Professional Documents
Culture Documents
Dekimpe
ross-country capacity expansion is a fundamental the firm’s own international experience (as Mitra and
FIGURE 1
Conceptual Framework
same pace (De Melo et al. 2001). The intensity of the politi- ⎪⎩ l = 1 ⎪⎭
cal and economic reforms is likely to affect a transition
economy’s perceived attractiveness to foreign investors. We assume a common set of βs across the various coun-
Strength locally based rivals. Apart from foreign play- tries. Still, the risk set (and, thus, the relevant order of
ers that are present in the host market, the strength of the occurrence of the various events) is defined on a country-
local retailers may also be an inhibiting factor (Galbraight by-country basis. This procedure is known as a stratified
and Stiles 1983). proportional Cox approach, which no longer assumes that
all observations (across the various countries) are indepen-
dent but only that the observations are conditionally inde-
Methodology pendent within a given country or stratum.
Speed-of-Entry Decision
Size-of-Entry Decision
We adopt a hazard specification for the timing dimension,
in which we define the entry rate at year t for retailer i (i = When entry occurred for retailer i in country j in the obser-
1, …, I) in country j (j = 1, …, J) as λij(t): vation span, we record the number of stores zij opened in
the initial year of entry. To account for the discrete nature of
(1) λ ij ( t ) = λ oj ( t ) exp[βX ij ( t )], these data, we adopt a Poisson regression model. Specifi-
cally, we assume that each zij is drawn from a Poisson dis-
1We consider both near-market knowledge and distance relative tribution with parameter γij, implying that
to the home market for two reasons. First, for the initial move into
CEE, no near-market knowledge from prior experiences in the
emerging economies of CEE is available, whereas the distance to (4) P( Z ij =z )=
(e
ij
−γ ij z ij
γ ij ).
the home country is likely to affect the perceived attractiveness of z ij !
the potential host markets. Second, even when a firm has devel-
oped near-market knowledge from other entries into the region, Covariates can be included by specifying γij as
the distance relative to its headquarters and its most familiar home
market may remain key drivers for its further expansion. (5) γij = exp(cYij),
tion density, and kilometers of roads per square kilometer, used a measure developed by the World Bank that reflects
respectively. However, unlike the near-market cultural the extent of (1) liberalization of domestic prices and the
knowledge, we now take the absolute value of (similari – abolition of state trading monopolies, (2) liberalization of
potential) in the denominator of the expression (for a simi- the foreign trade regime, and (3) privatization of small- and
lar practice, see Mitra and Golder 2002). large-scale enterprises (De Melo et al. 2001). The index
ranges from 0 (“unreformed”) to 10 (“entirely reformed”).
Control Variables Finally, we controlled for the strength of local retailers by
The annual private-label share in the retailer’s home market considering the number of local players that had a market
measures the extent to which the retailer depends on private share in excess of 1% in any given year.
labels in its home market (Gielens and Dekimpe 2001). To
capture size effects, we recorded consolidated deflated
sales. We measured cultural distance between the retailer’s Results
home market and a host market in terms of Kogut and Table 2 reports the unstandardized parameter estimates and
Singh’s (1998) composite index. We captured geographic their associated t-values. Given the directional nature of
distance in two ways: with a dummy variable that indicates most of our hypotheses, we use one-sided tests, except for
whether the retailer has its headquarters in a country that the impact of firm size and, in the size equation, the impact
neighbors the potential host market and through the dis- of the timing covariate.
tance in miles between the host-market capital and the capi-
tal of the retailer’s home market (Gielens and Dekimpe Interretailer Information: Competitive Actions
2001). We created four economic distance measures (eco- As we indicated previously, two opposing forces, imitation
nomic prosperity distance, economic size distance, eco- and deterrence, may be at work. A priori, it is difficult to
nomic infrastructure distance, and economic accessibility predict which of these two forces will prevail at what range
distance) using the four previously discussed economic of competitive activity. As such, we specified a quadratic
attractiveness indicators. Each measure is the absolute value relationship to allow for the flexibility to incorporate
of the difference between the corresponding economic (inverted) U, as well as monotonically increasing/decreas-
attractiveness variable for the home market and the poten- ing relationships between competitive activity and the speed
tial host market. To capture the extent of liberalization, we and size of entry. We found this flexibility to be appropriate
Interretailer Information
.938 3.83*** .016 5.16***
•Home-based players (β1, γ1)
–.418 2.07** –.000 2.30**
Home-based players2 (β2, γ2)
.171 1.19 –.372 0.96
First home-based entrant (β3, γ3)
1.003 3.83*** .113 4.31***
•Foreign players (β4, γ4)
–1.075 1.99** –.018 1.82**
Foreign players2 (β5, γ5)
–.766 .98 –.248 0.82
First foreign entrant (β6, γ6)
.209 4.94*** .126 2.83***
•Same-format players (β7, γ7)
–.433 2.47*** –.006 3.01***
Same-format players2 (β8, γ8)
.885 1.78** .778 2.97***
First same-format entrant (β9, γ9)
.209 2.75*** .073 2.01**
•Different-format players (β10, γ10)
1.233 .75 –.004 5.71***
Different-format players2 (β11, γ11)
.126 .13 –.179 0.49
First different-format entrant (β12, γ12)
Intraretailer Information
•Relevance of international experience
Near-market cultural knowledge (β13, γ13) .037 1.85** .067 2.33***
Near-market economic knowledge
-Size (β14, γ14) .217 1.91** .089 1.58
-Infrastructure (β15, γ15) .004 1.56 .007 1.21
-Accessibility (β16, γ16) .772 1.59 .774 2.43***
-Prosperity (β17, γ17) .000 .59 .000 2.47***
•Extent of international experience
Regional experience (β18, γ18) .004 3.80*** .006 5.05***
Worldwide experience (β19, γ19) .076 2.74*** –.083 2.02**
Control Variables
•Firm characteristics
Private-label share (β20, γ20) –.009 2.13** –.014 2.94***
Firm size (β21, γ21) .000 .37 .000 0.91
•Host-market attractiveness
Cultural distance (β22, γ22) –.072 1.30 –.418 2.23**
Geographic distance
-Distance between capitals (β23, γ23) –.001 3.34*** –.000 1.96**
-Neighbor (β24, γ24) .503 1.53 .239 0.80
Economic distance
-Size (β25, γ25) –.001 1.89** –.001 1.56
-Infrastructure (β26, γ26) –.017 1.21 –.176 1.45
-Accessibility (β27, γ27) –.004 1.78** –.003 3.04***
-Prosperity (β28, γ28) –.001 4.17*** –.000 4.90***
Liberalization index (β29, γ29) .010 .11 .442 1.82**
Local players (β30, γ30) –.024 .17 .045 0.071
because seven of eight quadratic terms were negative and β5 = –1.075, p < .05). Entries made by same-format players
significant. into the host market were also curvilinearly related to the
Speed of entry. We observed three of these inverted U- speed-of-entry decision (β7 = .209, p < .01; β8 = –.433, p <
shaped patterns for speed of entry. We found a curvilinear .05). With respect to the proportion of different-format
relationship between the proportion of home players present players, we found a positive, significant linear term; the
in the host market and the speed of entry, as illustrated by quadratic term did not reach statistical significance (β10 =
the positive, significant linear (β1 = .938, p < .01) and the .209, p < .01; β11 = 1.233, p > .05).
negative, significant quadratic (β2 = –.418, p < .05) parame- To understand these effects better, we illustrate in Fig-
ter estimates. Likewise, we found an inverted U-shaped ure 2 how the presence of rival retailers affected the speed
effect for the impact of foreign rivals (β4 = 1.003, p < .01; of entry into the Czech Republic in 1997. Although the gen-
Rate of Entry
Foreign players
Notes: Panels A and B depict how the presence of rival retailers affected the speed of entry into the Czech Republic in 1997. The horizontal
axis represents the proportion of rivals present, and the rate of entry is given on the vertical axis. We present the results relative to the
average within a country.
eral inverted U-shaped pattern would hold for other host mean centered, we present our results relative to the average
markets and/or periods, differences in the location of the within a country. Figure 2, Panel A, focuses on the presence
point at which deterrence effects begin to dominate the of home versus foreign rivals, and Figure 2, Panel B, con-
imitation/legitimization effect could be observed in other siders same- versus different-format competition.
settings. Indeed, all covariates were mean-centered, and In 1997, German retailers that wanted to enter the
these means can change over time and countries. The hori- Czech Republic observed that 56% of their key domestic
zontal axis represents the proportion of rival players that are rivals were already active in that market. At that point, the
present, and the vertical axis represents the rate of entry mean level of domestic rivals present in the Czech Republic
(speed decision). Because the independent variables were amounted to 23%. As a consequence, the entry rate for Ger-
6Full details on these validation exercises are available on 7The only difference was that three parameters were significant
request. at p < .06 (rather than at .05).
9We refer to the work of Gielens and Dekimpe (2001) for the
precise operationalization of these control variables. Detailed
8For more technical detail, see Allison (1999). results on their impact are available on request.
TABLE 3
Implications of Deviations from the Industry Norm
A: Performance Implications
Short-Term (Three-Year) Efficiency Long-Term (Asymptotic) Efficiency
Absolute Value Residual ηSR |t-Value| ηLR |t-Value|
Timing –.25 2.21* –.67 1.92*
Size –.17 2.06* –.20 1.01*
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