The Entry Strategy of Retail Firms into Transition Economies

Abstract

International entries into transition economies occur infrequently and involve considerable uncertainty. This raises the question whether managers, who have limited own experience, take their competitors' prior decisions into account when deciding on their own entry timing and size and whether there is value in doing so. To address these questions, the authors estimate a sequential hazard/Poisson regression model on the top 75 European grocery retailers' decisions to enter the Eastern European market. Indeed, firms pay close attention to prevailing practices in their industry. Prior entries first serve as legitimation but eventually become a deterring factor. Moreover, rather than just imitating the most popular or modal decision when determining the own entry timing and size, managers pay closer attention to the actions of their home competitors, react to prior entries of same-format competitors differently from those of different-format competitors, and adjust the observed industry practice for the specificity of their own resources. The authors show that managers are justified in taking the combined industry wisdom into account; deviations from prevailing industry practice, in terms of both timing and size, hurt the efficiency of their operations in subsequent years. Thus, attempts to develop own, distinct entry rules tend to be dysfunctional. Moreover, corrective actions are easier to implement along the size than along the time dimension; the detrimental effects of entering at a different time from the industry norm persist and even become amplified over time, whereas the negative impact of size deviations is temporary.