Will a Second Mouse Get the Cheese? Learning from Early Entrants’ Failures in a Foreign Market

Abstract

We examine the conditions that can facilitate or hinder the effectiveness with which a new entrant learns from the failures of prior entrants by analyzing the experiences of 822 Japanese subsidiaries in China founded between 1979 and 2000. Our conceptual arguments and empirical findings demonstrate that learning from the failure experiences of prior entrants increases a new entrant’s survival chances when entering China. Further, we find that the value of this learning is less effective when there is a greater level of heterogeneity in the causes of these failures. However, this learning is more effective when a new entrant’s parent firm has ownership ties with investors who had ventures that failed previously in China.