A Study on Market Entry Timing Decision from Competitive Dynamics Perspectives

Abstract

Market entry timing has been previously studied in conjunction with firm’s internal resources as well as market and industry general landscape (Fuentelsaz, Gomez, & Polo, 2002; Hawk, Pacheco-De-Almeida, & Yeung, 2013; Lilien & Yoon, 1990). One of the most notable aspects of the market when it comes to market entry decision is the level of competition potential entrants would face upon joining the new market. In this study, our main purpose is to analyze the possible relationship between elements of competition and market entry decision. We take a more fine grain approach towards this aspect by focusing on dyadic relationship between new comer and existing incumbent, expressing through elements such as Market commonality and Resource similarity (Chen, 1996), instead of evaluating competition by general industry measures and standards as previous studies did. We also set out to detect if other characteristic of the market, such as market growth potential, influences these relationships. Last but not least, our study re-examines whether market entry timing results in a substantial difference in post-entrance performance. Using a sample of 38 low cost airlines in East Asia, Australia and New Zealand, we studied market entry speed of early follower in 155 new markets (market: airline route) by analyzing their market commonality and resource similarity with existing incumbent in each market in relation to Awareness- Motivation- Capability perspective. Besides, the growth potential of each market, measured by market size, is studied as a moderator for the relationship between dyadic competition elements and entry speed. The difference in performance between early follower and the pioneer is then evaluated against the entry timing of the second mover. The result of our study suggests that dyadic competition between the pioneer and the early follower indeed has an impact on early follower’s entry timing, with little regards to market growth potential. Market commonality is a stronger predictor of entry speed compared to resource similarity, and the interaction between them leads to balancing effect against the individual factors. Earlier entrance has also been confirmed to have a positive effect on the early follower’s performance. Theoretically, our study contributed to market entry research a new perspective of analyzing competition, bridging the gap between competitor analysis (MC-RS) and prediction of inter-firm rivalry (entrance timing). Our samples of Asian companies further validates the applicability of competitive dynamics and inter-firm rivalry research, which have been only studied in developed region such as America and Europe. In practice, our result suggests that early follower is wary of multi-market retaliation and possibly delay such confrontation with a big, direct competitor. On the other hand, pioneering firms can consider possible early aggressive expansion strategy to fence off potential followers. The results, however, should be taken in consideration together with the limitations of our study. Our sample is relatively small and only consists of one industry; hence generalization can be a concern. Besides, market growth potential can involves many more factors, not just market size. Last but not least, individual firms in our sample can be inter-related to each other in term of segmentation, strategic alliance or partnership; hence their market entry timing may not be seen completely as independent decision as we assumed.