Lages, Luis Filipe

MONTGOMERY, David B.

Institutional Knowledge at Singapore Management University

Singapore Management UniversityInstitutional Knowledge at Singapore Management UniversityResearch Collection Lee Kong Chian School OfBusiness Lee Kong Chian School of Business2003Analyzing the Short Term Link between PublicPolicy Support and Export PerformanceImprovement: The Importance of the MediatingEffects of Price StrategyLuis Filipe LagesUniversidade Nova de LisboaDavid B. MONTGOMERYSingapore Management University, dmontgomery@smu.edu.sgFollow this and additional works at: https://ink.library.smu.edu.sg/lkcsb_researchPart of the International Business Commons, and the Strategic Management Policy CommonsThis Conference Paper is brought to you for free and open access by the Lee Kong Chian School of Business at Institutional Knowledge at SingaporeManagement University. It has been accepted for inclusion in Research Collection Lee Kong Chian School Of Business by an authorized administratorof Institutional Knowledge at Singapore Management University. For more information, please email libIR@smu.edu.sg.CitationLages, Luis Filipe and MONTGOMERY, David B.. Analyzing the Short Term Link between Public Policy Support and ExportPerformance Improvement: The Importance of the Mediating Effects of Price Strategy. (2003). American Marketing Association WinterEducators’ Conference. 1-2. Research Collection Lee Kong Chian School Of Business.Available at: https://ink.library.smu.edu.sg/lkcsb_research/1682ANALYZING THE SHORT TERM LINK BETWEEN PUBLIC POLICY SUPPORT AND EXPORT PERFORMANCE IMPROVEMENT:  THE IMPORTANCE OF THE MEDIATING EFFECTS OF PRICE STRATEGY   Luis Filipe Lages, Faculdade de Economia, Universidade Nova de Lisboa, Lisbon David B. Montgomery, Graduate School of Business, Stanford University, Stanford   All the benefits provided by the exporting activity encourage public policy makers to implement export promotion programs with the objective of helping firms improve their strategies and ultimately enhance their performance in the international arena. Surprisingly, this support has often been reported to be inadequately targeted and to have no effect in terms of performance (Gray 1997; Seringhaus and Rosson 1990). In this study we look specifically to the relationship between this export assistance and pricing, because pricing has a powerful and immediate effect on firm’s performance (Stöttinger 2001). Furthermore, despite its importance for export managers, most pricing research is conceptual and applied at the domestic market, with pricing being the marketing-mix variable that receives least attention in export marketing research (Myers, Cavusgil and Diamantopoulos 2002; Tzokas et al. 2000).   After testing how pricing strategy adaptation mediates the relationship between export assistance and short-term performance, our research reveals that the total effects of export assistance on export performance are non-significant because although support has a direct positive impact on performance, it also has a negative indirect impact through export pricing strategy. The indirect effect suggests that the firms receiving more export assistance make more effort to adapt their prices, which in turn leads to a worse performance. This situation leads to a non-significant total effect of export assistance on export performance. A possible explanation for this relationship is that managers within these firms might have a false assessment of the external environment and be incapable of implementing price adaptation, and this might lead to a poor performance (Cavusgil and Zou 1994).   Our findings also reveal that the most important indicator of export assistance is management’s international experience, which is twice as important as export market competition. In other words, when allocating export support, the European Union, national government and trade associations will give greater emphasis to managerial characteristics than to the level of export market competition. This finding supports the work of some strategy theorists (e.g. McGahan and Porter 1997; Roquebert, Philips and Westfall 1996), who have stressed the importance of firm factors versus industry factors to achieve the desired performance.  With regard to the determinants of price adaptation, both management’s international experience and export assistance are found to have a similar positive impact on pricing adaptation. Surprisingly, although export market competition does not directly influence pricing adaptation, there is an indirect positive impact on pricing adaptation. This indirect impact results from the fact that more export assistance is provided to firms operating in more competitive markets, which in turn leads managers to do more to adapt the pricing strategy to the foreign market. A possible interpretation of this finding is that although managers tend to offer the lowest possible prices, they are aware of the importance of properly adapting their strategy to the foreign market. Consequently, if they receive export assistance they will be tempted to use this support to overcome some of the costs associated with this adaptation and to invest in resources in order to better adapt their strategies.  Proceedings of the 2003 AMA Winter Marketing Educators' Conference, Orlando, USA: American Marketing Academy.  Proceedings of the 2003 AMA Winter Marketing Educators' Conference, Orlando, USA: American Marketing Academy.   In addition to providing useful insights into international marketing, this research can aid managers in improving their firm’s performance. Our results indicate that firms are more likely to improve their short-term performance if they have more experienced managers. Hence, companies may benefit by hiring managers with experience in international business because these managers will have established networks and a better understanding of the foreign markets. Our findings also indicate that price adaptation has a negative impact on performance improvement. In our study of the Portuguese situation the adaptation of price entails charging higher prices in the foreign market than in the domestic market. This suggests that price standardization is particularly recommended when the domestic market price is lower than competitive prices in the foreign market, and when firms might benefit from a currency advantage to maintain the prices used for the domestic market to the foreign market. Surprisingly, our findings also indicate that firms exporting to more competitive markets tend to perform better, suggesting that managers exporting to these markets are more alert to market opportunities and competitors’ threats, and as a result they will perform better.  By better understanding how exporting firms operate, it will also be easier for public policy makers to screen candidates in order to allocate export assistance more effectively. This study shows that a firm’s export performance increases with both the degree of management’s international experience and the level of export market competition. Hence, public policy makers know that the prospects for achieving better results in a shorter period, and consequently realizing a better allocation of their resources, will increase if they continue to allocate export assistance to the most experienced firms and to firms able to operate in the most competitive markets. Finally, by better understanding the relationship among export assistance, pricing strategy adaptation and short-term performance, public policy makers can avoid being caught in a vicious cycle of successive unsatisfactory allocations of their resources. In particular, when a firm’s export performance is not satisfactory because of the strategy used for the foreign market, public policy makers should debate with managers how to break this pattern.   With this research we hope to stimulate researchers to develop future studies that analyze both the antecedents and outcomes of export assistance. It would be interesting for future research to differentiate between pure financial subsidies and more custom-made support, such as setting export promotion trips, management advice, and dedicated market research. This paper also argues that it is crucial to develop an in-depth understanding of pricing strategy and short-term performance. Further research might attempt to examine company pricing practice in the foreign market following different perspectives: possibilities include exploring the antecedents and consequences of price competitiveness and different price levels, such as the use of price premium, going-rate and discount pricing strategies. Our short-term results also indicate interesting and surprising features, which might well be suggestive of the potential for further surprising results when a longer horizon is examined.   References are available upon request.     For further information contact: Luis Filipe Lages, Faculdade de Economia, Universidade Nova de Lisboa, Campus de Campolide, 1099-032 Lisboa, Portugal. Tel: ++ 351 21 380 1600, Fax: ++ 351 21 388 6073, Email: lflages@fe.unl.pt      

Analyzing the Short Term Link between Public Policy Support and Export Performance Improvement: The Importance of the Mediating Effects of Price Strategy

Singapore Management University 
Institutional Knowledge at Singapore Management University 
Research Collection Lee Kong Chian School Of 
Business Lee Kong Chian School of Business 
2003 
Analyzing the Short Term Link between Public Policy Support and 
Export Performance Improvement: The Importance of the 
Mediating Effects of Price Strategy 
Luis Filipe Lages 
Universidade Nova de Lisboa 
David B. MONTGOMERY 
Singapore Management University, dmontgomery@smu.edu.sg 
Follow this and additional works at: https://ink.library.smu.edu.sg/lkcsb_research 
 Part of the International Business Commons, and the Strategic Management Policy Commons 
Citation 
Lages, Luis Filipe and MONTGOMERY, David B.. Analyzing the Short Term Link between Public Policy 
Support and Export Performance Improvement: The Importance of the Mediating Effects of Price 
Strategy. (2003). American Marketing Association Winter Educators’ Conference. 1-2. Research Collection 
Lee Kong Chian School Of Business. 
Available at: https://ink.library.smu.edu.sg/lkcsb_research/1682 
This Conference Paper is brought to you for free and open access by the Lee Kong Chian School of Business at 
Institutional Knowledge at Singapore Management University. It has been accepted for inclusion in Research 
Collection Lee Kong Chian School Of Business by an authorized administrator of Institutional Knowledge at 
Singapore Management University. For more information, please email library@smu.edu.sg. 
ANALYZING THE SHORT TERM LINK BETWEEN PUBLIC POLICY SUPPORT 
AND EXPORT PERFORMANCE IMPROVEMENT:  
THE IMPORTANCE OF THE MEDIATING EFFECTS OF PRICE STRATEGY 
 
 
Luis Filipe Lages, Faculdade de Economia, Universidade Nova de Lisboa, Lisbon 
David B. Montgomery, Graduate School of Business, Stanford University, Stanford 
 
 
All the benefits provided by the exporting activity encourage public policy makers to 
implement export promotion programs with the objective of helping firms improve their 
strategies and ultimately enhance their performance in the international arena. Surprisingly, 
this support has often been reported to be inadequately targeted and to have no effect in terms 
of performance (Gray 1997; Seringhaus and Rosson 1990). In this study we look specifically 
to the relationship between this export assistance and pricing, because pricing has a powerful 
and immediate effect on firm’s performance (Stöttinger 2001). Furthermore, despite its 
importance for export managers, most pricing research is conceptual and applied at the 
domestic market, with pricing being the marketing-mix variable that receives least attention in 
export marketing research (Myers, Cavusgil and Diamantopoulos 2002; Tzokas et al. 2000).  
 
After testing how pricing strategy adaptation mediates the relationship between export 
assistance and short-term performance, our research reveals that the total effects of export 
assistance on export performance are non-significant because although support has a direct 
positive impact on performance, it also has a negative indirect impact through export pricing 
strategy. The indirect effect suggests that the firms receiving more export assistance make 
more effort to adapt their prices, which in turn leads to a worse performance. This situation 
leads to a non-significant total effect of export assistance on export performance. A possible 
explanation for this relationship is that managers within these firms might have a false 
assessment of the external environment and be incapable of implementing price adaptation, 
and this might lead to a poor performance (Cavusgil and Zou 1994).  
 
Our findings also reveal that the most important indicator of export assistance is 
management’s international experience, which is twice as important as export market 
competition. In other words, when allocating export support, the European Union, national 
government and trade associations will give greater emphasis to managerial characteristics 
than to the level of export market competition. This finding supports the work of some 
strategy theorists (e.g. McGahan and Porter 1997; Roquebert, Philips and Westfall 1996), who 
have stressed the importance of firm factors versus industry factors to achieve the desired 
performance. 
 
With regard to the determinants of price adaptation, both management’s international 
experience and export assistance are found to have a similar positive impact on pricing 
adaptation. Surprisingly, although export market competition does not directly influence 
pricing adaptation, there is an indirect positive impact on pricing adaptation. This indirect 
impact results from the fact that more export assistance is provided to firms operating in more 
competitive markets, which in turn leads managers to do more to adapt the pricing strategy to 
the foreign market. A possible interpretation of this finding is that although managers tend to 
offer the lowest possible prices, they are aware of the importance of properly adapting their 
strategy to the foreign market. Consequently, if they receive export assistance they will be 
tempted to use this support to overcome some of the costs associated with this adaptation and 
to invest in resources in order to better adapt their strategies. 
 
Proceedings of the 2003 AMA Winter Marketing Educators' Conference, 
Orlando, USA: American Marketing Academy. 
 
Proceedings of the 2003 AMA Winter Marketing Educators' Conference, 
Orlando, USA: American Marketing Academy. 
 
 
In addition to providing useful insights into international marketing, this research can aid 
managers in improving their firm’s performance. Our results indicate that firms are more 
likely to improve their short-term performance if they have more experienced managers. 
Hence, companies may benefit by hiring managers with experience in international business 
because these managers will have established networks and a better understanding of the 
foreign markets. Our findings also indicate that price adaptation has a negative impact on 
performance improvement. In our study of the Portuguese situation the adaptation of price 
entails charging higher prices in the foreign market than in the domestic market. This suggests 
that price standardization is particularly recommended when the domestic market price is 
lower than competitive prices in the foreign market, and when firms might benefit from a 
currency advantage to maintain the prices used for the domestic market to the foreign market. 
Surprisingly, our findings also indicate that firms exporting to more competitive markets tend 
to perform better, suggesting that managers exporting to these markets are more alert to 
market opportunities and competitors’ threats, and as a result they will perform better. 
 
By better understanding how exporting firms operate, it will also be easier for public policy 
makers to screen candidates in order to allocate export assistance more effectively. This study 
shows that a firm’s export performance increases with both the degree of management’s 
international experience and the level of export market competition. Hence, public policy 
makers know that the prospects for achieving better results in a shorter period, and 
consequently realizing a better allocation of their resources, will increase if they continue to 
allocate export assistance to the most experienced firms and to firms able to operate in the 
most competitive markets. Finally, by better understanding the relationship among export 
assistance, pricing strategy adaptation and short-term performance, public policy makers can 
avoid being caught in a vicious cycle of successive unsatisfactory allocations of their 
resources. In particular, when a firm’s export performance is not satisfactory because of the 
strategy used for the foreign market, public policy makers should debate with managers how 
to break this pattern.  
 
With this research we hope to stimulate researchers to develop future studies that analyze both 
the antecedents and outcomes of export assistance. It would be interesting for future research 
to differentiate between pure financial subsidies and more custom-made support, such as 
setting export promotion trips, management advice, and dedicated market research. This paper 
also argues that it is crucial to develop an in-depth understanding of pricing strategy and 
short-term performance. Further research might attempt to examine company pricing practice 
in the foreign market following different perspectives: possibilities include exploring the 
antecedents and consequences of price competitiveness and different price levels, such as the 
use of price premium, going-rate and discount pricing strategies. Our short-term results also 
indicate interesting and surprising features, which might well be suggestive of the potential 
for further surprising results when a longer horizon is examined. 
 
 
References are available upon request. 
 
 
 
 
For further information contact: Luis Filipe Lages, Faculdade de Economia, Universidade 
Nova de Lisboa, Campus de Campolide, 1099-032 Lisboa, Portugal. 
Tel: ++ 351 21 380 1600, Fax: ++ 351 21 388 6073, Email: lflages@fe.unl.pt  
 
 
 
 


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https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=2681&amp;context=lkcsb_research

Analyzing the Short Term Link between Public Policy Support and Export Performance Improvement: The Importance of the Mediating Effects of Price Strategy

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