The Effects of Domestic and Host Market Competition on New and Repeated Foreign Entry

Abstract

When expanding abroad, firms have the option of pursuing opportunities in new markets or of deepening their commitment by repeatedly investing in the same foreign market. The effect of competition on this sequential entry decision has been understudied. We argue that competitive factors in the domestic and foreign market –entries by rivals into the foreign market and industry concentration in the home market – have different effects on a firm’s decision to explore new markets or to increase its investment in markets it has already entered. In addition, we theorize that these competitive factors are moderated by a firm’s dominance in its domestic market and its opportunities for learning vicariously about alternative foreign market opportunities. We largely find support for our ideas in a longitudinal analysis of the location choices of firms from France, Germany, and the UK into Eastern European countries between 1990 and 2008. Our paper provides a more comprehensive understanding of the conditions affecting sequential foreign investment decisions by systematically integrating the literatures on competition, learning, and commitment.