported subjective performance measures • Use of descriptive cross-sectional design preventing close investigation of several aspects of the relationship of the study • Industry specific limitation and key informant method may affect generalizability of results • These limitations did not affect the overall quality and rigor of the study

Suggestions For Further Research • Use longitudinal research design to test for causal linkages • Combine multiple internal informants with views of other informants such as suppliers, customers, distributors and other firm stakeholders to generate dependable conclusions of the study variables. • Examining the relationship between market orientation and other strategic business orientations, marketing and competitive strategies

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