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International Journal of Family Business, Volume 2, 2005

Volume 2, 2005 ISSN 1550-5812

INTERNATIONAL

JOURNAL OF

FAMILY BUSINESS

Shawn Carraher, Editor Cameron University

Volume 2, 2005 ISSN 1550-5812


The International Journal of Family Business

Shawn M. Carraher, Editor Cameron University

Samuel Lane, Associate Editor

Florida Atlantic University & U.S. Army Sponsored by the International Family Business Center & the Special Interest Group in International Research of the International Division of the U.S. Association for Small Business & Entrepreneurship


Authors retain copyright for their manuscripts. Any omissions or errors are the sole responsibility of the individual authors. The Editorial Board is responsible for the selection of manuscripts for publication from among those submitted for consideration. The Publishers accept final manuscripts in digital form and make adjustments solely for the purposes of pagination and organization.

Copyright 2005 by the International Family Business Center

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EDITORIAL REVIEW BOARD

Shawn M. Carraher, Editor

Cameron University

Samuel Lane, Associate Editor Florida Atlantic University & U.S. Army

Zafar U. Ahmed George Puia Texas A & M University Saginaw Valley State University M. Ronald Buckley Steve Schwiff University of Oklahoma Texas A & M University Chester Cotton Cuthbert Scott Texas A & M University Indiana University, Northwest Madeline Crocitto Sherry Sullivan SUNY-Old Westbury Bowling Green State University Johnathon R.B. Halbesleben Howard Tu University of Missouri University of Memphis Frank Hoy Rosalie L. Tung University of Texas – El Paso Simon Fraser University Terrence Paridon Dianne Welsh Cameron University University of Tampa John Parnell Daniel Wren University of North Carolina – Pembroke University of Oklahoma

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INTERNATIONAL JOURNAL OF FAMILY BUSINESS

CONTENTS

EDITORIAL REVIEW BOARD………………………………………………………...............iii LETTER FROM THE EDITOR…………………………………………………………………vi EXPLORING NEW FRONTIERS IN WOMEN’S FAMILY BUSINESS LEADERSHIP: THE IMPACT OF WOMEN’S MOTIVATIONS ON FAMILY AND BUSINESS MEASURES OF SUCCESS…………………………………………………………….………………………1

Margaret A. Fitzgerald, North Dakota State University Cathleen Folker, University of Wisconsin - Parkside

PERSONAL SHOPPING VALUE, CONSUMER SELF-CONFIDENCE, AND INFORMATION SHARING MEASURES FOR RETAILERS: RELIABILITY AND VALIDITY ASSESSMENT……………………………………………..……………………12

Terrence J. Paridon, Cameron University DETERMINANTS OF THE SINGAPOREANS’ CONSUMER BEHAVIOR PERTAINING TO SHAMPOO BRANDS: AN ASIA PACIFIC MARKETING MANAGEMENT PERSPECTIVE…………………………………..……………………………………………24

Thomas Tsu Wee Tan, Singapore Management University Zafar U. Ahmed, Texas A & M University – Commerce Shawn M. Carraher, Cameron University Lee Shing, Nanyang Technological University Tan Lee Ping Linda, Nanyang Technological University Verani Nikke, Nanyang Technological University

WORLD WIDE WEB PRESENCE AS A STRATGIC TOOL FOR SMALL BUSINESS: AN EXPLORATORY LOOK AT CURRENT PRACTICES & CHARACTERISTICS….……….37

Raj Selladurai, Indiana University, Northwest Cuthbert L. Scott III, Indiana University, Northwest

INTERNET MARKETING IN AN EMERGING COUNTRY: AN INTERNATIONAL MARKETING PERSPECTIVE……………………………………………………………….47

Philip Zgheib, American University of Beirut Zafar U. Ahmed, Texas A & M University - Commerce Shawn Carraher, Cameron University Nadine E. Habr, Notre Dame University

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MIDDLE EAST AIRLINES: AN ACQUISITION CHALLENGE FOR A FAMILY BUSINESS………………………………………………………………………………………62

Imad J. Zbib, American University of Beirut Yusuf M. Sidani, American University of Beirut Zafar U. Ahmed, Texas A & M University – Commerce

A LEBANESE FAMILY OWNED “HILAL STORE’S” ENTRY INTO BAHRAIN………….72

Imad J. Zbib, American University of Beirut Yusuf M. Sidani, American University of Beirut Zafar U. Ahmed, Texas A & M University - Commerce

CHATEAU KSARA WINE COMPANY OF LEBANON PENETRATING GLOBAL MARKETS: CHALLENGES AND OPPORTUNITIES……………………………………….83

Fadi Asrawi, Haigazian University Zafar U. Ahmed, Texas A & M University - Commerce

AN EXAMINTION OF ENTREPRENEURIAL ORIENATION: A VALIDATION STUDY IN 68 COUNTRIES IN AFRICA, ASIA, EUROPE, AND NORTH AMERICA………………….95

Shawn M. Carraher, Cameron University

LETTER FROM THE EDITOR

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Entrepreneurship, World Wide Web, and Cases Welcome to the second volume of the International Journal of Family Business. It was in May of 2002 that the journey towards the creation of this issue began. Hal Langford, the Dean of the College of Business & Technology at Texas A & M University - Commerce came back from China and announced that I was to be the Director of the new International Family Business Center to be created out of a relationship that was created with China University of Geosciences in beautiful Beijing. The first goal that he set for me was to create a new journal that would allow researchers to examine international entrepreneurship in Chinese sense [in China all non-governmentally owned businesses are considered to be "family businesses"]. It is out of this that the name of the journal was created. The IJFB is a double-blind, peer-refereed journal. The first issue consisted primarily of articles dealing with business in China however as should be apparent by flipping through the pages of the current issue we now include articles examining entrepreneurship from a variety of countries with articles in the second volume dealing with over 70 countries. In terms of orientation we have a strong bent towards empirical articles - although we also do consider literature reviews and theoretical papers. For the first volume we had a 25% acceptance rate while for the second volume we have an acceptance rate of fewer than 25% and plan to continue to have a rigorous review process. Reviews and paper submissions are done electronically. In addition to the International Family Business Center we have also received support from the U.S. Association for Small Business & Entrepreneurship, the SouthWest Academy of Management, the Academy of Management and the Special Interest Group in International Research of the International Division of the U.S. Association for Small Business & Entrepreneurship. On behalf of the editorial review board and our sponsors we trust that you shall find these articles to be of value to you and that you may consider submitting some of your work to the journal in the future. Shawn M. Carraher, Brewczynski Endowed Chair in Entrepreneurial Studies, Director & Editor

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Manuscripts

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EXPLORING NEW FRONTIERS IN WOMEN’S FAMILY BUSINESS LEADERSHIP: THE IMPACT OF WOMEN’S MOTIVATIONS ON

FAMILY AND BUSINESS MEASURES OF SUCCESS

Margaret A. Fitzgerald, North Dakota State University Cathleen Folker, University of Wisconsin – Parkside

A recent qualitative pilot study of women family business owners found that women display two distinct behavioral patterns in their family firms: family first and business first (Folker, 2003; 2004). Various studies have found that women’s firms tend to be smaller – perhaps focusing more on lifestyle businesses rather than high-growth ventures (Brush, 1992). It is possible that women will create both lifestyle and high-growth ventures depending on their motivation: whether they put family first or business first. Some women will focus more on the family and creating good family relationships. This in turn will lead to less family tension as well as better family and work relationship satisfaction. Other women will focus on the business first and this will lead to better financial outcomes (revenues and profits). The purpose of this study is to ascertain the influence of a female business owner’s orientation towards prioritizing business or family needs first on the success of the business and the family (n = 189). Data are from the National Family Business Survey-1997 panel. Findings indicate that female business owners did differ on their orientation towards business or family first, and low levels of family/business tension were related to higher family satisfaction or functionality. Moreover, prioritizing family needs was a positive and statistically significant predictor of family functionality while prioritizing business needs was not a significant predictor of business profit. Implications for both policy makers and family business consultants are outlined and suggestions are made for future research. INTRODUCTION Women in family firms have tended to be invisible and thus the research on their businesses is still emerging. Some studies have begun to compare women owned family businesses to male owned family businesses. However, how the women family business owners differ and how those differences might impact family and business outcomes has not yet been addressed. This study creates a conceptual framework for different types of women family business owners and then tests the impact of those differences on both family and business outcomes. Literature Review The focus, motivation or intent to create a high growth venture vs. a smaller "lifestyle" firm may have interesting ramifications. Longevity of the firm may be associated with a smaller firm. A recent study by Family Business Magazine (April 21, 2003) identified the oldest family businesses. The 102 companies that they found that had been owned and operated by the same family since at least 1865, and were operated by at least five

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generations, had several characteristics in common, most importantly staying small. Half of the companies had fewer than 15 employees. Within the literature on women entrepreneurs, the tendency to pursue smaller lifestyle businesses is one of the few differences from male entrepreneurs. Women entrepreneurs are similar to male entrepreneurs in psychological characteristics (Sexton & Bowman-Upton, 1990; Smith, Smits, & Hoy, 1992); demographics (Hisrich, Brush, Good & DeSouza, 1997); education (Fischer, Reuber, & Dyke, 1993); business motivations (Fischer, et al, 1993; Schwartz, 1976; Smith, et al, 1992), and risk-taking propensity (Masters & Meier, 1988). However, women tend to pursue life-style rather than growth-oriented businesses (Sexton & Bowman-Upton, 1990). Women prefer an entrepreneurial venture that integrates family and career needs (Buttner, 1993) perhaps because they place a higher value on family obligations (DeMartino & Barbato, 2001). Founding smaller firms did not appear to be a liability in terms of growth, productivity, and returns (Fischer, et al., 1993). Women tend to emphasis quality in their firms (Kalleberg & Leicht, 1991), which may help women's businesses to have steady growth along with an ability to adapt to market changes (Hisrich & Brush, 1987). Other differences between male and female entrepreneurs include some firm dynamics. Women's socialization to nurture (Gilligan, 1982; Belenky, Clinchy, Goldberger & Tarule, 1986) humanizes the workplace (Edlund, 1992; Salganicoff, 1990). Within the family firm, women carry the family culture (Hollander & Bukowitz, 1990). Their lives are organized around their family’s needs, while men’s lives are organized around their work (Gillis-Donovan & Moynihan-Bradt, 1990: 156). THEORETICAL FRAMEWORK Various studies have found that women’s firms tend to be smaller – perhaps focusing more on lifestyle businesses rather than high-growth ventures (Brush, 1992). However, not all women entrepreneurs are the same. A recent qualitative pilot study of women family business owners found that women display two distinct behavioral patterns in their family firms: family first and business first (Folker, 2003; 2004). Several differences emerged between Lifestyle “family-first” businesses and Growth-oriented professional “business first” firms. In "business first" firms, the woman family business owner (founder) was willing to remove a family member from the firm and in a couple of cases the founder fired her own husband. In these firms a level of professionalism, rather than family-style, was exhibited by the family members in the firm - with the offspring calling their mother by her first name. In the “family-first” businesses, the husband was praised as being supportive and helpful even though not working in the business. The last difference found was that in the two growth oriented firms in which the offspring worked fulltime – they were also stockholders (Folker, 2003; 2004). These differences indicate a different intent, focus and motivation for the business. The differences do not indicate that family or business is not important to either group. Rather it is the means to the successful end that differs. Do you put the family first in order for both the family and the business to succeed? Or

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do you put the business first in order for both the family and business to succeed? In this study we argue that the outcomes (both family and financial) will be impacted by the direction the family business owner takes in creating and building her business. This study builds on the above pilot study to test the differences between the family first and business first firms. This study tests whether women create both lifestyle and high-growth ventures depending on their motivation: whether they put family first or business first. Some women will focus more on the family and creating good family relationships. This in turn will lead to less family tension as well as higher family satisfaction. Other women will focus on the business first and this will lead to better financial outcomes or profit. This conceptual model is shown in Figure 1 below. Figure 1: Conceptual Framework of Women Family Business Owner's Differences

Based on the previous discussion, we offer the following hypotheses:

H1: Differences will exist between female family business owners on the intent and focus of their business: family first or business first. H2: Those businesses in which the female business owner focuses on family first, as opposed to business first, will have less family/business tension. H3: Lower family tension will lead to greater family satisfaction as measured through family functionality. H4: Those businesses in which the business owner focuses on family first will promote higher family functionality than those with a business first orientation. H5: Those businesses in which the business owner focuses on business first will have higher profits than those with a family first orientation.

Women Family Business

Owners

Focus/Intent/Motivation

FAMILY FIRST

Focus/Intent/Motivation

BUSINESS FIRST

Lower Family/Business Tension

Family Functionality

Higher Profits

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RESEARCH METHODOLOGY AND DATA Data for this analysis are from the National Family Business Survey (NFBS)-1997 panel. The methods used to gather the NFBS data are discussed at length in an earlier article published in Family Business Review (see Winter, Fitzgerald, Heck, Haynes & Danes, 1998). Therefore, only a brief review of the methodology is provided in this paper. The NFSB used a household sampling frame, which is unique because most studies of family businesses use a business sampling frame (Winter et al., 1998). The sample was limited to families who shared a common dwelling unit, in which at least one person owned or managed a business. Work intensity in the business was included as a criterion for inclusion in the sample and was assessed by length of time in business (one year or more) and the number of hours per week of involvement. The owner-manager had to have worked at least six hours per week year around or a minimum of 312 hours a year in the business, had to be involved in the day-to-day management, and had to reside with another family member. Four instruments were used for data collection. A screening instrument was used to ascertain whether the household contained a family business. For eligible households, three other interview schedules were the primary data collection instruments: one schedule was used for the household manager, one was used for the business manager, and one combined interview was used if the household manager and the business manager were the same individual. The household manager was defined as the person who takes care of most of the meal preparation, laundry, cleaning, scheduling family activities, and overseeing child care. Included in the household manager’s interview schedule were details about management and functioning of the household; the intrusions of the business into family life; and family satisfaction (Winter, et al., 1998). The family financial manager (who could be either the household or the business manager) was asked about the family’s finances, including total income, income from the business, market value of the dwelling , and the use of personal income to finance the business. The business manager is the person most involved in the day-to-day management of the business. The interview schedule administered to the business manager included details about the business such as type of ownership, number and type of employees, the role of each household member in the business, business management practices, financial details of the business including business debt and the use of personal funds for the business, retirement and succession planning, satisfaction with the business, and the intrusion of the family into the operations of the business. Both household and business managers were asked identical questions about family and business goals and tensions about the family business. The individual who responded to the interview schedule administered first was asked demographic information about each household member to insure that basic demographic information about the household was always obtained.

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The sample was purchased from Survey Sampling in Fairfield, Connecticut, and consists of households with listed telephone numbers from all 50 states in the United States. Respondents were interviewed during 1997. More than 14,000 U. S. households were screened resulting in 1,116 eligible family households. The Iowa State University Statistical Laboratory collected the data. At the completion of the interviewing, the 1997 NFBS consisted of 794 families with a family business, a 71% response rate. Households with a family business who completed both the business and household interviews numbered 673, a 60.3% response rate. For the purposes of this study, only the female business owner/managers were included in the analysis (n = 189). Of the 189 women, 175 functioned as both the business manager and the household manager. In 14 cases the female was the business manager and someone else in the family, usually the husband, was the household manager. Measures and Control Variables The main predictor variable of interest in this study is whether the female business owner has more of a business first or family first orientation. Orientation was assessed using the business owner’s response to a question on whether as a business person, business needs come first or family needs come first. Responses were recorded on a continuum from 1 to 5 with 1 representing business first and 5 representing family first. Family/business tension was measured by scaling the responses to seven questions about the level of tension that business issues generated in people’s home life. The questions pertain to who does what in the family business, confusion about decision-making authority, unequal ownership of the business among family members, unfair compensation for family members, failure to resolve business conflicts, unfair workloads among family members due to the business and competition for resources between the family and the business (see Danes, Zuicker, Kean & Arbuthnot, 1999 for information related to the development of the instrument). Reliability of the scale using Cronbach’s Alpha as a measure of internal consistency was .69, which is not high but is generally considered acceptable. Other predictor variables were used as control variables in the regression models to test hypotheses 4 and 5. These variables were identified in previous literature on family and business outcomes. For example, increases in family functionality are associated with decreases in tension over family and business conflicts (Danes et al., 1999). In addition, Stafford, Duncan and Zuiker (2003) suggested that income adequacy contributes to functionality. Characteristics of the business, such as size and whether or not the business is home-based have also been shown to affect family (Duncan & Stafford, 2000). Family size impacts functionality because functionality is more difficult to maintain in a larger family (Sung & Stafford, 1995). Characteristics of the owner herself, such as age, education and marital status may also reflect experience, and the development of human and resource capital that should influence business and family outcomes. As noted in the review of literature, longevity and size of the firm are associated with business outcomes.

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Separate regression models were developed to test the influence of family or business orientation on the outcome variables of family functionality and business profit. The family outcome, family functionality, was measured using the Family APGAR scale. The APGAR is designed to measure the respondent’s satisfaction with the following 5 areas: Adaptation, Partnership, Growth, Affection and Resolve. The instrument was developed by Smilkstein (1978) and detailed information regarding validity and reliability is available (Smilkstein, Ashworth and Montano, 1982; Sawin, Harrigan & Wong, 1995). Reliability in this study using Cronbach’s Alpha as a measure of internal consistency was .82. The business outcome, profit, was measured using the business owner’s response to the question, “What was the profit of the business in 1996?” The natural log was used to normalize the distribution of this variable in the regression. RESULTS Table 1 shows characteristics of the business owners, their families and their businesses. Female business owners were approximately 45 years of age, on average, and had completed 2 years of post-high school study. The majority were married (88%) with an average of 3.35 people living in their household. Most reported low levels of tension about the business (with 1 being indicative of no tension at all, and 5 indicating a great deal of tension). Average family income from all sources was $66,629.63. Most (87.3%) were satisfied or very satisfied with their role in the family business (percentages are not shown in tables). The average score on the business vs. family first continuum was 3.63 indicating an orientation toward family first. Respondents scored high on the Family APGAR instrument (mean of 20.31 out of a possible high score of 25), indicating high levels of family functionality. The household managers, most of whom were also the female business owner/manager (n=175, or 92.6%), were satisfied or very satisfied with their role in the family business (87.3%). The average age of their firms was 11.74 years, and slightly over 60% were home-based. The average number of employees, in addition to the business owner, was 3.93, and profits ranged from a loss of $13,750 to a profit of $2 million, with the average being $26,827.04. Hypothesis 1, that differences will exist between women family business owners on the orientations towards their business as business or family first was partially supported. Over half (54%) expressed a “family first” orientation, and nearly 15% reported a “business first” orientation, but 59% were relatively neutral (not shown in tables). Hypothesis 2, that in those businesses in which the woman focuses on family first will have less family tension was supported. Correlational analysis indicated that women with more of a family orientation experienced less family/business tension (r = -.181, p < .01), although no control variables were used in examining this relationship. Hypothesis 3, that lower family/business tension will be associated with greater family functionality was supported. Results of the multiple regression analysis shown in Table 2 indicate a negative and statistically significant relationship between tension and functionality (β = -.275, p < .001).

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Table 1: Descriptive Statistics, Characteristics of the Female Business Owners, Their Families and Their Businesses ________________________________________________________________________ Characteristic Related to the

Business Manager or Family Mean Range SD

________________________________________________________________________ Age 44.82 26-55 10.61 Education 14.28 8-20 2.27 Marital Status .88 0-1 .33 Household Size 3.35 2-9 1.42 Household Tension 1.44 1-3.43 .51 Total Household Income $66,629.63 $6,000- 420,000 $54,028.17 Business or Family 1st 3.63 1-5 1.24 Family APGAR 20.31 10-15 3.55 Characteristics Related to the Business Satisfaction with Role in the Business 4.38 1-5 .83 Age of the Firm 11.74 1-89 13.56 Homebased Business .61 0-1 .49 Number of Employees 3.93 0-89 16.07 Profit $26,827.04 $-13,750.-$2,000,000. 147,089.00 ________________________________________________________________________ Table 2: Predictors of Family Functionality for Female Business Owners Characteristic of the Business Owner or Family B t p Constant 2.619 .010 Age of Business Owner .064 .920 .359 Education of Business Owner -.014 -.214 .831 Marital Status .088 1.372 .172 Business First or Family First Orientation .212 3.269 .001* Household Tension -.275 -4.081 .000* Household Size -.105 -1.510 .133 Household Income .046 .676 .500

Characteristics of the Business Satisfaction with Role in Business .283 4.292 .000* Age of Firm .168 2.555 .011* Homebased Business .023 .353 .724 Number of Employees .032 .489 .626 Model Statistics F = 8.911 p<.001 r2 = .356

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Hypothesis 4, that those businesses in which the female business owner focuses on family first will have higher family functionality, was supported. The model regressing the Family APGAR score on business or family orientation and other control variables was significant (F=8.911, p < .001), and predicts almost 36% of the variance in functionality scores. The family first orientation is a positive and significant predictor of family functionality (β = .212, p < .001). Other significant predictors of family functionality include being satisfied with one’s role in the family business (β = .283, p < .001), and longevity of the firm (β = .168, p <.01). Hypothesis 5, that those businesses in which the female business owner focuses on business first will have higher profits was not supported in correlational or regression analysis. The same predictor variables shown in Table 2, which are measures of human capital and characteristics of the business, were used as control variables in the analysis (statistical analysis is not shown in tables). Developing a better model to predict business profit may be needed to fully assess the relationship between orientation and business outcomes. CONCLUSIONS This study supports the theory that women do differ in their orientation towards business or family first as suggested by Folker (2003; 2004), and that their orientation will influence levels of tension and functionality within their families. Results of the study can be used to inform policy makers and consultants on the importance of family relationships to female business owners and how those relationships may contribute to the longevity of the business and the strength and stability of the family. The particular strengths of female-owned “lifestyle” businesses (Brush, 1992) can be used as models of successful businesses and families. The processes through which these families achieve lower levels of family/business tension and higher levels of functionality warrant further study. We have also identified that women with more of a business than family first orientation face unique challenges related to the functioning of their families and the level of tension they experience between the family and the business. Future research could examine in greater depth the business and family outcomes for women with a stronger business first orientation. Moreover, purposive sampling to insure the inclusion of women with a business first orientation would allow researchers to garner information about their unique needs and challenges. Social expectations may make it difficult for women to pursue a business first orientation given strong socialization toward prescribed gender roles. Women with a business first orientation may need additional support from consultants or other advisors, particularly in dealing with family issues related to tensions and satisfaction. Additional research is needed to fully articulate the influence of orientation or intent on business outcomes. The development of multiple indicators to provide a more sophisticated measure of orientation will lead to a better understanding of the effects of orientation on business and family outcomes.

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ACKNOWLEDGEMENT This paper reports results from the Cooperative Regional Research Project, NE-167R, “Family Businesses: Interaction in Work and Family Spheres,” partially supported by the Cooperative States Research, Education and Extension Service (CSREES); U.S. Department of Agriculture; and the experiment stations at University of Hawaii at Manoa, University of Illinois, Purdue University (Indiana), Iowa State University, Michigan State University, University of Minnesota, Montana State University, University of Nebraska, Cornell University (New York), North Dakota State University, The Ohio State University, Pennsylvania State University, Texas A & M University, Utah State University, University of Vermont, and University of Wisconsin-Madison; and the Social Sciences and Humanities Research Council of Canada (for the University of Manitoba). REFERENCES _________ (2003). America's Oldest Family Companies, Family Business Magazine, April 21. Belenky, M.F., Clinchy, B.M., Goldberger, N.R., & Tarule, J.M., (1986). Women’s way of knowing: The development of self, voice, and mind. New York: Basic Books. Brush, C.G. (1992). Research on women business owners: Past trends, a new perspective and future directions. Entrepreneurship Theory & Practice, Summer: 5-30. Buttner, E. H. (1993). Female entrepreneurs: How far have they come? Business Horizons, 36 (2): 59-66. Danes, S. M., Zuiker, V. S., Kean, R., & Arbuthnot, J. (1999). Predictors of family business tensions and goal achievement. Family Business Review, 12(3), 241-252. DeMartino, R. & Barbato, R. (2001). Gender differences among MBA entrepreneurs. Proceedings, United States Association for Small Business & Entrepreneurship (USASBE) Annual Conference. Edlund, C.J. (1992). Humanizing organizational systems: Learning from leadership styles. Conference paper at Society for the Study of Social Problems (SSSP). (From Sociological Abstracts; 040, 05, 1992). Fischer, E., Reuber, W., & Dyke, L. (1993). A theoretical overview and extension of research on sex, gender and entrepreneurship. Journal of Business Venturing, 8, Winter: 151-168. Folker, C.A. (2003). Family Dynamics in Women Owned Firms: A Qualitative Study. Presented at the United States Association for Small Business & Entrepreneurship (USASBE) Annual Conference

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Folker, C.A. (2004). Family Dynamics in Women Owned Firms: A Qualitative Study. International Journal of Family Business, vol. 1, pgs. 61-72. Gilligan, C. (1982). In a Different Voice. Harvard University Press; Cambridge, MA. Gillis-Donovan, J. & Moynihan-Bradt, C. (1990). The power of invisible women in the family business. Family Business Review, 3(2): 153-167. Hisrich, R., & Brush, C. (1987). Women entrepreneurs: A longitudinal study. In N. Churchill et al., eds., Frontiers of Entrepreneurship Research. Wellesley, MA: Center for Entrepreneurial Studies, Babson College; 21-39. Hisrich, R., Brush, C, Good, D. & DeSouza, G. (1997). Performance in entrepreneurial ventures: Does gender matter? In Frontiers of Entrepreneurship Research. Babson Park, MA: Center for Entrepreneurial Studies, Babson College. Hollander, B.S., & Bukowitz. W.R. (1990). Women, family culture, and family business. Family Business Review, 3(2): 139-151. Kallenberg, A., & Leicht, K.T. (1991). Gender and organizational performance: Determinants of small business survival and success. Academy of Management Journal, 34(1): 136-161. Masters, R. & Meier, R. (1988). Sex differences and risk-taking propensity of entrepreneurs. Journal of Small Business Management, 26(1): 31-35. Rha, J. Y. & Stafford, K. (2001). The family satisfaction of business owning families. Journal of Korean Home Economic Association, 2(1), 77-94. Salganicoff, M. (1990). Women in family businesses: Challenges and opportunities. Family Business Review, 3(2): 125-137. Sawin, K. J., Harrigan, M. P., & Woog, P. (1995). Measures of family functioning for research and practice. NY: Springer Publishing Co. Schwartz, E.B. (1976). Entrepreneurship: A new female frontier. Journal of Contemporary Business, Winter, 47-76. Sexton, D.L. & Bowman-Upton, N. (1990). Female and male entrepreneurs: Psychological characteristics and their role in gender-related discrimination. Journal of Business Venturing, 5: 29-36. Smilkstein, G. (1978). The family APGAR: A proposal for a family function test and its use by physicians. The Journal of Family Practice, 6, 1231-1239.

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Smilkstein, G., Ashworth, C., & Montano, D. (1982). Validity and reliability of the family APGAR as a test of family function. The Journal of Family Practice, 15, 303-311. Smith, P. L., Smits, S. J., & Hoy, F. (1992). Female business owners in industries traditionally dominated by males. Sex Roles: A Journal of Research, 26 (11-12): 485-497. Stafford, K., Duncan, K. A., & Zuiker, V. (in press). A toolkit for home-based entrepreneurs. Lawrence N. Field Center for Entrepreneurship and Small Business Spring 2003 Conference. Sung, J., & Stafford, K. (1995). The effect of managerial behavior on household satisfaction. Family Economic and Resource Management Biennial: The Journal of the Family Economic Division of the American Association of Family and Consumer Sciences, 1, 95-96. Winter, M., Fitzgerald, M. A., Heck, R. K. Z., Haynes, G. W., & Danes, S. M. (1998). Revisiting the study of family businesses: Methodological challenges, dilemmas, and alternative approaches, Family Business Review, 7, 3-27.

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PERSONAL SHOPPING VALUE, CONSUMER SELF-CONFIDENCE, AND INFORMATION SHARING MEASURES FOR RETAILERS:

RELIABILITY AND VALIDITY ASSESSMENT

Terrence J. Paridon, Cameron University

Developments in understanding personal shopping value, consumer self-confidence, and word of mouth communication form the foundation for a presentation of research into measures of the aforementioned constructs and the extent to which they are interrelated. Reliable and valid measures of the constructs suggest that word of mouth communication depends upon social outcomes confidence that depends, in turn, upon a hedonic orientation towards shopping. Results indicate also that one’s task orientation towards shopping directly affects one’s personal confidence in the outcome of the shopping event. Consideration is given to various analytical techniques and suggestions are offered for researching these topics. INTRODUCTION A sustained stream of research addressing the practice of marketing has produced a significant body of literature that has improved our knowledge about the effects of implementing a marketing orientation. To be more specific, findings indicate that manufacturers or retailers who adopt a marketing orientation experience an increase in sales as well as enhanced profits and return on investment (Best, 2005; Kara, Spillan, & DeShields, 2005; Pelham, 2000). Studies involving other retailers focus upon practices associated with specific marketing variables and report comparable changes in performance. For example, in research that compares product-focused strategies, a reactor strategy tends to result in an inferior market position while a prospector strategy increases the potential for a superior position in the marketplace (McCann, Leon-Guerro, & Haley, 2001). Research indicates also that loyal customer behavior and the amount of time spent shopping are associated with pleasurable and task oriented shopping environments (Babin & Attaway, 2000; Babin, Griffin, & Boles, 1997). Pleasure or hedonic and task or utilitarian orientations contribute to understanding other marketing related outcomes. That is, hedonic and utilitarian oriented shopping environments add to our understanding of word of mouth communication. Working within the context of the consumer retail search process model (Titus and Everett, 1995) and consumer self-confidence (Bearden, Hardesty, & Rose, 2001), Paridon’s (2005b, 2005c) findings indicate that pleasurable shopping environments, operating through consumer social confidence, contribute to an exchange of shopping related information. A complement to this pleasure induced effect is also noteworthy. Consumer personal confidence increases as one’s overall satisfaction with the task related dimension of shopping increases. Since word of mouth communication is an important outcome for many retailers, the preceding findings suggest that valid and reliable measures of pleasurable and task oriented shopping experiences, consumer self confidence, and information sharing

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behavior should be of interest to retailers. That is, retailers who are interested in assessing the extent to which their store environment produces a pleasurable shopping experience should be interested in a reliable and valid hedonic scale. On the other hand, if the marketing strategy involves emphasizing a task oriented shopping environment, managers should find a valid and reliable utilitarian scale to be of value. These conclusions generalize to consumer self confidence as well as information sharing measures. Accordingly, this work focuses upon the measurement properties of each scale and incorporates an analysis of the relationships among the scales that enables retailers/managers to select one or more scales to administer to shoppers. Conceptual Development Building upon a number of studies about the availability of product information, merchandising practices, and store design, Titus and Everett (1995) proposed the consumer retail search process model. It postulates that the search for product information may be guided by epistemic and hedonic constructual systems. The epistemic system, representing the shopper’s system of logic, gives rise to a need for the design of in store information displays and merchandising practices, the sine qua non of the epistemic system. The emotionally laden hedonic system is the sensate orientation that accompanies the shopping experience. The retail search model suggests that the individual and the combined effects of these two constructual systems may lead to an efficient, pleasurable, and satisfying shopping experience. Mall and store research supports the aforementioned hedonic and epistemic postulates of the model. In a mall study, a sensate environmental factor was causally related to the excitement associated with the shopping trip and a desire to continue shopping (Wakefield & Baker, 1998). In store research, a positive emotional state explained one’s satisfaction with the shopping experience (Babin & Darden, 1996). In other store research, shopper’s hedonic reaction to and utilitarian orientation towards the shopping experience were associated with their overall satisfaction with the marketplace offerings (Babin, Darden & Griffin, 1994; Griffin, Babin, & Modianos, 2000). In a second mall study, Shim and Eastlick (1998) report a composite measure of product knowledge and emotional variables contributes to one’s overall frequency of shopping and average monthly mall expenditures. Knowledge based and emotional variables contribute also to an increase in the amount of time and money spent in shopping (Babin, Griffin, & Boles 1997). Efficient, pleasurable, and satisfying shopping experiences are thought also to contribute to the consumer’s personal and social confidence in decision-making (Bearden, Hardesty & Rose, 2001). According to the authors, consumer self-confidence is the “…extent to which an individual feels capable and assured with respect to his or her marketplace decisions and behaviors” (p. 122). These feelings of competence characterize the personal and the social outcomes associated with shopping decisions. Shoppers who consider themselves capable in and assured of their personal shopping decisions will experience a minimal level of doubt about those decisions (cf. Folkes & Kiesler, 1991). Similarly, socially capable and assured shoppers possess a high level of confidence about

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the social consequences of their personal consumption/shopping related decisions. Stated somewhat differently, when information about the outcomes of the shopping event are communicated to one’s friends and acquaintances, the comments made by these significant others influence the shopper’s consumption related social self confidence (Folkes & Kiesler, 1991). Finally, the consumer retail search process model, in conjunction with other research, provides also a foundation for the development of additional insight into the nature of retail word of mouth communication. To be more explicit, when consumers interact successfully with shopping environments, they acquire personal and social information that can be passed along to their friends and acquaintances (Titus & Everett, 1995; cf. Higie, Feick, & Price, 1987). This transmission should not be thought of as automatic. That is, since the personal and social nature of the shopping experience (Tauber, 1972) leads to the acquisition of information that will influence one’s personal outcomes and social outcomes self-confidence (Bearden et al., 2001), and since self-confidence influences word of mouth communication (Reynolds & Darden, 1971; Summers, 1970), one’s personal outcomes and social outcomes self-confidence should influence one’s information sharing behavior (cf. Holbrook & Hirschman, 1982). In a series of studies, (Paridon, 2005a; 2005b; 2005c) the relationships among the preceding constructs were researched and two principal findings emerged. First, when socially confident shoppers enjoy the shopping trip, they are more likely to share that experience with their friends and acquaintances. Second, when shoppers locate the products they need, their personal self-confidence increases. Since retailers are interested in generating favorable word of mouth communication and in insuring that their customers are able to locate the items they want, the scales used in the aforementioned research should be part of a resource base for retail managers when they evaluate merchandising practices and the effects of these store managed activities. An analysis of the scales follows. Research Methodology Two surveys were designed to study the preceding conceptual relationships. Each study enabled an assessment of each construct’s reliability and validity. Consideration is given first to a brief description of the data collection process. A discussion of the initial selection criteria for the construct indicators follows. Data Collection For both studies, undergraduate marketing students enrolled in an advanced marketing course at a southwestern regional university were trained and given instructions in personal interviewing procedures and techniques. Then, during a two-week period, students contacted their adult non-student female friends and acquaintances and asked them to complete a self-administered structured questionnaire about their department store shopping behaviors. Respondents were asked also to provide a first name and telephone number for verification purposes. Students were instructed to remain content

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neutral and to answer only questions about the instructions for completing the questionnaire. A quota-sampling plan was adopted in an attempt to obtain a representative demographic cross section of respondents. An analysis of the demographic data for study number one (response base 273) revealed that the typical respondent is white, married with children, employed at least part time, and thirty-eight years old. She resides in a household with an annual income of $45,000.00 dollars. In study number two, the demographic profile of the respondents (response base 215) indicated that she is married with children, white, employed at least part time, and thirty-nine years old. She has completed at least some college courses and she resides in a household with an annual income of $38,500. In study number one, a convenience sample of 34 respondents, and in study number two, a convenience sample of 26 respondents, two per student interviewer, was contacted telephonically and asked to verify their participation. All interviewees responded that they had completed the questionnaire. Scale Indicators A series of studies, building upon initial findings in the areas of personal shopping value (Babin, Darden & Griffin 1994), consumer self-confidence (Bearden, Rose, & Hardesty 2001), and information sharing (Paridon, 2004), led to the development and testing of an integrated model of word of mouth communication (Paridon 2005a; 2005b; 2005c). In the first study (Paridon 2005a), the findings resulted in recommendations to change the indicator set for each of the preceding constructs. The first recommended change was the deletion of the “gift giving” and the “agonizing over purchasing” measures from the original personal and social self-confidence scales (Bearden et al., 2001). Accordingly, four of the original five indicators for each construct were retained (Paridon 2005b; 2005c). In both of the latter studies, responses to the remaining indicators for each construct were obtained by asking respondents to indicate on a 7- point Likert type scale, the extent to which they agreed that the statement characterized them. Similar concerns for validity and reliability of the hedonic and utilitarian constructs resulted in selecting four scale items for each construct (Babin et al., 1994; Griffin et al., 2000). Scale items qualified if they demonstrated, by their standardized factor loading, an acceptable level of construct validity. To be more specific, Paridon (2005a) suggested deleting a negatively worded hedonic construct indicator in order to improve reliability and variance extracted values. Paridon (2005a) reported also that research into utilitarian measurement (Voss, Spangenberg & Grohmann, 2003) suggested an improvement to the original four indicator utilitarian scale might be realized by adding a direct measure of satisfaction. In the same study (Paridon 2005a), it was suggested that deleting the negatively worded utilitarian statement “I couldn’t buy what I really needed” would lead to improved measurement statistics. Thus, utilitarian value was assessed using three original utilitarian value indicators and one supplemental indicator of satisfaction. For these eight personal shopping value measures, respondents were asked to indicate the extent to which they agreed, using a conventional seven point Likert type format, with the item.

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The final set of construct measures emerged from research in retail information sharing (Paridon, 2004) and word of mouth communication (Feick, Price, & Higie, 1986; Higie et al., 1987). Three of the 10 indicators from the retail information sharing scale were adopted and supplemented with one item that explicitly addressed the altruistic nature of word of mouth communication (Feick et al., 1986; Higie et al., 1987). For each of the four indicators, participants were asked to indicate the extent to which they agreed, on a seven point Likert type scale, with the statement. For construct validation purposes, the questionnaire also contained the complete market maven scale (Feick & Price, 1987), an accepted measure of one’s propensity to engage in general marketplace conversations. In addition to the standard semantic anchors, the indicators for all five constructs and the market maven measures contained numeric anchors with one representing the least favorable interpretation of the statement and seven indicating the most favorable interpretation of the statement. Standard demographic measures—gender, age, marital status, employment status, annual household income, education, and ethnicity—were included also. Finally, the second study included indicator variables that focused upon measuring the adequacy of assistance from employees and the accessibility of merchandise (Dabholkar, Thorpe, and Rentz 1996; Kim and Jin, 2001). The statistical significance of these latter measures has been reported elsewhere (Paridon, 2005c) and omitting them from the discussion does not materially change the following analysis and recommendations.

Table 1 Product Moment Correlations

______________________________________________________________________________ Market Information Social Personal Hedonic Utilitarian Maven Sharing Confidence Confidence Orientation Value ______________________________________________________________________________ Market maven 31.5/31.4 (6.38)/(6.89) Information sharing .60a /.71a 22.9/22.8 (3.88)/(4.35) Social confidence .61a/.67a .55a/.66a 20.4/20.4 (4.47)/(4.63) Personal confidence -.03/-.16 .04/-.10 -.10/-.11 11.7/12.4 (5.90)/(5.90) Hedonic orientation .31a/.39a .32a/.42a .34a/.44a -.05/.05 20.0/20.2 (5.50)/(5.64) Utilitarian value .20a/.43a .21a/.42a .23a/.41a -.36a/-.25a .45a/.41a 23.1/22.5 (4.30)/(4.60) ______________________________________________________________________________ Note: Main diagonal values are means with standard deviations in parentheses. Study one values/study two values. a p < .01, two tail test.

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Reliability and Validity Analysis As an initial analysis for evaluating multiple indicator scales, Hair, Anderson, Tatham, and Black (1998) recommend using the Bartlett test of sphericity and the Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy. For each of the five constructs in both studies, the significance level for the Bartlett test was less than .01. In study one (two), the KMOs were as follows: hedonic orientation, .82 (.81); utilitarian value, .82 (.83); information sharing, .80 (.79); social confidence, .79 (.77); personal confidence, .73 (.72). Sets of indicators whose KMO value is .80 or greater are characterized as meritorious while KMO values that exceed .70 are considered adequate.

Table 2 Factor Structure and Standardized Loadings [study 1 & study 2 values]

_______________________________________________________________________ Hedonic Orientation Factor Loading The shopping trip was truly a joy. .87/.73 The shopping trip truly felt like an escape. .83/.82 I enjoyed the shopping trip for its own sake, not just for the items I may have purchased. .77/.66 I had a good time because I was able to act on the spur of the moment. .76/.84 Utilitarian Value The shopping trip was useful. .89/.84 I was satisfied with the items I purchased. .85/.80 I accomplished just what I wanted to on the shopping trip. .83/.83 While shopping, I found just the item(s) I was looking for. .75/.77 Social Outcomes Confidence My friends are impressed with my ability to make satisfying purchases. .81/.86 I impress people with the purchases I make. .84/.84 I get compliments from others on my purchasing decisions. .76/.73 My neighbors admire my decorating ability. .64/.61 Personal Outcomes Confidence I often have doubts about the purchase decisions I make. .90/.66 I often wonder if I’ve made the right purchase selection .88/.71 I never seem to buy the right thing for me. .74/.88 Too often the things I buy are not satisfying .69/.87 Information Sharing

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My friends and I enjoy talking about the styles and fashions we see on shopping trips .76/.72 When my friends give me shopping advice I can use, I usually act on it. .74/.81 When we find quality service in a store, my friends and I let each other know .70/.81 When I help a friend by telling her about my Shopping experiences, I feel good about myself .66/.71 __________________________________________________

Table 3

Coefficient Alpha, Construct Reliability and Variance Extracted Estimates ______________________________________________________________________________ Coefficient Alpha Construct Reliability Variance Extracted ______________________________________________________________________________ Information Sharing .81/.84 .81/.85 .51/.58 Social Confidence .85/.85 .85/.86 .59/.59 Personal Confidence .89/.87 .88/.87 .65/.62 Hedonic Orientation .88/.85 .85/.85 .65/.59 Utilitarian Value .90/.88 .90/.88 .69/.66 ______________________________________________________________________________ Note: Study one values/study two values. The significance levels for the Bartlett tests for the construct validation scale, market mavenism, were less than .01 (both studies). The KMO values were .82 and .85, study one and study two, respectively. Accordingly, an initial convergent validity analysis made use of Pearson product moment correlations between the five constructs of interest and the market maven scale. The resulting pattern of coefficients, summarized in Table 1, suggests an acceptable level of convergent validity. To be more specific, one would expect that market mavens would: share information about their shopping experiences; exhibit social confidence; enjoy shopping; and shop for what they want. The pattern of decreasing correlations suggests also an acceptable level of discriminant validity. The lack of statistical significance between mavenism and personal confidence indicates that mavens are knowledgeable about the market place and their doubts about their own

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purchases are unrelated to their market place expertise. This latter result underscores the conclusion that the scales are measuring similar yet distinct characteristics of shoppers. Each construct’s validity and reliability was assessed using the standardized factor loadings from a LISREL 8 (Joreskog and Sorbom, 2001) structural equation modeling maximum likelihood factor analysis. To be more specific, current practice for ascertaining the validity of a construct, emanating in part from Bollen’s (1989) discussion of the maximum likelihood standardized validity coefficient, involves an analysis of each indicator’s standardized factor loading. Table 2 presents the loadings for each study. All loadings exceed .60, a value commonly accepted as indicating construct validity. An internal consistency estimate in the form of coefficient alpha (Nunnally 1967), construct reliability estimates, and average variance extracted values (Hair et al. 1998) for each construct of interest were calculated from the raw data and the standardized factor loadings, respectively. Internal consistency and construct reliability estimates that exceed .70 are considered acceptable and average variance extracted estimates that exceed .50 are considered acceptable. Table 3 contains the estimates—all values exceed the accepted minimums. For each construct’s set of indicators, a principal components analysis using the widely available SPSS 13.0 routine generated similar loading patterns. Given the acceptable patterns of validity coefficients and reliability estimates, additional insight into the nature of the relationships among the constructs emerged from a structural equation modeling analysis (Bollen, 1989; Hoyle, 1995) of the standardized structural equation regression coefficients. In both studies, information sharing was significantly influenced by social outcomes confidence scores (regression coefficients equal .57 and .77, study one and study two, respectively, p < .05). In study one only, personal outcomes confidence was statistically significant (regression coefficient equals .14, p < .05) in predicting information sharing. While the magnitude of the latter coefficient attained statistical significance, it should not be considered managerially significant. Similarly, in both studies, social outcomes confidence depended upon one’s hedonic orientation (coefficients equal .37 and .36, study one and study two, respectively, p < .05). One’s utilitarian orientation influences personal outcomes confidence only in study two (gamma coefficient equals -.38, p < .05). In both studies, one’s satisfaction with the task related nature of the shopping experience determined one’s personal outcomes confidence (regression coefficients equal -.49 and -.38, study one and study two, respectively, p < .05). The negative sign for the coefficients involving personal outcomes confidence are consistent with the wording of the construct. Multiple regression analyses (Cohen, Cohen, West, & Aiken, 2003) of the factor scores from the principal components analysis generated standardized coefficients whose values were statistically and managerially similar to the structural equation estimates. Discussion The conceptual foundations upon which this research rests, as well as the findings and the brevity of the indicator sets, suggests that one may confidently and conveniently apply the aforementioned methodologies to the study of the relationships among retail merchandising practices, shopper characteristics, and word of mouth communication. For

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example, if a manager is interested in determining the level of satisfaction with the task related dimension of the shopping environment, the utilitarian scale should provide information about such practices. Similarly, the hedonic scale should provide information about the overall level of customer shopping enjoyment. Furthermore, whatever level of task related satisfaction and/or shopping enjoyment is attained, the results suggest these ratings will have a direct effect upon a consumer’s self-confidence. The specific nature of these effects upon self-confidence is both apparent and subtle. To be more specific, enjoyable shopping experiences should bolster one’s social outcomes confidence while satisfaction with the task related nature of shopping should enhance one’s feelings of personal outcomes confidence. In turn, favorable social outcomes confidence should increase the occurrence of information sharing, a form of word of mouth communication. Since the relationship involving personal outcomes confidence and information sharing was not significant, the potential for any task related shopping successes to influence word of mouth communication depends solely upon the one finding (study two) of a significant relationship between utilitarian value and social outcomes confidence. Since the two studies are not in agreement with respect to this task related effect, managers should not rely on utilitarian value as an initiator of word of mouth communication. Shopping enjoyment operating through social outcomes confidence activates word of mouth communication. Success with the task related dimension of shopping activates personal outcomes confidence. Accordingly, when managers and researchers are focused upon obtaining information about the potential for their merchandising practices to activate either word of mouth communication or personal confidence, they should administer one or more of the appropriate scales to their customers. Consider single scale options. If the primary interest involves assessing the pleasure of the shopping experience, the hedonic scale would be the appropriate choice. Favorable ratings on this scale would suggest that the shoppers are also high on social confidence and thus likely to engage in favorable word of mouth communication about the shopping experience. A comparable logic and conclusion applies to managers who are focused upon assessing their shoppers’ social confidence. Similarly, assessments of task related shopping satisfaction might be considered as a surrogate measure for personal outcomes confidence. The opposing conclusion holds also: shoppers who manifest confidence in their purchases should experience a high level of task related shopping satisfaction. Finally, more confidence in evaluating the effects of merchandising practices may be obtained if multiple scales are used. If interest revolves principally around the task of shopping and its effect upon shopper’s confidence, the utilitarian and the personal outcomes confidence scale should be administered. When the objective is to evaluate the potential for activating word of mouth communication, the hedonic value, social outcomes confidence, and information sharing scales should be selected. Of course, if demographic or other market related variables suggest the need for a more thorough evaluation of one’s merchandising practices and their effects, all five scales should be administered. Irrespective of the combination of scales used, if correlation coefficients indicate an acceptable pattern, and if internal consistency estimates attain an acceptable

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level, one may infer the nature of the relationships among merchandising practices, shopper self-confidence, and word of mouth communication. Alternatively, one may perform more rigorous statistical analyses using the aforementioned standard factor analysis routines and regression techniques or structural equation modeling techniques. References Babin, B. J., & Attaway, J. S. (2000). Atmospheric affect as a tool for creating value and gaining share of customer. Journal of Business Research, 49, 91-99. Babin, B. J., & Darden, W. R. (1996). Good and bad shopping vibes: Spending and patronage satisfaction. Journal of Business Research, 35 (3), 201-206. Babin, B. J., Darden, W. R., & Griffin, M. (1994). Work and/or fun: Measuring hedonic and utilitarian shopping value. Journal of Consumer Research, 20 (4), 644-656. Babin, B. J., Griffin, M., & Boles, J. S. (1997). Two ways to keep your customers: An exploratory investigation of patronage loyalty. In W. M. Pride & G. T. M. Hult (Eds.), Enhancing Knowledge Development in Marketing, Vol. 8, (p. 251). Chicago: American Marketing Association. Bearden, W. O., Hardesty, D. M., & Rose, R. L. (2001). Consumer self-confidence: Refinements in conceptualization and measurement. Journal of Consumer Research, 28 (1), 121-134. Best, R. J. (2005). Market based management: Strategies for growing customer value and profitability. 4th ed. Upper Saddle River, NJ: Pearson Prentice Hall. Bollen, K. A. (1989). Structural equations with latent variables. New York: Wiley. Cohen, J., Cohen, P., West, S. G., & Aiken, L. S. (2003). Applied multiple regression/correlation analysis for the behavioral sciences. 3rd ed. Mahwah, NJ: Lawrence Erlbaum Associates. Dabholkar, P. A., Thorpe, D. I., & Rentz, J. O. (1996), “A Measure of Service Quality for Retail Stores: Scale Development and Validation,” Journal of the Academy of Marketing Science, 24 (1), 3-16. Feick, L. F., & Price, L. L. (1987). The market maven: A diffuser of marketplace information. Journal of Marketing, 51 (1), 83-97. Feick, L. F., Price, L. L., & Higie, R. A. (1986). People who use people: The other side of opinion leadership. In R. Lutz (Ed.), Advances in Consumer Research, Vol. 13, (pp. 301-305). Provo, UT: Association for Consumer Research. Folkes, V. S., & Kiesler, T. (1991). Social cognition: Consumers’ inferences about the

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self and others. In T. S. Robertson & H. H, Kassarjian (Eds.), Handbook of consumer behavior, (pp. 281-315). Englewood Cliffs, NJ: Prentice- Hall. Griffin, M., Babin, B. J., & Modianos, D. (2000). Shopping values of Russian consumers: The impact of habituation in a developing economy. Journal of Retailing, 76 (1), 33-52. Hair, J. F. Jr., Anderson, R. E., Tatham, R. L., & Black, W. C. (1998). Multivariate data analysis. Upper Saddle River, NJ: Prentice Hall. Higie, R. A., Feick, L. F., & Price, L. L. (1987). Types and amount of word-of-mouth communications about retailers. Journal of Retailing, 63 (3), 260- 278. Holbrook, M. B., & Hirschman, E. C. (1982). The experiential aspects of consumption: Consumer fantasies, feelings, and fun. Journal of Consumer Research, 9 (2), 132-140. Hoyle, R. H., ed. (1995). Structural equation modeling: Concepts, issues, and applications. Thousand Oaks, CA: SAGE Publications. Joreskog, K., & Sorbom, D. (2001). LISREL 8: User’s reference guide. Lincolnwood, IL: Scientific Software International. Kara, A., Spillan, J. E., & DeShields, O. W. Jr., (2005). The effect of market orientation on business performance: A study of small-sized service retailers using MARKOR scale. Journal of Small Business Management, 43 (2), 105-118. Kim, S., & Byoungho, J. (2001). “An Evaluation of the Retail Service Quality Scale for U. S. and Korean Customers of Discount Stores,” In Advances in Consumer Research, Vol. 28, M. C. Gily and J. Meyers-Levy, eds. Provo, UT: Association for Consumer Research, 169-176. McCann, J. E., Leon-Guerro, A. Y., & Haley, J. D. (2001). Strategic goals and practices of innovative family businesses. Journal of Small Business Management, 39 (1), 50-59. Nunnally, J. C. (1967). Psychometric theory. New York: McGraw-Hill. Paridon, T. J. (2004). Retail opinion sharing: Conceptualization and measurement. Journal of Retailing and Consumer Services, 11 (2), 87-93. Paridon, T. J. (2005a). The effects of personal shopping values in consumer self-confidence and retail information sharing research. Central Business Review, 24 (1-2), 20-25. Paridon, T. J. (2005b). Antecedents in retail information sharing research: The case for personal shopping values and consumer self-confidence. Journal of Applied Management and Entrepreneurship, 10 (4), 18-31.

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Paridon, T. J. (2005c). Extending and clarifying causal relationships in research involving personal shopping value, consumer self-confidence, and word –of-mouth communication. Marketing Management Journal, in press. Pelham, A. M. (2000). Market orientation and other potential influences on performance in small and medium-sized manufacturing firms. Journal of Small Business Management, 38 (1), 48-67. Reynolds, F. D., & Darden, W. R. (1971). Mutually adaptive effects of interpersonal communication. Journal of Marketing Research, 8 (4), 449-454. Shim, S., & Eastlick, M. A. (1998). The hierarchical influence of personal values on mall shopping attitude and behavior. Journal of Retailing, 74 (1), 139-160. Summers, J. O. (1970). The identity of women’s clothing fashion opinion leaders. Journal of Marketing Research, 7 (2), 178-185. Titus, P. A., & Everett, P. B. (1995). The consumer retail search process: A conceptual model and research agenda. Journal of the Academy of Marketing Science, 23 (2), 106-119. Voss, K. E., Spangenberg, E. R., & Grohmann, B. (2003). Measuring the hedonic and utilitarian dimensions of consumer attitude. Journal of Marketing Research, 40 (36), 310-320. Wakefield, K. L., & Baker, J. (1998). Excitement at the mall: Determinants and effects on shopping response. Journal of Retailing, 74 (4), 515-539.

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DETERMINANTS OF THE SINGAPOREANS’ CONSUMER BEHAVIOR PERTAINING TO SHAMPOO BRANDS: AN ASIA PACIFIC MARKETING MANAGEMENT PERSPECTIVE Thomas Tsu Wee Tan, Singapore Management University Zafar U. Ahmed, Texas A&M University – Commerce, Shawn Carraher, Cameron University Lee Shing, Tan Lee Ping Linda, & Verani Nikke, Nanyang Technological University

In the light of the increasingly saturated toiletries market in Singapore, it is crucial for both manufacturers and marketers of these products to keep abreast of competition by being more in tune with the desires of the consumers. This study seeks to aid manufacturers and marketers alike in meeting, and possibly exceeding, the demands that local female consumers may have on shampoo. With a sample of 200 the findings of this research indicate that Procter & Gamble (P&G) has a stronghold in the local shampoo sector and that its product, Pantene Pro-V is the most popular brand of shampoo amongst young Singaporean women today. Meanwhile the most important features that these consumers look for in a shampoo are its moisturizing and strengthening abilities. Our study also shows that the local consumers are generally satisfied with the brands of shampoo they are presently using. However, this does not necessarily translate into repeat purchases since many consumers enjoy experimenting with different brands of shampoo. Therefore, P&G should embark on continuous research and development in this area so as to come up with new and innovative products in order to remain a force to be contended with in the local shampoo sector.

Introduction In recent years, we have witnessed a proliferation of products targeted at women. In particular, the competition in the local toiletries market is especially intense. Manufacturers are continuously introducing and aggressively marketing new products in a bid to have a share of the lucrative market. In order to successfully reach out to the female consumers, it is critical that the manufacturers know and understand what their target customers are looking for in various types of toiletries. Therefore, it is imperative that the purchasing behavior of this increasingly affluent and powerful group of people be examined so as to allow companies to capitalize on this knowledge and thus better meet the demands of these consumers. With this in mind, this project seeks to study the purchasing behavior of Singaporean females between the age of 18 and 30 in respect of their purchase of toiletries. The information gathered will give marketers an insight into these consumers’ motivation for the purchase of their chosen brand. Research Objectives The cosmetics and toiletries industry consists of 10 segments, of which Hair Care, Bath and Shower Products, Oral Hygiene, Sun Care, Baby Care, Men’s Grooming Products,

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and Deodorants will be referred to as “toiletries” throughout this paper. “Cosmetics” on the other hand will refer to color cosmetics, fragrances and skin care. Using this representation, the toiletries market in Singapore was valued at S$230.8m in 2000, of which $201.6m (87.3%) was attributed to Hair Care, Bath and Shower Products and Oral Hygiene. This study will focus on the dominant product of hair care in particular shampoo. Shampoo products are considered basic necessities and they are used daily in a woman’s personal care and grooming routine.

In this project, the manufacturer in focus is P&G, a well-established company in the toiletries market. P&G’s brand image among the respondents will be evaluated and to take it a step further, its influence on the consumers’ purchasing decision will also be examined. Specifically, the research will:

• Find out the brands of shampoo that the respondents are currently using. • Determine if the respondents intend to switch brands in their next purchase and the reasons behind this intention. • Find out the key attributes of shampoo that the respondents are concerned with when they are making a purchase decision. • Evaluate the respondents’ satisfaction with the above-mentioned key attributes of the current brands of shampoo used.

Established in 1837 by James Procter and William Gamble, P&G is a multi-million dollar corporation founded and based in the United States. (http://www.pg.com) It started out as a soap and candle manufacturer in Cincinnati, Ohio, but turned its attention to the production of soaps as candles declined in popularity with the invention of the electric light bulb. In 1879, the Ivory soap, arguably P&G’s most famous product, was developed and by 1890, P&G was selling more than 30 different types of soap. (http://www.pg.com) To meet the increasing consumer demand for P&G soaps, the Company began expanding its operations outside Cincinnati and then outside the United States. Convinced that its success in new geographic markets required on-the-ground operations in these countries, P&G began building start-up businesses, first in Mexico in 1948, then in Europe in 1954 and Japan in 1973. (http://www.pg.com) That said, by 1997, P&G markets approximately 250 brands to nearly five billion consumers in over 130 countries. (http://www.pg.com) These brands include Pampers, Tide, Whisper and Pantene. In particular, P&G entered the Singapore market in 1986. (http://www.pg.com) With staff strength of under a hundred, the P&G establishment here serves as the headquarters for its Asia-Pacific operations. Based at Novena Square, P&G Singapore competes in the following sectors of the local market: shampoo (eg. Pantene); body wash (eg. Camay); toothpaste (Crest); skin care (eg. Oil of Olay); cough/cold (eg. Vicks Throat Drops); diapers (Pampers); feminine care (eg. Whisper). On a strategic front, P&G's global growth goals include: doubling unit volume in ten years, achieving share growth in the majority of its categories and delivering total shareholder return that ranks P&G over time among the top third of its peer group. Most

http://www.pg.com/

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importantly, P&G's goal is to continue to provide products of superior quality and value to the world’s consumers. (http://www.pg.com) Research Methodology Women between the age of 18 and 30 were targeted for this study. This group of young Singaporean adults has a well-developed sense of fashion, and coupled with a high literacy rate, they are more in tune with fads and new product launches. Most importantly, with higher expectation of lifestyles, they are willing to expend cash to satisfy their increasingly sophisticated needs. (Euromonitor, Consumer Lifestyles in Singapore, April 2000). All these factors make this segment very attractive to marketers as they can effectively target this group using demographic-psychographic segmentation.

The sample size for the primary research was set at 200 and the composition of the survey’s respondents was intended to reflect the racial breakdown of Singapore’s female population with 77.1 percent Chinese, 13.8 percent Malay, 7.5 Indian and 1.5 percent of other race. (Singapore Population 2000) Before the fieldwork, a pre-test was performed to further refine the questionnaire. The survey was administered using the street intercept method where respondents were required to fill up the questionnaire. Convenience sampling was used throughout the data collection. Respondents were also given a pen at the end of the survey as a token of appreciation.

RESULTS

Table 1 illustrates the respondents’ selection of shampoos in terms of the brands previously purchased, currently used and that likely to be selected in their next purchase. It can be seen from Table 1 that the shampoo sector in Singapore is clearly dominated by P&G, which currently occupies 47.0 percent of the sector. P&G’s leadership is a result of its strong portfolio of competing brands, which are targeted at different consumer segments, in the sector. Unilever, manufacturer of Dove and Organics, ranks second with a 25.0 percent share of the market. Previously, Dove and Organics together accounted for 19.0 percent of the shampoo sector. However, based on our findings, their share of the sector is likely to increase by 11.0 percent to 30.0 percent. This improvement can be attributed to the phenomenal increase in the popularity of Dove, which on its own is expected to grow by 92.3 percent, as well as the dynamic growth of 40.0 percent in its best-selling brand, Organics. Dove shampoo effectively latched on to its well-received body wash, which is already a household name in the body wash sector, through the employment of a brand extension strategy. In addition, Unilever re-launched and repackaged Organics as Organics Bio-Nutrients in February 2000 to cater to the increasingly sophisticated consumer base. It embarked on a product innovation process with the reengineering of Organics, incorporating aromatherapy and essential oils in its shampoos to appeal to consumers who desire relaxation as a balance to their frenzied lifestyles.

http://www.pg.com/

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Table 1: Brands of Shampoos Purchased

Shampoo Brands

Brand purchased prior to the current one

(n=200) Brand currently using

(n=200)

Brand likely to be selected in the next

purchase (n=200)

No. % No. % No. % P&G Pantene Pro-V 53 26.5 40 20.0 36 18.0 Vidal Sassoon 22 11.0 22 11.0 23 11.5 Clairol Herbal Essence 19 9.5 14 7.0 15 7.5 Head & Shoulders 13 6.5 12 6.0 12 6.0 Rejoice 7 3.5 5 2.5 5 2.5 Ascend 1 0.5 1 0.5 - - Sub-total 115 57.5 94 47.0 91 45.5 Unilever Organics 25 12.5 27 13.5 35 17.5 Dove 13 6.5 23 11.5 25 12.5 Sub-total 38 19 50 25.0 60 30.0 L’Oreal L’Oreal Elseve 18 9.0 16 8.0 18 9.0 Kao Lavenus 3 1.5 7 3.5 - - Sifone 8 4.0 5 2.5 4 2.0 Sub-total 11 5.5 12 6 4 2.0 Neutrogena Neutrogena 2 1.0 1 0.5 2 1.0 Others* 16 8 27 13.5 25 12.5 Total 200 100.0 200 100.0 200 100.0

* ‘Others’ include brands like Paul Mitchell, Body Shop, and TIGI.

Unilever’s exceptional performance is in stark contrast to P&G’s, which is likely to lose ground with a 12.0 percent dive in the shampoo market (57.5% to 45.5%). This may be explained by the volatile nature of shampoo sector whereby sales are highly influenced by, among other things, the amount of advertising and promotional activities for particular brands. P&G’s initial aggressive marketing of Pantene and Vidal Sassoon had seen the two brands flourish in the shampoo market. Vidal Sassoon had enjoyed tremendous market support, with a stable sector share of 22.0 percent. However, Pantene, P&G’s top-performing and sector leading brand, is possibly falling out of favor with consumers as evident in an 8.5 percent slide (26.5% to 18.0%) in usage, thus contributing to P&G’s fall in popularity. In response to Unilever’s back-to-back Dove/Organics aggressions, P&G attempted to match competition by repackaging the Pantene and Vidal Sassoon range of products. On top of these, P&G also introduced Pantene Pro-V Color Care, a series of products for colored hair, in 2000 to accede to the current trend for colored hair in Singapore. However, these efforts did not do much to boost Pantene’s flagging popularity. In order to sustain its sector share, P&G introduced Ascend, a

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shampoo to appeal Asian women’s desire for black hair, in 2001. It also acquired Clairol Herbal Essences to meet the needs of consumers with inclinations towards nature-based products. The shampoo sector in Singapore is highly competitive and it appears that both P&G’s Pantene and Unilever’s Organics will remain strong contenders with approximately 18.0 percent of the market each. Other companies that followed closely behind include Kao (6.0%) and L’Oreal (8.0%). Importance of Product Attributes Having assessed the purchasing trends of shampoo in Singapore, we seek to identify the product attributes that consumers deem important in a shampoo. Table 2 reflects a range of shampoo attributes in order of importance to consumers. The lower the mean, the more important the attributes are to the consumers.

Table 2: Attributes of Shampoos in Order of Importance to Consumers Shampoo Attributes Mean Standard Deviation Moisturizing ability 1.65 0.99 Strengthening ability 1.74 1.08 Pleasant smelling 2.16 1.19 Lathering ability 2.21 1.36 Rinses off easily 2.74 1.55 Price 2.83 1.48 Dandruff control ability 2.94 1.81 User-friendly packaging 3.27 1.42 Attractive packaging 3.57 1.55 Nice color 4.15 1.67

1-very important 7-not important at all The results reveal that many product attributes are being considered by consumers in their choice of shampoos as almost all of the listed attributes have a mean smaller than 4. In choosing their shampoo, consumers’ top concerns are the shampoo’s moisturizing (mean of 1.65) and strengthening (1.74) abilities. These attributes are important in our society where consumers are becoming increasingly particular about their physical appearance. On a similar note, the smell of a shampoo is also a critical attribute (mean of 2.16) since the use of a nice-smelling shampoo will leave the consumer smelling pleasant. This in turn has a ‘feel-good’ or psychological effect on the consumer. In addition, the abilities of a shampoo to lather well and rinse off easily are reasonably important (ranked 4th and 5th respectively) to consumers here. This is so possibly because consumers tend to associate a proper cleansing routine with a full lather that leaves a residue-free feeling after rinsing. On the other hand, price is less of a concern to the average Singaporean who is relatively affluent. Hence, they are willing to pay a higher price for a better quality or more suitable product, which produces the desired results. Also, superficial factors like the packaging of the shampoo and its color are relatively unimportant. These attributes may be perceived as having little value adding capability.

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Consumers’ Satisfaction with Attributes of Current Shampoo Table 3 presents the ranking of consumers’ satisfaction with the various shampoo attributes. Lower means indicate higher satisfaction levels. Next, Table 4 evaluates consumer brand-switching behavior with regards to their choice of shampoos. Table 5 then summarizes the respondents’ reasons for changing brands of shampoo. Table 3: Consumers’ Satisfaction with Attributes of Shampoo Used

Shampoo Attributes Mean Standard Deviation Pleasant smell 2.21 1.08 Moisturizing ability 2.26 1.24 Lathering ability 2.30 1.21 Rinses off easily 2.31 1.10 Strengthening ability 2.34 1.20 Price 2.63 1.18 Nice color 2.89 1.15 Dandruff control ability 2.93 1.51 User-friendly packaging 3.00 1.24 Attractive packaging 3.02 1.28

1-very satisfied 7-very dissatisfied Table 4: Changes in Brands of Shampoo Chosen

Changes in Brands No. % Change brands 88 44.0 No change 112 56.0 Total 200 100.0

Table 5: Reasons for Changing Brands of Shampoo

Reasons for Changing Brands No. % New brand is cheaper 6 6.8 New brand smells better 6 6.8 New brand has more user-friendly packaging 1 1.1 New brand has better dandruff control ability 2 2.3 New brand has better moisturizing ability 4 4.5 New brand has better strengthening ability 3 3.4 New brand is recommended by friends 13 14.8 Advertising, promotions and other sources of information * 11 12.5 Like to change/try new brands 20 22.7 New brand more suitable for chemically treated hair 1 1.1 Current brand not suitable 15 17.0 Others ** 6 6.8 Total 88 100.0

* Advertising, promotions and other sources of information include friend’s recommendation, free samples, discount coupons, magazine reviews, advertisements and expert opinions. ** Some of the reasons cited include ‘new brand of shampoo adds more volume to hair’ and ‘new brand of shampoo makes hair softer/ smoother’.

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From Table 3, it is evident that most of the respondents are generally pleased with the shampoo they are presently using, as all the attributes have means less than 4. In particular, they are most satisfied with the smell (mean of 2.21) and moisturizing ability (2.26) of the shampoo, which they felt are very important features of the product. However, Table 4 shows that 44.0 percent of those polled indicated that they would choose a different brand of shampoo in their next purchase. We can thus infer that consumers are generally not brand loyal and have an inclination towards switching brands. As indicated in Table 5, the most prevalent reason cited for brand switching is the desire to experiment with new brands (22.7%). This is especially true of the younger, and presumably more adventurous, consumers and may explain the numerous product launches despite the maturity of the shampoo market. Another popular reason for switching brands is upon friends’ or family’s recommendation of a product (14.8%). This again highlights the effectiveness of the influence of friends and family in consumer purchasing behavior. The third most prevalent reason for a change is dissatisfaction with their current shampoo (17.0%) and this is perfectly understandable. Some respondents are also successfully persuaded by product advertisements, promotions and other sources of information to select a different brand of shampoo in their next purchase (12.5%) and this is reflective of the power of marketing campaigns and sources of information in influencing consumers’ purchasing behavior.

Consumers’ Perception of Shampoo Brands Manufactured by P&G The results of our study reveals that an average of only 23.5 percent of consumers polled knew that particular brands of shampoo were manufactured by P&G, while the majority of the respondents (52.5%) were under the impression that P&G shampoos are produced by other manufacturers. On the other hand, Sifone, by Kao, is largely misconceived as being a product of P&G (25.5%). 12.5 percent of the respondents also mistook Dove for a product of P&G. Among the 6 brands of shampoo produced by P&G, Pantene has the highest level of consumer awareness with regard to its manufacturer (48.5%) and it is followed closely by Head & Shoulders’ 41.0 percent. This may be due to the occasional flashing of the P&G slogan at the end of advertising for these brands. Brands like Ascend and Clairol are highly misconceived with 73.5 percent and 69.5 percent of the respondents, respectively, under the impression that they are non-P&G products. Such situations could the result of P&G’s employment of product branding strategies in the promotion of its products, as opposed to corporate branding strategies in which the company’s name is publicized. The use of product branding strategies allows each brand, with its own distinctive characteristics, to appeal to different segments of the market.

Conclusions and Marketing Implications Information gathered from the secondary research and observations from the primary research have strong implications for P&G. P&G has a commanding presence in the

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shampoo market, with 6 brands under its wing where Pantene is their star performer. Unilever is a strong contender with Organics and Dove Cream Shampoo, the latter showing a remarkable performance. P&G has to be quick to introduce new and interesting products to arouse consumer’s attention and obtain first-mover advantage. Technology developments have made it possible to create products that offer a multitude of advantages. A lot of what drives the hair care category is defining the customers' wants, needs and desires before they even realize that it is a want, need or desire. As Rick Hynes, Vice-President of Alberto-Culver Company, aptly puts, “Beyond the obvious, hair care is driven by news, and if retailers and suppliers can effectively communicate that to consumers, it will remain a stronghold in mass and drug. So there's this eternal search for the perfect product that's appropriate [for that consumer's] hair condition." (Anonymous, 2001) That said, people would always be conscious of their looks and personal care, despite the economy. Hair care will persevere in the leading mass channels even in a soft economy because "for $5 or less, hair care is still a luxurious escape," said Jeremy Cage, hair care marketing manager from P&G, with reference to the price of a typical shampoo or conditioner. "I would say in times of economic hardship, hair care is something consumers can hold on to as their treat." (Anonymous, 2001)

As mentioned previously, P&G needs to constantly think up new ideas to add value to their products portfolio in each segment. This in turn places greater emphasis on research and development to formulate new products, as well as to improve and repackage their existing products in a bid to keep up with the stiff competition. Research and development is crucial as it can allow rapid counter actions in response to competition. It also enables manufacturers to make timely responses to the requirements of this volatile market. Through research, “breakthrough efficiencies”, which allows cost savings by simplifying product ranges and standardizing processes globally, can be found. (Mitchell, 1998). Maintaining a constant stream of innovative products is thus a crucial factor (Chevron, 1998; Davis, 2002). If done correctly, P&G can be largely assured that their presence in the hair care sector will continue to flourish. At the same time, they may see a vast improvement in their performance in both the body wash and toothpaste sectors, which they appeared to be particularly weak in especially in the oral hygiene market. However, if they are beaten at this game, even the smallest niche player can threaten to wrench their share of this lucrative industry from right under their nose. (Neff, 1999: 23) The volatility of the shampoo and body wash markets is clearly seen in the respondents’ tendency to switch brands. The most common reason cited is the desire to experiment and try new brands, a clear indication of their affinity with novel products. It is normally assumed that satisfaction with products will lead to brand loyalty. However, this trend is not observed here. As a result, it gets increasingly difficult to establish brand loyalty, thus, reinforcing the need to constantly innovate. Although establishing brand loyalty is difficult, it is still essential practice, as loyal customers constitute a stable consumer base for P&G. Therefore, P&G must look beyond

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product satisfaction and look into building strong relationships with buyers. One effective way to build relations is through the Internet. This method is already in use in America, where P&G has designed comprehensive websites in relation to their products. P&G launched BeingGirl.com in July 2000, a website offering information on puberty that is targeted at teenage girls. This launch is in direct relation to its feminine care products, Always and Tampax. Forums are set up to allow users to speak their mind about which kinds of products they would like to see, or how improvements can be made to existing products. A comprehensive website with structured forums and discussion rooms is a form of high involvement media, as it allows people of the same reference group to discuss and share experiences (Anonymous, 2001). Such sites should be launched for the Asian market, as it serves as an efficient and valuable information source for both P&G and consumers alike. It is also an avenue for products users to communicate with P&G, making them feel that P&G does value their opinions and this makes them feel important. In contrast, low involvement media vehicles like television and radio do not facilitate this 2-way transfer of information. As such, there is immense potential for such a venture as Internet usage is increasing in this region, setting the stage for the new era of e-commerce. Brand management is also an important aspect. With rapid product development, the performance of existing brands must constantly be evaluated. Weaker brands with little potential to grow and improve should be phased out so as to free up resources for the stronger, more profitable brands. Keeping a streamlined brand portfolio is likely to produce optimal results for the buzzword now is quality and not quantity. Manufacturers should also look at focusing their business in sectors where they already have a favorable position, rather than to cover all sectors, spreading themselves too thin in the process. They must optimize their resources in this increasingly fragmented and competitive industry. There are several guidelines for brand evaluation according to Alex Batchelor, Interbrand Newell and Sorrell's brand valuation director and ex-Unilever marketer: Firstly, P&G must consider how big the brand is. This is measured by sales volume and the value these sales generate. Another indication is the number of users of this particular brand. Once brands get to a certain size, their resilience is proven when they become self-sustaining. They might also be used for spin-offs like in the case of Dove Shampoo, which is now huge after latching onto the success of Dove Shower Cream. Secondly, P&G should look at the extent of the brand's following and the size of the demand, even if it was not supported by extensive advertising. As a global player, P&G also has to note the popularity of the brand in the various markets. Next, P&G should evaluate the brand’s potential with regard to growth outside its core audience. The growth potential for brand extensions should also be considered. If the brand has little to offer in these aspects, it will be increasingly difficult to sustain this brand in the near future. In addition, the current trend facing the brand is also an important aspect. For brands that are losing ground, P&G must decide whether to `go with the flow' or spend time, money and effort to turn them around. If P&G already has enough strong products in its portfolio, it may be unnecessary to try to push water uphill. (Campbell, 1999)

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P&G's personal care marketing director, Nick Hotham, adds that P&G's category management program now helps the company focus on core competencies by feeding the strong and starving the weak. Streamlining the portfolio should speed up the traditionally slow-moving bureaucracy, making P&G a leaner and meaner fighting machine. (Campbell, 1999) In the past few years, P&G rationalized and ridded itself of brands such as Insignia and Blue Stratos, to leave a portfolio of around 300 brands, which it supports heavily. In Singapore, Cover Girl cosmetics are phased out to facilitate the streamlining of P&G’s product portfolio.

In recent times, P&G has downplayed its corporate brand image in its advertising and promotions. This point is clearly exemplified in the misconceptions about toiletries products and their respective manufacturers. An overload of products and brands create much confusion and most people cannot keep track of the manufacturers and their related brands. Secondly, consumers do not place value on this information in the purchasing process. By marketing each brand on its own, P&G can better position its brands to cater to their target segments. As a result, each branding strategy can be customized to obtain optimal results. Nonetheless, respondents have a positive perception of P&G, where they feel that P&G is a reliable and trustworthy company. They also feel that P&G appeals as a family brand that produces quality products. P&G is also perceived to be a market leader in the toiletries market. However, relying solely on these factors will not make consumers buy P&G products. The respondents have expressed that they are not likely to purchase a merchandise simply because it is manufactured by P&G. Hence, a quality product must have direction, an aim to satisfy a need that the customer has. P&G’s corporate image can only assume a supporting role to reduce cognitive dissonance, serving as some form of assurance that P&G will deliver the promises that is stated on the product and its advertisements. P&G’s products do not come across as being products superior to other supermarket brands. This is a consequence of the intense rivalry present in the toiletries market, where technological advancements have allowed for product improvements and innovations. Hence, on its own, the effects of a strong corporate image are not far reaching. In spite of this, P&G should not neglect its corporate image. Corporate branding also plays a role in influencing the extent of distribution its products enjoy. A retailer is more likely to stock a new product brand manufactured by a well-established corporation than a less known one. The dynamics between the product brand and corporate brand can bring about synergies that can add significant shareholder value. Further more, a strong corporate image draws talented people to the company and high quality human resource is the catalyst for the radical transformation and improvements that propels P&G and its products to improve and advance.

Limitations of Our Study

Convenience sampling was applied during data collection so that the fieldwork could be completed within the stipulated time. The population may have been more accurately

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represented if random sampling was adopted. Although the sample size of 200 is reflective of the target population, a larger sample size could have provided greater reliability. This paper focused only on the main product of the dominant sectors in the toiletries market, namely, shampoo in the hair care sector. For more robust results, future researchers could encompass the whole range of products in each sector especially body wash in the bath and shower products sector and toothpaste in the oral hygiene sector hence providing a more precise representation.

References

Aaker, D., 1996. “Building Strong Brands”, New York: The Free Press, http://www.businessweek.com/magazine/content/01_32/b3744013.htm. Anonymous, 2001. “ACNielsen Study Finds 43 Brands Have Billion Dollar Global Presence”,

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Anonymous, 1999 “Bath Boom Rah!”, Discount Merchandiser, Bristol, 39 (6), 52. Anonymous, 2001. “Girl, Interpreted”, Fast Company Magazine, Boston, (August). Anonymous, 2001. “Reinvented Classics Revive Listless Hair Care Category” DSN Retailing Today, New York, 40 (19), pp. 20. Barwise P. and T. Robertson, 1992 "Brand Portfolios", European Management Journal, (10 September), 277-85. Bittar, C., 2001. “ P&G eyes sales force revamp amid slump”, Brandweek, New York, 42 (36), 32. Campbell, L., 1999 “Why Unilever B-brands must to cast aside”, Marketing, London, 13. Caller, L., 1996. “Researching Brands”, Amsterdam: ESO—MAR. Chevron, J. 1998. “The Delphi process: A strategic branding methodology.” Journal of Consumer Marketing, 15 (3), 254-264. Davis, S. 2002. “brand asset management: How business can profit from the power of brand. Journal of Consumer Marketing, 19 (4/5) 351-358. Deighton J., C.M. Henderson, and S.A. Neslin, 1994 “The Effects of Advertising on Brand Switching and Repeat Purchasing”, Journal of Marketing Research, 31, 28-43. Euromonitor, 2000. “ Asia-Pacific Income and Earnings Figures 1999-2000”

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Euromonitor, 2000. “ Consumer Lifestyles in Singapore”, Integrated Market Information System, 8. Euromonitor, 2000 “ Cosmetics and Toiletries in Asia-Pacific”, (May). Euromonitor, 2001. “ Cosmetics and Toiletries in Singapore”, (May). Euromonitor, 2001. “ World Cosmetics and Toiletries Marketing Directory 2000/2001” Horler, A., 2002. “Going Global in the Asia-Pacific Region - Is Asia an exception to the rule?”, 1997-2001 http://www.kamcity.com/library/articles/asia.htm. Kapferer, J.N., 1997. “Strategic Brand Management”, 2nd edition, London: Kogan Page.

Keller, K. and E. Cliffs, 1998 “Strategic Brand Management”, NJ: Prentice Hall.

Kruger, R.M., 1999. “With mouths wide open”, Discount Merchandiser, Bristol, 39 (7) (Jul), 101-105. Neff, J., 1999. “P&G and Unilever’s Giant Headaches”, Advertising Age, Crain Communications Inc., 23. Neff, J., 1999. “The New Brand Management: Inventor of brand system, P&G takes step toward the next generation”, Advertising Age, Crain Communications Inc., S2. Neff, J., 1999. “Marketers of the century: Procter & Gamble”, Advertising Age, Chicago, 70 (51); 24-25.

Nijssen E.J., S.P. Douglas and C.S. Craig, 2001. “Executive Insights: Integrating Branding

Strategy Across Markets: Building International Brand Architecture”, Journal of International

Marketing, Chicago.

Popovich, B., 1999. “Oral hygiene builds on diversity”, Chemical Market Reporter, New York, 255 (14), FR10-FR12. Rogers, D., 1997. “The Faces Behind the Brand Names”, Haymarket Publishing Services Ltd. Sauer, P., 2001. “Product Innovations and Trends”, Chemical Market Reporter; New York, 259 (20), pp. FR6.

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Sauer, P., 2000. “Varying shades of profitability uncovered in cosmetics and personal care”, Chemical Market Reporter, New York, 257 (19), pp. FR3-FR8. Schiffman L.G. and L.L. Kanuk, 2000. “Consumer Behavior”, 7th edition, Prentice Hall International, Inc,.

Singapore Department of Statistics, 2001. “Singapore Population”, Census of Population 2000.

Speak, K., 2001. "Brands aren't just names on packages!" An interview with Charles Berger” Design Management Journal, Boston, 12 (1), 19. Zack, I., 2001. “Out of the Tube”, Forbes, New York, 168 (13) (Nov 26), 200.

http://www.loreal.com

http://www.pg.com

http://www.pg.com/

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WORLD WIDE WEB PRESENCE AS A STRATEGIC TOOL FOR SMALL BUSINESS: AN EXPLORATORY LOOK AT CURRENT

PRACTICES & CHARACTERISTICS

Raj Selladurai, Indiana University Northwest Cuthbert L. Scott III, Indiana University Northwest

Today, the Internet is maturing as a marketing/communication tool. As it matures increasing numbers of consumers are migrating from more traditional media to online media to gain product information. The Internet is now the preferred information source for 64% of consumers. Most large, brick and mortar organizations use the Internet as an integral part of their marketing and customer relationship management strategies. This trend is becoming problematic for small and family-owned businesses that wish to compete, many of which wish to target narrow market segments. This paper explores the use of website as a part of the strategy for 100 small and family-owned businesses, how they are approaching such use, characteristics practices associated with these sites, and implications for small and family-owned businesses.

INTRODUCTION

The Internet has for some time been the fundamental medium for transferring information, and has been growing at astounding rates for the last decade. According to a recent study by Nielson/NetRatings (Fan, 2005) the online marketing environment is reaching a mature state, as evidenced by February 2005 data indicating that Year-over-Year Growth in Time Spent Online at home declined 2% in the United States, and there was 0% Sessions Growth. These data are early indicators that growth in time spent on the Internet and number of sessions is stabilizing in the United States market, the largest B2C market in the world. Nielson also concludes that as online marketing becomes mainstream, more and more people are switching from traditional media to online media as their preferred method of consumer information (Buchwalter, 2005). Where small and family businesses were once limited to storefronts and local advertising, the Internet has opened a communication medium to them to establish relationships between buyers and sellers who were otherwise unreachable. A well-designed website by a small or family business can be just as effective as one operated by large-scale corporations. A small or family business that ignores this medium will be at a distinct competitive disadvantage. As the medium matures, content is becoming more important than mere presence. Also, businesses are frequently using the website as a competitive strategy. Corporate websites have become more sophisticated and multifunctional over the years (Campbell & Beck, 2003). They have gone beyond merely offering electronic versions of reports and publications such as accounting reports to presenting a more interactive environment where broad, comprehensive types of information may be transferred to a wide range of stakeholders. Websites have been used for different reasons such as marketing and

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selling (Lymer, 1999), reporting of information (Marston, 2003), for reputation management, and testing of website responses to specific public issues (Campbell & Beck, 2003). Further, organizations often set up websites in response to competitive pressures of other companies’ presence on the web. They would like to benefit from the perceived advantages of a market presence on the web, and want to avoid the risk of being left out and lose some potential advantages or competitive edge in the “marketspace.”

Although organizations seem to be using websites more frequently, the effectiveness of such a strategy for small and family-owned businesses is not very clear. This paper attempts to explore the implications of using the web as a strategy by analyzing some factors such as the attributes of businesses and determining the reasons for using the website as a strategy. It discusses the findings of a survey of website characteristics and practices of 100 small and family-owned businesses that use websites as a strategy. Also, it focuses on evaluating the effectiveness of using the website as a competitive strategy for small and family businesses.

REVIEW OF LITERATURE

All types of organizations are using the Internet and the website strategy to compete effectively in the marketplace. However, small and family businesses especially should find the use of the Internet and the website strategy more beneficial and effective to use. The website strategy provides small and family businesses a special tool or niche that they may use to better compete with even the larger organizations in a global market. By using such a strategy, these smaller organizations can improve their activities and expand operations in a highly competitive global environment (Stuart & Jones, 2004). Although companies that need a personal client servicing may not find the Internet as useful (Rasian, 2001), yet many customer-oriented service companies including business giants, such as Wal-Mart, Sears, J.C. Penney, McDonalds, Coca Cola, Kodak, Ford Motor Company, and others all maintain creative and attractive websites to interact with their customers and consumers. Also, Zineldin (2000) contended that many companies that do not use the Internet technology are facing tremendous competitive pressures from those that adapted by adopting the Internet and website technology. So, many companies are developing websites increasingly to merely keep up with their competition.

Often, many companies seem to overlook the value of strong branding perceptions when trying to compete by switching from the marketplace to the “marketspace.” Stuart & Jones (2004) found that such a transition demands complex planning and managing of the brand strategy, and in some cases a separate corporate brand or an extension may be the best alternative for the company. Hence, a different corporate strategy customized for the Internet may be necessary when a company wants to compete in the currently expanding “marketspace.” As Dell Computers has dramatically shown from its unprecedented success over the last few years, using a mass customization strategy to compete over the Internet is perhaps the best way to do business worldwide (Selladurai & Scott, 2004). Also, the web may be used to build stronger relationships with the customers. One study found that the stronger the relational bonds between the organization and its customers,

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the higher the customers’ trust and commitment toward the organization; and the use of the corporate website enhanced this relationship between relational bonds and customer relational performance (Lin, Weng, & Hsieh, 2003). Further, the use of a website also seems to enhance export marketing. Export companies are realizing the benefits of using online marketing for their business either to expand existing export activities or to find new and more customers. For example, EBusiness Co., a small Chinese garlic exporting company, has experienced tremendous sales revenue and growth through using its website that it now has translated its website content into nine different languages to meet the needs of various international customers (Dou, et. al., 2002). Exporters may use the website as a gateway to the global market for companies interested in exporting (Hamill, 1997), especially those businesses in the small and medium markets and global niche markets. Also, Yeoh (2000) stated that for small businesses that lack financial and human resources to do effective marketing research, the Internet offers opportunities to support marketing intelligence for exporting strategies. These smaller companies may use the website and Internet for global communications and online marketing and export activities at relatively lower costs. For example, many small export companies in the Ohio area use the internet for researching competition, buying activities, and reaching newer customers and markets (Dandridge & Levenburg, 2000). Further, the Internet may be used as a business strategy specifically focused on market penetration and market development. Companies may use the website to market their existing products and services to reach potentially a wider range of stakeholders in a global market. They could also use the Internet as a new, additional channel of distribution and market their existing and new products to new customers in the worldwide markets. For small and family businesses especially, the economies of scale usually associated with larger companies are now tipping in their favor allowing them to compete more effectively in the global “marketspace.” Therefore, the use of the website as a marketing strategy for today’s small and family businesses seems to be necessary and valid, and perhaps the most effective method to compete in a global environment.

METHODOLOGY, RESULTS, AND DISCUSSION

This exploratory study focused on a sample of 100 small businesses including some family-owned businesses in the U.S that used a website as a part of their marketing strategy. The organizations were randomly selected by the companies’ URL addresses on the web using 3 popular search engines. These companies’ websites were reviewed thoroughly to elicit some general information about the companies. Of these 100 companies, 50 were then randomly selected and surveyed by telephone to obtain more specific information about their use of the website. Descriptive data from the study are presented in the following tables of this section. Table 1 provides a breakdown of the companies according to their industry or nature of business activity. As Table 1 indicates, 20 different professions/industries are represented and each category consisted of five (5) businesses or five (5) percent of the total number

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of businesses. Industries were selected that are dominated by small and family businesses, including antique dealers, business consultants, business services, restaurants, travel agencies, and others. Table 2 shows the number of companies that presented some general company information about themselves on their websites.

Table 1 Type of Business/Activity

Type of Organization Type of Organization Type of Organization Antique dealer Business Consultants Business Services

Caterers Child Care Computer Mainten. Certified Public Acct Financial Services Florists

Hair/Beauty Salon Health Fitness Clubs Heating/AC Home Construction Home Repair Contractors Landscape/Lawn Serv

Legal Services Medical Transcription Radiation Services Restaurants Travel Agency

Table 2 Number of companies showing general company information on website Company Information Number/%

Yes 100 No 0

Total 100 Table 2 shows that all the companies, or 100 percent of them, presented some form of general company information about themselves on their websites. Obviously, all the companies thought it important to present general company information such as hours of operation, travel directions/map, picture of location, pictures of employees, site map, etc. Table 3 presents companies that displayed their business philosophy on the website. Table 3 Number of companies showing business philosophy on website

Business Philosophy Number/% Yes 22 No 78

Total 100 Table 3 shows that 22 percent of the companies displayed their business philosophy statements on their website whereas 78 percent of them did not show any such statement. It appears that a majority of the companies did not believe it was important to display their business philosophy statements on the website. Table 4 presents the number of companies that included moving graphics, video clips, and slide shows on their websites.

Table 4 Use of graphics, video, and slide shows Graphics, video clips, slide shows Number/% Yes 35 No 65 Total 100

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As Table 4 shows, at least 35 of the companies had some form of graphics on their websites. However, a majority (65%) of the small and family businesses appeared to be less technologically current and did not seem to be using the latest web technology available to enhance their websites. Table 5 displays the use and offering of a catalog on the company website. Table 5 Use and offering of a catalog

Offering of catalog Number/% Yes 11 No 89

Total 100 As Table 5 shows, a majority of the business websites do not offer a catalog; only 11 (11%) of them do offer a catalog for their target audience. Perhaps, this reflects the current trends in marketing where the use of a catalog and print/publications is diminishing, and the use of more electronic sources, storage, and displays of information via websites seems to be increasing. Table 6 presents the product related information on the company websites; it includes product or service descriptions, product pictures, and pricing information.

Table 6 Use of product related information

Product information Number/% Product or service

description 41

Product pictures 21 Product pricing 27

One or more of the above 11 Total 100

Table 6 shows that all the company websites had some form of product information including descriptions, pictures, and prices. This would indicate that most businesses seem to believe that the major purpose of their website was to provide product related information to their users, customers, and consumers. Table 7 shows the email link to company representative offered on the website.

Table 7 Email link to company representative Email link to company representative Number/%

Yes 86 No 24

Total 100 As Table 7 displays, a majority of the companies offered an email link to the company representative. This indicates that the companies believed in the need for communication to be established between the company and the website users. It could also indicate that the companies were trying to possibly build a database of the users of the website through this communication channel for potential customer-oriented relationship and targeted

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marketing purposes. Table 8 indicates the reasons for starting a website as reported by the companies.

Table 8 Reasons for hosting a website

Reasons for website Number Percent Advertising/sales tool 15 30

Communication/information 19 38 Keep up with competition 11 22

Other 5 10 Total 50 100

As seen in Table 8, the use of the website as an information/communication tool (38%) and an advertising/sales tool (30%) seem to be the major purposes behind this strategy. Also, 22% indicated that they used the website to keep up with the competition. Table 9 displays the website’s positive effect on sales as reported by the companies.

Table 9 Website’s positive effect on sales

Increased sales Number Percent Yes 28 56 No 22 44

Total 50 100 As shown by Table 9, a majority (56%) of the companies indicated that the website increased the sales for them. The remaining 44% did not report any effect on sales. Table 10 shows the percentage increase in sales for the companies using the website.

Table 10 Percentage increase in sales

Percentage increase Number Percent 1 – 5 5 18 6 -10 10 36

11 – 20 6 21 >20 2 7

Non-response 5 18 Total 28 100

As seen in Table 10, of the 28 companies that indicated an increase in sales (Table 9), the majority (36%) of them indicated about 6 to 10 percent increase in sales; eighteen (18) percent of them reported one (1) to five (5) percent increase in sales; and 21% of the businesses reported 11 to 20 percent increase in sales. Table 11 shows the biggest perceived benefits/advantages of using and maintaining a website as reported by the businesses.

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Table 11 Perceived benefits of using a website Benefits Number Percent

Increase sales/advertising, marketing tool

18 30

Create awareness, exposure 28 47 Keep up with competition 6 10 Show credibility, expertise 3 5

Offer catalog online 1 2 Little or no benefit 4 7

Total 60* 101** * Multiple responses by some companies ** More than 100 because of rounding Table 11 indicates that the biggest perceived benefits of using a website included creating awareness and exposure to the millions of users surfing the web in cyberspace (47%), and increasing sales/advertising and marketing tool (30%). About ten (10) percent used a website just to keep up with the competition. And seven (7) percent of the respondents perceived little or no benefit from using the website. Table 12 shows the biggest perceived costs/disadvantages of maintaining a website.

Table 12 Perceived costs of using the website

Perceived costs Number Percent Start-up costs, financial costs, waste of money

21 38

Design costs 7 13 Time 5 9

Maintenance 11 20 Nothing 10 18 Labor 2 4 Total 56* 102**

* Multiple responses by some companies **More than 100 because of rounding Table 12 displays the biggest perceived costs/disadvantages of using a website. About 38% indicated that financial cost of hosting a website was the biggest disadvantage and some even thought it was a waste of money. Twenty (20) percent indicated that the maintenance of a website was a major cost, and 18% perceived the website as costing them nothing. Table 13 indicates the use of online ordering feature, shopping cart order system feature, and security for credit card transactions.

Table 13: Use of online purchasing features

Online Purchasing features Number/% % did not use Online ordering 13 87 Shopping cart 8 92

Security 4 96

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As seen from Table 13, only a small percentage of small and family businesses were using the online features. Perhaps, this confirms their lack of use of the latest available technology as seen in Table 4 as well as the communication/information tool as being the major reason for the website. However, the use of the website as also a sales/marketing tool (Table 11) would mean small and family businesses would need to use more of the purchasing options and features to enhance their sales/marketing objective.

CONCLUSION AND SUGGESTIONS FOR RESEARCH

This study provides some interesting information on using a website as a competitive strategy for small and family businesses, including its perceived benefits and costs. As seen in Table 1, companies from a wide range of industries including business consulting, child care services, financial services, health fitness clubs, home construction and repairs, and restaurants are all using the website. Most of the businesses are using the website for providing product related information to their existing and potential customers (Table 6). It appears also from Table 7 that they would like to use the website as a marketing tool of eliciting information from their users to build a database for potential customer-oriented relationship and target marketing purposes. Also, as Table 8 reveals, companies stated that the major reasons for using the website as a strategy included the website as being a communication/information tool and an advertising/sales tool. Further, a majority of the small and family businesses believed that the website had positive effects on sales (Table 9). They reported as seen in Table 10 that the website helped provide an increase in sales on an average of six (6) to ten (10) percent. Therefore, it may be inferred that the businesses perceive the use of the website strategy as an information/communication tool, and as a marketing tool to attract and maintain existing and especially new potential customers.

In examining the benefits and costs of using the website strategy, companies perceived the communication and marketing benefits of the website as the primary advantages. This corroborates their intended purposes for using the website. So, it appears that the website strategy is indeed an effective one for small and family businesses to use especially for communication and marketing purposes. The website strategy may be also used to effectively increase sales by as much as six (6) to ten (10 percent which would be an extremely attractive incentive for any small business. Especially as the financial costs for hosting and maintaining the website appear small when compared to the positive benefits realized from the strategy, the use of the website as a strategy for small and family businesses seems to be an effective one.

However, further research may need to examine the cause-effect relationship of the website strategy and its positive effect on sales. Future research could focus on establishing a significant relationship, if any, between the two factors and also examine if any other factors such as successful traditional marketing, brand image, business image and identity, company name and reputation, consumer need and convenience, etc. affect or moderate this relationship. Websites of different designs may be evaluated to determine which specific types, if any, have more impact on the success of the business.

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IMPLICATIONS

The use of the website as a competitive strategy seems to be extremely useful for business, especially small and family-owned businesses. To compete effectively in a highly dynamic and competitive business environment today, small and family–owned businesses would have to find creative niche strategies to help them survive and succeed. One such attractive niche strategy is the use of the website. As seen in this study, small and family businesses could use the website as a target marketing strategy to increase their sales and thereby improve their overall performance. They may also use the website as a communication tool to improve their corporate image and exposure in a growing global market. They can effectively compete using the website as a niche strategy with larger and more established organizations.

As Dell has shown from its remarkable success over the last few years, using the mass customization approach along with the website as a marketing strategy helped Dell overtake bigger and stronger competitors to become the leader in the personal computer industry (Selladurai & Scott, 2002). Perhaps small and family businesses would have to experiment with, and implement, different website designs in order to tailor their purpose, content, and marketing techniques to specific customized target audiences in a global marketspace. Also, businesses may use the website strategy to develop and establish long term relationships, customer loyalty, and commitment with their customers, existing and new, in an ever-increasing global environment as part of their relationship marketing efforts. As the Internet is here to stay, using the website as a marketing strategy would be a wonderful tool for small and family businesses to use effectively and continue benefiting from it.

Further, the Internet may be used as a business strategy specifically focused on market penetration and market development. Companies may use the website to market their existing products and services to reach potentially a wider range of stakeholders in a global market. They could also use the Internet as a new, additional channel of distribution and market their existing and new products to new customers in the worldwide markets. For small and family businesses especially, the economies of scale usually associated with larger companies are now tipping in their favor allowing them to compete more effectively in the global marketspace. Therefore, the use of the website as a marketing strategy for today’s small and family businesses seems to be necessary and valid, and perhaps the most effective method to compete in a global environment.

REFERENCES Belch, G., & Belch, M. (2001). Advertising and promotion: An integrated marketing perspective. 5th ed. McGraw Hill: New York, NY. Buchwalter, C. (2005), Integrated Interactive Marketing: Quantifying the Evolution of Online Engagement, Nielson/NetRatings White Paper, April 2005,

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Campbell, D. & Beck, C. (2004). Answering allegations: The use of the corporate website for restorative ethical and social disclosure. Business Ethics: A European Review, 13 (2/3), 100-116.

Dandridge, T. & Levenburg, N. (2000). High-tech potential? An exploratory study of very small firms’ usage of the internet. International Small Business Journal, 18 (2), 81-91. Dou, W., Wenyu, N., Ulrik, O., & Tan C. (2002). Using corporate websites for export marketing. Journal of Advertising Research, 42 (5), 105-116. Fan, J. (2005). Low-Hanging Fruit Lies in Global Markets. Nielsen/NetRatings, March 2005. Hamill, J. (1997). The internet and international marketing. International Marketing Review, 14 (5), 300-323. Lin, N., Weng, J., & Hseih, Y. (2003). Relational bonds and customer’s trust and Commitment – A study on the moderating effects of web site usage. The Services Industries Journal, 23 (3), 103-124. Lymer, A. (1999). The internet and the future of corporate reporting in Europe. European Accounting Review, 8 (2), 289-301. Marston, C. (2003). Financial reporting on the internet by leading Japanese companies. Corporate Communications: An International Journal, 8 (1), 23-34. Rasian, K. (2001). When the net is more pain than gain. The Business Times, May 19, 4. Stuart, H. & Jones, C. (2004). Corporate branding in marketspace. Corporate Reputation Review, 7 (1), 84-93. Selladurai, R. & Scott, C. (2004). Mass customization strategy in management and its implications for China. International Journal of Family Business, 1, 87-96. Watson, T., Osborne-Brown, S. & Longhurst, M. (2002). Issues negotiation – investing in stakeholders. Corporate Communications: An International Journal, 7 (1), 54-61. Yeoh, P. (2000). Information acquisition activities: A study of global start-up exporting companies. Journal of International Marketing, 8 (3), 36-49. Zineldin, M. (2000). Beyond relationship marketing: Technologicalship marketing. Market Planning and Intelligence, 18 (1), 9-23.

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INTERNET MARKETING IN AN EMERGING COUNTRY:

AN INTERNATIONAL MARKETING PERSPECTIVE

Philip Zgheib, American University of Beirut Zafar U. Ahmed, Texas A&M University at Commerce

Shawn Carraher, Cameron University Nadine E. Habr, Notre Dame University

Introduction

New technologies periodically provoke major shifts in the way we do business. The telegraph, the telephone, and the fax machine have all left their marks on commerce. It is impossible to imagine doing business without any one of these mechanisms. Today, the Internet is the latest technology to alter the way business is conducted. It is remarkably simple in how it works and extremely exciting in its usefulness and effectiveness. People and businesses are finding new ways to use the Internet every day. At least, one value of the Internet is certain: improved communication.

Advent of the Internet in Lebanon: Situational Analysis

The Lebanese are well known for their interest in the most recent technologies, as well as for their high cultural standards. This may be an introductory explanation for the success of the Internet in Lebanon. In the summer of 1995, Internet was first introduced in Lebanon. After the fourth year of local Internet history, there were more than thirty thousand Lebanese Internet users. We should not underestimate that number, bearing in mind that Internet users are increasing, at a high rate, day after day. Whether professionals, students, commercial companies, banks, or hotels, all are becoming more aware of the importance of the Internet. In August 1995, the Internet was introduced in Lebanon by Data Management. A few months later, Inconet became a second powerful Internet Service Provider (ISP). In 1996, due to the astonishing success of the Internet, three other companies entered the business: Cyberia, Sodetel, and Destination (Naufal, 1996, 40). A high demand for Internet access attracted other Internet Service Providers market such as Bignet, X-net, Arabnet, Netgate and Data-Net to enter the market. Later, eight more companies went into the business: Lubnan, Intracom, City, 4Com, Networking, Geganet, Liban Net and LibanCom. Lately, five more Internet Service Providers are enjoying the Internet boom, Cnet, Lunet, Terranet, Lynx, and Inter. So far there are about 23 Internet Service Providers in Lebanon. (appendix A) A large number of new companies went into the business of Web designing and hosting, including Book Inn, Arachnea, Cybernet, Danynet 3d, Fiorbal Internet solutions, Grey Matter, Integral Solutions, Internet Web Development & Design, Kleudge, Mardel, The Page, Wonder Web, and WebSet s.a.r.l..

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Many Lebanese on-line companies exist already on the net. There are many types of businesses that use the Internet more than others. A detailed study will follow concerning the type of business which uses the Internet medium, and then the description of the reasons why they maintain a business presence on the Net will be conducted. The question is “will the Lebanese benefit from the Internet medium?” and “if marketing strategies could be improved through Internet, would this be a motive for companies to get connected? ”

Identification of Marketing Strategies

Companies who want to improve their marketing effectiveness and efficiency must learn how to create and implement marketing plans with a product/market focus that consist of detailed marketing strategies and programs for achieving the product’s or service’s objectives in a target market. Internet might add a charismatic appeal to the traditional marketing strategies which originally focus on the following actions: researching and selecting target markets; differentiating and positioning strategy; setting the price; selecting and managing distribution channels; salesforce strategy; service strategy; advertising; sales promotion; research and development; and marketing research (Breitenbach, C. & Van Doren, Doren, 1998; McQuitty & Peterson, 2000; Prabhaker, 2000). The firm needs to measure and forecast the attractiveness of any given market. This requires estimating the market’s overall size, growth, and profitability. The market measure and forecasts become key inputs into deciding which markets and new products to focus on (Chittenden & Ruth, 2003). Any company needs to define how it will differ from its most significant competitors, and how it wants to come across to its target buyers. Through positioning, the company will design its offer and image so that the target market understands and appreciates what the company stands for in relation to its competitors. (Kotler, 1991, 67). It also needs to study carefully the positions taken by its major competitors in the same target market. Suppose companies position themselves in terms of product quality and price. For this purpose, the firms should develop a product-positioning map to describe the positions of a determined number of competitors currently selling to this market. It will study the available options, then it will decide on its product positioning, companies should not only choose their consumer targets but also their competitor’s targets (Naquin & Paulson, 2003). This is particulally important in an emerging market (Bandyopadhyay, 2001). Setting the Price Another step in the marketing strategy of a firm is setting the price. Price setting is a procedure which includes selecting the pricing objective, determining demand, estimating costs, analyzing competitors' prices and offers, selecting a pricing method, and selecting the proper price. Selecting and Managing Distribution Channels

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Selecting and managing distribution channels is among the most complex and challenging decisions facing a firm. Distribution channels perform the work of moving goods from producers to consumers, whether wholesalers or retailers, brokers or sales agent. All are middlemen who participate in the following marketing flows: collection of information about potential and current customers, promotion, negotiation, ordering, financing, risk taking, physical possession, payment and title or transfer of ownership from one organization to the other. Salesforce Strategy Companies compete with each other to get orders from customers. They must organize their salesforce strategically so that they call on the right customers at the right time in the right way. Sales representatives can reach customers in several ways, for example, a sales representative may talk to a customer in person or over the phone, he may make a sales presentation to a buying group, he may bring qualified people from the company to meet with one or more buyers to discuss opportunities, or he may prepare seminars. Service Strategy When the physical product cannot be easily differentiated, the key to competitive success often lies in constantly added service features or increasing the quality of the offering. The main service variables are delivery, installation, customer training, consulting service, repair, and miscellaneous services. Delivery refers to how well the product or service is delivered to the customer. It includes speed, accuracy, and care in managing the delivery process. Installation refers to the work that must be done in order to make a product operational in its planned location. Customer training refers to training the customer’s employees to use the vendor’s equipment properly and effectively. Consulting services refers to data, information systems, and advising services that the seller offers either for free or at a given price to buyers. Repair describes the quality of the repair service available to buyers. Miscellaneous services are when companies can find other ways to add value through differentiated services. For example the company can offer a better product warranty or a more appealing maintenance contract than its competitors. Advertising Advertising is a powerful promotional tool. Advertising is designed to achieve a variety of simultaneous objectives such as immediate sales, brand recognition, and preference. Advertisers need to establish clear goals as to whether the advertising is supposed to inform, persuade, or remind buyers. The advertising budget can be established on the basis of what is affordable as a percentage of sales, on the basis of competitors’ expenditures, or on the basis of objectives and tasks. The message decision calls for generating messages, evaluating and selecting among them, and executing them effectively. The media decision calls for defining the reach, frequency, and impact goals; choosing among major media types (such as message and product), selecting specific media vehicles, whether television, radio or magazine, and scheduling the media.

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Finally, campaign evaluation calls for evaluating the communication and sales effects of advertising before, during, and after the advertising. Sales Promotion Sales promotion consists of a diverse collection of incentive tools designed to stimulate quicker and greater purchase of particular products or services by consumers, such as a coupon in the newspaper, samples, cash refund offers, prices off, premiums, prizes, free trials, warranties, and demonstrations. Whereas advertising offers a reason to buy, sales promotion offers an incentive to buy. Research and Development A balanced technology and market driven company is one in which R&D and marketing share responsibility for successful market-oriented innovation, and for determining and implementing a leading marketing strategy. The R&D staff takes responsibility not only for invention but also for successful innovation. The marketing staff takes responsibility not only for new sales features but also for helping to identify new ways to satisfy needs. That is to say, a balanced R&D marketing coordination is strongly correlated with innovation success. Marketing Research Marketing research involves collecting information that is relevant to a specific marketing situation. The marketing research process consists of five steps: defining the problem and research objectives, developing the research plan, collecting the information, analyzing the information, and presenting the findings. Good marketing research is characterized by a true scientific method, by creativity, multiple methodologies, model building, and cost benefit measures of the value of information. The most common marketing research activities are the determination of market characteristics, the measurement of market potentials, the market-share analysis, the sales analysis, the studies of business trends, the short-range forecasting, the competitive-product studies, the long-range forecasting, the pricing studies, and the testing of existing products. The definitions and suggestions already stated in the first two chapters determine the theoretical part of the study. What is remaining is to test the effectiveness of this opportunity in the Lebanese market.

Objective 1: Usage and Behavior Study about the Internet in Lebanon

The first objective of the research is to study the usage and behavior of business companies toward the integration of the Internet for their marketing strategies. Therefore, answers to the following questions will be available: whether or not companies in Lebanon are aware of the Internet as a marketing strategy object and whether or not companies are using the Internet as a marketing mechanism. In order to measure the

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usage habits, a frequency of usage analysis will be led. Moreover, a testing on the Internet efficiency for marketing strategies will be performed. Detailed examination on the following questions will be justified: how do businesses perceive the Internet medium? If businesses are not yet using the Internet, then, how soon will they be willing to operate on the Internet? What are the reasons behind the company's online presence? The objective is to assess companies’ opinions of perceived effectiveness of the Internet. For companies who have not yet joined the Net, an interesting topic for research would be to find out the reasons for their absence in order to be better able to induce them to join.

Objective 2: Characteristics of Internet Marketing Strategies for Business in Lebanon

The second objective is to assess the characteristics of Internet marketing strategies for business in Lebanon. Determining the methods of marketing strategies enhancement in companies using the Internet is a necessity. A definition of how companies can best use the Internet as a marketing tool will be available. Who uses the Internet, which type of companies will best operate on the Internet and for what purpose, are some of the questions to be answered. Finally, a specification of the sectors that would best use the Internet will be needed in order to complete the research.

RESEARCH METHODOLOGY

Analyzing the Data After sending the questionnaire by electronic-mail to the 100 on-line Lebanese companies in Greater Beirut, only 22 companies responded from the sectors mentioned earlier. Concerning the other 100 Lebanese companies not on-line in Greater Beirut, we ended-up with 71 usable questionnaires. The other 29 questionnaires do not fit the purpose of the research anymore, since the randomly chosen companies started to use the Internet for their business during the period of data collection or questionnaire filling. Tables 1 and 2 summarize the percentage and frequency of the responding on-line companies and companies not on-line among the five already chosen sectors.

Table 1. Frequencies and percentages among sectors

of the online responding companies. SECTOR FREQUENCY PERCENTAGE

Media & Publications 6 27.3% Computer Business 4 18.2% Services: banks & Insurance

4 18.2%

Advertising Agencies 5 22.7% Food & Consumer Goods 3 13.6% TOTAL 22 100%

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Table 2. Frequencies and % among sectors of the not online responding companies SECTOR FREQUENCY PERCENTAGE

Media & Publications 16 22.5% Computer Business 9 12.7% Services: banks & Insurance

19 26.8%

Advertising Agencies 10 14.1% Food & Consumer Goods 17 23.9% TOTAL 71 100%

From table 1, we notice that the highest percentages of the responding companies are among the Media & Publication sector (27.3%), and the advertising agencies sector (22.7%). However among the companies not on-line, we notice that computer companies (12.7%) and advertising agencies (14.1) are among the lowest percentages. This could be explained by the nature of their business and the importance of Internet usage. Computer companies and advertising agencies are among major sectors that keep up with latest technologies. There are two different frames and two different types of surveys in which the research is conducted: an electronic-mail questionnaire has been sent to the On-line Lebanese companies, and a face to face interviewing and/or over the phone questionnaire have been done with the Lebanese companies, that are not on-line. Data analysis for the Lebanese companies not online. The purpose of the research is to study the usage and behavior of business companies toward the integration of Internet for their marketing strategies. The questionnaire is designed in a way to fulfill all the requirements needed to test the hypotheses. Awareness, perception, usage, and intention aspects are covered in the questionnaire. In order to measure the usage habits, a frequency of usage analysis is performed. Moreover, a testing on the Internet efficiency for marketing strategies is executed. From the table below (table 3), we notice that by far, the most commonly known activities over the Internet are, sending and receiving e-mail (with the highest percentage 38%), and searching for information (35.2%).

Table3. Frequencies and Percentages of the responding companies not online toward the perceived types of activities on the Internet.

TYPE OF ACTIVITIES FREQUENCY PERCENTAGE Sending and receiving E-mails 27 38.0% Home page designing 3 4.2% Searching for information 25 35.2% Browsing the net 3 4.2% Telecommunication 5 7.0% Shopping on the Internet 2 2.8% Communication mean 6 8.5% TOTAL 71 100%

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From the table below (table 4), we notice that the highest percentage (38%) is the opinion of the responding companies which indicate the positive impact of the Internet on business is "finding information in an easy and quick way". Followed by a bit lower percentages (12.7%) which indicates a positive impact is, "time saving." We should not disregard the negative impact of Internet on business, however, as we can see, the two items "waste of time" and "receiving junk mails" have a low percentages, 5.6% and 4.2% respectively. However, that the positive impact of Internet on businesses is more important than the negative impact. Table 4. Frequencies and percentages of the responding companies not online toward the impact of Internet on businesses. IMPACT OF INTERNET ON BUSINESS FREQUENCY PERCENTAGE I don't know 7 9.9% No impact 4 5.6% Time saving 9 12.7% Finding information in an easy and quick way

24 33.8%

Waste of time 4 5.6% Unlimited number of customers 3 4.2% Receiving junk mails 3 4.2% Cheap promotion tool 1 1.4% Easy mean of communication 9 12.7% Cheap communication mean 3 4.2% Help to find & know more about competitors 4 5.6% TOTAL 71 100%

Table 5. Frequencies and percentages of the responding companies not online according to the reasons for not using the Internet.

REASONS FOR NOT USING INTERNET FREQUENCY PERCENTAGE Not needed in my field of work 16 22.5% Useless 1 1.4% Waste of time 2 2.8% Don't know how to use 2 2.8% Expensive service 1 1.4% Intention to use it soon 14 19.7% Sending e-mails by using personal accounts 8 11.3% Running newly the business 6 8.5% Usage is limited for few managers (&/or departments only)

10 14.1%

Using the fax instead 2 2.8% Unavailability at work 8 11.3% No time is available to use the Internet 1 1.4% TOTAL 71 100%

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From the table above it is obvious some managers believe that the Internet is not needed in their field of work (22.5%). By performing a cross tabulation, we will be able to know exactly which sectors think that Internet is not needed in their field of work. We note that from the 16 companies out of the 71 who believe that the Internet is not needed in their field of work, 7 companies are form the FMCG sector, and 4 companies are from the Media and Publication sector. Moreover, we noted that (17.9%) of the responding companies intend to use the Internet for their business soon, some companies are implementing it now, and some other companies have their computer application under process. We can also see from table 11 that in the service sector, such as banks and insurance companies, the usage of Internet is limited to specific managers or few departments such as the computer department, with a high rate of 40%.

Table 6. Frequencies and percentages of the not online responding companies

according to their considerations of Internet as a marketing tool. MARKETING TOOL FREQUENCY PERCENTAGE

Yes 44 62%

No 27 38% TOTAL 71 100%

62% of the managers from the responding companies consider the Internet as a marketing tool which might enhance their company's marketing strategies, and 38% do not consider it as a marketing tool. The reason for considering it a marketing tool is shown in the below table, where the "getting information" reason has the highest percentage (28.2%).

Table 7. Frequencies and percentages of the not online responding companies

according to their understandings of Internet as a marketing tool. INTERNET AS A MKTG TOOL FREQUENCY PERCENTAGE

Effective 4 5.6%

Efficient 3 4.2%

Getting information 20 28.2%

I don't know 17 23.9%

Our service concerns everyone 3 4.2%

Not effective 2 2.8%

Not for the short-term 11 15.5%

Not needed in company's field of work 11 15.5%

TOTAL 71 100%

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Table 8. Frequencies and percentages of the not online responding companies according to their intention for using Internet as a marketing tool.

INTENTION TO USE THE INTERNET AS MARKETING TOOL

FREQUENCY PERCENTAGE

Yes 44 62% No 27 38% TOTAL 71 100%

Table9. Frequencies and percentages of the not online responding companies according to the reasons behind their intention to use Internet as a marketing tool.

INTENTION TO USE THE INTERNET AS MARKETING TOOL (REASON)

FREQUENCY PERCENTAGE

I don't know 18 25.4% To enhance company's marketing strategies 8 11.3% It could be effective 16 22.5% To increase business profit 4 5.6% To study the market 2 2.8% Too early to use Internet as a marketing tool 20 28.2% Not efficient 3 4.2% TOTAL 71 100%

We notice from the above two tables, that 62% of the managers from the responding companies intend to use the Internet as a marketing tool. One of the reasons behind their intention is that " it could be effective" (22.5%). Those who do not intend to use the Internet as a marketing tool (38%) say " it is too early to use Internet as a marketing tool" (28.2%).

Table 10. Mean of Internet usage dimensions for the responding companies not online. VARIABLE MEAN STD DEV

Performing marketing research 6.93 2.30 Gaining competitive advantage 6.51 2.72 Bringing down communication cost 7.44 2.60 Differentiating with competitive products 6.65 2.39 Creating corporate presence 7.58 2.03 Enabling onsite audiovisual presentations 6.76 2.76 Reducing intermediaries in distribution channel

5.99 3.36

Selling 6.28 2.36 Advertising 6.96 2.09

The mean calculated in the above table represents the average for each variable of the ranking that respondents classified. Based on this table, the major variable perceived to be important as an Internet usage dimension, is "creating corporate presence" (a mean of

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7.58). However, the variable "reducing intermediaries in distribution channel" is perceived as the least significant variable, (a mean of 5.99). Data analysis for the online Lebanese companies. As mentioned earlier, after sending the questionnaire by electronic-mail to the 100 On-line Lebanese companies in Greater Beirut, only 22 companies responded from the different sectors mentioned earlier. To start our analysis, we notice from the below table (table20), that exact definitions of Interactive Marketing have been given by managers of the responding online Lebanese companies. The highest percentage, 18.2%, is for "Direct interaction with customers" attribute, which is the precise meaning of Interactive Marketing. Other correct definitions like "Direct response from customers," and "Creating a dialogue with customers" have also been stated by online companies.

Table 11. Frequencies and percentages of the responding online companies toward Interactive Marketing concept.

INTERACTIVE MARKETING FREQUENCY PERCENTAGE Electronic commerce 1 4.5% Consumer choose information needed about a product

2 9.1%

Communication 2 9.1% Targeted messages 3 13.6% Direct response from customers 2 9.1% Online shopping 1 4.5% Feedback 1 4.5% Direct interaction with customers 4 18.2% Support to customer 3 13.6% E-mail sending and receiving 1 4.5%

Creating a dialogue with customers 2 9.1% TOTAL 22 100%

Table 12. Frequencies and percentages of the online responding companies toward the perceived types of activities on the Internet

TYPE OF ACTIVITIES FREQUENCY PERCENTAGE Sending and receiving E-mails 6 27.3% Searching for information 7 31.8% Online shopping 2 9.1% Marketing 1 4.5% Travelling around the world 2 9.1% Surfing the net 4 18.2% TOTAL 22 100%

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From the above table the major attributes perceived to be significant are, "searching for information" (with the highest percentage 31.8%), followed by the "sending and receiving e-mails " attribute (27.3%). To summarize, those two attributes have scored the highest percentages for both online and companies not online.

Table 13. Frequencies and percentages of the online responding companies toward the impact of Internet on businesses.

IMPACT OF INTERNET ON BUSINESS FREQUENCY PERCENTAGEEasy shopping 2 9.1% Fast communication mean 4 18.2% Finding information in an easy and quick way 4 18.2% Posting e-catalogs accessible by anyone anytime

3 13.6%

Waste time 1 4.5% Educational 1 4.5% Insecurity 1 4.5% Time saving 3 13.6% Unlimited number of customer 3 13.6% TOTAL 22 100%

Table 13 presents the different opinions among respondents, nevertheless one thing is certain, there is a high positive impact of the Internet on business rather than a negative one.

Table 14. Frequencies and percentages of the online responding companies according to the reasons for online presence.

REASONS / ONLINE PRESENCE FREQUENCY PERCENTAGE To improve the company's quality of service 2 9.1% To benefit form the e-mail usage 4 18.2% To search for information 5 22.7% To be up to date with latest technologies 4 18.2% To match the increasingly competing market 2 9.1% To exploit advertising matters 2 9.1% To provide information & news 3 13.6% TOTAL 22 100%

We notice from table 13 and table 14, that each sector benefits from the Internet usage in their own special way. For example, the media and publication sector and the service sector, use the Internet to provide information and news for their customers. There is one common thing for all sector:, they are benefiting from the e-mail usage and would rather keep up-to-date with latest technologies .

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RESULTS AND CONCLUSION

It has been said that the Internet will facilitate the traditional process of marketing research. As a matter of fact, figures verify this assumption as the highest percentages were present for this specific activity over the net. The "Interactive Marketing" prospect is still new for the Lebanese businesses. While conducting the market research various definitions were given when asked about "Interactive Marketing". Some respondents gave exact definitions, others gave close definitions, and other did not answer or gave wrong answers. However, some businesses are getting advantage of this facility over the Internet to enhance their marketing strategies. For example, Banque du Liban et d'Outre-Mer sent their customers e-mail concerning the products and services that the bank provides. The bank offers the opportunity to calculate monthly payments for loan amounts, to inquire about credit cards, to download loan and credit card applications, and to obtain statistics and information on BLOM Group. This is but one example from many. After all, it is a way to create a dialogue with the customers. Most companies have web pages that they keep up to date, and some businesses send informative e-mails, describing their latest products. More information continues to be provided by every business. Whether a bank, a computer business, an advertising agency, each business provides the information that suits its aims. For instance, Baalbeck International Festival Organization informed thousands of Lebanese people with their Festival schedule, every day program, ticket pricing, how to get to Baalbeck, history of Baalbeck, and about the organization, just by sending an informative e-mail. In terms of Internet activities, "sending and receiving e-mails" and "searching for information" were the most commonly utilized. All chosen business sectors emphasized that those 2 activities are the most significant. When the online Lebanese responding businesses and the Lebanese responding businesses not online, were asked about the impact of Internet on businesses, a much higher positive response was given than the negative one: finding information in an easy and quick way, time saving, unlimited number of customers, help to know more about competitors, etc., few respondents comments' were on the junk mails that may be received, and that Internet is a waste of time. However, frequencies are very low for the negative attributes. Some companies did not join the net, and the reasons given for not using the Internet were numerous. Some businesses believed that Internet is not needed in their field of work, some other mentioned that the usage of Internet is limited for few managers and/or departments. Moreover, some other companies intend to use the Internet for their business soon, while few others have their computer application under process. A very high percentage of Internet non users intend to use it soon. When the responding companies were asked about the reasons for their online presence, every sector seemed to benefit from Internet in a particular way. For instance, the media and publication sector and the service sector use the Internet to provide information and news for their customers and new customers.

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Making purchases over the Net in Lebanon is not yet a highly accepted method. Approximately 82% of the online respondents have not made a purchase over the net. They believe that it is not yet a secure process, even though special Internet cards are made by credit card services companies in Lebanon, for this purpose. The MasterCard Internet account called Web Surfer, costs only US $19 a year. Nevertheless, a new concept of Internet usage is gaining new insights: "electronic commerce." The Lebanese search engines added a new opportunity for the net, which is the Online shopping. Many food industries are benefiting from the Internet. To illustrate, Abdul Rahman Hallab and Sons, (http://www.hallab-ar.com), a Lebanese sweets shop, is delivering sweets to the United Stated, Australia, Europe, and many other countries in the world. Actually, Hallab was the first Lebanese company to sell via the Net. In the web site, price lists include shipping via DHL and Aramex. They are making excellent profits from worldwide deliveries. Another industry benefiting from the e-commerce is the wine shop Chateau Kefraya, (http://www.lebanon.com/chateau-kefraya) that also provides door-to-door deliveries, for example, to the United States. Certain types of products do sell better over the Web than others such as computer parts, software, Lebanese food, and books. While conducting the marketing research, businesses were asked to rank the Internet usage dimensions in order of importance. "Creating a corporate presence" strategy proved to be the most important. "Bringing down communication cost" and "Gaining competitive advantage" attributes also proved to be important factors. These were not the only strategies for efficiency in businesses nowadays, for performing marketing research, enabling onsite audiovisual presentations, selling, advertising, and differentiating with competitive products strategies seem to be new uses for the Internet, that will soon arise in the world of tomorrow. In some countries the Net seemed to be a way of eliminating the store as a middleman. However, in Lebanon businesses do not consider yet the Internet as a medium to reduce intermediaries in the distribution channel. Middlemen are still important in the way businesses are conducted. People are used to going to stores to buy. People are used to going to a travel agent to get a ticket if they want to travel. They are not used to the do-it-yourself concept. Finally, most businesses agreed on the fact that Internet dimensions or new strategies added a lot to the improvement of marketing strategies. To fulfill the requirement of the second objective, which is to assess the characteristics of Internet marketing strategies for business in Lebanon, it is highly important to determine which type of businesses would best operate or benefit on/from the Internet. From the research conducted, respondents considered the computer sector, media sector, and service sector such as banks, insurance companies, financial institutions, hotels, restaurants, are the businesses who take the most advantage form the Internet. The computer sector is accustomed to marketing on the Internet because after all, it is a technology related business. Concerning the service sector, each one is using the Internet by applying the marketing through information concepts. For example, banks are providing information about the products and services they offer, daily updates of the Lebanese capital market, a general overview of the bank, financial reports, corporate profile, and even job vacancies. Hotels are also benefiting from Internet by supplying worldwide customers with information. One may know the location of the Hotel on a

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map, areas to visit around the hotel, the restaurants, the price of the different rooms, what the room looks like from inside, and the availability of the reservation through Internet. Conclusion The Internet is in its infancy in Lebanon and it will mutate frequently. But if one looks just over the horizon into the competitive world of tomorrow, its logical extreme is already visible. Customers demand instantaneous intelligence about the status of their orders, the average of stock on hand, and the estimated time of delivery. They might want to review discussions other customers have had about the company. The company with the most freely available information will win. Through this medium, the company that opens its electronic doors the widest, will be the strongest. Television, Radio, newspaper, have existed as passive media. The Internet has risen as an active medium, and will probably devour great share of other medium usage.

REFERENCES

Bandyopadhyay, S. 2001. “Competitive strategies for Internet marketers in emerging

markets. Competitiveness Review, 11 (2), 42-48.

Bickerton, P., Bickerton, M., and Pardes U. 1996. Cybermarketing. Butterworth- Heinemann, Linacre House, Jordan Hill, Oxford, London, England. p. 36.

Breitenbach, C. & Van Doren, D. 1998. “Value-added marketing in the digital domain: Enhancing the utility of the Internet.” Journal of Consumer Marketing, 15 (6), 558-575.

Chittenden, L. & Ruth, R. 2003. “An evaluation of e-mail marketing and factors

affecting response. Journal of Targeting, Measurement, & Analysis for Marketing, 11 (3), 203-217.

Churchill, G. 1996. Basic Marketing Research. The Dryden Press, Florida,USA. p.120. Ellsworth, J., and M. Ellsworth. 1994. The Internet Business Book. John Wiley &

Sons, Inc., New York, NY. p. 35. Ellsworth, J., and M. Ellsworth. 1995. Marketing on the Internet. John Wiley &

Sons, Inc., New York, NY. p. 63. Gates, B. 1996. “Pariez sur les biotechnologies”. L’Essentiel du Management,

September,1996. p.142. Kinnear, T., and Taylor, J. 1996. Marketing Research an Applied Approach. McGraw-

Hill, Inc., New York, N.Y. p. 76. Korm, S. 1999. Sales Manager, Inconet Internet Service Provider. Personal interview.

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March 9. Kotler, P. 1994. Marketing Management. Prentice Hall, Inc. N.J. p.p. 65-289. McQuitty, S. & Peterson, R. 2000. “Selling home entertainment on the Internet: An

overview of a dynamic marketplace.” Journal of Consumer Marketing, 17 (2/3), 233-248.

Naquin, C. & Paulson, G. 2003. “Online bargaining and interpersonal trust.” Journal of

Applied Psychology, 88 (1) 113-120. Naufal, D. 1996. “Internet: le Monde à Votre Portée”. Magazine, November, 1996.

pp. 34-40. Prabhaker, P. 2000. “Who owns the online consumer?” Journal of Consumer

Marketing, 17 (2/3), 158-171.

Rebello, K. Armstrong L. and Cortese A. 1996. “Making Money on the Net”. Businessweek, September 23,1996. pp. 44-52.

Sterne, J. 1995. World Wide Web marketing. John Wiley & Sons, Inc., New York,

NY. p.p. 6-66. Thomas, J. 1998. “The Brave New World of Internet Marketing”. Direct Marketing,

January, 1998. p. 22. Vitale, J. 1997. Cyber Writing. AMACOM, New York, NY. p. 50.

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MIDDLE EAST AIRLINES: AN ACQUISITION CHALLENGE FOR A FAMILY BUSINESS

Imad J. Zbib, American University of Beirut

Yusuf M. Sidani, American University of Beirut Zafar U. Ahmed, Texas A&M University at Commerce

Abstract

Middle East Airlines (MEA), the Lebanese national carrier, is trying to pull through its managerial and financial predicament caused by the Lebanese civil war (1975-1990). MEA was a company over-ridden with inefficiencies, corruption, political interference, nepotism, and cash-flow problems. MEA, under the leadership of Mohammad Hout, laid off a number of its employees in an attempt to render the firm more economically attractive for investors. Joseph Khoury, CEO and President of a major Lebanese family firm (Khoury Group) was contemplating buying a sizable share of the company. Going through its historical evolution and different complexities found at MEA, Khoury began wondering whether it was the right track to pursue.

Introduction

Joseph Khoury was just reflecting on the phone call he had just received. He was talking to a senior politician in Lebanese government, who insinuated that the Lebanese government is looking for potential buyers to purchase the Lebanese national airline, the Middle East Airlines (MEA). Although Khoury had no previous experience in the airline business, he couldn’t let such an opportunity slip by without pondering over it. Khoury was the owner (CEO and President) of Khoury Group, which was a large diversified conglomerate of firms across the Middle East, Africa, and Latin America. Joseph’s father established Khoury Group: John, a half-Italian half-Lebanese entrepreneur, who founded an empire of large companies. The group was now co-managed by Joseph (who was stationed in Lebanon and Italy) and his three brothers Sam (in Senegal), Ramsey (in Dubai), and Rayan (in Brazil). The group was comprised of several independent companies in which Joseph and his brothers had different majority financial interests. The brothers had autonomy in running those businesses in different world regions. Joseph knew, however, that a purchase of a company like MEA would require much input from all of his brothers.

MEA Background

Middle East Airlines (MEA) was founded in 1945; launching its first service from Beirut to the neighboring cities across the Arab world. In 1963, after its merger with Air Liban, MEA added other destinations across Europe and Africa to its network. For thirty years; MEA thrived and grew to become one of the leading airlines across the region. Despite the political upheavals in the region in the sixties and early seventies, MEA continued to grow and succeed. The 1975 Lebanese war changed the landscape of aviation in Lebanon, entailing sharp decline in airline travel to Beirut, severe halt to tourist inflow, frequent closures of the Beirut airport because of its bombing, occasional destruction of airplanes and loss of airline personnel. The fifteen-year civil war gave a

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harsh blow to MEA as it lost its market position and leadership across the region. MEA nevertheless managed to continue its operations throughout that bleak period. At the end of the Lebanese civil war in 1990, MEA succeeded in re-establishing its services to all destinations, it previously served by it. It fortified its network by adding additional destinations across Europe, Middle East and the Gulf. The impact of the civil war was, however, too encompassing. MEA continued to lose money year after year due to inefficiencies and politicization of its managerial process. MEA’s losses during 1991—1997 time frame amounted to over $310 million (ranging from $32 million in 1994 to $87 million in 1997). The upward trend in losses seemed to accelerate at an uncompromising rate (See Appendices 1 & 2 for financial scenario). These losses could not be explained by any economic rationale. Despite the fact that the 911 terrorists’ attack and the US -- Iraqi war adversely impacted worldwide travel, the magnitude of MEA losses could not be attributed to global political problems. Blame shifting, strikes, and management-union tensions were creating an unhealthy environment of mistrust and suspicions. Successive recovery attempts met with failure due to political interference, overstaffing, mismanagement, and unfavorable economic and political atmosphere. Suggestions to privatize the company (MEA was mostly owned by the Central Bank of Lebanon) were met with accusations between different stakeholders that some groups were trying to bankrupt the company in order to acquire it for a fraction of its real value. After Mohammad Al-Hout was appointed as chairman of MEA, substantial endeavors were made to privatize the company and reduce its current inefficiencies and burdens. Mr. Hout initiated a re-structuring plan immediately upon his appointment as MEA’s new Chairman. For instance, the route network was streamlined and many losing routes were terminated. Early attempts to reduce inefficiencies met with relative failure and stern resistance against reforms especially from labor unions caused major deterioration. Nevertheless, such revamping attempts led to a decline in losses to the tune of 50% in 1998. In 2001, the Lebanese Parliament enacted the “Open Skies Law”, providing unrestricted access to foreign airlines to Rafik Hariri Beriut International Airport, posing a major threat to MEA. However, its recovery plan put in place, started yielding dividends when its financials showed a decrease in its deficit to $20 million in 2001. (See Appendix 3 for MEA milestones). Political Interference in MEA The Lebanese civil war and the peace agreement among the warring factions led to a heavy politicization of all governmental institutions during the post civil war period. During the civil war different political parties and militias forced employment in MEA in a manner that led to gross overstaffing and inefficiencies. After the cessation of hostilities, the political parties objected to any attempts at reducing the number of MEA’s superfluous staff. In 1999, the then Minister of Transportation Najib Mikati commented that there was an imperative need to dismantle political patronage of most of the MEA employees to facilitate higher productivity and higher profitability via effective

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managerial decision-making. Mr. Yusuf Lahoud, a former general manager at MEA also indicated that employment at MEA was mostly based on religious affiliation and political association instead of skills and merit. The situation was so grave that mangers had virtually no control over non-performers or wrongdoers because they were politically backed. Overstaffing was a key problem at MEA. With only nine planes and 4500 employees, the company had the highest employee-airplane ratio on the planet. The average age of the employees was approaching 50 years. The Lebanese ministry of transport estimated that MEA was spending close to $25 million on non-productive employees annually. After consecutive losses of $44 million in 1999, $41 million in 2000, and $35 million in 2001, enormous political pressure led to the postponement of privatization. However, it was allowed to proceed with its restructuring plan. From 1998 to 2002, MEA executed its largest restructuring plan ever, to turn around the company from its huge annual losses. The plan included a reassessment of MEA’s network, reengineering different policies and procedures, cost management schemes across the board without compromising the quality, the initiation of new marketing schemes such as frequent flyer program and yield management systems, and better partnerships with suppliers and travel agents etc.

The Company Structure The MEA group includes following subsidiaries:

- MASCO subsidiary responsible for the maintenance of aircrafts - MEAG subsidiary responsible for the ground handling operations - MEAS subsidiary responsible for the airport facilities - LBACC subsidiary responsible for the minority interest in a catering company 1.

The MEA fleet consisted of nine new Airbus aircrafts to service its network covering the Middle East, Europe and Africa. Three A330-200 were leased from ILFC and six A321-200 were purchased from Airbus Industries as presented in Table # 1.

Table # 1 MEA Fleet Model Number

A330-200 3 MEA

Fleet A321-200 6

Source http://www.mea.com.lb

As presented inn Table # 2, MEA operated eleven regional and fourteen international routes and served seven destinations across the Gulf, four in the Middle East, ten in Europe and four in Africa.

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Table # 2

Destinations Served by MEA

Regional International

Amman Abidjan

AbuDhabi Accra

Cairo Athens

Dammam Paris

Doha Copenhagen

Dubai Dusseldorf

Istanbul Rome

Jeddah Frankfurt

Kuwait Geneva

Larnaca Kano

Riyadh London

Lagos

Milan

MEA

destinations

Nice

Source http://www.mea.com.lb

Marketing Operations

MEA was active in different market segments such as business travel, leisure travel, freight, lease, charter, and pilgrimage. The passenger segment contributed the highest share of the company’s income, followed by the lease, charter, and pilgrimage segments. The freight segment trailed behind. In the passenger market, the mix of business and leisure segments varied depending upon destination. Most passengers flying to the Gulf region, for example, were business travelers while Europe bound passengers were mostly leisure travelers. The restructuring plan required the formulation of a re-engineered marketing strategy. Frequent flyer programs were revamped and modernized. Better use of MEA’s information system and web presence were made available although it did not seem that

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MEA’s customers made effective use of these services. MEA was mostly reliant on travel agencies for generating its business. MEA also increased the number of its sales staff and invested more in the training and development of its personnel.

Labor Issues

During the Lebanese civil war period, MEA’s workforce passed through a stage of total chaos. Although some of its staff displayed legendary bravery in running the company in those agonistic times, the civil war period also witnessed periods of great tensions, strikes, and miserable employment conditions. What was once the pride of Lebanon slowly became infested with fragmented subcultures of nepotism and disarray. The prevailing corporate culture after the conclusion of the civil war posed severe hindrances to any meaningful turnaround. While the dreadful events of the civil war caused the company to lose around $200 million during the civil war carnage, many more millions of dollars were lost because of managerial and labor inefficiencies Nepotism and religious power centers in the company caused certain employee factions to harshly criticize the incoming Chairman Mohammad Hout for his “inexperience in the airline business”. Some critics to “external market forces” to which he was only a spectator attributed the relative lower losses in the first couple of years since he assumed helm of affairs. But those voices seemed to calm down after the company’s performance indicators in subsequent years started to improve.

Competition The open-skies governmental policy, approved by the Lebanese parliament in 2002, has posed strong challenge for MEA. The increased travel activity at the Rafik Hariri Beirut International Airport meant more foreign airlines getting into Lebanon and directly competing with MEA. However, new and increased competition was one of the most important impetus and drivers that pushed MEA to strive for better performance. Earlier, MEA’s market share decreased gradually from 1991 through 1995 due to increase in the number of strong and viable foreign competitors serving Lebanon. This was augmented by the poor service that MEA was providing in stark contradiction to its glorified heritage and past image. Customers grumbled about the towering disparity in fares with competitors with no real value in return. Its poor customer service made its patrons defect to competitors, forcing the company to improve its offerings in the restructured plan. By the early 2000s it was becoming evident that MEA was performing better despite all the doubts and suspicions.

Privatization

As part of its liberalization reform plan to decrease the mounting national debt, the Lebanese government executed a privatization program for inefficient and loss-making public sector institutions across the country. The proceeds from privatizing those entities would be channeled to reduce national debt and develop the fiscal balance in national budgets. That was a commitment that the government made during its agreement with world donor governments at the Paris 2 conference.

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Lebanese parliament ratified a privatization law in 2000 that constituted the foundation for developing initiatives facilitating privatization of several entities in various sectors. The law established the Higher Privatization Council that started functioning in 2001. The International Finance Corporation (IFC) signed an agreement with the Lebanon's Central Bank (which owned 99.37% of MEA’s shares), to help it in the divestment of bank’s shares in MEA. IFC offered assistance in identifying prospective investors, market the venture, and organize international tender for this endeavor. IFC also proposed a number of measures to restructure the troubled company before its privatization, encompassing laying off 1000 unnecessary staff immediately, increasing the productivity of the existing workforce, restructuring the MEA group, rationalizing the route network, and making prudent use of existing fleet2. MEA’s picture has been improving since then with higher reported and expected revenue figures each year.

Alternative Privatization Scenarios Privatization was seen as a significant choice for MEA due to the multitude of factors. It was viewed as a mechanism to elevate public financing, and as a tool to curb inefficiencies and corruption. MEA was foreseen to perform much better under competent independent management separate from political interference. Furthermore, MEA strived to attract the competencies of the private sector so that it could compete in the fiercely competitive airline environment. There were a number of privatization alternatives under consideration ranging from selling entire MEA to forging alliances with strategic partners. Many experts and members of the business community advocated direct selling of the whole airline. Its outright sale could be struck through a worldwide tender and the airline could be offered to the highest bidder. Worker groups and labor unions for obvious reasons opposed this option. In addition, fears mounted pertaining to the inability of the government to solicit willing bidders because of the airline’s deteriorating situation. Cost inefficiencies, over employment and liquidity problems, posed major turn-offs for potential investors. In addition, the unpredictable political environment, caused by the persistent assassination of its national heroes and leaders such as former Prime Minister Rafik Hariri, would not be an attractive feature that would persuade outside investors into such a venture. The alternative scenarios available included an entire liquidation of MEA or complete transfer to the government. The first scenario was not found to be attractive by Lebanese officials because of patriotic and social reasons. About 3,500 employees may end up losing their jobs in case of total liquidation. The second scenario would only worsen the financial condition of the government if MEA were completely acquired by the Lebanese government. Adding MEA to its portfolio would only augment government's deficits undermining its reform programs aimed at national debt reduction, that at last count was running more than $42 billion. Alliance would facilitate the entry of global carrier(s) into the Lebanese market in a manner that would otherwise be unfeasible. An alliance attempts to synergize the efforts of competitive and comparative advantages of various players in different markets in a

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manner where they can complement each other’s core competencies. Alliances make it easy for larger airlines to overcome legal obstacles found in smaller closed markets and for smaller airline to reach a wider network of destinations. Almost all alliances integrate partners from different markets. MEA has had a history of alliances in the past, most notable of which was with Air France.

What’s Next?

John Khoury was contemplating the issue of buying Middle East Airlines for his family business. The airline was obviously doing better in mid 2000 but he wasn’t sure whether his company was ready to invest in such a troubled venture in Lebanon that was a very unpredictable country for potential investment. Though, he felt a sense of duty and fulfillment in salvaging his country’s ailing airline, he wasn’t sure whether moving into that direction made good business sense. He wondered what he needed to do to persuade his brothers (Sam, Ramsey and Rayan) into – at least - considering this opportunity. Teaching Notes available from the first author

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Appendix 1 Middle East Airlines Balance Sheet (LL Thousands)

2001 2000 1999 1998

CURRENT ASSETS

Cash and banks 85,421,793 20,525,257 10,919,460 11,303,685

Receivables, less allowance for doubtful accounts 54,191,214 49,864,231 42,443,789 46,957,446

Equity securities 8,105,044 11,618,136 22,288,991 17,421,000

Inventories and expandable parts 7,637,471 8,594,660 9,222,0 II 9,242,88]

Prepaid expenses ] 9,581,374 18,114,547 17,808,473 16,801,815

174,936,896 108,716,831 102,682,724 101,726,827NON-CURRENT ASSETS

Long-term receivables 35,918,584 29,140,787 26,525,909 23.718,Y45Property and equipment (net of accumulated depreciation) 846,977 868,147 875,520 921,094

Fleet, property, and equipment 27,659,416 33,952,291 35,193,750 29,122,815

Assets revaluation surplus 84,870,717 88,928,683 90,748,321 92,567,958

149,295,694 152,889,908 153,343,500 146,330,812TOTAL ASSETS

324,232,590 261,606,739 256,026,224 248,057,639CURRENT LIABILITIES

Bank overdrafts 47,655,876 43,818,294 54,578,657 57,201,527

Current maturities of long term debts 683,560 575,551 589,894 3,627,763

Accounts payables and accruals 168,910,349 136,471,555 142,247,767 147,357,811

Air traffic liability 30,101,562 33,454,539 33,078,471 30,632,017

Current portion of employees' termination benefits 45,090,056 50,000,000 - -

292,441,403 264,319,939 230,494,789 238,819,118NON-CURRENT LIABILITIES

Long term debts 301,500 - - 45,240

Employees' termination benefits 21,630,368 22,315,260 85,342,033 100,498,985

Provision of contingencies 7,862,666 18,481,878 21,394,573 28,826,005Loan from major shareholder (advance on capital increase) 256,204,176 215,055,048 115,280,285 10,444,000

285,998,710 255,852,186 222,016,891 139,814,230TOTAL LIABILITIES

578,440,113 520,172,125 452,511,680 378,633,348SHAREHOLDERS' EQUITY

Capital 279,000,000 279,000,000 279,000,000 279,000,000

Revaluation reserve 84,870,717 88,928,683 91,560,082 93,379,720

Other reserves 61,014 61,014 61,014 61,014

Cash contribution from mother company 60,300,000 - - -

Accumulated deficit (678,439,254) (626,555,083) (567,106,552) (503,016,443)DEFICIT IN SHAREHOLDERS' EQUITY

(254,207,523) (258,565,386) (196,485,456) (130,575,709)TOTAL LIABILITIES AND SHAREHOLDERS'

EQUITY 324,232,590 261,606,739 256,026,224 248,057,639

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Appendix 2 Middle East Airlines Income Statement (LL Thousands)

2001 2000 1999 1998

OPERATING REVENUES

Passenger 304,116,406 300,722,759 276,552,064 280,076,167

Freight, mail, and excess baggage 24,737,862 25,257,531 26,212,183 27,083,558

Lease, charter, and pilgrimage 1,367,446 1,468,349 1,157,907 9,664,038

Traffic and engineering 15,811,271 20,186,063 10,629,604 9,263,777

346,032,985 347,634,702 314,551,758 326,087,540OPERATING EXPENSES

Flying operations 149,025,539 163,411,339 141,281,831 143,917,331

Maintenance 62,718,979 71,511,211 64,753,702 63,107,539

Passenger service 38,003,205 40,656,393 40,290,918 44,331,008

Ground operations 34,245,277 37,737,117 40,351,870 41,181,520

Promotion and sales 62,964,412 64,837,675 63,249,719 68,379,955

General and administrative 32,975,162 32,886,253 34,940,537 36,415,590

Depreciation 5,669,142 5,545,564 4,895,715 5,030,021

385,601,716 416,585,552 389,764,292 402,362,964

OPERATING (LOSS) (39,568,731) (68,950,850) (75,212,534) (76,275,424)

NON-OPERATING INCOME/(EXPENSES)

Interest expense (17,172,053) (15,048,694) (17,545,058) (9,063,188)

Interest income 360,050 358,281 189,825 598,894Gain/(loss) on sales/disposal of aircraft and spares (1,641,234) 1,780,551 (117,626) 13,384,953

Write-off of B707 aircraft - - - (7,322,545)

Unrealized gain/(loss) on equity securities (3,513,093) (10,670,854) 4,738,482 17,421,000

Income/(loss) from subsidiaries 2,055,257 3,268,485 2,936,324 2,675,518

Cash contribution from mother company 95,467,111 - - -

Reorganization cost (95,467,111) - - -

Other income/(loss) 9,679,567 29,613,327 20,647,348 (2,962,836)

Income/(loss) on exchange (2,197,678) (2,430,176) (1,546,507) (2,193,955)

(12,429,184) 6,870,920 9,302,788 12,537,841NET LOSS

(51,997,915) (62,079,930) (65,909,746) (63,737,583)ACCUMULATED DEFICIT

Balance at January 1 as previously stated (626,555,083) (567,106,552) (503,016,443) (497,844,881)

Write back of revaluation of B747/B707 - - - 51,201,172Write back of revaluation of investments in related companies - 811,762 - -

Write back of depreciation on asset revaluation 113,744 1,819,637 1,819,637 7,364,849

Balance as adjusted (626,441,339) (564,475,153) (501,196,806) (439,278,860)

Net loss for the year (51,997,915) (62,079,930) (65,909,746) (63,737,583)

Balance at December 31 (678,439,254) (626,555,083) (567,106,552) (503,016,443)

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Appendix 3

MEA Milestones 1945 MEA founded

January 1, 1946 Beginning of services 1946 Services to main cities in the region

1955-1960 Expansion of network into Western Europe, India & Pakistan 1960 Purchases of additional land assets and launching of an information

center 1962 Record in operating profits 1963 Merger between MEA & Air Liban 1968 Destruction of most of its fleet due to an Israeli raid on Beirut airport 1974 Expansion of fleet (Boeing 747) – Best service award 1975 Beginning of the Lebanese war 1976 MEA gets best airline management award 1980 Electronic reservation system 1983 Launching of BEY-NY route

1975-1990 Several closures of Beirut airport (around 800 days) meant severe disturbances in operations and market leadership

1991 Launching of Beirut-Singapore-Sydney route 1992 MEA chairman announces $200 million losses due to Lebanese war

(1975-1990) 1992 Government gives MEA exclusivity of passenger air traffic for 20 years 1993 Leasing of Airbus aircraft 1993 Beirut-Colombo (Srilanka) route 1995 Beirut – Brazil route 1996 Central bank of Lebanon takes full control of MEA 1997 Modernization of fleet (4 Airbus aircraft) 1998 Appointment of Mohammad Hout as Chairman 1998 Mounting pressures and losses 1998 Closure of routes to Kano, Kuala Lumpur, Accra, Berlin, Bucharest,

Bahrain, Brussels, Doha, Copenhagen, Sao Paolo, Nice, Bombay, Colombo, and Milan

1999 Alliance with Air France 1999 Service to Tehran launched. Reopening route to Kano 2000 Alliance with Malaysian Airlines – Reopening route to Accra

Open-Skies agreement is passed in Parliament 2001 $30 million losses

2001-2002 Recovery Plan initiated 2002 $3 Million profits 2003 $22 Million profits 2004 Implementation of a new automatic flight system, the Automatic

Firming Procedure 2004 Expansion & modernization of fleet 2004 $50 Million profits

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A LEBANESE FAMILY OWNED “HILAL STORE’S” ENTRY INTO BAHRAIN

Imad J. Zbib, American University of Beirut

Yusuf M. Sidani, American University of Beirut Zafar U. Ahmed, Texas A&M University at Commerce

Siraj Hilal, President and CEO of a family owned and Lebanon-based Hilal Chain Stores, was perusing the fax he just received from Jamil Salem in Bahrain. Hilal was a major shareholder in Hilal Store, the owner of a major supermarket chain across Lebanon, and was pondering over the issue of entering the Bahraini market. Salem was negotiating with a major local supermarket chain (Helwa) in Bahrain to buy them out on behalf of Hilal. Helwa, being a major supermarket across Bahrain, had several stores at key locations, but was suffering from increasing losses during the past few years caused by managerial inefficiencies and overstaffing. The fax explicitly spelled out that Samir Ahlam, the sole owner of Helwa wanted a definite offer from Hilal within a week pertaining to the acquisition. The negotiations have been going on for couple of years and Hilal commissioned a team of top-notch professionals to conduct a marketing feasibility study. He, however, never thought that Ahlam would pressure him pertaining to a definite offer within a week. INTRODUCTION The Hilal Store (THS), established in 1945, was a multi-divisional company, focusing on Retail and Trading as its core business activities, with a turnover of more than USD 80 Million, and growing in double digits annually. THS was the leader in the Lebanese Retail Industry, and operated one of the largest retail chains of 16 Super Stores across Lebanon and some neighboring countries. THS had a market share estimated around 19% across Lebanon and a 10-15% shares in other Arab countries. An ambitious expansion plan was under way to extend THS’s reach across existing countries as well as other countries in the region. In 2002, THS’s management was approached by Helwa, a struggling supermarket chain operating across Bahrain, with an offer to set up a joint venture in Bahrain. THS’s management was immediately attracted to the idea but wanted to examine the feasibility of such a venture.

Historical Evolution

The founder of Hilal Group, the late Jamal Hilal, Siraj’s grandfather, established his business at Sidon, Lebanon in 1945. He started as a retailer of cheese, jam and home-prepared products in a tiny shop in Old City, the traditional part of Sidon. After some initial struggles with low sales, his efforts became more fruitful when he started adding new varieties of products in his shop. Two of his brothers joined the company in the early 1960s adding more strength to the company. Hilal earned such a reputation for quality that the Lebanese army commissioned the company to become among its chief suppliers of jam and other food products. The Hilal Group expanded, and started selling other

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products of other suppliers, that was supplemented later by the import and sale of other food products with enviable success. When the second generation of the Hilal family took over, they were able to move the company further ahead despite the troubling political and security situation across the country. Company’s activities became more diversified and the Hilal Group grew to comprise a group of companies involved in the supermarket business all over Lebanon.

The company imported over 15,000 different products from Saudi Arabia, UAE, Egypt, Syria, Sudan, U.S.A., U.K, France, Germany, Italy, Switzerland, and the Far East. The company had a state of art warehousing system where products were stored, that tracked using an on-line real-time system. THS prided itself in offering customers “the best service, modern atmosphere, variety, quality, and value, unmatched by the competition.” THS was the recipient of numerous National Business Awards during the past few years for its “commitment to excellence and exceptional customer service.”

THS in Lebanon

THS’s high market share across Lebanon proved its market leadership. Though, it had several key locations all over Lebanon, yet its limited expansion outside Lebanon meant that it was not tested on an international level. Lebanon also had not witnessed the entry of major international retail players till very recently. Its only expansion so far was in Jordan, a market that had not faced the entry of major global competitors in the retail industry. THS adopted state of the art IT systems, placed extreme importance on continuous streamlining and updating its supply chain activities, and emphasized first-rate employee recruitment and development. Due to its ability to offer exclusive products, THS was able to command higher prices on several items which sometimes backfired as it gave the perception of an “over-priced’ super-market to its regular consumers. Its consistent and unyielding high quality customer service, however, permitted it to sustain a loyal customer base. The speedy expansion of THS’s operations and branches meant that it had to continuously update its IT, supply chain and logistical support systems proving to be a challenging and costly task, leading one of its mangers, to comment, that “sometimes our logistical support does not catch up to operations’ expansion.” The company’s’ insistence on continuous innovation and development, however, always meant that such challenges were handsomely met. Despite THS’s success, local competitors started copying THS’s strategies. THS faced traditional competition from convenience stores and government operated COOPs. Those were trying to follow suite and copy THS’s marketing practices. Moreover, international chains (such as Spinney’s) were opening new superstores in THS’s core markets thus putting more competitive pressures on THS. International retail competitors such as Spinneys brought recognized global brand names, proven track records, exceptional business models, and strong bargaining power. The local and regional retail industry was also going through tremendous technological changes. In the past few years, the emergence of online shopping drifted certain customers away from traditional stores. This wave did not yet pick up in THS’s markets, but some analysts felt it was bound to happen in the foreseeable future. Despite the fact that THS’s locations were carefully

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chosen to be in prominent accessible areas, further expansion in Lebanon was becoming harder as numerous strategic locations were getting more expensive and accordingly could not be conveniently bought. Despite the above challenges THS continued to enjoy many competitive advantages over other retailers. THS’s endless strategic endeavors were aimed to enhance its market position, penetrate new markets, upgrade its facilities and practices, and take care of its customers and employees. All these initiatives led to THS holding a firm grip over its market share and ensuring consistent growth that was substantiated by strong supplier relations, broad product offerings, continuous desire to sustain customer satisfaction, and adopting cutting-edge technology and solutions. As Siraj Hilal was reflecting on the issue at hand, he started reviewing the marketing feasibility study prepared by consultants pertaining to THS’s entry into Bahrain, whose major highlights are presented below.

Bahrain Country Profile

Economic Profile:

The Kingdom of Bahrain encompasses a total surface area of Area: 693 sq. km. (268 sq. mi.); (about four times the size of Washington, DC.) and is an archipelago consisting of 33 islands, only six of them are inhabited.1 Bahrain is a founding member of the World Trade Organization. It had a history of active commercial activity and its economy was stable. In order to promote foreign entrepreneurship, the Bahrain government enacted regulations in January 2001 giving foreign firms the right to own real estate. Bahrain was also in the final stages of finalizing a Free Trade Agreement with the US. Bahrain has also become a well-known international financial Center and a leading hub for “Islamic Banking” across the region, thereby asserting itself as the ideal regional destination for foreign direct investment. It had an excellent communications system, key and accessible geographic location, superior infrastructure, and a tax-free environment. The Bahraini Dinar (BD) was a freely convertible currency. Table # 1 shows Bahrain’s economic profile. Bahrain’s International Airport was served by more than 39 international airlines, and had been expanded through a major program to handle increased traffic of up to 10 million passengers a year. The national carrier, Gulf Air (whose ownership is shared with Oman, Qatar and Abu Dhabi) provided a comprehensive schedule of regional and international flights. DHL Worldwide Express operated a fleet of seven aircrafts from its regional hub erected next to the airport in Muharraq, handling inbound and outbound shipments between the Middle East and the rest of the world. The major seaport of Mina Sulman could accommodate vessels up to 65,000 tons, and had a container capacity of 150,000 twenty-foot equivalent units (TEU) per year. Although the port was adequate for current volumes of sea-borne freight, plans for an estimated USD 711 million new port and associated industrial zones were initiated. The 1 http://www.umsl.edu/services/govdocs/backgroundnotes/27.htm

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new port would have a capacity of 234,000 20-foot TEUs and would include 1,800 meters of quay with minimum 15 meters water depth designed for containers, general cargo, dry bulk and roll-on-roll-off (Ro-Ro) traffic; small craft berths; a container terminal including container freight station, an aluminum packing shed; and a general cargo area.2 Bahrain had a well-developed road infrastructure, with multi-lane highways running across the country. Bahrain was linked by causeways to Muharraq, the second largest island where the international airport is situated; to Sitra, where the industrial sector was located; and to Saudi Arabia by the 25km long King Fahad Causeway.

Table # 1 Bahrain’s Economic Profile

Economic Factors 1999 2000 2001 GDP (US$ bn) 6.8 8.5 7.9 Real GDP growth (%) 4.3 5.3 4.8 Consumer price inflation (%) -1.3 -0.7 -1.2 Population (m) 0.7 0.7 0.7 Exports of goods fob (US$ bn) 4,363 6,195 5,577 Imports of goods fob (US$ bn) 3,468 4,394 4,047 Current-account balance (US$ bn) -36.7 782.4 146.9 Foreign-exchange reserves excl gold (US$ bn) 1,369 1,564 1,684 Exchange rate BD:US$ 0.376 0.376 0.376

Demographic Profile:

The total population of Bahrain more than tripled between the census of 1971 and 2001 from 216,078 to 650,604. The latest available official population figures for 2002 stood at 672,000. Bahraini nationals accounted for majority of the population, although the proportion has been following a steady decline over the past few decades (as depicted in Table # 2).

Table # 2 Number and Percentage Distribution of Bahrain Population by Nationality (1941 - 2001)

Item 2001 1991 1981 1971 1965 1959 1950 1941Number

Bahraini 405,667 323,305 238,420 178,193 143,814 118,734 91,179 74,040Non-Bahraini 244,937 184,732 112,378 37,885 38,389 24,401 18,471 15,930TOTAL 650,604 508,037 350,798 216,078 182,203 143,135 109,650 89,970Percentage

Bahraini 62.4 63.6 68 82.5 78.9 83 83.2 82.3 Non-Bahraini 37.6 36.4 32 17.5 21.1 17 16.8 17.7 TOTAL 100 100 100 100 100 100 100 100 Source: http://www.bahrain.gov.bh/census/a2.htm

2 http://www.state.gov/www/about_state/business/com_guides/2001/nea/bahrain_ccg2001.pdf

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Bahrain had a rather young and productive population with 35% of the population below the age of 20, and 60% between the age of 20 and 59. This ratio indicates a high proportion of spending consumers. Table # 3 illustrates the population age mix based on 2001 demographics data.

Table # 3 POPULATION BY AGE GROUPS, NATIONALITY AND SEX - 2001

TOTAL NON BAHRAINI BAHRAINI

Age BOTH SEXES FEMALE MALE

BOTH SEXES FEMALE MALE

BOTH SEXES FEMALE MALE

0-4 60,385 29,431 30,954 12,064 5,815 6,249 48,321 23,616 24,705 0-19 232,364 113,296 119,068 39,918 19,231 20,687 192,446 94,065 98,381 20-39 265,754 106,076 159,678 139,222 42,509 96,713 126,532 63,567 62,965 40-59 126,622 44,945 81,677 62,891 13,290 49,601 63,731 31,655 32,076 60+ 25,864 12,638 13,226 2,906 881 2,025 22,958 11,757 11,201 650,604 276,955 373,649 244,937 75,911 169,026 405,667 201,044 204,623Source: http://www.bahrain.gov.bh/census/Part2/01/htm/0602.0.htm

Retail Market Analysis Market Profile:

Bahrain enjoyed a high GDP per capita estimated at US$11,528 that is indicative of a relatively strong purchasing power. In addition, Bahrain’s multi-ethnic market resulted in a wide variety of food products offered locally. The expatriate community throughout the Gulf region impacted the tastes for food consumption and patterns of purchasing across the region. Moreover, Bahraini consumers through their openness to other cultures and continuous travels to foreign countries, (both Western and Eastern), became more conscious of types of foods, their nutritional values, and prices with a willingness to pay extra for quality products. The growing incorporation of Bahraini women into the public life, and their increasing access to the workplace meant greater purchasing inclinations. Table # 4 demonstrates these characteristics of Bahrain’s market.

Table # 4

Changes in Labor Force Size by Nationality and Sex (1971-2001)

Nationality and Sex 2001 1991 1981 1971 Bahraini Male 94,353 73,118 51,949 35,884 Female 32,768 17,544 9,250 1,843 Both Sexes 127,121 90,662 61,199 37,727 Non-Bahraini Male 147,123 113,739 74,230 20,884 Female 34,097 22,047 6,855 1,400 Both Sexes 181,220 135,786 81,085 22,284 Total Labor Force Male 241,476 186,857 126,179 56,768 Female 66,865 39,591 16,105 3,243 Both Sexes 308,341 226,448 142,284 60,011 Source: http://www.bahrain.gov.bh/census/a6.htm

http://www.bahrain.gov.bh/census/a6.htm

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Bahrain also witnessed an explosion in retail activity fueled by the emergence of commercial malls. Those malls accounted for the majority of retail activity; traditional markets and stand-alone shops were losing ground. The Seef District had four of Bahrain’s most popular malls: Seef Mall, Al-A’ali Mall, Dana Mall and Bahrain Mall. Other well-known malls in Bahrain included the Riffa Mall, the Isa Town Mall, the Sheraton Complex, and Yateem Center. Retail industry was expected to expand further with the launch of numerous new malls in Bahrain including one in Amwaj islands, Durrat Al-Bahrain, and others.

Food Retail Market Analysis

Bahrain’s food retail market was characterized by the presence of many retailers. In 2002, there were 11 major retailers operating multi-branch stores across Bahrain, some with only supermarket products and some with additional home center items. Bahrain’s total market size was estimated at BD 86,671,440 per year with a total retail space of 57,718sqm. Table # 5 illustrates Bahrain’s retail market profile.

Table # 5 Retail Industry Profile

Main Indicators

No of retailers 11 No of branches 26 Total retail space (sqm) 57,718 Total daily sales BD 237,456 Total yearly sales BD86,671,440Avg yearly sales per sqm BD 1,502 Avg per capita sales/year BD 172

Big Stores was the top retailer in Bahrain with yearly sales of BD 27.3 Million, giving it a 31.6% market share. It also had the largest store in terms of space. It was the most efficient retailer with average yearly sale/sqm of BD 2,395. The industry average in Bahrain was BD 1,498. Al-Muntazah had the most number of branches (9 branches). Most others had 3 or fewer branches around the island. Khayal had 2 branches. Manama, the capital of Bahrain, had the most concentration of food retail space in the country. Big Stores accounted for more than half of that. Manama also had the highest rate for per capita yearly purchases at BD 327. It is obvious that Manama is attracting customers from all over the country (especially Muharaq). Although Muharaq has a high population count, yet it has a low total of food retail space and a low per capita purchase rate. Issa Town had a significant purchasing power although a small population and a per capita purchases of BD272 per year. However, the most efficient area in terms of sales/sqm was Rifaa. Tables # 6 and 7 summarize the market competitive situation by retailer and by area of operation.

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Table # 6 Competitive Analysis by Store

S.N Store Name Total Space (sqm)

Daily Sales (BD) No. of Stores Yearly Sales

(BD)

1 Big Stores 11,400 75,000 1 27,375,0002 Hayat 9,190 51,000 9 18,615,0003 Helwa 9,140 23,500 5 8,577,5004 Khayal 4,050 18,956 2 6,918,9405 Baradi 4,180 15,000 3 5,475,0006 Jewel 3,530 13,000 3 4,745,0007 Hyperstore 3,800 12,000 1 4,380,0008 Shami 2,300 9,000 1 3,285,0009 Kabeer 6,970 8,000 1 2,920,00010 Familiar 1,200 6,000 1 2,190,00011 Rainbow 1,960 6,000 1 2,190,000

Table # 7

Competitive Analysis by Area

S.N Area Total

Space (sqm)

Daily Sales (BD)

No. of Stores Population

Avg Sale Capita/Year

(BD) 1 Riffa 1,360 15,000 1 79,985 68 2 Muharaq 4,620 20,500 5 91,939 81 3 Hamad Town 1,550 12,000 2 52,718 83 4 Issa Town 6,540 21,500 3 36,833 213 5 Manama 36,939 138,000 12 153,395 328 6 Northern 4,560 20,286 3 43,691 169 7 Sitra 2,150 10,170 2 43,910 85

“Big Stores” was a ‘category killer’ in Manama area and its surroundings. The central area of Bahrain (Rifa, Sitra, Issa Town, and Hamad Town) seemed to provide a huge potential for a Big Stores-like format. The area had adequate offering from small formats, so new competition could offer a differentiator and an alternative for the population from driving north to Big Stores, and instead shop in that area. The largest shop was Khayal’s store in Sitra occupying 2,787sqm. Three formats that seemed to be working in Bahrain were: (1) Large hypermarkets which attracted customers from all over the island thus generating high sales and capturing high market share; (2) Large number of smaller stores around the country; and (3) Few discount stores.

Target Market Analysis

THS’s marketing study for Bahrain further revealed that its target market would consist of Sitra, Issa Town, Central Region, Riffa, and Hamad Town with a target Population of 263,415 (40% of Bahrain’s consumers). The study also revealed that the population in

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the target area included 54% middle income and 12% high-income consumers. Tables # 8, 9 and 10 illustrate the demographics of the target market.

Table # 8

Population Nationality Mix (Target Market)

Area Bahraini % Non-Bahraini % Total % Sitra 29,637 67% 14,273 33% 43,910 17% Central 34,825 70% 15,144 30% 49,969 19% Isa Town 31,461 85% 5,372 15% 36,833 14% Riffa 42,597 53% 37,388 47% 79,985 30% Hamad Town 48,952 93% 3,766 7% 52,718 20% Total 187,472 71% 75,943 29% 263,415 % of Bahrain 47% 31% 41%

Source: http://www.bahrain.gov.bh/census Table # 9

Bahraini Population Gender Mix (Target Market)

Area Male % Female % Total % Sitra 14,873 50% 14,764 50% 29,637 16% Central 17,608 51% 17,217 49% 34,825 19% Isa Town 15,818 50% 15,643 50% 31,461 17% Riffa 21,675 51% 20,922 49% 42,597 23% Hamad Town 24,767 51% 24,185 49% 48,952 26% Total 94,741 51% 92,731 49% 187,472

Source: http://www.bahrain.gov.bh/census Table # 10

Residency Type Profile (Target Market)

Area Villa Villa

Within Complex

Conventional House (Iskan)

Tradition House Building Total

Sitra 985 90 1,713 1,179 243 4,210 Central 2,962 297 1,962 818 417 6,456 Isa Town 432 5 4,442 73 187 5,139 Riffa 4,815 139 2,975 1,981 718 10,628 Hamad Town 887 0 7,697 1 16 8,601 Total 10,081 531 18,789 4,052 1,581 % of Total 29% 2% 54% 12% 5%

35,034

Source: http://www.bahrain.gov.bh/census Although the target market had 40% of Bahrain population, it accounted for 25% of food retail sales and contained only 20% of retail space of the country, reflecting a shortage of retail space, and motivating area residents to head to Manama for shopping. Although the target market population was middle to high income, yet the per capita purchases in a year was almost half of the country’s average, demonstrating shoppers visiting Manama

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to patronize its Malls. There was a shortage of discount stores across the target market. “Last Chance” had only one store controlling 8% market share. The retail format that seemed to be working successfully in the target market was the smaller stores existing along with large stores. Al-Montana was found successful in this format and was top in terms of market share and second in terms of efficiency sale per sqm. The main indicators of the retail market in the target market are presented in Table # 11.

Table # 11 Main Indicators of Retail industry in Bahrain (Target Market)

No of retailers 5No of branches 8Total retail space (sqm) 11,600Total daily sales BD 58,670Total yearly sales BD21,355,880Avg yearly sales per sqm BD 1,841Avg per capita sales/year BD 100

Al-Muntazah was the top retailer in the target market with yearly sales of BD 11.5 Million giving it a 53.7% market share of the retail industry. Baradi was the most efficient retailer with average yearly sale/sqm of BD 2,474, while the industry average in Bahrain was BD 1,498/sqm. The target market average was 1,841/sqm, which was also above the Bahrain average. Issa Town and Sitra had the most concentration of food retail space. The most efficient area in terms of sales/sqm was Rifaa. Issa Town had a significant purchasing power alongwith a small population, (yielding per capita purchases BD272 per year). The retailer with most branches was Al-Muntazah (4 branches in target market). All others had 1 branch. Tables # 12, 13 and 14 summarize the target market competitive situation by retailer and by area of operation.

Table # 12 Competitive Analysis by Store (Target Market)

S.N Store Name Total

Space (sqm)

Daily Sales (BD)

No. of Stores

Yearly Sales (BD)

Market Share

1 Baradi 1,030 7,000 1 2,555,000 11.9%2 Hayat 4,700 31,500 4 11,497,500 53.7%4 Khayal 1,550 6,670 1 2,434,550 11.4%3 Shami 2,300 9,000 1 3,285,000 15.3%5 Last Chance 2,020 4,500 1 1,642,500 7.7%

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Table # 13 Competitive Analysis by Area (Target Market)

S.N Area Total

Space (sqm)

Daily Sales (BD)

Avg Yearly

Sale/sqm (BD)

No. of Stores Population

Avg Sale Capita/Year

(BD)

1 Riffa 1,360 15,000 4,026 1 79,985 68 3 Hamad Town 1,550 12,000 2,826 2 52,718 83 7 Sitra 2,150 10,170 1,727 2 43,910 85 4 Issa Town 6,540 21,500 1,200 3 36,833 213

Table # 14

Top 5 Selling Store Branches (Target Market)

S.N Store Name Location Daily Sales (BD)

Yearly Sales (BD)

1 Hayat Riffa 15,000 5,475,000 2 Shami Isa Town 9,000 3,285,000 3 Hayat Issa Town 8,000 2,920,000

4 Baradi Hamad Town 7,000 2,555,000

5 Khayal Nwaidrat 6,670 2,434,550

Merchandise Considerations

Consumer Profile and Behavior:

The distinguishing factors of potential consumers resembled those in neighboring gulf countries with a mix of nationals and non-nationals co existing in each market, and both groups constituting strong target markets for retailers. Over 50% of the consumer base was under thirty years of age. High and middle-income consumers comprised most of the customer base. Despite the fact that the average consumer yearned for high quality products, price was the most important determinant in each consumer’s decision-making process. This did not mean that consumers had no high expectations of quality and brands. On the contrary, consumers were sophisticated and were well versed about different brands and their distinctive attributes.

Distribution Channels:

During the last two decades, the relative dependence on agricultural-food imports had yielded the development of the infrastructure and import facilities in Bahrain. There were numerous food importers, many of who were also wholesalers, distributors, and retailers; however, five to six companies dominated retail food industry. Local agency laws prohibited the importation and sale of brand name food products by other than the main agent. By law, foreign companies did not require a local agent or partner in order to

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set up or operate a regional office in Bahrain, although foreign companies setting up regional offices found it useful to have some sort of partnership with a local company or individual. Main multinational brands of products existed through the local trade, although Suppliers Service levels average only 75%, a low level compared to best practices across the MENA region. Estimates of profit margins on various products categories are illustrated in Table # 15.

Table # 15

Profit Margin on Various Product Categories Product Margin Imported food and general merchandise 25% to 30% Locally procured frozen products 12% to 22% Locally procured dairy products 8% to 18% Locally procured grocery products 3% to 13%

Helwa was established as a regional Service agency in the 1950s, followed by the opening of the Group’s first grocery store in the Kingdom of Bahrain few years later. Helwa’s activities have since broadened to include fashion and footwear, quick service restaurants, coffee shops, supermarkets and the distribution of fast moving goods. Helwa operated five supermarkets in Bahrain with annual sales of BD 9 million. Its gross profit during initial years of its operations was 16 % and the number of employees was 220. Losses incurred reached around -1% of sales in the past couple of years. Helwa had market reputation as one of the oldest supermarkets in Bahrain, located at prominent locations with ample parking spaces. However, Helwa lacked effective stores management, had a limited assortment and was suffering from managerial inefficiencies and operating losses.

CONCLUSION As Siraj Hilal, CEO and President of his family business, was going over the findings of his research team, he called for a meeting of his top management team to discuss the issue. The management of THS was contemplating to move into Bahrain through setting up a fifty-fifty joint venture with Helwa. The joint venture would take over the Supermarket division of Helwa. THS would take over Management Control of the joint venture as well. The marketing and financial data given to him was interesting, but such a move would entail taking a major entrepreneurial risk. He had lingering questions to answer and he wasn’t sure he had all the information to address them: Should his family business go ahead with the acquisition? Should his family business establish a joint venture with Helwa? Should his company enter Bahrain on its own and forget about Helwa? What risks could be faced if THS starts from scratch in Bahrain? What risks could be faced if it set up a venture with Helwa? In making up his mind, he wasn’t even sure about what more information he needed to have before making up his mind for a multi-million dollar foreign direct investment in Bahrain.

Teaching note available from the first author.

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CHATEAU KSARA WINE COMPANY OF LEBANON

PENETRATING GLOBAL MARKETS: CHALLENGEES AND

OPPORTUNITIES

Fadi Asrawi, Haigazian University Zafar U. Ahmed, Texas A&M University at Commerce

Chateau Ksara in collaboration with the Union Vinicole du Liban – UVL [the association of wine producers in Lebanon] is attempting to position the Lebanese wine in the world market as a prestigious, high quality product. At the same time, a strategy is being executed to protect the local market from increased competition from the cheaper, lower quality foreign brands. This case study analyzes Ksara’s competitive position in Lebanon; its expansion opportunities in the international wine market and assess the effectiveness of its strategies towards achieving its objectives. INTRODUCTION Ksara, Lebanon’s biggest and oldest winery, was established in 1857 and has been producing quality wines ever since. For more than a century, Ksara has been a leader in the Lebanese wine market in terms of production and market share. During its lifetime, Ksara’s major ups and downs have been mainly related to the causes of the Lebanese civil war. Although two other major producers existed in the market, competition has not been fierce. Three other producers consolidated their efforts to keep the local wine the number one selling wine in the country as well as to introduce Lebanon wines across the world alongside France, Italy, Spain, Germany and Austria. Since the main competition to Lebanon came from the renowned French wines, the three local producers instead of competing among each other targeted their products towards international consumer segments keeping the local competition on fair grounds. Locally, their major concern has been to keep the local wines as the lead selling wines across the country. However, during the past decade the Lebanese wine industry has started to witness a major turnover. Since the end of the civil war in 1990, the emergence of both foreign and local (new, cheaper, and poor quality) wines are challenging the major local quality wine producers. Moreover, globally the emergence of a new trend in the art of wine making is reshaping the worldwide wine industry and is putting the renowned global wine making industry at stake.

The Global Wine Industry

The major division in the global wine industry today is between the “Old World” countries and the “New World” countries. The Old Wine World consists of Western European countries such as France, Italy and Germany, while the more recent entrants into the global wine industry, such as the United States, Chile, New Zealand, Australia

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and Canada are considered the New Wine World countries. For approximately 150 years, these New Wine World countries have been learning the wine traditions of Western Europe and are now attempting to master the skills in order to produce fine wines. In very recent history, the New Wine World has equaled the quality of the Old World wine, yet this phenomenon has brought with it a new wine culture, as well as mechanized mass production with which smaller, more refined vineyards of old wine world are unable to compete. Traditional Old World currently has held a market share of 71% of the total world wine industry, while the “New World”, has succeeded in accumulating 29% of total worldwide wine market. The United States has emerged as the fourth largest power in the global wine market. California alone generates more than 90% of the United States wine production, making California, as its own entity, the fifth largest wine producer worldwide. France is particularly alarmed by the demand for New World wines. According to the Bordeaux Wine Bureau, (CIVB) in the past 10 years, French wine consumption across the global market has decreased from 71% to 66%. France is being forced to change its archaic and aristocratic ideals of the wine market due to recent trend towards more creative and less acidic wines. Even their most loyal of neighbors, the Balkan states, have decreased their consumption of French wines, switching over to the consumption of innovative New World wines. Apparently, the impact has been most recognizable in the United Kingdom, where New World wine has become particularly strong, gaining 14% of the market share during the past 10 years, capturing 40% of the United Kingdom’s overall wine market. The New World attitude towards Old World wine is much more positive than the reverse. Each year, the United States imports 124 million gallons of wine, 50% of which originates in France or Italy, while the US exports only 80 million gallons annually, of which, 1.5 million gallons (1.875%) going to France and Italy collectively. The sentiments are not mutual between the two wine worlds; then again, neither are the rules -- an issue that is highly controversial in the wine industry. Wine making techniques differ according to region, terrain and cultural traditions. France, for instance, is infamous for manipulating these differences to imply that the rules governing the international wine industry are not just. The terrain of the New World allows for production of wines that are fruity and high in sugar, while a key element, acidity, is not as readily produced. Therefore, according to the regulations of the International Office of Vines (OIV), the New World participates in "acidification", or the addition of grape acid to their wines. The French have expressed their grievances in accordance with this regulation and have proceeded to refer to New World wines as “manufactured wines”. In Old World grapes there is an overabundance of acid, which at times would prove to be undrinkable in its normal state; therefore the OIV allows them to take part in a process known as “chaptilization”, in order to sweeten the wine. In an effort to protect themselves from the domineering Old World vineyards, the new world wine producing countries, have developed a pact that ensures their acceptance of

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each others’ growing techniques and traditions, allowing them to increase confidence in the industry and play the game by their own new rules. Their ability to create this pact relies solely on the recently formed New World Wine Producers Forum (NWWPF), which compliments more traditional OIV's role, although the OIV is still the governing body of Old World wine producers. Their first initiative in their vision for control of their destiny was to withdraw from the OIV. New World Wines now have their own international alliance, which France refuses to recognize. This “New World” agreement has left the “Old World” growers to acclimate to a new and rapidly transforming global wine culture and market. However many older issues, such as geographical indication, water pollution and a constantly changing agricultural industry, still remain at the forefront of global discussions.

The newly formed Wine Pact among the new world wine producers has given rise to many challenging disputes between these so called New World wine producers and the Old World wine producers. Before the separation of the wine producers, there was one governing body, the OIV. Now, with the recent installation of the NWWPF, there are two standards by which the industry regulates global trade. In signing separate international agreements, the two worlds have increased the dimensions of conflict within the international arena, not to mention the already ailing agricultural sector. With the signing of the Mutual Acceptance Agreement (MAA), the New World producers have formally agreed to their legal standards of international trade, or, in other words, not those to which OIV members conform. Global Crisis So many vineyards have been planted around the world that the production far exceeds the consumption of wines, which continues to go down in Europe while it increases a little bit across North America. An American consumer, for instance, only drinks 13 bottles of wine a year while the French consumer drinks 52 bottles of wine. This is a vast difference. At that rate, it will take a few years to reabsorb the glut of wine in the USA. The major European wine producing nations of France (22%), Italy (20%), Spain (17%), Portugal (4%), and Germany (4%) enjoy 67 percent of the global wine export volume market. The new world countries controlling 29 percent of the global wine export volume market are: (e.g. Australia (8%), Chile (6%), US (5%), South Africa (3%), Argentina (2%), and others (5%)). Old Wine World: The big loser for years has been France. It is sad that a political event, which has nothing to do with wine, brought down its reputation. The sales are down by about 19%. Of course, the amateurs of Bordeaux, Burgundy or Rhône wine will continue to buy, but the smaller appellations are suffering. France, being the biggest producer of wine in the world, can produce wine cheaper than everybody. The inexpensive wines will allow this country to survive well because of economies of scale. France can beat everybody. Unfortunately, because of bad economic situation the consumer has reduced his scope and bought throughout the years more inexpensive wines than before. A $5 wine rarely

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tastes as good as a $50 wine. Maybe, if a rapid economic recovery sets in, this trend will reverse itself. The major markets where France exports its wine are UK, Germany, Belgium, Netherlands, and United States. The Italians every year come up with more and more delicious wines not only made by big producers but small Italian producers also produce sensational wines. The only problem is that their cost structure is high and every year the Italians tend to increase their prices. Within two or three years, this will not be possible anymore, and they will have to reduce their prices to stay globally competitive. The major export markets for Italian exports are Germany, United States, UK, and France. One of the big players in the global wine market is Spain. Besides the traditional regions of Spain (Rioja, Ribera, Rueda), a multitude of new regions are producing great wines at reasonable prices. Montsant, Toro, Somontano, Valdepeaٌs, Borja, Jumilla ,and Navarra are now making wines as good as the other regions. The major markets where Spain exports its wines are: France, Germany, Portugal, UK, and Italy. The “Old World” saw its weakest wine sale and harvest during the past 10 years. The drop in production is primarily the result of the heat wave and drought that hit central and southern Europe during the 2004 summer months. Production is not expected to increase significantly in the near term due to policy controls. This is the fourth year in a row that wine production has dropped across the old world. Per capita wine consumption is decreasing in some countries, such as Italy, France, and Spain. In addition, the planting of vines is strictly regulated and controlled by governments in terms of acreage and allowed varieties. Governmental controls remain in place to encourage the production of quality wines while discouraging the production of poor quality. New plantings of wine grapes are prohibited until July 21, 2010 except under certain exceptional circumstances. New Wine World: “New World” wine producers such as Australia have increased wine production. The Australians have made a great penetration of the US market. Most of their wines are commercial wines with great flavors and prices below $10 per bottle. 90% of the wine trade of Australia is controlled by four big companies (such as Southcorp wine company, Hardy wine company, Orlando Wyndham wine company, and Beringer Blass wine company). Only Western Australia has small growers focused on quality, but their prices are high because they do not have economies of scale. Australia has not yet demonstrated a style or specific varietals, which would give Australia a name in the world wine industry. The major global markets where Australian wines are in high demand are: UK, United States, New Zealand, and Canada. Chile is in a good situation compared to others. The Chileans have moderately priced wines but have an incredible aggressiveness to promote their wines. It seems to be rewarding. The major markets where Chile exports its wine are United States, UK, Canada, and Denmark.

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California continues to swim in a lake of wine due to over planting six or seven years ago. Great global deals could be struck with the Californian wineries. U.S. wine exports, after leveling off during the last few years, took off again to reach a record high of $634 million. U.S. wine imports have also hit a record $3.3 billion as domestic producers continue to battle for market share at home. The greatest competition to the market share for U.S. wines come from the EU-15 nations, though some of the “New World” producers has become significant competitors as well. The major markets where United States exports its wine are UK, Canada, Japan, and Netherlands. Argentina has been making great strides over the years, and is determined to be recognized on the global stage for its great wines. Its brands, Malbec, Merlot and Cabernet-Sauvignon, are doing very well across the world. Argentina has plenty of land to plant grapes in high altitude and obtain world-class wines. The major markets where Argentina exports its wines are: Russia, South Africa, Paraguay, United States, and UK. Canada is the number two export market for the U.S. wines. The Canadian wine industry receives generous governmental support. The major markets where Canada imports its wine are France, Italy, Australia, and United States, and its major export markets are: USA, Taiwan, Japan, UK and Hong Kong. The United Kingdom is the world’s largest importer of wine and the largest market for U.S. wines. The United Kingdom does produce a very small quantity of mostly white wines. United Kingdom consumers are buying more wines, often at the expense of beer. This trend is expected to grow with consumers learning more about wines and trading up to more expensive wines. The largest consumer segment for wine consists of those in 35-49 age group in the middle and upper-middle classes. The major markets where UK imports its wine are France, Australia, Italy, United States and Spain.

Table 1 – Major Global Producers of Wine

COUNTRY PRODUCTION (in m-hectoliters)

EXPORTS $ (in Millions)

IMPORTS $ (in Millions)

FRANCE 51.97 $6,600 $565.6 ITALY 47.2 $3,200 $273.7 SPAIN 36 $1,700 $106.9 AUSTRALIA 9.9 $1,500 $106.2 CHILE 5.8 $680 $0.894 US 3.58 $634 $3,300 ARGENTINA 12.7 $175.6 $1.2 S. AFRICA 9.6 $428 $12.5 CANADA 0.871 $48 $852 UK 0.009 $238.6 $3,600 HOLLAND 0No prod? How does it

export? $140.8 $790.6

JAPAN 1.1 $39 $995 Source of 2003 Data from Global Trade Atlas

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The top exporters of wine are: France, Italy, Spain, Australia, United States, and Argentina, while the top importers of wine are UK, United States, Japan, Canada, and Holland. The highest consumption of wine per capita is in France, Italy, United States, UK, Spain, and Australia.

Historical Evolution of Wine Industry Across Lebanon Winemaking in Lebanon has an illustrious past that can be traced back 4,000 years to a time when the Phoenicians cultivated vineyards and traded their wines along the Mediterranean routes, introducing viniculture to many parts of southern Europe. Barrels of wine were shipped out from the thriving ports of Tyre, Sidon and Byblos to various international destinations including Egypt, during the reign of the Pharaohs. A few centuries later, came the advent of Romans whose taste for the ‘nectar of the gods’ was renowned. As a tribute to the god of wine, they built the magnificent Temple of Bacchus at Baalbeck, a divine witness that still stands in all its glory, to this day, providing Lebanon with one of its greatest tourist attractions. The unique qualities of Lebanese wines have made them popular across the world, mainly owing to the fertile soil and exceptional climatic conditions of the Bekaa Valley, the national vineyard of Lebanon. With an average of 240 days of sunshine complemented by about 600 millimeters of annual rainfall, the valley is globally renowned as an ideal place for world-class grape cultivation. Winemaking is a growing industry across Lebanon and the product is in great demand, illustrated by the fact that in the past decade or more, the amount of wine produced and exported from Lebanon has more than doubled and is gaining popularity far beyond the Mediterranean region. Table # 2 shows the historical evolution of different wineries across Lebanon.

Table # 2 --- Lebanon’s Major Wine Companies Ksara Kefraya Musar Wardy Massaya Clos St

Thomas Year Established

1857 1982 1930 1997 1998 1997

Tons of Grapes 2000 1700 1000 NA NA 350 Bottles Produced

1,800,000 900,000 800,000 500,000 530,000 175,000

Lebanese Market Share

35% 25% NA NA NA NA

Exports 49% 40% 80% 65% 70% 80% Distributors Chateau

Ksara Neo Comet

Chateau Musar

Gabriel Bocti

G. Vincenti & Sons

Clos St Thomas

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The oldest winery in Lebanon (established in 1857) that is still in operation to this day is Château Ksara, in the Bekaa Valley. Other wine making companies to follow have been: Nakad (1923), Musar (1930), Kefraya (1982), Clos St Thomas (1997), Kouroum Kefraya (1997), Wardy (1997) and Massaya (1998). This, however, is not the end of the list as there are numerous micro wineries (Bacchus, Domaine des Tourelles), and monasteries (Annaya), that also produce small quantities of wines. From the fabled wine of Qana to modern day Lebanon, the Lebanese wine industry has traveled a long way, but emerging victorious after enduring 15 years of traumatic hardships during Lebanon’s bloody civil war (1975—1990). The list of locally produced wines is growing steadily. In addition to three major wineries of Lebanon: (Kefraya, Musar, and Ksara), Lebanon boasts to have another 5 small wineries: (Clos St Thomas, Nakad, Wardy, Kouroum Kefraya and Massaya). Thanks to the concerted efforts of these 8 wineries, 40% of Lebanon’s annual five million-bottle output is sold worldwide. Strong tradition, unique soil, and perfect climate for 9 months of sunshine each year, are the main factors responsible for the production of high quality wines in Lebanon. Major wine firms are jointly collaborating under the umbrella of their national platform, the Union Vinicole du Liban (UVL), established in 1997, and are lobbying for enactment of laws to regulate the business in the country. The upcoming establishment of the National Wine Institute, jointly sponsored by the UVL and the Lebanese government, will be the center for viticulture (the science of the growing of grapevines), viniculture (wine production, analysis, and quality control), and responsible for marketing and promotion of Lebanese wine around the world. The institute will also act as the regulating body of the Lebanese wine industry: tracking down the bulk-quantity wine importers who are bottling wine in Lebanon and selling them as locally made products. UVL is also fighting the invasion of foreign wine brands into the local marketplace. Foreign wines, which are enjoying a 30% market share and increased consumption, especially those imported from East-European countries such as Bulgaria and Romania, or more quality wines from France, Spain and Italy, are becoming cheaper, although currently a 70% tariff exists on such imports. However, with the execution of the Lebanese trade agreement with the EU soon, this tariff will slash to zero, turning foreign wines into a real threat to the local wine industry. Wine prices in the international markets are on constant decrease, making the marketing of Lebanese wines across the world a major challenge. Even the French, who were in the past noted as the wine masters of the world, have started to lose ground to the ‘New World’ wineries established across California, Australia, New Zealand, South Africa, Chile, and Argentina etc. These newcomers are invading the dynamic British market where, on average, 20 liters of wine is drunk per person annually. One major strategy that paved the way for these brands to become famous is the generic campaigns that their countries have carried out worldwide to build their brand images as wine producers. Global consumers are now aware of such new wine brands and individually New World brands are promoting their brands taking the advantage of the newly built profile of their wines in the international markets.

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Lebanese wine does not enjoy this same notoriety abroad. Lebanon still enjoys an image of “civil-war, hostages, terrorism, and assassination”, further cemented by the recent assassination of a popular former Prime Minister (Rafik Hariri). Very few wine consumers around the world are aware of Lebanon’s wine producing competencies. About one third of the Lebanese wine production is exported mainly to the UK, Ireland, France, Sweden, Germany, USA, Canada, and Japan etc. Lebanese wine exports generate revenues of around $7.5 million per year.

Table # 3 -- World Wine Consumption (in Thousands of Hectoliters) 1997 1998 1999 2000 2001 Average

97- 2000

Lebanon 268 176 160 148 145 188

Table # 4 -- World Wine Production (in Thousands of Hectoliters)

1997 1998 1999 2000 2001 Average 97- 2000

Lebanon 248 186 188 188 195 202

Table # 5 -- Exports in Wine Q (Metric ton) Value US $ (000) Unit Value (US $)

Lebanon 1397 7962 5699

CHATEAU KSARAWINE COMPANY OF LEBANON: A CASE IN POINT

KSARA – Lebanon’s biggest and oldest winery boasted a 35% market share of Lebanese wine industry in 2004, by producing two million bottles with revenues of around $6.5 million. The winery harvests nearly seven tons of grapes per hectare of its 300 hectares on average. Ksara exports 49% of its wine, mainly to France, which takes around 250,000 bottles. Historical Perspective: In the heart of the Bekaa Valley, near Baalbeck, lies the KSARA estate, so named because it was the site of Frankish Ksar, or fortress, at the time of Crusaders’ occupation of Lebanon. The property that was acquired by the Jesuit Fathers in 1857 was already famed as a vineyard. Ksara’s natural wine cellar was a grotto discovered by the Romans.

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Its tunnels were reportedly enlarged to their present size during World War I, when the Jesuit Fathers sought refuge there, while trying to alleviate famine in Lebanon by creating employment. One hundred men worked underground for four consecutive years to complete the elaborate network of tunnels stretching for almost two kilometers (about 2,000 yards). The temperature in the tunnels is ideal for wine, varying throughout the year from 11 to 13˚C. Jesuit fathers pioneered the introduction of high-quality vines in Lebanon through good varieties, enjoying the exceptional climatic conditions in the Bekaa. Their neighboring vineyards of Tanail, an estate that also belonged to the Jesuit Fathers, also supported the process. KSARA came into the hands of its present owners in 1973, when the Jesuit Fathers decided to sell the estate in conformity with the directives of the Vatican II synod. Charles Ghostine now manages it; a lawyer who loved making wine so much that he also joined the management of the most ancient winery in Lebanon. KSARA’s estate is planted with a wide variety of grape wines, of which the most important are Cabernet-sauvignon, Syrah, Semillon, Grenache, Sauvignon-Blanc, Cinsault, and Merlot. KSARA’s wine has been described as robust dry and fruity, with a strong personality. The numerous international awards won by this great estate further confirm the quality of its superb wines. KSARA’s Culture: Climatic conditions in the Bekaa provide KSARA vineyards with exceptional advantages. There is almost no rainfall during the growing season and diseases seldom strike the vines. Downy mildew and colding month worms are rarities and do not demand treatment. ‘Botrytis rot’ does not exist here and so there is no reason to be worried about the harvest. KSARA’s grapes are grown organically without the use of pesticides and herbicides. Harvesting is done by hand and there is no need for selection because the grapes reach ripeness without fear of ‘botrytis rot’. The wines of KSARA ageing is done in spacious underground galleries where appropriate temperature is maintained for bringing wine to its peak of perfection. The cavern used for the aging process was discovered in Roman times when a fox pursued by a pack of hounds was seen disappearing into the ground through a cleft in the rocks. International Presence: Ksara has been able to penetrate international markets through local distributors. Its products are exported to 19 countries across Europe, Australia, Canada, USA, Brazil Paraguay, Japan, Bahrain and UAE. It is also an energetic exhibitor on the international stage, regularly attending the major wine fairs in London, Bordeaux, Verona and Düsseldorf. Competitive Position: Until the mid 1990s, Ksara, Kefraya and Musar dominated the market. Since then, old companies, such as Nakad, started re-penetrating the market, and newcomers, Massaya, Wardy, Clos St Thomas, Kouroum de Kefraya and others managed to take a small share

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from the market. At present, the number of local wine producers has reached eight, collectively controlling 70% of the local wine consumption. Chateau Kefraya: Situated in the heart of Lebanon, in the Bekaa valley, Chateau Kefraya expands its 300 hectares domain to the foothills of the Mount Lebanon, 20 km to the south of Chtaura city. Its vineyard is planted in a succession of terraces and hills having abrupt slopes, at an altitude of 950 to 1100 meters on clayey, limy and stony soils, together with an exceptional sun lighting - six to seven months a year without any precipitation. Its winery is located in the middle of the domain, fitted with highly sophisticated equipment allowing the manually gathered grapes to be conveyed, picked off from the bunch, vinified and pressured very carefully. These two features have allowed the elaboration of a special and authentic wine character to Chateau Kefraya. This estate has received great praise from wine critics the world over, wine magazines such as the wine advocate, Decanter, Civart 1995, and the Revue Le Paysan Francais. They have all praised Kefraya as a truly great wine. Carignan, Syrah, Mourvedre, Grenache, Cinsault, Cabernet-Sauvignon, Clairette, Boubounlenc and Chardonnay are used in the production of this internationally renowned wine. Massaya: Massaya is a French-Lebanese collaboration whose estate is at Tanail. The partnership brought together Hubert de Bouard de Laforest, co-proprietor of Chateau Angelus with Dominique Hebrard, former co-proprietor of Chateau Cheval Blanc and Daniel Brunier, co-proprietor at Le Vieux Telegraph. This prestigious Franco-Lebanese collaboration has united great men of wine and has brought into being its first vintage in 1999. Clos St. Thomas: Clos St. Thomas is located in Kab Elias, where the hills of Mount Lebanon meets the plain, and is a newly established winery. Clos St Thomas was established by Said Touma, with his long family tradition of 100 years in wine making. Though still in its infancy, they produce 175,000 bottles, of which 80 percent are exported to Europe, and North America. Chateau Musar: Chateau Musar which produces an outstanding, fine, full-bodied red wine that would put up a very good fight against the best of the French wines was founded in 1930 by Gaston Hochar within an 18th century castle. It is located at Ghazir, 15 miles north of Beirut in Mount Lebanon. Following an expansion of the cellar in the late 1950's, Chateau Musar is able to store more than one million bottles of wine. A family concern, Chateau Musar is owned by Gaston Hochar's two sons, Serge and Ronald. The vineyards of Chateau Musar are located at an altitude of over 3,000 feet (1,000 meters) in the Bekaa Valley where the surrounding mountains running parallel to the Mediterranean coast shelter the vines. The

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vineyards of Chateau Musar cover 130 hectares, produce a limited yield of about 25 hl/ha, resulting in approximately 20,000 cases of the "Chateau Musar" wine, and a production of different other wines. Chateau Musar attained international notoriety during the wine fair of Bristol in England in 1979, where wine media named it the "find of the fair". Following this event, Chateau Musar's reputation reconfirmed itself in most other European countries, as well as across the United States, Canada, and in some Asian countries. Decanter Magazine paid tribute to Serge Hochar's achievements by nominating him "Decanter Man of the Year" in 1984. During the era of civil war carnage in Lebanon, Chateau Musar managed to consistently produce high quality wines, leading the "Wine Spectator" magazine to use headlines such as: "Chateau Musar makes great, age worthy reds amid the chaos of Lebanon's war". Chateau Musar exports more than 80% of its total annual production throughout the world. Musar: Musar is the first Lebanese winery to become a member of the Office International de la Vigne et du Vin (OIV). Its wines are the spearhead of the Lebanese wine industry; setting it on the international stage of quality vintages. Ksara, Kefraya, and Musar have set the pace for many other wineries in the country. Besides being the biggest producer, Ksara has been able to defend its market share against the competition from old and new local producers and foreign imported products. It has successfully increased its production over the years (from 1.2 million bottles in the early 1990s to 1.8 million in 2004). Although the competition is getting stronger, each of the Lebanese wine making companies has managed to position its products as a quality wine, but in a different way. Ksara, for example, has been able to create an image of having the best-value range at all price levels, whereas Kefraya red wine (compte de M) and Wardy’s white wine are perceived the best in their categories.

CONCLUSION Ksara’s, as a proud symbol of Lebanon’s cultural wine heritage has emerged as a leader of Lebanon’s wine industry and has maintained its leadership position for more than a century. However, in the contemporary environment of globalization characterized by EU-Lebanon trade agreement, Ksara has been encountering new challenges. For instance, it needs to learn how to compete with the competitively priced foreign imported wines products available across Lebanon, (especially when tariffs on imported wines, currently at 70% will slash down to zero). Stiff foreign competition on the soil of Lebanon has created a kind of unity among Lebanese wine producers, under the umbrella of UVL and through the creation of the national wine institute. In addition to government funding sought (probably in the form of tax reduction), local wine producers are looking for ways to reduce the cost of local wine bottle to be able to compete, especially against the European bottles (mainly Bulgarian Varietals, one-grape wines and high-end French labels).

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Lebanese consumption of wine, (although growing at 10% per year), cannot continue to be the major source of revenue for Ksara due to its small population and modest per capita consumption. Lebanon is exporting 40% of its wine to over 50 countries. Ksara is leading in terms of number of bottles exported, followed by Musar. However, it is the latter who claims placing Lebanon on the world’s wine map.

Appendix # 1 KSARA’s Vineyards

KSARA ESTATE: There are 20 hectares (50 acres) of noble varietals such as Sauvignon, Chardonnay, Grenache and Cabernet-Sauvignon. Yields are low from a clay/chalky soil, but the wines it produces are concentrated, aromatic and possess a marked personality. MANSOURA: 80 hectares (200 acres) of Cinsault, Cabernet-Sauvignon, Gamay, Syrah, Cabernet-Franc, Tempranillo, Petit Verdot and Grenach varietals on small vineyards on a brick-red clay / Chalky soil produce intense, supple and aromatic wines with good ageing qualities. TANAIL: Half of Tanails’s 240 hectares (600 acres) is under vines and all of its grape harvest comes to KSARA’s cellars for winemaking. Varietals at Tanail are Cinsault, Grenache, Carignan, Muscat, Ugni Blanc and Sauvignon. The soil ensures late maturity that prevent over-ripening and the grapes produce light, lively and graciously fruity wines. KHIRBET KANAFAR: The 50 hectares (125 acres) of the Khirbet Kanafar vineyards belong to KSARA and are planted with noble varietals: Semillon, Sauvignon Chardonnay, Clairette, Syrah, Cabernet, Sauvignon Caladoc, Merlot and Mourvedre. The Khirbet Kanafar vineyards cover broken slopes of clay / Chalky soil with remarkable qualities for cultivating vines, permitting several varietals to develop their potential. The red wines are rich, fleshy and tannic, while the whites are delicate and aromatic and with good length. TALL DNOUB: There are 30 Hectares Lime and Clay Soil. Grape varieties: Petit Verdot, Merlot and Cabernet Franc. KAB ELIAS: There are 11 hectares on the ethils of Kab Elias, on of KSARA’s highest vineyards, at 1400m altitude. There's a presence of Salty and gravelly soil over the limestone bedrock. Grape varieties: Muscat and Merlot. HOUMMAR: There are 6 Hectares grave and lime. Grape varieties: Cabernet Sauvignon.

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AN EXAMINTION OF ENTREPRENEURIAL ORIENTATION: A

VALIDATION STUDY IN 68 COUNTRIES IN AFRICA, ASIA, EUROPE, AND NORTH AMERICA

Shawn M. Carraher, Cameron University

Utilizing samples of Entrepreneurs/Small Business Owners from Africa (n = 2689), Asia (n = 403), North America (n = 2794) and Europe (n = 4616) the dimensional nature of an individual level measure of entrepreneurial orientation designed by Carraher (1998) is examined. Carraher (1998) in samples from North and South America found the 6-item instrument to be unidimensional. It is suggested that additional research should be performed examining the construct of entrepreneurial orientation.

INTRODUCTION Over 15 years ago Cunningham and Lischeron (1991) examined the state of the art of the entrepreneurship literature and found four main areas of study. These included the study of the personal characteristics of entrepreneurs, the recognition of opportunities by entrepreneurs, the management and leadership styles of entrepreneurs, and intrapreneurship or corporate entrepreneurship – entrepreneurship within existing ventures. A much under-examined area that, at times, can combine all four of these areas of study is the study of entrepreneurial orientation. Lumpkin and Dess (1996) define entrepreneurial orientation at the organizational level as “the processes, practices, and decision-making activities that lead to new entry” (p. 136). It includes the constructs of autonomy, competitive aggressiveness, innovativeness, proactiveness, and risk-taking. Smart and Conant (1994) proposed that individual level entrepreneurial orientation should include the following six dimensions: 1. the propensity to take risks; 2. the tendency to engage in strategic planning activities; 3. the ability to identify customer needs and wants; 4. level of innovation, 5. the ability to persevere in making your vision of the business a reality; and 6. the ability to identity new opportunities. Carraher (1998) based upon the groundbreaking works of Smart and Conant (1994) and Lumpkin and Dess (1996) designed two individual-level entrepreneurial orientation scales – a general one with 6 items and a personality-oriented one with 34 items. In the present study the dimensional nature of the 6-item entrepreneurial orientation with samples from four continents is examined using data from 68 countries.

RESEARCH METHODOLOGY The samples included Entrepreneurs/Small Business Owners from Africa (n = 2689), Asia (n = 403), Europe (n = 4616) and North America (n = 2794). They were from the following 68 countries: Andorra, Angola, Austria, Belarus, Belgium, Benin, Botswana, Bulgaria, Burkina Faso, Canada, Central African Republic, China, Cote d’Ivoire, Czech Republic, Denmark, Eritrea, Ethiopia, Estonia, Finland, France, Gabon, Germany, Ghana, Hungary, Ireland, Japan, Kenya, Latvia, Liberia, Liechtenstein, Lithuania, Luxembourg,

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Madagascar, Malawi, Malaysia, Mauritius, Mexico, Moldova, Mozambique, Myanmar, Namibia, Netherlands, Niger, Nigeria, Norway, Poland, Portugal, Singapore, Slovakia, Slovenia, Spain, South Africa, South Korea, Sudan, Swaziland, Sweden, Switzerland, Tanzania, Taiwan, Thailand, Togo, Ukraine, United Kingdom, United States, Vietnam, Yugoslavia, Zambia, Zimbabwe. The gender distributions of the respondents were as follows: Africa (47% male, 53% female), Asia (61.5% male, 38.5% female), Europe (41.4% male, 58.6% female), and North America (50% male, 50% female). Questionnaire Design: The questionnaire included the 6-item general Entrepreneurial Orientation scale from Carraher (1998). Entrepreneurial Orientation was responded to on a 5 point Likert type scale (Carraher, 1998). Previously it had been found to have high test-retest reliabilities of .85 (1-month) and .82 (6-month) (Carraher, 1998). The coefficient alpha reliability estimates for the scale ranged from .926 (North America) to .930 (Asia) to .931 (Europe) to .941 (Africa). The data collection process used the back translation processes in order to assess whether or not the items were being properly translated in to the local trade languages in the countries within the study. The items were translated from English to the local trade language then back to English again by a team of translation experts as part of their formal training and evaluation. In a sample of Chinese students Parnell, Shwiff, Yalin, and Langford (2003) found a coefficient alpha reliability estimate of .725 with a non-Chinese (English) version of the questionnaire. Data Analysis: Each data set was subjected to a principal components analysis using a combination of the parallel analysis criterion, the subjective scree test, the CNG scree test, and the eigenvalue greater than one criterion as the retention rules. All four tests had 100% agreement in determining that a one-dimensional solution was optimal for these data sets. Table 1 shows the results of the principal components analyses. As should be clear from Table 1 in all four samples support was found for a single dimensional structure for the entrepreneurial orientation scale.

DISCUSSION AND CONCLUSIONS

Based upon the results of the current study it would appear that the short individual-level general entrepreneurial orientation scale of Carraher (1998) does appear to be unidimensional – however it could still be useful to seek to replicate these findings within these and other cultures and countries (Carraher, Carraher, & Whitely, 2003; Carraher & Whitely, 1998; Parnell & Carraher, 2005) – especially looking at the general population as opposed to business owners.

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Table 1 – Principal Components Analysis Africa Asia Europe North America EO1 .760 .726 .741 .736 EO2 .955 .956 .947 .953 EO3 .884 .927 .853 .882 EO4 .930 .928 .920 .919 EO5 .954 .956 .947 .911 EO6 .791 .621 .777 .710 Eigenvalue 4.671 4.463 4.522 4.407 EO1 = I consider myself to be entrepreneurial. EO2 = I desire to be self-employed. EO3 = I planned to own my own business. EO4 = I plan on opening my own business at some point in the future. EO5 = I have a strong desire to own my own business. EO6 = I aspire to be my own boss. A second area for potential research that could prove fruitful would be to examine the content and construct validities of various facets of entrepreneurial orientation for SME owners and entrepreneurs within the U.S. and across cultures (Carland, Hoy, Boulton, & Carland, 1984; Carland, Hoy, & Carland, 1984). This should likely begin with qualitative research seeking to examine the underlying content and constructs of entrepreneurial orientation for business owners and non-business owners. Very little basic research has been performed examining how subjects of interest actually perceive of the construct as opposed to how we believe that they should view it (Carraher & Buckley, 1996). In the current study this was done post hoc with the examination of what the business owners might consider to be promotions and whether or not they felt that they had a boss. These questions were asked due to the lower sizes of the loading for Question 6 – I aspire to be my own boss – as compared with the other items. Based upon the post hoc interviews with the owners, it was found that many of the business owners did feel that they had a boss. Most often they perceived their “boss” to be either their spouse or the individual supervising their marketplace complexes [the individuals overseeing their place of business whether a landlord or a mall supervisor]. The business owners additionally considered promotional opportunities to include starting a potentially more profitable business, opening a larger store, or gaining employment working for someone else at a higher rate of income – which was not expected. Additionally researchers may need to become better aware of the characteristics that give individuals the ability and motivation to differentiate between potentially multidimensional measures. In research, we may often develop tunnel vision in our areas of study and believe that we know how a population should perceive variables of interest.

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For instance, suppose that a survey asks subjects to rate the usefulness of anthraquinone-glycidyl methacrylates, phenonlsulfonphthalein, acrylated azo, poly (2-vinylanthoquinones), chromorange GR, coumaric acid, fluorescein, erythrosine B, and vinyl malachite green (copolymerized with N-vinylcarbazol) as polydyes? While individuals in industrialized societies deal with polydyes such as these nearly every day of their lives (e.g., dyes in clothing, paint on cars, in computer mouse pads), it is unlikely that most populations of interest other those polymer chemists and material scientists would see this survey as containing three clear dimensions (see Carraher, 1990). A researcher deeply involved in this context might expect that respondents should quite clearly see that the first three items are all good for use as polydyes, the second three make just moderate polydyes, and the last three are poor polydyes. Furthermore, the researcher may expect that this survey should have perfect test-retest reliability as the properties of these polymers should not change over time. However, the terminology used in this questionnaire is unfamiliar to most non-polymer chemists and therefore the reliabilities, validities, and number of observed dimensions measured through the questionnaire will likely change from sample to sample. When developing or applying any measure, researchers need to seek to understand how various populations of interest naturally perceive of the constructs being considered rather than impose the researcher’s belief of how subjects should conceptualize constructs in those areas (Sturman & Carraher, in press). This is especially true in entrepreneurship research where the definition of “entrepreneur” is still open to debate. Based upon the ground-breaking work of Smart and Conant (1994) it would also be useful for future research to examine the relationship of this – and other scales purporting to measure entrepreneurial orientation – to customer service orientation (Carraher, Carraher, & Mintu-Wimsatt, 2005), performance (Carraher, Franklin, Parnell, & Sullivan, 2006), and to general personality variables such as polychronicity (Carraher, Scott, & Carraher, 2004), learning styles (Carraher, 1995), the Big Five Personality variables (Chait, Carraher, & Buckley, 2000), or even attitudes towards benefits (Hart & Carraher, 1995). This could help lay the groundwork for identifying where in the overall construct constellation of personality factors, facets, and constructs entrepreneurial orientation would fit. In conclusion in the present research the dimensional nature of the 6-item general individual-level entrepreneurial orientation scale is examined using four samples of small business owners totaling 10,502 from 68 countries in Africa, Asia, Europe, and North America. A one-dimensional sample was found in all four of the samples supporting the unidimensional nature of the instrument. Future research is suggested with particular attention to identifying how populations of interest actually perceive of entrepreneurial orientation rather than assuming that all populations would view it in the same manner. It is also suggested that it may prove fruitful to examine where the entrepreneurial orientation construct would fit in the overall construct constellation of personality factors, facets, and constructs.

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REFERENCES Carland, J., Hoy, F., Bolton, W., & Carland, J. (1984). Differentiating entrepreneurs

from small business owners: A conceptualisation. Academy of Management Review, 9, 354-359.

Carland, J., Hoy, F., & Carland, J. (1984). Who is an entrepreneur? Is a question worth

asking. American Journal of Small Business, 12, 33-39.

Carraher, C.E. (1990). Polymeric dyes. Polymer News, 15, 301-306. Carraher, S. (1995). On the dimensionality of a learning style questionnaire.

Psychological Reports, 77, 19-23. Carraher, S. M. (1998). Manual for the Individual-Level Entrepreneurial Orientation

Scales. Indiana University. Carraher, S. & Buckley, M. R. (1996). The effect of cognitive complexity on the

perceived dimensionality of the PSQ. Journal of Applied Psychology, 81, 102-109.

Carraher, S., Carraher, S.C., & Mintu-Wimsatt, A. (2005). Customer service

management in Western and Central Europe: A concurrent validation strategy in entrepreneurial financial information services organizations. Journal of Business Strategies, 22 (1), 41-54.

Carraher, S., Carraher, S.C., & Whitely, W. (2003). Global entrepreneurship, income,

and work norms: A Seven country study. Academy of Entrepreneurship Journal, 9 (1), 31-42.

Carraher, S., Franklin, G., Parnell, J., & Sullivan, S. (2006). Entrepreneurial service

performance and technology management: A study of China and Japan. Journal of Technology Management in China, 1 (1), 107-117.

Carraher, S., Scott, C., & Carraher, S.C. (2004). A comparison of polychronicity levels

among small business owners and non business owners in the U.S., China, Ukraine, Poland, Hungary, Bulgaria, and Mexico. International Journal of Family Business, 1 (1), 97-101.

Carraher, S. & Whitely, W. (1998). Motivations for work and their influence on pay

across six countries. Global Business and Finance Review, 3, 49-56. Chait, H., Carraher, S., & Buckley, M. (2000). Measuring service orientation with

biodata. Journal of Managerial Issues, 12, 109-120.

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Cunningham, J. & Lischeron, J. (1991). Defining entrepreneurship. Journal of Small Business Management, 29 , 45-61.

Hart, D. & Carraher, S. (1995). The development of an instrument to measure attitudes

towards benefits. Educational and Psychological Measurement, 55, 498-502. Lumpkin, G. T., & Dess, G. G. (1996). “Clarifying the Entrepreneurial Orientation

Construct and linking it to Performance”. Academy of Management Review, 21: 135–172.

Parnell, J. & Carraher, S. (2005). Validating the management education by Internet

readiness (MEBIR) scale with samples of American, Chinese, and Mexican students. Journal of Education for Business, 81 (1), 47-54.

Parnell, J., Shwiff, S., Yalin, L., & Langford, H. (2003). American and Chinese

entrepreneurial and managerial orientations: A management education perspective. International Journal of Management, 20 (2), 125-137.

Smart, D. & Conant, J. (1994). Entrepreneurial orientation, distinctive marketing

competencies and organizational performance. Journal of Applied Business Research, 10 (3), 28-38.

Sturman, M. & Carraher, S. (in press). Using a random-effects model to test differing

conceptualizations of multidimensional constructs. Organizational Research Methods.

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