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Entry Mode and Entry Timing Decisions by Malaysian Construction Firms in

International Market

Conference Paper · November 2012

DOI: 10.13140/2.1.1984.6081

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 Entry Mode and Entry Timing Decisions by Malaysian Construction
Firms in International Market
Che Maznah Mat Isa1, Hamidah Mohd Saman2, Siti Rashidah Mohd Nasir3 and Nor Hazwani
Abd Rahman4
1, 2 &, 3
Senior Lecturers, Universiti Teknologi MARA, Malaysia, chema982@salam.uitm.edu.my
4
Master Student, Universiti Teknologi MARA
ABSTRACT
A recent globalization has impacted significantly
the construction industry worldwide and it is
frequently transformed into creation of new
emerging markets. Going international is
commonly understood as a strategic process of
market entry decision through which a firm moves
from operating purely in its domestic market to the
international market. International market entry
strategy in making the firm‟s venturing new foreign
market possible by expanding their businesses in
terms of services, products, technology, human and
other resources has been widely studied. However,
reviews of literature suggest that a comprehensive
model or framework with existing theory to clearly
guide the firms to adopt and develop effective entry
market strategies for the construction industry is
still lacking. Thus, this paper seeks to identify the
entry strategies to guide the construction firms to
access targeted market with considerable
deliberations related to entry mode and entry
timing. Neglecting to properly choose the right
combination of entry mode and entry timing can
lead to poor performance in their business ventures
abroad. The questionnaire surveys were sent to
109 Malaysian construction firms listed under
CIDB Malaysia with twenty-one percent (21%)
response rate. The data were analyzed using cross
tabulation analysis to determine the preferred entry
mode and entry timing decision. Then, chi-square
test was used to establish the significant
relationship between the entry mode and entry
timing decision. About sixty-five percent (65.2%)
of the Malaysian contractors those entered the
international market as the late movers preferred
equity mode in term of strategic alliance followed
by joint venture(JV) and Build-Operate-Transfer
(BOT) modes. On the other hand, the early movers
preferred non-equity mode by setting up the branch
office/company followed by sole venture mode.
The Pearson chi-square value of .012 (p< .05),
indicates that the relationship between entry mode
and entry timing decisions is significantly
independent. Hence, the evidence suggests that the
late mover prefers an equity mode as opposed to
early mover‟s preference of having non-equity
mode to operate in the new markets. It is hoped
that the findings from this research would offer
valuable information to any construction firms in
Malaysia to develop the entry strategies in their
international market expansion.
Keywords: International market, Malaysian
construction firms, entry mode decision, entry
timing decision.
I INTRODUCTION
Expanding into a foreign country is one of the most
critical business strategies made by a firm relative to
the international market. Nowadays, firms are
internationalizing in more different ways than ever
before by using combinations of market entry
strategies in accessing foreign markets (Axinn and
Matthyssens, 2001). Scott (2002) claims that firms
commonly face a particularly difficult decision to
plan when it is best to enter a foreign market. Gaba
et al. (2002) outlined three interlinking questions
that the firms face with regard to international
expansion where the firms have to decide what
market to enter (entry location), how to enter (mode
of entry), and when to enter (timing of entry). Ellis
(2000) supports that the choice of which country to
enter, when to enter and how to enter commits a
firm to operating on a given terrain and lays the
foundation for its future international expansion.
Extensive studies have been conducted to answer
questions as how, when and where to
internationalize. However, most of them deal with
the matter in an isolated way by considering one
dimension in particular. The main research question
posed in this paper focuses on the relationship
between entry mode choice and entry timing
decision. In order to answer this question, there are
needs to investigate the character and nature of each
of these decisions. It is hypothesized that there is a
significant relationship between the entry mode
chosen and the entry timing decision. Hence, this
study intends to contribute to an improved
understanding of particular relationships that exist
between the main entry strategic decisions made by
firms in their internationalization process, and
attempts to respond to decisions about how to
internationalize, depending on the timing at which
the firm is prepared to enter a foreign market, either
as an early or as a late mover.
 II LITERATURE REVIEW
Research has consistently shown that adopting
suitable market entry strategies is crucial in the
firms‟ decision to enter and later sustain in
international market. Much literature distinguishes
between two main entry strategies namely, the entry
timing and the entry mode. Various researchers
have proposed different plans in crafting the right
combination of market entry strategies related to
entry mode and entry timing in the international
business (Luo and Peng, 1998; Axinn and
Matthyssens, 2001; Ling et al., 2008; Chen and Orr,
2009; Polat and Donmez, 2010; Lee et al., 2011).
Gallego et al. (2009) claimed that studies on the
relationship between timing of entry and the other
two dimensions which are the entry mode and
choice of market were insufficiently carried out and
analyzed through empirical research. Hence,
Gallego et al. (2009) have proposed a model that
links the timing of entry to modes of entry. The
analysis shows that an earlier entry timing tends to
lead the firm to choose more conservative ways of
settling in other countries using exporting and
licensing which require fewer resources. On the
contrary, the later the firm takes to move into
foreign markets, the more committed it is, as it has
had time to gather more information, and will opt
for less conservative modes of entry such as JV and
wholly-owned subsidiary (Pan and Tse, 2000).
However, Agarwal and Ramaswami (1992) have
stated clearly and firmly that choosing the right
entry mode is very crucial as it requires a great
resource commitment which may lead to financial
burden and time loss. Following to that, Pan and
Tse (2000) established a hierarchical model of the
basic entry mode choices which are strategic
alliance, build-operate-transfer/equity project, JV
project, representative office, licensing, local agent,
joint venture company, sole venture company and
branch office/company under two main modes;
non-equity and equity as shown in Figure 1.
Figure 1. A Hierarchical Model Entry Mode Choices (Pan and Tse,
2000)
Chen and Chang (2011) accentuate that the choice
of entry mode is one of the most critical decisions
faced by multinational enterprises (MNEs) to
operate in the international market. Previous studies
show that entry mode strategic decisions such joint
venture, wholly owned, and merger and acquisition,
are found to be effective entry mode strategies in the
international market (Chen and Messner, 2009; Jung
et al., 2010).
At the same time, in international business, it is
important to understand the timing decision of firms
to penetrate a selected foreign market as claimed by
Scott (2002), where firms normally face a
particularly difficult decision of planning the right
time to enter a foreign market. Hence, timing of
foreign direct investment also plays a critical role in
multinational corporations‟ (MNC‟s) market entry
strategy (Luo and Peng, 1998). Green et al. (1995)
insist that entry timing may affect the firm‟s
competitive position, especially on the ability and
competency of a firm to fulfill its objectives in order
to attain or even sustain its competitive edge. As
shown in many previous studies, the order of entry
represents an ordinal ranking that assesses market
entry in terms of first entrant, early mover, second
entrant (early follower), late entrant and late mover
(Lambkin, 1988; Gaba et al., 2002; Guler and
Guille, 2010).
Schwens and Kabst (2009) in their study have
addressed the impact of early opposed to late
internationalization and also elaborated the
imprinting effects on subsequent entry-mode choice
such as joint ventures and other forms of
cooperative market entry. Their findings suggest
that early movers compared to late movers continue
to prefer cooperative modes of market entry.
However, most of these entry timing and entry mode
studies focused on non-related construction business
in the international market. In addition, there is a
limited literature on the international construction
market penetration focusing on both the entry timing
and entry mode strategies. Therefore, this study
seeks to identify the suitable combination of entry
timing and entry mode to guide the construction
firms in avoiding poor strategic decisions which can
lead to failure in their business ventures abroad
A. Theoretical Framework
Based on the literature review carried out earlier,
this study takes into consideration the market entry
strategies where the Malaysian construction firm
decides to internationalize by choosing the timing
and mode of entry. Figure 2 shows the theoretical
framework developed in this paper focuses on the
entry mode choices and entry timing decision
adopted by the firms to penetrate the international
market. Both entry timing and entry mode are the
variables of primary interest. The entry timing choose their preferred entry mode whether equity or
decision is further classified into “early mover” and non-equity and for entry timing decisions, they
“late mover”, while the entry mode decision is have to indicate whether they prefer to be the early
further categorized into equity and non-equity mode. movers or late movers in penetrating the foreign
Equity modes consist of strategic alliance, joint construction market.
venture project, joint-venture company and Build-
Operate-Transfer (BOT). While non-equity C. Method of Analysis: Logistic Regression
constitutes of branch office/ company, sole venture Analysis, Cross-tabulation Analysis and Chi-
project and sole venture company. square Test
Logistic regression analysis was used in this study,
due to its suitability for categorical dependent
ENTRY MODE variables such as entry timing decisions whether
DECISION respondents prefer to be the “early mover” or “late
Equity: mover”. This analysis very similar to regression
 Strategic analysis and used when the dependent variable has
Early alliance
ENTRY Mover  Joint venture two different groups (Sekaran, 2010). However,
TIMING project the cross-tabulation of the two dependent variables
DECISION
Late  Joint venture (entry timing and entry mode) was also conducted
Mover company to look at the relationship between two variables.
 BOT Although there appears to be a relationship between
Non-equity:
 Branch office
the two variables, there is a reason to believe that
/company the differences of the two variables are not just
 Sole venture anything more than random variation. Hence, the
project chi - square test is appropriate to determine if the
 Sole venture relationship between two cross-tabulated variables
company
is significant. Pallant (2009) explained that the chi
Figure 2. Theoretical framework for entry timing and entry
mode decisions for Malaysian construction firms square test can be used to explore the relationship
between two categorical variables and each of these
variables can have two or more categories. Hence,
III METHODOLOGY the chi-square test is used to explore the
The methodology encompasses of the selection of relationship between the entry mode choices (equity
the population, designing and distribution of or non-equity mode) and entry timing decision
questionnaires and method of analyses used in this (early mover or late mover).
study and each is described in the following
section. IV RESULTS AND DISCUSSION
A. Population A. Respondents
The target population is from the cross-section of In total, twenty three (23) respondents returned the
Malaysian contractors those undertaken and completed questionnaires which representing a
completed projects in the international market. The response rate of 21 per cent. The response rate is
population is based on CIDB Malaysia record considered as reasonable since most of the survey
(2010) with 109 firms registered as global players carried out in Malaysia shown a response rate
operating in more than 49 countries. Their between 10 percent to 20 percent (Ramayah et al.,
involvements in international projects include 2005), while Ainin et al. (2010) obtained 15 percent
various sectors such as buildings, infrastructures, of response rate.
branches of engineering, mechanical and electrical, B. Logistic Regression Analysis
power transmission and plant, and oil and gas.
With regards to entry timing decisions, the
B. Questionnaires Design respondents were asked to indicate whether their
Questionnaire surveys were carried out in order to firms chose to be early movers or late movers.
collect data from the firms that forms the unit of Table 1 shows the categorical variables used to code
analysis for this research. The questions inquire the dependent variables which reflect the
about the firms‟ international contracting respondents‟ choice either to be the early mover
experience, types of contracting activities and their (Block 0) or late mover (Block 1) in their entry
market entry strategies in term of entry mode and timing strategy.
entry timing. The respondents are required to
 Table 1. Dependent variable encoding classification: PAC), with an improvement over the
Original Internal 65.2 per cent in early mover (Block 0).
Value Value C. Cross Tabulation Analysis
Early mover 0
Late mover 1 Figure 3 depicts the percentage distribution of
the total respondents according to their profiles
(early and late movers) on their preferred entry
1) Early Mover Data (Block 0): The early mover modes.
data encoded Block 0 was analyzed first as depicted
in Table 2.
Table 2. Classification of data (early mover - Block 0)

The result shows the overall percentage of correctly

classified cases for late movers is 65.2 per cent.
However, it was anticipated that when another set of
predictor variables for late mover (Block 1) is
entered, the accuracy of these predictions was
improved.
2) Late Mover Data (Block 1): The Omnibus test of
model coefficient was used to test a set of dependent
variables and is shown Table 3. Figure 3. Percentage of Respondents’ Preferred Entry Mode and
Table 3. Omnibus test of model coefficients Entry Timing.

It shows that the most preferred entry mode by the

late movers is a strategic alliance (6 out of 23 or
26.09% of respondents) followed by joint venture
projects (4 out of 23 or 17.39% of respondents). On
This test gives an overall indication of how well the the other hand, the early movers (4 out of 23 or
model performs as compared to the results obtained 17.39 % of respondents) chose to set up a branch
for Block 0. This is referred to as a „goodness of fit‟ office / company in their ventures in the foreign
test. For the results to be highly significant, the Sig. market. Table 5 depicts cross tabulation of the
value should be less than .05 In this case, the value matrix for the entry mode choice and entry timing
calculated is .006 (p< .05) as recommended by decision.
Fisher (1925). After Block 0 (early mover) data is Table 5. Cross tabulation of entry modes and most preferable entry
analyzed, then the late mover data were analyzed timing undertaken by firms in the international market
using encoding Block 1 as shown in Table 4. Types Entry mode Most preferred entry timing
of choice by decision by firms
Table 4. Classification Table (Late Mover - Block 1) Entry firms Early mover Late mover
Total
Mode
Strategic 2 6 8
Alliance
BOT 0 1 16 1
2 14
Equity Joint venture 0 4 (70% 4
(25%) (93.3%)
project )
Joint venture 0 3 3
company
The output provides an indication of how well the Sole venture 0 1 1
model is able to predict the correct category (early project
Branch 4 6 0 7 4
mover/late mover) for each decision made. A Non-
office/ (75%)
1
(30%
equity (6.7%)
comparison can be made with the classification table company )
Sole venture 2 0 2
for early mover (Block 0) in Table 2 to see how company
much improvement has been made when the Total 8 8 15 15 23 23
(34.8%) (65.2%)
predictor (independent) variables are included in the
model. It is shown that the model correctly
classified 78.3 percent of cases overall (sometimes The findings show that 6 out of 8 early movers (or
referred to as the percentage accuracy in 75%) have chosen non-equity modes with branch
office/company (4) and sole venture company (2) as Gallego et al. (2009) where an early move into the
their preferred modes. Out of 15 late movers, 14 foreign market tends to lead the firm to choose
(93.3%) chose an equity type mode with strategic more conservative ways of settling in other
alliance (6), followed by JV (7) and BOT (1) as their countries using exporting and licensing which
preferred entry mode in their international require fewer resources. On a contrary, the findings
operations. revealed that the late movers chose strategic
D. Chi-Square Test for the Most Preferred alliance or cooperative mode to get benefits greater
Entry Timing and Entry Mode Decisions than doing the business alone or as sole venture as
it involved technology transfer, economic expertise
Table 6 shows the output from Pearson chi-square and sharing the risks and other expenses.
test which was carried out to look at the Nevertheless, this finding contradicts and
relationship between the entry mode decision inconsistent with the study carried out by Schwens
(equity or non-equity) and entry timing decision and Kabst (2009) where the early movers as
(late mover or early mover). compared to late movers preferred cooperative
Table 6. Chi-Square test
modes of market entry such as strategic alliances
Items Value df Asymp. Sig. and joint venture.
(2-sided)
a
Pearson Chi-Square 16.388 6 .012
Likelihood Ratio 20.723 6 .002
V CONCLUSIONS
Linear-by-Linear .198 1 .657 This paper provides some guidance to the
Association construction firms to access targeted market with
N of Valid Cases 23 considerable deliberations. The findings contribute
According to Sekaran (2009), the chi-square test is to the rapidly growing area of construction firms‟
a non-parametric test which indicates whether or internationalization by focusing on the international
not the observed matrix is due to a chance. In order market entry strategies related to entry mode and
for the relationship to be significant, the Sig. value entry timing. It is very important to choose the right
combination of entry mode and entry timing which
needs to be .05 or smaller. In this case, the value of
can lead to poor performance in their business
.012 is smaller than the alpha value of .05 (p< .05). ventures abroad if not properly considered. Hence,
Hence, it can be concluded that the result is this study revealed that that there is a significant
significant which means that the proportion of entry positive relationship between the entry mode
mode choice is significantly different from the decision and the entry timing decision among the
proportion of entry timing decision. Furthermore, Malaysian construction firms. The early movers
the log likelihood chi-square statistic is applied prefer a non - equity mode using branch
when testing the statistical significance of the office/company in their ventures abroad. On the
model as a whole. The findings were tabulated to other hand, the late mover preferred the equity mode
present the matrix of the preferred entry mode or cooperative mode adopting strategic alliance as
choice and entry timing decision as shown in Table their entry mode strategy. Lastly, in addition to the
7. world trends toward globalization and liberalization,
Table 7. The preferred entry timing and entry mode choices construction firms face challenges related to
competition with other foreign firms and to sustain
Entry Early Movers Late Movers (65.2%) their performance in the international market.
Timing (34.8%) Therefore, the findings from this research would
Decision
Entry Mode Non-equity (75%) Equity (93.3%) offer valuable information to any construction firms
Decision in Malaysia to develop the entry strategies in their
Entry Mode 1.Branch office/ 1. Strategic Alliance international market expansion.
Choice company 2. Joint Venture
2. Sole Venture 3. BOT ACKNOWLEDGMENT
The authors are grateful to the professionals and
The early movers preferred a branch office/ managers from Malaysian construction firms,
company as their entry mode choice, while the late Malaysian Construction Industry Development
movers preferred strategic alliance. The early Board (CIDB) and other institutions that have
movers bring the new technology and expertise that provided information for this research.
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