Entry Decisions Research Articles

Market entry into new export markets: When are firms more likely to imitate their competitors’ market presence?

We investigate the extent to which competitors’ presence in a given export market has an impact on a firm's decision to enter such a market and, more precisely, under what conditions imitation is more likely to take place. We show that firms with greater export knowledge are more likely to enter those countries where their competitors are already present. Furthermore, experiential knowledge seems necessary to absorb valuable information provided by the presence of competitors in those markets. Thus, imitation should not be regarded as the option best suited for firms with reduced expertize that follow blindly their competitors into new markets. Through a panel analysis of Brazilian exporters during the 2001–11 period, our study contributes to research on market entry decisions, especially stressing the critical role of prior relevant knowledge in facilitating imitation among players.

Strategizing and economizing in global strategy

AbstractResearch summaryThe strategic management and international business fields have followed, in some respects, quite similar intellectual trajectories, as reflected in the push for a field of “global strategy.” However, a key distinction in the strategy literature—namely, Williamson's distinction between “strategizing” and “economizing”—has not been explicitly recognized in the international business/global strategy fields. We argue that progress can be made in global strategy by recognizing this distinction and exploring the interaction between “strategizing” and “economizing.” To lend credence to this claim, we offer a simple model of the entry decision which highlights both economizing and strategizing aspects of this decision. We also offer recommendations on economizing‐strategizing research in global strategy.Managerial summaryMultinational enterprises gain competitive advantage either by improving the efficiency with which they operate (by having unique resources, lowering costs, or improving managerial practices) or by exercising their market and bargaining power. Most research has emphasized the former source of competitive advantage. However, in actuality, the two sources are intertwined. We detail how they are intertwined by means of a simple numerical example of the entry decision facing a company that can choose between competing or collaborating with the local firm. We show that strategizing plays into the entry decision in this case.

Entry decision of a vertically integrated foreign firm with downstream subsidization and upstream privatization

AbstractThis study considers a vertical structure model in which an upstream state‐owned enterprise (SOE) and a downstream domestic firm compete with a vertically integrated foreign firm (VIFF). We consider the cost‐inefficiency of the SOE and examine the entry decisions of a VIFF under downstream subsidization. We find that without upstream privatization, the VIFF's entry decision might not be socially desirable unless it enters both markets and the cost inefficiency is intermediate. Additionally, a policy to reduce the cost inefficiency might cause a drastic welfare increase or loss when the VIFF changes its entry decision. We then examine upstream privatization and show that a substantial improvement in cost efficiency can increase welfare with privatization. When the SOE maximizes welfare, however, lesser (greater) cost efficiency improvement is necessary to increase welfare with privatization if the ex‐ante cost inefficiency is high (low).

Both entry to and exit from diapause arrest in Caenorhabditis elegans are regulated by a steroid hormone pathway.

ABSTRACTDiapause arrest in animals such as Caenorhabditis elegans is tightly regulated so that animals make appropriate developmental decisions amidst environmental challenges. Fully understanding diapause requires mechanistic insight of both entry and exit from the arrested state. Although a steroid hormone pathway regulates the entry decision into C. elegans dauer diapause, its role in the exit decision is less clear. A complication to understanding steroid hormonal regulation of dauer has been the peculiar fact that steroid hormone mutants such as daf-9 form partial dauers under normal growth conditions. Here, we corroborate previous findings that daf-9 mutants remain capable of forming full dauers under unfavorable growth conditions and establish that the daf-9 partial dauer state is likely a partially exited dauer that has initiated but cannot complete the dauer exit process. We show that the steroid hormone pathway is both necessary for and promotes complete dauer exit, and that the spatiotemporal dynamics of steroid hormone regulation during dauer exit resembles that of dauer entry. Overall, dauer entry and dauer exit are distinct developmental decisions that are both controlled by steroid hormone signaling.

Overconfidence as a driver of entrepreneurial market entry decisions: a critical appraisal

In characterizing entrepreneurial behavior, researchers often regard nascent entrepreneurs entering risky markets as overconfident. In this paper, we challenge this prevailing view and show that a more differentiated consideration reveals the effects of overconfidence on market entry to be ambiguous if not irrelevant. In a first step, we emphasize the inconclusiveness of past empirical evidence. With a simple decision model, we show that “observed” overconfidence can also be interpreted as the outcome of fully rational behavior when acknowledging information available to and acquired by the entrepreneur. We criticize that empirical studies, which neglect individually available information, inductively propose overconfidence for observed behavior without substantiating it with appropriate data. Nevertheless, we do not generally deny overconfidence in decision making. Thus, in a second step, we explicitly postulate confidence biases of an intended rational decision maker. This enables us to analyze through which channels they may affect market entry. By considering over- and underconfidence in the entrepreneur’s forecasting ability, we find that market entry may be affected positively, negatively, or not at all, thereby revealing the overall ambiguity of confidence biases in decision behavior. Finally, we show formally that, even if overconfidence increases the probability of market entry, this does not make it a characteristic feature of market entrants. Overall, our objective is to debunk the myth of the overconfident entrepreneur and to promote the more important role of information in entrepreneurial decision making.

Manufacturing and Regulatory Barriers to Generic Drug Competition: A Structural Model Approach

Understanding the drivers of market concentration in the generic pharmaceutical industry is essential to guaranteeing the availability of low-cost generics. In this paper, we develop a structural model to capture the multiple determinants governing manufacturers’ entry decisions; in particular, we focus on how manufacturing complexity and the regulatory environment for generics approval affect concentration in drug markets. We estimate the model using data collated from six disparate sources. We find that manufacturing complexity, as reflected in the number of active ingredients, for example, significantly reduces the likelihood of generics entry. Moreover, the delay in the review process for the generics applications significantly affects the number of firms entering a market. Our policy simulations suggest that a shortened drug approval review time significantly increases the average number of entrants per market and reduces the fraction of markets with no generics entry; however, a notable portion of markets would still lack any generic competition. This paper was accepted by Jayashankar Swaminathan, operations management. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.4423 .

Interneuron control of C. elegans developmental decision-making

Natural environments are highly dynamic, and this complexity challenges animals to accurately integrate external cues to shape their responses. Adaptive developmental plasticity enables organisms to remodel their physiology, morphology, and behavior to better suit the predicted future environment and ultimately enhance their ecological success.1 Understanding how an animal generates a neural representation of current and forecasted environmental conditions and converts these circuit computations into a predictive adaptive physiological response may provide fundamental insights into the molecular and cellular basis of decision-making over developmentally relevant timescales. Although it is known that sensory cues usually trigger the developmental switch and that downstream inter-tissue signaling pathways enact the alternative developmental phenotype, the integrative neural mechanisms that transduce external inputs into effectorpathways are less clear.2,3 In adverse environments, Caenorhabditis elegans larvae can enter a stress-resistant diapause state with arrested metabolism and reproductive physiology.4 Amphid sensory neurons feed into both rapid chemotactic and short-term foraging mode decisions, mediated by amphid and pre-motor interneurons, as well as the long-term diapause entry decision. Here, we identify amphid interneurons that integrate pheromone cues and propagate this information via a neuropeptidergic pathway to influence larval developmental fate, bypassing the pre-motor system. AIA interneuron-derived FLP-2 neuropeptide signaling promotes reproductive growth, and AIA activity is suppressed by pheromones. FLP-2 signaling is inhibited by upstream glutamatergic transmission via the metabotropic receptor MGL-1 and mediated by the broadly expressed neuropeptide G-protein-coupled receptor NPR-30. Thus, metabotropic signaling allows the reuse of parts of a sensory system for a decision with a distinct timescale.

An empirical analysis of the determinants of network construction for Azul Airlines

This paper describes an econometric model of the Brazilian domestic carrier Azul Airlines’ network construction. We employed a discrete-choice framework of airline route entry to examine the effects of the merger of another regional carrier, Trip Airlines, with Azul in 2012, especially on its entry decisions. The results suggest that post-merger, Azul has adopted a more idiosyncratic entry pattern, focusing on the regional flights segment to conquer many monopoly positions across the country, and strengthening its profitability without compromising its distinguished expansion pace in the industry.

National culture and attitudes' impact on diffusion of sustainable new technology-based products

PurposeSustainability is increasingly becoming an essential aspect of technological innovations. In addition, the diffusion of sustainable new technology-based products appears to be uneven across the globe. The authors examine the effect of three country-level Hofstede measures of culture and two national-level innovation characteristics on the diffusion of Sustainable New Technology-based Products (SNTP).Design/methodology/approachRegression and Necessary Conditions Analysis were used to analyze a panel dataset of electric and hybrid vehicles sales from 2008 to 2017 across 89 countries.FindingsResults suggest Long-Term Orientation (LTO) was correlated with SNTP diffusion, Indulgence (IVR) was partially correlated with SNTP diffusion and was also a necessary condition. Surprisingly, Uncertainty Avoidance (UAI) was not correlated with SNTP diffusion. In addition, a national proclivity for developing innovations and a history of utilizing prior generic innovations were both correlated and necessary for SNTP diffusion.Originality/valueThis paper measures the impact of several macro-level variables (culture and other innovation related characteristics of countries) on SNTP diffusion. In addition to regression analyses to measure the average effect size, the authors conduct Necessary Conditions Analysis, which assesses the necessity of a variable for the outcome. These insights may help multinational companies better strategize entry decisions for international markets and aid governments in formulating more effective policies by recognizing and accommodating the influences of national culture and innovation attitudes.

Rule of law vis-à-vis foreign market entry modes: exploratory interviews of a few experts

PurposeThe purpose of this qualitative paper is to identify and amplify the voice of those experts who advise practitioners faced with foreign market entry decisions. This paper reports the importance that experts place on the rule of law, a positive ethical climate in host nations and the experts’ knowledge of investment financial performance after five years of the initial foreign market entry.Design/methodology/approachThe sample included 12 experienced expert professional interviewees who spent careers with publicly held multinational corporations, attorneys who advised multinational corporation officers, arbitrators with significant international dispute resolution experience, corporate ethics compliance experts, small global entrepreneurial business owners and an academic specializing in international commercial law and dispute resolution.FindingsThe rule of law and ethical climate significantly influence private market entry mode, dispute resolution choices and the likelihood of financial success. Finally, the findings illuminate the importance of the rule of law and a positive ethical climate in private foreign market entry decisions and their managerial and policy implications.Originality/valueThis study lays the foundation for the development of propositions to understand better the significant role of the rule of law in the private foreign investment decision-making process and the financial performance of the foreign investment.

Self-Fulfilling Asset Prices

Abstract This paper explains that anticipated market liquidity is an important concern for arbitrageurs considering entry into a market, a concern that can generate self-fulfilling asset prices. In the model, fixed investment costs turn a market illiquid and generate an arbitrage opportunity. The worst-case return on pledged collateral constrains arbitrageurs’ leverage. The interaction between this return and arbitrageurs’ capital makes entry decisions complementary and can create multiple equilibria. When arbitrageurs enter with capital, the market becomes more liquid; the worst-case return rises; and more arbitrageurs enter with capital. When arbitrageurs withhold capital, the market stays illiquid; the worst-case return falls; and other arbitrageurs stay out. (JEL D84, G11, G12) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

In their own words: a comparison of the medical school applications of low and exceptional performing students

Background: Medical school admissions committees cannot predict performance. Previous research has studied whether standardized test scores, grade point averages, or letters of recommendation portend success, but an applicant’s reporting of their past experiences and activities has not been well studied. This research aimed to determine the themes present in the applications of low performing medical students and to compare these themes with those in the applications of exceptional performers. Methods: The authors performed a qualitative analysis of the Work and Activities section of the American Medical College Application Service application in low performing medical students (those referred to the student promotions committee where an administrative action occurred). A constant-comparative approach was used that applied an a priori thematic framework developed in exceptional students (those inducted into the Alpha Omega Alpha honor society and Gold Humanism Honor Society). Frequencies of themes were counted and compared in each population by calculating the absolute number of themes and the diversity of themes per applicant. Results: Thirty-nine students met the definition of low performer in graduation years 2017 to 2019. Thematic saturation occurred after 18 applications; 21 files were reviewed. All seven themes present in exceptional performers (teamwork, altruism, success in a practiced activity, wisdom, passion, entrepreneurship, and perseverance) were present in low performers, although at lower frequencies. Three low performer themes were found: witnessing teamwork, description of a future event, and embellishment of achievement. Conclusions: Experience descriptions that prospective students write may predict future performance and could be used by admission committees to inform entry decisions into medical school. Low performers had comparatively lower frequencies of every exceptional performer theme; the difference was most notable in the “perseverance” and “success in a practiced activity” themes. Unique themes were found in low performers. Further studies are recommended to enhance the generalizability of these results.

Operational Distortion: Compound Effects of Short-Termism and Competition

Practitioners and academics alike have argued that a firm’s interest in its short-term capital market valuation (short-termism) is harmful to the firm’s long-term profit. Their argument is intuitive—when a firm exhibits short-termism, its decision making will cater to the short term at the expense of the long term. Some practitioners claim that the adverse effects of increased short-termism become particularly acute in competitive markets. However, there is little academic research that examines the compound effect of short-termism and competition on a firm’s operational choices and long-term profit. In this paper, we provide a rigorous analytical model to examine how short-termism and competition can interact to induce a firm to distort its capacity investment and affect its long-term profit. We model a firm that has private information about its market demand, which can be either high or low and is captured by the firm’s type. Signaling this private information can influence both the investor’s valuation and the competitor’s entry decision. We find that operational distortion can emerge not only when short-termism is large, but also when it is small. In fact, when short-termism is sufficiently small, both firm types will distort their operational decision by underinvesting in a pooling outcome. We show, however, that the impact of short-termism on a firm’s long-term profit is not monotonically negative, and a certain level of short-termism can be beneficial to a firm’s long-term profit. The positive impact of incremental short-termism is robust to alternative modeling assumptions, including the form of competition and the investor’s risk profile. This paper was accepted by Victor Martínez-de-Albéniz, operations management.

The fertility effects of school entry decisions

ABSTRACT School entry regulations lead to differences in the age when children start school. While previous literature estimated the effects of age at school entry for compliers with school entry regulations, we look at non-compliers, namely those who enter school one year before the official entry date. Based on an instrumental variable approach, the results show that early enrolment increases the number of children by 0.1 (which is significant at the 10%-level), whereas we find no significant impact on rates of childlessness.

Outcome-Based Imitation in Family Firms’ International Market Entry Decisions

This study examines the effects of family involvement on international market entry. Bridging theories of interorganizational imitation with the notion of socioemotional wealth protection, we argue that family-managed firms are more likely to act as “intuitive statisticians,” using the internationalization outcomes of industry peers to determine when to internationalize. An event history analysis of 2427 manufacturing firms supports this position. Family-managed firms’ likelihood to internationalize increases as prior entrants’ performance mean and variance increase. Ultimately, our study demonstrates that this imitation strategy enables family-managed firms to reduce risk and endure longer in broached international markets.

Learning and information transmission within multinational corporations

Firms face substantial uncertainty when doing business in new markets. We propose that multinational firms use “cross-market learning” to resolve such uncertainties. We develop a model of firm-level expectations formation with noisy signals from multiple markets and derive predictions on market entries and expectations formation over the firm’s life cycle. Using a novel dataset of Japanese multinational corporations that includes sales expectations of each affiliate, we provide supportive evidence for the model’s predictions. We find that firms rely on their performance in nearby markets to predict their profitability in a new market and make entry decisions. Such “cross-market” learning is less important after the firm has accumulated experience in the new market, but becomes more important if the uncertainty of the focal market is high or the firm has received more signals from the nearby markets.

Entry and competition of retail pharmacies: A case study of OTC drugs sales and ownership deregulation

This study provides new empirical evidence on the changes in competition and entry decisions of pharmacies after regulatory changes. It investigates the development of the retail pharmacy market in Portugal, which underwent major regulatory changes in 2004 and 2007. Sale of OTC drugs and ownership of pharmacies were liberalized while entry restrictions related to market size and the location of new pharmacies prevailed. Our empirical strategy was based on entry models and provided indirect information on the toughness of competition and entry decisions of firms in the market. We estimated and compared the entry thresholds and their ratios before and after liberalization. Such a comparison allows to see if competition got tenser with OTC drugs deregulated. There were three main findings from the study. First, the entry thresholds decreased regardless of the number of pharmacies in the market, suggesting that room for the realization of profits is broader than it was in the past. Second, although the entry thresholds were lower in value, their increase was steeper with each incumbent in 2020, suggesting harsher price competition with new entrants. Third, the current rule of 3,500 patients per pharmacy is likely overly restrictive, pharmacies could break-even even in smaller markets.

The Impact of Platform’s Information Sharing on Manufacturer’s Selling Format Entry Decision

The Impact of Platform’s Information Sharing on Manufacturer’s Selling Format Entry Decision

Optimal Entry Decision of Unemployment Insurance Under Partial Information

Optimal Entry Decision of Unemployment Insurance Under Partial Information

The Fertility Effects of School Entry Decisions

The Fertility Effects of School Entry Decisions