A firm's response to economic volatility is a topic of interest to managers and academics alike. This study examines the relationship between resources for marketing and financial capabilities and performance of firms in recovery from economic crisis in Thailand. The authors researched this timely topic by collecting data from the Thailand market. Marketing capabilities (market orientation & strategic flexibility) and financial capabilities (financial strength & financial diversification) were chosen as independent variables. The results indicated that financial strength and financial diversification, as well as strategic flexibility, had positive influences on firms' performance. However, financial capabilities had greater influences on performance than marketing capabilities. Comparing these two types of capabilities sheds light on the resource allocation decision between the two functional areas when firms operate amid an economic crisis.
In the global economy, domestic and international firms become more susceptible to economic crises, regardless of where they originate. Increased globalization and emergence of the network economy bring more direct and indirect effects of an economic crisis to firms (Achrol & Kotler, 1999). Although the Asian financial crisis, which began in Thailand in 1997, has passed, it continues to impact market conditions and firm performances in Asia and beyond. Among firms that have survived such a difficult time, it seems important to address the question of why some have recovered and now perform well while others do not. What we learn on how they have utilized certain strategies and resources will provide much insight to practitioners and researchers. Here we draw from a resource-based view in strategic management for identifying and justifying key determinants (Morash & Lynch, 2002). An understanding of the importance of the relationship between resources and performance and how these resources can be used to help a firm respond effectively to major crises may shed light on resource allocation decisions between the two functional areas: marketing and financial capabilities. This study also examines whether marketing capabilities play a more critical role than financial capabilities in explaining changes in a firm's recovery from economic crisis.
LITERATURE REVIEW AND HYPOTHESES
Relevant literature on economic crises, marketing capabilities and financial capabilities are reviewed in this section. Economic crises affect the ability of firms to manage a critical event. We use the resource-based view to help us understand how these firms exploit their capabilities to face the challenges of an economic crisis. Comparable effects of marketing and financial capabilities in managing this critical event are also considered.
International economic crises have emerged many times over the past decades. In the Central and South America crisis of 1982-1983, Mexico, Brazil, and Argentina were unable to make regular payments to international creditors. In 1992, a wave of speculation attacked the European Monetary Systems (Kim & Haque, 2002). When the Mexican government devalued its currency against the U.S. dollar in 1997, the crisis had widespread effects on currencies of both Latin and non-Latin American countries (Koo & Kiser, 2001).
The Asian financial crisis which emerged in Thailand in 1997, rapidly affected economic systems and stability in many countries in Asia and beyond (Wong, 2001). It was a surprise to people, managers, and researchers because economic growth of these countries had been fast and showed healthy signs since 1990. This crisis raised many questions. Why had the crisis occurred? How can we prevent an economic crisis from recurring? How do we manage if it recurs? Thus, the emergence of the Asian financial crisis has become an interesting academic study.
To clearly understand and learn from the Asian financial crisis, many studies have investigated causes of the crisis and its effects. Crisis occurs from the vulnerability of speculative attacks, the instability of apparent economic fundamentals, and the inability to sustain domestic macroeconomic policies (Dekle, Hsiao & Wang, 2002; Long & Tian, 2002). Its major features include government policies in those countries, overinvestment, disintermediation, inflated asset priced, unstable foreign exchange rates and high interest rates.
How did the Asian financial crisis affect firms' business operations? Pearson and Clair (1998) describe a crisis as a high impact situation that is perceived by critical stockholders to threaten the viability of the organization. Some firms have gone bankrupt and unemployment rates have risen steeply in the crisis-affected countries (Manning, 2002). Many of the firms which survive have worked very hard to achieve competitive advantage and succeed in doing business. In Singapore, large firms pursuing the prospector-oriented strategy (high innovation) have a lower uncertainty in financial results, a more long-term orientation for decision making, and more decentralized control (Shih & Young, 2001). The prospector-oriented strategy seems to have helped these firms survive during the Asian financial crisis. Agami (2002) also investigated how firms in Thailand, the Philippines, Malaysia, Indonesia, and South Korea survived during the crisis. He noted that cross-border mergers and acquisitions caused these firms to eliminate inefficient companies, reduce debt, and enhance economic, operation, and strategy performance. In order to survive, firms need to better concentrate on local activities, such as exploiting local borrowing, importing inputs from several local suppliers, exporting products and services to markets in unaffected countries, and building up local ownership of assets (Mudd, Grosse & Mathis, 2002).
Many studies have attempted to explain and understand why the crisis had happened, how it affected firms in their businesses and operations, and how firms survived during the crisis. Few studies have paid attention to how firms respond to it. Our research focuses on what characteristics of resources help firms recover from an economic crisis by emphasizing marketing and financial capabilities. After a significant period in crisis firms have more opportunity to make sense of the crisis and learning can ensue. We apply the resource-based view to conceptualize the relationships between firm resources and performance in the context of recovery from the crisis. The resource-based view focuses on the strengths and weaknesses of firms and then analyzes a pool of their internal resources to strategic-factor markets rather than external environments (Barney, 1986; Eisenhardt & Martin, 2000; Wernerfelt, 1984). This theoretical framework helps us understand how firms survive and succeed in the turbulent time. Next, we review literature on the resource-based view and present our theoretical model.
Resource-Based Determinants of a Firm's Performance in an Economic Crisis
According to the resource-based view, firms' …