Contents lists available at SciVerse ScienceDirect Industrial Marketing Management

Entrepreneurial orientation, exploitative and explorative capabilities, and
performance outcomes in export markets: A resource-based approach
Ana Lisboa a,
⁎, Dionysis Skarmeas b,1
, Carmen Lages c,2
a
Marketing, ESTG/Instituto Politécnico de Leiria, Campus 2, Morro do Lena, Alto Vieiro, Apartado 4163, 2411-901 Leiria, Portugal
b
Marketing, Athens University of Economics and Business, 12 Derigny Str., 10434 Athens, Greece
c
Marketing, ISCTE Business School/IUL, Av. Forças Armadas, 1649, 1649-026 Lisboa, Portugal
a b s t r a c ta r t i c l e i n f o
Article history:
Received 31 December 2010
Received in revised form 10 September 2011
Accepted 27 September 2011
Available online 20 November 2011
Keywords:
Entrepreneurial orientation
Capabilities
Exploitation/exploration
Performance
Exporting
Innovation is critical to the growth and success of a firm. In an attempt to renew themselves and compete
effectively in the global marketplace, firms must possess both technical and non-technical capabilities. Yet,
the extant literature has mainly focused on technology and product development capabilities, disregarding
other possible capability domains. This study investigates the role of market-related exploitative and explor-
ative capabilities, together with product development ones, in the context of exporting. Drawing on the
resource-based and organization learning theories, we examine the internal process through which entrepre-
neurial orientation influences performance in export markets and develop a model of entrepreneurial
orientation–exploitative and explorative capabilities–advantage–performance relationships. The results indi-
cate that entrepreneurial orientation is a precursor of exploitative and explorative product development and
overseas market-related capabilities. The findings also suggest that product development explorative capa-
bilities and overseas market-related exploitative capabilities have a positive effect on new product differen-
tiation, which in turn enhances market effectiveness. Implications for scholars and practitioners are discussed
along with suggestions for future research.
© 2011 Elsevier Inc. All rights reserved.
1. Introduction
There is little doubt that the marketplace has changed dramatically
over the past two decades. Rapid growth in new technologies, increas-
ingly diverse and demanding customers, intensifying market competi-
tion, and globalization have significantly enhanced the importance of
innovation to the success of a firm (Hurley & Hult, 1998; Menguc &
Auh, 2010). Innovation is commonly viewed as a key source of compet-
itive advantage, organizational renewal, and growth (e.g., Day, 1994;
Peteraf, 1993). The Resource-based view (RBV) of the firm suggests
that, in order to innovate, adapt to its changing market environment,
and achieve competitive advantage, a firm needs to continuously devel-
op, integrate, and reconfigure its skills and abilities (e.g., Eisenhardt &
Martin, 2000; Teece, Pisano, & Shuen, 1997). Exploitation and explora-
tion, two key organizational learning concepts, represent important
capabilities in the innovation process (e.g., Atuahene-Gima, 2005;
Yalcinkaya, Calantone, & Griffith, 2007). Exploitation involves the
development of new knowledge about the firm's existing markets, prod-
ucts, and abilities, while exploration entails the challenge of existing
ideas and the development of new knowledge about new markets, prod-
ucts, technologies, and skills (e.g., March, 1991).
A review of the exploitation and exploration literature indicates
that most studies focus on technology and product development
capabilities (e.g., Atuahene-Gima, 2005; Yalcinkaya et al., 2007),
while there is a dearth of research on exploitative and explorative in-
novation outside these contexts (Vorhies, Orr, & Bush, 2011;
Weerawardena, 2003a). Nevertheless, the importance of market-
related innovation activities has been noted (e.g., Abernathy &
Clark, 1985; Weerawardena, 2003b). Markets are the ones that accept
or reject new products and, hence, shape firms' renewal and success
(Bonner & Walker, 2004). A product that is technologically advanced
may fail to take off in the absence of an appropriate marketing strat-
egy (e.g., Ernst, 2002). The mini-disc that Sony launched in the early
1990s is one example of this. It follows that firms need to engage in
exploitative (refinement-led) and explorative (discovery-led) activi-
ties not only in the product development area (i.e., develop enhanced
and novel products), but also in the marketplace (i.e., develop
customer knowledge and enter new markets) in order to stay ahead
of the competition. The consideration of market-related exploitative
and explorative capabilities is particularly timely, given that
knowledge- and market-based assets have gained prominence as
Industrial Marketing Management 40 (2011) 1274–1284
⁎ Corresponding author at: Instituto Politécnico de Leiria, Escola Superior de Tecno-
logia e Gestão, Campus 2, Morro do Lena, Alto Vieiro, Apartado 4163, 2411-901 Leiria,
Portugal. Tel.: +351 244 843313; fax: +351 244 820310.
E-mail addresses: ana.lisboa@ipleiria.pt (A. Lisboa), dskarmeas@aueb.gr
(D. Skarmeas), carmen.lages@iscte.pt (C. Lages).
1
Tel.: + 30 210 8203 417; fax: + 30 210 8203 417.
2
Tel.: +351 21 7903422; fax: +351 21 7964710.
0019-8501/$ – see front matter © 2011 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2011.10.013
Contents lists available at SciVerse ScienceDirect
Industrial Marketing Management

contributors to firm success over the last decade (e.g., O'Cass &
Weerawardena, 2009a; Ramaswami, Srivastava, & Bhargava, 2009;
Weerawardena & O'Cass, 2004) and researchers have recently called
attention to the need to investigate other capability domains, rather
than exclusively the product development one (Uotila, Maula, Keil,
& Zahra, 2009; Vorhies et al., 2011).
Prior research has documented the role of exploitative and explor-
ative capabilities in firm success (e.g., Atuahene-Gima, 2005; Uotila et
al., 2009). Nevertheless, the bulk of the studies on exploitative and
explorative capabilities has been conducted in a domestic market
setting and there is limited work done in the context of exporting (for
exception see Hughes, Martin, Morgan, & Robson, 2010). Relatedly,
Yalcinkaya et al.'s (2007) work on exploitative and explorative capabil-
ities focuses on the importer side of the international exchange dyad.
However, importers and exporters may differ in their rationale, objec-
tives, operation processes, and marketing mix activities due to their
different roles in the buyer–seller process (e.g., Bianchi & Saleh, 2010;
Leonidou, Dayananda, Simos, & Leonidou, 2011; Overby & Servais,
2005; Skarmeas, Katsikeas, Spyropoulou, & Salehi-Sangari, 2008). The
limited research on exploitative and explorative capabilities in exporting
is striking given that (i) growing liberalization of the world trade and
intense domestic market competition have rendered exporting activities
increasingly important for the renewal and success of modern firms
(Golder, 2000; Hultman, Robson, & Katsikeas, 2009); (ii) capability
building in export (as compared to domestic) operations is more
challenging due to the existence of differences in social, cultural, political,
economic, and technological factors between the firm's operating envi-
ronment and its various overseas markets, along with the increased
levels of uncertainty inherent in international markets (e.g., Samiee &
Walters, 2006; Sousa & Lages, 2011); (iii) there is evidence to suggest
that firm capabilities encourage and facilitate internationalization and
successful entry and survival in overseas markets (Griffith & Harvey,
2001); and (iv) exploitative and explorative capabilities constitute
important learning mechanisms that can be help exporting firms over-
come the liability of foreignness, that is, the advantages of indigenous
competitors in terms of familiarity with the local culture, industrial struc-
ture, governmental requirements, regulators, and business partners (e.g.,
Nachum, 2003).
Further, while the extant literature has considered a host of factors
such as market orientation, willingness to cannibalize, constructive
conflict, tolerance for failure, and environmental scanning as sources
of exploitative and explorative capabilities (Atuahene-Gima, 2005;
Danneels, 2008), previous studies have not examined the relationship
between entrepreneurial orientation (EO) and exploitative and
explorative capabilities. This is surprising considering that (i) EO is
a strategic orientation that reflects a firm's willingness to break
away from the tried-and-true (Wiklund & Shepherd, 2003) and
pursue “new market opportunities and the renewal of existing areas of
operation” (Hult & Ketchen, 2001, p. 901) and (ii) there is evidence
to suggest that EO is a precursor to product, technology, and market
innovation (Zhou, Yim, & Tse, 2005). Indeed, entrepreneurial spirit
has been touted as the major driving force behind the success of innova-
tive firms, such as IKEA (The economist, February 24 2011), Innocent
Drinks (BBC News, July 9 2003,), and Critical Software (AeroMorning,
September 23 2010).
Entrepreneurship is a popular term and there is a tendency to
regard EO as having positive implications for firm performance.
Nevertheless, empirical studies in the area have shown inconsistent
results (e.g., Rauch, Wiklund, Lumpkin, & Frese, 2009). Some studies
confirmed the existence of a strong positive connection between EO
and performance (e.g., Lee, Lee, & Pennings, 2001; Wiklund &
Shepherd, 2003), other studies reported weaker links (e.g., Zahra,
1991), and still others did not find a significant relationship between
the two constructs (e.g., Covin, Slevin, & Schultz, 1994). The mixed
empirical evidence on the EO–performance relationship limits our
understanding of the role of entrepreneurship in firm success and
echoes the need for more research on how EO relates to performance.
Two interesting research avenues unfold here. One is to examine
whether characteristics internal or external to the firm moderate
the link between EO and performance (e.g., Renko, Carsrud, &
Brännback, 2009).3
The second concerns the study of the intervening
role of other variables in the EO–performance link (e.g., Baker &
Sinkula, 2009). Entrepreneurship represents an environment condu-
cive to capabilities development and competitiveness building and
exploitative and explorative capabilities can be viewed as the internal
value creating mechanisms that allow an entrepreneurial firm to gain
a competitive advantage in overseas markets (cf., Zahra, Sapienza, &
Davidson, 2006).
Relatedly, the role of entrepreneurship in a firm's decision to engage
in exporting activities has been reported in research on new ventures
(e.g., Yiu, Lau, & Bruton, 2007), born-global firms (e.g., Knight &
Cavusgil, 2004), and small-to-medium-sized firms (e.g., Javalgi &
Todd, 2011). Most export operations are set in motion by entrepreneur-
ship as its core elements (i.e., ability to innovate, acceptance of risk, and
adoption of a proactive stance) can explain a firm's decision to pursue
foreign market opportunities (Balabanis & Katsikea, 2003; Dimitratos
& Jones, 2005; Oviatt & McDougall, 2005). It follows that the study of
international entrepreneurship has recently attracted increasing
research attention (e.g., Ellis, 2011; Jones, Coviello, & Tang, 2011;
O'Cass & Weerawardena, 2009b).
In light of these considerations, the present study draws on the
RBV and organization learning literatures to examine the internal
process through which EO influences performance in export markets
and develop a model of EO–exploitative and explorative capabilities–
advantage–performance relationships. The contribution of this study
is fourfold: (i) it investigates the antecedent role of EO in driving
exploitative and explorative capabilities; (ii) it studies the role of
exploitative and explorative capabilities as the internal mechanisms
through which EO influences performance; (iii) it examines the role
of a new domain of exploitative and explorative capabilities, that is
market-related ones; and (iv) it investigates the influence of exploit-
ative and explorative capabilities on new product differentiation,
which in turn, drives market effectiveness in the context of exporting.
Reflecting these contributions, Fig. 1 presents the research model and
respective hypotheses. We tested our hypotheses on a sample of 254
exporting manufacturers using a structural equation model. Our hy-
potheses linking EO to exploitative and explorative product develop-
ment and overseas market-related capabilities are supported. The
results also indicate that overseas market-related exploitative capa-
bilities and product development explorative capabilities have a pos-
itive effect on new product differentiation, which in turn contributes
to market effectiveness.
The remaining paper is structured as follows: We proceed with a
discussion of the theoretical background of the study and our
research hypotheses. Then, we explain our data collection method
and measures. Next, we present the results of study. Subsequently,
we discuss the study findings together with their implications,
acknowledge the limitations of the study and provide suggestions
for future research.
2. Theoretical background and hypotheses development
2.1. Theoretical background
The RBV of the firm is one of the most accepted theories for
explaining differences in performance across firms (Barney, 1991;
Newbert, 2007). The RBV views firm-specific resources and capabili-
ties as the fundamental sources of competitive advantage and
3
We thank an anonymous reviewer for drawing our attention to this point.
1275A. Lisboa et al. / Industrial Marketing Management 40 (2011) 1274–1284

enhanced performance (e.g., Barney, 1991; Peteraf, 1993). Resources
are stocks of assets semi-permanently tied to the firm; they represent
the raw materials available to the organization and serve as inputs to
organizational processes (e.g., Peteraf, 1993). Capabilities are the
complex coordinated patterns of skills and knowledge that, over
time, become embedded as organizational routines and practices
and enable organizations to make the best use of its resources (e.g.,
Teece et al., 1997). The RBV maintains that organizations achieve
competitive advantage and superior performance outcomes by
leveraging their idiosyncratic bundles of resources and capabilities
(e.g., Barney, 1991; Peteraf, 1993).
Initial attempts to empirically test the RBV have employed the
heterogeneity in resource endowments approach; most scholars
have examined the extent to which resources that are rare and diffi-
cult for competitors to replicate can provide a foundation for superior
performance (Newbert, 2007). Across the body of the early RBV liter-
ature, a variety of firm resources have been examined and the
resource heterogeneity explanation for performance has received
strong to moderate empirical support (for reviews see Ketchen,
Boyd, & Bergh, 2008; Newbert, 2007). Some studies have investigated
the role of a firm's strategic orientation, including market, learning,
technology, and EO in driving firm performance (e.g., Gatignon &
Xuereb, 1997; Mavondo, Chimhanzi, & Stewart, 2005; Wiklund &
Shepherd, 2003).
EO comprises (1) innovativeness, (2) proactiveness, and (3) risk
taking (Covin & Slevin, 1989). Innovativeness is the predisposition
to support new ideas and favor change (Ahuja & Lampert, 2001;
Lumpkin & Dess, 1996; Rauch et al., 2009). It embraces creativity
and experimentation in product development, technology adoption,
and internal processes (Baker & Sinkula, 2009; Li, Wei, & Liu, 2010).
Proactiveness is a forward-looking, opportunity-seeking perspective
(Ahuja & Lampert, 2001; Rauch et al., 2009). It reflects a posture of
anticipating and acting on future changes in the market and
pioneering new processes and products (Baker & Sinkula, 2009; Lee
et al., 2001; Li et al., 2010). Risk taking involves taking bold actions
by venturing into the unknown (Rauch et al., 2009). It represents a
willingness to commit resources to new projects with the pursuit of
an opportunity in mind, although such projects may have uncertain
outcomes (Ahuja & Lampert, 2001; Baker & Sinkula, 2009; Lumpkin
& Dess, 1996).
EO is viewed as an important strategic resource in that it reflects
the firm's philosophy of how to conduct business and align with its
environment (cf., Gatignon & Xuereb, 1997; Murray, Gao, & Kotabe,
2011). In concert with the RBV line of reasoning, EO as a resource
only has potential value; possession of EO is a necessary, but not
sufficient condition for value delivery (cf., Barney, 1991). A firm
needs to take appropriate strategic actions to capitalize on EO in
order to gain a competitive advantage and obtain desirable perfor-
mance (cf., Murray et al., 2011). It is the capabilities by which firms'
resources are deployed, rather than simple heterogeneity in firms'
resources, which explain variations in firm performance (e.g.,
Eisenhardt & Martin, 2000; Morgan, Vorhies, & Mason, 2009). Thus,
EO requires the development of organizational capabilities if its
value to the firm is to be fully realized.
Organizational capabilities are complex coordinated patterns of
skills and knowledge (e.g., Eisenhardt & Martin, 2000). They serve
as the internal mechanisms through which firms' resources are
deployed in ways that match the firm's market environment and
are inherently inimitable due to their tacit nature (e.g., Day, 1994;
Morgan et al., 2009; Teece et al., 1997). Over time, capabilities
become embedded in the firm's operations, structures, cultures, and
processes (e.g., Day, 1994; Griffith & Harvey, 2001). The ability of
the firm to continually renew itself and innovate is a function of
how the firm orchestrates its structure, culture, people, and processes
to integrate and create knowledge (O'Reilly & Tushman, 2007).
Organization learning theory (March, 1991) provides us with a
sound theoretical lens through which we can examine firm activities
pertaining to knowledge development and creation: exploitation and
exploration. Exploitation concerns the development of new knowl-
edge about the firm's existing products, markets, technologies, and
skills, while exploration involves the development of new knowledge
that goes beyond what is already known about products, markets,
technologies, and skills (March, 1991). Accordingly, competence
exploitation concerns the refinement of existing paradigms and skills.
It represents a path of knowledge deployment and generation that is
closely related to the firm's existing knowledge bases and current orga-
nizational routines (March, 1991; Yalcinkaya et al., 2007). Competence
exploration refers to the search for new options in order to benefit from
unexplored opportunities. It reflects a conscious effort to move away
from the existing knowledge base and add new variants to the firm's
knowledge repertoire (Danneels, 2008; March, 1991; Yalcinkaya et al.,
2007).
The role of competence exploitation and exploration in firm
performance has received considerable research attention (e.g.,
Fig. 1. Research model.
1276 A. Lisboa et al. / Industrial Marketing Management 40 (2011) 1274–1284

Yalcinkaya et al., 2007). Nevertheless, the bulk of the studies has been
conducted in the context of technology and product development
(e.g., Atuahene-Gima, 2005; Lee et al., 2001; Uotila et al., 2009),
while there is a paucity of research on exploration and exploitation
capabilities concerning a firm's customers and markets (see Aspara,
Tikkanen, Pöntiskoski, & Järvensivu, 2011). This is an important
oversight in the literature given the acknowledged importance of
customer management skills and market knowledge development
in driving firm performance (e.g., Joshi & Sharma, 2004; Li &
Calantone, 1998; Vorhies et al., 2011).
This study focuses on two important domains of exploitative and
explorative capabilities: the product development and the overseas
market-related. Product development exploitative capabilities per-
tain to the firm's ability to refine and extend its existing product
development knowledge, skills, and processes. Product development
explorative capabilities concern the firm's ability to acquire entirely
new product development knowledge, skills, and processes (e.g.,
Atuahene-Gima, 2005; Yalcinkaya et al., 2007). Likewise, overseas
market-related exploitative capabilities reflect the firm's ability to re-
fine and extend its existing overseas market and customer
knowledge, skills, and processes. Overseas market-related explorative
capabilities refer to the firm's ability to acquire entirely new overseas
market and customer knowledge, skills, and processes (cf., Aspara et
al., 2011; Yalcinkaya et al., 2007).
Product development and overseas market-related exploitative
and explorative capabilities represent complex bundles of skills that
are embedded in the exporting firm's routines and can generate a
competitive advantage based on superior offerings (cf., Day, 1994;
Hult & Ketchen, 2001). We posit that that product development and
overseas market-related exploitative and explorative capabilities
can result in new product differentiation advantage, which in turn in-
fluence market effectiveness. New product differentiation focuses on
the quality, rather than the quantity, of a firm's product development
efforts and refers to the extent to which the firm products are unique
and differentiated (Ramaswami et al., 2009). Market effectiveness re-
fers to the degree to which the firm's market-based goals had been
achieved with respect to market outcomes, such as sales volume or
market share growth (Morgan et al., 2009). It serves as a measure
for market success (Vorhies, Morgan, & Autry, 2009). These two as-
pects of firm performance are intertwined and interconnected,
given that the delivery of new differentiated products to the market-
place is a determinant of firm market success.
Using the resource-based and organizational learning perspectives
as our theoretical foundations, we develop and test a model of EO–ex-
ploitative and explorative product development and overseas
market-related capabilities–advantage–performance linkages. We
hereafter develop the research hypotheses.
2.2. Hypotheses development
EO is a form of strategic orientation in that it captures how a firm
intends to compete (Hughes & Morgan, 2007; Wiklund & Shepherd,
2003). It refers to the decision-making styles, processes, and methods
that guide a firm's activities (Lumpkin & Dess, 1996). According to
Miller (1983, p. 771), an entrepreneurial firm is defined as one that:
“engages in product market innovation, undertakes somewhat risky
ventures, and is first to come up with ‘proactive’ innovations.” Hence, in-
novativeness, risk-taking, and proactiveness are typically viewed as
the key elements of EO (Covin & Slevin, 1989; Wiklund & Shepherd,
2003). Although one may think that EO is merely a precursor to
discovery-led product development and overseas market-related ac-
tivities, it can also encourage the deployment of exploitative product
development and overseas market-related capabilities.
Specifically, innovativeness refers to a tendency to support novelty,
creativity, and R&D in the development of products/services and process-
es (Hughes & Morgan, 2007). Such an inclination is likely to engender
product improvements and extensions of existing products; these activi-
ties embody an incremental type of innovation (Atuahene-Gima, 2005;
Yalcinkaya et al., 2007). Proactiveness relates to responsiveness to market
signals; anticipating and acting on expressed or latent customer needs
and preferences (Lumpkin & Dess, 1996). Nowadays, demanding cus-
tomers expect innovation, continuous improvement of the products
(e.g., Menguc & Auh, 2010) and better understanding of customer re-
quirements, together with enhanced products and/or product line exten-
sions are becoming the nexus of competition for many firms (Yli-Renko &
Janakiraman, 2008). Risk-taking reflects a willingness to pursue projects
where the cost of failure may be high and/or the outcomes are unknown
(Wiklund & Shepherd, 2003). Nonetheless, given the high failure rate and
costs of new products (Joshi & Sharma, 2004) and the increased costs of
attracting new customers (Heskett, Sasser, & Schlesinger, 2002), along
with the need for capital flow that enables firms to survive and finance
break-through seeking projects (Garcia, Calantone, & Levine, 2003), in-
cremental modification and enhancement of existing products and pro-
duction processes and development of knowledge and skills about
overseas markets currently served should also be of particular entrepre-
neurial interest. Hence, EO can be seen as conducive to the refinement
and extension of a firm's existing knowledge, skills, and processes regard-
ing product development and overseas markets.
H1. Entrepreneurial orientation is positively related to product
development exploitative capabilities.
H2. Entrepreneurial orientation is positively related to overseas
market-related exploitative capabilities.
Entrepreneurial firms are characterized by a bias toward innovating,
being proactive, and taking risks in their product-market strategies
(Renko et al., 2009; Zhou et al., 2005). They are prone to supporting ex-
perimentation, creative thinking, and technological leadership, thereby
departing from established practices and technologies (Avlonitis &
Salavou, 2007; Li et al., 2010). This forward thinking perspective allows
them to question established logics and believe that, rather than being
market led, it is better to lead the market (Bateman & Grant, 1993).
Such a willingness to break away from the tried-and-true encourages
entrepreneurial firms to venture into the unknown through imple-
menting activities and solutions that inherently have a high level of un-
certainty regarding the likely outcomes (Lumpkin & Dess, 1996). It
follows that EO promotes a firm's activities pertaining to prioritizing
R&D, implementing new types of technology, managerial, and produc-
tion processes, developing novel technical solutions and products that
are not only ahead of competition, but also ahead of the recognition of
existing customers. In a similar vein, EO embraces the uncertainty of en-
tering into new market arenas and mobilizes recourses for identifying
new customers and business partners and analyzing potential new
markets and competitors (Ahuja & Lampert, 2001; Hult & Ketchen,
2001; Lumpkin & Dess, 1996). Hence, EO sets the scene for explorative
product development and overseas market-related capabilities.
H3. Entrepreneurial orientation is positively related to product de-
velopment explorative capabilities.
H4. Entrepreneurial orientation is positively related to overseas
market-related explorative capabilities.
As we previously noted, capabilities are the organizational pro-
cesses through which resources are combined and transformed into
value offerings, resulting in a competitive advantage and enhanced
performance. With respect to the performance implications of exploi-
tation and exploration we focus on new product performance. New
products are essential to the firm's success in competing in both do-
mestic and international markets (Garcia et al., 2003). New product
performance is measured in a variety of ways in the literature
(Montoya-Weiss & Calantone, 1994). In keeping with the RBV, we

focus on new product differentiation, which constitutes a key type of
competitive advantage (Garcia et al., 2003). New product advantage, in
turn, is expected to impact market effectiveness. Market effectiveness re-
fers to the degree to which the firm's market-based goals such as market
share growth, sales revenue, sales volume, and attracting new customers
had been reached (Vorhies et al., 2009). Below we discuss the unique way
in which each type of capability influences new product differentiation,
which in turn enhances market effectiveness.
New product differentiation involves distinguishing the firm's offer-
ing from those of competitors and represents a key type of competitive
advantage (e.g., Hurley & Hult, 1998; Morgan, Kaleka, & Katsikeas,
2004; Song & Parry, 1997). Product development competence exploita-
tion increases productivity, efficiency, and reliability in product devel-
opment activities (Atuahene-Gima, 2005). Although the changes here
are not radical, deviation from existing technologies occurs and some
of the product features are modified and enhanced (Yalcinkaya et al.,
2007). Product improvements augment customer benefits relative to
competing products (Zhou et al., 2005). Hence, incremental innovation
is likely to result in superior new product performance.
H5. Product development exploitative capabilities are positively
related to new product differentiation.
Market-related competence exploitation entails refining and
extending existing overseas market and customer knowledge, skills,
and processes (cf., Aspara et al., 2011). Strengthening relationships
with overseas customers and gathering updated market information
can help firms track emerging trends in the export marketplace and
changing export customer preferences (cf., Mithas, Krishnan, &
Fornell, 2005). Enhanced understanding of existing overseas customer
requirements reduces potential risks of mismatch between what is
needed in the export market and what is developed (cf., Li &
Calantone, 1998). Exploiting customer and market knowledge is a pow-
erful method to ascertain whether there is a need in the market for the
new product developed (Sanchez & Elola, 1991). Further, it can deter-
mine new product characteristics through suggesting which ones con-
stitute indeed customer benefits and are of real value to customers
(Cooper, 1992). Put differently, in the absence of overseas customer
and market knowledge, it would be very difficult for the firm to recog-
nize overseas customer needs and develop new product solutions for
them (Shane, 2000). Thus, overseas market competence exploitation
is expected to lead to enhanced new product performance.
H6. Overseas market-related exploitative capabilities are positively
Product development competence exploration refers to path
breaking improvisations, adoption of emerging technologies, and ex-
perimentation with new alternatives in order to discover and produce
frame breaking innovations (e.g., Atuahene-Gima, 2005; Yalcinkaya
et al., 2007). Radical innovations are changes that discard convention-
al technological processes and paradigms and “advance by an order of
magnitude the technological state-of-the-art which characterizes an
industry” (Anderson & Tushman, 1991, p. 27). Such products repre-
sent technical solutions and value propositions that are new not
only to the firm, but also to the industry, and therefore enjoy a clear
advantage over all other products.
H7. Product development explorative capabilities are positively
Market competence exploration represents a clear departure from
existing practice and involves acquiring entirely new market and cus-
tomer knowledge, skills, and processes (cf., Aspara et al., 2011;
Yalcinkaya et al., 2007). Information about new overseas markets, as-
sessment of their potential, and identification of prospective customers
can help firms anticipate changes in the environment and make more
accurate predictions about the commercial potential and appropriate-
ness of alternative new products (Barney, Wright, & Ketchen, 2001).
This increases the likelihood of bringing into existence products that
fit the export market needs, are ahead of competition, and offer entirely
new value to customers. Hence, market-related explorative capabilities
are likely to contribute to the differentiation of new products.
H8. Overseas market-related explorative capabilities are positively
Scholars have posited that new product differentiation and firm
performance are positively linked (e.g., Bayus, Erickson, & Jacobson,
2003). The basis of this argument is that firms that are able to inno-
vate and introduce differentiated products into the market are
ahead of competitors and thus obtain higher sales and profits (e.g.,
Hurley & Hult, 1998; Song & Parry, 1997). New products that are dif-
ferentiated usually follow a skimming or premium price strategy,
increase the perceived value of the firm's offering and attract custom-
er attention and demand, incur increased profit margins and lower
customer acquisition costs, and decrease the chance of customers
defecting to competitors (Bayus et al., 2003; Li & Calantone, 1998;
Morgan et al., 2004). Hence, the offer of new, differentiated products
is likely to increase a firm's market share and revenues (Ramaswami
et al., 2009).
H9. New product differentiation is positively related to market
effectiveness.
3. Method
3.1. Research context
We selected Portugal as the research setting because of its small
domestic market, which pressures firms to develop export activities
(Sousa & Bradley, 2006). Economic growth in Portugal depends
heavily on the exporting success of its firms. Exporting via overseas
distributors is the most frequently used foreign market entry mode
chosen by small and medium-sized manufacturing firms given its
greater flexibility and cost effectiveness in comparison to other
entry modes (Golovko & Valentini, 2011; Skarmeas, 2006). The
importance of Portugal's exporting activities has risen since it entered
the European Union (EU) in 1986. The EU itself is the world's largest
exporter of goods, having maintained a stable share of approximately
one-fifth of total world exports (intra-EU trade excluded) since 1990
(European Commission, 2009).
3.2. Survey development and pretest
Following Nunnally and Bernstein's (1994) work, we developed
multi-item scales for this study. Initially, we specified each construct's
conceptual domain. Next, drawing on the extant literature, we drafted
the items of each construct. We went through a series of pre-tests and
field interviews with industry experts and export managers to assess
content and face validity of the constructs and measures. A panel of
seven industry experts with knowledge in entrepreneurship and
exporting discussed all the measures in depth. In addition, ten
export managers from manufacturing exporting firms operating in
different industry sectors were interviewed. The interviews lasted
between 60 and 120 min and aimed to gain insights into the role
of exploitative and explorative capabilities in an international con-
text. Finally, three academics with extensive knowledge on market-
ing management reviewed the questionnaire. Our pretesting
procedure did not point to any major problems in the item measure-
ment, wording, and clarity of the instructions or design of the survey
instrument.

3.3. Measurement
Existing measures were used or adapted to suit the purpose of the
study wherever possible. We adapted the measures of innovativeness
(three items), proactiveness (three items), and risk taking (three
items) from Covin and Slevin (1989). The measures of exploitative
and explorative capabilities describe the extent to which a firm
engaged in certain processes in the previous three years. We adapted
the items used for measuring product development exploitative (six
items) and explorative (eight items) capabilities from prior research
(Atuahene-Gima, 2005; Danneels, 2008; Yalcinkaya et al., 2007).
The three items measuring product differentiation refer to new prod-
ucts developed in the previous three years. The items were derived
from Ramaswami et al. (2009). Market effectiveness items were
drawn from the work of Vorhies et al. (2009). We used subjective
measures of performance because (i) objective new product and
export market effectiveness performance data are typically not avail-
able (e.g., Morgan et al., 2004); (ii) such measures can control for
variations in performance caused by differences across market envi-
ronments (e.g., Gatignon & Xuereb, 1997); (iii) previous studies
have shown correspondence between subjective and objective
performance measures (e.g., Ren, Gray, & Kim, 2009); and (iv) subjec-
tive assessments are often less problematic than objective financial
measures, because the latter may be biased by the purpose for
which they are produced (e.g., Gatignon & Xuereb, 1997).
Rossiter's (2002) procedure was used to develop items measuring
market-related explorative and exploitative capabilities. Five groups
were used to develop and validate these scales: one group of directors
of national and industrial associations (group 1), one group of export
managers (group 2), a second group of export managers (group 3), a
third group of export managers (group 4), and a group of internation-
al marketing experts (group 5). Two methods were used to generate
the items: a review of the literature (e.g., Danneels, 2008; Morgan et
al., 2004) and face-to-face interviews. In-depth interviews were con-
ducted with groups 1 and 2 to complement item generation and en-
sure content and face validity. Then, the pool of items developed
was tested with group 3. Exploratory factor analysis (principal axis
factoring with an oblique rotation) was conducted to check the
dimensionality and reliability of the scales (Netemeyer, Bearden, &
Sharma, 2003). Factors were extracted on the basis of the Kaiser–
Guttman criterion, where eigen values were greater than one.
Netemeyer et al. (2003) guidelines were used to interpret the signif-
icance of factor loadings. Then, data collected from group 4 was used
to examine the confirmatory factor models. EQS was used to perform
this test. Two problematic items were removed from the market-
related exploitative capabilities scale and two problematic items
were removed from the market-related explorative capabilities scale.
Discriminant, convergent, and nomological validity were assessed.
We used Fornell and Larcker's (1981) method to assess discriminant
validity. All possible pairs of constructs passed the test: the shared
variance among any two constructs (i.e., the square of their intercor-
relation) was less than the average variance explained in the items by
the construct (Fornell & Larcker, 1981). To measure convergent valid-
ity, we analyzed factor loadings and t-values (Bagozzi, 1980). In addi-
tion, composite reliability scores for each factor were analyzed
(Fornell & Larcker, 1981). Finally, data from groups 4 and 5 were
used to assess the extent to which market-related capabilities behave
as they should with the related, but different constructs of export
market orientation and profitability (cf., Iacobucci, Ostrom, &
Grayson, 1995). The correlation coefficients of exploitative and ex-
plorative market-related capabilities with market orientation (.52
and .48, respectively) and profitability (.35 and .19, respectively) sug-
gest that market-related capabilities behaved as expected within a
system of related constructs.4
Overall, the procedures used to develop
the exploitative and explorative overseas market-related capabilities
measures, together with the hypotheses testing results provide evi-
dence of their construct validity.
To minimize spuriousness of the results, we included four control
variables: (i) technological turbulence (four items) and (ii) market
turbulence (four items), defined as the rate of change of new product
technologies and of the composition and preferences of customers,
respectively (De Luca & Atuahene-Gima, 2007), (iii) firm size
(logarithm of number of full-time employees); and (iv) firm age
(logarithm of firm age in years).
3.4. Data collection
We obtained data on EO, exploitative and explorative capabilities,
and performance from an online survey. Firm size and age data were
obtained from the financial database SABI, the Iberian Balance Sheet
Analysis System, provided by INFORMA D&B and Bureau Van Dijk.
This database has general information and annual financial data of
Spanish and Portuguese firms. Following recent literature in export
marketing, we focused solely on export manufacturing firms (e.g.,
Morgan et al., 2004). Service firms and firms from primary industries
were excluded due to their distinctive characteristics in terms of in-
ternational expansion, regulation, and performance (Zou & Cavusgil,
2002). We used the Portuguese National Statistics Institute database
as sampling frame. To apply the questionnaire we focused on firms
with more than 20 employees. This option had to do with the nature
of the Portuguese exporting industry, which consists primarily of
small to midsize firms (INE, 2011). The back translation process was
used. Our sample consisted of a random sample of those firms in
the exporting manufacturers' database, for a total of 2931 firms. It is
a multi-industry sample, which increases observed variance and en-
hances the likelihood of generalizing the research findings (e.g.,
Morgan et al., 2004).
Firms were contacted by telephone to explain the purpose of the
study, identify key informants, and request their participation. We
excluded 715 firms from the initial database: 82 belonged to the
same firm group already contacted; 314 no longer exported, exported
indirectly through a national firm, or sold only to international
headquarters; 176 were facing insolvency or in bankruptcy; 10 did
not respond because of company policy; and 133 were not interested
in collaborating. A total of 1271 firms agreed to participate in the
study. An online survey link was sent to the key informant identified
in each firm. The key informant is defined as someone knowledgeable
about, and willing to report on, the issues being investigated (Campbell,
1955). After analyzing the data's normality, heteroskedasticity, and
missing values, we got to a final sample of 254 usable surveys. This yields
an effective response rate of 19.98%, which is in accordance to the ones
reported in previous studies (e.g., Yalcinkaya et al., 2007).
3.5. Non response and common method biases
We tested non response bias by comparing early and late respondents
(the first 25% and the last 25% to return surveys, respectively) in terms of
the number of years of exporting, number of full-time employees, and
number of export markets. No significant differences were detected. As
such, non response bias was not a significant problem in the study
(Armstrong & Overton, 1977). We conducted Harman's one factor test
of common method influence (Harman, 1967). A confirmatory factor
model with all manifest items loading on a single latent factor indicated
an extremely poor fit (chi-square of 9076.93, 1224 d.f., pb.000, compara-
tive fit index (CFI) of .81, incremental fit index (IFI) of .81, Tucker–Lewis
fit index (TLI) of .80, and root mean square error of approximation
(RMSEA) of .159). Similarly, we subjected all model variables to an ex-
ploratory factor analysis and the first factor accounted for only 11% of
total variance.4
We thank an anonymous reviewer for raising this issue.

4. Analysis
4.1. Sample characteristics
The sample is a multi-industry sample of manufacturing ex-
porters. The average firm size, measured in number of full-time em-
ployees is 142. The average age of firms included in the sample is
approximately 30 years. The average number of years that firms had
been involved in international operations is 22, which indicates that
the participating firms had significant export experience. The average
number of export countries in which firms operated is 14. The aver-
age export intensity (i.e., the percentage of firm's sales that accounts
for export activity) is 59%. The distribution patterns of industries in
the sample are as follows: 22% of the firms in the sample were active
in the textile, clothing and leather products industries; 20% in the me-
tallic products industry; 20% in the chemicals and rubber products in-
dustries, and 17% in the transport equipment and machinery
industries. The firms are located mostly in the north of Portugal
(41%), the center-north (24%), and the center (20%). Most of the re-
spondents were chief executive officers (31%) or export managers
(33%). The average number of years they had worked in the specific
firm is 12, and the average number of years they had worked in the
current position is 10.
4.2. Measurement validation
To assess the validity of the measures and test our research hy-
potheses, we employed the elliptical reweighted least-squares esti-
mation procedure in EQS (Bentler, 2006), which is proven to yield
unbiased estimates for multivariate non-normal as well as normal
data (Sharma, Durvasula, & Dillon, 1989). The measurement model
results presented in Table 1 showed a good fit (χ2
(1272) =2648.17,
pb.000, CFI=.99, IFI=.99, TLI=.99, RMSEA=.065). All constructs
had good levels of composite reliability (c.f. Bagozzi, 1980) and aver-
age variance extracted (Fornell & Larcker, 1981). The large standard-
ized loadings of each item on its intended construct (the average
loading size was .81) provide evidence of convergent validity. Also,
all possible pairs of constructs passed Fornell and Larcker's (1981)
test of discriminant validity (see Table 2).
Table 1
Measurement model results.
Constructs and items Standardized
loading
t-value
Entrepreneurial orientation (ρc =.91, ρv =.52)
- Strong emphasis on the development of new and
innovative products
.75 12.31
- Strong emphasis on R&D, technological leadership, and
innovations
.80 13.49
- Develop many new lines of products or services .66 10.36
- Initiate actions to which competitors then respond .70 11.18
- First to introduce new products/services, techniques,
technologies
.75 12.29
- Adopt a very competitive, “undo-the-competitors”
posture
.60 9.31
- Strong proclivity for high-risk projects (with chances of
very high returns)
.79 12.36
- Bold, wide-ranging acts are necessary to achieve the
firm's objectives
.74 12.29
- Adopt a bold, aggressive posture to maximize the
probability of exploiting opportunities
.68 11.00
Product-development exploitative capabilities (ρc =.90, ρv =.61)
- Improve quality of the firm's export products, services,
and processes
.71 11.55
- Upgrade current knowledge and skills for familiar
technologies, products, and services
.78 13.09
- Invest in enhancing skills in exploiting mature
technologies that improve productivity
.83 14.34
- Upgrade skills in product development processes with
significant experience
.85 15.03
- Enhance competencies in searching for solutions to
customer problems that are near to existing solutions
rather than completely new solutions
.72 11.83
- Strengthen knowledge and skills for projects improving
efficiency of existing activities
.79 13.38
Overseas market-related exploitative capabilities (ρc =.89, ρv =.59)
- Enhance the capture of important market information
about existing markets
.80 13.68
- Reinforce contacts in current export markets .79 13.28
- Reinforce the monitoring of competitive products in
current export markets
.79 13.49
- Enhance understanding of existing overseas customer
requirements
.80 13.73
- Reinforce relationships with current overseas customers .79 13.43
- Reinforce overseas distributor relationships .60 8.97
Product-development explorative capabilities (ρc =.93, ρv =.61)
- Acquire manufacturing technology and skills entirely
new to the firm
.72 11.96
- Learn about technology it has not used before .74 12.24
- Learn product-development skills and processes entirely
new to the industry
.72 11.85
- Acquire entirely new managerial and organizational
skills that are important for innovation
.80 13.83
- Learn new skills in areas such as funding new
technology, staffing R&D function, training and
development of R&D etc.
.86 15.38
- Strengthen innovation skills in areas where it had no
prior experience
.76 12.83
- Implement new types of production processes .82 14.38
- Chose new approaches to export products, services, and
processes different from those used in the past
.82 14.23
Overseas market-related explorative capabilities (ρc =.93, ρv =.70)
- Identify prospective customers .86 15.37
- Acquire export market-related information about new
markets
.93 17.38
- Assess the potential of new markets .92 17.16
- Research new competitors and new customers .84 14.90
- Build relationships in new markets .83 14.52
- Build new overseas distributor relationships .60 9.59
New product differentiation (ρc =.79, ρv =.55)
- New products difficult for competition to copy .70 10.47
- New product designs are unique .78 11.78
Table 1 (continued)
Constructs and items Standardized
loading
t-value
- New products do have a significant advantage over those
of competitors
.75 11.27
Market effectiveness (ρc =.88, ρv =.61)
- Export market's sales volume growth .84 14.50
- Growth in export market sales revenue .84 14.44
- Export market's share growth .78 13.12
- Acquiring new export market customers .60 9.18
- Increasing sales to current export customers .82 13.93
Technological turbulence (ρc =.89, ρv =.67)
- Difficult to forecast technology developments in our
industry
.82 14.08
- Technology environment highly uncertain .94 17.32
- Technological developments highly unpredictable .88 15.71
- Technologically complex environment .60 9.64
Market turbulence (ρc =.90, ρv =.69)
- Customer needs and product preferences change quite
rapidly
.79 13.48
- Customer product demands and preferences highly
uncertain
.92 16.89
- Difficult to predict changes in customer needs and
preferences
.88 15.71
- Market competitive conditions highly unpredictable .71 11.51
Notes: ρc =composite reliability.
ρv =average variance extracted.

4.3. Hypothesis testing
The research hypotheses were tested using structural equation
modeling (Bentler 2006). Results show a good model fit (χ2
(1311)
=2897.67, pb.000, χ2
/d.f.=2,21, CFI=.99, IFI=.99, TLI=.98,
RMSEA=.069). Table 3 presents standardized parameter estimates,
t-values, and significance levels for the hypothesized paths.
Specifically, in support of H1, EO is related positively to product de-
velopment exploitative capabilities (β=.72, t=8.18). Consistent
with H2, EO is related positively to overseas market-related exploitative
capabilities (β=.76, t=9.22). In line with H3, EO is associated positive-
ly with product development explorative capabilities (β=.72,
t=8.40). As predicted in H4, EO is related positively to overseas
market-related explorative capabilities (β=.65, t=8.57). Contrary to
expectations, no significant connection is found between product de-
velopment exploitative capabilities and new product differentiation
(β=−.04, t=−.42), so H5 is rejected. In support of H6, overseas
market-related explorative capabilities are related positively to new
product differentiation (β=.21, t=2.07). As predicted in H7, product
development explorative capabilities are related positively to new
product differentiation (β=.33, t=3.31). No significant connection is
found between overseas market-related explorative capabilities and
new product differentiation (β=.00, t=.05), so H8 is rejected. Finally,
as expected, new product differentiation is related positively to market
effectiveness (β=.48, t=5.19), thus confirming H9.
In sum, the hypotheses regarding the impact of new product dif-
ferentiation on market effectiveness and the influence of EO on
exploitative and explorative capabilities were all supported, while
with respect to the effects of these capabilities on new product differ-
entiation, two out of four hypotheses were confirmed. The hypothe-
sized links collectively account for 52% of the observed variance in
product development exploitative capabilities, 58% for overseas
market-related exploitative capabilities, 52% for product develop-
ment explorative capabilities, 43% for overseas market-related
explorative capabilities, 21% for new product differentiation, and
24% for market effectiveness.
5. Discussion and conclusion
Innovation has long been acknowledged as the reason for the
existence of a firm (Abernathy & Clark, 1985). It has assumed top pri-
ority in the agendas of modern firms given the shortening product
and business model lifecycles and the growing levels of competition
and market complexity of nowadays (e.g., Wiklund & Shepherd,
2003). Exploitation and exploration activities are essential to the
innovation process (e.g., March, 1991). In addition to the product
development explorative and exploitative capabilities that have
been extensively discussed in the pertinent literature (e.g.,
Atuahene-Gima, 2005; Yalcinkaya et al., 2007), this study investigates
the antecedents and performance outcomes of market-related com-
petence exploitation and exploration. Product development and
market-related exploitative and explorative capabilities are viewed
as the value creating mechanisms through which EO affects perfor-
mance in export markets. The process through which EO influences
performance in the export context has received limited research
attention. This is surprising considering the increasing importance of
exporting for the viability and success of many firms (Hultman et al.,
2009), along with the additional ramifications of the international mar-
ket environment—heightened levels of dynamism and complexity and
physical separation and psychic distance between the firm and its mar-
kets (Samiee & Walters, 2006)—that point to the value of exploitative
and explorative learning activities in the context of exporting. Drawing
on the resource-based and organization learning theories, we develop
and test a model of EO–exploitative and explorative capabilities–
advantage–performance in the context of exporting. A discussion of
the study findings follows.
EO has emerged as a key construct within the management litera-
ture over the past two decades (Rauch et al., 2009). Not surprisingly,
the study findings indicate that EO engenders the deployment of both
product development and overseas market-related exploitative and
Table 2
Means, standard deviations, and correlationsa,b
.
M SD 1 2 3 4 5 6 7 8 9 10 11
1. Entrepreneurial orientation 4.68 1.37 .72
2. Product development exploitative capabilities 5.53 .89 .64 .78
3. Overseas market-related exploitative capabilities 5.39 .99 .69 .70 .77
4. Product development explorative capabilities 4.93 1.30 .65 .69 .57 .78
5. Overseas market-related explorative capabilities 5.41 1.08 .58 .47 .68 .60 .84
6. New product differentiation 4.16 1.51 .48 .26 .29 .39 .31 .74
7. Market effectiveness 4.99 1.17 .43 .40 .43 .38 .23 .31 .78
8. Technological turbulence 4.25 1.44 .10 .10 .02 .20 .13 .16 .02 .82
9. Market turbulence 4.70 1.43 .18 .11 .06 .18 .24 .20 −.04 .51 .83
10. Firm size 4.29 1.05 .27 .12 .12 .21 .01 .11 .04 −.10 −.14 NA
11. Firm age 3.27 0.56 −.01 −.03 −.01 .02 .07 −.07 −.08 −.01 .01 .19 NA
a
All correlations pb−.10 or p>.10 are significant at the .05 level.
b
The diagonal (in bold) shows the square roots of the average variance extracted.
Table 3
Hypotheses testing results.
Standardized loading
(t-value)
Hypotheses
H1 Entrepreneurial orientation→product development
exploitative capabilities
.72 (8.18⁎⁎)
H2 Entrepreneurial orientation→overseas market-related
exploitative capabilities
.76 (9.22⁎⁎)
H3 Entrepreneurial orientation→product development
explorative capabilities
.72 (8.40⁎⁎)
H4 Entrepreneurial orientation→overseas market-related
explorative capabilities
.65 (8.57⁎⁎)
H5 Product development exploitative capabilities→new
product differentiation
−.04 (−0.42)
H6 Overseas market-related exploitative
capabilities→new product differentiation
.21 (2.07⁎)
H7 Product development explorative capabilities→new
.33 (3.31⁎⁎)
H8 Overseas market-related explorative capabilities→new
.00 (0.05)
H9 New product differentiation→market effectiveness .48 (5.19⁎⁎)
Control variables
Market turbulence→market effectiveness −.15 (−2.15⁎)
Technological turbulence→market effectiveness .02 (0.35)
Firm size→market effectiveness .00 (0.03)
Firm age→market effectiveness −.09 (−1.14)
⁎⁎ pb.01.
⁎ pb.05.

explorative capabilities. With respect to explorative capabilities, the
study findings are in accord with prior research (e.g., Zhou et al.,
2005). Acquiring entirely new knowledge and skills and discovering
products and overseas markets that might come to be known is
motivated by acceptance of risk and uncertainty, experimentation,
and a forward-looking perspective. One example is Siemens Healthcare
and its work in X-ray machines (Business Standard, December 25
2010). Another example is IKEA; its innovative, proactive, and risk-
taking posture advanced a new approach to shopping for furniture
(The economist, February 24 2011).
Further, the results of the study reveal that EO acts as an impetus
to the development of product development and overseas market-
related exploitative capabilities. This is a new finding in the field
that contradicts conventional assumptions about EO facilitating
pursue of solely radical product and overseas market innovations.
The tendency to innovate, act proactively, and be tolerant to risk is
conducive to firm self-renewal, and exploitative capabilities reflect
an incremental type of firm renewal (cf., Yalcinkaya et al., 2007).
For example, Key Plastics is an entrepreneurial firm that is committed
to introducing improved products, as well as enhancing its efficiency
through minor changes in processes (Business Wire, June 30 2004).
PKWK, a drink manufacturer, is another entrepreneurial firm that
continuously invests in its knowledge about the idiosyncrasies and
customer relationships in the Angola market (Datamonitor, April 26
2007). The finding that EO motivates broadening and refining product
development and overseas market knowledge bases is of great
importance to export managers. Taking into account the increased
levels of dynamism and complexity typically encountered in interna-
tional markets, EO allows a firm to detect and act on early signals
from its internal and external environments and thus keep up with
market evolution (cf., Wiklund & Shepherd, 2003).
Another interesting set of results pertains to the performance
implications of exploitative and explorative capabilities. Product de-
velopment exploitative capabilities do not play an important role in
driving new product performance in terms of product differentiation.
A possible explanation for this result is that minor product modifica-
tions and incremental product improvements are not enough for
distinguishing a firm's product from those of competitors (e.g., Song
& Parry, 1997). Export market-related competence exploration is
not related to new product differentiation too. Even though one
might expect that exploring the potential of new markets can serve
as a pool of ideas for new products, it seems that such efforts cannot
be immediately translated into a new product differentiation advan-
tage. This is in line with March's (1991) view of exploration as having
returns that are distant and uncertain.
Interestingly, the study findings underscore the importance of
product development explorative and market-related exploitative
capabilities in determining new product performance. This pattern
of results is consistent with findings in the literature indicating that
product development explorative capabilities play a pivotal role in
the introduction of innovative, ahead of competition products
(Atuahene-Gima, 2005; Yalcinkaya et al., 2007) and that capabilities
pertaining to market knowledge development and customer relation-
ship management can help firms deliver distinctive and unique prod-
uct offerings (e.g., Yli-Renko & Janakiraman, 2008). Business
practitioners should bear in mind that experimentation, creativity,
and novel technologies are essential to the introduction of truly
differentiated products, but so also is market and customer knowl-
edge development and strengthening bonds with existing customers,
particularly in export markets.
The beneficial effects of new product differentiation on market
performance are in line with previous research findings (e.g., Bayus
et al., 2003; Yalcinkaya et al., 2007). Sales revenue, market share,
market share growth, attracting new customers, and increasing
sales to existing customers are commonly used metrics for measuring
firm performance (e.g., Li & Calantone, 1998). Unique new products
that are difficult for competitors to imitate enable firms to attain
their market goals given the increased profit margin and lower cus-
tomer acquisition and retention costs that differentiated products
typically incur (Bayus et al., 2003; Yalcinkaya et al., 2007). Further,
such products facilitate the development of a loyal customer base
and thus enhance the effectiveness of cross-selling activities
(Ramaswami et al., 2009; Yalcinkaya et al., 2007). The results clearly
suggest that new differentiated products are vital to the growth and
prosperity of export manufacturing firms.
6. Limitations and future research
Although the implications of our study are important, they are
subject to certain limitations. First, we conducted the study in a
specific context. Replication of this research in other international
business settings would help a move toward more generalizable
findings. Second, the cross-sectional research design employed here
limits our ability to make causal inferences. Thus, longitudinal data
on the study constructs can offer further insights into the links
among entrepreneurial orientation, exploitative and explorative
capabilities, and performance. Finally, we examined the intervening
role of product development explorative and overseas market-
related exploitative capabilities in the EO–performance link. Future
research can consider additional types of capabilities (e.g., marketing
capabilities). In addition, examining the potentially moderating role
of external factors (e.g., market and technological dynamism) in the
EO–performance relationship would be another promising future
research direction.
Role of the funding source
FCT (a Governmental foundation for science and technology) and
ISCTE-IUL's Research Centre UNIDE provided financial support to the
conduct of this research. UNIDE supported the collection of data
while FCT supported the writing of the report.
Acknowledgments
The authors acknowledge the support of FCT and ISCTE-IUL's
Research Centre UNIDE. The authors are very grateful to the two
anonymous reviewers for their constructive comments and insightful
suggestions.
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Ana Lisboa is Assistant Professor of Marketing at Escola Superior de Tecnologia e
Gestão — Instituto Politécnico de Leiria. Her research interests lie in the areas of B2B
relationships, exporting, innovation, and dynamic capabilities.
Dionysis Skarmeas is Assistant Professor of Marketing at Athens University of
Economics and Business — Greece. His research interests lie in the areas of internation-
al marketing, buyer–seller relationships, and competitive strategy. His research has
appeared in the Journal of International Business Studies, Journal of Retailing, British Jour-
nal of Management, Industrial Marketing Management, Journal of Business Research,
International Marketing Review, and European Journal of Marketing.
Carmen Lages is Assistant Professor of Marketing at ISCTE Business School — Lisbon,
Portugal. Her research interests lie in the areas of marketing communication, exporting
and relationship marketing. Her research has appeared in the Journal of International
Marketing, Industrial Marketing Management, Journal of Business Research, and European
Journal of Marketing.

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