Networks, International Market Selection, and Performance

Abstract

Purpose – Drawing on the resource-based view and network theory, this paper investigates the role of external networks (ENs) and absorptive capacity (AC) in export market location decision of emerging economy firms (EEFs) and the performance implication of this decision.Design/methodology/approach – This study employs structural equation modeling to test three hypotheses: (1) ENs influence an EEF manager’s propensity to enter culturally/psychically distant markets for exports. Distant markets are more likely to be chosen by managers of firms with abundant external networks; (2) AC moderates this network-market location relationship; (3) Superior performance results from the fit between managers’ propensity to enter a market and firms’ levels of ENs and AC.Findings – An analysis of 196 Chinese exporting firms supports the hypotheses. Research limitations – Though the theoretical discussion is general, the empirical context is specific to Chinese export manufacturers. Replicating the study is necessary in different contexts. Practical implications – The study identifies to managers the importance of external (i.e. ENs) and internal resources and capabilities (i.e. AC) and linkages between resources and capabilities, strategy and performance. Originality/value – The study is novel in conceptually addressing the role of ENs and AC in firms’ decision-making and performance and in testing hypotheses with robust methodology and data.