Table of Content
I. LITERATURE REVIEW: AN E-RETAILER’S CAPABILITIES AS SOURCES OF COMPETITIVE
ADVANTAGES INFLUENCING THE COMPANY’S PERFORMANCE IN A FOREIGN MARKET
A. Definition of an e-retailer’s performance in a foreign market
Figure 1: Causal relationship leading to an e-retailer’s export performance
B. Definition of an international e-retailer’s capabilities as sources of competitive advantages
Figure 2: Customer journey
Figure 3: Customer purchasing process
Figure 4: Reciprocal relationship between internationalization and innovativeness
C. Definition of competitive advantages in a foreign market for an e-retail business
Advantage of convenience
Advantage of insidership
Advantage of cost
D. Process model: The link between an e-retailer’s capabilities and its competitive advantages
and performance in a foreign market
Figure 5: Process model
E. Propositions: Particular capabilities and their impact on certain competitive advantages
EFFECTING AN E-RETAILER’S PERFORMANCE IN A FOREIGN MARKET
II. EMPIRICAL STUDY: CAPABILITIES AND COMPETITIVE ADVANTAGES NECESSARY TO
THRIVE IN A FOREIGN E-RETAIL MARKET
A. Introduction of the methodology
B. Introduction of the interviewed companies
Table 1: Profiles of interviewed managers and their companies
C. Analysis results of the empirical study
Table 2: Interviewees’ main arguments related to the process model
Table 3: Rating of the importance of each capability for the achievement of a competitive advantage
III. RECOMMENDATIONS FOR E-RETAIL COMPANIES IN THE PROCESS OF
INTERNATIONALIZATION RELYING ON THEORETICAL AND EMPIRICAL ANALYSIS
A. Relating the propositions to the empirical analysis of the global e-retail market
Table 4: Main aspects defining the identified capabilities and competitive advantages
B. Necessary resources and how to optimize them
C. Necessary competences and how to optimize them
Table 5: Communication techniques for all stages of purchasing process
Strengths of the analysis
Appendix 1 - Interview Guide
Appendix 2 - Interview transcriptions
International online retailers face several unique challenges impacting the success of their performance. Due to globalization and the shrinking of limitations related to space, the competition in the international e-retail sector is growing. Raising customer expectations and the dynamism of digital innovations increase the pressure on online retailers on a regular basis. This study identifies the main factors driving export performance of international e-retailers. A theoretical analysis of previous studies related to this topic will help defining the capabilities that are necessary for the achievement of a competitive advantage in a foreign e-retail market. This will serve as the base for an empirical study with managers from e-retail companies operating in an international context in order to evaluate and deepen the results found in theory. A comparative analysis of theory and practice will conclude in managerial recommendations for e-retailers seeking to enter a new market in a discussion of the major results and limitations of the study.
Keywords: Export performance, international e-retail, competitive advantage, capabilities, resources
The global e-retail market is growing at more than twenty percent per year. Consequently, competition in the sector increases accordingly. More and more online retailers expand their company’s scope by entering new markets. In their global operations, e-retailers must compete with both local and international e-retailers as well as with physical retailers. For this reason, it is important to define international e-retail performance and its most influential success factors, based on the following research question: “In what way do certain capabilities foster significant competitive advantages and thereby effect an e-retailer’s performance in a foreign market?” The principal phenomena necessary for responding to this question are capabilities, competitive advantages and e-retail export performance. They are inter-connected in a causal relationship, as the acquisition and optimization of certain capabilities will lead to competitive advantages in a foreign market, shaping the e-retailer’s performance in the respective market. Export performance can be defined as a goal for an e-retailer’s internationalization strategy that is achieved by competitive advantages. The latter are the firm’s unique value offerings that put it in a favorable position compared to its competitors. Three important types of advantages can be identified for international e-retailers, i.e. the advantages of convenience for the customers, insidership in the local market and the minimization of cost. Capabilities can be divided into resources, i.e. tangible and intangible assets, and competences, i.e. the use of these resources for different departments. The right combination of these capabilities will lead to competitive advantages in a foreign market. The most influential resources are knowledge, human resources and relationship resources. Agile operational, marketing and technological competences as well as innovativeness are the most impactful competences. In an empirical study, the relevance of all of these factors for international e-retailers was confirmed by experts from the field. The capabilities all influence one another. In order to meet local standards and still stand out from the competition, a strategy combining aspects of both adaptation and differentiation is recommended. As online retail needs to digitally transfer the experience customers get with traditional retailers, the online user experience is vital. It is necessary to adapt the capabilities to every new market that is targeted. As the users are a vital aspect of change in a foreign market, their needs should always be in the focus of an e-retailer’s internationalization strategy. The international e-retail sector is subject to constant transformations caused by innovations. Hence, the actions needed to optimize the critical capabilities will change drastically over time. However, the nature of the success factors for e-retail export performance is constant despite the numerous revolutions that this sector will go through in the future.
I wish to express my thanks to everyone who has helped me in the process of writing this master’s thesis.
First of all, I want to thank my academic supervisor, Claude Obadia, for his professional guidance and encouragement during the past months. His experience and knowledge in export management and the accompaniment and writing of academical papers has added valuable input to this thesis.
Furthermore, I wish to address all of the six interviewees that shared their expertise and experiences and played a vital role for the major parts of this study. Even though they had no personal advantage in doing so, they took the time to discuss my topic with me. I am very happy that every single interview turned into a very interesting and diverse conversation, and I got the feeling that every partner took our talk very seriously and answered to their best.
In addition, I want to thank everyone who connected me with the interviewees that were no direct contacts yet and thereby made these discussions possible.
Finally, I want to acknowledge my gratitude towards all helpers who took their time to review this paper and gave me the chance to improve it, as well as to everyone who has accompanied me during the past five years of my studies in Berlin and Paris.
The global business world is currently shaped by two major trends: globalization and the dynamism of internet technology. The value of worldwide exporting of goods and services has now exceeded US$20 trillion and accounts for 29 percent of global GDP (World Bank, 2017). Naturally, online commerce (i.e. e-commerce) becomes a serious option for more and more companies, as internet connectivity increases a firm’s geographical reach. Electronic commerce includes the “sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders” (OECD, 2011). Gregory et al. (2007) further define e-commerce as an “environment for presenting, trading, distributing, servicing customers, collaborating with business partners, and conducting transactions using electronic technologies”
International e-commerce is growing extremely fast due to the expansion of global infrastructure, technology and globalization. The global growth rate of e-retail sales is now at around 25 percent per year (Statista, 2018). In 2017, global e-retail sales were at around US$2,3 trillion, accounting for 10.2 percent of total global retail sales (eMarketer, 2018). Even traditional firms now rely on the internet for their business practices and either add an online channel to their existing ones (i.e. multi-channel), or even transfer their business activities completely to the online world. Especially for companies operating on a global scale, e-commerce offers unique possibilities of efficiency. It gives companies the opportunity to move their entire business practices to the online world and thereby helps overcome limitations of space and time (Ueasangkomsate, 2015). It is not only easier, but also more cost efficient to explore new markets using the internet (Gregory et al., 2007). Hence, globalization and e-commerce support one another. As global competition becomes more and more intense, competitive advantages in the foreign markets an exporting firm operates in become major significant factors for their international performance. An e-retail business must therefore adapt to each of the foreign markets they operate in. Retail is the sale of goods and services. Electronic retailing or e-retail can therefore be defined as the sale of goods and services through the internet.
There are different types of online retailers: business-to-business (B2B), business-to-consumer (B2C) and consumer-to-consumer (C2C) (Ueasangkomsate, 2015). Firms of all sizes can benefit from e-retail and become serious competitors in the global market. The internet can help even small and medium-sized enterprises (SMEs) to overcome the main barriers to exporting, namely the lack of capital and capacity and the general complexity of serving overseas markets (UNCTAD, 1993). They can easily attract and service foreign customers and extend their geographical reach (Tiessen et al., 2001). Thus, there are many advantages deriving from electronic retailing compared to traditional brick-and-mortar retail. However, there are also different challenges and requirements that e-retailers must face. As they often still provide physical goods, international e- retailers are more intensely embedded into the local business environment of their foreign markets than other e-commerce firms. They are therefore forced to interact with local customers and adapt their business model to local customs and expectations to a certain extent (Cao et al., 2017). Customer expectations and preferences change with the use of internet technology. Personalization of products, fast delivery and the constant availability of goods become major challenges for online retailers.
As competition is not channel-specific anymore, there are three main sources of competition for an international e-retailer, i.e. local e-retailers, local traditional retailers and other international exporting e-retailers. Local retailers benefit from the advantage of serving their home market. They know local customs and customers’ expectations and requirements and how to serve them. Not only online retailers pose a serious threat: Also in foreign markets, e-retailers face the challenge of the consumers’ reluctance to shop online, or at least the benefits of offline shopping (e.g. direct availability and the option to physically control the quality of products before purchasing). In addition, there might be other international e-retailers present in the foreign market. They will benefit from the same advantages as the e-retailer and be in a comparable competitive situation. An e-retailer’s international performance is shaped by external environmental factors and internal firm factors. As research has shown that firm factors are more influential than environmental factors (Tiessen et al., 2001) and can be stronger influenced by the exporting firm, this paper will focus on the firm factors, i.e. an e-retailer’s capabilities. In addition, markets and environmental factors keep changing, while a firm’s capabilities should be consistently strong.
Past studies rely on resources and competences as the capabilities necessary for general exporting firms in order to gain competitive advantage, as well as the significance of these competitive advantages for a positive performance in foreign markets (Kaleka, 2012). However, there is little specific research on e-retail. The capabilities nurturing competitive advantages are not the same as for traditional retailers, which is why it is important to conduct detailed research on the capabilities that have a positive impact on an e-retailer’s performance in a foreign market. According to the experts interviewed in the second part of this study, competition in the global e- retail market is growingly aggressive and fast-moving. It will become harder and harder to realize an advantageous competitive positioning in a foreign market, especially in e-retail and technology friendly countries. In the experts’ opinion, it is therefore crucial for e-retailers to offer a unique experience to their users, and this experience can differ strongly depending on the market. This necessity leads to the following research question: “In what way do certain capabilities foster significant competitive advantages and thereby effect an e-retailer’s performance in a foreign market?” This paper will therefore transfer the capabilities - competitive advantage - performance framework derived from recent studies (Barney, 1991) to the international e-retail sector. It aims to help firms identify important resources to acquire and competences to improve in order to gain relevant competitive advantages and secure a successful performance in a foreign market. For this purpose, first, past studies regarding general export performance, the internationalization of retail firms and global e-retail will be reviewed. In this literature review, three types of competitive advantage will be identified: the advantage of convenience, the advantage of insidership and the advantage of cost. As for the capabilities, the review will lead to the definition of three types of resources (knowledge, human resources and relationship resources) and four types of competences (agile operational competences, agile marketing competences, agile technological competencies and innovation) that an e-retailer needs in order to gain competitive advantage in a foreign market. This will aid in the development of the research process model and five propositions. Then, these propositions will be tested in a qualitative market research, analyzing six interviews with managers from e-retail companies operating in at least one foreign market. Last, the results of the interviews will be analyzed and transformed into recommendations for exporting online retailers. This study will identify the most important success factors for e-retailers seeking to internationalize their business or expand their international operations. It then aims to draw useful conclusions from a comparative analysis of the theoretical and empirical research results, in order to facilitate the creation of a market-entry strategy for global online retail companies.
I. Literature review: An e-retailer’s capabilities as sources of competitive advantages influencing the company’s performance in a foreign market
Internet technology gives online retailers the opportunity to secure a superior competitive position with lowering their operating costs (Savrul et a., 2014). However, as this possibility is open to all players and users are not bound geographically, the global e-retail market becomes more and more competitive. In addition to the intensified competition, the decrease of customer loyalty becomes another specific challenge for e-retailers. Consumers have a larger choice of retailers than in the offline world, with new competitors joining almost every day. They are not bound by limitations of space and time and have to visit the closest brick-and-mortar shop to their home but can often choose from providers from all over the world. It is therefore inevitable for an international e- retailer to secure a clear advantage compared to their competitors in order to achieve exporting success. This paper follows the concept of former studies defining resources and competences as the main sources for an exporting company’s competitive advantages, which will then have a positive impact on the firm’s performance (Kaleka, 2012; Gregory et al., 2016). The correlation of the types of capabilities and competitive advantages must be identified in order to secure a successful export performance.
There are several distinct challenges for exporting e-retailing firms to be overcome by the use of the right capabilities. First of all, the psychic distance, i.e. the difference in cultural as well as in business behavior, between the exporter and the host market can make it more complicated to achieve a competitive advantage. Psychic distance is defined as “the sum of factors preventing or disturbing the flows of information between firms and markets” (Johanson & Wiedersheim-Paul, 1975). Second, a new market necessitates the respect of different customer values, attitudes and purchasing behavior. An e-retailer’s overall strategy and operations must be adapted in order to respond effectively to these foreign market requirements. Third, the competitive advantages are dependent on customer expectations. Consumers in different markets and countries have different expectations, wants and needs. Hence, the competitive advantages are subject to change, depending on the penetrated market. This paper will focus on dynamic business capabilities that can adapt to the market and serve as sources of general competitive advantages. The latter can serve as a valuable base for any exporting e-retail firm and be adapted to specifically fit any foreign market.
The following part will review recent studies in the field in order to (A) define an e-retailer’s performance in a foreign market which will serve as the base for the research that follows. In order to understand the causal relationship leading to a successful export performance of an e-retailer, (B) different kinds of capabilities as sources of competitive advantage at international level will be conceptualized, leading to (C) the identification of types of competitive advantage that influence international performance. Not all of the capabilities will be exclusively important for international online retailers, as a too specialized view would ignore certain more general, but very important aspects. Based on this research, (D) a process model will be developed aiding in (E) concluding five propositions to be tested in the second part of the paper.
A. Definition of an e-retailer’s performance in a foreign market
With the global growth of international operations, export performance becomes a more and more significant contributor to a firm’s overall performance (Kaleka, 2012). There are several definitions of export performance that can be found in recent literature. Cavusgil & Zou (1994) define export performance as the extent to which a firm’s economic and strategic objectives with respect to exporting are attained through the planning and execution of its export marketing strategy. In the Casino Model of Internationalization, performance is defined as a strategic goal itself. Exporting firms’ internationalization strategy is compared to a game of roulette: the more bets placed (i.e. branches opened), the more probable is a win (i.e. success in export performance). E-retail allows companies to open new branches in different places at the same time and therefore start several “bets” simultaneously. However, the number of “bets” a company can make at once strongly depends on its resources (Hakanson et al., 2017). Barney (1991) explains that a firm’s performance is achieved through competitive advantage, which results from the application of rare, valuable and difficult to imitate resources. Based on these recent definitions, an e-retailer’s export performance is conceptualized as follows:
Export performance is a goal for an e-retailer’s internationalization strategy that results from the achievement of certain competitive advantages in a foreign market.
Performance is strongly influenced by a firm’s operational challenges and the foreign market’s customer expectations (Lang et al., 2013). In order to achieve a beneficial level of performance, a firm must be able to adapt their business to the new market environment. This is easier for an online retailer than for a traditional business, as they can adapt communication and distribution methods in a more cost-efficient way. The market requirements that need to be met by any e- retailer in any foreign market are defined as the 11 C’s of e-commerce internationalization (E- Consultancy, 2010): Country, customers, communication, culture, customer service, competitors, currency, conversion, channels, content and costs. These aspects are essential drivers of e-retail performance and will all be found in the capabilities that have an effect on international competitive advantages. The latter are part of a firm’s strategy and that is the key determinant of its export performance. Advantages are determined by capabilities. An e-retailer in the process of internationalization should therefore focus on a strategy that best exploits its capabilities (Brouthers et al., 2016). Based on Barney (1991), Kaleka (2012) and Brouthers et al. (2016), the following causal relationship model will serve as the structure of the literature analysis on competitive advantages and capabilities as influential factors for an e-retailer’s export performance:
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Figure 1: Causal relationship leading to an e-retailer's export performance
The customer’s entire experience with the e-retail business defines the base for the firm’s performance (Liu et al., 2013). The main factors driving performance are customer satisfaction, the improvement of processes and competitive benefits (Geng & Chu, 2012). Customer satisfaction is generally defined as a customer’s emotional reaction to the difference between their expectations and their actual experience (Geng & Chu, 2012). E-retail customer satisfaction has been described as the “contentment of the customer with respect to his or her prior purchasing experience with a given electronic commerce firm” (Anderson et al., 2003). Research has shown that customer satisfaction is positively linked to an online retailer’s performance (Anderson et al., 2003), as it leads to customer retention and loyalty, an increase in profit and customer recommendations (Zeithaml, Parasuraman, & Malhotra, 2002).
Recent literature includes different approaches to measuring export performance of an e-retailer. First of all, there are general economic key performance indicators (KPIs) of an e-retail business. According to Lang et al. (2013), the main KPIs of multi-channel e-fulfillment systems, that can easily be transferred to e-retail, include: stock and inventory efficiency, indicating the performance of the warehousing process; picking and order preparation efficiency, indicating the performance of the picking and order preparation process (e.g. preparation of orders completed within the day); delivery cost efficiency, indicating the performance of the distribution and delivery process; return handling efficiency, indicating the performance of the return process. Liu et al. (2013) operationalize performance by dimensions that a firm achieves better results in than their key competitors: Return on investment (ROI), profits as a percentage of sales, decreasing the product or service delivery cycle time, rapid response to market demand change, rapid confirmation of customer orders, increase in customer satisfaction. Efrat et al. (2017), however, have a slightly different approach. They measure export performance in terms of customer-based dimensions, such as export customer satisfaction, retention of export customers, referrals from existing export customers and the acquisition of new export customers. The conceptualization for the measurement of export performance in this paper is based on a combination of these:
- Financial export performance, including ROI, export intensity (i.e. export sales percentage of total sales), export profitability, export growth (i.e. orders per month), market share.
- Operational export performance, including order processing and completion times and efficiency, delivery cost efficiency.
- Customer-based export performance, including retention of export customers, growth of export customer base, customer satisfaction.
In order to achieve the strategic goal of export performance and succeed in all performance dimensions, an international online retailer needs to first understand the two steps of the causal relationship as shown in Figure 1, in order to then make sure to acquire the right capabilities leading to a competitive advantage.
B. Definition of an international e-retailer’s capabilities as sources of competitive advantages
As previously defined, an e-retailer’s performance relies on its competitive advantage deriving from the combination of particular export capabilities. The following part will serve to define these capabilities, as they are striking success factors of its export performance (Cao et al., 2011).
Generally, capabilities play an important role in a firm’s strategy to achieve positive results, as they are considered as the ability to perform a coordinated set of tasks through the deployment of resources. This ability can be developed through the appropriation of international know-how (Efrat et al., 2017).
There are two main approaches that serve as the base for previous studies in this field: the resource- based view (RBV) and the dynamic capabilities approach (DCA). According to the resource-based view (Barney, 1991), a firm can achieve performance through gaining competitive advantage that results from the use of valuable, rare and difficult to imitate resources. Therefore, resources can be seen as the main sources of competitive advantage (Kaleka, 2002) that are especially effective when an organization benefits from their scarcity, complexity and general lack of transparency (Kaleka, 2012). A firm’s influential resources include assets, capabilities, processes, managerial attributes, information and knowledge (Gregory et al., 2016). On the foundation of the resource- based view, Teece et al. (1997) developed the dynamic capabilities approach, defining a firm’s dynamic capability as the “ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments”, which is especially the case for online retailers, as their business environment is shaped by innovation and constant change (Nisar et al., 2017). They identify three essential firm capabilities, i.e. the ability to sense and shape opportunities, to seize these opportunities and to maintain a competitive advantage by enhancing, combining and adapting its resources (Teece et al., 1997). A company therefore needs to be able to successfully create and adapt its resources to the dynamic market environments, in order to be able to effectively respond to opportunities (Gregory et al., 2016). For an exporting company, Morgan et al. (2012) identify higher-order capabilities of particular significance. Export capabilities result from the learning and analysis of external market information and the development of export venture marketing processes and strategies.
The traditional resource-based view is criticized as being too “static” for the modern dynamic environment (Brouthers et al., 2016). Especially in e-retail, and even more in international e-retail, it is vital for a firm to realize the dynamism of their market environment. Innovations in the market and technology derive in new opportunities, but also in new challenges every day. However, the dynamic capabilities view on its own is not sufficient as an approach to explain the impact of an exporting firm’s capabilities on their performance. While the DCA focuses on the creation of a dynamic strategy using a firm’s resources in order to survive the rapid changes of contemporary markets, the resource-based view of the firm concentrates on enhancing these resources to gain a sustainable competitive advantage. Resources and dynamic capabilities have shown a strong influence on one another, as capabilities use resources to improve a firm’s competitive advantage and thereby offer the company the opportunity to acquire new resources (Brouthers et al., 2016). An integration of both theories is a useful base of argumentation for the following analysis, as this will include both a stable ground base of resources as well as an agile strategic use of the latter, aiding an exporting firm to achieve a competitive advantage and finally a successful performance in a foreign market. In addition, it is important to define the terms capabilities, resources and competences. In the following paper, capabilities will be used as an overall term including both a firm’s resources and competences. With reference to Barney (1991), an exporting e-retailer’s resources will be defined as its tangible and intangible assets that are rare, valuable and difficult to imitate for competitors in the host-market. Competences are strongly associated with Teece’s dynamic capabilities (1997), i.e. the ability to deploy these resources as part of an agile export strategy in order to react to international market changes. For this study, an international e- retailer’s capabilities will therefore be defined on the base of previous research as follows:
An e-retailer’s export capabilities include its resources and competences and serve as the main sources of competitive advantage in a foreign market. Resources are tangible or intangible assets controlled by the firm, whereas competences focus on the ability to use and develop these resources according to market changes.
Certain resources and competences need to be present in order to have a positive effect on an e- retailer’s export performance. Based on extensive literature review, three types of resources (i.e. knowledge, human resources, relationship resources) and four types of competences (i.e. agile operational competences, agile marketing competences, agile technological competences, innovativeness) were identified as relevant factors for an e-retailer’s performance in a foreign market.
Resources relevant for an e-retailer’s export performance are tangible and intangible assets controlled by the firm that are rare, valuable and difficult to imitate for its competitors (Barney, 1991). They serve as inputs for organizational processes (Kaleka, 2002). An e-retailer’s tangible resources include IT infrastructure and the necessary hardware and software, whereas its intangible resources have been associated with knowledge and expertise (Gregory et al., 2016). Previous researchers argue that intangible have a higher effect on an exporter’s competitive advantage than tangible resources, as the latter are more limited than the former (Md Daud et al., 2017). The internet gives online retailers the opportunity to compete on an international level with only limited physical resources, which adds to this argument. However, the resources they do need to enhance, i.e. mainly their intangible resources, are crucial for their competitive position in a foreign market.
For an international e-retailer, resources that are critical to developing skills and technological infrastructure are the ones affecting its competitive advantages and shall be put in focus (Gregory et al., 2007). Three important kinds of resources were identified and will be explained in detail: knowledge, human resources and relationship resources. Financial assets are not included, as they have not shown to have a relevant impact on export performance in previous studies: Celec et al. (2017) demonstrated that the lack of financial resources has a negative impact on export performance, however the enhancement of the same does not lead to a competitive advantage. Furthermore, Kaleka (2012) proved that they were not associated with export efficiency. In addition, international e-retail itself can lead to cost efficiency, especially regarding communication and operations, and it is relatively easy to share resources within the group. Financial resources are therefore less influential than for traditional retailers (Gregory et al., 2007).
Foreign market knowledge has been valued as the most important resource in previous studies (Md Daud et al., 2017). It is closely related to experience in export market operations, as experiences leads to learning which creates knowledge. Knowledge helps firms to identify unique market opportunities and to avoid threats. Simultaneously, experience helps firms to prevent making mistakes.
In international e-retail, the most important knowledge to acquire is related to both internet and cultural expertise (Tiessen et al., 2001). IT knowledge can improve processes and thereby lead to cost efficiencies. It leads to additional opportunities offered by the world wide web. In addition, an e-retailer can create uniqueness by developing and offering an exceptional user experience through their online shop. Cultural expertise is crucial for choosing the right adaptation strategy and equally creates new opportunities (Tiessen et al., 2001). It forms the base of an exporter’s host-market strategy and gives them the ability to react to external market forces and fully understand demand patterns in the host market. With cultural expertise and market knowledge, an exporter can therefore be certain to meet local requirements. Thanks to the large amount of information provided online, the collection of knowledge is nowadays relatively easy compared to the past. Conclusively, internet knowledge enhances cultural knowledge.
Export experience as part of knowledge can be harder to acquire. It includes experience in the market, but also experience in general export market operations. Management export experience helps companies to recognize and exploit opportunities, which leads to efficiency regarding cost and time of operations (Celec et al., 2017). Furthermore, knowledge and experience automatically grow with an e-retailer’s internationalization, which leads to exponential increase in efficiency when adding new markets to the portfolio. By acquiring foreign market knowledge and export experience, an e-retailer gains the ability to recognize and fully exploit market opportunities (Celec et al., 2017).
Any company relies on its human resources. Kaleka (2012) defines an exporting company’s personnel and employees engaged in export as important factors of the firm’s scale of operation. For an international e-retailer, the striking human resources include the people in charge of export development and operations, the e-retail export sales team and the e-retail export marketing team (Gregory et al., 2016).
Valuable human resources are mainly shaped by management commitment and qualified and motivated employees. Management commitment has been defined as the degree of deliberate interest in foreign market operations and the related acquisition of financial and human resources aiding in developing and serving foreign markets (Leonidou et al., 1998). When higher management is strongly committed to export operations, they tend to adapt their firm’s strategy to export goals and objectives, resulting in a better export performance (Gregory et al., 2007).
However, the development of an excellent exporting strategy is not sufficient for securing export performance. A strong employee base is necessary in order to execute this strategy (Tiessen et al., 2001). An advantage in e-retail is that human resources can operate several branches at once, thanks to online connectivity. Therefore, there are less human resources needed than for traditional retailers, as brick-and-mortar retail requires e.g. a present sales force in all stores. Online retail, however, mainly requires stable management functions as well as a reliable customer service, in order to serve as positive and reliable customer touch point of interaction. A positive experience with an online retailer’s employee base is crucial for customer satisfaction (Celec et al., 2017).
The e-retailer needs to decide whether to invest in training and proper human resources on site, or to hire external forces in the host market. This decision can be vital for customer service, as well as IT specialists. Previous studies have shown that in-house human resources are more likely to be committed to the firm’s operations than subcontractors (Tiessen et al., 2001).
The internationalization process of an e-retail firm always includes a large network of diverse relationships. An exporting e-retailer has to build, maintain and use relationships with customers, suppliers, distributors, online sales platforms and other partners in order to reduce liabilities of outsidership and export-related risks (Brouthers et al., 2016). A firm’s network of export relationship consists of several connections and social ties between the firm’s relationships related to its export operations (Md Daud et al., 2017). Previous research has found that relationship networks have an impact on international growth that can be positive or negative (Brouthers et al., 2016). On the one hand, existing relationships can serve as a connection to a new market and thereby facilitate important export processes including market choice and market entry (Brouthers et al., 2016). Strong bounds can increase even an online retailer’s access to exclusive market information and have a positive impact on knowledge resources. On the other hand, a possible negative impact is the dependence on certain relationships and partners. An international e-retailer must not damage existing relationships in the process of growth. In order to avoid the negative impact on export performance, relationships therefore have to be fostered and maintained. There are two types of relationship networks that an international e-retailer needs to foster, i.e. the networks of business partner relationships and customer relationships. An established and wellfunctioning relationship with key business partners in a foreign market will make it more difficult for competitors to access the same sources of information and advantage (Cao et al., 2017).
In cooperation with international partners, an online retailer can combine their knowledge with local knowledge, especially regarding special information on the host-market (Celec et al., 2017) in order to draw the advantages out of both own and host-market knowledge. For an e-retailer, this is equally valid for new, local developments in technology. Furthermore, strong relationships with supply chain or IT partners can increase an online retailer’s ability to quickly react to changes in customer demand and technology (Gregory et al., 2007). International business relationship management requires a certain degree of negotiation flexibility with respect to tactics, pricing strategies and legal adaptations (Celec et al., 2017). Business relationships can be built by cooperating with local firms or online sales platforms. In e-retail, partnerships with other retailers or third-party market places are a great opportunity to grow awareness (Moertini, 2012) and become a market insider. An online retailer has the option to enter the market by partnering with a large local e-retailer, and even maintain this third-party relationship once established in the market. This kind of relationship can lead to cost advantages and the reduction of risks related to foreign market demand and customer preferences (Moertini, 2012). The key factors for the success and maintenance of business relations are commitment and trust (Md Daud et al., 2017). Relationship commitment has been defined as the belief in the value of a relationship that leads to efforts in order to maintain it. Commitment, however, leads to an exposure to risks, which is why it is crucial to only commit to a trustworthy partner (Morgan et al., 1994). In addition, as the transfer of knowledge is very quick and easy thanks to global internet connectivity, trust becomes more and more important. The more trustworthy a partner is, the lower the risk of the harmful effects of psychic distance and the higher the flow of knowledge transfer (Md Daud et al., 2017). A strong relationship between exporters and their partners that is built on trust will reduce the risk of opportunism, as the positive expectations of one another lead to better behavior (Gulati et al., 2008).
In e-retail, the relationship between a company and its customers is a lot more influential than in traditional retail. Cao et al. (2015) define customer e-loyalty as one of the most crucial antecedents for the success of e-performance. Similar to the firm’s business relationships, trust is a particularly significant factor for customer relationships, as an e-retailer’s offline customer touch points are highly reduced (Kreutzer et al., 2017). Buyers do not physically perceive the product until they have purchased and received it. An e-retailer therefore has to build trust in its online shop in order to make sales and provide security. The main elements of security in the online purchasing process are reputation, customer comments and pre- and post-sales services (Szymanski & Hise, 2000). Therefore, the website of an online shop needs to be useful and valuable to the customers and provide enough information to build transparency. Once this is achieved, customers will perceive the e-retailer’s value offerings and might even become less price sensitive (Md Daud et al., 2017). A network connecting established users in the international e-retailer’s home market with potential new users in a foreign market further facilitates creating awareness and thereby entering the foreign market (Brouthers et al., 2016). Reviews from present customers and review pages help increase trust and reduce security worries. An international online retailer therefore strongly relies on its network size (i.e. the number of current users), network diversity (especially geographical) and the incentives given to its users (pushing user recommendations), in order to benefit from its customer relationships and to see an effect on its foreign market performance (Brouthers et al., 2016).
To build and maintain strong and trustful customer relationships, an online retailer has to provide an excellent customer experience and reliable customer service (Jarvenpaa et al., 1997). This is strongly related to the human resources responsible for the local customer relationships. An e- retailer’s customer service deals with and solves any potential problems or questions that customers have during the entire customer journey, from the awareness stage to the after-sales service stage (Kreutzer et al., 2017) as presented in Figure 2. Along the entire customer journey, an e-retailer needs to optimize the customer touch points from a user point of view (Kreutzer et al., 2017).
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Figure 2: Customer journey (based on Kreutzer et al., 2017)
Proving the value offering to early-adopting first customers has a large impact on the e-retailer’s user network building. Individuals share their experience with the online shop with other potential users and thereby encourage them to become users themselves. These opinion leaders serve as networking resource and promote user adoption of the e-retail platform, having a positive impact on the online retailer’s competitive position in the foreign market (Brouthers et al., 2016).
This literature analysis leads to the following hypothesis:
h1. Knowledge, human resources and relationship resources are all resources with a positive effect on an online retailer’s performance in a foreign market.
An international online retailer’s competences are defined by its ability to use, combine and develop its export related resources in order to create a competitive advantage in a foreign market (Kaleka, 2002). According to Teece (1997), these competences are a striking factor for the firm’s capability to flexibly react to international market changes. When an exporter achieves an effective combination of external local and internal resources, they consequently achieve a competitive advantage in the local market by reducing cost and improving their value offering (Cao et al., 2017). Hence, export competences are a firm’s skills to leverage their export resources in certain business areas. In international online retail, these particular business areas are operations, marketing, technology and innovation. Enhanced competences in these areas can have a positive effect on the relative power of customers and business partners (Gregory et al., 2007). Furthermore, these competences are necessary for optimizing the three levels of web functions, i.e. (in order of sophistication) the provision of information, the provision of customer service and the conduction of online transaction (Tiessen et al., 2001). All these functions must provide transparency, security, high-quality service at a low searching cost and be easy and fast to use (Szymanski and Hise, 2000). In combination with a fast delivery of goods and website functionality, this will lead to customer retention and enhanced e-retail performance (Shankar, Amy, & Rangaswamy, 2003).
When it comes to an international e-retailer’s competences, the exporting company must face an additional challenge, as competitive advantages change with customer expectations that change with markets. The e-retailer’s competences help them to adapt to the constantly changing environment and new cultures (Teece, 1997). In addition, customer expectations do not only change with markets, but also with the rapid changes in technology. An online retailer must be able to provide timely and cost-effective deliveries in any market in order to guarantee superior firm performance (Liu et al., 2013). Therefore, it is absolutely necessary that all competences are flexible and agile enough to adapt to new challenges quickly.
The identified agile competences are based on the most important business areas that an e-retailer needs to optimize for gaining a competitive advantage in a foreign market: agile operational competences, agile marketing competences, agile technological competencies and innovativeness.
Agile operational competences
Enhanced operational competences remove space, time and location limitations and can thereby lead to a competitive advantage not only compared to other online retailers, but also to traditional retailers. Operations represent the center of an e-retailer’s business and are positively associated with customer loyalty and the online retailer’s performance (Power et al., 2007). While brick-and- mortar retail has existed for thousands of years, online retail is a very recent phenomenon that poses new operational challenges for retailers (Nasir et al., 2017). The shopping experience is strongly impacted by the operational differences. In an offline shop, the customer receives the product immediately after buying, therefore the retailer must carefully look after its inventory. An online retailer, however, has the opportunity to offer a larger variety of goods as it is less restricted by storage problems. It must focus on the optimization of processing and delivery times, as customer satisfaction is closely related to the delivery and reception of the product (Li et al., 2015).
The successful e-fulfillment of orders has a strong influence on the customers’ perception of quality and satisfaction and can simultaneously create an advantage of cost (Lang et al., 2013). An online retailer therefore must build a strong operational infrastructure in order to secure their performance in a foreign market.
E-operations are shaped by the shift of important operational processes from offline to online. These processes include the procurement of goods and services, supply chain management, distribution and order processing (Gregory et al., 2016). If an online retailer successfully achieves this shift and optimizes online operation processes, it can create valuable offerings for the customers, i.e. online ordering, online payment, the participation in an electronic market place and e-fulfillment (Gregory et al., 2016). An e-fulfillment system has to meet the customers' expectations and be time- and cost-efficient (Lang et al., 2013). Lang et al. (2013) define four customer expectation indicators for e-fulfillment systems, i.e. timeliness, availability, condition of the delivered goods and ease of return. In order to achieve timeliness, an e-fulfillment system must encourage quick and flexible deliveries, e.g. giving the customer the option to choose a delivery date and time. Product availability must be transparent and confirmed before the order is complete and customers must be able to track their order delivery status. If a product is not available, an e- retailer should be able to provide substitutes or alternative offers. Order condition is shaped by accuracy, completeness and quality of the delivered goods. In case of return, it should be easy for the customer to return or replace their goods and be refunded (Lang et al., 2013).
All of these indicators play a very important role in providing the customer with a pleasant and convenient online shopping experience and can, when optimized, build a strong competitive advantage for an e-retailer in a foreign market. In order to achieve this goal, an e-retailer must decide whether they incorporate delivery in their operations or hire a third-party logistics provider for customer deliveries.
An international online retailer’s operations need to be very agile, as they must be adapted to changes in market regulations and environmental conditions depending on the country they are used in. In addition, operational processes have to be prepared for quick company growth. An online retailer that wishes to expand internationally benefits from an advantage of experimentation, i.e. that they do not have to bring their products when entering a new foreign market and can test local demand, preferences and operational requirements before engaging in market entry (Cao et al., 2011). This gives them the chance to adapt to potentially very quick growth and seize different opportunities spontaneously (Celec et al., 2017).
Agile marketing competences
Due to the general cultural shift from offline to online retailing, customers now also expect a different level of marketing and communications. Digital marketing offers companies the opportunity to track their customers and target them in a more personalized and agile way. On the other hand, customers also expect to be impressed by an e-retailer’s marketing and communication measures. The enhancement of an online retailer’s agile marketing competences is very important for customer relationship building. First, an online retailer usually has no direct or personal customer touch points, and therefore has to be very convincing with their online presence. Second, marketing competences have a strong impact on a customer’s experience during all stages of the purchasing process, namely awareness, searching, evaluation of alternatives, purchasing and postpurchasing (Laudon et al., 2011) as illustrated in Figure 3:
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Figure 3: Customer purchasing process (based on Laudon et al., 2011)
The customer purchasing process can be seen as part of the third stage of the customer journey presented in Figure 2, i.e. Purchase. Hence, it is crucial that an online retailer manages communication with potential buyers during all stages using online marketing tools such as search engine activation (SEA) and search engine optimization (SEO), as well as online communication tools, e.g. social media and instant messaging, e-mail and other electronic documents (Moertini, 2012). Gregory et al. (2007) define communication efficiency as an essential driver of an e- commerce business’ export marketing strategy. According to their study, communication is efficient and has a positive impact on export performance when it leads to less customer questions thanks to the provision of the right information, creates online opportunities, serves customers during and after purchasing, and aids in communicating the right message through online channels (Gregory et al., 2007).
Online communication is equally important for creating awareness, which is crucial for any online business. When an online retailer enters a new market, this is a particular challenge, as local users need to accept the new e-retail platform. Online retailers can use opinion leaders as a networking resource and online mass media (i.e. SEO and SEA) in order to flexibly and efficiently reach and target potential new local users (Brouthers et al., 2016). The internet gives e-retailers the opportunity to inexpensively gather customer information and customize communications, which is especially interesting and cost-effective for exporting online retailers (Gregory et al., 2007). E- marketing tools directly point users toward the shop website and use the online marketing channel as sales channel (Brouthers et al., 2016).
In addition, communication and news are spread very far and fast through the internet. This can be an advantage, but also a challenge for e-retailers, as they must deliver a great customer experience. In order to avoid imitation from local competitors, an international retailer must use monitoring methods. These can also be very useful for the adaptation of prices that is necessary due to the constant arrival of new e-retail competitors (Brouthers et al., 2016).
But also after the awareness stage, online marketing can make the communication between buyer and seller a lot more efficient and quicker, as it removes physical limitations of time and space and serves as an important channel for customer service (Ueasangkomsate, 2015). Previous research has shown that an e-retailer’s service quality has an impact on customers’ purchase decision, loyalty and customer satisfaction (Fassnacht et al., 2006). E-service quality is shaped by reliability, responsiveness, assurance and quality of communication (Li et al., 2002). Subramanian et al. (2014) found that both reliability and responsiveness have a positive impact on customer satisfaction and thereby on an e-retailer’s performance. It is therefore crucial to always provide an excellent customer experience and reliable customer service.
For an international online retailer, it is an additional challenge to match local requirements with responsiveness, in order to build trust and create an advantage of insidership. Local culture and social behavior have a strong impact on the performance of an international e-retailer in a foreign market (Ueasangkomsate, 2015). In order for an international online retailer to be accepted by local people in a new market, marketing measures therefore must be agile enough to adopt to different requirements. Previous research has shown that export performance is linked to foreign language skills and local market knowledge (Leonidou et al., 1998). Moertini (2012) found that one way to build trust is the use of perfect English for communication measures. However, a company will gain a competitive advantage of insidership when they are also able to communicate in the local language.
Transferring an online retail platform is relatively easy and inexpensive. The transfer of users and development of insidership, however, is a lot more complicated and the most important challenge to be faced by an e-retailer’s agile marketing competences. International brand strength can be helpful in reducing uncertainty and lowering local customers price-sensitivity (Celec et al., 2017).
Agile technological competences
An e-retailer’s business relies on information technology (IT) and is completely online-based. Agile technological competences therefore have a holistic influence on an online retailer, as they connect and enhance other resources and capabilities (Liu et al., 2013). They enable optimized operational processes and innovative marketing measures and improve communication efficiency as well as customer-related features including online payment security, web design and the provision of information (Choshin et al., 2017). Studies have shown that security, privacy, up-to- date technology and website design have a positive impact on customer satisfaction (Nisar et al., 2017). Agile technological competences serve as the main factor to assure these standards are all met and that an online retailer can adapt to changes in regulations and technological innovations. A flexible IT infrastructure will affect an international online retailer’s performance in a foreign market. It can be described as the technological foundation on which present and future IT applications are built and includes the main online shopping platform, communication networks, data and processing applications (Liu et al., 2013). A strong e-retail infrastructure enables the reliable use of the company’s value offerings and serves as the prevention of or solution to challenges related to internet speed, network traffic, data protection and security (Choshin et al., 2017). An agile technological infrastructure is characterized by connectivity, compatibility and modularity. Connectivity is defined as the inter-connectivity between all IT components. Compatibility is shaped by the ability to share information and data. Modularity can be described as the possibility to easily add, modify or remove any element of the IT infrastructure without any negative effects (Liu et al., 2013). A functional and agile IT infrastructure can lead to significant savings in time and cost through process automation in distribution, sales, customer service and inventory management.
Tiessen et al. (2001) define the perceived ease of use and usefulness of an online shop as a major factor linking the use of IT to performance. The usefulness depends on the platform system and information quality as well as additional features (Pujani, 2011). Online shop usefulness and quality can be achieved by website design. Studies have shown that customer perception of an e- retailer’s product and service quality as well as customer loyalty are positively related to website design (Liu et al., 2008). According to Moertini (2012), it is crucial that a functional website is designed from the point of view of potential buyers. It has to build the bridge between an international e-retailer and local consumers and therefore aims at showing the firm’s trustworthiness and credibility. Surveys have shown that this can be achieved mainly by design look, information design and structure as well as information focus and usefulness (Laudon and Traver, 2011). In addition, trust is built by the easy possibility to contact the online retailer through e-mail, instant messaging, phone or the provision of the company address (Moertini, 2012).
Globalization and the internet are both very dynamic and innovative phenomena that challenge an international online retailer’s performance. In order to keep up with the fast-moving and competitive environment, an e-retailer needs to be innovative. Innovativeness in an exporting context has been defined as the “openness to new ideas as an aspect of a firm’s culture” (Calantone et al., 2002) and a “novelty of the firm’s offerings” (Brouthers et al., 2016). This includes the use of new methods, techniques and ideas in an e-retailer’s processes with the aim of creating a competitive advantage by coping with the online retailer’s evolving international environment (Efrat et al., 2017). Internationalization and innovation have a positive reciprocal relationship (Cao et al., 2017), as illustrated in Figure 4. On the one hand, innovation serves as a source of market power and competitive advantage and thereby positively affects an online retailer’s internationalization process (Roper et al., 2002). On the other hand, international operations enrich a firm’s knowledge with information and ideas from different markets, which naturally leads to innovations (Hitt et al., 1994).
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Figure 4: Reciprocal relationship between internationalization and innovativeness
Innovative product and service offerings lead to a unique value proposition. For an online retailer, product uniqueness mainly describes the incorporation of exclusive features that satisfy unique needs or exceed customer expectations (Gregory et al., 2007). This can lead to a competitive advantage, as local customers are likely to be more interested in an innovative e-retail platform than in what they already know and are happy with. An international online retailer benefits from its holistic knowledge on product differences depending on different markets. Some customs that are already developed in the home market might be perceived as innovative in a new foreign market, which can make it easier to gain a competitive advantage through innovativeness.
An online retailer’s innovativeness is shaped by pro-activeness and the openness to taking risks by trying something new (Celec et al., 2017). The risk lies in the lack of predictability of trends in foreign markets and local customer preferences (Efrat et al., 2017). Hence, innovative measures in a foreign market always have to be well-planned and carefully analyzed in order to be able to lift an international online retailer’s competitive advantage.
Based on this analysis, the following proposition can be justified:
h2. Agile operational competences, agile marketing competences, agile technological competences and innovativeness are all competences with a positive effect on an online retailer’s performance in a foreign market.
Hence, an online retailer wanting to export needs to possess and optimize these resources and competences in order to build a competitive advantage in the foreign local market. Competitive advantages are necessary in order to secure a successful performance in the international market.
C. Definition of competitive advantages in a foreign market for an e-retail business
As more and more retailing companies realize the benefits of e-retail, it is now even more important for an exporting retail firm to stand out from the crowd and achieve an advantage in
comparison to the competitors. A competitive advantage is therefore a firm’s offering that creates a higher customer value than its competitors’ (Kaleka, 2002) and facilitates its performance (Efrat et al., 2017). It demands careful and dynamic strategic planning (Hughes et al., 2010). Competitive advantage is majorly achieved by meeting and exceeding customers’ needs and wants. According to Murray et al. (2011), this relies on the bundling and integration of capabilities and their transformation into a significant value offering. For an international online retailer, gaining a competitive advantage becomes a particular challenge, as competitive advantage from a firm’s home market cannot necessarily be transferred to a host market (Efrat et al., 2017). As the market environments may strongly differ in terms of legal, cultural, infrastructural, technological and economic factors, an e-retailer’s internationalization strategy also needs to include a distinguished positioning in terms of competitive advantage. Export competitive advantage can therefore be conceptualized as follows:
Export competitive advantage is an e-retailer’s unique value offering in a foreign market that puts it in a favorable position compared to its competitors. It derives from the combination and improvement of particular export capabilities and results in successful export performance.
An international e-retailer must confront several challenges when striving for competitive advantage in a foreign market. However, these challenges might lead to unique opportunities to gain competitive advantage if handled well. New opportunities are created by the internet itself every day. Brouthers et al. (2016) identify three possible scenarios for an e-retailer to enter a new market. They all include a different competitive environment, which leads to different challenges. First of all, if there is no similar e-retail platform to be found in the target market yet, an e-retailer benefits from first mover advantages, as there is no competition. The challenge is to identify and acquire potential users and get them used to their platform. An understanding of the market is crucial. Second, there might already be a similar dominant platform established in the market. The e-retailer faces therefore a serious competition with a present user base and suffer from disadvantages of being foreign and seen as an outsider (i.e. liabilities of outsidership, Brouthers et al., 2016). In this case, it is absolutely necessary to develop strong and unique competitive advantages. Third, in a not yet fully established market with several early-stage rivals, an international e-retailer can benefit from differentiation and should avoid having direct competitors. In all these cases, possessing a unique competitive advantage will have a huge influence on the e- retailer’s export performance in this foreign market.
A major global challenge for e-retailers is to convince doubtful traditional customers to accept online as a sales channel. These customers might be reluctant for several reasons, including insecurity, lack of trust and impatience. In addition, today’s e-retail-friendly customers have a much more profound global knowledge thanks to the easy access to information through the internet. Consequently, they become more critical and harder to impress. Furthermore, and most importantly, the global e-retail environment is nowadays extremely competitive. Hence, international e-retailers cannot rely on a competitive advantage in a single field. They should be able to create a holistic advantageous position in the foreign market. Based on extensive literature review, three competitive advantages have been identified and will be explained in detail in the following paragraphs: the advantage of convenience, the advantage of insidership, and the advantage of cost. Based on this explanation in combination with the previous analysis on the important resources and competences, three further propositions will be justified.
Advantage of convenience
The main benefits of e-retailing are time saving, information, door-to-door delivery and constant availability (Liu et al., 2008). These can all be translated into convenience. Convenience is not only a competitive advantage within e-retail, but might also convince doubtful traditional shoppers to move from offline to online channels, which is one of the major challenges an international e- retailer faces. It is the central aspect of online shopping customer experience (Jarvenpaa et al., 1997). The advantage of convenience includes different aspects of differentiation. An e-retail shop has to be accessible, functional and, most of all, easy to use. When it is easy and convenient for customers to visit and use an online shop, this can make it probable that they will do it. The constant availability of the online shop and the goods it offers is equally significant. Other than a physical store, an online shop can be accessed at any time and from any place. For this reason, technological competences and IT knowledge can have a strong influence on convenience (Tiessen et al., 2001). They are important for running processes smoothly and without any problems that might keep customers from purchasing (Choshin et al., 2017). In addition, web design as a technological competence is very closely related to and dependent on strong marketing competences, as the customers’ point of view needs to be the center of the website (Moertini, 2012). With agile marketing and technological competences, e-retailers can now target customers specifically with the information and products they are interested in, which makes it easier and more convenient for them to choose and buy products (Gregory et al., 2007).
Another very influential factor of convenience is speed. Especially impatient customers might prefer going to a physical store because of the immediate receipt of the purchased goods (Li et al., 2015).