Entering a foreign market is an important strategic decision for any company to make. Obvious economic benefits such as larger market share and greater profitability need to be carefully balanced against lack of knowledge of the local market, unfamiliar cultural values as well as different legislative environments.
As would be expected and as research has shown, organizations dealing with these uncertainties seek to increase their own chances of survival by following the practices and strategies of the more established or "legitimate" firms in the market. A recent award-winning project conducted by the University of Hong Kong, the Chinese University of Hong Kong and Kobe University in Japan, took this concept further forward by examining the interdependent foreign market entry decisions made by multi-national corporations (MNCs).
Discussing the project, principal investigator Dr Christine Chan of the University of Hong Kong said, "In our study we specifically examined two issues – the extent to which the prior entry and exit decisions of other MNCs influence the subsequent entry decisions of an organization, and the extent to which an MNC's own prior entry and exit decisions influence its subsequent entry decisions."
"Our study differs from previous research in a couple of ways. Providing a more comprehensive understanding of the situation, our research focuses on interdependent market entry decisions in multi-level institutional environments. We looked at the host country; the global industry defined as an industry that spans host countries; local industry as an industry that is separately defined within each host country; and the parent firm seen as a firm with a network of foreign operations that are under common control and ownership. Previous research in this area has focused primarily on one particular industry or a single host country."
"Our study also differs from others in that it examines both prior entry and exit decisions as determinants in foreign market entry decisions. Although recent studies have focused on the role of prior entry decisions in influencing subsequent market entry decisions, they have ignored the effects of prior exits."
The study was based on a sample of 4,349 subsidiaries established by eight leading Japanese electronic firms over ten years from 1988 to 1998. It covered 110 countries, 18 global industries and 1,980 local industries. The results supported the study's hypotheses that the number of prior entries and exits made by MNCs in the market have an inverted U-shaped relationship to an organization's decision to enter the market. The establishment of an