bjm-09-2016-0199

Baltic Journal of Management
The effect of global dynamic capabilities on internationalizing SMEs performance: organizational culture
factors as antecedents
Yao-Ping Michael Peng, Ku-Ho Lin,
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Yao-Ping Michael Peng, Ku-Ho Lin, (2017) "The effect of global dynamic capabilities on internationalizing SMEs
performance: organizational culture factors as antecedents", Baltic Journal of Management, Vol. 12 Issue: 3, doi: 10.1108/
BJM-09-2016-0199
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The Effect of Global Dynamic Capabilities on Internationalizing SMEs’
Performance: Organizational culture factors as antecedents
Abstract
Purpose - Based on a dynamic capability view, this study explores whether market orientation
(external) and learning orientation (internal) facilitate internationalizing SMEs’ global dynamic
capabilities (GDCs) – i.e., their global marketing and product-design capabilities – and promote firm
performance.
Design/methodology/approach - Empirical data is randomly selected from Taiwanese
internationalizing SMEs, yielding 206 valid responses. Informants’ (CEOs, vice presidents, senior
managers) knowledge about and shouldering of firm responsibilities are explored.
Findings - A significant increase in global marketing and product-design capabilities is found to
affect firm performance. Market and learning orientation positively influence GDCs, which increase
firm performance. Furthermore, learning and market orientation support GDCs’ development.
Research limitations/implications - The sample is reasonably diverse in terms of demographics
including firm location, size, industry, and market type. Disaggregation results are generally robust
regarding model parameters. However, future research should target different countries to assess result
generalizability.
Practical implications - The findings reveal two practical implications for managers. First,
successful GDCs help firms spread the costs of designing products or components across many
contexts and to offer appealing products to consumers worldwide. Second, it is important that
managers foster development of market and learning orientations.
Originality/value - The study contributes to the literature in two ways. First, by conceptualizing
GDCs of internationalizing SMEs, dynamic capability literature is expanded based on a global context.
Second, the complexity of extending dynamic capability literature into internationalizing SMEs may
arise from the fact that internationalizing SMEs, as separate and living entities, devise their own
organizational culture, which significantly affects their GDC development.
Keywords Market orientation, Learning orientation, Global dynamic capability
Paper type Research paper
1
Introduction
Departing from the dynamic capability (DC) view of firms, this study explores which organizational
capabilities impact small and medium-sized enterprises’ (SMEs’) performance (Knight and Cavusgil,
2004; Jantunen et al., 2005). DCs comprise a critical factor that enables firms to seize opportunities in
dynamic environments (Teece et al., 1997; Ho and Tsai, 2006; O’Cass and Weerawardena, 2010).
Firms that are unable to adapt to changing environments inevitably fail. Specifically, the emergence of
the knowledge economy, intense global competition, and considerable technological advancements
have made DCs increasingly important to international competitiveness. This suggests that a better
understanding of the origins of capabilities is needed under a dynamic international context (Özsomer
and Simonin, 2004; Hsu and Chen, 2009).
To integrate the literature on DCs with international marketing literature, global dynamic
capabilities (GDCs) are defined according to the responsiveness and efficiency of internationalizing
firms’ processes for maintaining existing customer value, and creating value-adding products and
market niches in response to foreign-market changes. Scholars define DCs as a firm’s ability to
integrate, build, and reconfigure diverse capabilities, both inside and outside the firm, in response to
changing environmental conditions (Teece et al., 1997). Unlike SMEs in other countries, those in
Taiwan account for 95% of the country’s industrial development. This leads to an important question:
Why do DCs impact Taiwanese internationalizing SMEs (ISMEs)? Due to resource shortages and
expansion limitations, SMEs maximize their resources for internationalization in order to access more
markets and opportunities. Thus, DCs should be further differentiated. GDCs are conducive to ISMEs
in that they enable SMEs’ rapid response to customer demands from different markets as SMEs
expand globally, and support them in creating customer value. Therefore, GDCs differ from DCs in
terms of both the actors themselves and the target customers. While DCs are embedded within firms in
general, GDCs are embedded within internationalizing firms. Moreover, the focus on foreign customer
value distinguishes GDCs from DCs in general. Although abundant empirical studies have consider
DCs, the lack of a solid empirical foundation for the effect of GDCs on ISMEs leaves a gap in the
DC-related literature. Therefore, this study aims to outline the effect of GDCs on firm performance,
and clarify which types of GDCs contribute most to SMEs’ performance.
This study considers the following research areas. First, drawing upon the typology proposed by
previous literature, it analyses how GDCs can be operationalized to best facilitate ISMEs’
performance. Second, it investigates how internal and external factors contribute to improving and
extending GDCs for SMEs’ internationalization.
Although DC theory is cited in international marketing studies (Jantunen et al., 2005; Knight and
Cavusgil, 2004), few studies have attempted to conceptualize and operationalize GDCs and assess
their direct effect on performance. Similar to DCs (Winter, 2003; Zahra et al., 2006), GDCs are a
high-order construct that includes various core capabilities, such as innovation, branding, operation,
marketing, design, etc., in the global context. Chiarvesio et al. (2004) argue that globalization and the
widespread diffusion of ICTs lead traditional SMEs to develop design and marketing capabilities that
they previously would have been unable to foster. Though Day (1994) states that DCs can be
2
classified in various ways in different research situations, most scholars divide DCs into explorative
capabilities and exploitative capabilities (Eisenhardt and Martin, 2000; Fainshmidt et al., 2016; March
1991; Prange and Verdier, 2011; Zhan and Chen, 2013). However, most SMEs engage in
internationalization through exportation. Identifying ways of marketing and designing products
suitable for overseas customers is a major task. To make the GDC measurement more specific, this
study focuses on capabilities of marketing (O'Dwyer et al., 2009) and design (Cantamessa, 1999;
et al., 2005) as crucial components of GDCs and potential key drivers of ISMEs’ performance, since
excellent embedded marketing and design capabilities can help firms respond to fast-changing
demands from foreign customers and market opportunities through effective pricing, promotion,
channel management, new product development, and high quality (Knight and Cavusgil, 2004).
Particularly for ISMEs, handling the increasingly sophisticated demand of globalized customers and
predicting fast-changing technological development are important factors of GDCs.

Alongside addressing how an SME’s GDCs affect firm performance, this study aims to fill
another research gap by addressing a second overarching question: How does an internationalizing
SME develop its GDCs? Zollo and Winter (2002) cite the efficacy of capability-building supporting
mechanisms as contingent upon the attribution of selectively assigning organizational tasks. However,
scant empirical research focuses on internal and external supporting mechanisms that promote ISMEs’
GDCs, such as market (Hooley et al., 2005; Hult et al., 2005; Ho and Tsai, 2006) and/or learning
orientation (Baker and Sinkula, 1999) – which are considered the most important organizational
cultures by Narver and Slater (1990) and Baker and Sinkula (1999). Consistent with the
path-dependent nature of capabilities (Schreyogg and Kliesch-Eberl, 2007; Wang and Ahmed, 2007),
it is vital to examine the influence of organizational culture mechanisms (market orientation [MO],
which refers to internal culture, and learning orientation [LO], referring to external culture) on GDCs
through foreign market growth and expansion of SMEs’ internationalization. Evaluating these
contributions clarifies organizational culture mechanisms regarding how and which GDCs are created
and managed.
To achieve these objectives, this study first defines the broad theoretical context, and then
explores the role of capability-building supporting activities and GDCs, and subsequent performance
in ISMEs. This study contributes to existing research in three main ways. First, it investigates the
phenomenon of internationalization among a unique breed of Taiwanese SMEs. Second, it emphasizes
the importance of two key GDCs (global marketing capabilities [GMCs] and global product-design
capabilities [GPDCs]) that SMEs leverage for superior performance. By exploring ISMEs in Taiwan,
this study provides empirical evidence that GDCs positively drive SMEs’ performance. This evidence
forms a solid foundation for Teece et al.’s (1997) and Eisenhardt and Martin’s (2000) contention about
the importance of DCs, and contributes to international marketing literature by establishing SMEs’
GDCs as a key determinant of superior performance. Finally, and more specifically, the study
examines the critical linkages among MO, LO, and GDCs in SMEs’ performance.
3
Literature Review and Research Hypotheses
Studying SME Internationalization
Internationalization is a continuous concept; this means that the degree of an SME’s
internationalization will deepen with the progress of its product lifecycle. Sandberg (2013) views
internationalization as an incremental process driven by the interplay between learning about
international business operations, and commitment to international markets that require market- or
customer-specific knowledge. Through learning from international markets, SMEs can manage and
control these markets and thus quickly analyse, segment, and interpret their actual demands to provide
customers with the commodities they need (Cadogan et al., 2009). Cadogan et al. (2009) state that the
concept of internationalization covers two core elements: scope and scale. Scope refers to the fact that
SMEs can adapt the products to potential international markets and collect consumption information
derived from each market through market-oriented behaviours. Thus, SMEs can integrate, spread,
analyse, interpret, and identify extensive information quickly, and absorb improvement suggestions to
enhance current products and marketing methods for customers and competitors in international
markets (Zhou et al., 2009). Scale refers to the quantity and amount of SMEs’ total sales in a specific
region, city, or country. When total sales in a region increase, SMEs must seek cost-reducing methods
through the learning process (Atuahene-Gima et al., 2005). The larger the scale of internationalization,
the more active SMEs will be in monitoring and responding to environmental changes (Slater and
Narver, 1994), focusing on the characteristics of different customers, and learning to adapt to changing
customer demands to reduce customer complaints and inventory costs. Therefore, exploring the
development of SMEs’ GDCs and the relationship between GDCs and performance is becoming
increasingly important in internationalization theory.
Global Dynamic Capabilities

Organizational capability pertains to an enterprise’s ability to coordinate, integrate, and effectively
apply resources in response to external competition (Lawson and Samson, 2001; Dutta et al., 2003). In
response to environmental changes, strategies should be adapted, integrated, and reconfigured to both
internal and external skills and resources. Eisenhardt and Martin (2000) define DCs as a “firm’s
processes that use resources – specifically, processes to integrate, reconfigure, gain and release
resources – to match and even create market change” and “organizational and strategic routines by
which firms achieve new resources and configurations as markets emerge, collide, split, evolve, and
die” (p. 1107). Through these processes, firms integrate, reconfigure, renew, and recreate resources
and capabilities (Morgan et al., 2003) and, most importantly, upgrade and reconstruct core capabilities
in response to the changing environment to attain and sustain competitive advantage (Wang and
Ahmed, 2007).
Following Teece et al. (1997) and Eisenhardt and Martin’s (2000) definition of DC, previous
studies highlight a positive relationship between DC and firm performance, stating that DCs entail a
systematic change of efforts and cumulative efforts of capabilities over time (Hsu and Wang, 2012).
Cadogan et al. (2002) suggest that local and global differences impact firm performance to a large
4
extent. In this vein, few studies advance the notion that firms compete based on DCs in foreign
markets (Prange and Verdier, 2011), especially multinational enterprises (MNEs), which typically face
fast-moving environments and fierce global competition (Teece, 2007). Helfat and Winter (2011) state
that the world is always changing; thus, if local thinking is used to observe global firm phenomena, it
may mask important changes in an organization’s strategy or capabilities. Therefore, reviewing the
structure and operation of DC from a global perspective will facilitate theory building in this field and
develop more managerially relevant insights (Zhan and Chen, 2013).
In the internationalization context, Prange and Verdier (2011) define DCs as a firm’s learning,
improving, changing knowledge and routines to develop capabilities (including via “exploitation”
versus “exploration”) in order to influence internationalization success (growth and survival). Augier
and Teece (2007) suggest that, compared with firms operating locally, MNEs have more stringent
requirements for quick innovation, adaptation and flexibility, co-specialized resources, getting
“approvals” for non-routine activities, sensing business opportunities, and finding ways to deploy
capabilities globally. Therefore, compared with DC, GDC focuses on the integration of non-repetitive
resources and implicit knowledge to establish the firm’s propensity to sense opportunities and threats,
and increase its timely and incentive-market-sensing competence. To integrate literature on DCs with
internationalization theory, GDCs are defined here as responsiveness and efficiency of ISMEs’
processes for maintaining existing customer value and creating value-adding products and market
niches in response to foreign-market changes.
GDCs can be distinguished from DCs in terms of their creation, implementation, and delivering
of market values to foreign customers (Fang and Zou, 2009). First, GDCs reflect the speed of an
organization’s cross-functional creation and delivery of customer value in response to foreign market
changes (Hult et al., 2005). Second, GDCs are resource combinations that are difficult to imitate,
including effective coordination among inter-organizational relationships, on a global basis, that
generates a sustainable competitive advantage for the firm (Augier and Teece, 2007). Such abilities
entail: (1) developing systemic global coherence while recognizing unique features of each country’s
environment to facilitate customization of an individual country’s strategies (Hsu and Chen, 2009);
and (2) adapting, integrating, and reconfiguring internal and external assets to match opportunities in
global marketplaces (Chen and Jaw, 2009; Eisenhardt and Martin, 2000). To seize such opportunities,
ISMEs must prepare to circumvent environmental uncertainties in foreign markets (Luo, 2000). GDCs
enhance firms’ power in global relationships, coordination in inter-organizational activities, and
response speed and flexibility regarding global competitors’ strategies (Eisenhardt and Martin, 2000;
Teece et al., 1997). Thus, GDCs require a strong base of established capabilities or resources, and the
firms have to efficiently integrate and synthesize both internal resources and external information and
apply them to competitive environments (Hsu and Chen, 2009). These efforts and capabilities are vital
to SMEs’ survival and foreign-market growth (Prange and Verdier, 2011).
Bartlett and Ghoshal (2000) argue that firms need organizational capabilities to get better returns
from leveraging their strategic strengths internally, rather than through external market mechanisms
such as contracts or licenses, which explicitly specify needs for multidimensional GDCs. According to
5
the definitions of DC and GDC, the processes for reconfiguring an organization’s resources and
operational routines create a strategic competitive advantage and sustainable economic value. To
achieve both goals, this study takes Augier and Teece’s (2007), Hsu and Wang’s (2012), Prange and
Verdier’s (2011), and Zhan and Chen’s (2013) suggestions to divide GDCs into GMCs and GPDCs,
since both capabilities can help firms handle increasingly sophisticated demands of globalized
customers and predict fast-changing technological development. The majority of studies (Teece et al.,
1997) agree that developed capabilities strengthen ISMEs’ competitive advantage in turbulent
environments.
Relationship between Global Dynamic Capabilities and Firm Performance

Global Marketing Capabilities and Firm Performance
Marketing capability is usually seen as the capacity to coordinate and integrate internal resources and
skills to address rapidly changing markets or customer needs. Operating marketing capability relies on
internal routines and processes while integrating knowledge, skills, and resources (Morgan et al.,
2003). Morgan et al. (2009) empirically verify value-creation mechanisms of marketing capability as
immobile, difficult to replicate, and largely non-substitutable (Vorhies and Morgan, 2005). Interrelated
processes include the individual “marketing mix” (Vorhies and Morgan, 2005; O’Cass and
Weerawardena, 2010), and marketing strategy development and execution (Morgan et al., 2003).
Some scholars provide a hierarchical framework of capabilities wherein marketing mix capabilities are
lower-level capabilities, and marketing strategy development capabilities are higher-level capabilities
(O’Cass and Weerawardena, 2010). Since implementing the former is necessary for the latter, this
paper focuses on four marketing mix capabilities based on the 4Ps of marketing: pricing, product
management, place (distribution), and promotion (marketing communication). These capabilities are
chosen because they are addressed in extant literature (Vorhies and Morgan, 2005) and because the
4Ps are a prominent concept across countries at various stages of development or manifesting cultural
properties (Özsomer and Simonin, 2004).
Different DCs could have varying strengths based on global context. Current literature assumes
that possession of GDCs leads to organizational growth or survival (Prange and Verdier, 2011). In
international business studies, evaluations of firm performance vary based on research objectives.
Most studies measure overall firm performance based on performance attributes, including economic
and non-economic performance. For example, Fang and Zou (2009) use financial performance as an
indicator. Based on differences between economic and non-economic performance, this study refers to
Vorhies and Morgan (2005) and operationalizes performance as a multidimensional construct,
reflected by growth and profitability.
GMCs may be viewed at various levels in firms across different functional areas (Eisenhardt and
Martin, 2000). However, capabilities relating to marketing resource deployment are usually linked to
marketing function (Dutta et al., 2003). These GMCs may be rare, valuable, non-substitutable, and
inimitable sources of advantage (Dutta et al., 2003; Vorhies and Morgan, 2005; Morgan et al., 2009)
that facilitate ISMEs to face foreign environmental changes through the creation and delivery of
6
superior customer value, and thus enhance profitability (Fang and Zou, 2009). Additionally, GMCs
decrease a product’s time to market by reducing the time needed to adapt to local specifications
(Morgan et al., 2003). Oliver et al. (2009) indicate that international marketing standardization enables
firms to exploit superior products and operations in multiple markets, for greater control over
international operations. In particular, when international firms’ marketing skills and competencies are
clearly established (Vorhies and Morgan, 2005), their success in foreign-market growth will be
ensured (Fang and Zou, 2009). For example, firms with greater GMCs focus on global marketing
communication activities related to building a strong brand identity, which extends and improves the
product lifecycle to provide more value-adding products (Eng and Spickett-Jones, 2009). By
accumulating experience and lessons, ISMEs learn how to avoid repeating mistakes, reduce
production and/or transaction costs, and enhance mutual understanding and problem coordination and
solving. Thus, an international SME with better GDCs in terms of GMCs is expected to have better
growth and profitability in global marketplaces. Hence:
H1: GMCs are positively associated with firm (a) profitability and (b) growth.
Global Product-Design Capabilities and Firm Performance

Product development and design are vital functions in expanding and utilizing firm knowledge,
particularly in global competition (Slater and Narver, 1998). Accordingly, robust design capabilities
offer greater potential to develop acceptable products to broader targeted segments, events, and/or
conditions, with anticipated organizational benefits offsetting costs (Cantamessa, 1999).
Implementation of robust design is expected to reduce the number of new components, parts, materials,
and technologies across a product family over time. Such implementation means increasing product
line variety, lowering manufacturing costs, speeding up technological improvement of products,
expediting new-product marketing, and thereby increasing the number and size of target segments
(Rindova and Petkova, 2007). Application of robust design in product development is somewhat
evident in modular architectures. Robust products result from processes and knowledge for high
versatility across uses, technologies, and situations (including geographies); however, lean products
arise from optimized or invariant design for specific uses, with limited thought regarding possible
changes in technology and usage.
Broadly, GPDCs for creating products, processes, and knowledge architectures that are robust
across uses, technology changes, and contextual differences emerge. Swan et al. (2005) propose four
types of capabilities contributing to firm performance: functional, aesthetic, technological, and
quality-related. Each functional area potentially has robust capabilities, either alone or in conjunction
with other areas. By definition, robust functional product breadth capability involves designing
products with similar technologies but with versatility or adaptability extended to a prominent family
of variants that are concurrently usable or easily modifiable for domestic and foreign uses. Robust
aesthetic product capability entails making products visually informative and desirable across
domestic and/or multiple foreign markets. Robust technology capability comprises selecting core
product technologies and materials that satisfy technical and customer requirements regarding both
7
present and future product generations. Robust quality-based capacity comprises solving problems in
the design stage (Kaynak, 2003) to proactively eliminate deviations from established requirements in
multiple contexts (manufacturing, assembly, and customer usage situations) (Swan et al., 2005).
Literature suggests that robust design capabilities support positive performance outcomes and
faster marketing, which are important for several aspects of robust design, including its impact on
variety. Reaching multiple segments through robust design expedites roll-out across national
boundaries and uses. Functional capability typically enables firms to leverage resources and create
sustainable competitive advantage through robust functional design, which contributes to market
performance (Swan et al., 2005). Swan et al. (2005) highlight the value of capabilities that promote
aesthetic semantics; successful aesthetic capability promotes peripheral, visual, and interfacial
innovations, which allow successful products to use core functionality while extending usages and
environmental/cultural differences in other markets as they become known (Rindova and Petkova,
2007). Rapid improvement of operational performance depends on quick accumulation and sustaining
of different types and levels of “routines” and “innovative” technological capabilities. To differentiate
GPDCs from general DCs, international firms must develop know-how in product design, and
technical skills in new-product planning and development for broad foreign markets, to deliver
high-quality and value-adding products (Eng and Spickett-Jones, 2009). In this way, demand elasticity
will decrease, which enables firms to increase both prices and profits (Kaynak, 2003). Moreover,
improvements in product quality reduce waste, rework, and scrap, while boosting productivity to a
lower cost structure.
GPDCs as a source of competitive advantage are treated as a capacity for professional design
(Cantamessa, 1999). Considering that winning a design award as a new and innovative form of
competitive advantage requires exploitation of existing firm-specific design capabilities (Rindova and
Petkova, 2007), GPDCs would be one prerequisite for winning such awards. GPDCs are generally
embedded in routines of a firm’s design sector or unit, which mainly seeks to provide effective designs
(Swan et al., 2005). In global markets, where customer demands rapidly evolve, international firms
may need to focus more on product innovativeness than on continuously improving quality (Chen and
Jaw, 2009). Thus, international firms with superior GPDCs are expected to gain two advantages:
innovative product design delivers sustainable growth of financial benefits for companies, and product
quality is relative to customers’ perceptions of product value, hence extending to its success in the
global marketplace. Thus:
H2: GPDCs are positively associated with firm (a) profitability and (b) growth.
Developing Global Dynamic Capabilities in Internationalizing SMEs

Two causal mechanisms contribute to GDC development in ISMEs: MO and LO (Baker and Sinkula,
1999). Given capability-building support, managers can devise the organizational context, such as
organizational structure and organizational culture, to enhance efficiency and responsiveness of
resource integration, combination, and deployment (Hult et al., 2005). Chen and Jaw (2009) claim that
GDCs adapt, integrate, and reconfigure internal and external assets to match opportunities in a global
8
context. SMEs implement series of support activities to pinpoint internal and external assets to be
adopted, integrated, and reconfigured, where MO focuses on sensing external market information (Ho
and Tsai, 2006; Teece, 2007; Wang and Ahmed, 2007) and LO on acquiring, assimilating,
transforming, and applying internal knowledge (Eisenhardt and Martin, 2000; Zollo and Winter, 2002).
This study considers a better way to build GDCs as facilitating adaptation of support activities for MO
and LO (Baker and Sinkula, 2002).
Capability-Building Support Activity: Market Orientation

Kohli and Jaworski (1990) and Narver and Slater (1990) suggest that actions, decisions, and attitudes
of senior managers “trickle down” organizational levels to employees charged with implementing
strategies. A strong (market-oriented) culture (Knight and Cavusgil, 2004; Hooley et al., 2005; Hult et
al., 2005) entails pervasiveness and consistency of shared (customer-satisfaction-focused) values,

which foster open functional communications, frequent customer contact, enquiries into customer
problems, and shared efforts to solve those problems. This study adopts Narver and Slater’s (1990)
perspective, wherein MO includes three components: customer orientation, competitor orientation, and
inter-functional coordination. Most authors agree that all three factors are key to offering a holistic
view of firms’ ability to collect and use market information effectively (e.g., Narver and Slater 1990).
Globalization facilitates customers to be better organized, better informed, and generally more
demanding (Knight and Cavusgil, 2004). MO may be a particularly crucial capability-building
supporting mechanism that highlights what information organizations should undertake, and how this
should be handled to match market conditions (Slater and Narver, 1995; Ho and Tsai, 2006). Based on
the export venture context, Morgan et al. (2003) propose two types of export knowledge from
knowledge-based theory: market information and experience-related knowledge. The former concurs
with the KBV’s conceptualization of “informational” (“declarative” or “know-what”) knowledge of
customers, competitors, and channels (Morgan et al., 2009), and broader environmental data organized
to give meaning. The latter is consistent with the KBV’s conceptualization of “experiential”
(“procedural” or “know-how”) knowledge concerning accumulated skills that effectively and
efficiently accomplish required tasks. Establishing market-oriented culture favours ISMEs in getting
accesses to more overseas market information, such that they implement all marketing strategies and
make product development decisions more accurately using extensive information about customers,
competitors, and domestic markets (Morgan et al., 2003). These enhance SMEs’ GMCs and GPDCs.
Additionally, though GMCs and GPDCs may result in low-level target overlap due to differences in
business requirements, both aim to create superior customer value and satisfaction (Jantunen et al.,
2005; Menguc and Auh, 2008). While creative products are transferred to potential customers so that
customer value can be created through GPDCs (Kaynak, 2003), through products with additional
value created by the marketing mix, firms can meet customer demands with GMCs (Chen and Jaw,
2009; Hult et al., 2005). To understand how internationalizing firms refine their foreign-market
performance, MO highlights capability-building support activities to embed available informational
and experiential knowledge (Baker and Sinkula, 2002; Knight and Cavusgil, 2004) in relevant GDCs.
9
Likewise, within foreign markets, firms may seek more market knowledge compared to those in local
markets, to select the most productive available resource combinations that enable them to be effective
and efficient in marketing and product-design strategies (Morgan et al., 2009). Thus:
H3a: MO positively correlates with GMCs.
H3b: MO positively correlates with GPDCs.
Capability-Building Support Activity: Learning Orientation

Baker and Sinkula (1999) view LO as a series of organizational values related to an exporter’s
tendency to create and use knowledge, as well as an advanced learning concept (“double-loop
learning”). These values encourage organizations to perfect existing paradigms and facilitate paradigm
transfer. LO also reflects exporters’ attitudes and cognitive status to obtain knowledge or face
organizational values in knowledge processing. Thus, LO can increase the heterogeneity and range of
exporters’ knowledge and upgrade organizational effectiveness. Sinkula et al. (1997) explain LO from
three dimensions: (1) commitment to learning, which is whether an organization is likely to promote a
culture of learning and whether value placed on learning activity can be viewed as axiomatic; (2)
open-mindedness, linked to the notion of unlearning (i.e., continuously questioning long-held routines,
assumptions, and beliefs); and (3) shared vision (a focus on learning that fosters energy, commitment,
and purpose among members of an organization). While LO as a set of organizational values entails an
ability to create, disseminate, and utilize knowledge (Sinkula et al., 1997), it goes beyond adapting to
marketplaces changes, relating to knowledge-questioning values that induce generative learning
(Sinkula et al., 1997). Organizational learning culture will thus manifest in behavioural norms that
affect market information development and processing.
GDCs can be obtained by mechanisms of LO, as well as of organizational internal knowledge
integration (Baker and Sinkula, 1999, 2002). Liu (2005) proposes that competitive advantage is built
by DCs via knowledge-learning procedures. Additionally, integrative learning mechanisms of internal
knowledge promote DCs and enhance competitive advantage (Eisenhardt and Martin, 2000). Lumpkin
and Lichtenstein (2005) propose that organizational learning (e.g., improving practices and expanding
into new arenas by creating new knowledge, building new understandings, and detecting and
correcting misalignments) may bolster entrepreneurial efforts. Jantunen et al. (2005) cite value
creation via recognition of entrepreneurial opportunities and proactive strategic orientation as crucial
to the DC framework. Prior organizational learning research identifies abilities to leverage the existing
knowledge base by transferring and combining knowledge to develop superior organizational
capabilities as a driver of firms’ success in adapting to environments regarding product and process
innovation, managing competitive and regulatory risks, and utilizing resources efficiently. As GDCs
centre on resource integration and alignment, a learning culture facilitates shared interpretation of
knowledge, increases efficiency and speed of developing organizational routines within the
international firm (Slater and Narver, 1995), and helps turn accumulated resources into GMCs and
GPDCs (Fang and Zou, 2009). Thus, ISMEs with high LO will rely on learning activities to develop
GDCs. Hence:
10
H4a: LO positively correlates with GMCs.
H4b: LO positively correlates with GPDCs.
Building on the above arguments, the authors thus present Figure 1.

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Figure 1 insert about here
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Methods
Sampling and data collection procedures
Most empirical studies correlate DCs with firm performance and/or examined success (or failure) of
firms in developed nations, including the US (Knight and Cavusgil, 2004; Swan et al., 2005),
Australia and New Zealand (O’Cass and Weerawardena, 2010), the UK (Morgan et al., 2003), and
Finland (Jantunen et al., 2005). As the target population in the current study is Taiwanese SMEs,
purposive sampling was adopted. Moreover, in emerging economies, firms typically grow both
domestically and internationally to accommodate institutional peculiarities; indeed, in Taiwan ISMEs
are key players. According to Blomstermo et al. (2004), to qualify as “internationalizing”, SMEs must
(1) have a contract with a new distributor or agent in a new country, (2) have considerable
international expansion of business conducted with an existing customer, (3) conduct business with
one or more new customers within an existing international market, (4) enter new country markets
with existing customers, and (5) do business with new customers within a new international market.
These features were reflected in the study questionnaire. Taiwanese ISMEs are thus appropriate for
this research on the relationship between GDCs and firm performance. To enhance the primary data’s
variability and generalizability, a cross-sectional survey was conducted. Individual
product-export-oriented SMEs were selected as the unit of analysis. Service and large firms were
excluded from the sample because of their idiosyncratic international expansion patterns and
performance characteristics (Morgan et al., 2003). To differentiate DCs and GDCs, informants were
asked to double-check their global context before reporting scale items of GMCs and GPDCs.
Here, SMEs were defined as firms having fewer than 500 employees. Pretest results indicated
that potential respondents were positively disposed toward university-sponsored research, which
improved trust and response rates (a critical concern when collecting product-development and
performance data). Subsequently, informants’ (CEOs, vice presidents, senior managers) knowledge
about and shouldering of firm responsibilities were measured. Top managers were selected as
information providers as they can master most companies’ businesses and are familiar with actual
situations of internationalization, capability development, and company operations. Each survey
package contained a covering letter explaining the survey purpose, the questionnaire, and a
postage-paid envelope. The authors sent 1,000 questionnaires and received 224 responses (22.4%
response rate). After eliminating 18 invalid questionnaires, 206 valid ones remained (20.6% effective
response rate). Most respondents (82.73%) were located in the electronics, electric appliance, metal,
11
machinery, plastics, textiles, and automobile manufacturing industries; 20.6% had been established for
3–10 years, 32.8% for 11–20 years, 21.9% for 21–30 years, and 24.7% for 31 or more.
Measures
Consistent with extant literature, MO was operationalized as a higher-order construct of customer
orientation (six items), competitor orientation (four items), and inter-functional coordination (five
items), as per Narver and Slater (1990).
Following Baker and Sinkula’s (1999) study, LO is defined as a “higher-order construct
composed of commitment to learning, shared vision, and open-mindedness” (pp. 413), comprising
four items for commitment to learning, five for shared vision, and another four for open-mindedness.
GMCs were measured with a seven-point measure developed by Weerawardena and O’Cass
(2010) to capture firms’ capacity to use marketing tools and reach target global markets effectively, by
focusing on firms’ capability to undertake key marketing functions in the global context.
A conceptual framework by Swan et al. (2005) was used to identify four dimensions to measure
GPDCs. Functional capability was measured by the amount of time (total hours), resources (total
dollars), relative time commitment, and relative resource commitment spent on designing products that
could be easily stretched into a family of products usable across domestic and foreign markets.
Aesthetic capability captured the amount of time, resources, relative time commitment, and relative
resource commitment spent on designing products to be visually acceptable across domestic and
multiple foreign markets. Technological capability was measured via the amount of time, resources,
relative time commitment, and relative resource commitment spent on selecting core product
technologies that both satisfy present requirements and apply to future product generations.
Quality-based capability represented the amount of time, resources, relative time commitment, and
relative resource commitment to solving problems in the design stage, which increases
manufacturability, ease of assembly, usability, and reliability of products.
Firm performance was measured with eight formative-scale items (seven-point scale) suggested
by Li and Atuahene-Gima (2001), and following Prange and Verdier’s (2011) two key factors affecting
firm performance: growth and profitability. Respondents indicated firm performance over the previous
three years relative to firm objectives.
Control variables were as follows. First, firm size is an important factor affecting firm
performance. The upper boundary for SMEs lacks consensus, but is commonly 499 employees
(Hooley et al., 2005). Employee numbers between 1–499 cover diverse resource endowments and
behaviours, leading researchers to distinguish small (fewer than 100 employees) from medium-sized
(100–499) firms. Thus, a cut-off of 100 is often used in prior research (Bonaccorsi, 1992) and is also
applied here. Alongside international experience, marketing/advertising and R&D expenditures
(Swaminathan and Moorman, 2009; Hsu and Chen, 2009) were included in the models because of
their potential impact on GDCs’ development and firm performance. Marketing/advertising
expenditures were calculated via the amount of advertising and promotion expenditures as a
percentage of the firm’s total sales revenue. R&D expenditures were calculated via the amount of
12
these expenditures as a percentage of the firm’s total sales revenue.
Reliability and validity

All scales used in this study were found to be reliable, with Cronbach’s α ranging from 0.536 to 0.939
(Table 2). Although the Cronbach’s α values for the “vision” and “open-mindness” constructs were
lower than 0.7, they were still considered to be within the acceptance range (Nunnally, 1967).
Confirmatory factor analysis (CFA) was used to verify the construct validity (both convergent and
discriminant) of the scales. Hair, Anderson, Tatham, and Black (1998) recommended convergent
validity criteria as follows: (1) standardized factor loading of higher than 0.5 (Table 1); (2) average
variance extracted (AVE) above 0.5; and (3) composite reliability (CR) above 0.5. The evaluation
standard for discriminant validity is the square root of AVE for one dimension greater than the
correlation coefficient with any other dimension(s). Regarding the scale’s validity, this study
eliminated distribution and promotion and advertising in the following analyses because the factor
loadings of these items were lower than 0.5. Results showed that standardized loadings ranged from
0.52 to 0.98, and most exceeded 0.50 threshold value. As Tables 1 and 2 indicate, all three criteria for
convergent validity were met.
------------------------------------
Table 1 insert about here
------------------------------------
MO, LO and GPDCs are often higher-order constructs in nature, with items measuring them as
indirect reflective measures of both second- and first-order factors associated with them, where the
MO, LO, and GPDCs are umbrella terms for multiple sub-constructs. GPDCs are often conceptualized
as a four-dimensional construct, MO as a three-dimensional construct, and LO also as a
three-dimensional construct. In this study, these higher-order variables are reflective in nature, rather
than formative, since Cadogan and Lee (2013) suggested that research should avoid developing and
assessing a model containing a direct link from the antecedent variable to the aggregate endogenous
variable. Using higher-order reflective variables in conceptual models is very dangerous, since one
does not know the entity that one is modelling. Following Özturan, Özsomer and Pieters (2014), we
preferred to use parcels for measure validation so that scales were comparable and consistent with the
previous work. Parcels are averages of uneven and even numbered items in a scale. All factor loadings
of item parcels were greater than 0.50 and significant at p < 0.01. Four measurement models fit well
with the data, as seen in statistics for MO (RMSEA=0.063, CFI=0.966, NNFI=0.952, GFI=0.923), LO
(RMSEA=0.057, CFI=0.966, NFI=0.958, GFI=0.934), GPDCs (RMSEA=0.072, CFI=0.946,
NFI=0.943, GFI=0.930), and firm performance (RMSEA=0.066, CFI=0.963, NFI=0.960, GFI=0.935).
Six constructs comprised the final model: firm performance, GMCs, GPDCs, MO, and LO. Fit indices
greater than the 0.90 benchmark (GFI=0.95, AGFI=0.93, TLI=0.98 and CFI=0.98) indicated that the
data fit the model. Similarly, levels of misfit were tolerable, with RMSEA=0.076 and RMR=0.053 –
i.e., below the relevant benchmark of 0.08. Additional tests conducted to support construct validity
included normed chi-square of 2.78 (less than the benchmark of 5) and SRMR=0.035 (less than the
13
benchmark of 0.08).
In addition, as Table 2 shows, most correlation coefficients were less than the square root of the
AVE. Applying criteria that are more stringent, we believe that the “acceptable” discriminant validity
reasonably accurately captures the level of fit that has been obtained here. In this study, we calculated
the confidence interval of plus or minus two standard errors around the correlation between the factors,
wherein if this interval does not include 1.0, discriminant validity is demonstrated (Anderson and
Gerbing, 1988). Our results show that this criterion was met.
------------------------------------
------------------------------------
Results
The hypotheses were tested using hierarchical regression analysis. This analyses the proportion of
variance shared exclusively with each additional variable. Table 3 shows the results of the models’
main effect, which indicated that GMCs (H1) and GPDCs (H2) had significant positive influences on
firm performance. The results indicated that a significant increase in GMCs increased firm
profitability (β=0.167, p<0.05) and growth (β=0.319, p<0.01), which supports H1. Likewise, GPDCs
significantly improved firm profitability (β=0.636, p<0.01) and growth (β=0.445, p<0.01), which fully
supports H2. These findings suggest two key GDCs – GMCs and GPDCs – as central factors in
explaining ISMEs’ firm performance, including profitability and growth.
------------------------------------
------------------------------------
Table 4 shows that all proposed correlations were significant. Coefficients of correlation between
MO to GMCs and between MO to GPDCs were 0.631 (p<0.01) and 0.611 (p<0.01), respectively.
These positive relationships support H3a and H3b. For H4a and H4b, LO was predicted to support the
development of both GMCs and GPDCs. Table 4 shows that LO had a positive influence on GMCs
(β=0.215, p<0.001) and GPDCs (β=0.223, p<0.001), supporting H4a and H4b.
------------------------------------
------------------------------------
This study also examined the mediating role of GDCs on the relationship between support
activities (MO and LO) and firm performance (profitability and growth). To test the mediating effect
of GDCs, Baron and Kenny’s (1986) procedure was followed. First, as shown in Models 1 and 2 of the
regression analysis results (Table 4), MO (β=0.631*** and 0.611***) and LO (β=0.215*** and
0.223***) had significant positive effects on GMCs and GPDCs. Second, as per Table 3, MO
(β=0.686*** and 0.763***) and LO (β=0.178*** and 0.016) had significant positive effects on
profitability and growth. In Models 3 and 6 (Table 3), in which GMCs and GPDCs were added, GMCs
(β=0.030 and 0.185**) and GPDCs (β=0.445*** and 0.243***) exerted a significant positive effect on
14
profitability and growth. However, β values of MO and LO decreased from 0.686, 0.763, and 0.178 to
0.387, 0.497, and 0.076, respectively. In sum, for individual variables, GDCs satisfy the verification
conditions provided by Baron and Kenny (1986) for the partial mediating role between LO and firm
performance, and MO and firm performance.
Discussion and Implications

One major contribution of this study to the literature is that it establishes that GDCs improve firm
performance. The overall model has high explanatory power of the key variables and provides broad
support for the DC view. Two GDCs – GMCs and GPDCs – are key factors in explaining firm
operations, as also confirmed in a global context by prior studies.
Two capability-building activities, MO and LO (Baker and Sinkula, 1999), support two key
GDCs. This finding is consistent with Hooley et al. (2005), who found a positive relationship between
MO and market-related capabilities. MO strongly influences GMCs and GPDCs. For effective GDCs,
SMEs must access creative, market-sensing processes associated with MO, but also closely control
disciplined, structured learning management processes.
Sirmon et al. (2007) call for the use of various resource processes, such as acquiring (obtaining
resources from strategic factor markets), accumulating (developing internal resources), and divesting
(getting rid of resources controlled by manufacturers). LO in this study means creating competitive
advantage through intangible value-added assets for SMEs, such as knowledge acquisition by
employees. This concept promotes resource development and accumulation in an internal organization,
which is in line with Sirmon et al. (2007) in terms of accumulation. Additionally, MO means
acquiring resources in external markets, which also echoes the study of Sirmon et al. (2007). This
study regards MO and LO as two important factors in building GDCs, which means that no matter
whether organizations use internal or external relationships to realize resource accumulation and
acquisition, they must query and recombine the channel in order to equip themselves with unique
GMCs. That is, LO shapes an organization’s attitude to querying and screening resources, which
concurs with the “divesting” concept of Sirmon et al. (2007) (SMEs should assess resources and divest
parts with less value). This research focuses on correlations among capability, MO, and LO. A
business combines resources via accumulating and acquiring resources via MO, and screening via LO.
The results suggest that GDCs (GMCs and GPDCs) improve firm performance (profitability and
growth). This is instructive in three ways. First, SMEs may have a high initial level of robustness in
GDCs that will lessen the necessity for capabilities changes. Second, SMEs may have a higher
response curve and develop capabilities quicker than competitors. The former entails risks of
developing costly capabilities that do not fit needs, while the latter entails risks of not having
capabilities when needed. Where products are the dominant offering from the respondent firms, the
impact of services was not explored. It is critical to glean information about specific product markets
(generational products, standards-based, mark-ups, brand-oriented) and determine whether emphasis
on certain capabilities over others (marketing, distribution, supply chain) is consistent with product
market characteristics. Third, the effect of MO and LO on performance is partially mediated by GDCs.
15
The findings suggest that MO and LO resulting in GDCs accumulation strongly contributes to
performance. The fact that MO and LO must be involved in GDCs, particularly for GMCs and GPDCs,
which in turn impacts firm performance, constitutes an important managerial implication.
Moreover, this study investigates the degree to which ISMEs emphasize and allocate resources to
GMCs and GPDCs, which influences SMEs’ performance. The empirical results showed that GPDCs
significantly positively influence firm performance in Model 2, indicating that Taiwanese ISMEs
place greater emphasis on design but devote relatively few resources to GMCs. They tend to
emphasize design items of efficiency and compatibility, which have consistently been areas of strength
for such firms. Mixed effects were found for the hypothesized indirect and direct effects for various
paths of the study’s framework. The results indicated that the total effect of
MO→GPDCs→Profitability and MO→GPDCs→Growth was higher than the other paths. As MO
increases, GPDCs are associated with relative firm performance. Specifically, if ISMEs use valuable
resources to improve communication, collaboration, and coordination in pertinent customer and
competitor information, they will be able to understand the ideal method of designing and producing a
product, which creates opportunities to increase the number of target market segments.
Theoretical Implications
By examining 206 Taiwanese SMEs, this study investigated the development of GDCs in ISMEs to
isolate the effect of GDCs on ISMEs’ performance. The study fills gaps in the literature by defining
GDCs, specifying two cultural support mechanisms of building GDCs, and hence providing
unequivocal empirical support for GDCs’ significant effects on ISMEs’ performance. This study
contributes to the literature in several notable ways. First, by conceptualizing GDCs of ISMEs, DC
literature based on a global context is extended. This extension is complex and critical, since few
studies on DCs differentiate global from local contexts, and recognize DC operationalization in
international SMEs. Moreover, previous literature on DCs contains preliminary and conceptual
discussions on how DC facilitates adaptation to changes in markets and technologies, but seldom
clearly delineates these capabilities. Although the authors agree with the claim of Griffith and Harvey
(2001) that GDCs are contingent, to a degree, on a firm’s power, the important thing is emphasizing
sensitivity to overseas market opportunities and market-information-absorbing ability (Chen and Jaw,
2009).
Based on ISMEs’ current conditions, this study differentiates GDCs from DCs as it focus on
adjusting internal resources (Helfat and Winter, 2011; Hsu and Wang, 2010), which boosts business
models through external environmental factors and can be divided into GMCs and GPDCs. The results
show that both types of GDCs significantly enhance ISMEs’ performance. Developing
multi-dimensional GDCs comes down to allocation of organizational resources. Unlike large firms
with extensive resources, SMEs must optimize limited resources to enhance specific capabilities. This
research adds a two-sided concept to the GDC framework, with complementary functions of GMCs
and GPDCs – namely, “fit as moderating” – to bolster DC theory. Second, the complexity of
extending DC literature into ISMEs may arise from the fact that ISMEs, as separate and living entities,
16
devise their own organizational culture, which significantly affects their GDC development. This
perspective, which looks inside ISMEs, is a major extension of the DC literature. Specifically, the
findings suggest that MO, as well as LO – two important dimensions of organizational culture –
positively influence the development of ISMEs’ GDCs.
Managerial Implications
This study highlights diverse ways for managers to nurture GDCs in global SMEs, create and deliver
customer value, and attain competitive advantage and superior performance. First, successful GDCs
help firms spread product and component design costs across many contexts and offer appealing
products to consumers worldwide (e.g., greater flexibility and efficiency when pursuing a
multi-domestic strategy, with distinct or customized products developed for each market). Once firms
determine the context of their product offering, relevant capabilities are stressed. On the one hand,
competitive intensity makes it difficult to develop new capabilities in a timely manner after product
context is determined – capabilities need to be resident. On the other, GMCs and GPDCs succeed in
multiple contexts, as demonstrated by this study. The coalescence of at least some capabilities is
critical to relative firm performance and speed to market. Hogeforster’s (2014) research on SMEs in
the Baltic Sea Region found that 47.57% of innovative SMEs were active in the international market –
this proportion is higher than that of Taiwan. Therefore, this study suggests that SMEs in the Baltic
Region should establish and maintain GDCs to expand their markets and businesses, and enrich their
GMCs to (1) develop close relationships with customers, (2) be sensitive to subtle foreign
environment changes, and (3) ensure superior financial performance and growth.
Second, it is important that managers foster development of MO and LO. MO focuses on
processing both market and competitor information, especially that related to consumers, and
emphasizing the creation of customer value. Hence, if firms can establish communication and contact
channels with customers, such as through marketing, they can acquire ideas and thoughts on products
and augment product functions or customer-preferred products. Mobile phone manufacturers like
Apple, HTC, and Samsung establish consumer experience stores not only as service platforms, but
also to consult directly with clients in order to collect customer feedback. Moreover, LO is conducive
to integrating ISMEs’ resources into GDCs, leading to more responsive and efficient
cross-departmental processes. More specifically, establishing a stronger multi-culture within
organizations by top managers may support decisions for the development of specific capabilities in
specific contexts, such as certain stages of internationalization. Additionally, MO has more influence
on GDCs than does LO, which suggests that ISMEs should consider foreign market information that
aligns over time and is conducive to developing GDCs and performance.
Limitations and Future Research

Prior studies on antecedents of DCs mainly focus on internal mechanisms of organizations, and few
explore external factors. Aside from MO and LO, there exist many other pivotal capability-building
support activities, such as coordination and long-term relationships. Future studies should investigate
17
the impacts of these on GDCs.
The study’s sample is reasonably diverse in terms of demographics including firm location, size,
industry type, and market type. Disaggregation tests generally showed robust results in terms of model
parameters; however, sub-sample sizes are small. Larger sub-samples, including studies limited to one
sub-sample (manufacturing or information technology), might yield different outcomes.
Likewise, this study was restricted to Taiwan; however, variables such as MO may play a
different role in other countries. Similarly, the study suggests GMCs and GPDCs as dominant GDCs.
Would similar results appear in other countries? Other country contexts should be further explored.
This study was restricted to micro SMEs. Future research can investigate whether larger firms
can use similar strategies to develop their GDCs and enhance performance. Because the authors
developed a concept and measurement of GDCs, another direction for future inquiry would be to
conceptualize and measure other types of global DCs and investigate their effects on firm
performance.
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20
Figure 1 Conceptual framework
Customer
orientation
H3a
MO GMCs
Competitor
H1
orientation H3b
Inter-function Growth
coordination Firm
performance Profitability
Commitment H4a
to learning
H4b H2
LO GPDCs
Shared vision
open-
mindedness
Functional Aesthetic Technological Quality-based
capability capability capability capability
Table 1 Confirmatory factor analysis

Second order factor First order factor Items Loading
Market orientation Customer orientation 1. We closely monitor and assess our level of commitment in serving customer's needs. 0.93
2. Business strategies are driven by the goal of increasing customer value. 0.87
3. Our competitive advantage is based on understanding customer needs. 0.94
4. Our business objectives are driven by customer satisfaction. 0.91
5. We pay close attention to after-sales service. 0.94
6. We frequently measure customer satisfaction. 0.95
Competitor orientation 7. Top management regularly discuss competitors' strength and weaknesses. 0.90
8. We respond rapidly to competitive actions. 0.86
9. Customers are targeted when we have an opportunity for competitive advantage. 0.94
10. Our salespeople share information about competitors. 0.86
Interfunctional 11. Top management regularly visits important customers 0.89
coordination 12. Information about customers is freely communicated throughout our organization. 0.89
13. Business functions within are integrated to serve the target market needs. 0.75
14. Our managers understand how employees can contribute to value of customers. 0.75
15. We share resources with other business units. -
Learning orientation Commitment to learning 1. The sense around here is that employee learning is an investment, not an expense. 0.74
2. The basic values of this organization include learning as key to improvement. 0.68
3. Learning in my organization is seen as a key commodity necessary to guarantee organizational survival. 0.77
4. Managers basically agree that our organization’s ability to learn is the key to our competitive advantage. 0.75
Shared vision 5. All employees are committed to the goals of the organization. 0.73
6. There is total agreement on our organizational vision across all levels, functions, and divisions. 0.66
7. There is a commonality of purpose in my organization. 0.67
8. Employees view themselves responsible for the direction of the organization. 0.72
9. Employees view themselves as partners in charting the direction of the organization. 0.63
Open-mindedness 10. Managers basically agree that it is important to accept diverse viewpoints. -
11. We are not afraid to reflect critically on the shared assumptions we have made about our customers. 0.76
12. Our organization pays much attention to original ideas. 0.73
13. The culture in our organization emphasizes continuous innovation. 0.69
Global Marketing How more does your company operate on global marketing mix (1=limited and 5=extensive)?
capability 1. Sales people . 0.63
2. Distribution -
3. Promotion and advertising -
4. Market research 0.77
5. Product differentiation 0.78
6. New product introduction 0.67
7. Marketing success 0.77
8. Marketing capability allows firm to compete 0.84
Global Product-Design Functional Capability How satisfied does your company operate on global product design activities (1=very unsatisfied and 5=very
capability satisfied)?
1. Spent on designing this product to be easily stretched into a family of products usable across domestic 0.77
and multiple foreign market situations.
2. Spent on this capability versus the total time spent on the other three capabilities. 0.97
3. The relative resource commitment to R&D Functional Capabilities. 0.97
Aesthetic Capability 4. Spent on designing this product to be visually acceptable across domestic and multiple foreign market 0.95
situations.
5. The relative time commitment to R&D Aesthetic Capabilities 0.98
6. The relative resource commitment to R&D Aesthetic Capabilities 0.95
Technological Capability 7. Spent on selecting core product technologies that satisfy not only present requirements but are applicable 0.95
to future product generations
8. The relative time commitment to R&D Technological Capabilities 0.98
9. The relative resource commitment to R&D Technological Capabilities 0.97
Quality-based Capability 10. Spent on solving problems in the design stage that proactively eliminate deviations from established 0.95
requirements in manufacturing and assembly
11. Spent on solving problems in the design stage that increase the usability and durability of the product in 0.97
diverse customer usage situations
12. The relative time commitment to R&D Quality Capabilities 0.97
13. The relative resource commitment to R&D Quality Capabilities 0.97
Firm performance How satisfied does your company perform over past three years (1=vert unsatisfied and 5=very satisfied)?
Profitability 1. Profitability 0.87
2. Return on investment 0.78
3. Return on sales 0.66
4. Return on assets 0.88
5. Cash flow from operations 0.52
Growth 6. Profit growth 0.79
7. Sales growth 0.77
8. Market share growth 0.59
Table 2 Measurement validity

Variables M SD 1 2 3 4 5 6 7 8 9 10 11 12 13
MO (α=0.938) 5.13 0.88
1.Customer orientation 5.23 0.96 (.92)
2.Competitor orientation 5.07 1.01 .86a (.89)
a
3.Interfunctional coordination 5.04 0.94 .67 .67 a (.82)
LO (α=0.867) 5.01 0.82
4.Commitment to learning 4.89 1.20 .27 a .27 a .31 a (.74)
a a a
5.Shared vision 5.05 0.78 .29 .22 .40 .60 a (.73)
6.Open-mindedness 5.12 0.94 .22 a .17 b .39 a .45 a .73 a (.73)
a a a a a
7.GMCs 5.34 0.87 .71 .61 .57 .30 .48 .39 a (.75)
GPDCs(α=0.948) 5.23 0.92
8.Functional Capability 5.41 0.97 .65 a .57 a .49 a .39 a .45 a .30 a .84 a (.91)
9.Aesthetic Capability 5.27 1.06 .67 a .59 a .53 a .20 a .30 a .22 a .88 a .82 a (.96)
a a a a a a a a
10.Technological Capability 5.28 1.04 .58 .70 .51 .31 .32 .22 .74 .83 .78 a (.96)
a a a a a a a a a
11.Quality-based Capability 5.01 0.99 .51 .60 .56 .51 .45 .34 .72 .78 .72 .79 a (.96)
Firm performance(α=0.907)
12. Profitability 5.42 1.05 .73 a .68 a .60 a .36 a .43 a .33 a .78 a .73 a .67 a .66 a .59 a (.72)
a a a a a a a a a a a
13. Growth 5.26 1.18 .71 .73 .65 .26 .29 .20 .72 .59 .73 .66 .60 .63 a (.76)
Cronbach alpha - - .914 .823 .811 .939 .536 .610 .838 .875 .885 .820 .821 .895 .823
CR - - .97 .94 .89 .83 .85 .77 .88 .93 .97 .98 .98 .76 .87
AVE - - .85 .79 .68 .54 .53 .53 .56 .82 .92 .93 .93 .52 .57
Note: Numbers in italic denote the square root of AVE.
a
if p < 0.01; b if p < 0.05
Table 3 Tests for the impact of Global Dynamic Capabilities on Firm Performance
Dependent variables
Profitability Growth
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
Main effects
MO .686*** .387*** .763*** .497***
LO .178*** .076* .016 -.078*
GMCs .167** .030 .319*** .185**
GPDCs .636** .445*** .445*** .243***
Control variables
Firm size .017 .034 .037 .018 .018 .038
Organizational slack .004 -.035 -.023 -.129* -.157** -.150***

Expenditures of marketing -.008 .039 .022 .108* .138** .125**
Expenditures of R&D -.076 -.045 -.053 -.037 -.003 -.023
Internationalized .110* .066 .084* .067 .004 .050
experience
Overall model
R2 (adj. R2) .599 (.585) .621 (.608) .697 (.683) .599 (.585) .554 (.538) .671 (.656)
F-statistic 42.32*** 46.37*** 50.017*** 42.29*** 35.12*** 44.364***
* p < .1; ** p < .05; *** p < .01.
Table 4 Tests for the impact of Capability-Building Support Activity on Global Dynamic
Capabilities
Dependent variables
GMCs GPDCs
Model 1 Model 2 Model 1 Model 2
Main effects
MO .631*** .611***
LO .215*** .223***
Control variables
Firm size -.074 -.051 -.030 -.007
Organizational slack .068 .057 .031 .018

Expenditures of marketing .065 .058 .044 .038
Expenditures of R&D -.043 -.066 .020 -.003
Internationalized experience -.099 -.042 -.110 -.056
Overall model
R2 (adj. R2) .019 (.006) .556 (.540) .017 (.007) .533 (.517)
F-statistic .768 35.377*** .695 32.336***
* p < .05; ** p < .01; *** p < .001.

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predicting fast-changing technological development are important factors of GDCs.

Global Dynamic Capabilities

Relationship between Global Dynamic Capabilities and Firm Performance

Global Product-Design Capabilities and Firm Performance

Developing Global Dynamic Capabilities in Internationalizing SMEs

Capability-Building Support Activity: Market Orientation

al., 2005) entails pervasiveness and consistency of shared (customer-satisfaction-focused) values,

Capability-Building Support Activity: Learning Orientation

Building on the above arguments, the authors thus present Figure 1.

Reliability and validity

Discussion and Implications

Limitations and Future Research

Table 1 Confirmatory factor analysis

9. The relative resource commitment to R&D Technological Capabilities 0.97

Table 2 Measurement validity

Organizational slack .004 -.035 -.023 -.129* -.157 -.150*

Organizational slack .068 .057 .031 .018

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