Strategic Management and Financial Performance in South Korean Apparel Retail Stores Eun Jin ...

303 Pages·2005·1.3 MB·English

Strategic Management and Financial Performance in
South Korean Apparel Retail Stores

Eun Jin Hwang

Dissertation submitted to the faculty of the Virginia Polytechnic Institute and
State University in partial fulfillment of the requirements for the degree of

Doctor of Philosophy
In
Apparel, Housing, and Resource Management

Marjorie J. T. Norton, Chair
Jessie H. Chen-Yu
LuAnn R. Gaskill
Dong Jin Lee
James E. Littlefield
Kent F. Murrmann

November 16, 2005
Blacksburg, VA

Keywords: Strategic Management, Korean Retailing, Market Orientation,
Organization Structure, Perceived Environmental Uncertainty,

Copyright 2005, Eun Jin Hwang
Strategic Management and Financial Performance in
South Korean Apparel Retail Stores
by
Eun Jin Hwang
Marjorie J. T. Norton, Chair
Apparel, Housing, and Resource Management

ABSTRACT

The research objectives were to determine (a) interrelationships among
components of Korean apparel retail stores’ management strategies, (b) effects of
perceived environmental uncertainty on their management strategies, (c) effects of stores’
management strategies on their performance, and (d) market-orientation strategies the
stores have implemented. Four hundred top managers of Korean apparel stores in Seoul,
Busan, Suwon, Daejeon, and Daegu completed a questionnaire. A structural equations
model was used to test the hypotheses concerning relationships between the research
variables. The exogenous variables include components of perceived environmental
uncertainty (market turbulence, competitive intensity) and top management’s willingness
to adapt a changing market (top-management emphasis and risk aversion). The
endogenous variables include components of market-orientation strategy (intelligence
generation, intelligence dissemination, response design, response implementation),
organicity of organizational structure (centralization, formalization, specialization), and
satisfaction with store performance (relative to other Korean retail stores, relative to key
competitors).
Many of the hypotheses were supported. Perceived market turbulence positively
affected stores’ market-orientation strategies and functional specialization. Market-
orientation strategy positively affected stores’ functional specialization and centralization
of decision making. Intelligence generation positively affected satisfaction with store
performance relative to other Korean retail stores and relative to key competitors, and
response implementation positively affected satisfaction with store performance relative
to other Korean retail stores. Some positive relationships were found between perceived
environmental uncertainty and top management’s willingness to adapt to a changing
market. Also, seven of the eight tested relationships were significant and positive
between market-orientation strategy and top management’s willingness to adapt to a
changing market. Top-management emphasis positively affected organicity of
organizational structure. Formalization of store structure positively affected satisfaction
with store performance relative to other Korean retail stores and relative to key
competitors.
A major conclusion is that Korean apparel stores’ top managers did not view
environmental conditions as important influences on their stores’ performance, although
their perceptions of environmental uncertainty affected their stores’ strategic
management in such terms as response design, intelligence generation, and intelligence
dissemination.. In addition, despite the positive effects of perceived environmental
uncertainty on stores’ centralization and functional specialization, the top managers
appeared reluctant to fundamentally change their stores’ organizational structures.
iii
TABLE OF CONTENTS

TABLE OF CONTENTS...................................................................................................iv

LIST OF FIGURES.............................................................................................................x

LIST OF TABLES.............................................................................................................xi

CHAPTER 1 INTRODUCTION.........................................................................................1
Market Opening in South Korea.....................................................................................2
Retailing in South Korea.................................................................................................4
Before Market Opening........................................................................................4
After Market Opening...........................................................................................4
Statement of the Problem................................................................................................7
The Need for the Study...................................................................................................8
The Proposed Model.....................................................................................................10
Purpose of the Research................................................................................................12
Overview of the Research Design.................................................................................13
Contribution of the Study..............................................................................................14
Organization of the Dissertation...................................................................................15

CHAPTER 2 LITERATURE REVIEW – PART I............................................................16
Environment..................................................................................................................16
Definition of Environment......................................................................................16
Environmental Uncertainty.....................................................................................18
Definitions of Environmental Uncertainty..........................................................19
Perceived Environmental Uncertainty................................................................23
Two Factors of Perceived Environmental Uncertainty.......................................24
Perceived Market Turbulence..................................................................24
Competitive Intensity...............................................................................26
Measuring Environmental Uncertainty...................................................................27
iv
Top Management..........................................................................................................29
Business Strategy .........................................................................................................31
Market Orientation...................................................................................................32
Benefits of Market Orientation..........................................................................33
Market Orientation and Strategy........................................................................34
Market-oriented and Customer-led Business Strategies..........................37
Components of Market Orientation................................................................37
Intelligence Generation............................................................................38
Intelligence Dissemination.......................................................................39
Responsiveness........................................................................................39
Measuring Market Orientation........................................................................40
Organizational Structure...............................................................................................41
Mechanistic vs Organic Organizational Structure....................................................42
Dimensions of Firm Structure...................................................................................45
Formalization..................................................................................................46
Centralization..................................................................................................46
Specialization..................................................................................................47
Business Performance...................................................................................................47
Measuring Firm Performance...................................................................................48
Multi-dimensional vs Uni-dimensional Measures...........................................49
Subjective Measures and Judgmental Measures.............................................50
Retail Performance....................................................................................................51
Summary.......................................................................................................................51

CHAPTER 3 LITERATURE REVIEW – PART II..........................................................53
Introduction...................................................................................................................53
Interrelationships Among the Components of
Strategic Management and Hypothesis Development................................................53
Environment..............................................................................................................53
Environment and Business Strategy.................................................................54

v
Perceived Environmental Uncertainty and
Business Strategy Relationship........................................................................58
Environment and Organizational Structure........................................................60
Environment and Firm Performance...................................................................64
Relationship Among Environment, Business Strategy, and
Organizational Structure...................................................................................65
Relationship Among Environment, Business Strategy, and
Firm Performance.............................................................................................66
Relationship Among Environment, Organizational Structure,
and Firm performance.......................................................................................67
Relationship Among Environment, Business Strategy,
Organizational Structure, and Firm Performance.............................................67
Business Strategy......................................................................................................69
Business Strategy and Organizational Structure.................................................69
Market-orientation Strategy and Organicity of
Organizational Structure.......................................................................70
Business Strategy and Firm Performance...........................................................74
Relationship Among Business Strategy,
Organizational Structure, and Firm Performance.............................................80
Top Management.....................................................................................................81
Top Management and the Environment...............................................................81
Top Management and Business Strategy (Market Orientation)..........................83
Top Management and Firm Performance............................................................86
Relationship Among Top Management, Environment,
and Organizational Structure............................................................................88
Firm Performance Measures....................................................................................90
Organizational Structure..........................................................................................93
Firm Performance and Organizational Structure...............................................93
Summary.......................................................................................................................95

vi
CHAPTER 4 METHODOGY............................................................................................97
Research Questions and Hypotheses............................................................................97
Research Design..........................................................................................................102
Background on the Operationalization of Constructs
in the Proposed Model..............................................................................................103
Exogenous Constructs.............................................................................................103
Perceived Environmental Uncertainty..............................................................103
Top Management’s Willingness to Adapt to
a Changing Market..........................................................................................104
Mediate Endogenous Constructs.............................................................................105
Market Orientation Strategy............................................................................105
The MARKOR Scale.................................................................................105
Organicity of Organizational Structure............................................................106
Ultimate Endogenous or Dependent Construct.......................................................107
Store Performance..........................................................................................107
Data Collection Methods............................................................................................108
Sampling and Sample Size and Selection..............................................................112
Data Collection Process.........................................................................................112
The Questionnaire.......................................................................................................113
Respondent and Store Demographic Information...................................................114
Perceived Environmental Uncertainty....................................................................115
Top Management’s Willingness to Adapt to
a Changing Market................................................................................................116
Market Orientation Strategy...................................................................................117
Organicity of Organizational Structure...................................................................119
Store Performance...................................................................................................121
Pilot Test of the Survey Instrument............................................................................122
Reliability and Validity of the Survey Questionnaire.................................................123
Reliability................................................................................................................123
vii
Validity...................................................................................................................124
Statistical Analysis......................................................................................................125
Preliminary Data Analysis......................................................................................125
Data Analysis for Hypothesis Testing....................................................................128
Summary.....................................................................................................................128

CHAPTER 5 RESEARCH RESULTS AND DISCUSSION..........................................129
Return Rate of the Survey...........................................................................................129
Demographic Profile of the Sample............................................................................131
Instrument Reliability.................................................................................................135
Mean Rating and Standard Deviations of the Variables.............................................136
Perceived Environmental Uncertainty....................................................................136
Top Management’s Willingness to Adapt to a Changing Market..........................138
Market-Orientation Strategy...................................................................................140
Organicity of Organizational Structure...................................................................143
Satisfaction with Store Performance.......................................................................148
Pearson Correlations for Measured Variables............................................................148
Correlation Coefficients Among the Constructs.........................................................152
Multicollinearity Diagnostics......................................................................................152
Incomplete Data..........................................................................................................156
Overall Fit of the Measurement Model.......................................................................158
Results Research and Discussion of the hypothesis Testing......................................163
Perceived Environmental Uncertainty and Market-Orientation Strategy................163
Perceived Environmental Uncertainty and
Organicity of Organizational Structure...............................................................167
Perceived Environmental Uncertainty and Store Performance...............................170
Market-Orientation Strategy and Organicity of Organizational Structure..............172
Market-Orientation Strategy and Store Performance..............................................174
Perceived Environmental Uncertainty and
Top Management’s Willingness to Adapt to a Changing Market......................177

viii
Top Management’s Willingness to Adapt to a Changing Market and
Market-Orientation Strategy...............................................................................179
Top Management’s Willingness to Adapt to a Changing Market and
Organicity of Organizational Structure...............................................................181
Top Management’s Willingness to Adapt to a Changing Market and
Store Performance...............................................................................................181
Organicity of Organizational Structure and Store Performance..............................185
Summary of the Results of Hypothesis Testing..........................................................188
Chapter Summary.......................................................................................................188

CHAPTER 6 IMPLICATIONS, LIMITATIONS, AND
SUGGESTIONS FOR THE FUTURE RESEARCH.................................................192
Summary and Conclusions.........................................................................................192
Implications of the Research Findings........................................................................195
Limitations and Suggestions for Future Research......................................................197

REFERENCES................................................................................................................199
APPENDIX A Human Subjects Approval......................................................................266
APPENDIX B Cover Letter to Managers of South Korean Retail Stores
For the Pilot Test................................................................................268
APPENDIX C Cover Letter to Professors in South Korean University
For the Pilot Test................................................................................270
APPENDIX D Cover Letter to Managers of South Korean Apparel Retail Stores
For the Final Data Collection.............................................................272
APPENDIX E Questionnaire (English)...........................................................................274
APPENDIX F Cover Letter to Managers of South Korean Apparel Retail Stores
For the Final Data Collection (Korean).............................................279
APPENDIX G Survey Questionnaire (Korean)...............................................................281
APPENDIX H Vita..........................................................................................................287
ix
LIST OF FIGURES

Figure 1 Research Model................................................................................................11
Figure 2 Research Hypotheses in the Proposed Model....................................................99
Figure 3 Respondents’ Years of Employment in the Stores
Where They Currently Worked.................................................................133
Figure 4 Respondents’ Length of Employment in the Korea Retailing Industry...........133
Figure 5 Years When the Respondents’ Stores Opened.................................................134
Figure 6 Number of Employees per Store......................................................................134
Figure 7 Research Results for Hypothesis 1...................................................................165
Figure 8 Research Results for Hypothesis 2...................................................................168
Figure 9 Research Results for Hypothesis 3...................................................................171
Figure 10 Research Results for Hypothesis 4.................................................................173
Figure 11 Research Results for Hypothesis 5.................................................................176
Figure 12 Research Results for Hypothesis 6.................................................................178
Figure 13 Research Results for Hypothesis 7.................................................................180
Figure 14 Research Results for Hypothesis 8.................................................................182
Figure 15 Research Results for Hypothesis 9.................................................................184
Figure 16 Research Results for Hypothesis 10...............................................................187

x