Academic journal article Management International Review

Profitability and Speed of Foreign Market Entry

Academic journal article Management International Review

Profitability and Speed of Foreign Market Entry

Article excerpt

Abstract This research explores the relationship between firm profitability and actual speed of foreign market entry. Results suggest that profitability has an inverted U-shaped relationship with actual speed of foreign market entry, in the context of large US corporate law firms entering China. This result supports the idea that firms with both the need and resources to expand into foreign markets rapidly will do so, while laggards will lack either the resources or need to enter markets. Results also suggest that previously established offices in culturally similar markets, larger firm size, firm infancy, and prior international experience hasten market entry. Alternatively, limited organizational slack and concentrated practices delay market entry. Unexpectedly, prior entry of competitors appears to represent a deterrent to rapid entry. Additionally, while regulatory reforms on foreign law firms in China allowed for wider geographic access, they also increased operating restrictions, slowing entry speeds. Finally, results suggest that intense home-market competitive intensity may divert or decrease resource commitments to rapid foreign expansion.

Keywords Market entry timing * Profitability * China * Service firms * Law firms

1 Introduction

This article focuses on firm profitability as a factor related to speed of foreign market entry. Research suggests that early entrants may enjoy first-mover advantages in foreign markets (Lieberman and Montgomery 1988). Yet research has also tended to focus on the consequences of order of entry into foreign markets (Hsu and Chen 2009; Luo 1995; Mascarenhas 1992a, b), without fully considering the antecedents to speed of entry (Gaba et al. 2002; Mascarenhas 1992b). It is important to explore the antecedents to speed of entry, and profitability in particular, for several reasons.

To begin with, differences in speeds of entry may indicate the potential for lead times enjoyed by early entrants. Categorizations of early- versus late-entrants, as used in past research (Lieberman and Montgomery 1988; Mascarenhas 1992a), do not necessarily indicate that early entrants have time to capitalize on first-mover advantages. Second, with early- versus late-entrant categorizations firms may be grouped together as early entrants, even with differences in entry timing among firms in the same group (Gaba et al. 2002). Third, the dominant factor discussed in research on order of foreign market entry is a firm's position relative to its home-market competitors, in terms of resources that lead to profitability (Ito and Pucik 1993; Mascarenhas 1986; Porter 1985). As a result, considering the relationship between profitability and actual speed of foreign market entry will advance our understanding of the antecedents to market entry timing, and complement existing research on consequences of entry timing.

In order to further explore the relationship between profitability and actual speed of foreign market entry, this analysis is divided into several sections. First, a background and hypothesis section will offer a discussion of selected and relevant literature on order and speed of market entry, and will present the single hypothesis in this study. Second, a methodology section will describe the sample and empirical context along with operational definitions used and modeling procedures. Next, the empirical results of this analysis will be presented. And finally, a brief conclusion and discussion section will highlight implications for research and practice, and identify limitations and areas for further research.

2 Background and Hypothesis

Distinctions between more- or less-dominant firms have been related to international strategy in a number of contexts. The advantages enjoyed by more-dominant firms may include more competitive products or services, cost advantages, valuable relationships with customers and suppliers, and reputation advantages, among other organizational resources which result in greater levels of profitability (Ito and Pucik 1993). …

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