Impact of Outsourced Marketing on SME Competitive Advantage

Master MSc Thesis Presentation

The impact of a strategic alliance through outsourced
Marketing (OM) in thecompetitive advantage of the
Small and Medium Enterprise (SME’s) in Portugal

Friday, 19th November 2010
cristinanazaremartins@gmail.com

The impact of a strategic alliance through Outsourced Marketing in the competitive advantage of the SMEs in Portugal | Author: Cristina Nazaré Martins

Introduction

State of the Art

Methodology

Field research and results’ analysis

Conclusion


Introduction


The Strategic Alliances

• Lin and Lin (2010): …
through complementarity
can enhance synergies
between them.

• Hynes e Mollenkopf (2008):
… can reach the point of
creating competitive
advantages.


Theory, Domain and focus

Marketing

5

Problem and Research Questions
• Central question • Research questions

• “The strategic alliances • The resources’ management
through Outsourcing is correlated
through Outsourced with the factors of businesses’
Marketing has impact in the competitiveness?
SMEs’ competitive • The resources’ management
through "periphery" Outsourcing
advantage?” has an impact on company’s
performance?
• The resources’ management
through Outsourcing has an impact
on the efficient cost
management?
• The Marketing’ significance in a
company has an impact on the
decision to engage Outsourced
Marketing services?


State of the Art


Marketing Management

Analytical approach Voluntary approach

Marketing
Strategic Marketing

Operational
New Opportunities Existing opportunities
Tactics: Choice of Tactics: advertising,
products/market sales, price,
Proactive behaviour promotion
Medium-long term Reactive behaviour
perspective Short term perspective
Cross-functional Marketing function
responsibility responsibility

Adapted from Lambin (2000)


Outsourcing: Strategic Alliances

Strategic alliances cooperation

Business Partnership
Strategic Alliances

Activities with complementary resources

Partial assumption of the risks

Focus on company’s core business

Gain of sustainable competitive advantage


Risks as
Advantages Disadvantages outsourcing
increases
Over the Outsourcing of
Focus in core activities activities exhaust the Trust and control issues
(Quinn, 1999) competitive basis (Hamel, (Das e Teng, 2001)
1992 in Mol: 2007)

High coordination costs
Reduced levels of costs by Diversity of business
associated to excessive
Outsourcing non core relationships (Aubert et
outsourcing (Hendry,
activities (Quinn, 1999) al, 1998)
1995)

Increased strategic
Difficulty in learning and Complexity of managing
flexibility of the company,
innovating (Hendry, contracts (Aubert et al,
through ease of suppliers’
1995) 1998)
switching (Quinn, 1999)


Marketing Outsourcing

The future is indeed in Outsourcing (Kotler, 2005)

Marketing suppliers = Business partners that will
bring value added for very long time (Mcgovern
and Quelch, 2005)

“even core competences as engineering, research
& development, production and Marketing can –
and most of the time should - be outsourced.”.
(Gottfredson, Puryear and Phillips, 2005:132)


Theories
•Relevant characteristics of core competencies, in terms of customer
Core competences theory •Resources and know-how of the product that distinguish the company from the
(Kruger and Homp, 1997) competition
•Utility of the resource

Resource-based •Resource analysis
•Comparison with the competition
theory(hunt and Morgan, •Verifying whether to create, or not, that which will differentiate them, i.e. the
1997) competitive advantage

Theory based on collective •"Collective learning organization"
•Coordination of diversity-generating skills
learning (Prahalad and •Integration of the several technology streams that generate competitive advantage
Hamel, 1990) •Decisive: The company skills and know-how

•The value chain categorizes the activities of the company and helps to identify the core
Competitive advantage competencies: strategic activities (essential to the implementation) and the resources
required on the activity (crucial for the success of the activity)
theory (Porter, 1985) •The three generic strategies are cost leadership, differentiation, focus (on cost or on
differentiation)


Performance management
Marketing Marketing
In general
(Financial indicators) (Non financial indicators)

Implementing the
Sales volume Market share
strategic vision

Value creation Net Profit Sales management

Assessment of
Internal rate of return
business performance

People’s motivation ROI

Cash-flow
Font: Kotler, 2008; Murray, Kotabe and Wildt
(1995); IAPMEI (2010)

Analytical Model


Methodology


Adopted Methodology

Positivist Paradigm:
The reality and the results are
rigorous, external and objectives.

Interpretativist Paradigm:
Through preliminary support
techniques to the questionnaire
survey and final interviews to
validation/results interpretation.

Quantitative methodology based in
the hypothetical-deductive
method.


Techniques of data collection Sample and sampling procedures

Non-documentary research Universe 297.000 SMEs
techniques and non-participant
observation, in the form of surveys and Sample103 SMEs
interviews

Instrument for data collection: Activity sectors (7): retail (31,7%), construction
1st phase: survey by questionnaire, the (13,9%), energy (0,1%), manufacturing industry
population of 297 000 SMEs in Portugal (14,3%), extractive industry (0,3%), services
(IAPMEI 2007), having been (30,1%) and tourism (9,5%).
obtained a sample of 103 SMEs.
Portugal (Continent and islands): North
2nd phase: Final interviews , for a better (30%); Center (20%); Lisbon (30%); Alentejo
interpretation and validation of the (5%); Algarve (5%); Madeira and Açores (10%).
obtained results, to five Marketing
consultancy companies (“Designarte”,
“Love2Brand”, “QSP Marketing”, “MPG Random sampling method (probabilistic)
Media Global Agency”, and “Jotoliveira”.


Field research and
results’ analysis


Statistical Analysis

• The questionnaire was seen until the
date of April 29, 2010,
by 940 addressees;

•523 started to fill it

• Just 181 completed it

• The remaining 342 dropped
out completing, after starting to
answer the questions (cancelled
questionnaires).


Descriptive analysis
Marketing significance (%)
The marketing manager’s
skills are crucial to consider
Marketing relevant to
the organization

Attitude towards Marketing Management (%)
Insourcing
No Minor Average Signifi- Very
significance significance significance cant significant

Companies that do not Totally disagree
Disagree
consider Marketing Marketing
Management
Efficiency and
effectiveness Neither agree nor
significant choose to function
outsourced
of outsourced
Marketing
disagree
Agree

Outsource (Azhar 2008) Totally agree

The qualification of
the marketing
manager provides levels
of efficiency and
effectiveness


Descriptive analysis
SMEs choose to relegate more operational marketing activities to third
parties, opting to maintain inside the business strategy.

Current management resources of Marketing (%) Outsourced Marketing services (%)

Strategic Marketing plan Operational Marketing plan Communication plan

Sales plan Brand and Communication plan Product and price management plan

Product distribution plan No answer Others
Strategical
Strategical Operational
Marketing +
Marketing Marketing
Operational
Marketing


Descriptive analysis Relationship between OM and obtained results (%)
Total Total

• Majority Increase of financial
agreement disagreement

indicators (0,1% - 20%) Gaining a competitive
advantage

• Only 12% of respondents Preference of outsourced
Marketing over insourcing

say they disagree and totally Efficiency in managing

disagree the statements about the sales

impact of OM on the Deliver the desire
results

results achieved by SMEs
Benefit

Increase in financial indicators (%)
Good satisfaction in
sales management

Increase demand of
products and brands

Notoriety (awareness)
increase

Market share increase

Return on investment
(ROI)

Turnover Profit Market Intern rate Cash flow Other Cost efficiency
share of return

Effectiveness in
No Very few Few Average Quite Drastically the sales targets
increase increase increase increase increase increase
(0%) (>0% (>5% (>10% (>20% (>30%)
< 5%) <10%) <20%) < 30%)
Totally disagree Disagree Neither agree nor disagree Agree Totally agree


The variables intersection: H1

Significant correlations
between Outsourced Marketing (OM) and Competitive advantages

Independent variable Correlation (+ / -) Dependent variables
In SMEs exists
a positive + Competitive advantage

association Resource to OM + Notoriety

between OM and + More efficient sales management

competitive
Competitive advantage
advantage:

• 41% of the answers Totally disagree
Disagree
were positive Neither agree nor
disagree
Agree
Totally agree

Notoriety
More efficient sales
management

Intersection between OM and Competitive advantages ( in number of cases)


Correlations between Outsourced Marketing (OM)
and the financial indicators’ performance
In SMEs exists Independent
a positive variable
Correlation (+ / -) Dependent variables

association + Profit
+ Internal rate of return
between OM and: Resource to OM
+ Cash flow
•Profit + Return on investment (ROI)

(88%), Profit

Totally
•Internal rate of disagree

return (90%), No increase (0%)

Very few increase (>0% < 5%)

•Cash-flow Few increase (>5% <10%)
Average increase (>10%
<20%) Totally Disagree
(90%), Quite increase (>20% < 30%)

Drastically increase (>30%)
agree

•ROI (41%).

Cash flow Internal rate of Agree Neither agree nor
return disagree

Intersection between OM and Performance concerning Intersection between OM and Performance
the increase in financial indicators (in number of cases) concerning the achievement of the ROI (in
number of cases)

and the non financial indicators’ performance
Outsourcing has an Independent
Correlation (+ / -) Dependent variables
variable
impact on Marketing More efficient sales
management +
management
Resource to OM
concerning the non +
Good satisfaction in sales

financial management

performance: Totally disagree

• More Efficient sales
management (50%);
Totally agree Disagree
More efficient sales
management
• Good satisfaction in Good satisfaction in sales

sales management

management(41%).
Agree Neither agree nor
disagree

Intersection between OM and the Performance of the financial indicators
(in number of cases)

and cost efficiency

When SMEs opt Independent variable Correlation (+ / -) Dependent variables

for Marketing Resource OM + Cost efficiency

Management through
Outsourcing occurs a Totally disagree

positive impact
on cost efficiency:
Totally agree Disagree

• In 48% of the SMEs it
was observed such
increase.
Agree Neither agree nor
disagree

Cost efficiency through the resource to Outsourced Marketing

Intersection between OM and cost efficiency (in number of cases)


Correlations between Marketing significance and the resource to OM

Correlation
Independent variable Dependent variables
(+ / -)
There is a positive
association between Importance attributed to Marketing +
Attitude on the existence of an internal
probability of resource marketing department
+
to OM and the variables Attitudes towards the reliance on
Probability to OM
set. outsourcing for the function of Marketing +
Manager

Preference for Marketing Outsourcing +
As variables set increase or
decrease, also increases or Not at all important

decreases the resource to
outsource Marketing.
Unlikely
Very important Minor
Less likely

Likely

Most likely
Certain

Important Averagely important

Intersection between OM and probability to outsource Marketing (in number
of cases)

• 50% of SMEs claim to
be likely the resource to Intersection between the attitude towards marketing management and
probability of resource to OM (in number of cases)
OM.
• 20% of these SMEs claim
be certain to recourse
to OM.

• 46% of the SMEs agrees
with the use
of outsourcing for the
Marketing manager
function.
• Only 20% of the
Marketing Managers
have academic
education in the area.
Less likely resource

Most likely resource




Likely resource to

Certain resource to

Certain resource to

Likely resource to

Certain resource to
to OM

OM

Likely resource to
to OM

OM

to OM

OM

to OM

OM

to OM

OM

to OM

OM
Unlikely resource to
OM

OM

OM
• 45% of
SMEs surveyed prefer
the OM vs. 36% that Intern Marketing Outsourcing the Marketing Preference of OM over the
prefer Insourcing Marketing. department manager function Marketing insourcing

Totally disagree Disagree Neither agree nor disagree Agree Totally agree


Factorial analysis and Cronbach's Alpha reliability test

It was observed that all variables tested,
after having carried out the factor analysis, and having found the components associated
to variables, present a satisfactory internal reliability consistency .

Highlights :
• Factsassociated to the OM’s performance;
•Facts and opinions in favour of OM.

Reliability Test from obtained scales

Cronbach's
Variables Scale
Alpha
Marketing resource management Behaviour 0,844

Performance associated to MO Facts 0,984

Marketing and its management Attitude towards Marketing 0,755

Outsourced Marketing Facts and opinions towards MO 0,958


Conclusion


Conclusions about the research hypotheses

The management of resources
through outsourcing creates
competitive factors in SMEs, with an
impact on performance.

Significance of Marketing in
SMEs increases the use
of outsourcing leading to efficient cost
management.

Management of non-
core competencies in SMEs in
Outsourcing of Marketing are synonym
of competitive advantage.


Contributions Matrix of relationship between core
competencies and strategic importance
to management

Both the Operational Marketing
and Strategic Marketing are
susceptible to be Outsourced.

This research leads to a new frame
about the make or buy decisions
regarding the practice of
marketing.

Font: own elaboration


Limitations

Limited availability of SMEs to provide
information, in order to
ensure some barriers to entry to
new competitors;

Legal limitations: Law for data
confidentiality;

Portuguese business culture:
resistance to outsourcing, issues
and sensitive topics.


Recommendations

1. The questions should be asked to executive
directors or even to the SMEs’ shareholders.

2. Focus on only one sub-theme and
simplification of the questionnaire for a higher
concentration and adherence.

3. Outsourcing practices in human resources
management or in research and development
can be compared to this investigation.

4. Make a cultural and geographical comparison
to understand whether the results are
exclusive to Portuguese SMEs or are also the
same results in other European countries.

5. Cluster analysis in terms of
characterization ofSMEs, as defined by IAPMEI.


Impact of Outsourced Marketing on SME Competitive Advantage

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