Entry in the presence of dueling options

This paper investigates the influence of industry uncertainty on the decision by established firms to enter a new industry. Specifically, we examine the tension between the option to defer , which discourages entry in the presence of uncertainty, and the option to grow , which may encourage entry in the presence of uncertainty when there are early mover advantages. Empirical analysis on data from a broad array of industries revealed that the effect of uncertainty on entry is not monotonic. Our findings are the first to find support for the nonmonotonic effect of uncertainty that has only recently emerged in theoretical treatments of real options theory, and amplify the importance of considering both the option to defer and the option to grow when contemplating entry. Furthermore, we found evidence that the relationship between uncertainty and entry is moderated by: (a) irreversibility, which influences the value of the option to defer; (b) the total value of growth opportunities; and (c) early mover advantages, which magnify the value of growth options. Copyright © 2003 John Wiley & Sons, Ltd.     

Do early birds get the returns? An empirical investigation of early‐mover advantages in acquisitions

We explore whether pioneering advantages exist for early‐mover acquirers in industry acquisition waves by examining both combined (target and acquirer) and acquirer stock returns. Combined abnormal returns are higher for acquisitions that occur at the beginning of acquisition waves. However, for acquirers' returns, only strategic pioneers—those acting in manners consistent with having superior information—capture significant advantages. Specifically, early‐mover acquirers who realize superior stock returns are those that conduct acquisitions in related industries, during industry expansionary phases, and finance their acquisitions as financial theory suggests they should when they possess an informational advantage—with cash. Our findings extend the first‐mover literature to corporate practices and link these practices to acquisition returns. Copyright © 2004 John Wiley & Sons, Ltd.     

Decomposing Pioneer Survival: Implications for the Order‐of‐Entry Effect

In contrast to previous studies of pioneer survival that directly compare the survival of market pioneers with later entrants, this paper proposes that a market pioneer, as the first entrant, operates under two distinctly different survival processes, one during the initial monopoly period and another during the later competition period. The two processes of market pioneers need to be separately estimated and compared with the survival process of later entrants. This paper demonstrates a method for decomposing the pioneer's survival and empirically shows how researchers can compare the pioneer survival in two periods with that of later entrants and identify period‐specific advantages of pioneering. Our empirical analysis using data collected from two different types of industries—a low‐tech (i.e., newspaper) industry and several high‐tech industries—reveals several interesting new findings that illustrate the advantages of decomposing pioneer survival. For example, this paper shows that when treating first‐mover survival as a single process, one can only find an oversimplified pattern showing that first movers have a survival chance equal to that of second movers in the newspaper industry, but a lower one than the second movers in high‐tech industries. However, when analyzing the first‐mover's survival as a sequence of monopoly and competition processes, new insights emerge. In the newspaper industry, the pioneers can have survival advantages in both the monopoly and the competition periods relative to the second movers, and there is a significant survival advantage for those second entrants who delay market entry until the first entrant exits. In contrast, the overall pioneer survival disadvantage identified in the high‐tech industries when treating the survival as a single process comes from the survival disadvantage in the competition period but not in the monopoly period. Furthermore, our empirical analyses using data from two types of industries reveal completely different patterns with regard to the pioneer survival advantage, which suggests that being first can benefit pioneers in both two‐market periods in low‐tech industries but can be extremely risky for pioneers to gain any survival advantages in both two‐market periods in high‐tech industries because the former markets have relatively low market and technology uncertainties, and organizational change is less important; whereas the latter industries have significantly high market and technology uncertainties, technological advances emerge frequently, and firms are required to adapt themselves quickly to a fast‐changing environment.     

Orchestrating resources for FMA in coopetitive NPD

The rapid introduction of new products in high‐tech industries is a key competence for firms wanting to benefit from the first‐mover advantage (FMA). Prior studies call for forging links between FMA and the resource‐based view, as the resources at the disposal of a firm tend to influence the likelihood and timing of market entry. Analysing the way firms orchestrate internal and external resources enables a better understanding of this link. More precisely, synchronising the combination of internal and external resources is important in determining the development time of new products. This issue becomes vital when the NPD process regroups competitors due to the short age of the acquired knowledge. An in‐depth case study of the product development strategies of four competitors that collaborated to develop Ethernet solutions identifies three different product introduction strategies based on different resource orchestrations and timing: pioneer, wise and slow. The firms that structured their resources early to make them available for bundling during coopetition were able to introduce products faster than firms that structured their resources during coopetition. Furthermore, our results show that only prepared firms are able to reap benefits from knowledge gained through coopetitive NPD.     

Mental Models and Successful First‐mover Entry Decisions: Empirical Evidence from Chinese Entrepreneurs

Existing research has identified a variety of mechanisms through which early entrants may be able to develop competitive advantages that favorably influence performance relative to later entrants. At the same time, later entrants can sometimes enjoy cost advantages arising from free riding and the resolution of uncertainty. Despite the impressive array of possible explanations linking entry timing with performance, it is unclear how these explanations align with the cognitive representations that guide managerial decision making. The authors address this gap in the literature by arguing that the resource‐based view of the firm provides potential insight into the way that perceived pioneer advantages and disadvantages influence managerial behavior. The resource‐based view argues that the value of various pioneer advantages will depend on the degree to which those advantages enable pioneers to access and control resources that are costly to copy. Because legal and cultural variables also influence access to resources, the value of specific dimensions of pioneer advantage will vary depending on the macroenvironment within which a firm operates. To test this reasoning, the authors examine the impact of perceived pioneer advantages on the number of first‐mover entry decisions of Chinese service entrepreneurs, who operate in an environment characterized by underdeveloped legal institutions and inadequate legal protections, a fledgling capital market, the limited availability of information about products and industries, and an emphasis on personal connections. The authors hypothesize that these unique characteristics of Chinese markets will affect the perceived importance of sources of pioneer advantage identified in studies of Western (primarily United States) firms. Using data collected from 302 Chinese service entrepreneurs, the authors find strong evidence that the number of pioneer entry decisions made by Chinese entrepreneurs are strongly tied to entrepreneurs’ perceptions that pioneer firms tend to outperform later entrants and have the ability to preempt key assets. In addition, the number of entry decisions is negatively related to perceptions of pioneer cost disadvantages and the level of uncertainty faced by pioneers relative to later entrants. However, consistent with the research hypotheses, perceptions of pioneer leadership and cost advantages do not significantly influence the entry decisions of Chinese service entrepreneurs.     

Timing,order and durability of new product advantages with imitation

This research examined the effects of timing, order and the durability of first mover advantages by analyzing the stock market reactions to new product introductions and imitations. The major findings are that both timing and order of moves are important and that rival reactions undermine the durability of first mover advantages. More specifically, (1) early and fast movers achieve greater gains than late and slow movers, and (2) first movers suffer at the time of new product imitations. Copyright © 2000 John Wiley & Sons, Ltd.     

A Comparative Study of Pioneer Entry Decisions in the United States and China

According to the resource‐based view of the firm, competitive advantages arise from control and deployment of productive resources that are rare and difficult to imitate. Through early entry, pioneers can gain preferential access to key resources. However, the value of that access depends on the presence of isolating mechanisms that limit or prevent competitive imitation. Isolating mechanisms increase the desirability of early entry by lengthening the time horizon over which the firm can earn Ricardian rents on those resources. To explore these implications of the resource‐based view, this study examines the impact of isolating mechanisms on pioneer advantages by analyzing the market entry timing decisions of 209 U.S. and 302 Chinese entrepreneurs. We hypothesize that the stronger intellectual property and legal protections available in the United States are an isolating mechanism that should increase the perceived importance of differentiation and cost advantages in the United States relative to China. Consistent with this argument, we find evidence that the relationships between the number of successful first‐mover decisions and (1) perceived pioneer differentiation advantages and (2) perceived cost advantages are relatively stronger in the United States than in China. We also argue that the importance of personal relationships in China constitutes an isolating mechanism that should increase the perceived importance of preemptive pioneer advantages in China relative to the United States. Consistent with this reasoning, we find that the coefficient linking perceptions of pioneer preemptive advantages with the number of successful first‐mover decisions is significant in the Chinese sample and not in the U.S. sample, but the difference between these coefficients is not significant. These results provide support for the argument that the availability of strong IP and legal protection encourages early entry decisions by entrepreneurs because these protections enhance the pioneer's ability to build a differentiated position in the minds of target customers and secure a cost advantage over later entrants. The results also support the argument that strong personal connections and the practice of reciprocity play a key role in the success of Chinese entrepreneurs.     

Perfect timing? Dominant category,dominant design,and the window of opportunity for firm entry

The optimal time to enter emerging industries is a key concern in strategy, yet scholars struggle to create a theoretical foundation that can integrate conflicting empirical findings. We incorporate categorical dynamics to industry life cycle theory to enhance existing entry timing theories. We introduce the concept of a dominant category—the conceptual schema that most stakeholders adhere to when referring to products that address similar needs and compete for the same market space—linking it to the dominant technological design and entry‐timing advantages. In particular, we propose the existence of a window of opportunity for firm entry that starts with the emergence of the dominant category and ends with the emergence of the dominant design. © 2013 The Authors. Strategic Management Journal published by John Wiley & Sons Ltd.     

What doesn't kill you makes you stronger: The evolution of competition and entry‐order advantages in economically turbulent contexts

We examine the evolution of competition and entry‐order advantages in markets under macroeconomic distress. Through formal modeling of early‐mover advantages along industry life cycles subjected to economic shocks and based on simulation findings, we propose that such shocks exogenously induce temporary industry discontinuities that shift the relative value of distinct asset endowments, thereby switching the bases for competitive advantages vis‐à‐vis those found in stable contexts. A vital trade‐off then emerges between a firm's financial flexibility and its pace of investments in isolating mechanisms, such that the former operates as a contingency factor for the latter. As such, flexibility superiority boosts early‐entrants' advantages, while it alternatively gives laggards a much desired strength to out trump first‐mover rivals. Our study informs entry‐order advantage theory and management practice in economically turbulent contexts. Copyright © 2013 John Wiley & Sons, Ltd.     

Second Mover Advantage and Entry Timing

We describe a model of entry timing assuming that a second mover can benefit from observing the experience of a first mover. We focus on how market attractiveness characteristics such as size and cost affect the time until first entry. The effects depend on whether the number of participants is exogenous or endogenous. In the former case, a more attractive market leads to earlier entry. In the latter case, it leads to later entry. Treating the number of firms as an integer, free entry leads to non‐monotone, but testable, effects of market attractiveness on entry timing.     

Followers' entry timing: evidence from the Spanish banking sector after deregulation

Much of the literature dedicated to the analysis of entry timing decisions has been devoted to the study of their consequences in terms of performance. However, only a limited amount of effort has been dedicated to analyzing the factors that determine these decisions. In addition, previous papers have centered their efforts on the product dimension, paying no attention to entry into new geographical markets. This paper departs from previous works in this respect and extends the entry timing literature through a consideration of the geographical side of entry. Our analysis shows that organizational size, organizational competence, and organizational experience appear as key factors when explaining the pattern of geographic diversification. Our results also indicate that diversification takes place sequentially, first proceeding to closer locations, then occupying markets further from the origin. Copyright © 2002 John Wiley & Sons, Ltd.     

The Influence of Regulation and Disruptive Potential on Incumbents' Submarket Entry Decision and Success in the Context of a Network Industry

This paper uses the theoretical perspectives of disruptive innovation, network externalities, and regulation to study the submarket strategies of incumbent firms that operate in a regulated network industry. In this setting, the impact of potentially disruptive innovations might be different because of the tighter regulation of incumbent firms. By analyzing the entry and success patterns of incumbent mobile network operators (MNOs) in the public hotspot markets in 17 Western European countries, we focus on how regulation and network effects as well as disruption factors influence the incumbent firms' strategies. In doing so, this paper departs from prior research that has primarily focused on unregulated industries and combines contradicting explanations from disruptive innovation theory, the motivation/ability framework, regulation theory, as well as network effects to provide a comprehensive analysis on how incumbents behave in a regulated network industry that is being confronted with a potentially disruptive innovation. In particular, while disruptive innovation theory predicts that the incumbents' vast experience in an industry could cause them to avoid entering new submarkets created by potentially disruptive innovations, the desire to avoid regulation could encourage such submarket entry. Furthermore, in regulated network industries, incumbent firms might have a stronger motivation to enter new submarkets as the importance of single customers and high market shares could be substantially different. These contrasting insights are used to develop an integrative research model and to derive hypotheses on incumbents' submarket entry decision and success. Drawing on cross‐sectional, multicountry data of 62 MNOs that operate in 17 Western European countries, this study uses logit and tobit regressions to test the impact of disruption factors, regulation, and network externalities on the entry decision and success of incumbent firms. The results reveal that the incumbent MNOs are caught in an area of conflict between the regulated industry context and their international technology strategy. The findings suggest that the incumbent MNOs' motivation and ability to escape regulation positively influenced their submarket entry and success in the public hotspot market. Thus, the potentially disruptive scenario was successfully turned into a potentially sustaining one as the incumbent MNOs could enhance their presence in the mobile broadband market. The testing on a multicountry basis as well as the positive influence of ethnocentric technology strategies for public hotspots, which are devised in the headquarters' location and are then brought out internationally, shed new light on an industry that has typically been characterized by country‐by‐country decisions. These findings may also reveal challenges for future research on disruptive innovations in multinational industries and expose future challenges for regulative authorities and managers. This paper thereby adds to the theory of disruptive innovation as it includes the influence of regulation on incumbents in network industries. Additionally, this study expands on previous findings on the disruptive potential of wireless local area network technology by employing a multi‐country analysis in 17 Western European countries.     

Organizational factors and technology-intensive industry: the US and Japan

High technology industry in the US and Japan can be thought of as distinct organizational models. Here the authors examine the historical evolution, major characteristics, and benefits and costs of these different models. This leads to the conclusion that organizational factors exert a powerful influence on the ability of firms, industries and nations to adapt to new technology-intensive industries.     

The influence of prior industry affiliation on framing in nascent industries: the evolution of digital cameras

New industries sparked by technological change are characterized by high uncertainty. In this paper, we explore how a firm's conceptualization of products in this context, as reflected by product feature choices, is influenced by prior industry affiliation. We study digital cameras introduced from 1991–2006 by firms from three prior industries. We hypothesize and find that: (1) prior industry experience shapes a set of shared beliefs that results in similar and concurrent firm behavior; (2) firms notice and imitate the behaviors of firms from the same prior industry; and, (3) as firms gain experience with particular features, the influence of prior industry decreases. This study extends previous research on firm entry into new domains by examining heterogeneity in firms' framing and feature‐level entry choices. Copyright © 2011 John Wiley & Sons, Ltd.     

Firm and industry as determinants of executive perceptions of the environment

This study examines variation in top executives' environmental perceptions within firms and within industries. More specifically, we investigate how industry and organizational membership affect top executives' perceptions of five environmental attributes. Results indicate that significant homogeneity of perceptions exists within firms and also within industries. Approximately 40 percent of the variance in individual top-level executives' perceptions of aspects of their respective organization's environment is explained by their organizational and industry membership. Implications of the findings for strategic management and organization theory and for future research are presented. © 1998 John Wiley & Sons, Ltd.     

Measuring organizational knowledge: a conceptual and methodological framework

Knowledge is fundamental to strategic success. Limited progress has been made, however, in measuring organizational knowledge. We employ research on resource‐based theory and organizational epistemology to suggest a perceptual approach to measuring knowledge. We present a research protocol to identify a domain of organizational knowledge resources within industries. Using a sample of organizations from the hospital and textile industries, we interviewed CEOs to identify the feasible set of knowledge resources. We presented this set to managers at those organizations to measure their perceptions of the value‐added of each knowledge resource for their organizations. The results demonstrate that the importance of knowledge resources varies by industry and organization, and calls to question efforts to generate an inventory of generic knowledge resources that is applicable across industries. Copyright © 2003 John Wiley & Sons, Ltd.     

Pioneering Advantages and Entrepreneurs' First‐mover Decisions: An Empirical Investigation for the United States and China

New ventures are often launched for the purpose of pioneering an innovative new product or service in the marketplace. Entrepreneurs or founders of new ventures thus often have to make the decision whether to be the market pioneer or the first mover. While being a first mover potentially is advantageous, it also involves taking risks and facing uncertainties. Entrepreneurs must assess the benefits and risks of pioneering in the first‐mover decision‐making process to realize the potential competitive advantages associated with being a pioneer. Previous research has shown how entrepreneurs perceive potential gains and losses associated with exploring opportunities as the key defining element of entrepreneurial decision‐making. Past studies have also indicated that cultural and business environmental factors affect both perceptions and decision‐making. However, studies to date have insufficiently addressed the relationship between entrepreneurs' perceived pioneering advantages/disadvantages and their first‐mover decisions, with little attention to cross‐national differences. This study includes hypotheses postulating how entrepreneurs' perceived advantages and disadvantages of pioneering affect the number of first‐mover decisions made by entrepreneurs in two different cultural contexts, the United States and China. We collect data from 152 U.S. entrepreneurs and 140 Chinese entrepreneurs over a four‐year period and carry out empirical tests on the hypotheses using Poisson regression models. Our results provide insight on how culture affects perceptions of advantages and disadvantages of pioneering, and how these perceptions impact the likelihood of making a first‐mover decision. We find that a higher level of perceived advantages will drive first‐mover decisions, whereas perceived disadvantages will deter first‐mover decisions. The negative effect of perceived erosion disadvantages on the number of first‐mover decisions was higher for Chinese entrepreneurs, consistent with the high risk‐aversion culture in China. However, this effect was not found for perceived uncertainty disadvantages, suggesting that the risk‐averse characteristics of Chinese entrepreneurs is an oversimplification, and that the Chinese cultural, business, and legal environment helps offset uncertainty disadvantages. We also find an interesting positive moderating effect of perceived advantage on the relationship between perceived disadvantages and the number of first‐mover decisions in China only. That is, if perceived advantages are low, Chinese entrepreneurs are more risk averse than U.S. entrepreneurs; but if perceived advantages are high, Chinese entrepreneurs are more risk‐seeking than U.S. entrepreneurs. This finding again challenges the risk aversion conclusion found by previous studies of Chinese managers.     

Organizational Learning and New Product Introductions

Organizational learning widely is believed to be important to competitive performance of companies. The purpose of this article is to examine how organizations learn from their experiences in new product introductions. Theory suggests that organizations will display a “competency trap” that reduces their ability to learn from organizational experience. Often initial success can cause a firm to rely on a single or a few experiences to develop routines, discounting later experiences. Therefore it is expected that organizations will have trouble learning from experience. The theory was tested by examining all new product introductions in the U.S. shampoo industry from 1974–1987. The dynamic nature of the business—the average brand survives about two years—made this an attractive research venue. Using the econometric technique of survival time modeling, a model was fitted of survival of brands as a function of organizational experience and organizational experience squared. The model also included controls for financial resources available to the firm and the level of first year's advertising. The model confirmed the general hypothesis that firms' brands are less successful the more experience they have. This study interprets this as evidence of a competency trap in new product introductions. The results broadly are supportive of the hypothesis that organizations find it harder to learn from experience as experience grows. Untangling the source of this problem is a goal of further research. For practice, the article suggests caution to brand managers in experienced companies. There is no guarantee that firms grow in their ability to build brands; results here suggest the opposite. Formal reviews of the new product, its process, and its performance by senior managers for lessons learned is desirable. Management of individuals and organizations may facilitate learning from experience. For managing individuals, often product success brings about a reassignment of successful personnel; care should be taken to insure that individuals' learning is captured by the new product organization before reassignment. On the organizational level, formal brand management may be a highly effective method for managing an ongoing stable of long‐lived brands but may be a poor choice in a dynamic market like shampoo. Companies may explore new organizational structures and departments to conceive and to develop new products since the skills required for managing ongoing brands may be different from creating new ones.     

New venture strategic adaptation: The interplay of belief structures and industry context

We adopt an information processing perspective to investigate how the interplay of belief structures and industry context shapes new venture strategic adaptation in a sample of 104 publicly traded new ventures founded between 1996 and 2006 in several technology‐intensive industries. Results highlight that distinct espoused belief structures attributes (complexity, centrality, proactive causal logics) and industry growth combinations predict diversity, frequency, and speed of new venture strategic actions. We contribute to prior literature on early firm strategic adaptation by providing an elaborated understanding of the role of espoused belief structures in interpreting and translating industry signals into new venture strategic action. Further, we highlight the role of belief structures in facilitating the fast, diverse, and frequent organizational actions typically associated with continuous adaptation. Copyright © 2014 John Wiley & Sons, Ltd.     

Creating Growth in New Markets: A Simultaneous Model of Firm Entry and Price*

Sales in a new market generally follow a hockey‐stick pattern: After commercialization, sales are very low for some time before there is a dramatic takeoff in growth. Reported sales takeoffs across products vary widely from a few years to several decades. Prior research identifies new firm entry or price declines as key factors that relate to the timing of a sales takeoff in new markets. However, this literature considers these variables to be exogenous and only finds unilateral effects. In the present article, new firm entry and price declines are modeled as being endogenous. Thus, the simultaneous relationship between price declines and firm entry in the introductory period of new markets when industry sales are negligible is studied. Using a sample of new markets formed in the United States during the last 135 years, strong support for a simultaneous model of price and firm entry is found: Price decreases relate to the competitive pressures associated with firm entry, and, in turn, firm entry is lower in new markets with rapidly falling prices. Furthermore, a key driver of firm entry during the early years of a new market involves the level of patent activity, and a key driver of price decreases is the presence of large firms. In contrast to the recommendations from other research, these results indicate that rapid price declines may further delay sales takeoff in industries by dampening new firm entry. Instead, rapid sales takeoffs in new markets come from encouraging greater innovative activity and the entry of large firms.