Untangling the Paradox of Foreign Entry Mode Choice: Learning from Survival and Failure Experience

Abstract

Our study examines why new entrant multinational enterprises (MNEs) are willing to establish wholly-owned subsidiaries (WOSs) in a host country, whereas many incumbent MNEs are still reluctant to do so. Drawing on performance feedback theory, our study examines how, and to what extent, different types of performance experience with WOSs (i.e., WOS survival and failure experience) shape new entrants’ and incumbents’ choices of WOSs in a host country. Hypotheses were tested using 447 (360) entry mode choices made by 183 new entrant (92 incumbent) Korean MNEs in the manufacturing sector from 1993 to 2003. Results show that secondhand survival experience of other home country MNEs enables new entrants to choose WOSs preferably, especially when CEOs are members of founding families and initial entries in a host country have been undertaken in core businesses. By contrast, firsthand experience of failure discourages incumbents from choosing WOSs, and this tendency is prevalent when professional CEOs are in char...