Following in Partners’ Footsteps: An Uncertainty‐Reduction Perspective on Firms’ Choice of New Markets

Abstract

In this paper, we develop a new perspective on what determines firms’ choice of new markets for entry. First, drawing on the open‐system theoretical tradition and literature on inter‐organizational networks, we advance and empirically test the proposition that firms tend to enter new markets to which they are connected by partnership ties. We then show that this network influence is filtered through the structure of firms’ network connections to new markets and firms’ experience. Specifically, we find that multiplicity of connections to new markets, as well as the extensiveness of firms’ experience and its relevance to new markets weaken the effect of network ties on firms’ choice of new markets. The results of this study indicate that firms’ choice of new markets for entry is a nuanced process that is affected by the interplay of firms’ collaborative ties, the structure of their network, and firms’ internal capabilities. We test our hypotheses in the empirical context of the U.S. venture capital (VC) industry using panel data over a 23‐year period and find broad support for them.

The Who, Where, What, How and When of Market Entry

“…The paper by Makarevich and Kim () develops a new perspective on what determines firms’ choice of new markets for entry. Their research question is: What role do ties to firms’ partners in new markets play in market entry?…”

Overcoming the Incumbent Dilemma: The Dual Roles of Multimarket Contact During Disruption

“…To test Hypothesis 3a and Hypothesis 3b, we used a subgroup analysis, estimating an entry model for incumbents in the early phase of the disruption period and another for the late phase (Agarwal et al, 2002). This has two advantages: the coefficients are easily interpreted, as the difference for the two stages can be ascertained by a simple comparison of the main effects for the two subgroups; it allows error variance structures to differ across the two phases (Maddala, 1983).…”

“…As a group, incumbents may rationally wait for some uncertainty to be resolved, so they can better evaluate the opportunity based on their private information (Ozalp and Kretschmer, 2019; Zachary et al, 2015). However, incumbents differ in their capacities to reduce uncertainty, in part according to their connections to other organizations (Haunschild, 1993; Makarevich and Kim, 2019; Rosenkopf et al, 2001). Competitive contact may induce firms to follow salient rivals into a nascent market, provided they view them as valid proxies for their own assessment of the opportunity (Baum et al, 2000; Cho et al, 1998; Henisz and Delios, 2001).…”

Sustainable Market Entry Strategy under a Supply Chain Environment

“…This paper can also be related to the literature on new technology industries' entry [8][9][10][11][12][13][14][15][16][17][18][19][20][21][22][23][24][25][26][27]. Yoo and Lee [8], when facing the Internet channel as a strategic choice for enterprises to enter the market, discussed how Internet channels affect the income of other channels, and analyzed the factors that influence Internet channels when entering new markets.…”

“…Cawley et al [10] discussed the mode of emerging renewable energy companies based on their time of entry. Makarevich and Kim [11] considered the impact of different contracts on firms' entry decisions under the uncertain factors of an enterprise focusing on a new market. Ozalp and Kretschmer [12] focused on the US recording industry and analyzed the interactive impact of the industry's most popular revenue-sharing contract on incumbents and competitors.…”