Order-of-Entry Effects for Service Firms in Developing Markets: An Examination of Multinational Advertising Agencies
Published 6/1/2009
Author: Peter Magnusson, Stanford A. Westjohn, and David J. Boggs
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Executive Summary
The internationalization process of service firms has gained increased attention in recent years; yet the question whether timing of entry affects firm performance for service firms in developing markets has remained unanswered. Prior research, primarily of manufacturing firms in developed markets, has shown that market pioneers often enjoy first-mover advantages (FMAs), which include experience curve effects, economies of scale, and the development of buyer switching costs. As a result, early entrants often enjoy market share advantages and superior financial performance.
This study aims to examine whether FMAs also exist for service firms entering developing markets. Previous research has shown that managers perceive FMAs to be less attainable for service firms, but there seems to be no empirical evidence to substantiate this perception. In contrast, Magnusson, Westjohn, and Boggs posit that
FMAs do extend to service firms. Their conceptual arguments are grounded in a resource-advantage theory perspective. They suggest that for professional service firms, the ability to generate a sustainable competitive advantage through human capital is particularly relevant. In addition, they delineate the role of financial, physical, organizational, informational, and relational capital in the development of FMAs and as moderators of the relationship between entry order and firm performance. Specifically, the authors examine the moderating effect of firm size, international experience, and ownership structure as indicators of these resources.
The empirical analysis is based on 379 advertising subsidiaries spanning 43 different developing markets in Eastern Europe, Asia, the Middle East, Africa, and Latin America. As hypothesized, the authors find a significant relationship between entry order and firm performance, in which early entry leads to a sustainable competitive advantage. This refutes previously held perceptions among service firm managers. Furthermore, the authors find that the entry order–performance relationship is moderated by ownership structure, international experience, and the developing market’s rate of development. This suggests that firms that apply knowledge and experience acquired from prior international ventures or from a local partner can shorten the learning curve when entering a new foreign market, which helps the late entrant quickly gain market share and reduce the negative effects of late market entry.
In summary, this study refutes a commonly held but previously unexamined assumption about the relationship between entry order and firm performance for service firms. The findings provide a guideline to aid firms’ decision of when to enter a new developing market as well as guidance as to how they can alleviate late-mover disadvantages.
Biography
Peter Magnusson is Assistant Professor of Marketing in the College of Business at Northern Illinois University. He obtained his PhD in International Business and Marketing at Saint Louis University. His research has been published in Journal of the Academy of Marketing Science, International Marketing Review, and International Business Review, among others.
Stanford A. Westjohn is Assistant Professor of Marketing and International Business in the College of Business at University of Toledo. He received his PhD in International Business and Marketing from Saint Louis University. His research has been published in Journal of the Academy of Marketing Science and International Marketing Review, among others.
David J. Boggs is Assistant Professor of Management in the School of Business at Eastern Illinois University. He received his PhD in International Management from the University of Texas at Dallas. His research has been published in Journal of International Management and International Journal of Emerging Markets, among others.
J International Marketing, Volume 17, Number 2, June 2009
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