Volume 27 Issue 4 Article 3 December 2025 The Impact of Market and Nonmarket Strategies on Firm The Impact of Market and Nonmarket Strategies on Firm Performance in Lithuania Performance in Lithuania John A. Parnell University of North Alabama, Sanders College of Business & Technology, Florence, USA, jparnell@una.edu Michael W. Davidson University of North Alabama, Sanders College of Business & Technology, Florence, USA Follow this and additional works at: https://www.ebrjournal.net/home Part of the Business Administration, Management, and Operations Commons, International Business Commons, and the Strategic Management Policy Commons Recommended Citation Recommended Citation Parnell, J. A., & Davidson, M. W. (2025). The Impact of Market and Nonmarket Strategies on Firm Performance in Lithuania. Economic and Business Review, 27(4), 221-235. https://doi.org/10.15458/ 2335-4216.1362 This Original Article is brought to you for free and open access by Economic and Business Review. It has been accepted for inclusion in Economic and Business Review by an authorized editor of Economic and Business Review. ORIGINAL ARTICLE The Impact of Market and Nonmarket Strategies on Firm Performance in Lithuania JohnA.Parnell * ,MichaelW.Davidson University of North Alabama, Sanders College of Business & Technology, Florence, USA Abstract This study examines the impact of market strategies (global growth, differentiation, and cost leadership) and nonmarket strategies (political engagement and social responsibility) on rm performance in Lithuania. Based on survey data from 114 managers analyzed using partial least squares structural equation (PLS-SEM) modeling, a global growth/differentiation strategy has a positive impact on performance, whereas cost leadership does not. Nonmarket strategies positively inuence rm performance, with larger rms beneting more, ostensibly due to greater resource availability and institutional inuence. Firm size moderates the relationship between nonmarket strategies and perfor- mance, highlighting the importance of tailoring strategies to an organization’s specic characteristics. By focusing on rm size as a moderating factor, this study offers a nuanced understanding of how rms in Lithuania adapt strategies to align with evolving institutional frameworks and market dynamics. Managers in transitional and recently transi- tioned economies should integrate market and nonmarket strategies effectively while tailoring approaches based on organizational size. Keywords: Nonmarket strategy, Lithuania, Central and Eastern Europe (CEE), Firm size, Firm performance JEL classication: M10, M16 1 Introduction I n established economies, institutional stability pro- vides a foundation for rms to develop and im- plement strategies with condence. The regulatory environment is well-dened, market structures are mature, and institutional voids are minimal, enabling rms to focus on efciency and differentiation. How- ever, transitional economies face challenges due to their evolving market structures and incomplete in- stitutional frameworks (da Silva et al., 2024). Firms operating there must navigate uncertainties, ll insti- tutional gaps, and adapt strategies to dynamic con- ditions. These unique challenges necessitate strategic approaches that balance market-driven goals with nonmarket imperatives, including political engage- ment and corporate social responsibility (CSR). Lithuania, a Central and Eastern European (CEE) country, faces challenges common to other transi- tional economies. Following its integration into the European Union (EU) and its shift from a command to a market economy, Lithuania has undergone rapid economic and institutional changes and is widely con- sidered to have completed the transition. Its geopolit- ical position between East and West further amplies the need for Lithuanian rms to integrate market and nonmarket strategies to remain competitive. Nonmarket strategy (NMS) includes exchanges be- tween rms and external entities mediated by public institutions, governments, nongovernmental organi- zations, and other stakeholders (Baron, 1995). They include political and social activity and can be an essential part of a rm’s overall competitive strat- egy, but their inuence on rm performance is not always evident (Meyer & Peng, 2016; Parnell, 2018). Most published work (e.g., Akbar & Kisilowski, 2018; Funk & Hirschman, 2017; Parnell et al., 2025) reports a positive association between NMS and organizational Received 27 April 2025; accepted 12 September 2025. Available online 1 December 2025 * Corresponding author. E-mail address: jparnell@una.edu (J. A. Parnell). https://doi.org/10.15458/2335-4216.1362 2335-4216/© 2025 School of Economics and Business University of Ljubljana. This is an open access article under the CC BY license (http://creativecommons.org/ licenses/by/4.0/). 222 ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 performance, although Mellahi et al. (2016) identied some exceptions. Moreover, little is known about how market and nonmarket strategies combine to drive rm performance in transitional economies (Akbar & Kisilowski, 2018; Humphreys et al., 2020; Parnell & Davidson, 2024). Although market and nonmarket strategies have been studied individually, their combined impact on rm performance in transitional economies re- mains underexplored. The market–nonmarket nexus is important in countries where rms navigate post- communist economic reforms. Indeed, Lithuania pro- vides a unique context due to its EU integration, its transition from a command to a market economy, and its geopolitical positioning as a bridge between West- ern and Eastern markets. Studying rms in Lithuania offers valuable insights into strategic adaptation in transitional economies. The CEE region is increasingly important economically and geopolitically (Berber et al., 2024; Buˇ ci ¯ unien˙ e, 2018; Istileulova & Peljhan, 2015; Mavreti´ c & Vangeli, 2024; Zhang et al., 2023). Three decades of social, economic, and cultural transition and progress in the CEE region have created a unique setting in these countries to study the applicability and efciency of managerial and market theories (Meyer & Peng, 2005). Strategy–performance research in CEE nations such as Lithuania is limited, and extant work addresses either market or nonmarket strategies, not both. Our study addresses this gap by investigating how both strategy dimensions drive performance in a growing, emerging CEE nation (Akbar & Kisilowski, 2023; da Silva et al., 2024; Humphreys et al., 2020; Parnell & Davidson, 2024). We are studying rm behavior in Lithuania, but we are also pursuing insights that can enhance our understanding of NMS in CEE. Specically, we seek to answer two research questions: (1) How do mar- ket and nonmarket strategies drive rm performance in Lithuania? (2) Does rm size inuence the perfor- mance implications of NMS in Lithuania? Answering these questions will clarify the value of nonmarket activity in more developed CEE nations and sug- gest a possible pathway for transitional economies in the region. Toward that end, we developed a structured survey to investigate market strategies, NMS, and rm performance in Lithuania. We ad- ministered the survey in 2023 to 114 Lithuanian managers. We specify our hypotheses in Section 2 and outline our methodological approach in Sec- tion 3. We present the results in Section 4 and discuss them in Section 5. We close with conclusions, lim- itations, and opportunities for future research in Section 6. 2 Competitive (market) strategy, NMS, and rm performance In transitional economies, where rules can be un- clear, and systems might not be fully developed, NMS is especially important for dealing with the govern- ment and gaining long-term advantages. Simultane- ously, market strategies such as differentiation and global growth enable rms to leverage new oppor- tunities and mitigate the limitations of a relatively small domestic market (Parnell et al., 2024). Hence, our work is grounded in institutional theory, which argues that organizations seek acceptance and legit- imacy as much as (if not more than) efciency and effectiveness (DiMaggio & Powell, 1983; Meyer & Peng, 2005). Market strategies are crucial to a rm’s activity in market economies. Strong institutions undergird this process because rms do not compete aggressively unless they understand the “rules of the game” and how the rules will be enforced. Institutional theory also underpins NMS in several ways. Specically, it highlights institutional roles in establishing rules and creating the context for competitive markets, thereby incentivizing rms to focus on market factors such as costs, product and service quality, and customer satis- faction. In contrast, a lack of institutional clarity forces rms to identify and negotiate the norms that govern their behavior. However, excessive government inter- vention in markets can contribute to inefciency and corruption (Bartels & Weiss, 2019), particularly when it is cumbersome and ill-dened. New institutional economics (NIE) explains how social norms and regulations inuence rm behavior and, ultimately, performance (Dorobantu et al., 2017). Sound institutions minimize the potential benets of circumventing the market. However, where institu- tions are ineffective or incomplete, markets are less efcient, and many rms turn to nonmarket activity to ll the void (Jianhua et al., 2019; Manikandan & Ramachandran, 2015). Research on market strategies in transitional economies has shown positive performance rela- tionships, as noted in previous studies (Humphreys et al., 2020). However, specic studies have revealed exceptions and contextual moderators (Mavreti´ c & Vangeli, 2024; Parnell et al., 2024). Our research builds upon existing studies by integrating market and nonmarket strategies, while introducing rm size as a moderating factor. 2.1 Market strategy and rm performance Differentiation allows rms to create unique cus- tomer value, command premium prices, and enhance ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 223 protability and performance. Scholars have found a positive relationship between differentiation and rm performance, particularly in dynamic and competi- tive international markets. Differentiation and global expansion can be important performance drivers in economies with institutional voids. They enable rms to transcend the limitations of small or un- stable domestic markets by expanding into larger, more stable external markets. Product differentiation helps overcome institutional inefciencies by creat- ing unique value that is not easily undermined by regulatory uncertainty. However, institutional insta- bility can reduce the effectiveness of these strategies by increasing transaction costs, making cross-border operations more complicated, and reducing rms’ ability to maintain competitive advantages. Firms engaging in global markets benet from larger market bases, diversied risks, and enhanced innovation capabilities, which contribute to superior performance. Scholarship on the strategy– performance relationship in CEE—specically, Lithuania—has produced ndings like those in other Western nations. In transitioning economies such as Lithuania, leveraging unique product offerings and expanding into global markets can be effective due to the limited size of the home market and intense competitive pressures. Schuh (2014) observed that successful local CEE enterprises primarily adopted strategies emphasizing lower costs and higher quality. Broad cost leaders seek to satisfy the needs of most or all customers in the marketplace. They of- ten use lower prices to increase market share and protability. The efciency perspective suggests that rms achieving economies of scale and cost reduc- tions enjoy higher protability (Kharub et al., 2019). Empirical studies support the link between cost lead- ership strategies and rm performance, with rms achieving process efciencies after enjoying higher protability. In transitioning economies, cost lead- ership can be vital due to cost-sensitive consumer markets and the need to compete with international players on price. Continuous investment in process improvements and risk management is required to avoid diminishing returns on cost reductions. Balanc- ing cost leadership and quality maintenance ensures that cost reduction efforts do not harm product or service quality, which would affect the rm’s brand and long-term performance (Kharub et al., 2019). Given these ndings, we propose the following hypotheses: H1a: Firms emphasizing cost leadership will experience improved performance. H1b: Firms emphasizing global growth and differentia- tion will experience improved performance. 2.2 NMS and rm performance Firms engage in nonmarket activity for various rea- sons. NIE suggests rms in transitional economies must balance efciency-driven market strategies with legitimacy-oriented NMS. This dual focus is crucial for navigating institutional voids and leveraging new market opportunities (Dorobantu et al., 2017). While rms in developed economies leverage po- litical nonmarket techniques to sway policy and regulation, those in transitional markets utilize these strategies to bridge institutional voids (Rodgers et al., 2019). Corruption facilitates political NMS by creating an environment where political intervention is possi- ble and rewarded (Damijan, 2023). Despite a general reduction in corruption levels within CEE follow- ing EU integration, corruption remains a signicant concern, particularly regarding EU funding (Grigore et al., 2021; Porenta, 2017). Social NMS include a range of social interven- tions, including the pursuit of social responsibility. The impact of CSR and other social NMS has been well researched, with most studies suggesting a pos- itive CSR–performance link (Bialkova & Te Paske, 2021). However, the symbiotic relationship between political nonmarket activity and rm performance is more complicated (Kamasak et al., 2019; Rajwani & Liedong, 2015). Research on nonmarket orientation in CEE is lim- ited, but there are notable studies, especially regard- ing CSR. Horváth et al. (2017) examined CSR practices in CEE by replicating a study from the United States and Western Europe. The variability in CSR engage- ment across CEE (see also Balogh & Mizik, 2022) reects a broader trend of inconsistency, mirroring the complexity of consumer perceptions towards CSR in regions such as Lithuania and Poland (see Adamkaite et al., 2023; Dyduch & Krasodomska, 2017; Hinˇ cica et al., 2022). Kovaliov and Streimikiene (2008) examined the improvement of public sector CSR, trends in CSR, and collaborations between companies and public authorities in Lithuania. They found that Lithuanian towns need better CSR awareness due to a lack of expertise, information, and nancial and human resources for implementation, which they attributed to limited government engagement. Thus, the government worked to mandate and facilitate CSR initiatives, rather than partnering with or endorsing rms. Kovaliov and Streimikiene (2008) suggested that public authorities improve CSR partnerships and endorsements. Banyt˙ e and Gadeikien˙ e (2008) identied a strate- gic shift in CSR practices in Lithuanian companies from customer acquisition to retention, driven by technological advancements and globalization. This 224 ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 transition highlights CSR as an evolving compet- itive tool. Conversely, Kovaliov and Streimikiene (2008) noted a lack of CSR awareness in Lithuania, attributing this to limited government engagement and resource constraints. Their recommendation for enhanced public–private partnerships supports the need for a collaborative approach to bolster CSR initiatives. Despite previous studies, more scholarship on so- cial NMS in CEE is needed (Grigore et al., 2021). Additionally, the relationship between NMS and rm performance, especially in the context of political strategies, is complex. Rodgers et al. (2019) link the value of political NMS to the unique challenges faced by emerging economies, including corruption and in- stitutional voids. Still, Rajwani and Liedong (2015) suggest that these strategies can enhance rm perfor- mance. However, the potential for negative repercus- sions on reputation calls for a nuanced understanding and strategic deployment of NMS (Kamasak et al., 2019). The strategic development of an integrated NMS is essential for rms operating in transitional economies, such as Lithuania. By effectively managing social and political interactions, rms can enhance competitiveness and achieve superior performance outcomes. This hypothesis emphasizes the importance of coordinated NMS in navigating the dynamic business environment of transitional economies, where institutional frameworks are in ux. By leveraging social responsibility and political engagement, rms in Lithuania can optimize their strategic positioning and drive sustainable growth. H2: Emphasis on nonmarket strategies (i.e., politi- cal engagement and CSR) will positively impact rm performance. 2.3 Organizational size and rm performance Firms vary in size, resources, and ambitions (López- Fernández et al., 2011). They reside in different stages of the organizational life cycle and pursue various strategies (Desai, 2013). Size variance is not merely a reection of the company’s market presence but can also be indicative of its capacity to access critical re- sources, which in turn shapes its strategic choices and performance outcomes (Lafuente et al., 2020). Large rms have greater access to critical resources, which ultimately affects their strategic choices and perfor- mance. The resource-based view (RBV) suggests that a rm’s resources and capabilities are the primary drivers of performance (Barney, 2001; Bonardi, 2011). Larger rms have more extensive nancial, human, and relational resources, which enable them to ex- ecute both market and nonmarket strategies more effectively. On the other hand, smaller rms may compensate with agility and unique capabilities (Par- nell & Brady, 2019). In this study, RBV provides a lens to understand why rm size may moderate the strategy–performance relationship. However, the relationship between organizational size and rm performance is complex. An analysis of 54,000 rms in 17 industries in 21 European countries found that large enterprises outperformed smaller ones across the continent. In Eastern Europe, smaller enterprises tend to outperform their larger counter- parts (Gaio & Henriques, 2018). This discrepancy highlights the complexity of the size–performance re- lationship, highlighting how regional differences and possibly sector-specic dynamics can inuence rm performance outcomes. Indeed, the relationship between organizational size and rm performance is complex and shaped by many factors, including access to resources, strategic choices, and regional dynamics (Kalkan et al., 2011). While larger rms enjoy certain advantages stem- ming from their size, many smaller European rms can and do compete effectively, particularly in East- ern Europe. While organizational size is positively associated with rm performance due to resource ad- vantages, this relationship is moderated by the rm’s ability to strategically leverage those resources in both market and nonmarket domains. Relative organizational size—a rm’s size com- pared to its rivals—also impacts the choice and impact of NMS, reecting the rm’s adaptability and strategic focus. The relationship between or- ganizational size and rm performance, especially when considering NMS, suggests a complex interplay of factors. This complexity for rms in traditional economies such as those in CEE highlights the need for a strategic approach that aligns market and non- market strategies with the rm’s size and capabilities. Smaller rms can capitalize on their agility and lo- cal networks, while large rms can leverage their resource base to engage in effective nonmarket strate- gies that complement their market actions (Kalkan et al., 2011; Lafuente et al., 2020; Parnell et al., 2024). Large rms enjoy greater access to critical re- sources, which facilitates strategic and performance advantages; however, the relationship across regional contexts is more complex. Many studies have de- picted a positive correlation between organizational size and performance (Gaio & Henriques, 2018), al- though this link is often mediated by factors such as strategic, technological, and other considerations. Hence, we proffer the following hypotheses: ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 225 H3a: Firm size will positively correlate with rm performance. H3b: Relative organizational size will moderate the re- lationship between NMS and rm performance, with larger rms deriving greater benets. Having established the theoretical rationale and hy- potheses regarding market and nonmarket strategies, we shift our focus to the methodology. In the follow- ing section, we outline our data collection approach, measurement methods, and the use of partial least squares structural equation modeling (PLS-SEM) to test these relationships. 3 Methods The hypotheses elaborated in the previous section are summarized in Fig. 1. We measured relative rm size by asking respondents to compare the size of their rms to competitors on a scale of one (very small) to ve (very large; see Oleksiuk & Rull Quesada, 2023). We also asked respondents to provide the number of employees for their rms. As a robustness check, we employed analysis of variance (ANOVA) to assess the link between the size category and relative size. As expected, relative rm size was the lowest for rms with fewer than ten employees (i.e., microenterprises) and highest for rms with more than 500 employees (i.e., large enterprises). The F value was signicant at the .01 level, conrming the validity of relative rm size as a useful measure for the study. We assessed each strategy dimension with three- item Likert scales based on previously validated work by Kellermanns and Eddleston (2006) and Parnell (2021). Because of the overlap between political and social dimensions, we treated NMS as a single con- struct (Humphreys et al., 2020; Parnell et al., 2025). For example, respondents were asked to select the extent to which they agree with a statement about pursuing opportunities outside their home countries (see Table 1). Table 1 displays the scale items for construct measurement, along with explanations of the item relationships to the hypothesis statements. The as- sessment of rm performance used self-reported competitor-based metrics instead of nancial data to maintain respondent condentiality and promote honest responses. The research team combined re- sponses from multiple managers at the same rm through item averaging before eliminating any evi- dence of duplicate or poor-quality responses. The pri- mary control variable used in this study was rm age. Unfortunately, we lacked sufcient data to perform a reliable subgroup analysis due to the limited sample size and the inuence of industry, ownership, and regional factors. The theoretical model included rm size as a moderator, rather than using it as a control variable, because it played a central role in the model. We evaluated nancial, nonnancial, and overall dimensions of performance. Although most stud- ies focus on nancial performance, some also con- sider nonnancial measures (Hillman & Keim, 2001; Fig. 1. Hypotheses. 226 ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 Table 1. Reective measures. Item Loading Content Broad cost leadership (aD .675, composite reliabilityD .808, AVED .590) Broad 0.599 Focus on a broad group of customers (recoded) Cost 0.88 Minimizing costs Prot 0.898 Maximizing prots Global growth & differentiation (aD .594, composite reliabilityD .776, AVED .537) Global 0.693 Pursuing opportunities outside of our home country Growth 0.682 Growing the organization Unique 0.817 Producing unique goods and services Nonmarket strategy (NMS;aD .707, composite reliabilityD .829, AVED .621) Str_CSR 0.86 Promoting social responsibility Str_Govt 0.666 Working closely with governments, politicians, and regulators NMS_Overall 0.824 Overall, seeking to improve performance through social, community, political, and government activities Firm performance (aD .817, composite reliabilityD .891, AVED .732) Financial 0.848 Financial performance Non-Financial 0.798 Nonnancial performance Overall Perf. 0.915 Overall rm performance Shireesh, 2018) such as employee satisfaction (Bam- berger et al., 2021), service satisfaction (Rew et al., 2020), and capability development (Köseoglu et al., 2013; Parnell, 2021). Although we distinguish be- tween nonnancial and nancial performance, most studies support a positive correlation (Otto et al., 2020). Moreover, customer satisfaction can mediate the strategy–performance link (Kessler et al., 2020). We used the Prolic platform and contacts through three chambers of commerce to survey 114 Lithuanian managers and other professionals. 1 Our approach was not purposive and was designed to secure re- sponses from a broad array of rms. We removed responses with more than 10% missing data or ev- idence of straightlining, as well as those that were completed too quickly. Table 2 provides a summary of the respondents and their organizations. Table 2. The sample (nD 114). Variable n % Position Supervisory managers 52 45.6 Middle managers 28 24.6 Top management 23 20.2 Other professionals 11 9.6 Gender Male 46 40.4 Female 68 59.6 Firm size Micro (1–10 employees) 12 10.5 Small (11–50 employees) 24 21.1 Medium (51–250 employees) 27 23.7 Large (251+ employees) 51 44.7 Market strategies were measured with previously validated items for global growth/differentiation and cost leadership, while NMS was operationalized based on CSR and political engagement activities (see Parnell, 2018). Firm performance included nan- cial and nonnancial indicators, assessed via self- reported measures (Hillman & Keim, 2001). We tested the hypotheses with PLS-SEM via Smart- PLS version 4. We used PLS-SEM because it does not require a normal distribution of data and can process complex models with modest sample sizes (Hair et al., 2020; Sarstedt et al., 2021). We used rm age as a control variable. We followed accepted guidelines to assess the measurement and structural models (Hair et al., 2024; Ngo & Yang, 2023). The constructs were measured reectively. Reliabil- ity and validity were assessed with the PLS algorithm (see Table 1). Item loadings did not exceed .700 in four instances. Cronbach’s alpha scores (Nunnally, 1978) did not exceed .700 in two cases. However, composite reliability exceeded .700 (Hair et al., 2024), and aver- age variance explained (AVE) scores exceeded .500 for all constructs (Ashill et al., 2005). The latter two mea- sures are important because three-item scales were employed with a modest sample size. Coefcient al- pha scores favor large scales, but AVE scores do not. Eliminating an indicator to increase the alpha was not a viable option because the lowest loading was .599, and maintaining a minimum of three items in each scale is preferred. The heterotrait–monotrait (HTMT) output shown in Table 3 suggests discriminant validity in all 1 The Prolic platform does not include respondents who claim ofcial residence in Lithuania. When surveyed, however, few respondents afliated with other CEE countries reported Lithuanian citizenship and residency. These respondents were included in the sample if they met other criteria. The nal sample includes 45 responses from Prolic and 69 from chambers of commerce. ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 227 Table 3. Heterotrait–monotrait (HTMT) ratio. Broad cost Firm Firm Global Org. size leader. age perform. growth & differ. NMS Org. size x differ. Broad cost leadership n/a Firm age 0.023 n/a Firm performance 0.177 0.069 n/a Global growth & differ. 0.281 0.103 0.391 n/a Nonmarket strategy 0.227 0.093 0.455 0.287 n/a Organizational size 0.143 0.220 0.142 0.106 0.104 n/a Org. size x differentiation 0.117 0.080 0.410 0.147 0.305 0.057 n/a constructs; all HTMT values were below 0.85. In ad- dition, none of the condence intervals include the corresponding threshold values (Franke & Sarstedt, 2019; Kline, 2011). We applied three additional tests to evaluate the data. The variance ination factor (VIF) scores were below 3.0 for all items, suggest- ing collinearity is not a substantial concern. The data passed Harman’s single-factor test, although recent research suggests results from the test are insuf- cient when evaluating common method bias (CMB; Howard et al., 2024). We also assessed factor-level VIF scores, which were below 3.3 in all instances, suggest- ing the model is relatively free from CMB. 4 Results We tested the hypotheses with bootstrapping (10,000 subsamples) in SmartPLS version 4. We used Cohen’s benchmarks of 0.02 (small), 0.15 (moderate), and 0.35 (large) to evaluate effect size. The path model in Fig. 2 provides the path coefcients, p values, and the R 2 value (.306) for the model. Table 4 provides the results of the hypothesis tests, including effect sizes. The rst hypothesis was partially supported. A rm’s emphasis on cost leadership (H1a) was not as- sociated with rm performance, but a positive link between global growth and differentiation on the one hand (H1b) and rm performance on the other was identied. The second hypothesis (H2) was supported. An em- phasis on NMS was positively associated with rm performance, with an effect size of 0.104. The third hypothesis was partially supported. Or- ganizational size (H3a) was not associated with rm performance. However, organizational size moder- ated the relationship between NMS and rm perfor- mance (H3b) with an effect size of 0.113. Table 5 maps each hypothesis to its support level, effect size, and the corresponding strategic recommendation. Fig. 2. Results. Note. The lines include path coefcients and p values. H1b, H2, and H3b were supported. 228 ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 Table 4. Tests of hypotheses. Hypothesis Original Sample Sample mean SD t p Support f 2 H1a: Cost lead. > Firm performance 0.188 0.176 0.137 1.368 .171 no 0.048 H1b: Global growth diff. > Firm performance 0.197 0.209 0.088 2.246 .025 yes 0.053 H2: NMS > Firm performance 0.285 0.289 0.095 3.005 .003 yes 0.104 H3a: Org. size > Firm performance 0.107 0.102 0.087 1.225 .221 no 0.015 H3b: Org. size x NMS > Firm performance 0.282 0.272 0.095 2.957 .003 yes 0.113 n/a: Firm age > Firm performance 0.009 0.009 0.079 0.109 .913 n/a 0.000 Signicant at .05 level. Table 5. Summary of hypotheses, evidence, effect size, and strategic recommendations. Hypothesis Support level Effect size (f 2 ) Key nding Strategic recommendation H1a: Firms emphasizing cost leadership will see signicant performance improvement. Not supported Very small ( 0.01) Cost leadership showed no signicant link to rm performance. Competing on price alone is not sustainable in Lithuania; focus on quality and differentiation instead. H1b: Firms emphasizing global growth and differentiation will experience improved performance. Supported Moderate ( 0.08) Differentiation and global growth are positively linked to rm performance. Invest in R&D and product innovation; expand into global markets to mitigate domestic market limits. H2: Emphasis on nonmarket strategies (corporate social responsibility [CSR] & political engagement) will positively impact performance. Supported Moderate (0.104) Nonmarket strategies (particularly CSR) strongly enhance legitimacy and performance. Develop CSR initiatives, strengthen stakeholder relationships, and selectively engage in political activity. H3a: Firm size will positively correlate with performance. Not Supported Negligible Firm size was not directly associated with higher performance. Larger rms should not assume size guarantees success; smaller rms can outperform through agility and local knowledge. H3b: Firm size moderates the relationship between nonmarket strategies and performance, with larger rms beneting more. Supported Moderate (0.113) Larger rms leveraged nonmarket strategies more effectively due to greater resources and inuence. Large rms should invest in structured CSR and political engagement; SMEs should focus on targeted, low-cost CSR tactics. As a robustness check, we ran two additional mod- els from the NMS measure. One eliminated STR_CSR from the NMS measure, and the other eliminated STR_Govt. None of the p values changed signicance in these models, suggesting that a composite NMS measure that includes political and social items was suitable for the study. 5 Discussion The positive performance effect of global growth and differentiation, but not cost leadership, is note- worthy. Given the limited effectiveness of cost lead- ership in transitional economies, managers should prioritize differentiation and global growth strategies, investing in research and development (R&D) and innovation to enhance competitiveness. The former enables rms to access new markets and customer segments, offering products or services that stand out from competitors. This pursuit can lead to pre- mium pricing, higher customer loyalty, and improved rm performance. In the CEE context, success in these strategies is driven by unique market dynamics, where consumers may favor innovative or differen- tiated offerings over standard local options (Brenes et al., 2014). The positive direction of the link suggests that cost leadership may generate performance benets under specic circumstances, although the relationship was not statistically signicant. Differentiation and global growth have a more substantial impact on perfor- mance than cost leadership strategies. The focus on quality and innovation, rather than low-cost compe- tition, is driven by changing consumer preferences and enhanced institutional systems resulting from EU integration (Akbar & Kisilowski, 2018; Buˇ ci ¯ unien˙ e, 2018; Gaio & Henriques, 2018). Our ndings support Schuh (2014), who demonstrated that cost leader- ship is most effective in markets where prices are the primary decision factor, but becomes less effective when institutions begin to favor innovative and more sophisticated business approaches. Cost leadership ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 229 remains relevant, but with minimal inuence due to environmental elements and institutional aspects. RBV predicts that larger organizations obtain better access to nancial resources, institutional power, and network capabilities, which should result in better performance outcomes. Research in CEE and institu- tional theory suggests that rm size does not neces- sarily determine performance, as smaller businesses can outperform larger ones through their ability to respond quickly, maintain strong relationships with stakeholders, and minimize organizational barriers (Lafuente et al., 2020). Firm size, by itself, does not enhance performance, but becomes relevant when or- ganizations employ NMS. The combination of CSR and political engagement strategies proved more ef- fective for large rms, as they had more resources. In contrast, smaller businesses demonstrated better re- sults through their ability to adapt quickly and create specialized CSR approaches. Hence, size inuences how strategies produce performance results, but it is not a direct indicator of performance. Global growth and differentiation positively inu- ence performance by expanding market reach and leveraging competitive advantages. A positive link between cost leadership and performance might be found with a larger sample size. Still, its lack of sig- nicance reects the challenges of competing solely on price in transitional economies, where consumer preferences often prioritize quality and innovation. NMS, particularly CSR, enhance rm legitimacy and stakeholder trust. However, the impact of political engagement may be contingent on mitigating per- ceptions of corruption, a legacy issue in many CEE economies (Grigore et al., 2021). Concerning moderation, larger rms tend to benet more from NMS due to their greater resource avail- ability and inuence. Smaller rms, while agile, may lack the capacity to leverage such strategies fully. This nding is consistent with work in Western contexts (Parnell & Brady, 2019; Rajwani & Liedong, 2015). The effect size (f 2 D 0.113) for moderation was the highest in the model, underscoring the importance of size in NMS efcacy. Although only guidelines exist for using effect sizes to infer practical meaningful- ness, an f 2 value that exceeds 0.10 in a model with an R 2 value that exceeds .30 warrants serious consider- ation, depending on the constructs and context (Fey et al., 2023). Hence, we are not suggesting that large rms should pursue NMS, but that opportunities for success increase as rms grow. Firms should also con- sider costs and risks of a nonmarket intervention, as well as the extent to which it integrates with existing strategic activity. For CEE rms, embracing global growth entails navigating a diverse array of political, regulatory, cultural, and competitive landscapes (Mavreti´ c & Vangeli, 2024). Successful differentiation hinges on understanding and leveraging consumer preferences, which can vary signicantly across regions. Firms that effectively tailor their offerings to meet specic market needs can achieve competitive advantage. However, the shift towards global markets and dif- ferentiation requires change, including adopting so- phisticated market strategies, investment in research and development, and cultivating a global market mindset. These strategies can drive rm innovation, enhancing overall competitiveness. The positive link between NMS and rm per- formance yielded the largest strategy–performance effect size (f 2 D 0.104) in the study, suggesting that nonmarket activities are a stronger driver than market strategies. Firms in CEE are beginning to recognize the importance of nonmarket initiatives in achieving their sustainable growth goals, treating them as in- vestments rather than expenses. Indeed, NMS is a worthwhile consideration. Social NMS can also be used in consumer interac- tions to distinguish a company’s goods and services in advantageous ways (Cegli´ nski & Wi´ sniewska, 2016), particularly among Generation Z consumers (Botezat et al., 2024). However, rms seeking social NMS to improve their strategic position should con- sider how their target audiences react to such an intervention (Li et al., 2019). Relationships with gov- ernmental actors, who are becoming more active in mandating specic social behaviors and quotas from businesses, are also facilitated by NMS. As a result, they may be used as a tool to build legitimacy through admirable business behavior. However, NMS can be expensive, so a cost–benet analysis evaluating the social interventions’ volume and impact is essential (Kamasak et al., 2019). While the strategic benets of NMS are evident, rms must carefully consider associated costs (Li et al., 2019). Whether investing in CSR projects or al- locating resources to political intervention, assessing the return on investment is essential. Firms should weigh immediate nancial impacts against long-term benets related to reputation, customer loyalty, and regulatory advantages. Moreover, rm performance hinges on integrating market pursuits with CSR and political engagement activities. This integrated ap- proach is evident in CEE, where societal expectations and regulatory demands are evolving rapidly. Align- ing market and nonmarket strategies enables rms to create synergies that enhance their strategic position. Global growth, differentiation, and NMS collec- tively drive rm performance in a multifaceted manner. Navigating these complexities involves un- derstanding the CEE context, strategically aligning 230 ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 market and nonmarket activities, and assessing costs and benets. A holistic approach to strategy for- mulation and execution can enhance performance and promote societal and environmental outcomes (Scherer et al., 2016). The ndings reinforce the strategic relevance of differentiation and global market expansion, as well as the applications of generic strategies to Lithuania and the CEE region (see Otto et al., 2020; Parnell, 2018). Managers should develop unique products and market expansion activities that align with global standards to leverage competitive advantage (Basco et al., 2021). Additionally, the strategic importance of NMS, particularly in regulatory compliance and social engagement, is underscored, supporting their integration into corporate strategies to enhance cor- porate reputation and operational efciency (Baron, 1995). Cultural differences can signicantly impact prod- uct acceptance, branding strategies, and advertising effectiveness in the context of market strategies. They can also shape stakeholder expectations, government relations, and CSR initiatives. The societal values and norms prevalent in CEE nations inuence attitudes toward environmental sustainability, ethical business practices, and corporate citizenship. Firms must nav- igate these cultural dynamics carefully to ensure that their nonmarket activities align with societal expecta- tions and contribute positively to their reputation and legitimacy. Furthermore, the economic challenges faced by CEE nations underscore the complexity of the strate- gic landscape. Many scholars no longer view Lithua- nia as a transitional economy. Indeed, economic disparities among CEE countries and ongoing tran- sitions from centrally planned to market-oriented economies present diverse market conditions and regulatory environments. CEE rms should adapt their strategies to address these challenges while capitalizing on emerging opportunities for growth and investment. The cultural and economic diversity within CEE nations poses multifaceted political and social challenges and opportunities for rms seek- ing to integrate market and nonmarket strategies (Adamkaite et al., 2023; Damijan, 2023). By under- standing and addressing these cultural and economic dynamics, rms can enhance their strategic agility, mitigate risks, and capitalize on unique advantages in CEE. However, further research is needed to explore the specic implications of cultural and economic di- versity on rm strategy and performance in the CEE context. The resurgence of CEE on the global stage is un- derscored by its strategic geographic location, which facilitates trade with Western Europe, the Middle East, and Asia. This advantage is bolstered by im- proved infrastructure and enhanced integration with the EU, thereby strengthening the region’s social, political, economic, and military cohesion (Vienna Institute for International Economic Studies, 2021). With a signicant scale (e.g., population, land area, and GDP), coupled with developing economies, CEE presents a fertile ground for examining the efcacy of market and nonmarket strategies. However, rms operating within the CEE region, including Lithuania, encounter unique challenges, notably the lingering effects of corruption from the post-communist transi- tion. This historical baggage complicates interactions with government agencies and ofcials, potentially tarnishing rm reputations and undermining con- sumer relations and nancial performance (Organi- sation for Economic Co-operation and Development, 2024). The prevalent mistrust in political entities’ abil- ity to address societal issues prompts businesses to seek improvement through private efforts, emphasiz- ing the strategic value of social NMS in building trust and enhancing performance. Our study makes several theoretical contributions. First, the ndings support an institutional perspective by illustrating how rms in transitional economies balance the pursuit of efciency-driven market strate- gies with legitimacy-oriented NMS. Second, they extend RBV by demonstrating how large rms can leverage NMS more effectively for performance ben- ets. Finally, they suggest that market and nonmar- ket strategies combine to promote—and sometimes hinder—rm performance. It highlights the need for additional theoretical work that accounts for these interactive effects. We identied several practical implications. First, managers should decide whether and how to com- bine market and nonmarket approaches, aligning strategies that highlight their strengths (Meyer & Peng, 2005; Zhang et al., 2020). Moreover, they should recognize the importance of tailoring NMS to their organizations’ specic characteristics and resource ca- pabilities. Doing so involves assessing the rm’s size, market position, and stakeholder expectations to de- termine which nonmarket activities are most likely to yield positive outcomes. Table 6 provides a decision matrix to help rms navigate the balance between market and nonmar- ket strategies, including proposals for different rm sizes. Second, organizations should invest in building organizational capabilities related to NMS formu- lation and execution, including expertise in CSR, government relations, and stakeholder management. Enhancing such capabilities can enable rms to lever- age NMS to achieve their goals effectively. ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 231 Table 6. Decision matrix: market and nonmarket strategy (NMS) choices by rm size. Primary When to prioritize Managerial Firm market When to prioritize differentiation/ guidance/metrics size strategy cost leadership global growth Supporting NMS (KPIs) Small ( 50 employees) Agility- focused Price-sensitive domestic market segments Limited R&D funding Competing against low-cost imports Niche products Leverage unique local knowledge Export readiness for small but high-value markets Corporate social responsibility (CSR; low-budget): local community engagement, customer trust-building Political engagement: limited; leverage local chambers or associations Customer satisfaction scores Local stakeholder trust metrics Cost efciency ratio Medium (51–250 employees) Balanced growth Entering cost-sensitive B2B supply chains Process efciencies through lean operations Expanding regionally/EU Product customization and service differentiation CSR: employee retention programs, sustainability reporting Political engagement: selective lobbying for industry-friendly policies Employee retention/turnover Stakeholder interaction index Innovation milestone tracking Large (> 250 employees) Leverage resources Commoditized industries where scale drives margins Ability to spread xed costs Innovation-driven global expansion Premium branding opportunities CSR: formal environmental, social, and governance (ESG) initiatives, global sustainability standards Political engagement: structured government relations, EU compliance inuence Regulatory compliance scores ESG reporting standards Market share growth R&D ROI on projects undertaken Third, rms should regularly monitor and eval- uate the impact of their nonmarket strategies on rm performance to identify areas for improvement and adjust as needed to maximize their impact. This involves establishing key performance indica- tors (KPIs) related to nonmarket activities and track- ing their progress. Managers should stay informed about changes in the regulatory and political land- scape that may affect their nonmarket activities. This includes monitoring local, national, and international developments that could impact government regula- tions, public policies, and stakeholder expectations. Firms can better anticipate and respond to emerging nonmarket challenges and opportunities by staying proactive and adaptive. 6 Conclusion, limitations, and future directions Our ndings suggest that Lithuanian rms can in- tegrate market and nonmarket strategies to enhance performance, but social NMS creates more value than political NMS. Global growth and differentiation pos- itively inuence performance, but cost leadership does not. Our ndings highlight the inuence of orga- nizational size on the effectiveness of NMS, indicating that the benets of NMS vary with rm size. Organi- zational size moderated the NMS–rm performance relationship, which underscored the importance of aligning NMS with organizational factors. This ob- servation emphasizes the strategic imperative for Lithuanian businesses to tailor NMS to their specic characteristics and resource capabilities, thereby nav- igating their competitive landscape more effectively. This study highlights the strategic interplay of market and nonmarket strategies in transitional economies. Our ndings underscore the need for tai- lored approaches based on rm size and resource capabilities. They suggest managers should inte- grate NMS to build legitimacy and stakeholder trust. Larger rms should consider leveraging their re- sources for political engagement, whereas smaller rms should focus on agility and local market expertise. We identied several limitations. First, we guar- anteed respondent anonymity and assessed rm performance with self-typing scales (Ramanujam & Venkatraman, 1987). This approach encourages par- ticipation and provides a unique perspective on rm behavior (McGahan & Porter, 1997); however, objec- tive performance measures can also offer a critical lens (Chang et al., 2010; Podsakoff et al., 2003). We sought to obtain only one response from a given organization, but overlap is possible. Moreover, self-reported performance measures and reliance on single-country data can limit generalizability. Second, the use of Prolic and chambers of com- merce for data makes it possible for an organization to be represented more than once in the survey. The chamber invitations were sent to one representative in each member organization. A close review of the 232 ECONOMIC AND BUSINESS REVIEW 2025;27:221–235 responses conrms that no individual who completed a survey through a chamber also completed one through Prolic. An analysis of company details in data collected through Prolic suggests a low like- lihood that any rm was represented twice, but we cannot eliminate the possibility of such an occurrence. It also suggests some degree of representativeness of the sample, but we cannot conrm a high level. Third, this study does not consider possible indus- try inuences on performance (Audretsch & Keilbach, 2004; Park & Jang, 2010). Obtaining suitable sam- ples for a given industry, especially in Lithuania, is challenging. We mitigated this shortcoming by asking respondents to evaluate their strategies and performance relative to their competitors. Nonethe- less, sector membership could inuence the results (Jia et al., 2023). Fourth, rms sometimes conceal their strategic goals from stakeholders, making it challenging for scholars to comprehend NMS and understand how market strategies impact performance (Jia et al., 2023). Research about NMS has become more sophisticated (Wu et al., 2020), but this problem remains. We relied on management reports to help us distinguish be- tween market and nonmarket activity; however, this approach did not entirely resolve the issue. Finally, we did not distinguish between social and political NMS. Political NMS includes interaction and exchanges with political institutions and actors that benet the rm (Hillman et al., 2004; Weber et al., 2023). Social NMS includes activities that signal social impact through assertive stakeholder management (Brulhart et al., 2019; Foss & Klein, 2018) and phil- anthropic initiatives (Amsami et al., 2020). Social and political NMS are related but can be linked to strategy and performance in different ways. Our research suggests that Lithuanian rms can leverage integrated market and nonmarket strategies to enhance performance, with social NMS emerging as a particularly potent lever for sustainable growth. This shift in strategic thinking positions CSR initia- tives as integral investments, extending beyond mere compliance or philanthropy to become core compo- nents of rms’ strategic arsenals (Hin ˇ cica et al., 2022; Stawicka, 2017). The emphasis on social NMS, par- ticularly in consumer interactions and CSR, reects a growing awareness among rms of the strategic value of social responsibility and ethical business practices in building brand differentiation and cultivating con- sumer trust. We identied several future research directions. First, more work is needed to explain how size mod- erates the NMS–performance nexus. Exploring how CEE rms navigate the integration of market and nonmarket strategies and how intra-CEE cultural and economic diversity shapes them will provide valu- able insights into the strategic nuances of operating in transitional economies (Parnell et al., 2025). Second, we asked respondents about their rms’ market and nonmarket activity, although distinguish- ing between them is challenging. Moreover, the extent to which a rm should integrate different nonmar- ket approaches into a comprehensive NMS is unclear (Scherer et al., 2016). The short- and long-term costs of market and nonmarket intervention are well under- stood, but their long-term performance consequences are not (Funk & Hirschman, 2017; Mellahi et al., 2016). Longitudinal studies are needed (Humphreys et al., 2020). Third, we evaluated the views of managers and pro- fessionals within the organization, rather than those of other stakeholders or objective nancial data (Jia et al., 2023; Vredenburg et al., 2020; Yim, 2021). Assess- ing the views of diverse stakeholders regarding NMS can help explain their impact on rm performance (Otto et al., 2020; Parnell, 2018). 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