Post-entry operation of foreign firms in a host country: the role of mutual forbearance and organisational learning in their product segment entry choices

International business scholars who are interested in how foreign firms enter and operate in a host market have predominantly focused on the decisions managers make at the time of entry. Consequently, as Hennart and Slangen (2015) have pointed out, we know relatively little about foreign firms’ post-entry operation. Moreover, the few studies that have examined the post-entry operation of foreign subsidiaries in a host market have focused mostly on changes in governance mode (Chang & Rosenzweig 2001; Driffield, Mickiewicz & Tethemouri 2016; Puck, Holtbrügge & Mohr 2009). Changes of product scope in the host country—which is a function of the subsidiary’s choice of which product segments in the host country to enter or stay out of—has received comparatively sparse attention (except for Chang 1995; Mitchell, Shaver & Yeung 1994). In this study, I examined the product segment entry decisions of foreign automobile assemblers in the United States in a bid to better understand their post-entry dynamics in their product scope. First, I took a historical approach and examined Honda Motor and BMW’s initial entry and product scope dynamics in the United States auto market. Next, I conducted a quantitative study to understand the potential drivers of foreign firms’ segment choices during their post-entry into a host market. Specifically, I developed predictions from mutual forbearance and organisational learning perspectives, and tested them using data on product segment entries by foreign automobile assemblers in the United States between 1987 and 2015. Results show that foreign firms take into account both their rivals’ reaction function and their own operating experience in a product segment when they make segment choice decisions. Specifically, a foreign firm’s probability of entering a product segment has a curvilinear relationship with its multi-segment contact level with rivals in that segment and a positive relationship with its own prior experience in that segment. Further, the curvilinear relationship between segment entry likelihood and multi-segment contact is strengthened as a foreign firm’s prior segment experience increases. This study makes three theoretical contributions. First, it adds to international business scholars’ knowledge of foreign firms’ post-entry operation, particularly their segment choice dynamics. Second, it discusses two time orientations, namely, future and past’s role in foreign firms’ segment choice decision-making. Third, my focus on product segment choice aligns the foreign market entry literature with the real business environment. Indeed, after their initial entry into a host market, foreign firms will face competition at the product segment level; yet, to date, overwhelming attention has been given to geographical market choice

To Forbear or not to Forbear? A Behavioral Perspective of Multimarket Competition

Multimarket competition has become a substantial part of the modern economy. As such, it has drawn the attention of academics in both economics and strategy fields. Many studies have found empirical evidence of mutual forbearance in several industries, but despite its importance, its behavioral roots have not been explored. In my dissertation I integrate the reality of boundedly-rational decision makers into the mutual forbearance hypothesis. I apply an outgrowth of the behavioral theory of the firm – the shifting focus model of risk taking – to the study of competitive behavior. I propose a behavioral model of multimarket competition that focuses on corporate strategic decisions - market entry and exit decisions, regardless of entry mode (e.g. acquisitions) or exit mode (e.g. divestitures). This approach provides a granular view of changes in the business scope of the firms in terms of product and geographic markets served. I test my hypotheses in the U.S. property liability insurance industry over a 12-year period (1998-2008). I argue that firms follow the mutual forbearance logic as long as their performance goals are satisfied. However, under conditions of adversity, firms shift attention to recovering from the performance shortfall and their actions deviate from the mutual forbearance predictions. This dissertation shows that underperforming firms with abundant slack take longer to forbear, and underperforming firms with limited slack start forbearing sooner, as predicted. By bridging behavioral and competitive perspectives to the study of market entry and exit decisions, I underscore the value of cross-fertilization in strategy research

Agent-Based Models of Industrial Clusters and Districts

Agent-based models, an instance of the wider class of connectionist models, allow bottom-up simulations of organizations constituted byu a large number of interacting parts. Thus, geogrfaphical clusters of competing or collaborating firms constitute an obvious field of application. This contribution explains what agent-based models are, reviews applications in the field of industrial clusters and focuses on a simulator of infra- and inter-firm communications.Agent-based models, industrial clusters, industrial districts

Advancing understanding of multipoint competition

Abstract In 1997, Nongfu Spring launched its 4L bottled water as its first step in entering the bottled water market. Because there was little counterattack from incumbents, this product launch brought the company a solid revenue base and customer loyalty, which were essential for its later success in the market. The Nongfu Spring example demonstrates that when deciding whether to initiate a competitive action into a market, besides considering the validity of the business model itself (e.g., whether the value a firm creates for customers is sufficiently large), a firm also needs to take into account the potential reactions from rivals (Porter, 1980). However, because many firms provide products in multiple product markets, the reactions from their rivals might not be constrained to a single market. Further, according to multipoint competition scholars, the likelihood of such cross-market retaliations from rivals often pressures firms to forbear from initiating competitive actions in their common markets (Chuang & Thomson, 2017). This is the key argument of the mutual forbearance hypothesis. The concern regarding potential cross-market retaliation has a large effect on a firm's decision about launching competitive actions. A miscalculation about competitors' future reactions may cause a significant loss for a firm. There are three gaps in the existing multipoint competition literature. First, the majority of studies have examined how mutual forbearance varies depending on firm level, market level and firm-in-market level conditions. In contrast, little attention has been paid to the competitive action itself, for example, whether the action is inaugural or not. Second, focusing on the future responses from rivals, multipoint competition literature has not engaged with theoretical perspectives emphasising other time dimensions. The mutual forbearance hypothesis assumes that future is the primary time orientation in decision-making and in its current decision about whether to launch a competitive action, a firm considers its rivals' retaliation in the future. However, a firm may also be influenced by decision principles with a past orientation when making this decision. Will the rivalry-weakening effect of multipoint competition be altered by a firm's knowledge about rivals' response strategy through prior interactions and observations? Third, there is a lack of in-depth knowledge about inaugural and subsequent competitive actions. The sample for this thesis shows that many automobile firms have launched a variety of vehicles since they entered the United States of America (USA) market. This sample enables a close examination of the different types of product launches. This thesis aims to bridge these three research gaps. The empirical context of this thesis is the USA automobile market. The following major findings are demonstrated in this thesis. First, an inaugural competitive action is more sensitive to mutual forbearance than a subsequent competitive action. Second, a firm's competitive history and its observation of rivals' response strategy enhance its understanding of the mutual forbearance logic. Third, entrant automakers adopt a sequential product launch strategy which is part of their localization efforts in the USA market. Their sequential product launches have also shaped a multisegment competition environment in American automobile market. Keywords: mutual forbearance, inaugural competitive actions, subsequent competitive actions, competitive history, USA automobile market, product launch strateg

The Corporate Headquarters in the Contemporary Corporation: Advancing a Multimarket Firm Perspective

The corporate headquarters (CHQ) is the central organizational unit in the contemporary corporation, and is critical for value creation in the overall firm. Since the early 1960s, a significant body of research on the CHQ has evolved along two separate but related streams. The first stream focuses on the CHQ in the multibusiness firm, while the second stream concerns the CHQ in the multinational firm. In this article, we promote a consistent multimarket firm perspective that draws on research in both streams. First, we describe the origins and evolution of CHQ research in each stream, and articulate the benefits of a multimarket firm perspective. Second, we integrate the conversations found in the two streams into a schematic framework, review the studies’ findings, and establish a shared language. We also propose ways in which scholars in each stream might enrich their work by incorporating some of the theories, methods, and findings of the other stream. Third, we discuss four fundamental inquiries for future research that draw upon the cumulative CHQ research in both streams. Overall, this article informs the study of the CHQ and, thereby, contributes to our understanding of the contemporary corporation

Firm Structure, Search and Environmental Complexity

In this paper we explore the information processing problem of the firm by modeling the firm as type of network, which is comprised of two kinds of agents, 'searchers' and 'managers.' The searchers explore the external environment and report the information to the managers. We explore the role of centralization/decentralization in organizational structure to see how it affects firm performance. Centralization is defined in terms of the level at which decisions are made. We assume the information processing organization is arranged hierarchically, but that decisions can be made at different levels, and thus centralization directly relates to the quantity of information used in making a decision. We model the external environment as an NK landscape. Via simulations, we explore which type of organizational structure and level of decision making maximizes firm profits, given the complexity of the environmentOrganizational Structure, Decentralization, NK Landscape, Firm Search

Product-Market Competition and Managerial Autonomy

It is often argued that competition forces managers to make better choices, thus favoring managerial autonomy in decision making. I formalize and challenge this idea. Suppose that managers care about keeping their position or avoiding interference, and that they can make strategic choices that affect both the expected profits of the firm and their riskiness. Even if competition at first pushes the manager towards profit maximization as commonly argued, I show that further increases in competitive forces might as well lead him to take excessive risks if the threat on his position is strong enough. To curb this possibility, the principal-owner optimally reduces the degree of autonomy granted to the manager. Hence higher levels of managerial autonomy are more likely for intermediate levels of competition.product-market competition, authority, decision making, delegation, autonomy

Les déterminants organisationnels et spatiaux de la firme multi-établissements: une étude des firmes industrielles françaises

International audienceThis article aims to analyse the factors (internal characteristics, spatial and industrial environments) that determine the existence of multi-unit firms and the intensity of their organisational fragmentation at a national scale. The empirical models are based on individual data on all French industrial firms, collected by the French National Institute of Statistics. The results show the importance of internal (scale economies, specific assets as R&D and advertising, skill level...) in organisational choice. They also highlight the major role played by multi-location and by the spatial profile of the firms on the intensity of their fragmentation.Cet article a pour objectif d'analyser les facteurs (caractéristiques internes, environnements spatial et industriel) qui déterminent l'existence des firmes multi-établissements et l'intensité de leur fragmentation organisationnelle à l'échelle nationale. Les modélisations empiriques sont basées sur l'exploitation de données individuelles fournies par l'Institut National de la Statistique et des Études Économiques (INSEE). Les résultats montrent l'importance des caractéristiques internes (économies d'échelle, actifs incorporels tels la R&D ou la publicité, qualification des salariés, etc.) dans les choix organisationnels. Ils soulignent également le rôle majeur joué par la multi-localisation et le profil spatial des firmes sur l'intensité de leur fragmentation

Competitive Brokerage, Information Technology and Internal Resources

To thrive in the current embedded and electronic competitive environment, organizations must achieve advantageous positions within their networks of competition. We strengthen the understanding of the genesis of network structures by examining the IT-enabled capabilities and internal resource endowment that determine an advantageous position in competition networks, which we term as competitive brokerage. We propose that firms should consider their competitive brokerage position to elaborate a successful e-business strategy. We employ a two-stage Tobit regression on a longitudinal competition network that spans 13 industries and demonstrate that commercial, technical and intangible resources influence competitive brokerage. We find that IT-enabled information management capability strengthens the effects of intangible resources to attain a competitive brokerage position. Our study contributes towards the IT business value, resource base view and competitive dynamics literatures. Overall, our results demonstrate that IT plays a critical role in enabling firms to face multi-market competition in the embedded economy