Market orientation, knowledge competence, and innovation H. Erkan Ozkaya a, ⁎, Cornelia Droge b,2 , G. Tomas M. Hult b,3 , Roger Calantone b,4 , Elif Ozkaya a,1 a Department of International Business and Marketing, California State Polytechnic University, Pomona, CA 91768, United States b Department of Marketing, Michigan State University, N370 North Business Complex, East Lansing, MI 48824-1122, United States abstract article info Article history: First received on March 15, 2014 and was under review for 5 months Available online 13 January 2015 Keywords: Market knowledge competence Market orientation Market-based innovation U.S. versus China This study focuses on two dimensions of market orientation and the corresponding dimensions of market knowl- edge competence: i.e., the customer and competitor dimensions. We examine whether customer and competitor orientations are transmuted into market-based innovation either directly, or through customer and competitor knowledge competencies indirectly. The findings support that knowledge competencies are indeed mediators of the positive relationships between orientations and market-based innovation. Also, market-based innovation mediates the positive relationships between customer and competitor knowledge competencies and overall firm performance. A cross-country comparison reveals that, in the U.S. as compared to Chinese firms, customer (or competitor) orientation leads to both higher customer (or competitor) knowledge competence and enhanced market-based innovations; in other words, the model's relationship strengths are greater in U.S. firms, indicating that they are better able to leverage customer (or competitor) orientation to obtain performance consequences. © 2015 Elsevier B.V. All rights reserved. 1. Introduction Market orientation is a central concept in the marketing literature and its effects on innovation and performance have been studied in detail (e.g., Hurley & Hult, 1998; Kumar, Jones, Venkatesan, & Leone, 2011; Wei, Frankwick, & Nguyen, 2012). This research focuses on customer and competitor orientations, which are the components of market orientation that focus of the firm's external environmental scanning efforts (Narver & Slater, 1990). However merely focusing on customers and competitors may not guarantee market-based in- novations. Knowing what the customers want and what competitors are doing is very important, but transforming this information into innovation-relevant knowledge may require a different set of compe- tencies. We thus also focus on market knowledge competence, com- prised of customer and competitor knowledge competencies. Market orientation (customer and competitor orientations), market knowledge competence (customer and competitor knowledge competencies), and market-based innovations were chosen as our focus because these con- structs are domain-consistent (i.e., the domains are matched). Our final dependent construct is overall firm performance. The first objective of this study is to propose market knowledge competence as a mediator of the relationships between market orientation and market-based innovations. Market knowledge compe- tence has attracted attention due to its positive effects on product inno- vation and/or other performance consequences (Atuahene-Gima & Wei, 2011; Johnson, Piccolotto, & Filippini, 2009; Li & Calantone, 1998). However its knowledge transformation role hasn't been extensively examined by testing its full (or partial) mediation role between orienta- tion and innovation. Previous research on the direct paths from orienta- tion to various performance outcomes has been mixed. For example, Zhou, Yim, and Tse (2005) suggest that market orientation may have a negative effect on market-based innovations; Frambach, Prabhu, and Verhallen (2003) found negative effects for competitor orientation and positive effects for customer orientation, whereas Perry and Shao (2005) found the reverse; and Gotteland and Boulé (2006) found a positive effect for customer orientation and no effect for competitor ori- entation. These mixed results suggest treating customer and competitor orientations separately (see also Frambach et al., 2003). We focus on disentangling the direct versus indirect effects of customer versus com- petitor orientation on market-based innovation, with market knowledge competencies as mediators. The second objective of this study is to address the role of market- based innovation as the mediator between market knowledge compe- tencies and firm performance. The literature indicates that market knowledge competence (or components thereof) may have a direct effect on performance (e.g., Atuahene-Gima & Wei, 2011; Johnson et al., 2009; Li & Calantone, 1998; Li & Cavusgil, 1999). Others propose that market knowledge competence is related to antecedents of firm performance (e.g., Jayachandran & Kaufman, 2004; Yeniyurt, Cavusgul & Hult, 2005) and that the effects on firm performance itself may be indirect. In our research, we treat customer and competitor knowledge competencies Intern. J. of Research in Marketing 32 (2015) 309–318 ⁎ Corresponding author. Tel.: +1 909 869 2692. E-mail addresses: ozkaya@cpp.edu (H.E. Ozkaya), droge@msu.edu (C. Droge), hult@ msu.edu (G.T.M. Hult), rogercal@msu.edu (R. Calantone), eozkaya@cpp.edu (E. Ozkaya). 1 Tel.: +1 909 869 2692. 2 Tel.: +1 517 432 6405. 3 Tel.: +1 517 353 4336. 4 Tel.: +1 517 432 6400. http://dx.doi.org/10.1016/j.ijresmar.2014.10.004 0167-8116/© 2015 Elsevier B.V. All rights reserved. Contents lists available at ScienceDirect Intern. J. of Research in Marketing journal homepage: www.elsevier.com/locate/ijresmar