Market Entry Model Research Articles

Determinants Influencing Korean Agri- Food Companies’ Modes of Overseas Market Entry

Purpose - Faced with the constraints of a limited domestic market, the Korean agri-food industry necessitates regional diversification through the establishment of offshoring production subsidiaries. This study tests the validity of Root’s model of the determinants of offshoring and sequential entry to overseas markets on Korean agri-food companies’ offshoring of production subsidiaries. Design/Methodology – This study employs the convergent mixed-methods research design, wherein qualitative and quantitative data collection and analysis are conducted, then compared, before interpreting the data affecting Korean agri-food outward direct investment (ODI). Methodologically, based on Korean agri-food manufacturing company ODI data from the KOTRA, a survey was conducted to quantitatively analyze the factors influencing their selection of production subsidiaries for ODI. Findings – Though Korean agri-food companies also consider Root’s external factors when selecting overseas entry methods, the sequential entry route and selection model, factors theorized to influence Root’s overseas market entry method, were not found to be statistically significant. Instead, they tailor their market entry approach based on the type of investment and the operating objectives of the local subsidiary. This is attributed to Korean agri-food companies’ deviation from sequential entry routes when entering markets through ODI, as well as the determination of the form and type of investment of these overseas subsidiaries according to the purpose of their operations. Originality/value - This study distinguishes itself by employing a convergent mixed-methods design, which combines quantitative and qualitative analyses to identify the determinants of ODI market entry by Korean agri-food companies. Furthermore, it evaluates Root’s market entry model from the perspective of Korean agri-food companies.

Frack to the future: What enticed small firms to enter the natural gas market during the hydraulic fracturing boom?

The shale gas boom of the early 2000s saw the highest and most volatile natural gas prices and production in history. Advances in horizontal drilling, 3-D seismic imaging, and hydraulic fracturing made it highly profitable for firms to produce large quantities of shale gas. This period was also characterized by a shift in market structure. The U.S. natural gas market was historically defined by large firms, but a large number of small firms began entering the market after 2000. While small firms made a negligible contribution to natural gas production during the shale gas boom, their entry may signal overcapitalization, productivity growth, and increased responsiveness of natural gas markets to exogenous shocks. We develop a real options model of market entry and exit and use data on natural gas drilling activity to test three potential explanations for small firm entry during the boom: 1. technological advances, 2. land lease speculation, and 3. regime change in natural gas prices. Our analysis provides mixed support for the first explanation but strong support for the last two.

A real options model of market entry: Endogenous uncertainty and exogenous uncertainty

Abstract We develop a real options model of market entry that focuses on the dueling growth and deferral options by differentiating between endogenous uncertainty and exogenous uncertainty. While exogenous uncertainty influences the growth option market value or price, it is endogenous uncertainty that influences the value of the growth option through the ability to create a competitive advantage from preemptive market entry. First, the firm can decrease the exercise price of the growth option (i.e., the cost of the follow-on investment) through experiential learning that reduces endogenous uncertainty. Second, the firm can increase the relative discounted cash flows of the follow-on investment due to its ability to influence market demand that reduces endogenous uncertainty. On the other hand, the value of the deferral option increases with exogenous uncertainty as firms cannot influence exogenous uncertainty, and therefore, should invest elsewhere while waiting for the exogenous uncertainty to subside. As such, we provide a solution to the conundrum that the value of both the growth option and the deferral option increase with uncertainty. Finally, we demonstrate how the model addresses sequential market entry; irreversibility and market entry mode; competition; scarce strategic resources; host country development level; and industry life cycle stage.

Local institutions in Peru and the presence and number of fast-food outlets

PurposeThe paper aims to study the role of local institutions in the establishment of fast-food outlets in urban districts of Peru. In most urban districts, there are no fast-food outlets. The authors, therefore, study the effect of institutional quality on the presence or absence of these outlets and the number of outlets if these are present.Design/methodology/approachThe theoretical framework in which this paper is based on is the theory of agglomeration, which establishes that firms benefit from being close to each other. In particular, the paper builds on a model of market entry and competition in geographically independent local markets. An explicit expression was found for the equilibrium number of outlets (including zero) as a function of exogenous determinants of the demand for fast-food in each market, available infrastructure and institutional quality of the district’s government. Principal component analysis was used to construct measures of institutional quality based on administrative and organizational characteristics of district’s municipalities. These measures were incorporated as explanatory variables in a zero-inflated Poisson model, which is appropriate to handle count data and to accommodate excess zeros and which also allows the specification of different models for the zero part and the positive part.FindingsInstitutional quality mainly affects the presence of fast-food outlets in a district. The quality of urban development management and use of information systems are relevant. An institutional variable particularly relevant in explaining the number of outlets is the presence of an investment programming office in the municipality. The authors confirm the general hypothesis of the paper: institutions have a role in explaining both the presence and number of fast-food outlets in a district. Overall, the results of this paper suggest that institutional quality of a municipal district is related to better infrastructure, which lowers the costs of establishing outlets.Research limitations/implicationsLimitations in the availability of data at the regional and urban district level did not allow the authors to analyze other factors that affect entry decisions in the fast-food industry in Peru, such as controls to prevent corruption, legal uncertainty or crime. Another limitation was the lack of data on entry costs for each franchisee in each urban district. This forced the authors to use public infrastructure characteristics of the district as (imperfect) proxies of the entry costs.Practical implicationsThe instruments of urban development management and information systems can be effective at attracting investment to a district. These tools operate partly through an indirect effect, namely, the improvement of district infrastructure, which is necessary to reduce the costs of establishing companies. There is also synergy between national government’s programs to attract investment and the good institutional quality in local governments. On the contrary, poor local institutions can be an obstacle to the successful implementation of those national programs.Social implicationsForeign direct investment has a positive impact on the economic development of a country through knowledge spillovers. Therefore, any administrative reform to make local government practices more efficient can have an indirect impact on development.Originality/valuePrincipal component analysis is a statistical tool that can be important in building good measures of institutional quality by allowing the combination of different observable characteristics into one component that can be interpreted as an operational restriction. The count model allows the use of the primary, easily observable, dependent variable, namely, the number of outlets. Finally, the two-part model makes it possible to discern the effect of institutional quality on the presence or absence of outlets and the number of outlets if these are present.

Managerial Cognitive Capabilities, Mental Representations of Routines and Market Entry by Analogy

Multi-stage decisions are characterized by the fact that they do not result in immediate feedback from the environment. Instead, such decisions affect the options available for future downstream decisions. Environmental feedback is not received until after a series of decisions has been made. Thus, managers must infer the outcome of a given decision based on how that decision informs future decisions. We explore how managers learn in multi-stage decisions in the context of market entry. We build an agent-based model of market entry in which managers use analogy to transfer knowledge of routines for multi-stage decisions in existing markets to the creation of mental representations of routines for multi-stage decisions in new markets.

Side effects of nonlinear profit taxes in an evolutionary market entry model: Abrupt changes, coexisting attractors and hysteresis problems

In order to demonstrate that nonlinear tax systems may have surprising and potentially undesirable side effects, we develop an evolutionary market entry model in which firms decide on the basis of past profit opportunities whether or not to enter a competitive market. Our main focus is on the case of a proportional tax on positive profits. Such a piecewise-linear tax scheme induces a kink in the firms’ profit functions, and may lead to abrupt changes in a market's dynamics, coexisting attractors and hysteresis problems. Since these phenomena can also be observed in more general models, a proper understanding of their basic mechanism may be helpful to explain the intricate behavior of many economic systems.

Corporate risk management, product market competition, and disclosure

Abstract This paper studies the effects of hedge disclosure requirements on corporate risk management and product market competition. The analysis is based on a model of market entry and shows that to prevent entry incumbent firms engage in risk management when these activities remain unobserved by outsiders. In the resulting equilibrium, financial markets are well informed and entry is efficient. However, potential attempts for more transparency by additional disclosure requirements introduce a commitment device that provides incumbents with incentives to distort risk management activities thereby influencing entrant beliefs. In equilibrium, firms engage in significant risk-taking. This behavior limits entry and adversely affects the nature of competition in industries.

The Decision-making Analysis of Multinational Enterprise' Investment under Interest Rate Uncertainty

This paper aims to explore from a dynamic perspective the best strategy for multinational enterprises to enter a market, involving the best timing and place for the expansion of international joint ventures. In most cases, the strategy for initial entry provides a platform for the company to use its advantage and ability gained as a host firm to do the later investment. We consider taking the following three steps of the expansion strategy. First of all, foreign direct investment can be interpreted as a compound option and it is found that its uncertainty, the scale of ordinary shares and the future investment / divestment opportunities play important roles. This thesis emphasizes the importance of dynamic market-entry model.

Risk Management in Market Entry: The Case of Project Finance

In this paper we integrate risk management (RM) into a transaction cost theory (TCT) market entry framework. We show how the exogenous treatment of risks in traditional market entry models leads to false predictions and unduly limits managerial responsiveness in market entry decisions to organizational remedies such as hierarchy. We introduce project finance as a cooperative market entry mode and use it to construct a risk-responsive model of market entry with four major extensions: First, we account for capital structure as a RM tool. Second, we consider contractual RM and third, we account for social RM strategies. Finally and most fundamentally, we acknowledge the cost of RM, hence modeling market entry decision as a strategic trade-off between external and internal uncertainty rather than an organizational response.

Forward Integration and Market Entry – Evidence from Natural Gas Markets for Household Customers in German

Due to potential abuse of the market power at wholesale and retail market level for natural gas the Federal Cartel Office in Germany prohibited further forward integration of gas importing firms with retail incumbents from 2005/2006 to 2010. The Authority argued that the very few dominant gas importing companies, which also own and operate the gas pipelines, could have an incentive to foreclose existing competitors or prevent potential market entry. However, two of the importing companies remained extensively forward integrated. To analyze possible forward integration issues empirically we employ cross sectional data (for September 2009) for about 500 sub markets for household customers in Germany. These submarkets have different vertical ownership structures. Our data set contains information on ownership and market entry. By applying a market entry model, which is based on the framework introduced by Bresnahan and Reiss (1991), we do not find clear evidence that market entry is restricted by forward integration of gas importers and retail incumbents.

Consumer Unawareness and Competitive Strategies

Many purchase decisions rely on complex information. In reality, some consumers may not be well informed and unaware of their lack of information, a situation termed consumer unawareness. In a stylized model of market entry, this paper investigates how consumer unawareness of preference-product match affects firms’ strategies in product, pricing, and promotion. It shows that for entry to occur, the level of unawareness must be intermediate. When entry occurs, firms offer differentiated products to avoid head-on competition and use mixed pricing strategies. As the level of unawareness decreases, both the incumbent and entrant become less competitive in pricing. This paper also analyzes how firms strategically promote consumer awareness through advertising. While the promotion of the entrant helps increase its demand after entry, the promotion of the incumbent can serve as either a barrier or an invitation to entry. Fearing the former, the entrant may not enter, or enter with limited promotion; benefiting from the latter, the entrant may enter and free ride on the incumbent’s promotion. As a result of the former situation, a relatively high degree of consumer unawareness is maintained despite competition. This paper also identifies the incumbent's brand equity and promotion costs as critical factors that drive firms’ strategic choices. Finally, this paper presents economic and managerial implications of the findings.

A Critical Review of Market Entry Selection and Expansion Into Japan's Market

ABSTRACT This article offers a contribution to the Japan market entry model selection. It critically analyzes the various models such as the eclectic, transaction cost analysis, Uppsala, resource-based, interactive network, and bargaining power models, with examples as they relate to foreign firms that had used some of these models to successfully establish their businesses in Japan, as well as some foreign firms that have failed in the market. Data were gathered from the past academic journals, the Japan External Trade Organization (JETRO), newsmagazines, and other sources. Knowledge of corporate Japan and the society played a major role in gathering data for this study. The aim of this article is not to prescribe or offer a solution for the best-available model to use in the market entry into Japan but rather to act as a trigger for a critical checkup on foreign firms planning to internationalize their business and enter the Japanese market. Since there has not been a specific model designed for a Confucian society like Japan, an integrated model combining all the models together was examined using the market entry in Japan of Vodafone, Yahoo, Pfizer, GlaxoSmithKline, and Bayer Yakuhin as examples. Finally, the article offers some suggestions on how to enter and expand business in the Japanese market.

SWITCHING COSTS AND THE FOREIGN FIRM'S ENTRY*

In this paper we consider a two-period model of market entry with homogeneous products and switching costs. It is shown that the pro-competitive effect of a foreign firm's entry (i.e. unilateral trade liberalization) emerges before the entry. Also, conditions that are conducive to a competitive environment in the second period are shown to yield a less competitive outcome in the first period. That is, when the marginal cost of the foreign entrant is relatively low, the first-period output of a domestic monopolist is relatively low as well.

Order, positioning, scope and outcomes of market entry

This research aims to analyze the relationships between three dimensions of the market entry strategy for new products – order, positioning and scope – and four dimensions of performance – customer satisfaction, competitive position, costs and profitability. The consideration of internal links between the entry dimensions, together with their effect on the different performance variables, will enable us to determine the existence of mediating effects, which up until now have barely been examined in the literature. We test our model on a cross-sectional sample of 136 manufacturing firms, applying structural equation modeling based on the Partial Least Squares (PLS) methodology. Our findings reveal that all the three strategic decisions included in our model of market entry do affect performance, although their influence changes according to the performance dimension being measured.

A Model of Market Entry in an Emerging Technology Market

The timing of market entry is a critical decision, involving the need to balance the risk of premature entry with the problems of missed opportunities as a result of late entry. Drawing from several theoretical perspectives, we propose a model for explaining the reasons for early or delayed entry into an emerging technology market. A novel feature of our study is the use of a hazard modeling framework to analyze longitudinal data pertaining to over 3500 entrants and nonentrants during the emergence of the automated teller machine market. This approach alleviates the sample selection problems associated with prior entry research. With caution in generalizing the results to other settings, we find compelling evidence in support of the model, extending our knowledge of the dynamics surrounding entry into certain technology markets.

An international market entry model for pharmaceutical companies: A conceptual framework for strategic decisions

Today's globalisation has forced pharmaceutical companies to expand their existing markets and continuously search for new markets. There is a growing trend toward mergers and acquisitions within t...

The PSE model: entry into emerging markets

Abstract This article presents a new international market entry model—the PSE model. The model comprises three interrelated components that reflect premises external and internal to the firm: perceived barriers to entry (P), strategy competence (S) and entry strategy (E). Propositions about the nature of the linkages between the model components are examined. The model and its linkages are illustrated using Ericsson's entry into the emerging market of mobile telephony systems in the United States. The application of the model enhances our understanding of entry into international emerging markets. Practical suggestions in the application of the model are presented. Copyright © 2002 John Wiley & Sons, Ltd.

Standing Alone: Small Business and the Global Market

This paper takes a multi-disciplinary approach to the exploration of the role small businesses play in the globalisation of the Australian economy. We ask: do SMEs exist primarily to service the demands of their larger counterparts, relying on large firms to enter foreign markets, or do they have the ability to enter global markets as ‘independent’ entities, sustaining a consistent competitive advantage.A multiple case study approach has been applied to answer the research questions. Findings indicate that small firms are indeed independent and dynamic operators, crucial to Australia’s economic success, and small firms are effective in entering foreign markets and do so through operationalising strategy consistent with the relational paradigm, and the establishment of either resource based or skills based marketing and distribution arrangements.Resultant of the findings is a model of market entry and sustained competitiveness by SMEs in export markets. The model combines concepts of relational marketing, continuous improvement and export behaviour.

Determinants of Entry and Profits in Local Banking Markets

This paper estimates a two equation model of market entry and profits, utilizing data on entry into over 2,000 banking markets over the period 1977--88. The entry equations measure whether entry depends on incumbent firms' profits and other market attributes that reflect the long-term attractiveness of markets for entry. Market profits, assumed to follow a partial-adjustment process, are affected by entry directly and indirectly through market structure. The model also corrects for an unavoidable source of error in market-level profits for the banking industry. The estimates suggest that a competitive process is at work in banking markets that limits the ability of supra-normal profits to persist. Entry is more likely in markets that have high profits, consistent with previous empirical results that market structure adjusts more quickly when profits are supra-normal. Population and population growth are also strong determinants of entry. Entry, in turn, reduces profits in rural markets.