Introduction Retail competition in Japan has become more intense because of multiple reasons. The income and population composition are changing, and many international retailers have entered the Japanese market. It is important for Japanese retailers to differentiate from competitors and maintain a competitive advantage in the long run. To do so, Japanese retailers focus on increasing customer value by controlling their value chains. Therefore, market orientation and supply chain orientation have become very important for Japanese retailers who try to expand their market shares in the Japanese retail market. This study develops and empirically tests a model of the impact of market orientation and supply chain orientation on business performance in Japanese retailing. Theoretical Development Previous literature provides evidence on the positive impact of market orientation on business performance (e.g. Cano et al., 2004; Murray et al., 2011; Morgan, 2012; Ngo & O’Cass, 2012). There are also a few studies in the context of retailing (e.g. Griffith et al., 2006; Kajalo & Lindblom, 2015; Moore & Fairhurst, 2003; Yu et al., 2014). However, only a few studies are focusing on the relationship between supply chain orientation and marketing orientation and the impact of their interplay on business performance (e.g. Martin & Grbac, 2003; Min et al., 2007). Market orientation can be seen as the foundation for customer relationship management. The effectiveness of customer relationship management depends heavily on market intelligence. To attract new customers and retain old customers firms have to satisfy not only existing needs but also latent needs. In retailing, market orientation is very important because the organization of retailing is based on the multi-unit organization where sales staff in stores is in close contact with customers and can get direct information from the customers. Supply chain orientation (SCO) is separated into two concepts: strategic supply chain orientation and structural supply chain orientation (Patel et al., 2013). Strategic SCO is defined as the supply chain directed motivation and objectives arising from executive strategic plans and decisions. Structural SCO is defined as the behaviors and actions related to supply chain management in the implementation of its strategic plan. Therefore, strategic SCO is the antecedent of structural SCO. In retailing, many retail buyers search and negotiate with the suppliers who have the ownership of strong brands and distribution networks. In the buying process, retail buyers can get market information from suppliers. Thus, a retailer can collect market information from internal and external sources. This information is useful for the retailer to not only make marketing plan but also to revise marketing plan during its implementation process. To sum up, customer relationship management and supply chain orientation have a positive impact on marketing capabilities. Similarly, marketing capabilities have a positive impact on business performance. The theoretical framework of the study is presented in Figure 1. Data and Measurement To test the framework, we conducted a mail survey (N=243) among Japanese retailers in 2017. The scales were adapted or developed from existing literature. Market orientation (MO) was based on questions adapted from Narver and Slater (1990). Strategic SCO (STRACO) and structural SCO (STRUSCO) scales were based on Patel et al. (2013). Customer relationship management (CRM) was based on Vorhies et al. (2011), marketing capabilities (MKGCAP) was based on Morgan et al. (2003) and Vorhies and Morgan (2005). Business performance was based on Hooley et al. (2005). The measurement model was assessed using Mplus 8. The measurement model specification allows each construct to covariate with all others. The fit indexes of the measurement model were satisfactory (CFI: 0.95; TLI: 0.94; RMSEA: 0.05; SRMR: 0.05). Next, we tested the reliability and validity of measurements. The convergent and discriminate validity of the latent variables were tested by confirmatory factor analysis where all constructs are correlated (Table 1). Also, we tested the common methods variance using two methods: Harman’s single factor test and the common latent method. The results of these methods suggest that common method variance is not a problem in this study. Results and Conclusions We tested the hypotheses by applying structural equation modeling (SEM) using Mplus 8. The results are presented in Figure 1. The proposed model provides a good fit to the data (χ2= 517.1, d.f.=290, p < 0.000; CFI = 0.94; TLI = 0.94, RMSEA = 0.06, SRMR = 0.08). In addition, we assessed the mediating role of marketing capabilities by employing a bootstrapping routine (Table 2). Figure 1 presents the results of the SEM. Most hypotheses were supported, and overall the study provides evidence of the importance of market orientation and strategic SCO on business performance. The most interesting findings are related to the role of marketing capabilities and structural SCO. First, the results show that marketing capabilities serve as a mediator between business performance and customer relationship management (H7). The main aim of CRM is to establish and keep the relationship with target customers. CRM contributes to increasing the marketing capabilities by helping retailer achieve marketing objectives more effectively and efficiently (Chang et al., 2010). Second, marketing capabilities is not a mediator between business performance and structural SCO (H8). The structural SCO has a negative direct impact on business performance, while structural SCO has a positive impact on marketing capabilities which in turn has a positive impact on business performance. Japanese retailer-supplier relationships are different from that in the western economy (Chung et al., 2006). The channel members in Japan have a long-term orientation when they establish a relationship with each other. The findings of our study reflect this cultural aspect of Japanese retailing environment. Japanese retailers purchase products and services from suppliers on long-term. Economic performance is not a single decision making criteria. Instead, relationships with suppliers who do not contribute fully to economic performance continue. The result of H8 refers to this character of Japanese retailing environment.

Market orientation has been extensively studied in the last 30 years. Previous studies have mainly focused on manufacturing and in the retail industry market orientation remains rather unexplored. There are only a few studies on market orientation in retailing (e.g. Elg, 2003; Kajalo & Lindblom, 2015; Liu & Davies, 1997). According to Elg (2003) market orientation in retailing differs from manufacturing in several aspects. Most importantly, in retailing individual stores have important roles to implement market orientation. They interact with customers and satisfy customer’s needs in the service encounter. Even if retailer can generate and share market knowledge in organization, the effect of market orientation on performance is weak when store organization does not adopt market oriented behaviour (Liu & Davies, 1997). Therefore, it is important for retailer to control market orientation of a retail store. Most retailers operate as retail chains to increase the scale of business. Retail chain is a multi-unit firm that manages many stores as profit units (Chang & Harrington, 2002). Retail chain includes buying and selling divisions, which specialize in different tasks. Buying division has specialized role and responsibility to search and negotiate with the suppliers, make the merchandising plan, monitor the process of merchandising, and revise the merchandising plan. In a similar manner, selling division has specialized role and responsibility to implement merchandising plan, promote retail services to customers, and manage the stores to differentiate from competitors. Buying division makes standardized merchandising plan for stores to increase scale advantage in buying, inventory management, store delivery, and advertising. Retail chains centralize the decisions of merchandising to buying divisions and formalize the process of merchandising in chain organization. On the other hand, retail chains become market - oriented organization to increase the scale advantage because this advantage depends on the effectiveness of merchandising plan. From the perspective of market orientation, the three behavioral aspects of market orientation – generation, dissemination, and response are performed by buying division and selling division of the retail chain. Buying division needs the market information generated by retail stores as selling division. Buying division makes the merchandising plan under environmental uncertainty. Buying division decreases this uncertainty to analyze the market information from stores. Market information includes not only existing market needs but also potential market needs. Buying division finds potential market needs into the market information and makes an innovative merchandising plan.In the merchandising process, selling division implements market orientation in stores. After the buying division makes merchandising plans to differentiate from competitors, the selling division implements these plans on stores. For example, store manager monitors the process of implementation and revises the action according to merchandising plans. When store managers find problems, they report these problems to the buying division and request to refine merchandising plans. In this way, the buying division takes the planning part of market orientation and the selling division takes the implementation part of market orientation. To control market orientation in chain organization, retail chain coordinate buying division and selling division by organizational structure - centralization and formalization (Lechner & Kreutzer, 2010). Organizational structure has effect on market orientation. First, formalization has opposite effect on market orientation (Jaworski & Kohli, 1993). According to Ouchi (1978) formalization reduces the ambiguity of goals and makes clear the criteria of performance evaluation in organization among organizational members. When formalization motivates organizational member to be market oriented, formalization facilitates market intelligence generation and sharing of market intelligence with organizational members. On the other hand, formalization limits the behavior of organizational members (von Krog, 1998). López et al. (2006) suggest that the rules and procedures set by formalization give the pattern to organizational communication. As results, formalization reduces the chances for organization members to communicate market intelligence and interact with each other because organizational member put priority on formalized communication channel. Second, centralization has negative effect on market orientation. According to Pelham and Wilson (1996) decentralization increases organizational commitment to satisfy customer needs and motivates market orientation. Souitaris (2001) and Ouchi (2006) assert that centralization reduces the degree of information sharing among organizational members. Therefore, centralization has negative effect on market orientation. Organizational structure has indirect effect on innovation orientation of store thought market orientation. There are two streams about the relationship between market orientation and innovation orientation (Grinstein 2008). One stream suggests that market orientation is negatively related to innovation. Another stream suggests that market orientation is positive related to innovation. In this study, we argue according to recent research that market orientation is likely to enhance. To test the conceptual model that incorporates these concepts (Figure 1), a survey was conducted among Japanese retailers. The sample (N=191) consists of store managers (71), vice-store managers (22), and floor managers (98) of a Japanese retail chain. The scales used in the study were adapted from previous research (Table 1). Concerning common method bias, we conducted Harman’s one-factor test and applied confirmatory factor analysis (CFA) testing of a model with all of the items loading on a common method factor. Comparing this model with a measurement model containing seven latent variables revealed a significant deterioration in chi-square (χ2 = 378.446; p < .01). This finding suggests that common method bias is not a serious threat in the study. This data was analyzed by following a two-step structural equation modeling approach. First, a CFA was carried out to assess the reliability and validity of theconstruct measures included in the study. In order to evaluate the reliability of the latent variables, composite reliability for all latent variables was calculated. We assess scale reliability using average variance extracted (AVE) and composite reliability (CR). The CR of each scale exceeds 0.80. The AVE of each scale exceeds 0.50. Discriminant validity was evaluated by Fornell and Larcker (1981). We found that the square root of the average variance extracted is greater than all of the corresponding correlations. These findings indicate that reliability and validity of the construct measures was adequate. Second, a structural equation model analysis was done to test the hypothesis. As seen in Figure 2 the SEM model exhibits good overall fit of the model. The results of the model provide several interesting contributions. First, the study shows that centralization has a statistically significant negative impact on formalization in retail chain. Second, the study demonstrates how centralization and formalization are linked to innovation orientation through three dimensions of market orientation. Third, the study demonstrates to retail managers the importance of organizational design and how good market orientation can benefit retailers in their increasingly innovation orientation. For retail chain, centralization and formalization of decision making about merchandising are important for gaining scale advantage. But centralization has negative effect on market orientation. Retail chain has trade – off between scale advantage and market orientation in practice. Overall, our framework demonstrates the effects of organizational structure on market orientation and innovation orientation in retail chain. Thus, our framework shows the direct and indirect impacts that organizational structure has on innovation orientation.