The dual effect of foreign competition on emerging market firms' internationalization

Abstract

PurposeThe authors develop a theoretical framework of how foreign competition in a firm's home country jointly interacts with other environmental factors to influence the internationalization pace. This study moves beyond the debate on whether foreign competition promotes or inhibits the internationalization pace by unpacking the nature of pace across strategic and operational dimensions. By differentiating the internationalization paces of market scope and international commitment, the study results show that foreign competition has a positive effect on the former and a negative effect on the latter. This indicates that the determinants of different paces are conditional upon the different knowledge types among foreign competitors.Design/methodology/approachUsing a panel data set of Chinese construction corporations over the period from 2009 to 2015, the authors extend previous research on the effect of home country environment on internationalization behavior in an emerging economy by examining the effects of the interplay between foreign competition in home country and industrial contexts. The authors also explore the moderating effect of subnational institutions on the relationship between foreign competition and internationalization pace. They use a Poisson model and a GEE model to examine the main effects and moderating effects involved.FindingsThe results indicate that industry dynamism strengthens the positive effect of foreign competition and the pace of market scope, while industry munificence weakens the negative effect of foreign competition and the pace of international commitment. The authors’ findings support the coexistence of “pushing” and “pulling” effects of environmental factors from a firm's home country. The authors extend the argument of “institutional escapism” by focusing on subnational institutions. They show that firms located in a region with a low level of marketization are more likely to respond by accelerating the pace of their international expansion to escape from their home country.Originality/valueThe authors’ findings have implications for practitioners and policymakers working with emerging market firms (EMFs). The authors suggest that local governments should consider building high-quality institutions that can reduce the possibility of investment opportunities escaping EMFs. The authors’ findings indicate that international knowledge from foreign competitors may also assist EMFs in understanding more about the cultural environment before entering host countries, although it cannot help them to resolve cultural uncertainty when operating in host countries. Hence, managers should carefully evaluate their competitiveness before they decide to engage in global competition at an accelerated rate.